internal_revenue_service number release date index number -------------------------------- ----------------- ------------------------------ re ------------------------------ -------------------------------- 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 plr-147902-09 date date legend legend ----------------- ------------- ------- ------------------------- ---------------------------- ---------------------------- ------------------------- -------------------------------- ------------------------ --------------------- ---------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------ decedent state x year spouse child child child grandchild grandchild grandchild grandchild trust charity charity ----------------------------------------------------------- year year greatgrandchild --------------------------------- greatgrandchild ---------------------------- greatgrandchild ------------------------------ greatgrandchild ------------------------------------------ greatgrandchild ------------------------------ greatgrandchild ------------------------------ greatgrandchild ------------------------- year trust ------- -------------------------------------------------------------------------------- ------- ------- -------------------------------------------------------------- -------------------------------------------------- trust --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- plr-147902-09 ----------------------------------- -------------------------------------------------- trust -------------------------------------------------------------- -------------------------------------------------- trust ----------------------------------------------------------------- -------------------------------------------------- date state y ----------------- ------------- dear ------------------ this responds to a letter dated date and other correspondence requesting rulings regarding the income gift and generation-skipping_transfer gst tax consequences of a proposed judicial construction of trust to permit proposed sales of remainder interests in trust facts the facts submitted and representations made are as follows decedent a resident of state x died testate in year a date prior to article sixth of decedent's will created trust to benefit child child and his issue child and her issue and spouse under the will upon the termination of trust the trustee will distribute the corpus and undistributed_income to charity and charity trust will terminate upon the last to die of spouse child child child grandchild grandchild grandchild grandchild greatgrandchild greatgrandchild and greatgrandchild spouse child child and child are deceased child had no issue child is survived by grandchild grandchild grandchild and grandchild collectively grandchildren and eleven greatgrandchildren collectively greatgrandchildren which includes greatgrandchildren through under the will grandchildren and greatgrandchildren are the current income beneficiaries of trust this private_letter_ruling request pertains to the proposed sales of interests in trust by greatgrandchild greatgrandchild greatgrandchild and greatgrandchild the will also contains a spendthrift_clause which provides that each beneficiary hereunder is hereby restrained from anticipating encumbering alienating or in any other manner assigning his or her interest or estate in either principal or income and is without power to do so nor shall such interest or estate be subject_to his or her liabilities or obligations nor to judgment or other legal process bankruptcy proceedings or claims of creditors or others all plr-147902-09 income and principal or either of them shall be payable and deliverable only and personally to the respective beneficiaries entitled thereto in year pursuant to a year court order and year settlement among the parties charity sold its remainder_interest in trust to greatgrandchildren for purposes of this ruling after the sale greatgrandchild greatgrandchild and greatgrandchild each owned a percent remainder_interest in trust and greatgrandchild owned a percent remainder_interest in trust in year pursuant to a court order greatgrandchild sold a percent remainder_interest in trust to other relatives the year court order stated that the spendthrift_clause of trust does not prohibit the sales because the clause applies only to beneficial interests arising under the terms of decedent’s will and does not apply to interests acquired after decedent’s death under the year settlement greatgrandchild greatgrandchild and greatgrandchild each propose to sell all or part of his or her percent remainder_interest in trust to trust trust and trust respectively trust trust and trust are trusts that were previously established by grandchild to benefit greatgrandchild greatgrandchild and greatgrandchild respectively greatgrandchild proposes to sell all or part of her percent remainder_interest in trust to trust trust was previously established by grandchild to benefit greatgrandchild on the date of the proposed sales of the remainder interests in trust all of the assets of trust will be marketable_securities with the fair_market_value of the trust assets determined by prices listed on an established exchange each proposed seller intends to sell his or her remainder_interest in trust for a sales_price equal to i the fair_market_value of trust property as of the date of sale multiplied by ii the sec_7520 actuarial remainder factor then in effect and multiplied again by iii the fraction representing the portion of the entire remainder subject_to the sale the purchase_price will be paid to the respective greatgrandchild in cash under the terms of trust trust and trust each greatgrandchild is the primary beneficiary of his or her respective trust during his or her life subject_to certain withdrawal rights each trustee may in the trustee’s uncontrolled discretion at any time or times and for any reason pay any part of the income and principal of the trust to any among the primary beneficiary and the primary beneficiary’s issue whenever born moreover the trustee may add the spouse of the primary beneficiary or the spouse of any of the primary beneficiary’s issue to whom net_income and or principal may be paid any net_income not distributed will be added to the principal of the trust a primary beneficiary is granted a testamentary special power to appoint the trust property to any persons in a specified class trust trust and trust will terminate unless sooner terminated upon the first to occur of the death of the primary beneficiary and all of his or her issue whenever born or the expiration of ninety years beginning on date upon termination the trustee shall distribute the remaining principal of the trust in plr-147902-09 accordance to the primary beneficiary’s exercise of the special_power_of_appointment or in default of such exercise to the then living issue of the primary beneficiary by right of representation if there are no living issue of the primary beneficiary then to the living issue of grandchild by right of representation under the terms of trust greatgrandchild is the primary beneficiary of trust during her life the trustee shall pay so much or all of the income and principal of a primary beneficiary’s trust to the primary beneficiary for the health support and maintenance in reasonable comfort and education of the primary beneficiary during the primary beneficiary’s lifetime a primary beneficiary is granted a testamentary special power to appoint in trust that beneficiary’s share to any persons and organizations in a specified class any part of that share the primary beneficiary fails to appoint will be divided per stirpes among the primary beneficiary’s living descendants or if none then per stirpes among the living descendants of the nearest ancestor of the primary beneficiary who is a descendant of grandchild who has one or more descendants then living or if also none then per stirpes among grandchild 4’s then living descendants if there are no living descendants of grandchild then the remaining trust assets will be distributed to a class of named nieces and nephews or charities as the trustee shall choose trust is subject_to state y law which does not follow the common_law rule_against_perpetuities it is represented that no additions constructive or otherwise have been made to trust subsequent to date and that other than the earlier court order and settlement_trust has not been amended or otherwise altered in any manner since date the trustee of trust petitioned the appropriate court for an order that construes the spendthrift provision of trust to permit the proposed sales the court‘s order states that the spendthrift_clause of trust does not prohibit the proposed sales of the purchased remainder interests because the spendthrift_clause does not apply to the interests acquired after decedent’s death under the year settlement but only to beneficial interests arising under the terms of decedent’s will itself the trustee has requested the following rulings the court construction of the spendthrift_clause and the provisions of trust to allow the proposed