t c memo united_states tax_court dennis l rogers and charlotte rogers petitioners v commissioner of internal revenue respondent docket no filed date dana r taylor for petitioners kelley a blaine and robert v boeshaar for respondent memorandum findings_of_fact and opinion colvin judge respondent determined deficiencies in petitioners’ income_tax of dollar_figure for and dollar_figure for and that petitioners are liable for the addition_to_tax for late filing under sec_6651 of dollar_figure for and unless otherwise stated section references are to the continued dollar_figure for and the accuracy-related_penalty under sec_6662 of dollar_figure for and dollar_figure for after concessions the sole issue for decision is whether petitioners are liable for accuracy-related_penalties of dollar_figure for and dollar_figure for we hold that they are findings_of_fact some of the facts were stipulated and are so found a petitioners petitioners are married and resided in corbett oregon when they filed their petition petitioners are high school graduates charlotte rogers attended year of college charlotte rogers was employed as a bookkeeper and general office worker from to she worked in sales for united airlines from to she was a shaklee distributor from to and she owned and operated a restaurant from to dennis rogers owned columbia sheetmetal until date beginning around petitioners began to buy rental continued internal_revenue_code as amended and in effect for and rule references are to the tax_court rules_of_practice and procedure the parties stipulated that petitioners’ trusts were invalid for tax purposes and that petitioners have deficiencies in income_tax of dollar_figure for and dollar_figure for and are liable for the addition_to_tax for late filing under sec_6651 of dollar_figure for and dollar_figure for they further stipulated that the amounts of the accuracy-related_penalty at issue in this case are dollar_figure for and dollar_figure for properties and parcels of land for investment petitioners’ oldest son spencer rogers managed petitioners’ real_estate petitioners had an accountant for their businesses before petitioners also have always had a family attorney b nikken inc dennis rogers used healthcare products by nikken inc nikken for back problems he has had since nikken is a marketing company that sells nutritional health and personal wellness products nikken distributors sell products and earn income by creating a network of marketers ie downline marketers when downline marketers sell products upline nikken distributors may earn a commission on the sales petitioners began working as nikken distributors in and were very successful in and c the trust sec_1 petitioners’ purchase of trusts ruth williams williams a nikken distributor upline from petitioners suggested that petitioners investigate placing their assets in trusts in williams and petitioners attended a presentation by shawn dunn of the aegis co relating to placing their assets in trusts petitioners did not buy any aegis products or services petitioners became interested in a_trust package from advanta strategies which later became world contract services wcs wcs held periodic meetings for its trust clients speakers at those meetings discussed technical procedures for administering wcs trusts james becker becker sold wcs products on commission becker told petitioners they could rely on wcs staff to answer any of their questions petitioners received and reviewed a wcs document entitled trust information and instruction manual that said that trusts made it easier to a protect financial resources b handle daily details and routine c avoid delays in settling a decedent’s estate d reduce probate costs e reduce taxes f protect privacy g assure immediate distribution of trust assets in a manner that is safer than distributing those assets outside a_trust h provide flexible forms of organization and operation to manage an individual’s assets and i provide opportunities for charitable giving the document described the tax advantages as follows one of the most useful advantages of a_trust is the reduction or elimination of income and estate_taxes when a_trust is constructed in a proper way it gives income_splitting advantages that is money passive and portfolio_income earned by the trust is separated from money that is earned by the person who gave the property to the trust for example a taxpayer earned dollar_figure from their job and another dollar_figure from passive_income making them pay taxes on dollar_figure when they put the passive_income into a_trust the trust could pay taxes on the dollar_figure and the taxpayer would move into a lower tax_bracket dropping from the higher tax_bracket to the lower tax_bracket offers a tremendous savings this is the advantage of splitting income the use of a business_trust can eliminate self- employment_tax and trusts in general are allowed to donate up to of their income to charity which is another way to lower tax_liability becker gave petitioners a wcs booklet entitled structuring your practice for profit privacy protection which described inter alia substantial income and estate_tax savings by using trusts on a date not stated in the record petitioners paid dollar_figure to becker for a_trust package from wcs which included a business_trust known as global wellness trust global wellness a primary trust known as wealth unlimited investments trust wealth unlimited and holding trusts petitioners created global wellness on date petitioners completed a wcs new client application and trust purchase agreement on date petitioners appointed james galligan galligan and secured protections inc as cotrustees for global wellness petitioners appointed galligan and real protections inc as trustees for wealth unlimited becker was trustee for real protections inc operating the trusts petitioners purportedly conveyed to the trusts all of their personal assets real_estate_assets and assets related to their nikken sales distributorship during the years in issue petitioners used money distributed to wealth unlimited from global wellness to improve their principal_residence and to make double payments on the mortgage on their principal_residence in petitioners unsuccessfully tried to have the trusts obtain a loan to buy a new motor home petitioners then had the trusts transfer three parcels of real_property to them so that they could refinance those parcels on the refinancing loan application petitioners stated that they had monthly income of dollar_figure contrary to representations on the trusts’ fiduciary returns that the income belonged to the trusts petitioners conveyed the properties back to the trusts more than a year later galligan signed minutes of trustees meetings which state that he attended however he did not attend more than two of those meetings charlotte rogers spencer rogers and becker also signed those minutes one of the minutes stated that spencer rogers was appointed assistant manager of global wellness and keeper of the minutes hiring an accountant jerry dunning dunning a certified_public_accountant c p a since was becker’s accountant dunning traveled with becker to attend a 2-day wcs meeting in salt lake city on dates not stated in the record wcs staff explained their trust product at the meeting becker introduced dunning to petitioners at that meeting and recommended to them that dunning be their accountant d tax returns dunning prepared petitioners’ federal individual income_tax returns for and returns for petitioners’ trusts he relied on summaries of income and expenses that he had received from spencer rogers dunning saw but did not read petitioners’ trust documents petitioners operated their nikken sales distributorship as a sole_proprietorship in and in those years petitioners reported income and expenses from their nikken sales distributorship on schedules c profit or loss from business attached to their form sec_1040 u s individual_income_tax_return petitioners’ form_1040 was filed on a date not stated in the record petitioners reported gross_receipts of dollar_figure gross_income of dollar_figure and net profit of dollar_figure for their nikken activity in petitioners’ form_1040 was filed on date petitioners reported gross_receipts of about dollar_figure gross_income of about dollar_figure and net profit of dollar_figure for their nikken activity in petitioners did not report nikken income or expenses on their form sec_1040 for and petitioners filed their form_1040 on date reporting zero tax due petitioners signed their form_1040 on date and filed it on a date not stated in the record in it they reported tax due of dollar_figure on its tax returns for and global wellness reported income generated by petitioners’ nikken activity as passive_income claimed expenses and losses and distributed the net_income to wealth unlimited global wellness deducted the distributions in the amounts reported as distributed to wealth unlimited global wellness reported total income of dollar_figure for and dollar_figure for and zero tax for and on its income_tax returns for and wealth unlimited reported the global wellness distributions as passive_income wealth unlimited reported on its trust income_tax return that it had distributed the amounts it had received from global wellness to nick rogers tude tide and v s trust wealth unlimited reported a loss of dollar_figure for and income of dollar_figure for and zero tax for and petitioners