t c memo united_states tax_court david dobrich and naomi dobrich petitioners v commissioner of internal revenue respondent docket nos filed date john m youngquist and donald l feurzeig for petitioners daniel j parent for respondent memorandum findings_of_fact and opinion gerber judge respondent determined deficiencies in petitioners' and federal_income_tax in the amounts of dollar_figure and dollar_figure respectively and sec_6663 a unless otherwise indicated all section references are to the internal_revenue_code for the years in issue and all rule references are to the tax_court rules_of_practice and procedure civil_fraud penalties for and of dollar_figure and dollar_figure respectively respondent determined the income_tax deficiency and penalty in the alternative for or the issues for our consideration are whether petitioners may defer recognition of gain from the disposition of certain real_property under sec_1031 if the transaction does not qualify for sec_1031 exchange whether petitioners are entitled to report the gain in under the installment_sale_method and whether petitioners are liable for a fraud_penalty under sec_6663 findings of fact2 at the time the petitions in this case were filed petitioners resided in danville california petitioners are married and filed joint federal_income_tax returns for each of the years in issue during the years in issue petitioners engaged in real_estate investment and received rental income from commercial and residential real_estate in petitioners purchased acres of unimproved real_property located in antioch california antioch property for dollar_figure and thereafter spent dollar_figure in engineering and consulting fees to improve the property in petitioners decided to sell a portion of the antioch the stipulation of facts and the attached exhibits are incorporated herein by this reference property to an unrelated third party and granted an option to purchase acres of the property for dollar_figure to expire on date petitioners intended to dispose_of the property in a sec_1031 exchange for like-kind_property to obtain nonrecognition treatment of the gain realized they knew that they had a limited time period after the sale closed to replace the antioch property with like-kind_property and had to identify replacement_property within days petitioners entered into an agreement with clack brothers inc clack bros to act as an intermediary to facilitate a like-kind_exchange of the antioch property purportedly in accordance with sec_1031 exchange_agreement timothy clack mr clack the president of clack bros is a real_estate attorney and had represented petitioners in real_estate transactions since the 1970's pursuant to the exchange_agreement petitioners assigned the right to receive the antioch option proceeds to clack bros on date the option holder exercised the option to purchase the antioch property petitioners transferred the title of the antioch property to the purchaser without clack bros ' acquiring legal_title the purchaser paid the dollar_figure purchase_price into an escrow account by date clack bros thereafter transferred dollar_figure of the proceeds into an interest-bearing trust account in its name and used the remainder for a deposit on replacement_property chosen by petitioners petitioners paid a portion of the interest earned on the sale proceeds to clack bros as a fee and retained the remainder of the sale proceeds interest the exchange_agreement provided that petitioners would be entitled to the sales proceeds if they did not identify replacement_property within days of the transfer of the antioch property if petitioners did identify replacement_property they would have a right to the sales proceeds if they did not acquire replacement_property within days of the transfer pursuant to the exchange_agreement a letter attached to the exchange_agreement also informed petitioners of the 45-day identification period the 45th day after the transfer was date and the 180th day was in date petitioners began looking for replacement_property in they considered numerous potential replacement properties and met with several real_estate agents in connection with the properties they considered petitioners examined various information about the properties such as building plans income and expense statements tenant lists leases rents service and maintenance contracts on the property and warranties in order to analyze the investment opportunity of the properties petitioners expressed an interest in a number of replacement properties during the identification period they offered to purchase several different properties entered into purchase agreements and had clack bros make earnest money deposits using the sales proceeds from the antioch property however petitioners did not acquire any of these properties after the identification period had expired petitioners continued to search for possible replacement properties and continued to make unsuccessful offers as late as date in date petitioners made offers to purchase two parcels of real_property contra costa boulevard pleasant hill california pleasant hill and skyland drive zephyr cove nevada skyland petitioners acquired these properties in date using the sales proceeds from the antioch property petitioners purchased the pleasant hill property from a partnership in which daniel fivey was a general_partner the partnership began construction of a retail shopping center on the property in mid-1989 and completed construction in date the pleasant hill property had not been listed for sale with any real_estate brokers petitioner husband had previously discussed another possible replacement_property with mr fivey in mid-1989 during the course of the discussions mr fivey mentioned the pleasant hill property which was still under construction and not available for sale petitioner husband did not ask mr fivey for a tour of the property or for any information about the property petitioners did not express any interest in purchasing pleasant hill or otherwise identify pleasant hill as replacement_property at that time or at any time prior to date on date one of petitioners' real_estate agents kevin van voorhis mr van voorhis told petitioner husband that the pleasant hill property was for sale this was the first time petitioners had discussed pleasant hill with mr van voorhis and petitioner husband did not indicate to mr van voorhis that he was familiar with the property mr van voorhis informed petitioner husband that pleasant hill could not be part of a sec_1031 exchange for the antioch property because it was not identified within the 45-day identification period on date petitioners offered to purchase pleasant hill for dollar_figure and entered into a purchase contract petitioners assigned the purchase contract to clack bros and the purchase closed on date the purchase_price was paid_by clack bros from the antioch sales proceeds petitioners negotiated the purchase of pleasant hills themselves and paid mr van voorhis a finder's fee of dollar_figure petitioners also looked for residential_rental_property in the lake tahoe nevada area in and used sandra love ms love as their real_estate agent on date after the identification period had expired petitioners first expressed an interest in the skyland property to ms love they had toured skyland that day with another real_estate agent but wanted ms love to handle the purchase the skyland property contains a waterfront single-family residence the house was constructed during the summer of and first advertised for sale in date while under construction ms love had not previously discussed the skyland property with petitioners or shown the property to them petitioners did not indicate to ms love that they had seen the house prior to date the next day date petitioners made a verbal offer for the skyland property which they later decided to withdraw on date ms love also contacted mr clack at petitioners' request to identify skyland as replacement_property after the initial offer petitioners did not express any further