sales of remainder interests in trust will not affect the exempt status of trust for gst tax purposes the proposed sales of remainder interests in trust will not affect the exempt status of trust for gst tax purposes the proposed sales of remainder interests in trust will not result in any taxable_gifts for federal gift_tax purposes as to the buyers or sellers of such interests plr-147902-09 the court approval of the proposed sales of remainder interests in trust will not result in the recognition of gain_or_loss to trust or any trust beneficiaries a gain_or_loss for each of the proposed sales will equal the difference between the amount_realized for the remainder_interest and the adjusted_basis of the remainder_interest law and analysis ruling sec_1 sec_2601 of the internal_revenue_code imposes a tax on each generation- skipping transfer which includes under sec_2611 a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable under sec_2652 for purposes of chapter the term transferor means the decedent in the case of any property subject_to tax imposed by chapter and the donor in the case of any property subject_to tax imposed by chapter the individual with respect to whom property was most recently subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter sec_26_2652-1 of the generation-skipping_transfer_tax regulations thus an individual may be a transferor even though there is no transfer of property under local law at the time the federal estate or gift_tax applies sec_26_2652-1 provides that for purposes of chapter a transfer is subject_to federal gift_tax if a gift_tax is imposed under sec_2501 without regard to exemptions exclusions deductions and credits under a of the tax_reform_act_of_1986 act the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date under b a of the act and sec_26_2601-1 the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date plr-147902-09 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer in the present case trust is not subject_to gst tax because it became irrevocable before date it is represented that no additions constructive or otherwise have been made to trust subsequent to that date the court construction of the spendthrift_clause and the provisions of trust to allow the proposed sales of remainder interests in trust and the proposed sales of remainder interests in trust will not shift any beneficial interests in trust to a lower generation and will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust accordingly based upon the facts submitted and the representations made and pursuant to sec_26_2601-1 we conclude that the court construction of the spendthrift_clause and the provisions of trust to allow the proposed sales of remainder interests in trust will not affect the exempt status of trust for gst tax purposes further the proposed sales of remainder interests in trust will not affect the exempt status of trust for gst tax purposes we note that under sec_2652 grandchild is the transferor of trust trust and trust and grandchild is the transferor of trust for gst tax purposes ruling sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible plr-147902-09 sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration is deemed a gift under sec_25_2512-5 of the gift_tax regulations in general the fair_market_value of remainders transferred by gift is the present_value of the remainders determined by use of the appropriate sec_7520 actuarial factor sec_7520 provides that the value of an annuity any interest for life or a term of years or any remainder_interest or reversionary_interest is determined under tables prescribed by the secretary and by using an interest rate rounded to the nearest two-tenths of one percent equal to percent of the applicable federal midterm rate for the month in which the valuation_date falls in the proposed sales of remainder interests in trust the sales_price of the remainder interests will equal the fair_market_value of trust assets on the date of sale multiplied by the sec_7520 actuarial remainder factor then in effect and then multiplied by the fraction representing that portion of the remainder_interest subject_to the sale the sales_price will be paid in cash based upon the facts submitted and the representations made we conclude that the proposed sales of remainder interests in trust will not result in any taxable_gifts for federal gift_tax purposes as to the buyers or sellers of such interests ruling sec_61 provides that gross_income means all income from whatever source derived sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized plr-147902-09 sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties are materially different 499_us_554 in cottage savings the supreme court held that mortgage loans made to different obligors and secured_by different homes embody distinct legal entitlements and that the taxpayer realized losses when it exchanged participation interests in different loans id in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the issue for purposes of this ruling is whether the remaindermen of trust would have the same property interests and legal entitlements as a result of the court’s determination that the spendthrift_clause does not prohibit the proposed sales of the remainder interests it is represented that the court has entered a preliminary order determining that the spendthrift_clause does not prohibit the proposed sales the court’s preliminary order becomes effective only upon the issuance of the requested letter_ruling because the court’s construction of the spendthrift_clause does not change the property interests and legal entitlements of the remaindermen the court’s construction of the spendthrift_clause does not give rise to a realization of income to the remaindermen or trust under sec_61 or sec_1001 ruling sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1001 provides that in determining gain_or_loss from the sale_or_other_disposition of a term_interest_in_property that portion of the adjusted_basis of such plr-147902-09 interest which is determined pursuant to sec_1014 sec_1015 or sec_1041 to the extent that such adjusted_basis is a portion of the entire adjusted_basis of the property shall be disregarded the term term_interest_in_property means a life interest in property an interest in property for a term of years or an income_interest in a_trust sec_1_1001-1 provides that the term term_interest_in_property does not refer to remainder or reversionary interests in the property itself or other interests in property which will ripen into ownership of the entire property upon termination or failure of a preceding term_interest sec_1012 generally provides that the basis_of_property shall be the cost of the property sec_1_1012-1 defines cost to be the amount_paid for the property in cash or other_property in the present case greatgrandchild greatgrandchild greatgrandchild and greatgrandchild purchased their remainder interests in trust from an unrelated third party charity consequently under sec_1012 the basis of each of their respective interests is the amount that each paid for the property each would recognize gain from the sale of the remainder_interest equal to the difference between the amount_realized over the adjusted_basis of the remainder_interest we express no opinion on whether the proposed sales are authorized under trust or applicable state laws 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 the ruling s in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer 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 plr-147902-09 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 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 lorraine e gardner senior counsel branch passthroughs special industries enclosures cc