reported on their form sec_1040 adjusted_gross_income of dollar_figure in dollar_figure in dollar_figure in and dollar_figure in petitioners’ standard of living did not change when they began using trusts even though their adjusted_income dropped precipitously petitioners did not offer any authority for recognizing their trusts for tax purposes or disclose their trusts on their individual returns for and mrs rogers testified that petitioners’ style of life which we take to mean standard of living did not change when petitioners began using trusts opinion a accuracy-related_penalty a taxpayer is liable for an accuracy-related_penalty in the amount of percent of any part of an underpayment attributable to among other things a substantial_understatement_of_income_tax negligence or disregard of rules or regulations sec_6662 and b and the amount of the understatement is reduced by amounts attributable to items for which there was substantial_authority for the taxpayer's position or adequately disclosed on the taxpayer's return or in a statement attached to the return if there is a reasonable basis for the tax treatment of the items at issue by the taxpayer sec_6662 the accuracy-related_penalty does not apply to any part of an underpayment for which there was reasonable_cause and with respect to which the taxpayer acted in good_faith sec_6664 sec_1_6664-4 income_tax regs b whether respondent met the burden of producing evidence showing that petitioners are liable for the accuracy-related_penalty petitioners contend that respondent did not meet the burden under sec_7491 of producing evidence showing that they are liable for the accuracy-related_penalty for and we disagree sec_7491 c places on the commissioner the burden of producing evidence showing that it is appropriate to impose a particular addition_to_tax however the commissioner need not produce evidence relating to defenses such as reasonable_cause or substantial_authority 116_tc_438 h conf rept pincite 1998_3_cb_747 to meet the burden of production under sec_7491 respondent must produce evidence showing that it is appropriate to impose the accuracy-related_penalty under sec_6662 once respondent meets that burden petitioner must in order to not be found liable for the addition_to_tax produce evidence sufficient to show that respondent’s determination is incorrect see higbee v commissioner supra pincite respondent has produced evidence showing that imposition of the accuracy-related_penalty under sec_6662 is appropriate by showing that petitioners substantially understated their tax for and petitioners reported tax due on their income_tax returns of zero for and dollar_figure for the amounts of tax required to be shown were dollar_figure for and dollar_figure sec_7491 provides sec_7491 penalties --notwithstanding any other provision of this title the secretary shall have the burden of production in any court_proceeding with respect to the liability of any individual for any penalty addition_to_tax or additional_amount imposed by this title dollar_figure deficiency plus dollar_figure shown on the return for thus petitioners’ understatements of tax were greater than percent of the amount required to be shown and dollar_figure for and petitioners contend that in meeting the burden of production under sec_7491 respondent may not rely on their concession in the stipulation that the trusts were invalid for tax purposes we disagree the commissioner may take a taxpayer’s concession into account to meet the burden of production under sec_7491 see eg montagne v commissioner tcmemo_2004_252 oatman v commissioner tcmemo_2004_236 petitioners cited no authority to the contrary respondent has met the burden of production even without considering petitioners’ concession the stipulation of facts documents admitted in evidence and testimony at trial show that petitioners personally benefited from trust assets petitioners treated trust property as their own petitioners did not follow trust formalities and trust minutes were not reliable this evidence is sufficient to meet respondent’s burden of production we conclude that respondent has met the burden of producing evidence showing that it is appropriate to impose the accuracy- related penalty under sec_6662 for and c whether petitioners are liable for the accuracy-related_penalty a taxpayer is not liable for the accuracy-related_penalty under sec_6662 and b if there was reasonable_cause for the underpayment and the taxpayer acted in good_faith sec_6664 sec_1_6664-4 income_tax regs reliance in good_faith by the taxpayer on the advice of a qualified adviser may constitute reasonable_cause sec_1_6664-4 income_tax regs petitioners contend that they are not liable for the accuracy-related_penalty under sec_6662 and b because they reasonably relied in good_faith on dunning their c p a and return preparer sec_6664 we disagree petitioners could not reasonably have believed that they could use the trusts to eliminate all of their self-employment_tax liabilities for and and all or almost all of their federal_income_tax liabilities for those years tax benefits of this magnitude should have caused petitioners to question the validity of the trust scheme see 857_f2d_1383 9th cir affg dister v commissioner tcmemo_1987_217 gale v commissioner tcmemo_2002_54 in such cases taxpayers have a duty to reasonably inquire into the petitioners contend that respondent bears the burden_of_proof under sec_7491 we need not decide which party bears the burden_of_proof because the outcome in this case does not depend on the burden_of_proof validity of the tax benefits see 731_f2d_1417 9th cir affg 79_tc_714 petitioners did not obtain independent advice or look beyond the trust promoters and an accountant dunning to whom they were referred by becker from whom they bought the trust package their claim of good_faith reliance on dunning is not persuasive they should have sought confirmation from a reliable and disinterested adviser see collins v commissioner supra taxpayer failed to obtain independent tax_advice edwards v commissioner tcmemo_2002_169 taxpayer could not rely on the trust promoter affd 119_fedappx_293 d c cir lincir v commissioner tcmemo_1999_98 reliance on an accountant’s advice about the tax treatment of an investment program was not in good_faith where the accountant could earn more if his clients invested in the program affd 32_fedappx_278 9th cir petitioners contend that the fact that dunning was in contact with wcs and attended a wcs meeting shows that it was reasonable to rely on him we disagree dunning’s relationship with becker and wcs should have put petitioners on notice that he was not independent or disinterested petitioners cite 998_f2d_1514 9th cir affg in part and revg in part tcmemo_1990_380 939_f2d_874 9th cir affg in part and revg in part tcmemo_1989_390 and 816_f2d_493 9th cir affg in part and revg in part tcmemo_1985_378 for the proposition that petitioners’ incorrect treatment of their trusts for tax purposes does not in itself justify imposition of the accuracy-related_penalty we disagree none of those cases involved a taxpayer’s claim of reliance on an accountant and all of the cases included factors favorable to the taxpayers which are not present here the taxpayers in both kantor and baxter presented a viable although ultimately unsuccessful challenge to the commissioner’s adjustments kantor v commissioner supra pincite3 baxter v commissioner supra pincite petitioners did not see eg neeley v united_states 775_f2d_1092 9th cir zmuda v commissioner supra 686_f2d_490 7th cir affg tcmemo_1980_568 73_tc_1235 hanson v commissioner tcmemo_1981_675 affd per curiam 696_f2d_1232 9th cir the taxpayers in norgaard were held not negligent because they used a reasonable accounting system to keep track of their gambling_losses and they did not lack due care or fail to do what a reasonable and prudent person would do norgaard v commissioner supra pincite kantor norgaard and baxter do not support petitioners we conclude that petitioners did not make a good_faith effort to ascertain their tax_liabilities for the years in issue that it was not reasonable for them to rely on dunning and that they are liable for the addition_to_tax for substantial_understatement under sec_6662 for and to reflect concessions and the foregoing decision will be entered under rule