interest in purchasing skyland again until date when they called ms love to inquire as to whether the skyland property was still for sale on date petitioners offered to purchase the skyland property for dollar_figure and entered into a purchase contract petitioners assigned the purchase contract to clack bros and the purchase_price was paid_by clack bros from the sales proceeds of the antioch property the purchase closed on date petitioners regularly discussed the 45-day identification requirement with mr clack and with several real_estate agents whom petitioners employed mr clack repeatedly advised petitioners to obtain documentation to establish that they had identified replacement_property within the 45-day period mr clack recommended that petitioners purchase replacement_property that had been identified during the 45-day period real_estate agents also gave petitioners similar advice including mr van voorhis who recommended that a written identification be furnished to mr clack as the exchange intermediary in date mr van voorhis offered to write a letter to mr clack that identified replacement properties that petitioners were considering van voorhis letter mr van voorhis asked petitioners which properties to include in the letter and also included properties that mr van voorhis had shown to them petitioners did not inform mr van voorhis that they were interested in either the skyland or pleasant hill properties in his preparation of this letter the letter dated date identified potential replacement properties and did not include either the pleasant hill or skyland properties despite this advice petitioners did not identify either pleasant hill or skyland in writing or obtain other written documentation moreover petitioners did not discuss purchasing either the pleasant hill or skyland property with mr clack any of their real_estate agents or the prior owners of the properties during the 45-day period in date petitioner husband asked ms love to write a false letter skyland letter addressed to petitioners purporting to acknowledge that petitioners had expressed an interest in purchasing the skyland property to her as of date the letter was backdated to date on petitioner husband's request to misrepresent the time by which skyland was identified as replacement_property the letter also incorrectly stated that petitioners had made a verbal offer to purchase the property on that date at petitioners' direction ms love also changed the date of petitioners' offer for the skyland property from date to a september date petitioners and ms love also re-dated the purchase contract to date in date petitioner husband also asked mr fivey to write a similar letter to fabricate an interest in the pleasant hill property during the identification period pleasant hill letter the letter backdated to date purported to acknowledge petitioner husband's interest in acquiring pleasant hill in late date after the identification period had expired petitioner husband had suggested that documents be backdated in connection with another property that petitioners were considering but did not acquire petitioners offered to purchase this property and the purchase offer was backdated to be within the identification period on date petitioners received a sample letter from mr clack that was used to prepare the back dated pleasant hill and skyland letters the sample letter was dated date and addressed to petitioner husband petitioners received this sample letter before they expressed an interest in acquiring either pleasant hill or skyland to mr clack in date petitioner husband also wrote a letter to mr clack which purported to identify five possible replacement properties including the pleasant hill and skyland properties petitioner husband backdated the letter to date the date of the van voorhis letter identifying potential replacement_property petitioners reported the transfer of the antioch property on their tax_return as a sec_1031 exchange qualifying for nonrecognition of gain and reported that they identified replacement_property on date respondent determined that the transaction did not qualify as a sec_1031 exchange because petitioners did not timely identify the replacement_property accordingly respondent determined that petitioners must report the gain realized on the antioch property petitioners' accountant relied on the false letters solicited by petitioner husband from ms love and mr fivey to prepare petitioners' and tax returns petitioners indicated to their accountant that they exchanged the antioch property pursuant to sec_1031 and that the replacement properties had been identified within the 45-day identification period during the audit of their tax returns petitioners' accountant provided to respondent's revenue_agent a copy of the backdated letter that petitioner husband wrote to mr clack identifying the pleasant hill and skyland properties mr fivey sent the pleasant hill letter to the revenue_agent pursuant to a written plea agreement with the u s department of justice petitioner husband pleaded guilty to two counts of violating sec_7207 for causing the delivery of false documents to the internal_revenue_service irs petitioners extended the period of limitations to assess and collect tax for and to date pursuant to sec_6501 respondent timely issued a notice_of_deficiency for and issued a notice_of_deficiency for on date opinion generally a taxpayer must recognize the entire amount of gain_or_loss on the sale_or_exchange of property sec_1001 sec_1031 allows taxpayers to defer gain_or_loss from exchanges of like-kind_property held for business or investment purposes as distinguished from a cash sale of property followed by a reinvestment of the proceeds in other_property 74_tc_555 sec_1031 governs nonsimultaneous like-kind_exchanges to qualify as a nonsimultaneous like-kind_exchange the taxpayer must identify replacement_property to be received in the exchange within days after the date the taxpayer transfers the property relinquished in the exchange sec_1031 in this case the 45-day period ended on date the parties dispute whether petitioners timely identified either the pleasant hill or skyland properties as replacement properties petitioners contend that they discussed pleasant hill and skyland with each other during the identification period petitioners further allege that they drove by the properties while under construction and that petitioner husband toured the construction site and inquired about building plans with construction workers petitioners concede that they never indicated that they were interested in acquiring pleasant hill or skyland to the prior owners of either property their exchange intermediary attorney mr clack or any of their numerous real_estate agents petitioners contend that identification of replacement_property to each other was sufficient to meet the identification requirement of sec_1031 respondent contends that petitioners did not consider purchasing pleasant hill or skyland during the identification period and even if they did petitioners did not adequately identify either property sec_1031 provides for purposes of this subsection any property received by the taxpayer shall be treated as property which is not like-kind_property if-- a such property is not identified as property to be received in the exchange on or before the day which i sec_45 days after the date on which the taxpayer transfers the property relinquished in the exchange or b such property is received after the earlier of-- i the day which i sec_180 days after the date on which the taxpayer transfers the property relinquished in the exchange or ii the due_date determined with regard to extension for the transferor's return of the tax imposed by this chapter for the taxable_year in which the transfer of the relinquished_property occurs the secretary issued regulations under sec_1031 after the years in issue which require taxpayers to identify replacement_property in a written document signed by the taxpayer and sent to either the person obligated