t c memo united_states tax_court william l reese petitioner v commissioner of internal revenue respondent docket no filed date held p is taxable on a pension_plan distribution because he failed to roll over that distribution within the 60-day period prescribed by sec_402 i r c held further p is liable for a 10-percent additional tax under sec_72 i r c on that distribution held further p is liable for a 10-percent additional tax under sec_72 i r c on a portion of a distribution from an individual_retirement_account held further sec_6651 i r c addition_to_tax for failure_to_file timely return sustained held further sec_6654 i r c addition_to_tax for failure to pay estimated_tax sustained william l reese pro_se dianne crosby and christine keller for respondent memorandum opinion halpern judge by notice_of_deficiency dated date respondent determined a deficiency in petitioner’s federal_income_tax for of dollar_figure and additions to tax for that year under sec_6651 and sec_6654 of dollar_figure and dollar_figure respectively unless otherwise noted all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether a pension_plan distribution to petitioner is taxable pursuant to sec_402 and whether petitioner is liable for a 10-percent additional tax under sec_72 on that distribution whether petitioner is liable for a 10-percent additional tax under sec_72 on a portion of a distribution from an individual_retirement_account and whether petitioner is liable for the additions to tax the parties have stipulated various facts which we so find the stipulation of facts filed by the parties with accompanying exhibits is incorporated herein by this reference we need find few facts in addition to those stipulated accordingly we shall not separately set forth our findings_of_fact and opinion and the additional findings_of_fact that we must make are contained in the discussion that follows petitioner bears the burden_of_proof on all questions of fact rule a i background petitioner resided in reston virginia when the petition was filed during until his employment was terminated on date petitioner was employed by unisys corporation unisys petitioner was a participant in the unisys savings_plan the plan the plan is an sec_401 plan on date petitioner requested an immediate total_distribution of his vested balance in the plan the request pursuant to the request two payments were made to petitioner in dollar_figure in april and dollar_figure on december totaling dollar_figure the distribution unisys informed petitioner that dollar_figure invested in a mutual benefit contract and dollar_figure invested in an executive life contract together the contract amounts remained in his plan account and were considered unavailable for distribution due to pending litigation involving those investments during the 60-day period beginning on date petitioner did not roll over into another qualified_plan the distribution beginning in date unisys began to make payments to petitioner of a portion of the contract amounts as of the date of the trial in this case unisys had not completed its payment of the contract amounts in petitioner also received an individual_retirement_account distribution of dollar_figure from u s trust co the u s trust co distribution petitioner is required to include dollar_figure of that amount in his gross_income for ii discussion a the distribution introduction the question with respect to the distribution is whether that distribution is taxable to petitioner for because of his failure to roll over the distribution within days of the receipt thereof petitioner argues that because he has not yet at least as of the date of the trial received full payment of his balance under the plan the 60-day rollover period has yet to commence so that we assume it is not yet possible to determine whether he is taxable on the distribution respondent argues that because petitioner did not roll over the distribution within days he is taxable on it for we agree with respondent pertinent provisions of the statute the parties appear to be in agreement that the plan meets the requirements of sec_401 and that there is a_trust forming a part of the plan that is exempt from income_tax under sec_501 that being so distributions from the trust including the distribution are governed by sec_402 that section provides generally that the amount actually distributed to any distributee shall be taxable to him in the year in which so distributed under sec_72 relating to annuities there is an exception to that rule_of taxability for certain rollover amounts sec_402 provides a general_rule --if-- i any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to him ii the employee transfers any portion of the property he receives in such distribution to an eligible_retirement_plan and iii in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid the transfer however must be made within days of receipt sec_402 subparagraph a shall not apply to any transfer of a distribution made after the 60th day following the day on which the employee received the property distributed that would seem to be the end of it for petitioner with respect to the distribution which was not transferred to an eligible_retirement_plan within the 60-day period prescribed by statute there is another restriction on rollovers however that petitioner would have us construe in his favor sec_402 provides in pertinent part b maximum amount which may be rolled over --in the case of any qualified_total_distribution the maximum amount transferred to which subparagraph a applies shall not exceed the fair_market_value of all the property the employee receives in the distribution reduced by the employee contributions other than accumulated_deductible_employee_contributions within the meaning of sec_72 in the case of any partial_distribution the maximum amount transferred to which subparagraph a applies shall not exceed the portion of such distribution which is includible in gross_income determined without regard to subparagraph a the term qualified_total_distribution is defined in sec_402 to include or more distributions which constitute a lump sum distribution within the meaning of subsection e a in pertinent part sec_402 defines a lump sum distribution to mean the distribution or payment within one taxable_year of the recipient of the balance_to_the_credit of an employee which becomes payable to the recipient on account of the employee’s separation_from_service petitioner’s argument petitioner argues that because in he did not receive the contract amounts the distribution did not constitute the balance_to_the_credit payable to him on account of his separation_from_service and thus was not a completed lump-sum_distribution within the meaning of sec_402 petitioner further argues that the distribution constituted an installment of a lump-sum_distribution which lump-sum_distribution will not be completed until unisys completes its payments to him on account of the contract amounts only then petitioner concludes will the 60-day rollover period begin analysis a partial_distribution apparently petitioner recognizes that it would be futile for him to argue that the distribution was a partial_distribution within the meaning of sec_402 nothing in the statute lends itself to the argument that treating the distribution as one or more partial distributions the 60-day rollover period has not expired b b alance to the credit of an employee as stated sec_402 incorporates into the definition of a lump-sum_distribution the requirement that the distribution or payment constitute the balance_to_the_credit of an employee which becomes payable on account of his separation_from_service the commissioner has interpreted the sec_402 balance-to-the-credit-of-an-employee requirement the balance payable requirement as being satisfied when the recipient receives all funds credited to the employee’s account except for the employee’s possible share of certain court impounded funds revrul_83_57 1983_1_cb_92 the commissioner’s position in that ruling is not before the court nor has petitioner directly challenged it revrul_83_57 supra c b pincite concludes in part by stating any additional distributions representing the employee’s portion of court-impounded funds released in a subsequent year do not constitute a lump sum distribution within the meaning of sec_402 of the code because the portion would not be payable within the same taxable_year as the employee’s original distribution thus although it might be argued that the commissioner has been liberal in interpreting the balance payable requirement the commissioner has not conceded in revrul_83_57 supra that a lump-sum_distribution can be made or paid in installments extending over a period greater than one taxable_year of the recipient although at some future time petitioner may challenge revrul_83_57 supra and claim that a distribution of some portion of the contract amounts constitutes a lump-sum_distribution under the plan that argument cannot help petitioner today petitioner directs our attention to revrul_60_292 1960_2_cb_153 that ruling does not support petitioner’s argument that if the balance_to_the_credit of an employee is not distributed within one taxable_year of the recipient a lump-sum_distribution may be made or paid in installments extending over more than one taxable_year that ruling addresses a prior version of sec_402 allowing long-term_capital_gain treatment on lump-sum_distributions made within one taxable_year of the distributee and states that if there is a delay in distribution on account of administrative problems and the total amount of the distribution is made in one taxable_year of the employee as soon as administratively feasible after separation_from_service the internal_revenue_service irs will in the interest of convenience in administration not require ordinary_income treatment for post-separation accruals of income nothing in the ruling supports petitioner’s argument petitioner also directs our attention to irs publication for use in preparing returns pension and annuity income pub pub contains the commissioner’s explanation of how to report pension and annuity income it purports to cover the special tax treatment of lump-sum_distributions page contains the following language with respect to rollovers time for making rollover you must complete the rollover by the 60th day following the day on which you receive the distribution from your employer’s plan in the case of a series of