t c memo united_states tax_court joseph r banister petitioner v commissioner of internal revenue respondent docket no filed date p failed to report certain interest and distribution income that he received in r determined a deficiency and additions to tax pursuant to sec_6651 and and a i r c held p is liable for the deficiency and the addition_to_tax pursuant to sec_6651 i r c p is not liable for the additions to tax pursuant to sec_6651 and sec_6654 i r c joseph r banister pro_se david sorensen and wesley j wong for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of an alleged dollar_figure deficiency in federal_income_tax and additions to tax that respondent determined for petitioner’ sec_2002 tax_year respondent conceded before trial that petitioner is not liable for an addition_to_tax under sec_6651 the issues remaining for decision are whether petitioner was required to include in hi sec_2002 taxable_income a dollar_figure distribution from a qualified_retirement_plan and dollar_figure of interest_income whether petitioner is liable for the 10-percent additional tax under sec_72 on an early distribution from a qualified_retirement_plan whether petitioner is liable under sec_6651 for a dollar_figure addition_to_tax and whether petitioner is liable under sec_6654 for a dollar_figure addition_to_tax findings_of_fact some of the facts have been stipulated and the stipulated facts and accompanying exhibits are hereby incorporated by reference into our findings using third-party payer 1all section references are to the internal_revenue_code_of_1986 as amended and in effect for the tax_year at issue the rule references are to the tax_court rules_of_practice and procedure information respondent concluded that petitioner had received a dollar_figure distribution from an individual_retirement_account ira and dollar_figure of interest_income respondent issued the notice_of_deficiency on date petitioner filed a timely petition with this court on date and filed an amended petition on date petitioner resided in nevada when he filed the petition and the amended petition a trial was held on date in reno nevada opinion i whether petitioner had unreported income generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer has the burden of proving it wrong see rule a 290_us_111 in unreported income cases however the presumption of correctness does not attach unless the commissioner first establishes a minimal evidentiary foundation for the deficiency see 596_f2d_358 9th cir revg 67_tc_672 in weimerskirch the court_of_appeals for the ninth circuit imposed the evidentiary foundation requirement in light of the commissioner’s unsupported assertion that the taxpayer had earned dollar_figure selling illegal drugs id pincite the commissioner sought to include that amount in the taxpayer’s income but did not present any evidence linking the taxpayer to the illegal sales or reflecting the amount of proceeds the taxpayer actually received id pincite the court_of_appeals refused to allow the presumption of correctness to attach emphasizing the unfairness that would result if the commissioner were allowed to affix the prejudicial label of drug dealer on the taxpayer without any evidence to support it id pincite this is not to say that the requirement in weimerskirch is difficult to satisfy the requisite evidentiary foundation is indeed minimal and need not include direct evidence linking the taxpayer to an income-producing activity see 774_f2d_932 9th cir curtis v commissioner tcmemo_2001_308 affd in part and revd on another issue 73_fedappx_200 9th cir in rapp the court_of_appeals held that the commissioner had satisfactorily linked the taxpayers to income-producing activities--including employment the sale of their home and involvement with a business--where the record contained only the notices of deficiency summonses to banks and other third parties and other documents prepared by the commissioner rapp v commissioner supra pincite that evidence suggested that the commissioner possessed direct evidence linking the taxpayer to the income-producing activities even if that direct evidence was not itself in the record id further the taxpayers did not dispute their alleged connection to the income-producing activities and argued only that the commissioner did not consider legitimate and proper deductions id the court_of_appeals concluded that the link between the taxpayers and the income-producing activity had been sufficiently acknowledged to permit the presumption of correctness to attach to the commissioner’s determination id assuming weimerskirch applies in this case despite the fact that petitioner’s alleged income was not derived from an illegal activity we conclude that respondent has established a minimal evidentiary foundation linking petitioner with the ira distribution and interest_income at issue specifically the notice_of_deficiency indicates that the third-party payers paid petitioner the amounts in question and reported those payments to respondent although direct evidence of the payments is not in the record the notice_of_deficiency alone suggests as in rapp and curtis that respondent possessed such evidence 2it appears that the court_of_appeals has extended its holding in 596_f2d_358 9th cir revg 67_tc_672 to cases involving income derived from legal activities see 116_f3d_1309 9th cir 774_f2d_932 9th cir but see 181_f3d_1002 9th cir but even if we were to extend weimerskirch to all unreported income cases as the third and fifth circuits have done the exception only applies when the commissioner has failed to provide any evidentiary foundation for the deficiency_notice affg t c memo in addition petitioner does not deny receiving the income and instead argues that respondent failed to recognize determine and or make allowance for petitioner expenses losses and deductions and exclusions both business and non-business we view that position as an implicit acknowledgment that he received at least some income during hi sec_2002 tax_year see rapp v commissioner supra pincite curtis v commissioner supra also as in rapp petitioner challenged the amount of related deductions respondent had allowed her which we view as an implicit acknowledgment of the existence of the income-producing property accordingly we conclude that respondent has established a minimal evidentiary foundation and that the presumption of correctness may therefore attach to respondent’s deficiency determination see rapp v commissioner supra pincite weimerskirch v commissioner supra pincite petitioner argues that the presumption should not attach because respondent’s concession as to the sec_6651 addition_to_tax was an admission of error that casts doubt over the entire notice_of_deficiency we disagree see avery v commissioner tcmemo_2007_60 n stating that commissioner’s concession of sec_6651 addition_to_tax did not invalidate notice_of_deficiency petitioner thus has the burden to prove that the deficiency was arbitrary or erroneous see 181_f3d_1002 9th cir affg tcmemo_1997_97 he advances three arguments in an attempt to meet that burden he argues that respondent denied him proper due process-- including an appeals conference--before issuing the notice_of_deficiency denied him a proper notice_of_deficiency based upon a true ‘deficiency’ and determined the deficiency incorrectly by failing to consider his expenses losses and deductions and exclusions both business and non-business these arguments are unavailing first we note that the providing of a conference before the appellate division of the internal_revenue_service is not essential to the validity of a notice_of_deficiency 65_tc_68 affd without published opinion 559_f2d_1207 3d cir more generally and with respect to petitioner’s second argument the court will not look behind a notice_of_deficiency to question the commissioner’s procedures leading to the determination_of_a_deficiency see 998_f2d_1514 9th cir affg in part and revg in part on another ground tcmemo_1990_380 here respondent determined a deficiency and issued notice of that deficiency to petitioner in accordance with applicable law see sec_6212 sec_3although sec_7491 may shift the burden_of_proof to the commissioner in specified circumstances petitioner did not satisfy the prerequisites under sec_7491 and for such a shift petitioner has not provided any evidence to the contrary with respect to his final argument petitioner has provided no evidence of any losses deductions or other items that might affect respondent’s deficiency determination see rapp v commissioner f 2d pincite the taxpayer has the burden_of_proof to substantiate claimed deductions accordingly we conclude that petitioner has failed to prove that respondent’s determination of unreported taxable_income was arbitrary or erroneous in addition we conclude that petitioner is liable for the 10-percent additional tax imposed by sec_72 on early distributions from qualified_retirement_plans including iras see sec_408 sec_4974 although sec_72 provides exceptions to the additional tax petitioner has the burden to show that an exception applies and he has not done so see 114_tc_259 accordingly we sustain respondent’s deficiency determination ii additions to tax respondent determined that petitioner was liable for additions to tax under sec_6651 and sec_6654 pursuant to sec_7491 respondent has the burden of production with respect to these additions to tax and is therefore required to come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty see 116_tc_438 although respondent would have been relieved of that burden if petitioner had failed to assign error to the additions to tax we cannot conclude that petitioner failed to do so see 127_tc_200 affd 521_f3d_1289 10th cir sec_6651 imposes an addition_to_tax for failure_to_file a timely return unless the taxpayer proves that such failure is due to reasonable_cause and not willful neglect see 469_us_241 petitioner appears to concede that he did not file a return in his petition he asserts that he sent the internal_revenue_service a date letter stating why he believed he was not required to file a return for hi sec_2002 tax_year moreover petitioner has not presented any evidence to suggest that his failure_to_file was due to reasonable_cause accordingly we shall sustain respondent’s imposition of the addition_to_tax under sec_6651 sec_6654 imposes an addition_to_tax on individual taxpayers who underpay their estimated income_tax the commissioner’s burden of production under sec_7491 with respect to that addition_to_tax requires the commissioner at a minimum to produce evidence that a taxpayer was required to make an annual payment under sec_6654 see wheeler v commissioner supra pincite the amount of any required_annual_payment is the lesser_of percent of the tax shown on the individual’s return for the year or if no return is filed percent of his or her tax for such year or if the individual filed a return for the immediately preceding tax_year a fixed percentage of the tax shown on that return sec_6654 when as here the commissioner fails to introduce evidence showing whether a taxpayer filed a return for the preceding tax_year and if so the amount of tax shown on that return the commissioner has not satisfied the burden of production because it is impossible to determine whether the taxpayer had a required_annual_payment under sec_6654 see wheeler v commissioner supra pincite as a result petitioner is not liable for the addition_to_tax pursuant to sec_6654 for hi sec_2002 tax_year see id pincite the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing and concessions made by the parties decision will be entered under rule