to transfer the replacement_property or any person involved in the exchange eg a party an intermediary or an escrow agent other than the taxpayer or a disqualified_person the taxpayer's agent or a related_party sec_1_1031_k_-1 income_tax regs the regulations apply to transfers of property made on or after date or in limited cases transfers made on or after date sec_1_1031_k_-1 income_tax regs as the regulations do not apply in this case petitioners contend that during the years in issue the proper method of identification was ambiguous they argue that sec_1031 does not expressly require written identification or specify to whom identification must be made petitioners also argue that the legislative_history for sec_1031 does not clarify the required method of identifying replacement_property the conference_report provides the conference agreement follows the senate amendment except that transferors are permitted days after the transfer to designate the property to be received the conferees note that the designation requirement in the conference agreement may be met by designating the property to be received in the contract between the parties it is anticipated that the designation requirement will be satisfied if the contract between the parties specifies a limited number of properties that may be transferred and the particular property to be transferred will be determined by contingencies beyond the control of both parties h conf rept pincite 1984_3_cb_1 congress' primary concern in amending sec_1031 was to prevent long periods of delay between the exchange of properties as occurred in 602_f2d_1341 9th cir h conf rept supra c b pincite congress added the and 180-day requirements for like-kind_exchanges to address this concern it is not necessary for us to decide whether identification must be in writing rather we must decide whether the steps taken by petitioners were sufficient petitioners have no credible_evidence that they had considered pleasant hill or skyland as replacement properties during the identification period during that period petitioners did not inform anyone either verbally or in writing that they were interested in either property petitioners first expressed an interest in acquiring pleasant hill in date when the property was brought to their attention by mr van voorhis petitioner husband may have briefly discussed pleasant hill with mr fivey during the identification period however petitioner husband concedes that he did not indicate to mr fivey any intention to acquire pleasant hill as replacement_property until after the identification period had expired petitioners first indicated their interest in the skyland property on date petitioners claim that they drove by the house with a real_estate agent in the summer of while it was under construction they did not express an interest in purchasing skyland at that time they also contend that they drove by both properties by themselves on several occasions and that petitioner husband viewed the construction site however there is no evidence other than their testimony that petitioners considered purchasing these properties or expressed an interest in the properties during the identification period throughout the end of petitioners made a number of offers and entered into purchase contracts on other properties as replacements for the antioch property including an offer in date petitioners claim that by date they had decided to purchase pleasant hill and skyland however they rely solely on their own testimony in that regard apart from their testimony there is no evidence that they saw the skyland property before date or the pleasant hill property before january of even if they had seen either property on the dates alleged that would likely not be sufficient to meet the identification requirement although petitioners are not specifically educated in tax matters they are sophisticated real_estate investors petitioners repeatedly discussed the identification requirement with their advisers and were advised as to the adequate measures of identification we find that petitioners understood the importance of timely identification indeed they asked ms love to identify skyland to mr clack when they made a verbal offer nevertheless they never disclosed their alleged interest in the pleasant hill or skyland properties during the identification period to anyone not to mr clack their real_estate agents or the prior owners petitioners failed to mention either property to mr van voorhis in date when mr van voorhis prepared an identification letter to mr clack moreover petitioner husband did not indicate any prior interest in pleasant hill and acted as if he were unfamiliar with the property when mr van voorhis first approached him about it as petitioners knew and understood the need to timely identify replacement_property it is highly improbable that petitioners would have kept any actual interest in these properties to themselves under these circumstances we find to be untrue petitioners' testimony that their decisions to acquire pleasant hill and skyland as replacement_property were made during the identification period as further evidence of the incredible nature of his testimony petitioner husband repeatedly testified that he was not familiar with the 45-day identification requirement yet mr clack and several real_estate agents testified that they regularly discussed the requirement with petitioners and that petitioner husband appeared to understand it we find that petitioners did not take any steps to identify pleasant hill or skyland as replacement_property during the identification period moreover if taxpayers were permitted to identify replacement_property between themselves without notifying an unrelated party or another party to the exchange the identification requirement would be meaningless designation between married taxpayers would also create problems with the limitation on the number of properties permitted to be identified and would essentially be the equivalent of permitting taxpayers to identify an unlimited number of replacement properties see st laurent v commissioner tcmemo_1996_150 we conclude that petitioners did not identify the pleasant hill or skyland properties as replacement_property within the time period required by sec_1031 accordingly the gain realized from the sale of the antioch property is recognizable in the notices of deficiency respondent determined the gain realized on the sale of the antioch property without regard to petitioners' basis in the property sec_1001 provides that the gain from the sale of property is the excess of the amount_realized over the adjusted_basis the adjusted_basis of property is its basis cost as determined under sec_1011 and as adjusted by sec_1016 sec_1012 the basis is adjusted for the costs of improvements and betterments made to the property sec_1016 sec_1_1016-2 income_tax regs petitioners paid dollar_figure for acres of the antioch property and sold acres of the property in the transaction at issue in this case petitioners' original_basis in the acres based on the dollar_figure purchase_price is dollar_figure as conceded by respondent petitioners also expended approximately dollar_figure in engineering and consulting costs to improve the acres of the antioch property we find that petitioners' basis in the acres of the antioch property is dollar_figure and their gain realized is dollar_figure dollar_figure-dollar_figure installment_method petitioners argue that they are entitled to report any gain that they must recognize from the sale of the antioch property in under the installment_method of sec_453 sec_453 permits taxpayers to report gain from the sale of property in the year payment is received payment includes amounts either actually or constructively received by the taxpayer sec_15a_453-1 temporary income_tax regs fed reg date taxpayers are not entitled to report gain under the installment_method if they directly or indirectly control the sales proceeds or receive the economic benefit therefrom 643_f2d_654 