distributions that may constitute a lump-sum_distribution the 60-day period does not begin to run until the last distribution is made emphasis added the underscored sentence is no authority that a lump-sum_distribution may be paid in installments over more than one taxable_year of the recipient that sentence does no more than explain the language in the code that a lump-sum_distribution may comprise more than one distribution see sec_402 the term ‘qualified total distribution’ mean sec_1 or more distributions which constitute a lump sum distribution the underscored sentence must be read in light of the statement on page of pub that a lump-sum_distribution must be paid within one tax_year and the instruction on page that t o qualify for a rollover you must receive your complete share in the plan within one tax_year you can receive it in more than one part the requirement of sec_402 is plain all of the distributions that constitute a lump-sum_distribution must be received within one taxable_year of the recipient and we are not free to interpret that requirement as petitioner would have us do pub is correct in concluding that any rollover must be made within days of the last of such distributions within the taxable_year sec_402 in sum petitioner's argument is based on the assertion that he did not receive the balance_to_the_credit payable to him on account of his separation_from_service but that assertion does not eliminate the requirement under sec_402 that a lump-sum_distribution be made or paid within one taxable_year at best petitioner's assertion undermines the characterization of the distribution as a lump-sum_distribution that position however does not advance petitioner's case c frozen_deposit rule finally although it is not clear whether petitioner relies on the special rule for frozen deposits found in sec_402 that rule is of no benefit to him that rule among other things tolls the running of the 60-day rollover period for an amount transferred to the employee that is a frozen_deposit no portion of the distribution was a frozen_deposit see sec_402 and thus as stated the rule is of no benefit to petitioner conclusion petitioner failed to roll over the distribution within the days prescribed by sec_402 and thus is taxable on that distribution for under the authority of sec_402 b 10-percent additional tax on early distributions from qualified_retirement_plans sec_72 imposes an additional tax of percent of amounts received from qualified_retirement_plans as defined in sec_4974 that are includable in gross_income sec_72 contains certain exceptions respondent determined that such additional tax was due from petitioner on account of his receipt of the distribution and the u s trust co distribution with respect to the u s trust co distribution respondent now concedes that only dollar_figure of that distribution is subject_to the additional tax petitioner has made no argument with respect to the sec_72 additional tax except by implication of his argument that the distribution is not taxable we rejected that argument supra section ii a p and petitioner has not proven that any of the exceptions contained in sec_72 applies accordingly we sustain respondent’s determination of an additional tax with respect to the distribution and dollar_figure of the u s trust co distribution c addition_to_tax for failure_to_file return sec_6651 provides that in the case of a failure_to_file an income_tax return by the due_date there shall be imposed an addition_to_tax of percent of the amount of tax required to be shown as tax on such return for each month or portion thereof during which the failure continues not exceeding percent in the aggregate unless such failure is due to reasonable_cause and not due to willful neglect in the notice_of_deficiency respondent determined an addition_to_tax under that section in the amount of dollar_figure in the petition petitioner assigns error to that determination but avers no facts in support of that assignment petitioner testified that he filed his return on time but he admitted that he could not prove that fact the parties have stipulated a copy of petitioner's return which was mailed to respondent’s counsel on date that return shows petitioner’s signature and a date of date on that return petitioner claims an overpayment of dollar_figure petitioner has produced no evidence that he ever received any refund or other credit for petitioner’s uncorroborated testimony that he filed his return on time is self-serving and we are unwilling to and need not accept that testimony at face value see eg 975_f2d_534 8th cir affg in part revg in part tcmemo_1991_ 808_f2d_312 4th cir affg tcmemo_1985_107 petitioner has failed to prove facts to contradict respondent’s determination of an addition_to_tax in the amount of dollar_figure under sec_6651 therefore we sustain respondent's determination of an addition_to_tax under sec_6651 subject only to recalculation of the deficiency d addition_to_tax for failure to pay estimated_tax sec_6654 provides for an addition_to_tax in the case of any underpayment of estimated_tax by an individual in the notice_of_deficiency respondent determined an addition_to_tax under that section in the amount of dollar_figure in the petition petitioner assigns error to that determination but avers no facts in support of that assignment we must decide whether petitioner is liable for the sec_6654 addition_to_tax as determined by respondent the estimated_tax issue as a preliminary matter we must decide whether we have jurisdiction to decide the estimated_tax issue generally we have jurisdiction to redetermine additions to tax under the deficiency procedures 78_tc_19 an addition_to_tax under sec_6654 however is subject_to the deficiency procedures and we have jurisdiction to redetermine such an addition_to_tax only if no return is filed for the taxable_year see sec_6665 meyer v commissioner 97_tc_555 citing 441_f2d_1101 9th cir and estate of direzza v commissioner supra on brief respondent states as a fact petitioner did not file an individual federal_income_tax return for the year until date a few days before trial of this case that statement the proposed finding suggests perhaps inadvertently that on date petitioner did file his return in support of the proposed finding respondent’s only references are to the stipulated fact that petitioner mailed his return to respondent's counsel on date and the exhibit that constitutes a copy of that return nothing in respondent’s brief indicates that respondent recognizes that the wording of the proposed finding could raise a question under sec_6665 our standing_pretrial_order encourages indeed requires the exchange of documentary_evidence before trial therefore on the stipulation alone we are unwilling to conclude that petitioner filed a return and that we lack jurisdiction at trial petitioner conceded that he did not make any estimated_tax payments but claimed that an exception applied petitioner did not specify the exception that purportedly applies in the case of an overpayment of an addition_to_tax under sec_6654 see 88_tc_1175 at trial or on brief and has failed to propose any findings_of_fact that would lead to the conclusion that any of the exceptions found in sec_6654 applies to petitioner petitioner has failed to prove facts to contradict respondent’s determination of an addition_to_tax in the amount of dollar_figure under sec_6654 therefore we sustain respondent's determination of an addition_to_tax under sec_6654 subject only to recalculation of the deficiency decision will be entered under rule


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 plr-146583-04 date august date of death -------------------------- date of death -------------------------- --------------------- ------------------------------ --------------------------- -------------------------------------- ------------------------- ----------------------------- ------------------------ ------------------- ----------------------- --------------------------------------------------------------------- ----------------- --------- --------------------------------------------------------------------------------------- legend decedent wife daughter granddaughter grandson r t u v court county state state statute ------------------------------------------------------------------------------------------------------- institute dollar_figurex dollar_figurey date date date trust --------------------------------------------------------------------------------------------------------------- bank -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----- ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------- ------------------ ----------- --------------------- --------------------------- ------------------- --------------------------------------------------------------------------------------- paragraph a of trust provides that if wife survives decedent the trustees are this is in response to your authorized representative’s submission dated july plr-146583-04 dear ---------- in which a ruling was requested on the generation-skipping_transfer gst tax consequences