department of the treasury internal_revenue_service washington d c may tax_exempt_and_government_entities_division be im wy uniform issue list se itierra ti legend taxpayer a plan b plan c non-ira account d non-ira account e financial_institution f amount amount amount amount dear this is in response to your request dated date as supplemented by correspondence dated date and date in which you request through your authorized representative a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a gross distribution from plan b equal to amount taxpayer a asserts that the failure to accomplish a rollover of a portion of the total_distribution amount equal to amount within the 60-day period described in sec_402 of the code was due to several factors including experiencing two deaths in the family failing to receive f notice and relocating his family to a new community in taxpayer a changed jobs and moved from one location to another on date taxpayer a withdrew amount from plan b a qualified_plan under sec_401 of the code on may he deposited amount less withholding into non-ira account d maintained by financial_institution f subsequently taxpayer a withdrew amounts from non-ira account d including amount on date amount was deposited into another account non-ira account e and again withdrawn on date after the above withdrawals amount was the amount that remained in non-ira account d amount was subsequently transferred to non-ira account e which was also maintained by financial_institution f on date taxpayer a contributed amount to plan c which plan c accepted as a rollover_contribution amount and amount equal amount based on the above facts and representations taxpayer a requests a waiver of the 60-day rollover requirement with respect to the distribution of amount from plan b with respect to your ruling requests sec_401 of the code provides the qualification rules applicable to retirement plans set up by employers exclusively to benefit their employees and their beneficiaries sec_402 of the code provides that except as otherwise provided in this section any amount actually distributed to any distributee by any employees' trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 relating to annuities sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras sec_402 of the code provides generally that if any portion of an eligible_rollover_distribution from a qualified employees trust is paid to the employee in an eligible_rollover_distribution and the employee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code provides that the maximum amount of an eligible_rollover_distribution to which paragraph applies shall not exceed the portion of such distribution which is includible in gross_income determined without regard to paragraph the preceding sentence does not apply to the distribution to the extent that such portion is transferred to an eligible_retirement_plan described in sec_402 and ii sec_402 of the code provides generally that sec_402 shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code provides that the secretary may waive the day requirement under subparagraph a where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_402 sec_402 of the code defines eligible_rollover_distribution as any distribution to an employee of all or a portion of the balance_to_the_credit of an employee in a qualified_trust except that such term shall not include a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made -- i for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and the employee's designated_beneficiary or ii for a specified period of years or more b any distribution to the extent the distribution is required under sec_401 and c any distribution which is made upon hardship of the employee sec_402 of the code provides that the transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution sec_402 of the code provides that the excess of the fair_market_value of property on sale over its fair_market_value on distribution shall be treated as property received in the distribution sec_402 of the code provides that no gain_or_loss shall be recognized on any sale described in subparagraph a to the extent that an amount equal to the proceeds is transferred pursuant to paragraph sec_402 of the code defines eligible_retirement_plan as i an individual_retirement_account described in sec_408 ii an individual_retirement_annuity described in sec_408 other than endowment_contract iii a qualified_trust iv an annuity plan described in sec_403 v an eligible_deferred_compensation_plan described in sec_457 maintained by an eligible_employer as described in sec_457 and vi an annuity_contract described in sec_403 revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a support his assertion rollover of a portion of the total_distribution amount that the failure to accomplish a equal to amount within the 60-day period described in sec_402 of the code was due to several factors including experiencing two deaths in the family failing to receive f notice and relocating his family to a new community however in november of amount was used to pay for personal expenses and was not available for rollover therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount and declines to grant a waiver with respect to the distribution of amount provided all other requirements of sec_402 except the 60-day requirement were met with respect to the contribution of amount to plan c amount will be considered a rollover_contribution within the meaning of sec_402 amount however cannot be rolled over and is considered an excess_contribution to plan c this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact at please address all correspondence to sincerely yours cnbitan tt willer callan employee_plans technical group a watkins manager enclosures notice of intention to disclose deleted copy of this letter ce


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom fi p 4-plr-118837-99 date april legend taxpayer separate_account fund a fund b fund c y state a sub m d state b n e dear this is in response to your submission dated date and supplementary submissions requesting on behalf of taxpayer certain rulings regarding the treatment of sub-accounts of the separate_account that invest in portfolios portfolios of fund a fund b and fund c collectively referred to as the funds variable_annuity contracts contracts issued by taxpayer are based on the separate_account and its sub-accounts taxpayer plans for the portfolios to invest in certain existing and newly created lower-tier funds certain of these funds the central funds also will offer shares to other entities and accounts in which the public may invest while other lower-tier funds the dedicated funds will offer shares only to the portfolios central funds and dedicated funds are referred to collectively herein as the lower-tier funds i taxpayer facts plr-118837-99 taxpayer is a y life_insurance_company organized under the laws of state a taxpayer represents that it is a life_insurance_company within the meaning of sec_816 of the internal_revenue_code taxpayer joins in the filing of a calendar_year consolidated federal_income_tax return with its wholly-owned subsidiary sub ii the contracts the contracts which are based on the separate_account are both deferred and immediate variable_annuity contracts some of the contracts are purchased with after- tax monies while others taxpayer represents are tax-sheltered annuity_contracts under sec_403 and individual_retirement_annuity contracts under sec_408 the contracts offer both a fixed investment option and m variable investment options the portion of a premium less any applicable federal state and local_taxes related to the premium a net premium allocated by the owner of a contract to the fixed investment option under the contract is held in taxpayer’s general account the portion of a net premium allocated to the variable investment options under a contract is held in the separate_account the separate_account is a separate_account registered with the securities_and_exchange_commission the sec as a unit_investment_trust under the investment_company act of the act the assets of the separate_account attributable to the contracts are allocated among m sub-accounts of the separate_account the sub-accounts correspond to the m investment options under the contracts the amount of net_premiums