9th cir citing 441_f2d_593 5th cir affg 52_tc_888 affg 71_tc_311 98_tc_54 respondent contends that petitioners are not entitled to use the installment_sale_method because petitioners constructively received the sales proceeds and received economic benefits from the proceeds in respondent argues that petitioners obtained control_over the sales proceeds when they were deposited into the clack bros ' trust account the funds were used to make earnest money deposits on replacement properties that petitioners wanted to acquire and petitioners negotiated the purchase_price on the properties based on these facts respondent contends that petitioners directed how and when the sale proceeds were spent and thus had control_over the sales proceeds respondent argues that a seller cannot defer gain recognition under the installment_method by placing the purchase_price with a third party for payment to the seller in a later year respondent relies on a line of cases including 73_tc_933 49_tc_119 and 56_tc_569 among others which found that the seller no longer looked to the buyer for payment and expected to collect the sales proceeds from a third-party source such as an escrow account petitioners however argue that the cases cited by respondent did not involve circumstances where substantial restrictions existed on the seller's right to the third-party funds money deposited in an escrow account by a buyer is not deemed to be constructively received by the seller if the seller's right to receive the funds is subject_to substantial limitations or restrictions 69_tc_558 champy v commissioner tcmemo_1994_355 see sec_1_451-2 income_tax regs here the exchange_agreement provides that petitioners were to transfer the antioch property to clack bros in exchange for property to be identified by petitioners to accomplish this petitioners were to transfer title and assign the proceeds from the option agreement on the antioch property to clack bros under the agreement clack bros would have became the seller however petitioners did not follow the agreement in that they retained title and transferred it directly to the purchaser clack bros did receive the sales proceeds and deposited them into the trust account although the exchange_agreement provided that petitioners were not entitled to exercise control_over the sales proceeds and clack bros was obligated to use the sales proceeds to acquire replacement_property designated by petitioners we do not find the agreement with clack bros to be a sufficient basis for finding a restriction on petitioners' ability to use the proceeds of sale petitioners as a guise named properties within the day period with no apparent intention to use them as replacement properties when the replacement properties suitable to petitioners were designated after the 45-day period petitioners with clack's cooperation_and_participation backdated documents to make it appear that the properties had been timely identified in this setting we hold that petitioners have failed to show that any restriction on their ability to use the proceeds was sufficient to avoid constructive receipt in accordingly petitioners are not entitled to installment reporting into the taxable_year fraud_penalty sec_6663 imposes a penalty equal to percent of any underpayment that is due to fraud fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing 829_f2d_828 9th cir affg tcmemo_1986_223 796_f2d_303 9th cir affg tcmemo_1984_601 respondent has the burden of proving fraud by clear_and_convincing evidence sec_7454 rule b to satisfy this burden respondent must prove that petitioners intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes 80_tc_1111 the existence of fraud is a question of fact to be resolved upon consideration of the entire record 96_tc_858 affd 959_f2d_16 2d cir 69_tc_391 fraud is never presumed and must be established by independent evidence that establishes fraudulent intent edelson v commissioner supra 55_tc_85 fraud may be proven by circumstantial evidence because direct evidence of the taxpayer's fraudulent intent is seldom available 317_us_492 rowlee v commissioner supra 67_tc_181 affd without published opinion 578_f2d_1383 8th cir the petitioners had raised the defense that the period for assessment had expired when respondent issued the notice_of_deficiency for the year the year comes into play in the context of this case if petitioners are entitled to installment_sale treatment in that event respondent would also have the burden of proving that an exception to the general period of limitations applies 54_tc_255 that question is mooted by our holding that petitioners are not entitled to installment reporting even if petitioners had been successful on the installment reporting issue respondent has carried the burden of showing a fraudulent return and therefore the period for assessment would not have expired prior to issuance of the deficiency_notice sec_6501 taxpayer's entire course of conduct may establish the requisite fraudulent intent 56_tc_213 53_tc_96 courts have developed several indicia of fraud or badges_of_fraud which include understatement of income inadequate books_and_records failure_to_file tax returns implausible or inconsistent explanations of behavior concealment of assets failure to cooperate with tax authorities filing false forms w-4 failure to make estimated_tax payments dealing in cash engaging in illegal activity and attempting to conceal illegal activity 899_f2d_164 2d cir bradford v commissioner supra pincite 91_tc_874 this list is nonexclusive 94_tc_316 the strongest evidence of fraud in this case consists of the false documents that petitioner husband prepared and solicited to make it appear that petitioners expressed an interest in the pleasant hill and skyland properties within the identification period submitting false documents to the irs is an indication of fraud 79_tc_995 affd 748_f2d_331 6th cir association cable tv inc v commissioner tcmemo_1995_596 petitioners contend that their attorney mr clack advised them to obtain the false documents petitioners maintain that they relied on mr clack's advice and that they did not know that written identification was required and did not realize the significance of the false backdated letters we believe however that petitioner husband initiated the idea of backdating documents and falsifying identification and more importantly that petitioners knew their misrepresentations were fraudulent mr clack maintains that it was petitioner husband's idea to falsify documents in late date petitioner husband suggested backdating and falsifying a purchase offer and contract for another property not ultimately purchased by petitioners in order to fraudulently obtain sec_1031 tax_deferral mr clack denies that he advised petitioners to falsify documents to establish timely identification but admits that he assisted petitioners in perpetuating this fraud mr clack provided a backdated sample letter that petitioners used in soliciting the pleasant hill and skyland letters mr clack contends that he believed that petitioners in fact had expressed an interest in the pleasant hill and skyland properties during september to ms love and mr fivey and that he did not know that the letters were false other than being improperly backdated petitioners received the sample letter from mr clack before they expressed interest in acquiring pleasant hill or skyland most likely petitioners obtained the letter because they intended to create a false impression that they had timely identified whatever property they acquired petitioners had repeated discussions with their real_estate agents and mr clack about the identification requirement and the need to adequately identify replacement_property mr clack advised petitioners of the need to acquire property that had been identified during the 45-day period mr van voorhis and other real_estate agents counseled petitioners to have written documentation of their identification when mr van voorhis first showed pleasant hill to petitioners he informed them that