of a proposed modification of trust according to the facts submitted decedent died testate on date survived by wife article fourth of decedent’s will provides that all the rest residue and remainder of decedent’s estate real personal and mixed in possession or in expectancy is bequeathed to bank its successors wife t and u to be held in a separate trust trust for the benefit of wife daughter and daughter’s descendants it is represented that trust was irrevocable on date and that there have been no additions to trust since date trust currently holds assets valued at approximately dollar_figurex to pay to wife in convenient installments during her lifetime the income from trust and from other sources up to an amount equal to dollar_figurey plus medical hospital and surgical expenses under paragraph b after the death of wife the trustees are to pay the income from trust in equal shares per capita to daughter and her children p and q in convenient installments during the life of daughter paragraph c provides that upon the death of the survivor of decedent wife and daughter the income from trust is to be paid per stirpes to the descendants of daughter who may be living in convenient installments until the distribution of trust as provided decedent wife and daughter trust as then constituted is to be distributed per stirpes to the then living descendants of daughter if at such time any descendant is under the age of twenty-one years his or her share of trust is to immediately vest in the descendant but possession thereof is to be postponed and only so much of the net_income and principal thereof is to be paid to the descendant as the trustees may deem necessary to provide for the care support and education of the descendant until the descendant attains the age of twenty-one years and any income not so expended during the calendar years is to be added to the principal each year daughter there is no then living descendant of daughter then upon the death of such survivor the trust estate is to be paid and distributed outright to institute to be used for educational_purposes in such manner as the governing body of institute shall deem most beneficial to the institution under paragraph d if upon the death of the survivor of decedent wife and upon the twenty-first anniversary date of the death of the survivor of it is represented that the current trustees of trust are bank daughter and presently there are no other provisions in trust or the decree for successor plr-146583-04 paragraph e provides that if from time to time in the opinion of the trustees other than an individual trustee who is the income_beneficiary affected the income payable to any beneficiary of trust together with such other income available to such beneficiary known to the trustees is insufficient to meet unusual expenses caused by illness accident or other unexpected misfortune or to provide for the education maintenance welfare and support of such beneficiary the trustees may pay to such beneficiary such sums as the trustees other than an individual trustee who is the income_beneficiary affected deem necessary or desirable for such purposes from the principal of trust granddaughter the individual successor trustees named in trust and in article six of decedent’s will who are not members of decedent’s family that is t u and v have either resigned or declined to act as trustee on date court entered its decree adding additional successor trustee provisions to trust the decree added granddaughter as a current trustee and provided that if either daughter or granddaughter ceases to act as a trustee then grandson will act as successor trustee individual trustees and no provisions for the appointment of successor individual trustees if more than one of daughter granddaughter and grandson do not act as trustees since trust will continue for years after daughter’s death and the trust has long been administered with at least two family members as trustees the trustees and beneficiaries propose to modify trust by entering into agreement under state statute to add additional successor trustee provisions to trust under state statute if all of the primary beneficiaries of a_trust are adult and competent then the trustees and the primary beneficiaries of the trust can enter into a written_agreement regarding the provisions of the trust and that agreement is binding on all of the beneficiaries of the trust in the same manner as if a court had entered an order approving the agreement primary beneficiaries are defined under state statute as the beneficiarie sec_1 who are currently entitled to receive income and principal from the trust and who would receive the trust principal upon the termination of the trust if the beneficiary survives to the termination_date and assuming there is no exercise of powers of appointment as set forth in article six of the trust and as amended by the decree are further amended to provide as follows if granddaughter ceases to act as a trustee of the trust and if grandson for any reason does not act or continue to act as successor trustee to granddaughter then granddaughter’s daughter r shall act as successor trustee to granddaughter provided that she is not already acting as a trustee of the trust in addition if daughter ceases to act as a trustee of the trust and if grandson for any reason does not act or continue to act as successor trustee to daughter then r shall act as successor trustee to daughter provided that she is not already acting as a trustee of the trust the proposed agreement provides the successor trustee provisions of the trust plr-146583-04 the following rulings are requested the proposed modification of trust that adds an additional successor trustee of trust pursuant to a procedure authorized by state law is administrative in nature within the meaning of sec_26_2601-1 of the generation- skipping transfer_tax regulations and does not result in a shift in beneficial_interest to a lower generation beneficiary or constitute an addition to trust trust will retain its status as exempt from gst tax after the proposed modification sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under section a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 the tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example considers a situation where a_trust is modified by decreasing the number of trustees the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation than the person or persons who held the plr-146583-04 beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the modification will not subject the trust to the provisions of chapter ruling the proposed modification of trust regarding the addition of another successor trustee in the event that granddaughter or grandson fails or ceases to act as trustee is a modification that is administrative in nature this modification does not shift any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed modification will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust or constitute as addition to trust ruling based on the facts submitted and representations made we conclude that after the proposed modification of trust resulting in the addition of an additional successor trustee under an agreement entered into pursuant to state statute trust will continue to retain its exempt status for gst tax purposes prior to date that added additional trustees to trust does not affect the gst exempt status of trust lastly we note that the previous modification of trust on date a date that is in accordance with the power_of_attorney on file with this office a copy of this the rulings contained in this letter are based upon information and except as expressly provided herein no opinion is expressed or implied letter is being sent to your authorized representative concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed 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 plr-146583-04 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours _________________________ lorraine e gardner senior counsel office of the associate chief_counsel passthroughs and special industries enclosures copy of letter for sec_6110 purposes


t c memo united_states tax_court eric edward chandler petitioner v commissioner of internal revenue respondent docket no 6866-12l filed date eric edward chandler pro_se inga c plucinski-holbrook and charles b burnett for respondent memorandum findings_of_fact and opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6320 and sec_6330 of the determination by the internal_revenue_service irs or respondent to uphold a notice of federal tax lien nftl filing the sole question for decision is whether the irs settlement officer so abused her discretion in rejecting petitioner’s offer-in- compromise oic we hold that she did not findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated by this reference petitioner resid- ed in utah when he filed his petition petitioner has been a frequent visitor to this court this case involves his federal_income_tax liabilities for and in date petitioner filed delinquent returns for he did not pay the full amounts of tax shown as due on those returns and the irs assessed the tax_liabilities that petitioner had reported after petitioner failed to pay these liabilities on notice_and_demand the irs attempted to collect the liabilities by all statutory references are to the internal_revenue_code in effect at all relevant times we round all dollar amounts to the nearest dollar see eg chandler v commissioner t c dkt no date sustaining tax deficiencies against petitioner for and chandler v commissioner t c dkt no date sustaining tax deficiencies against petitioner for chandler v commissioner t c dkt no date sustaining tax deficiencies against petitioner for chandler v commissioner tcmemo_1991_425 sustaining tax deficiencies and penalties against petitioner for and levy in we sustained that levy and our decision was affirmed by the u s court_of_appeals for the tenth circuit chandler v commissioner t c dkt no 7252-07l date bench opinion aff’d 327_fedappx_763 10th cir petitioner likewise filed delinquent returns for and he did not pay the full amounts of tax shown as due on those returns and the irs assessed the tax_liabilities that petitioner had reported in date in an effort to collect petitioner’s unpaid tax_liabilities for and and in a further effort to collect his unpaid tax_liabilities for the irs sent him a letter notice_of_federal_tax_lien filing and your right to a hearing petitioner timely submitted a form request for a collection_due_process or equivalent_hearing shortly after requesting the cdp hearing petitioner submitted a form_656 offer_in_compromise stating that his offer was based on doubt as to collectibili- ty at that time his unpaid federal_income_tax liabilities exceeded dollar_figure in his oic he offered to pay dollar_figure per month for months for a total of dollar_figure he stated that his individual monthly income was then dollar_figure that total household monthly income including his wife’s earnings was dollar_figure and that his monthly expenses were dollar_figure in date the irs rejected this oic expressing its belief that peti- tioner had submitted the offer solely for the purpose of delaying irs collection action petitioner replied by requesting the form s necessary to appeal this deci- sion which the irs treated as a request for a cdp hearing that request was forwarded to the irs appeals_office which on date offered petitioner a combined cdp hearing covering both the nftl filing and the rejection of his oic that hearing was scheduled to be held by telephone on date the irs letter informed petitioner that the so would need further informa- tion about how he had spent funds that he had withdrawn from his retirement accounts during and petitioner withdrew more than dollar_figure from these accounts during those years he failed to pay tax on these withdrawals and he did not use any of the proceeds to pay down his outstanding federal_income_tax liabilities on august three days before the scheduled hearing petitioner called the so and requested additional time to prepare she agreed to postpone the cdp hearing to september during the hearing held on that date petitioner did not contest his underlying tax_liability for any of the years at issue but requested a collection alternative the so informed him that he was ineligible in light of his income to have his account placed in currently not collectible cnc status she informed him that his oic was unacceptable because he would be treated as having dissipated and thus as continuing to own for oic purposes the assets he had withdrawn from his retirement accounts during petitioner was evasive when asked how he had spent this dollar_figure while rejecting petitioner’s oic the so indicated that a partial pay in- stallment agreement might be acceptable to the irs on date she sent petitioner a draft installment_agreement on form 433-d installment agree- ment the so thereby proposed that petitioner make monthly payments of dollar_figure for the first year and monthly payments of dollar_figure thereafter when petitioner failed to accept this agreement or otherwise respond the so decided that the case should be closed she determined that petitioner’s oic had to be rejected because his reasonable collection potential rcp including his dissipated retirement account assets was dollar_figure in contrast to his offer of dollar_figure the so determined that petitioner had dollar_figure in disposable income per month after allocating a portion of the household expenses to his wife’s income and that he would accordingly qualify for a short term deferred payment offer of dollar_figure monthly installments of dollar_figure but since petitioner had declined to accept this offer the irs sent him on date a notice of determi- nation concerning collection action that rejected his oic and sustained the nftl filing petitioner timely petitioned this court for review of that determination trial of this case was postponed several times after petitioner informed the court that he had been diagnosed with and was being treated for cancer trial was ulti- mately held on date when questioned at trial about his retirement account withdrawals petitioner testified that his lawyer had advised him to withdraw the money and just go spend it he testified that he spent this money on anything and everything that he had no records of what he spent the money on and that he simply had a good time he testified that his monthly medical_expenses had increased from dollar_figure at the time of the cdp hearing to dollar_figure currently on account of his cancer treatments opinion where as here the taxpayer did not or cannot dispute his underlying tax_liability at the cdp hearing the court reviews the irs’ determination for abuse_of_discretion 114_tc_176 140_tc_173 a taxpayer is precluded from disputing the underlying liability if it was not properly raised in the cdp hearing sec_301_6330-1 q a-f3 proced admin regs abuse_of_discretion exists when a determination is arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir in deciding whether the so abused her discretion in sustaining the nftl filing we consider whether she properly verified that the requirements of any applicable law or administrative procedure have been met considered any rele- vant issues petitioner raised and determined whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of petitioner that any collection action be no more intrusive than necessary see sec_6330 our review of the record establishes that the so analyzed the transcript of petitioner’s account determined that the tax_liabilities at issue were properly as- sessed and determined that all other requirements of applicable law and adminis- trative procedure were followed the only issue is whether petitioner raised any legitimate question concerning his entitlement to a collection alternative sec_7122 authorizes the irs to compromise an outstanding tax lia- bility the regulations set forth three grounds for such compromise doubt as to liability doubt as to collectibility or promotion of effective tax adminis- tration sec_301_7122-1 proced admin regs the secretary may compro- mise a tax_liability based on doubt as to collectibility--the ground petitioner alleged in his oic--where the taxpayer’s assets and income render full collection unlikely id subpara conversely the irs may reject an oic where the tax- payer’s rcp is greater than the amount he proposes to pay see 136_tc_475 aff’d 502_fedappx_1 d c cir appeals officers are generally directed to reject offers substantially below the taxpayer’s rcp where the offer is premised as it was here on doubt as to collectibility see revproc_2003_71 2003_2_cb_517 this court does not independently review the reasonableness of the tax- payer’s proposed collection alternative our review is limited to ascertaining whe- ther the so’s decision to reject that offer was arbitrary capricious or without sound basis in law or fact murphy t c pincite we do not substitute our judgment for that of the so as to the acceptability of a particular offer see eg johnson t c pincite the so rejected petitioner’s oic primarily because of her determination that his retirement account withdrawals during which exceeded dollar_figure constituted dissipated assets that had to be included in ascertaining his rcp this yielded an rcp of dollar_figure which vastly exceeded his offer of dollar_figure dissipated assets are those assets that have been sold transferred or spent on nonpriority items in disregard of an outstanding tax_liability taggart v commissioner tcmemo_2013_113 see johnson t c pincite the internal_revenue_manual irm instructs settlement officers to determine whether a taxpayer has dissipated assets such that they are no longer available to pay his tax_liability see irm pt date the determination whether dissipated assets should be included in the taxpayer’s rcp depends on the settlement officer’s evaluation of the facts and circumstances of the taxpayer’s case id pt settlement officers are counseled that taxpayers should be afforded the opportunity to explain or verify the disposition of transferred assets irm pt if the taxpayer does not provide information showing the disposition of funds from transferred assets such amounts should be included in his rcp id pt conversely w hen it can be shown through internal research or substantiation provided by the taxpayer that the funds were needed to provide for necessary living_expenses these amounts should not be included in the rcp calculation id pt see layton v commissioner tcmemo_2011_ the so gave petitioner multiple opportunities to explain how he disposed of the funds he withdrew from his retirement accounts during but he made no effort to do so his testimony at trial that he had a good time spending the funds on anything and everything would not support the conclu- sion that the assets in question were expended for essential living_expenses we find that the so did not abuse her discretion by treating petitioner’s retirement account withdrawals as dissipated assets and rejecting his oic for that reason petitioner’s final argument is that we should remand this case to the appeals_office in light of an alleged material_change in circumstances namely petition- er’s increased monthly medical_expenses owing to his cancer treatments while we have authority to remand a cdp case for consideration of changed circum- stances when remand would be helpful necessary or productive see churchill tcmemo_2011_182 102_tcm_116 petitioner has not shown that this case meets those criteria regardless of the alleged dollar_figure increase in his monthly medical_expenses petitioner’s rcp will be several hundred thousand dollars above his offer of dollar_figure an offer that we do not believe was made in good_faith petitioner has been conniving for a very long time to avoid payment of his federal_income_tax liabilities and it is time to bring these delay tactics to an even if the so had excluded petitioner’s dissipated assets from his rcp she would not have abused her discretion in rejecting his oic because his annual disposable income of dollar_figure dollar_figure significantly exceeded his total offer of dollar_figure the so determined that petitioner had without regard to dissipated assets future income of dollar_figure available to pay his tax_liabilities end petitioner is free to submit another oic if his circumstances legitimately so warrant finding no abuse_of_discretion in any respect we will sustain the so’s rejection of petitioner’s oic and the proposed collection action to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number 468a ------------------------- ------------------- ---------------------------------------------- ---------------------------------- ------------- ----------------------------------- 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 b6 plr-111555-11 date date re revised schedule of ruling amounts --------------------------------------------------------------- --------------------------------------------------------------------------------- legend taxpayer ------------------------------------------------------------------------------------------------------------ --------------------------------------------------- parent --------------------------------------------------------------- plant ----------------------------------------------- location ------------------------------------------------ commission ------------------------------------------------------- decision independent study --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- method estimate costs date amount year a year b year c year d ba fv x y p ----------- ---------------------------------------------------- --------------------------------------------------------- ---------------------- --------------- ------- -------- ------- ------- --------------------- --------------------- --------- --------- -------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- plr-111555-11 fund director dear ---------------- this letter responds to your request dated date for a revised schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1 468a f of the income_tax regulations taxpayer represents the facts and information relating to its request for rulings as follows taxpayer a corporation is a subsidiary of parent taxpayer owns a p percent interest in plant the plant is at location and the amended operating license is scheduled to expire on date the proposed method of decommissioning the plant is method with respect to nuclear decommissioning costs that are included in the taxpayer’s cost of service for ratemaking purposes taxpayer is subject_to regulation by commission in decision commission changed the amounts authorized to be included in the taxpayer’s cost of service for ratemaking purposes for nuclear decommissioning costs during the period from year a through year b independent study was submitted to and accepted by commission in connection with decision taxpayer is relying primarily on the decision and the change to the amounts authorized to be included in the taxpayer’s cost of service for ratemaking purposes for nuclear decommissioning costs in making this request the estimated cost of dollar_figureba year c dollars was used as a base cost for decommissioning the plant the estimated cost of decommissioning the plant in future dollars is dollar_figurefv it is estimated that substantial decommissioning costs will first be incurred in year b and that decommissioning will be substantially complete at the end of year d the methodology used to convert the year c dollars to future dollars was accepted by commission and was calculated by escalating the estimated costs using estimate to the year of estimated expenditure as well as a weighted average escalation rate for costs the assumed after-tax rates of return to be earned by the amount collected for decommissioning are between x and y percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount plr-111555-11 generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- b does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the plr-111555-11 tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates plr-111555-11 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations plr-111555-11 the proposed schedule of ruling amounts was derived by following the decision issued by commission thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts the mandatory review date for this matter is determined under sec_1 468a f i approved schedule of ruling amounts year each year year a-year b ruling_amount dollar_figureamount if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above specifically no determination is made whether the independent decommissioning study conforms to industry standards and practices this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the plr-111555-11 required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


t c memo united_states tax_court danielle jan bates and lucas r bates petitioners v commissioner of internal revenue respondent docket no filed date danielle jan bates and lucas r bates pro sese gary r shuler jr for respondent memorandum findings_of_fact and opinion foley judge the issues for decision relating to petitioners’ joint federal_income_tax return are whether a payment received pursuant to a settlement agreement is taxable_income and whether petitioners are liable for a sec_6662 accuracy-related_penalty findings_of_fact on date danielle jan bates began working as a customer service agent at abx air inc abx on date while performing her duties mrs bates injured her back as a result of her injury she could not maintain her required work schedule and on date abx terminated her employment because she had violated its attendance policy after her termination mrs bates applied for unemployment benefits with the ohio department of job and family services her application was initially denied but after numerous appeals the court_of_appeals for greene county ohio concluded mrs bates was eligible for unemployment benefits she also filed with the industrial commission of ohio a disability claim relating to her back injury and in her claim for disability benefits was approved on date mrs bates filed a complaint against abx in the common pleas court of clinton county ohio the complaint alleged sex pregnancy discrimination retaliation against mrs bates for her filing 1unless otherwise indicated all section references are to the internal_revenue_code relating to the year in issue and all rule references are to the tax_court rules_of_practice and procedure of a workers’ compensation claim wrongful discharge in violation of public policy and entitlement to punitive_damages because of the discrimination retaliation and wrongful discharge alleged in the complaint mrs bates sought to recover from abx lost wages compensatory_damages ie damages for emotional injury punitive_damages and attorney’s fees prior to detailing the allegations in the complaint mrs bates described how she injured her back mrs bates did not however seek in the complaint to recover from abx any damages relating to her back injury in date mrs bates and abx entered into a confidential settlement and general release agreement settlement agreement pursuant to which mrs bates released all claims against abx in exchange for dollar_figure ie dollar_figure relating to lost wages dollar_figure relating to emotional distress and dollar_figure relating to attorney’s fees and costs in abx issued mrs bates a form_w-2 wage and tax statement and a form 1099-misc miscellaneous income ie relating to the payments for lost wages and emotional distress and petitioners timely filed a joint federal_income_tax return in a notice_of_deficiency dated date respondent determined that petitioners had failed to report the dollar_figure payment relating to emotional distress were liable for a dollar_figure deficiency and were liable for a dollar_figure sec_6662 accuracy-related_penalty on date petitioners while residing in ohio timely filed a petition with the court opinion petitioners contend that the payment relating to emotional distress was attributable to a personal physical injury ie mrs bates’ back injury and thus excludable from income pursuant to sec_104 see 515_us_323 stating that sec_61 is broad in scope and exclusions from income must be narrowly construed 141_tc_331 aff’d 668_fedappx_241 9th cir sec_1_104-1 income_tax regs the settlement agreement however provides that mrs bates received dollar_figure on account of emotional distress but does not provide that this payment was on account of a personal physical injury or physical sickness see sec_104 flush language sec_1_104-1 income_tax regs indeed mrs bates received the payment on account of her discrimination retaliation and wrongful discharge allegations see united state sec_2pursuant to sec_7491 petitioners have the burden_of_proof unless they introduce credible_evidence relating to an issue that would shift the burden to respondent see rule a our conclusions however are based on a preponderance_of_the_evidence and thus the allocation of the burden_of_proof is immaterial see 110_tc_189 ndollar_figure v burke 504_us_229 stating that where damages are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether those damages are excludable pursuant to sec_104 58_tc_32 accordingly the dollar_figure payment is taxable_income sec_6662 imposes a penalty on the amount of any underpayment_of_tax attributable to n egligence or disregard of rules or regulations or a ny substantial_understatement_of_income_tax see sec_6662 and respondent bears and has met the burden of production relating to this penalty see sec_7491 116_tc_438 there is no credible_evidence that petitioners made reasonable efforts to assess their proper federal_income_tax liability or believed in good_faith that the liability was accurately reported see sec_6664 sec_1_6664-4 income_tax regs accordingly petitioners are liable for a sec_6662 accuracy-related_penalty contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------- -------------------------------- ------------------------------- -------------------------- legend 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 b02 plr-137684-09 date date x ------------------------------------------------ -------------------------------- ---------------------- ------------- ------- ------- ------- ------- date state year year year year dear ---------------- this responds to a letter dated date submitted on behalf of x requesting a ruling regarding x’s status as an s_corporation the information submitted states that x was incorporated in year in accordance with the laws of state x elected to be an s_corporation effective date x represents that it has only had a single class of stock outstanding since date x also represents that as a matter of state law all of x’s outstanding shares have identical rights to distribution and liquidation proceeds since year x has made distributions to shareholders that were not in proportion to the shareholders’ ownership interests in x there was no pattern of plr-137684-09 favoring certain shareholders over others additionally beginning in year x’s distributions to shareholders were further disproportionate due to an incorrect reckoning of the shareholders’ ownership percentages x represents that it was not aware that any of these disproportionate distributions could potentially jeopardize x’s s election until year shortly thereafter x began to make corrective distributions plus interest so that each shareholder would receive a pro_rata share of all distributions but for timing differences shareholders who received excess distributions are repaying these excess distributions including interest to x sec_1361 of the internal_revenue_code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that a corporation is generally treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder in the corporation at plr-137684-09 any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in termination such corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the information submitted and the representations made we conclude that it is not clear on these facts whether there was a termination of x’s s election however we conclude that if x’s s election was terminated such termination was inadvertent within the meaning of sec_1362 therefore we rule that x will be treated as continuing to be an s_corporation from year and thereafter provided that x’s s election is not otherwise terminated under sec_1362 this ruling is contingent upon x making the corrective distributions within days of the date of this letter x’s shareholders in determining their respective income_tax liabilities during the termination period and thereafter must include their pro_rata share of the separately_stated computed items of income or loss of x as provided in sec_1366 make any adjustments to basis provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 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 specifically no opinion is expressed or implied as to whether x otherwise qualifies as an s_corporation under sec_1361 this ruling is directed only to the taxpayer 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 representatives sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries cc


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number info release date conex-114108-10 uil ---------------------- -------------------------- --------------------- dear ---------------- this letter responds to your inquiry dated date to president obama you asked about the disparity between the standard mileage rate used to calculate deductible costs of operating an automobile for business purposes and the standard mileage rates used to calculate deductible costs of operating an automobile for health care and volunteer purposes the standard mileage rates are different primarily because different provisions of the internal_revenue_code the code govern them deduction of the costs of operation of an automobile for health care purposes is based on the medical_expense_deduction under sec_213 of the code sec_213 is limited to a deduction for expenses or amounts paid for health care in the taxable_year consistent with sec_213 the standard mileage rate for an individual taxpayer’s deduction for driving an automobile for medical purposes is based solely on variable costs of operating an automobile variable costs are out-of-pocket operating_expenses associated with the use of the vehicle such as gasoline and oil the standard mileage rate for volunteer purposes is provided by sec_170 of the code sec_170 limits the standard mileage rate to the variable costs associated with use of a passenger_automobile for providing services to a charitable_organization and also establishes the amount of the rate the standard mileage rate for business purposes on the other hand is based on a deduction allowed under sec_162 of the code for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business employees and self-employed individuals using an automobile to carry on a trade or conex-114108-10 business may deduct fixed costs of owning an automobile in addition to variable costs fixed costs include depreciation liability insurance and general repairs or maintenance in connection with the use of the automobile therefore the business_purpose mileage rate is higher than the rates for health care or volunteer purposes based on this legal framework an independent study is conducted annually on behalf of the internal_revenue_service to determine current variable and fixed costs of owning and operating an automobile the standard mileage rates for business and medical purposes are based on the results of the study whereas the standard mileage rate for volunteer purposes is set by sec_170 of the code however as you may be aware taxpayers have the option of deducting the actual costs of using their vehicle rather than using the standard mileage rates for your convenience i am enclosing a copy of publication medical and dental expenses the discussion of transportation costs can be found on pages and i hope this information is helpful if you have any questions please call ---------------or ---------------------- office_of_chief_counsel income_tax and accounting division at ------- --------------------- sincerely john p moriarty chief branch associate chief_counsel income_tax accounting enclosure