allocated to each investment option and thus to each sub-account is selected by the owner when the contract is issued and may be changed from time to time each sub-account invests in the shares of a portfolio of the funds that corresponds with the investment objective of the sub-accountdollar_figure taxpayer represents that the investments of each sub-account are adequately diversified within the meaning of sec_817 and sec_1_817-5 iii the funds the funds are open-end diversified management investment companies ie series mutual funds organized by d each of the funds is registered with the sec under the act and the shares of each series ie each portfolio are registered with the sec under the securities act of the act each series of the funds is established as a separate regulated_investment_company within the meaning of sec_851 of the code d is the investment_advisor for the funds taxpayer reserves the right to delete any sub-account and to add new sub-accounts taxpayer also reserves the right to delete add and substitute portfolios in which the sub-accounts invest plr-118837-99 as described above the funds and their portfolios serve as investment media for the contracts in addition d offers the funds and some or all of their portfolios under variable_annuity contracts issued by taxpayer’s affiliate sub and under variable_annuity and variable life_insurance contracts issued by other unaffiliated life_insurance_companies taxpayer represents that except as otherwise permitted by sec_1_817-5 all the beneficial interests in each of the portfolios currently are held by one or more segregated_asset accounts of one or more insurance_companies and public access to each of the portfolios is available exclusively through the purchase of a variable_contract within the meaning of sec_817 and e of the code iv existing central funds d has already established a central fund pursuant to priv ltr rul date which is a money market fund the money market central fund is an open-end management investment_company registered with the sec under the act d serves as its investment_advisor this central fund qualifies as a regulated_investment_company within the meaning of the code the shares of this central fund are not registered with the sec under the act and are not sold directly to members of the general_public instead the shares are sold only to certain entities and accounts for which d or one of its various subsidiaries or affiliates acts as investment_advisor such as mutual funds trust accounts and pension_plan accounts some of these entities the d mutual funds allow direct investment by members of the general_public also d established an additional central fund that is a pooled investment vehicle designed to retain cash collateral received by taxpayer’s funds and accounts in connection with securities_lending transactions ie transactions in which the funds lend securities to third parties this fund is a portfolio series of a state b business_trust that is registered with the sec under the act as an open-end management investment_company and is taxable as a regulated_investment_company within the meaning of the code shares of this fund are not registered with the sec under the act and have not been and will not be sold directly to members of the general_public but instead only to funds and accounts for which d or one of its affiliates acts as investment_advisor this fund is available to both the portfolios and the d public funds v creation of additional central funds as currently structured d manages n money market funds n investment-grade bond funds n high yield funds and n equity funds because the investment style within each class is similar d is planning to organize one central fund for each type of non- equity based investment class to serve as pooled investment vehicles that will enable d to manage each of these security types in a single fund rather than n different funds in lieu of or in addition to purchasing each class of assets directly the e funds will purchase shares of each central fund which in turn will invest directly in the appropriate asset class it is anticipated that this structure will allow for more efficient plr-118837-99 portfolio management and that the contract owners and shareholders will ultimately benefit from this arrangement through reduced costs in order to provide this enhanced efficiency of its fund management taxpayer plans to expand its use of lower-tier funds more specifically taxpayer plans to allow certain portfolios to invest in newly created central funds in which both portfolios and certain d mutual funds will invest and in newly created dedicated funds in which only these portfolios may invest taxpayer represents that if a portfolio invests in one or more lower-tier funds all the beneficial_interest in a portfolio will continue to be held by one or more segregated_asset accounts of one or more insurance_companies except as otherwise permitted by sec_1_817-5 the central funds which d plans to establish are lower-tier funds for its e range of funds the central funds will be open-end management investment companies registered with the sec under the act of the central funds which d plans to create within its e range of funds one will be a money market fund organized as a regulated_investment_company d is creating a new money market central fund rather than utilizing an existing central fund because the e funds tend to hold their money market investments for a longer period than average funds hold their investments in the existing money market central funds as a result of the longer holding_period taxpayer anticipates the new fund will be less susceptible to turnover and thus there will be fewer transactions and lower costs attributable to the money market investments of its e funds the d mutual funds as well as portfolios may invest in the new money market central fund d also plans to organize an investment-grade bond central fund and a high yield central fund for the e funds taxpayer represents that these central funds will be taxed either as partnerships or regulated_investment_companies and that neither of these central funds will elect to be taxed as a corporation for federal_income_tax purposes under sec_301_7701-3 taxpayer also represents that these central funds will be registered with the sec under the act both portfolios and the d mutual funds may invest in these central funds d will also establish one dedicated fund n in all for the equity investments of each e portfolio thus a single portfolio and no d mutual funds will be the only investor in each dedicated fund the dedicated funds will be registered with the sec under the act as open-end management investment companies some dedicated funds will be structured as a portfolio series of business trusts taxable as regulated_investment_companies while others will be structured as single-member limited_liability companies llcs under appropriate state law the company represents that none of the dedicated funds organized as llcs will elect to be treated as a corporation under sec_301_7701-3 the shares of the central funds and the dedicated funds will not be registered with the sec under the act and will not be sold directly to members of the general_public plr-118837-99 statutory and regulatory provisions for purposes of part i of subchapter_l of chapter of the code sections the term variable_contract is defined in sec_817 in order for an annuity_contract to be a variable_contract it must provide for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law or regulation is segregated from the general asset accounts of the issuing insurance_company it must provide for the payment of annuities and the amounts paid in or the amounts paid out must reflect the investment return and the market return of the segregated_asset_account sec_817 - of the code sec_817 of the code provides that for purposes of subchapter_l sec_72 relating to annuities and sec_7702 relating to the definition of a life_insurance_contract a variable_contract other than a pension_plan_contract which is otherwise described in sec_817 and which is based on a segregated_asset_account shall not be treated as an annuity endowment or life_insurance_contract for any period and any subsequent period for which the investments made by such account are not in accordance with regulations prescribed by the secretary adequately diversified sec_817 of the code provides in certain situations a look-through_rule for meeting the diversification requirements if all of the beneficial interests in a regulated_investment_company are held by one or more a insurance_companies or affiliated companies in their general account or in segregated_asset accounts or b fund managers or affiliated companies in connection with the creation or management of the regulated_investment_company the diversification requirements of sec_817 are applied by taking into account the assets held by such regulated_investment_company sec_1_817-5 contains the diversification requirements for variable_contracts generally the investments of a segregated_asset_account will be considered to be adequately diversified for purposes of sec_817 of the code and sec_1_817-5 if no more than percent of the value of the total assets of the account is represented by any one investment no more than percent by any two investments no more than percent by any three investments and no more than percent by any four investments sec_1_817-5 provides a look-through_rule