it could not qualify as replacement_property because it was not timely identified a letter attached to the exchange_agreement clearly informed petitioners of the need to identify property within days of the sale of the antioch property we find in this setting petitioners cannot rely on mr clack's advice as an excuse for their fraudulent conduct they knew their actions were fraudulent because of the repeated advice they received petitioners were not misled into committing fraud by their attorney as they contend see medieval attractions n v v commissioner tcmemo_1996_455 we consider it probative that petitioner husband pleaded guilty to submitting false documents to respondent's revenue_agent in violation of sec_7207 although this conviction does not alone establish fraudulent intent to evade taxes it is evidence of petitioner husband's intent and propensity to defraud 92_tc_661 alvarez v commissioner tcmemo_1995_414 petitioners are highly successful effective and sophisticated real_estate investors they knew that they had not timely identified pleasant hill or skyland as replacement_property and that the transaction did not qualify as a sec_1031 exchange petitioners reported the transaction as a sec_1031 exchange and knowingly and deceptively deferred tax on over dollar_figure million in taxable gain petitioners willfully took steps to disguise the taxable sale as a sec_1031 exchange petitioner husband knowingly solicited fabricated letters from mr fivey and ms love he also knowingly intended to commit fraud when he backdated a letter to mr clack in which petitioner husband purported to identify pleasant hill and skyland it is likely that petitioner husband intended this letter to replace the van voorhis letter which identified replacement properties not including either pleasant hill or skyland petitioners were involved in the preparation of these false documents and presented them to their accountant and to the irs as part of their tax returns and in support of their reporting during the audit petitioners argue the false documents were not fraudulent because written identification was not required under sec_1031 and the regulations thereunder during the years in issue this case involved more than fabricated written identification we have found that petitioners did not show any interest in the pleasant hill property or the skyland property within the identification period and we do not believe their self-serving and uncorroborated testimony that during the identification period they discussed these properties with each other and decided to buy them although they knew that they had not identified pleasant hill or skyland even verbally petitioners misrepresented to the irs that they had in fact identified the replacement_property and reported the transaction as a sec_1031 exchange petitioners knew that they would owe a substantial amount of tax if they did not timely identify replacement_property the law is clear with respect to this issue petitioners fabricated timely identification and obtained false documents to substantiate their claim petitioners knew that the letters were false and that their tax returns were false the false letters even if not required for adequate identification are evidence of fraud see association cable tv inc v commissioner tcmemo_1995_596 petitioners' conduct presents clear_and_convincing evidence of their intent to defraud accordingly petitioners are liable for a sec_6663 fraud_penalty for to reflect the foregoing decisions will be entered under rule in docket no and for petitioners in docket no


number release date id office uilc cca_2012100315360646 ---------------------------- from ------------------ sent wednesday october pm to ------------------ cc -------------------------- subject fw cdp - poa - non-receipt of notice hi ------------ this is to follow up on our telephone conversation concerning the validity of the notice_of_determination it is our understanding that the forms submitted by the husband and wife taxpayers list different addresses for the representative and only one of those addresses was correct each of the forms stated on line that the original notices and other written communications would be sent to the taxpayer and a copy of the notices and other written communications would be sent to the representative the settlement officer conducting the taxpayers' cdp hearing sent all correspondence including the conference letter to the taxpayers at their correct and last_known_address with copies to the representative at the incorrect address provided on one of the forms the representative has said that he did not receive copies of the conference letter or other correspondence sent by the settlement officer the representative said that he received calls from the settlement officer and returned them the settlement officer stated that the representative never returned her calls appeals issued a notice_of_determination sustaining the collection action and sent it to the taxpayers by certified mail to the taxpayers' last_known_address with a copy to the representative at the incorrect address the 30-day period for filing a petition with the tax_court pursuant to sec_6330 has expired the representative has requested that the notice_of_determination be rescinded and the hearing resumed the notice_of_determination in this case is valid the tax_court has held that a valid notice_of_determination for sec_6330 jurisdictional purposes must be a written notice that embodies a determination to proceed with collection of the taxes in issue 117_tc_159 in determining its jurisdiction the court will not look behind a notice_of_determination to inquire about whether the taxpayer was given a hearing satisfying the requirements of sec_6330 pincite the tax_court has also concluded that a notice_of_determination is valid if it was sent by certified or registered mail to the taxpayer's last_known_address 122_tc_258 the notice_of_determination in this case was a written notice of appeals' determination that the collection of the taxes in issue may proceed it was sent by certified mail to the taxpayers' last_known_address the failure to send a copy of the notice_of_determination to the representative's correct address does not invalidate the notice_of_determination cf 76_tc_750 explaining that the service sends copies of notices of deficiency to representatives as a matter of courtesy and that failure to send such a copy does not affect the validity of the notice_of_deficiency the notice_of_determination issued in this case is valid and would have provided a basis for tax_court jurisdiction if the taxpayers had filed a petition within the 30-day period specified in sec_6330 id as i indicated on the phone appeals cannot rescind or withdraw a notice_of_determination see irm if you have any further questions or if i can be of further assistance please give me a call thanks --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------


20vu743u department of the treasury internal_revenue_service washington d c government entities division aug uniform issue list no hrhrkrkeeekerereererererererekrerekrererer hhkkkkikkkekeeereereererrererererrererr harker kerrier rekrerereerrerer attention os keke ree rrr rrerrerkerkeee hhrkkekkekkererikkererrerererer eere legend church a congregation b me kkk kerrier aer rerreerreererererere ek kkk keke aker er keke eere ete eere re reeeereeeerererrerere region cc kikikikkiaik ere ree re err ere eee err ere eer ree rear ererererrere kkekkkrkerererererereereerererere hakkar ik aik iir eee eir iris aker ree ree erereree college kirke eere rererererreeereeree freer eere ere ree erererereraererererer kkk erererererererereerererer hra ree ererererererere state d state e mee kr kk kkk eker eere ree ree ree ean kkk kekkkekekekereekekrekkee city f keke ere plan xx hrik ir riki iri rii riaa arrieta rr eeererrreree this is in response to a letter dated date in which your authorized representative requested rulings on your behalf under sec_414 of the internal_revenue_code code in support of your ruling requests you have submitted the following statements and information the college is a not-for-profit corporation chartered under the laws of state d in the college was established by members of congregation b a group of religious individuals founded in city f under the auspices of and affiliated with church a the college's mission is to further the teachings and works of church a by bestowing upon students a respect for human dignity and a concern for the marginalized in our society through a liberal arts curriculum congregation b's ministry extends to the fields of education hospitals nursing homes childcare and work in local churches founding of the college and its continuing mission is a part of congregation b's education ministry the college's corporate bylaws provide that as a church a liberal arts college the curriculum is enriched by church a tradition and values as reflected in the philosophy of congregation b the bylaws further provide that the college shall be managed and operated in accordance with the tradition teachings and the laws of church a and the constitution directives and philosophy of congregation b the region c the regional headquarters of congregation b in the united_states is a not-for- profit corporation chartered in state e and located in city f the sole corporate members of the college are the head of region c and its regional council powers reserved to the corporate members under the college's charter and bylaws include but are not limited to the power to a approve recommended changes in the philosophy objectives and purposes of the college b interview and approve semi-finalists for the office of college president c amend alter modify or repeal the college's articles of incorporation and d approve nominees to the college's board_of trustees prior to their election or re-election by the board_of trustees the corporate powers of the college are vested in its board_of trustees board subject_to the reservation of powers to the corporate members of the college under its charter and bylaws trustees are elected by a majority vote of the board from nominees approved by the members any trustee may be removed by a majority vote of the members of the college after consultation with the board powers exercised by the board include but are not limited to the power to and purpose choose evaluate and supervise the college president approve institutional policies bearing on the appointment promotion tenure and dismissal of faculty members and control the general financial administration of the college and supervise its funds of the individuals listed as members of the board are adherents of church a and belong to a congregation such as congregation b review the college's mission both congregation b and the college are listed in the official directory of church a in the united_states the internal_revenue_service has determined that any organization listed or appearing in the official directory of church a also is an organization that is described in code sec_501 and exempt from tax under sec_501 the college established plan x a nonqualified retirement effective july incentive plan for tenured faculty plan x is funded from the college's general budget and provides eligible faculty with funds for a single-sum payment of dollar_figure year_of_service with the college subsidized health care coverage and membership in the college’s sports and recreation center for each plan x is administered by an administrative committee committee created by the board_of trustees for the exclusive purpose of administering the plan the committee serves at the pleasure of the board and has authority to determine eligibility for plan benefits to construe the terms of the plan and to establish policies and rules for plan administration decisions of the committee regarding a tenured faculty member's eligibility for plan benefits are final and binding the committee is comprised of three members one of whom must be an employee of the college another must be a member of the board and the final member may be either an employee of the college a member of the board or an adherent of the church a faith if not an employee of the college or a board member based on the preceding statements and representations you request a ruling that from and after its effective date of july plan x is a church_plan within the meaning of sec_414 of the code sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches that is exempt from taxation under sec_501 sec_414 of the code provides that a plan will be treated as a church_plan if it is maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches in pertinent part sec_414 of the code provides that an employee of a church_or_convention_or_association_of_churches shall include an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches in order for an organization that is not itself a church_or_convention_or_association_of_churches to have a church_plan under sec_414 of the code that organization must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code is controlled by or associated with a church_or_convention_or_association_of_churches and provides for administration or funding or both of the plan by an organization described in sec_414 in this case the college a not-for-profit corporation chartered under the laws of state d was established by members of congregation b a group of religious individuals founded under the auspices of and affiliated with church a the college's mission is to further the teachings tenets and works of church a by bestowing upon students a respect for human dignity and a concern for the marginalized in society the founding of the college and its continuing mission is a part of congregation b's education ministry as a church a liberal arts college the curriculum is enriched by church a tradition and values as reflected in the philosophy of congregation b and is managed and operated in accordance with the tradition teachings and the laws of church a and the constitution directives and philosophy of congregation b in addition both congregation b and the college are listed in the official directory for church a in the united_states the service has determined that organizations listed or appearing in the church a official directory are organizations described in code sec_501 and exempt from tax under code sec_501 therefore because of its corporate structure and philosophical orientation and because of its listing in church a's official directory it is concluded that the college shares common religious bonds and convictions with church a and congregation b and is associated with church a and congregation b for purposes of sec_414 of the church_plan rules moreover under the rule_of code sec_414 if an organization is controlled by or associated with a church_or_convention_or_association_of_churches as provided under sec_414 the employees of that organization are deemed to be employees of that church_or_convention_or_association_of_churches accordingly the employees of the college in this case also are considered to be church a employees for purposes of the church_plan rules of code sec_414 conversely under the rule_of code sec_414 church a is deemed to be the employer of the college's employees having established that college employees in this case are deemed to be employees of church a the question remaining is whether or not the plan in question is administered by an organization the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches in this case plan x is administered by a committee established exclusively for that particular purpose the committee serves at the pleasure of the board and has authority to determine eligibility for plan benefits to construe the terms of the plan and to establish policies and rules for plan administration decisions of the committee regarding a tenured faculty member's eligibility for plan benefits are final and binding accordingly it is ruled that from and after its july church_plan within the meaning of sec_414 of the code effective date plan x is a no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of the code or regulations which may be applicable thereto copies of this letter and related documents have been sent to your authorized representative in accordance with a power_of_attorney on file in this office any questions pertaining to the ruling please contact if you have se t ep ra t1 for further information this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent sincerely cake ff wheins carlton a watkins manager employee_plans technical group enclosures deleted copy of this private_letter_ruling notice notice of intention to disclose copy of cover letter to your authorized representative