for the application of the diversification requirements of sec_1_817-5 sec_1_817-5 provides that if the look-through_rule applies a beneficial_interest in a regulated_investment_company will not be treated as a single investment of a segregated_asset_account instead a pro_rata portion of each asset of the investment_company will be treated for purposes of sec_1_817-5 as an asset of the segregated_asset_account sec_1_817-5 provides that sec_1_817-5 shall apply to an investment_company if plr-118837-99 a all the beneficial interests in the investment_company other than those described in sec_1_817-5 are held by one or more segregated_asset accounts of one or more insurance_companies and b public access to such investment_company is available exclusively except as otherwise permitted in sec_1_817-5 through the purchase of a variable_contract solely for this purpose the status of the contract as a variable_contract will be determined without regard to sec_817 and sec_1_817-5 sec_1_817-5 provides that for purposes of sec_817 of the code and sec_1_817-5 a segregated_asset_account shall consist of all assets the investment return and market_value of each of which must be allocated in an identical manner to any variable_contract invested in any of such assets sec_301_7701-2 states that for purposes of sec_301_7701-2 and sec_301_7701-3 a business_entity is any entity recognized for federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner under sec_301_7701-3 that is not subject_to special treatment under the internal_revenue_code it further provides that if a business_entity with only one owner is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301_7701-3 provides that unless the entity elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner requested rulings and diversification requirements the owners of the contracts are permitted to allocate premiums among the sub- accounts of the separate_account thus each sub-account of the separate_account is a segregated_asset_account within the meaning of sec_817 and the regulations thereunder see sec_1_817-5 example hence the diversification requirements must be met by each sub-account of the separate_account that is subject_to sec_817 in order for the contracts to be treated as annuity contractsdollar_figure the diversification requirements under sec_817 apply to variable_contracts other than pension_plan_contracts sec_818 defines the term pension_plan_contract for this purpose to include a tax-sheltered annuity_contract under sec_403 and an individual_retirement_annuity contract under sec_408 see sec_818 and hence the diversification requirements apply to contracts purchased with after-tax monies and do not apply to contracts which are tax- sheltered annuities or individual retirement annuities plr-118837-99 taxpayer represents that all the shares of each portfolio are held exclusively by segregated_asset accounts of one or more insurance_companies except as otherwise permitted under sec_1_817-5 taxpayer represents further that this will continue to be true after the portfolios begin to invest in the newly created central funds and dedicated funds additionally taxpayer represents that public access to a portfolio currently is available exclusively through the purchase of a variable_contract except as otherwise permitted under sec_1_817-5 taxpayer submits that this will also be true after the portfolios invest in the newly created central funds and the dedicated funds the shares of the central funds will be sold to both the portfolios and d mutual funds that are e funds shares of the d mutual funds are sold directly to members of the public therefore all the beneficial interests in a central fund will not be held by one or more segregated_asset accounts of one or more insurance_companies or such other holders that are permitted under sec_1_817-5 consequently for purposes of sec_1_817-5 a central fund’s shares are treated as assets of a portfolio that invests in that central fund and therefore as assets of the sub-account that invests in the portfolio there is no look-through to the assets of the central funds taxpayer represents that one or more of the dedicated funds will be established as a single-member limited_liability_company in accordance with the appropriate state law because such a business_entity is not defined as a corporation under sec_301_7701-2 or each such dedicated fund may choose its classification for federal tax purposes under sec_301 a in addition because each dedicated fund that is organized as an llc will have a single corresponding portfolio as its sole owner the dedicated fund will be disregarded as an entity separate from the portfolio unless the dedicated fund makes an election to be treated as a separate corporation for federal tax purposes taxpayer has represented that no such election will be made therefore because the dedicated fund will be disregarded as an entity separate from its underlying portfolio the individual assets of the dedicated fund will be treated as assets of the portfolio each portfolio will be treated as directly owning the assets of its corresponding dedicated fund that is organized as an llc for purposes of the diversification requirements of sec_817 taxpayer represents that one or more of the dedicated funds will be structured as a portfolio series of a business_trust taxable as a regulated_investment_company each of the dedicated funds taxable as a regulated_investment_company will be wholly owned by a single portfolio as noted above taxpayer represents that shares of each portfolio are held exclusively by segregated_asset accounts of one or more insurance_companies except as otherwise permitted under sec_1_817-5 and that public access to each portfolio currently is available exclusively through the purchase of a variable_contract except as otherwise permitted under sec_1 f under this structure all beneficial interests in the dedicated funds will be held by segregated_asset accounts of one or more insurance_companies except as plr-118837-99 otherwise permitted under sec_1_817-5 and public access to the dedicated funds will be available exclusively through the purchase of a variable_contract except as otherwise permitted under sec_1_817-5 therefore the requirements of the look-through_rule of sec_1_817-5 will be met both with respect to the portfolio and the dedicated fund accordingly under sec_1_817-5 the assets of a dedicated fund taxable as a regulated_investment_company will be treated as the assets of the portfolio which invests in the dedicated fund and in turn the assets of that portfolio will be treated as the assets of the sub-account which invests in that portfolio requested ruling investor_control revrul_81_225 1981_2_cb_12 clarified by revrul_82_54 1982_1_cb_12 and modified by revproc_99_44 1999_48_irb_598 describes four situations in which investments in mutual funds pursuant to annuity_contracts are considered to be owned by the policyholder rather than by the insurance_company issuing the annuity_contracts and one situation in which the insurance_company is considered the owner of the mutual_fund shares in situation the investment_assets in the segregated account underlying the annuity_contracts consist solely of shares in a single publicly available mutual_fund managed by an independent investment_advisor situation is similar to situation except that the mutual_fund is managed by the insurance_company or one of its affiliates situation also is similar to situation except that the segregated_asset_account underlying the annuity_contracts consists of five sub-accounts on which the performance of the annuity_contract would depend the policyholder retains the right to allocate or reallocate funds among the five sub-accounts during the life of the annuity_contract situation is similar to situation except that the shares of the mutual_fund are not sold directly to the public but are available only through the purchase of an annuity_contract or by participation in an investment plan account of the type described in revrul_70_525 1970_2_cb_144 situation also is similar to situation except that the shares in the mutual_fund are available only through the purchase of an annuity_contract the ruling concludes that the policyholders in situations have sufficient control and other incidents_of_ownership to be considered the owners of the mutual_fund shares for federal_income_tax purposes the ruling reaches the opposite conclusion in situation stating that the sole function of the mutual_fund in situation is to provide an investment vehicle to allow the insurance_company to meet its obligations under its annuity_contracts and that the insurance_company possesses sufficient incidents_of_ownership to be considered the owner of the underlying portfolio of assets of the mutual_fund revrul_81_225 concludes that in situation the insurance_company not the policyholder is treated as the owner of the mutual_fund shares for federal_income_tax purposes in revrul_82_54 1982_1_cb_11 the purchasers of certain annuity_contracts have the right to direct the issuing insurance_company to invest in the shares of any or all of three mutual funds that are not available to the public one mutual_fund invests plr-118837-99 primarily in common stocks another in bonds and a third in money market investments policyholders are free to allocate their premium payments among the three funds and have an unlimited right to reallocate contract values among the funds prior to the maturity_date of the annuity_contract the ruling concludes that the policyholders’ ability to choose among general investment strategies for example between stocks bonds or money market instruments either at the time of the initial purchase or subsequent thereto does not constitute sufficient control so as to cause the policyholders to be treated as owners of the mutual_fund shares for purposes of requested ruling taxpayer asks the service to assume that the contract owners do not currently possess sufficient investment control and other incidents_of_ownership over the sub-accounts’ assets to be considered the owners of those assets for federal_income_tax purposes under the principles of revrul_81_225 the issue presented is whether allowing the portfolios to invest in one or more central funds or dedicated funds will cause the contract owners rather than taxpayer to be treated under the principles of revrul_81_225 as the owner of the sub-accounts’ assets after the portfolios’ proposed investment in the central funds or dedicated funds just as in situation of revrul_81_225 the shares of the portfolios will continue to be unavailable to members of the general_public they will be available exclusively through the purchase of a variable_contract with the exception of those investors listed in sec_1_817-5 in revrul_82_54 the amounts held in a segregated_asset_account under a variable_contract were invested as the policyholder directed in shares of one or more of three open-end diversified management investment companies mutual funds each mutual_fund represented a different broad general investment strategy and the mutual_fund shares were available only to insurance_company segregated_asset accounts in revrul_82_54 the mutual funds held common stocks bonds and money market instruments assets that were available for purchase directly by members of the general_public the public availability of the assets of the mutual funds in revrul_82_54 did not lead to the conclusion that the issuing insurance_company was simply a conduit between the policyholders and their mutual funds instead revrul_82_54 citing revrul_81_225 and its companion revenue rulings held that the insurance_company not the policyholder was the owner of the mutual funds for tax purposes as was the case with the mutual funds in revrul_82_54 the portfolios in this case are available to the public only through the purchase of a variable_contract accordingly assuming that the owner of a contract does not otherwise have investment control_over the sub-account’s assets and possess sufficient other incidents_of_ownership within the meaning of revrul_81_225 with respect to such assets to be considered the owner of such assets for federal_income_tax purposes the owner of the contract will not be treated as the owner of such assets under revrul_81_225 plr-118837-99 because the portfolio in which the sub-account invests in turn invests in shares of one or more central funds or dedicated funds rulings accordingly based solely upon the information submitted and the representations made we hold the diversification requirements of sec_817 of the code and sec_1_817-5 will be applied to a sub-account that invests in a portfolio that invests in one or more central funds and or dedicated funds by treating as an asset of the sub-account a pro_rata share of each asset of the portfolio in accordance with the look-through_rule set forth in sec_1_817-5 for purposes of the diversification requirements of sec_817 and sec_1_817-5 partnership interests in or shares of the central funds are treated as assets of a portfolio that invests in that central fund and therefore assets of the sub-account that invests in the portfolio there is no look-through to the assets of the central funds for purposes of applying the diversification requirements of sec_817 and sec_1_817-5 a portfolio will be treated as directly owning the assets of a dedicated fund in which it invests if such dedicated fund is organized as a single-member limited_liability_company and does not elect to be treated as a corporation for federal tax purposes under sec_7701 and sec_301_7701-3 the diversification requirements of sec_817 and sec_1_817-5 will be applied to a portfolio that invests in a dedicated fund organized as a regulated_investment_company by treating as an asset of the portfolio a pro_rata share of each asset of the dedicated fund in accordance with the look-through_rule set forth in sec_1_817-5 and thus as an asset of the sub-account that invests in such portfolio as provided in ruling assuming that the owner of a contract does not otherwise have investment control_over the sub-account’s assets and possess sufficient other incidents_of_ownership within the meaning of revrul_81_225 with respect to such assets to be considered the owner of such assets for federal_income_tax purposes the owner of the contract will not be treated as the owner of such assets under revrul_81_225 because the portfolio in which the sub-account invests in turn invests in shares of one or more central funds and or dedicated funds except as specifically set forth above no opinion is expressed as to the tax treatment of the contracts under the provisions of any other section of the code or regulations specifically no opinion is expressed except to the extent set forth above as to the application of the investment control rules as set forth in 749_f2d_513 8th cir cert_denied 473_us_905 revrul_81_225 revrul_80_274 1980_2_cb_27 revrul_77_85 1977_1_cb_12 and revproc_99_44 1999_48_irb_598 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the taxpayer’s federal_income_tax returns for taxable_year s in which any of the portfolios invest in shares of any of the central funds that are covered by this letter sincerely assistant chief_counsel financial institutions and products by mark s smith chief branch


tax_exempt_and_government_entities_division release number release date department of the treasury internal_revenue_service te_ge eo examination fulton street room brooklyn ny uil date taxpayer_identification_number o organization person to contact identification_number contact telephone number dear this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons o fails to meet the reporting and record keeping requirements as set forth under internal_revenue_code sec_6001 and sec_6033 based on the above we are revoking your organization's exemption from federal_income_tax under sec_501 of the internal_revenue_code effective you have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you'can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations form_8 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury- internal_revenue_service legend o organization d date of revocation issue should the o have it’s exempt status under internal_revenue_code irc sec_501 revoked for failing to comply with an examination of their organization as required_by_law facts the organization is named the o eo the eo filed for and received exempt status under sec_501 internal documents show a filing requirement for this eo for forms form sec_941 form sec_11c and forms these documents also show that all forms except the forms have been timely filed when required there have been no forms filed since the inception of the eo evidence provided by the form sec_11c filed by the eo revealed the organization has gross_receipts in excess of dollar_figure which would require the forms to be filed for these years per the irc law sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 of the regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 of the code and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 department of the treasury - internal_revenue_service form a rev page -1- form 886a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service o sec_1_6001-1 of the regulations states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 rey rul 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax taxpayer’s position the taxpayer has not provided a position regarding the proposed revocation and with this report is being given the opportunity to provide additional comments and position statements regarding this issue government’s position the eo failed to file the required return as requested this is a violation of sec_6033 the eo was mailed an information_document_request idr via certified mail this examination was subsequently converted to a correspondence examination and a revised idr was mailed to the eo - department of the treasury - internal_revenue_service form a rev page -2- form_8 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - intemal revenue service o subsequent telephone calls to officers of the eo revealed that the information was being gathered and would be provided when completed this documentation was not received a letter was mailed via certified mail to the eo explaining the potential actions that could be taken by the service for failure to cooperate with the examination one of the actions listed included a proposed revocation of the eo’s exempt status also included with this letter were copies of the two previous idr’s that had been sent to the eo the eo was given two weeks to respond to the letter and provide the requested information there was no response from the eo this failure to provide books_and_records sufficient to determine whether the eo meets the organizational and operational requirements of an organization exempt under sec_501 or whether it has other income subject_to taxation is a violation of sec_6001 and sec_6033 conclusion given the eo’s failure to comply with valid requests for required returns and the records necessary to determine whether the organization should retain it’s exempt status and or be subject_to tax the organization’s exempt status under sec_501 should be revoked effective d department of the treasury - internal_revenue_service form arev page -3- date te_ge exempt_organizations examinations sw third avenue m s portland oregon taxpayer_identification_number form_990 tax_year s ended organization person to contact id number o contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter rev catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service local taxpayer_advocate if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v


internal_revenue_service number release date index number - ------------------------------------- ------------------------------- --------------------------------------------- ---------- --------------------- -------------------------- - department of the treasury washington dc person to contact -------------------- id no -------------- telephone number --------------------- refer reply to cc psi b02 - plr-139918-03 date date a -------------------------------------------- b ------------------------------ ------------------------------- -------------------------- ----------------- --------- country d1 dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b by its authorized representative requesting a ruling that b be given an extension of time to elect under ' c of the procedure and administration regulations to be classified as a disregarded_entity for federal tax purposes the information submitted states that a is a us partnership for federal tax purposes b a limited_company was formed on d1 pursuant to the laws of country b is wholly owned by a b represents that pursuant to ' a b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has single owner that has limited_liability as defined in sec_301_7701-3 b intended to disregarded for federal tax purposes effective d1 however b inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of ' b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' granted when the taxpayer provides evidence to establish that the taxpayer acted sec_301_9100-3 provides that requests for relief under ' will be sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will based solely on the facts submitted and representations made we conclude that reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the requirements of ' have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under ' c to be classified as a disregarded_entity for federal tax purposes effective for d1 a copy of this letter should be attached to the form_8832 a copy is included for that purpose federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent sent to b’s authorized representatives except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is being this ruling is directed only to the taxpayer who requested it sec_6110 of sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


internal_revenue_service number release date index number ---------------------------- --------------------------- ------------------------------- ------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-147067-04 date date -------------------- ---------------------------- legend x -------------------------------------------------- d1 state dear ----------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code ------------ facts according to the information submitted x was incorporated on d1 under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d1 but the election was not timely filed sec_1362 provides that a small_business_corporation may elect to be an s_corporation law and analysis plr-147067-04 sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely upon the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-147067-04 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------ ------------------------------ -------------------------- ----------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ----------------- telephone number refer reply to cc ita b07 plr-123583-11 date december re request to revoke the election not to deduct the additional first year depreciation legend taxpayer --------------------------------------------------- date ------------------- date ------------------- a ------- b ------- dear ---------------- this letter responds to a letter dated date requesting the consent of the commissioner of internal revenue to revoke taxpayer’s election under sec_168 of the internal_revenue_code not to deduct any 50-percent additional first year depreciation that was made on its federal tax returns for the taxable years ended date the a taxable_year and date the b taxable_year facts taxpayer represents that the facts are as follows taxpayer is a corporation with a fiscal_year end taxpayer develops markets sells and supports a wide range of fiber-optic systems plr-123583-11 taxpayer’s tax director prepared its federal tax returns for the a and b taxable years during these taxable years taxpayer placed_in_service qualified_property as defined in sec_168 before the application of sec_168 however on its federal_income_tax returns for the a and b taxable years taxpayer made an election under sec_168 not to deduct the stimulus additional first year depreciation deduction for all eligible classes of property placed_in_service during the a and b taxable years on its federal tax returns for the a and b taxable years taxpayer also made an election to apply sec_168 and as a result taxpayer claimed refundable tax_credits for unused research tax_credits however taxpayer’s tax director was not aware of the ordering rules for applying elections under sec_168 as provided by section dollar_figure of revproc_2008_65 2008_44_irb_1082 which was issued before date ruling requested taxpayer requests consent to revoke its election not to deduct the stimulus additional first year depreciation for all qualified_property placed_in_service during the taxable years ended date and date law and analysis sec_168 amended by sec_103 of the economic stimulus act of pub_l_no 122_stat_613 date stimulus act by sec_1201 of the american recovery and reinvestment tax act of div b of pub_l_no 123_stat_115 date and by a of the small_business jobs_act of pub_l_no 124_stat_2504 date allows a percent additional first year depreciation deduction stimulus additional first year depreciation deduction for the taxable_year in which qualified_property acquired by a taxpayer after is placed_in_service by the taxpayer before before in the case of property described in sec_168 or c section dollar_figure of revproc_2008_54 2008_33_irb_722 provides that for purposes of the stimulus additional first year depreciation deduction rules similar to the rules in sec_1_168_k_-1 of the income_tax regulations for qualified_property or for percent additional first year depreciation deduction apply however in applying sec_1_168_k_-1 the computation of the allowable stimulus additional first year depreciation deduction is made in accordance with the rules for 50-percent bonus_depreciation property sec_168 provides that a taxpayer may elect not to deduct the stimulus additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 plr-123583-11 sec_1_168_k_-1 provides that an election not to deduct the additional first year depreciation for a class of property that is qualified_property once made may be revoked only with the written consent of the commissioner of internal revenue to seek the commissioner's consent the taxpayer must submit a request for a letter_ruling conclusions based solely on the facts and representations submitted we conclude that a revocation of taxpayer’s election not to deduct any stimulus additional first year depreciation for all eligible classes of property placed_in_service by taxpayer in the taxable years ended date and date is permitted under sec_1_168_k_-1 accordingly taxpayer is granted calendar days from the date of this letter to revoke its election not to deduct any stimulus additional first year depreciation for all eligible classes of property placed_in_service by taxpayer in the taxable years ended date and date the revocation must be made in a written_statement filed with taxpayer’s amended federal tax returns for the taxable years ended date and date in addition a copy of this letter must be attached to such amended returns a copy is enclosed for that purpose except as specifically ruled upon above no opinion is expressed or implied concerning the tax consequences of the facts described above under any other provisions of the code including other subsections of sec_168 specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by taxpayer in the a or b taxable_year is eligible for the stimulus additional first year depreciation deduction under sec_168 or is eligible qualified_property or extension property for purposes of sec_168 or whether taxpayer's determination of the refundable tax_credits under sec_168 is proper this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-123583-11 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the appropriate operating division director enclosures copy of this letter copy for sec_6110 purposes sincerely kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax and accounting