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 corp plr-129401-09 date date legend parent ---------------------------------------------------------- -------------------------------------------------- ------------------------------------------ lp -------------------------------------------------------------------- -------------------------------------------------- -------------------------- trs ---------------------------------------------------------- -------------------------------------------------- ----------------------------------------- state x state y date a a b c d ------------ ------------- ---------------------- ---- ---- ---- -- plr-129401-09 e ---- dear ---------- this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transaction the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process statement of facts parent a state x real_estate_investment_trust reit owns approximately an a interest in lp a state y limited_partnership unrelated parties own the remaining approximately b interest in lp no election has been made to treat lp as an association_taxable_as_a_corporation under sec_301_7701-3 in what is known as an upreit structure parent does not directly own any real_estate or tangible assets rather those are owned directly by lp or through subsidiary entities in which lp owns an interest lp owns all of the single outstanding class of common_stock of trs parent and trs made an election under sec_856 to treat trs as a taxable_reit_subsidiary consistent with its status as a taxable_reit_subsidiary trs’s business has historically been that of acquiring developing leasing and selling real_estate although trs is solvent trs owns substantial amounts of property with current fair market values significantly below tax basis proposed transaction due to the impact of current economic conditions on the real_estate industry parent lp and trs recently underwent significant restructuring of their business operations to focus on the reit activities of owning leasing and managing lp’s and trs’s real properties on a long-term basis as a result of the restructuring parent believes that at least of trs’s assets and operations will now consist of the ownership and management of real_estate on a long-term basis such assets can be owned by lp without adversely affecting parent’s federal tax status as a reit reit assets in contrast or less of trs’s assets will remain in trs’s historic_business non-reit assets and non-reit activities thus parent proposes the following transaction plr-129401-09 trs will form a new corporation newco and transfer nominal cash to newco in pursuance of the formation parent and newco will make an election to treat newco as a taxable_reit_subsidiary within the meaning of sec_856 lp will form a new state y single-member limited_liability_company trs llc into which lp will cause trs to merge trs will cease to exist as a separate_entity trs llc’s default classification under sec_301_7701-3 will be as an entity disregarded as separate from its sole owner lp trs llc will transfer its non-reit assets to a new limited_liability_company new llc in exchange for c of the interest in new llc simultaneously newco will transfer cash to new llc in exchange for the other d interest in new llc for federal tax purposes new llc’s default classification under sec_301_7701-3 will be as a partnership trs llc will transfer up to e of the new llc interests to newco following step lp will own all of the outstanding interest in trs llc trs llc will continue to hold approximately of its historic assets in addition trs llc will own all of the outstanding_stock of newco and a d or greater interest in new llc newco will own a c or lesser interest in new llc new llc will hold the non-reit assets and conduct parent’s non-reit activities representations parent makes the following representations with respect to the proposed transaction a b c the merger of trs into trs llc will constitute the adoption of a plan_of_liquidation of trs for federal tax purposes no formal or informal plan_of_liquidation has ever been adopted by trs except for the present plan except for transfers that will occur pursuant to the proposed transaction it is not contemplated that the deemed liquidation of trs will be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the business or assets of trs if persons holding more than percent in value of the stock in trs also hold more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 plr-129401-09 d e f g h i j no part of the consideration deemed received by lp upon the merger of trs into trs llc will be received by lp as a creditor employee or in some capacity other than that of a shareholder of trs neither lp nor trs has any plan or intention to consummate an actual liquidation or cease the corporate operations or affairs of trs prior to the merger of trs into trs llc on the date of trs’s merger into trs llc the aggregate fair_market_value of trs’s assets will exceed the total amount of its liabilities and the liabilities to which any of its assets are subject no distribution of assets representing earned but unreported income will be made by trs to lp in the deemed liquidation pursuant to the merger of trs into trs llc trs will not have acquired any property other than cash in a transaction to which sec_351 will have applied or as a contribution_to_capital during the five-year period ending on the date of the merger of trs into trs llc no property will have been contributed to trs as part of a plan a principal purpose of which is to recognize a loss by trs with respect to such property in connection with its complete_liquidation since date a lp has owned all of the single outstanding class of equity of trs which represents all of the voting power and value of trs rulings based solely on the information submitted and the representations set forth above we rule as follows with respect to the proposed transaction the merger of trs into trs llc will be treated as a complete_liquidation of trs under sec_331 lp will recognize gain_or_loss with respect to its trs shares in an amount equal to the difference between the fair_market_value of the property treated as distributed to lp in the deemed liquidation and lp’s adjusted_basis in its trs shares sec_331 any loss recognized by lp under sec_331 in connection with the complete_liquidation of trs will not be deferred under sec_267 sec_267 plr-129401-09 gain_or_loss will be recognized by trs in connection with the distribution of its property in complete_liquidation in an amount equal to the difference between the fair_market_value of such property on the date of distribution or if greater the amount of any trs liabilities to which the property is subject and its adjusted_basis on such date sec_336 and b the gain_or_loss will be computed on a property-by-property basis any loss recognized by trs under sec_336 will not be deferred under sec_267 sec_267 the adjusted_basis of trs’s non-cash property treated as received by lp pursuant to the deemed liquidation will equal the fair_market_value of such property on the date of such distribution sec_334 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed or implied concerning whether parent qualifies as a reit under subchapter_m part ii of chapter of the code in addition no opinion is expressed or implied concerning the value and treatment of assets held directly or indirectly by parent for purposes of subchapter_m part ii of chapter of the code procedural statements 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-129401-09 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely gerald b fleming senior technician reviewer branch associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------------------------------- --------------------------------- ------------------ ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-146119-08 date date x a b c state trust legend legend --------------------------------------------------------------------------------------------------- -------------------------- ----------------------------- -------------------------- -------------------------- -------------------- --------------------------------------------------------------------------------------------------- -------------------------- date --------------------- date --------------------- date ----------------------- date ----------------------- date --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- dear --------------- plr-146119-08 this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code code facts x was incorporated under the laws of state on date and elected to be an s_corporation on date x had two shareholders a and b each holding a percent share of x a died on date on date a’s shares of x stock were transferred to trust pursuant to the terms of a’s will trust held the x stock longer than the 2-year period prescribed under sec_1361 therefore trust became an ineligible shareholder and x’s s_corporation_election terminated two years after date on date x and trust represent that trust was eligible to elect to be a qualified_subchapter_s_trust qsst as of date however no qsst election was made on date trust made a distribution of all of the x stock to c the sole beneficiary of trust who x represents is a qualified subchapter_s shareholder x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and not motivated by tax_avoidance x further represents that from date x and its shareholders have filed all returns consistent with x’s status as an s_corporation x and its shareholders have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law sec_1361 of the 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 such year sec_1361 defines the term small_business_corporation to be a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder plr-146119-08 sec_1361 provides that for purposes of sec_1361 a_trust with respect to stock transferred to it pursuant to the terms of a will may be a shareholder but only for the 2-year period beginning on the day on which such stock is transferred to it sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 a the trust shall be treated as a_trust described in sec_1361 b for purposes of sec_678 the beneficiary of the trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made and c for purposes of applying sec_465 and sec_469 to the beneficiary of the trust the disposition of the s_corporation stock by the trust shall be treated as a disposition by such beneficiary sec_1361 provides that a beneficiary of a qualified_subchapter_s_trust or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 will be effective up to days and months before the date of the election sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of a qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax returns the applicable form or statement including the information listed in sec_1_1361-1 sec_1361 provides that the term qualified_subchapter_s_trust means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 shall 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 a termination of an s_corporation_election under sec_1362 is effective on or after the date of cessation plr-146119-08 sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or or sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder in the corporation at 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 the ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date because trust was no longer an eligible shareholder of x we also conclude that this termination of x’s s election on date was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as an s_corporation from the period from date and thereafter provided that x’s s_corporation_election was valid and was not otherwise terminated under sec_1362 trust will be treated as a qsst from date until its termination this ruling is contingent upon c filing an election effective date for trust to be a qsst this election must be filed within days of the date of this letter with the appropriate service_center a copy of this letter should be attached to the qsst election the shareholders of x must include their pro-rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this ruling is null and void except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-146119-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the ruling contained in this letter is 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 a ruling it is subject_to verification on examination sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------- ------------------------------------------------------------- ------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc psi plr-110529-12 date april legend x sub ------------------------------------------------------------- ------------------------ --------------------------------------- ------------------------ statea -------- stateb ---------------- date1 ----------------- date2 ---------------------- date3 -------------------------- date4 --------------------------- dear --------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting relief pursuant to sec_301_9100-3 of the procedure and administration regulations for x to be granted an extension of time to elect to treat as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code the information submitted states that x was incorporated in statea on date1 and elected to be treated as an s_corporation effective date2 sub was incorporated in stateb on date3 x acquired all of the stock of sub on date4 x intended to elect to plr-110529-12 treat sub as a qsub effective as of the date it acquired sub on date4 however due to inadvertence x failed to file form_8869 qualified_subchapter_s_subsidiary election on behalf of sub x represents that it and sub have filed tax returns for all the relevant tax years consistent with the tax treatment of sub as a qsub from its acquisition sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1361 defines a qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations prescribes the time and manner for making an election to be classified a qsub sec_1_1361-3 provides that an election to treat an eligible subsidiary as a qsub may be effective up to two months and days prior to the date the election is filed or not more than months after the election is filed the proper form for making the election is form_8869 qualified_subchapter_s_subsidiary sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely upon the information submitted and the representations made we conclude that the requirement of sec_301 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file form_8869 qualified_subchapter_s_subsidiary election with the appropriate service_center to plr-110529-12 election to treat the sub effective date4 as a qsub a copy of this letter should be attached to the form_8869 a copy is enclosed for that purpose except for the specific rulings above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code specifically we express no opinion regarding whether x otherwise qualifies as a small_business_corporation under sec_1361 or whether sub otherwise meets the definition of a qsub under sec_1361 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 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 x’s authorized representative sincerely associate chief_counsel passthroughs special industries by ____________________________________ bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes