t c memo united_states tax_court humes houston hart petitioner v commissioner of internal revenue respondent docket no filed date humes houston hart pro_se george d curran for respondent memorandum opinion vasquez judge respondent determined deficiencies in and additions to petitioner's federal income taxes as follows year deficiency dollar_figure big_number additions to tax sec_6651 dollar_figure big_number --- the issues for decision are whether petitioner was a dealer a trader or an investor with respect to losses he sustained in buying and selling stock during and alternatively whether losses petitioner sustained in from the sale of stock to satisfy a margin call requirement are deductible as either a casualty or theft_loss whether petitioner may deduct a dollar_figure net_operating_loss nol in whether petitioner may deduct as charitable_contributions certain payments he made in and whether petitioner is entitled to a deduction under sec_215 a for amounts paid to his former spouse in prior to the entry of a state court order for support and whether petitioner is liable for the addition_to_tax under sec_6651 for the years and for convenience we combine our findings_of_fact and opinion under each separate issue heading we note that for all of the issues petitioner has the burden of proving error in respondent's determinations rule a 290_us_111 some of the facts have been stipulated and are so found the stipulation of facts and the accompanying related issues are the classification of dividend income received on the stock margin interest and other investment_expenses related to holding the stock petitioner reported these items on a schedule c profit or loss from business or profession all section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure exhibits are incorporated herein by this reference at the time the petition was filed petitioner maintained a permanent legal address in waynesville north carolina dealer trader or investor during the years in issue petitioner was employed full time as an information systems engineer--first by general electric co until date and then by systems planning corp until date petitioner began investing in the stock market in until date petitioner considered himself an investor after which he considered himself a securities trader and dealer beginning with his individual federal_income_tax return petitioner reported all activity relating to his stock purchases and sales such as dividend income investment_expenses and gains and losses on schedule c petitioner considered his stock activity a part-time endeavor during his full-time employment with general electric co and systems planning corp petitioner committed approximately hours of his free time each week to this activity petitioner listened to the radio for stock reports and prices during his lunch hour during the evenings at home he studied newspaper quotations books magazine articles ran commercial software on his computer and analyzed stock market data petitioner gave his trading instructions to his broker in the morning prior to the market opening petitioner did not hold any licenses or other professional certifications in the securities industry petitioner conducted all of his purchases and sales of securities either through a full service or discount broker petitioner maintained brokerage accounts with ferris co inc painewebber inc and first union brokerage services inc during the years in issue all of petitioner's stock transactions were engaged in solely for his own account petitioner's stock activity is summarized as follows month month month account ferris co ferris co ferris co ferris co ferris co ferris co ferris co ferris co painewebber ferris co ferris co painewebber ferris co painewebber ferris co painewebber account painewebber painewebber painewebber painewebber painewebber painewebber painewebber painewebber painewebber painewebber painewebber painewebber purchase sec_1 purchase sec_4 sale sec_1 sales account painewebber purchase sec_1 sale sec_1 painewebber painewebber painewebber painewebber first union painewebber painewebber first union painewebber painewebber painewebber2 petitioner closed his ferris co brokerage account in date petitioner closed his painewebber brokerage account in date petitioner reported schedule c losses of dollar_figure in dollar_figure in and dollar_figure in resulting from his stock activity respondent disallowed petitioner's schedule c losses for and respondent determined that petitioner was not a dealer or trader in securities and that the net losses he realized were capital losses subject_to the limitations of sec_165 and sec_1211 respondent also determined that petitioner's stock transactions were reportable on schedule d his investment_expenses were reportable on schedule a and his dividend income was reportable on schedule b petitioner argues that he was either a dealer or trader in securities and the losses and related items therefrom were properly reportable on schedule c sec_165 generally provides a deduction for any loss sustained during the taxable_year and not compensated by insurance or otherwise sec_165 however provides that losses from the sales of capital assets should be allowed only to the extent allowed under sec_1211 and sec_1212 sec_1221 defines capital assets as any property held by the taxpayer whether or not connected with his trade_or_business sec_1221 however creates an exception to the definition of a capital_asset stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business consequently taxpayers unless they are dealers generally recognize capital_gain or loss upon the sale_or_exchange of their stock rather than ordinary gains or losses in determining whether a taxpayer who is purchasing and selling securities is engaged in a trade_or_business courts have distinguished between a dealer a trader and an investor see 889_f2d_29 2d cir revg on another issue affg in part and remanding tcmemo_1988_264 see also 721_f2d_810 fed cir a dealer does not hold securities as capital assets if held in connection with his trade_or_business a dealer falls within the sec_1221 exception to capital_asset treatment because he deals in property_held_primarily_for_sale to customers in the ordinary_course_of_his_trade_or_business a trader on the other hand holds securities as capital assets whether or not such assets are held in connection with his trade_or_business a trader does not have customers and is therefore not considered to fall within an exception to capital_asset treatment 89_tc_445 16_tc_1026 petitioner concedes on brief and on stipulation that he did not hold his stock as inventory he did not sell to customers and he did not hold any licenses or certifications within the securities industry we hold that petitioner was not a dealer therefore the stocks petitioner purchased and sold were capital assets in his hands and the net losses were capital losses consequently if petitioner was engaged in the trade_or_business of buying and selling stocks it was as a trader rather than as a dealer unlike an investor a trader's expenses are deducted in determining adjusted_gross_income rather than as itemized expenses moreover interest_paid on loans used to purchase or carry the trader's positions is not subject_to the investment_interest limitations of sec_163 see king supra paoli v commissioner tcmemo_1988_23 in determining whether a taxpayer who manages his own investments is a trader we consider the following nonexclusive factors the taxpayer's investment intent the nature of the income to be derived from the activity and the frequency extent and regularity of the taxpayer's securities transactions moller v united_states supra pincite mayer v commissioner tcmemo_1994_209 thus a taxpayer is engaged in contrast to trade_or_business_expenses a taxpayer's investment-related expenses that are deductible under sec_212 are subject_to a limitation under sec_67 and do not reduce alternative_minimum_taxable_income in carrying_on_a_trade_or_business as a securities trader only where both of the following are true the taxpayer's trading activity is substantial king v commissioner supra pincite mayer v commissioner supra in this regard the taxpayer's trading activity must be frequent regular and continuous enough to constitute a trade_or_business sporadic trading does not constitute a trade_or_business 480_us_23 the taxpayer seeks to catch the swings in the daily market movements and to profit from these short-term changes moller v united_states supra pincite 530_f2d_1332 9th cir affg tcmemo_1974_164 liang v commissioner 23_tc_1040 rather than to profit from the long-term holding of investments estate of yaeger v commissioner supra pincite mayer v commissioner supra in connection with this courts look at whether the taxpayer's securities income is principally derived from frequent and substantial sale of securities rather than from dividends interest or long-term appreciation moller v united_states supra pincite king v commissioner supra pincite liang v commissioner supra pincite petitioner does not meet the first prong of this two-part test in each year in issue his trading was not substantial petitioner was not frequent regular or continuous in his trading as shown by the above summary we conclude that petitioner was an investor in securities and not a trader as such he was not conducting a trade_or_business see eg purvis v commissioner supra pincite taxpayer was merely an investor where among other things his sales of stock were not regular and continuous paoli v commissioner tcmemo_1991_ taxpayer consummated securities sales during the year at issue involving approximately dollar_figure million worth of stock or options however taxpayer was merely an investor where sales of stocks were not sufficiently regular and continuous during the entire year to constitute a trade_or_business casualty or theft_loss on date black monday the dow jones industrial average substantially declined petitioner's ferris co account likewise declined in value petitioner's broker at ferris co made a margin call on petitioner on date petitioner was required to sell various stocks in his ferris co account to meet his margin requirement petitioner argues that he is entitled to deduct the loss which he incurred on the sale of this stock to satisfy his margin requirement as either a casualty or theft_loss petitioner contends that he suffered a casualty_loss in that he suffered a sudden and catastrophic loss in the value of his stock portfolio which was realized the following day when he was required to liquidate his trading account to meet his margin requirement petitioner contends that the events of date were a once only occurrence no stock market decline in history has been so sudden or extensive whatever the historical significance of black monday may be petitioner must nevertheless prove that this loss arose from a casualty within the meaning of sec_165 petitioner has failed to do so the loss sustained by petitioner resulted not from a casualty but from the sale of his stock to satisfy his margin requirement this sale was not a casualty_loss within the meaning of the statute which generally contemplates some physical damage to the taxpayer's property see 48_tc_430 28_tc_717 affd 252_f2d_425 4th cir we also note that losses which result from the mere fluctuation in value are not deductible as casualty losses see eg 407_f2d_838 9th cir affg 48_tc_245 sec_1_165-4 income_tax regs alternatively petitioner argues that the losses he sustained from meeting his margin call were the result of theft perpetrated by ferris co or one of its agents sec_165 allows a deduction for any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise including losses arising from theft sec_165 petitioner has the burden of showing that a theft_loss occurred rule a a deduction for a theft_loss can only be sustained if a theft occurred under the applicable state law 63_tc_736 affd without published opinion 523_f2d_1053 5th cir petitioner did not introduce any evidence at trial which would support a finding that any of his stock_or_securities were stolen to the contrary the record shows that the loss petitioner sustained resulted from the sale of his stock to satisfy his margin requirement petitioner has failed to establish that he is entitled to a theft_loss see eg marr v commissioner tcmemo_1995_250 net operating losses on his return for petitioner claimed a net operating carryover deduction in the amount of dollar_figure in her notice_of_deficiency respondent disallowed the nol deduction for petitioner offered no evidence or testimony at trial with respect to the source or how he arrived at this deduction petitioner's tax_return simply shows net_operating_loss dollar_figure furthermore petitioner's return for the year reflects that his dollar_figure loss from his stock activity was fully offset by his wages and other income petitioner contends that he sustained the nol from his stock activity in which he was either a dealer or a trader respondent contends that petitioner is not entitled to the nol deduction claimed for because he presented no evidence to substantiate the claimed nol_carryover from we agree with respondent we have found that petitioner was not a dealer or a trader but an investor for the and years consequently petitioner's losses from his stock activity were capital losses petitioner's entry on his return is not evidence that a loss has been incurred see 71_tc_633 62_tc_834 petitioner has failed to sustain his burden of proving that he is entitled to an nol deduction for consequently respondent's disallowance is sustained charitable_contribution_deduction we must consider whether petitioner is entitled to additional charitable_contribution deductions in the amounts of dollar_figure and dollar_figure for the and taxable years respectively petitioner deducted dollar_figure and dollar_figure respectively for contributions made by cash or check on his and income_tax returns respondent allowed charitable_contributions of dollar_figure and dollar_figure for and respectively respondent contends that petitioner substantiated only dollar_figure of his charitable_contributions for and none for petitioner argues that although he does not have the canceled checks or supporting documentation the claimed amounts are deductible as they are based on his estimates from past years' patterns of charitable giving in general a taxpayer is entitled to deduct charitable_contribution payments made during the taxable_year to or for_the_use_of certain types of organizations sec_170 c a taxpayer is required to substantiate charitable deductions records must be maintained sec_6001 sec_1_6001-1 income_tax regs petitioner testified that he cannot substantiate the claimed amounts because his former spouse took his tax records when they divorced including his canceled checks and bank statements we find petitioner's argument unpersuasive petitioner has failed to substantiate his charitable_contributions respondent's determination with respect to this issue is sustained alimony deduction we must decide whether petitioner is entitled to a deduction of dollar_figure for alimony paid during petitioner's wife filed for divorce on date on date a hearing was held with respect to the pending divorce action before the master of chancery for howard county maryland based upon the record established at that hearing the circuit_court for howard county entered a pendente lite support order ordering support payments during a pending suit for divorce hereinafter the order on date the divorce became final in date petitioner substantiated that he made dollar_figure in support payments during petitioner also claimed as alimony dollar_figure that his former spouse withdrew from their joint savings account in petitioner argues that he is entitled to deduct this amount pursuant to the order we disagree sec_215 permits a deduction for the payment of alimony during a taxable_year sec_215 defines alimony as alimony which is includable in the gross_income of the recipient under sec_71 sec_71 defines alimony or separate_maintenance as any cash payment meeting the four criteria provided in subparagraphs a through d of that section accordingly if any portion of the payments made by petitioner fails to meet the four enumerated criteria that portion is not alimony and is thus not deductible by petitioner respondent contends that the requirement of subparagraph a has not been satisfied sec_71 defines alimony or separate_maintenance payments as any payment made in cash if such payment is received by a spouse under_a_divorce_or_separation_instrument divorce_or_separation_instrument is defined in sec_71 as a decree or written instrument meeting any of the requirements in subparagraphs a b or c the order issued by the circuit_court is a decree ordering petitioner to make support payments to his wife sec_71 however payments made prior to the entry of a support decree are not deductible under sec_215 54_tc_1702 affd without published opinion ustc par aftr 2d 4th cir jachym v commissioner tcmemo_1984_181 see also white v commissioner tcmemo_1984_65 there is no evidence in the record of any other instrument satisfying the requirements of sec_71 these payments therefore are considered voluntary in nature as they were not mandated by a qualifying divorce instrument at the time they were made thus they do not qualify as alimony for federal_income_tax purposes even though the instrument is made retroactive to the date of the earlier payments see eg white v commissioner supra all of the claimed alimony payments were made before the circuit_court entered the order accordingly the payments are not deductible and we sustain respondent's determination with respect to this issue delinquency penalty petitioner filed federal_income_tax returns for the taxable years and on date respondent determined that petitioner is liable for an addition_to_tax under sec_6651 because he failed to timely file his and federal_income_tax returns or show that his delinquent filing was due to reasonable_cause sec_6651 imposes a monthly charge equal to percent of the amount of tax that should have been shown on the return subject_to a maximum charge of percent the addition_to_tax imposed under sec_6651 does not apply if petitioner can prove that his failure_to_file was due to reasonable_cause and not due to willful neglect sec_6651 469_us_241 a failure_to_file timely a federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and nevertheless was unable to file the return within the prescribed time sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite petitioner's and federal_income_tax returns were due with extensions on date and date respectively petitioner filed his and returns on date in response to an inquiry from the collection_division of the internal_revenue_service well after the due dates petitioner argues that he could not have filed his and returns on time because he was involved in an adversarial divorce and that his wife had possession of his tax records petitioner also argues that since he estimated that he was due a refund for the and taxable years it was not a priority for him to file these returns we are not persuaded by petitioner's arguments the unavailability of records does not necessarily establish reasonable_cause for failure_to_file timely see 92_tc_899 delinquency penalty upheld where petitioner did not show what documents were still needed or what actions were taken to obtain such documents an individual must file a timely return based on the best information available he may then file an amended_return if necessary 79_tc_298 petitioner testified that he could have secured all of the necessary information to prepare and timely file his and returns from other sources petitioner has failed to prove that his untimely filing was due to reasonable_cause and not due to willful neglect accordingly we sustain respondent's determination that petitioner is liable for the addition_to_tax under sec_6651 for and we have considered all arguments made by petitioner and to the extent not addressed above find them to be without merit to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court joseph b yakubik petitioner and susan m yakubik wiley intervenor v commissioner of internal revenue respondent docket no 21773-06s filed date joseph b yakubik pro_se susan m yakubik wiley pro_se denise a diloreto for respondent goeke judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_1unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure b the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case petitioner seeks review of respondent’s determination denying him relief from joint_and_several_liability for the tax_year under sec_6015 c and f we review respondent’s determination for an abuse_of_discretion and for the reasons explained herein we find respondent’s determination denying petitioner relief from joint_and_several_liability under sec_6015 was in error background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in west virginia petitioner and intervenor were married throughout and divorced on date during intervenor was employed by a local attorney as a paralegal intervenor earned wages was paid_by check and received a form_w-2 wage and tax statement at the end of intervenor earned about dollar_figure in wages during at some point during intervenor began to embezzle funds from her employer in addition to this embezzlement intervenor began to write bad checks from petitioner and intervenor’s joint bank account and to forge checks belonging to petitioner’s stepfather it is unclear from the record whether intervenor stole checks from petitioner’s stepfather and used them to make purchases or stole checks issued to petitioner’s stepfather and forged the endorsement in order to cash those checks intervenor was arrested for allegedly committing a number of felonies pursuant to a plea agreement intervenor pleaded guilty to a number of felonies including forgery and embezzlement on date intervenor was sentenced in the circuit_court of randolph county west virginia to a term of not less than but no more than years in state prison intervenor was also ordered to pay restitution of dollar_figure to her former employer and to pay dollar_figure to petitioner’s stepfather for the forged checks intervenor was incarcerated from date to date and was paroled on date on date petitioner and intervenor filed a joint form_1040 u s individual_income_tax_return for tax_year although intervenor was incarcerated at the time she executed a form_2848 power_of_attorney and declaration of representative for tax_year giving petitioner the authority to act on her behalf petitioner used this authority to file their joint_return petitioner and intervenor failed to include on the joint_return the amount intervenor embezzled from her former employer the amount of forged checks related to petitioner’s stepfather or the wages intervenor earned as a paralegal on the basis of the form_1040 respondent issued to petitioner a refund of dollar_figure because petitioner did not report the embezzled funds and wages on the joint_return petitioner and intervenor qualified for an earned_income_credit that they would not have qualified for had those amounts been included in income petitioner did not file an amended_return after receiving the form_w-2 from intervenor’s employer respondent examined the joint_return and issued a notice_of_deficiency the notice on date the notice determined that the dollar_figure intervenor embezzled and the dollar_figure intervenor earned should have been included in income the notice did not include in income the dollar_figure worth of forged checks respondent determined an increase of dollar_figure in petitioner and intervenor’s tax_liability and an accuracy-related_penalty of dollar_figure under sec_6662 neither petitioner nor intervenor petitioned this court to challenge respondent’s determinations in the notice on or about date petitioner submitted a form_8857 request for innocent spouse relief on date respondent notified intervenor by letter of petitioner’s request for relief from joint_and_several_liability on date respondent sent separate letters to petitioner and intervenor indicating respondent’s preliminary determination to grant petitioner relief from liability under sec_6015 and deny relief under sec_6015 on date intervenor sent a letter to respondent with attachments disagreeing with respondent’s determination regarding petitioner’s claim for relief these attachments included a brief statement of disagreement a copy of intervenor’s sentencing order and a copy of intervenor’s restitution order on date respondent issued a final notice_of_determination denying petitioner’s request for relief from joint_and_several_liability under sec_6015 c and f on date petitioner mailed to the court a letter that was filed as an imperfect petition the court ordered petitioner to submit a proper amended petition to conform with the rules on date the court received and filed petitioner’s amended petition seeking a review of respondent’s determinations discussion sec_6013 provides that taxpayers filing joint federal_income_tax returns are jointly and severally liable for the taxes due sec_6015 however provides that notwithstanding sec_6013 under certain facts and circumstances limited relief from joint_and_several_liability may be available under sec_6015 c or f except as otherwise provided in sec_6015 the taxpayer seeking relief bears the burden_of_proof rule a 119_tc_306 affd 101_fedappx_34 6th cir to prevail the taxpayer must show the commissioner’s determination was arbitrary capricious or without sound basis in law or fact 114_tc_276 intervenor as the nonelecting spouse had the right to intervene in this proceeding by filing a notice of intervention see sec_6015 rule 114_tc_354 by exercising that right intervenor became a party to this case see 127_tc_214 sec_6015 petitioner first seeks relief under sec_6015 to qualify for relief pursuant to sec_6015 the requesting spouse must establish that a joint_return was filed there was an understatement_of_tax attributable to erroneous items of the nonrequesting spouse at the time of signing the return the spouse seeking relief did not know and had no reason to know of the understatement taking into account all the facts and circumstances it is inequitable to hold the spouse seeking relief liable for the deficiency in tax attributable to the understatement and the requesting spouse seeks relief within years of the first collection activity petitioner’s request for relief fails to satisfy sec_6015 petitioner’s knowledge of how much money intervenor embezzled is not clear during their marriage they shared a joint bank account but their testimony varied as to who had access to this account petitioner testified that intervenor maintained control_over the account and that he would give his paychecks to intervenor who would then deposit them into the joint account intervenor however testified that petitioner did in fact make deposits to the joint account and also possessed an atm card he used to make withdrawals at trial petitioner testified that he did not include those amounts on the joint_return because he did not know how much intervenor had embezzled and because he had never received a form_w-2 for intervenor’s employment petitioner later admitted that he had received a form_w-2 for intervenor after he had filed the joint_return petitioner testified that although he was present at intervenor’s sentencing and knew that she had embezzled funds he was unaware of the amount because he was not allowed to remain in the courtroom while the prosecutor the presiding judge and intervenor discussed how much restitution was to be paid intervenor however testified that she had told petitioner the amount of restitution she was ordered to pay and that petitioner knew the amount before filing the joint_return although petitioner testified at trial that he was not in the courtroom during the portion of intervenor’s sentencing when amounts of restitution were discussed and that he had not received a form w- from intervenor’s employer until after filing the return petitioner knew that intervenor had both embezzled funds and earned wages during and failed to include those amounts on the return petitioner although unaware of the exact amounts intervenor had embezzled and earned had reason to know of the understatement sec_6015 a taxpayer may elect to seek relief under sec_6015 if at the time the election was made the taxpayer was no longer married to or was legally_separated from the person with whom the joint_return was filed or for the 12-month_period preceding the time of making the election the taxpayer did not live with such person if a taxpayer elects relief under sec_6015 such taxpayer’s liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual under sec_6015 sec_6015 relief is not available under sec_6015 with respect to an unpaid liability reported in a return if the commissioner proves that the electing spouse had actual knowledge at the time he signed the return of any item giving rise to the deficiency and the item was allocable to the nonrequesting spouse then the election is invalid with respect to the portion of the deficiency that is attributable to the item see sec_6015 sec_1_6015-3 income_tax regs as stated above petitioner’s request for relief fails to satisfy sec_6015 because he had reason to know of the items giving rise to the understatement in order to determine whether petitioner qualifies for relief under sec_6015 we must determine whether petitioner had actual knowledge rather than a reason to know of the items giving rise to the deficiency we believe that petitioner had actual knowledge of intervenor’s earnings and embezzled income although petitioner did not know the exact amounts intervenor earned and embezzled he knew all of the facts surrounding those items petitioner was aware that intervenor had worked throughout the year and had been arrested and sentenced for embezzlement thus petitioner’s request for relief fails to satisfy sec_6015 sec_6015 the only remaining opportunity for relief to petitioner is sec_6015 sec_6015 provides that the secretary may relieve an individual of joint_and_several_liability if relief is not available to the individual under sec_6015 or c and taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or deficiency the commissioner has prescribed guidelines in revproc_2003_61 2003_2_cb_296 for determining whether relief should be granted under sec_6015 to prevail under sec_6015 petitioner must show that respondent’s denial of equitable relief under that section was an abuse_of_discretion we review respondent’s denial of relief under sec_6015 for an abuse_of_discretion respondent argues that in evaluating petitioner’s request under sec_6015 we are limited to the administrative record as compiled by respondent this court has recently ruled that our review under sec_6015 is not limited to the administrative record see porter v commissioner t c ___ if we find that respondent abused his discretion in denying petitioner relief we will determine the appropriate relief rather than remanding the case to the internal_revenue_service see 124_tc_220 revproc_2003_61 sec_4 c b pincite lists seven threshold conditions that the commissioner considers in determining whether an individual qualifies for equitable relief under sec_6015 the commissioner will not grant relief unless these threshold conditions have been met the taxpayer must have filed joint returns for the taxable years for which relief is sought the taxpayer does not qualify for relief under sec_6015 or c the taxpayer must apply for relief no later than years after the date of the commissioner’s first collection activity after date with respect to the taxpayer no assets were transferred between the spouses filing the joint returns as part of a fraudulent scheme by such spouses there were no disqualified assets transferred to the taxpayer by the nonrequesting spouse the taxpayer did not file the returns with fraudulent intent and absent enumerated exceptions the liability from which relief is sought is attributable to an item of the nonrequesting spouse respondent concedes and we agree that petitioner satisfies these seven threshold conditions revproc_2003_61 sec_4 c b pincite lists eight nonexclusive factors that the commissioner will consider in determining whether taking into account all the facts and circumstances it is inequitable to hold the requesting spouse liable for all or part of the deficiency and full or partial equitable relief under sec_6015 should be granted these nonexclusive factors include whether the requesting spouse is separated or divorced from the nonrequesting spouse the requesting spouse will suffer economic hardship without relief the requesting spouse did not know or have reason to know of the item giving rise to the deficiency the nonrequesting spouse had a legal_obligation to pay the outstanding liability the requesting spouse received a significant benefit from the item giving rise to the deficiency the requesting spouse has made a good_faith effort to comply with income_tax laws in subsequent years the requesting spouse was abused by the nonrequesting spouse and the requesting spouse was in poor mental or physical health when signing the return or requesting relief revproc_2003_61 sec_4 further provides that no single factor will controlling all relevant factors will be considered and weighed appropriately petitioner’s marital status petitioner was divorced from intervenor when he sought relief this factor favors petitioner economic hardship respondent’s appeals_office determined that petitioner will not suffer economic hardship if relief is not granted revproc_2003_61 sec_4 c c b pincite provides that the commissioner will base this determination on rules similar to those provided in sec_301_6343-1 proced admin regs which provides that the requesting spouse will suffer economic hardship if he is unable to pay his reasonable basic living_expenses petitioner’s request for relief indicates that at the time petitioner sought relief he was earning dollar_figure per month and spending dollar_figure per month on his average monthly household expenses respondent’s appeals case memorandum states that petitioner has not demonstrated that he would have an economic hardship if required to pay the tax respondent’s final_determination makes no mention of economic hardship and instead relies on petitioner’s knowledge of the embezzlement in order to deny relief we disagree with respondent on this factor petitioner has minimal education and although currently employed testified credibly that his hours had recently been cut back the record shows that petitioner would suffer economic hardship if relief were not granted this factor favors petitioner and the examiner’s evidence in the record supports a determination of hardship knowledge or reason to know respondent’s appeals_office determined that petitioner’s knowledge or reason to know of the item giving rise to the deficiency weighed against relief and we agree intervenor’s legal_obligation petitioner’s and intervenor’s divorce agreement is silent as to who is responsible for paying any outstanding taxes respondent determined that this factor is neutral and we agree significant benefit we consider a lack of a significant benefit to the taxpayer seeking relief from joint_and_several_liability a factor favoring relief beatty v commissioner tcmemo_2007_167 respondent’s appeals officer determined that petitioner had not received any significant benefit at trial counsel for respondent argued that although petitioner did not receive a significant benefit he nonetheless benefited and this factor should weigh against relief petitioner testified that a portion of the refund was used to pay restitution for bad checks written by intervenor to pay past-due bills and rent and to purchase christmas gifts for intervenor’s children intervenor however testified that the only restitution payments made on her behalf were made by her and were based upon her earnings while at a work release center intervenor testified that she made restitution payments for three bad checks she had written during because she was required to do so before she could have her driver’s license reinstated intervenor was unable to recall whether the three bad checks she had paid restitution on in order to reclaim her driver’s license were the only bad checks she had written during we disagree with respondent on this factor petitioner testified credibly at trial how he used the refund to make payments on behalf of intervenor including restitution on bad checks paying past-due bills for rent electricity and other costs and for christmas presents for intervenor’s children while she was incarcerated according to petitioner intervenor was responsible for paying household bills before her incarceration but had stopped paying them intervenor never informed petitioner that their living_expenses were no longer being paid before her being arrested this factor favors granting relief to petitioner good_faith effort to comply with tax laws respondent determined and we agree that petitioner has made a good_faith effort to comply with tax laws petitioner has filed all required tax returns and this factor is considered neutral since petitioner was in compliance spousal abuse petitioner did not allege that there was abuse in his former marriage respondent determined that this factor is neutral and we agree mental or physical health there is no evidence in the record that petitioner suffered any ailment that would have affected his ability to pay his federal_income_tax obligations for the years in issue respondent determined that this factor is neutral and we agree conclusion in sum three factors weigh in favor of relief one factor weighs against relief and four factors are neutral revproc_2003_61 sec_4 a iii b provides that in deficiency cases reason to know of the item giving rise to the deficiency will not be given more weight than other factors but that actual knowledge of the item weighs heavily against relief actual knowledge weighing against relief may be overcome if those factors weighing in favor of relief are particularly compelling id petitioner’s lack of significant benefit his marital status and the prospect of economic hardship are sufficiently compelling and outweigh petitioner’s knowledge of intervenor’s earnings and embezzled income taking into account all of the facts and circumstances we find that it would be inequitable to deny petitioner relief from joint_and_several_liability we hereby conclude on the facts of this case that respondent has abused his discretion in denying petitioner relief from joint_and_several_liability under sec_6015 to reflect the foregoing decision will be entered for petitioner


internal_revenue_service number release date index number ---------------------------------------------------- ---------------------------------------- ------------------------------------ in 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 b04 plr-109626-18 date april legend decedent spouse trust child child accounting firm year date date date --------------- ----------------------------------------------------- ------------------------------ ----------------------- ---------------------------- -------------------------------------- --------------------------------------- ------------------------ --------------------------- --------------------------- dear ------------------- this letter responds to the letter dated date submitted by your authorized representative requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make an election under sec_2632 to opt_out of the generation-skipping_transfer gst_exemption automatic allocation rules under sec_2632 with respect to a transfer to a_trust facts the facts submitted and the representations made are as follows on date a date after date decedent and spouse created trust an irrevocable_trust for the benefit of child trust has generation-skipping_transfer gst tax potential plr-109626-18 on date decedent transferred cash to trust date transfer decedent retained accounting firm to advise and prepare decedent’s year form_709 united_states gift and generation-skipping_transfer_tax return reporting the date transfer to trust although decedent did not intend for gst_exemption to be allocated to the date transfer accounting firm failed to advise decedent of the rules under sec_2632 regarding the automatic allocation of gst_exemption and the ability to elect out of the automatic allocation of gst_exemption by making an election under sec_2632 therefore decedent failed to elect out of the automatic allocation of gst_exemption for the date transfer to trust decedent died on date during the preparation of decedent’s form_706 united_states estate and generation-skipping_transfer_tax return it was discovered that decedent had not elected out of the automatic allocation of gst_exemption on decedent’s form_709 for the date transfer child as the executrix of decedent’s estate requests an extension of time to elect out of the automatic allocation rules with respect to decedent’s date transfer to trust law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst made by a transferor to a skip_person a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of gst tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer 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 sec_2631 provides that for purposes of sec_2631 the gst_exemption amount for any calendar_year shall be equal to the basic exclusion amount under sec_2010 for such calendar_year plr-109626-18 sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that the manner in which allocations are to be made shall be prescribed by forms or regulations issued by the secretary sec_2632 provides that if any individual makes an indirect_skip during such individual's lifetime any unused portion of such individual's gst_exemption is treated as allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred under sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust as defined in sec_2632 under sec_2632 a gst_trust is a_trust that could have gst potential with respect to the transferor unless the trust satisfies any of the exceptions listed in sec_2632 i - vi sec_2632 provides that an individual may elect to have the automatic allocation rules of sec_2632 not apply to an indirect_skip or any or all transfers made by such individual to a particular trust sec_2632 provides that the election may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that a transferor may prevent the automatic allocation of gst_exemption elect out with respect to any transfer or transfers constituting an indirect_skip made to a_trust a transferor may elect out with respect to one or more or all current-year transfers made by the transferor to a specified trust or trusts sec_26_2632-1 provides that to elect out the transferor must attach an election out statement to a form_709 filed within the time period provided in sec_26_2632-1 in general the election out statement must identify the trust and specifically must provide that the transferor is electing out of the automatic allocation of gst_exemption with respect to the described transfer or transfers under sec_26_2632-1 to elect out the form_709 with the attached election out statement must be filed on or before the due_date for timely filing the form_709 for the calendar_year in which the transfer to be covered by the election out was made sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c plr-109626-18 sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly the executrix of decedent’s estate is granted an extension of time of days from the date of this letter to make an election under sec_2632 that the automatic allocation rules do not apply to the date transfer to trust the executrix should make the election on a supplemental form_709 for year the supplemental form_709 should be filed with the cincinnati service_center at the plr-109626-18 following address internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 sincerely associate chief_counsel passthroughs special industries karlene m lesho by ______________________________ karlene m lesho senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


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-121894-09 date date --------------------------------------- x -------------------------------------------------- country date ------------- ----------------------- dear ------------ this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a disregarded_entity but that it failed to timely file form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-121894-09 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election 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 granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal 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-121894-09 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel office_of_chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index numbers ------------------------------ ------------------------------------- -------------------- -------------------------- --------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc ita plr-114627-18 date date re request for a private_letter_ruling under sec_197 legend partnership1 -------------------------------------------------------------- ---------------------------- partnership2 -------------------------------------------------------------- -------------------------------------------------- partnership3 -------------------------------------------------------------- ---------------------------------------- partnership4 -------------------------------------------- partnership5 ------- ------------------------------------------- partnership6 partnership7 -------------------------- ---------------------------------------- corporation1 -------------------------------------------------------------- ---------------------------------------------------- corporation2 ------------------------------ newco1 --------------------------- -------------------------------------------------------------- newco2 ------------------------------------------- plr-114627-18 -------------------------------------------------------------- state -------------- principals --------------------------------------------------------------------------------------------------------------- --------------------------------------------------- -------------------------------------------------------------------------------- intangible asset a b c d ----------------------------------- ------------------------------- ------- ---------------- --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------- ----------------------------------------------------- ------- ----------------------- -------------------------------------------------------------------------------- e --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- f g ------- ----------------------- -------------------------------- h ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- i j date1 date2 ------- ----------------------------------------- --------------------- ---------------------- --------------------------- plr-114627-18 date3 date4 year1 year2 -------------------- ------------------- ------- ------- exchange ------------------------------------- dear ------ ---------------- this letter_ruling responds to a letter dated date and subsequent correspondence submitted by partnership1 corporation1 partnership2 partnership3 newco1 and newco2 collectively taxpayer taxpayer is requesting a ruling regarding the federal_income_tax consequences of certain transactions under sec_197 of the internal_revenue_code facts taxpayer represents the facts are as follows partnership1 a publicly_traded_partnership is a state limited_partnership that is managed by partnership1’s general_partner g and classified as a partnership for federal_income_tax purposes partnership1 indirectly owns e through a tiered holding_company structure specifically partnership1 owns i all of the outstanding_stock of coporation1 ii an interest in partnership2 iii an interest in partnership3 and iv other interests corporation1 a state corporation is classified as a corporation for federal_income_tax purposes and owns i an interest in partnership4 ii an interest in partnership2 and iii other interests partnership2 a state limited_partnership is classified as a partnership for federal_income_tax purposes partnership2 owns an interest in partnership3 partnership3 is an f limited_partnership that is classified as a partnership for federal_income_tax purposes partnership3’s assets include general_partner interests in funds that are expected to produce qualifying_income under sec_7704 partnership3 and partnership4 directly and indirectly own c partnership3 and partnership4 collectively own interests in all a and have the exclusive rights to sponsor future b partnership3 and partnership4 are each responsible for the formation operation and management of current or future b plr-114627-18 partnership6 and partnership7 own directly and indirectly through partnership5 interests in partnership3 and partnership4 that the principals have the right to exchange for the common units of partnership1 the d partnership7 owns indirectly through partnership5 principals’ rights to receive distributions attributable to h from partnership3 and partnership4 the intangible asset is the right to any h issued by an existing or future a that is expected to produce qualifying_income under sec_7704 on date1 partnership5 contributed the intangible asset in the formation of partnership3 taxpayer represents that the intangible asset is a sec_197 intangible in the hands of partnership3 before the conversion of partnership1 to a corporation each of these transactions is described below formation of partnership3 the following describes the manner in which partnership1 and partnership5 acquired their respective interests in partnership3 on date1 j was a disregarded_entity of partnership1 before the following transactions occurred on date1 partnership5 contributed i investments in a and h that were expected to produce qualifying_income under sec_7704 and ii the intangible asset to j in exchange for an interest in j also on that date partnership1 contributed investments in a and cash to j in exchange for interests in j as a result of partnership5’s contribution j became classified as a partnership for federal_income_tax purposes partnership3 this transaction qualified for non- recognition under sec_721 principals transactions principals own the remaining interests in partnership3 and partnership4 indirectly through a tiered_partnership structure consisting of partnership6 and partnership7 through an intermediate partnership5 partnership1 and partnership2 periodically have acquired interests in partnership3 from principals as a result of principals exercising their respective d beginning on date2 the following steps describe the relevant transactions that occur when a principal exercises their d partnership5 distributes partnership3 interests to partnership6 in a distribution that does not result in a recognition of gain_or_loss under sec_731 plr-114627-18 partnership6 distributes the partnership3 interests that it received in step and interests in partnership4 to the principal who exercised their d in a distribution that does not result in a recognition of gain_or_loss under sec_731 the principal transfers the partnership3 interest to one or both of partnership1 and partnership2 and the partnership4 interests to corporation2 in exchange for cash or partnership1 common units taxpayer represents that no principal exercised their d in connection with or as part of a plan that included the formation of partnership3 public trading of limited_partner interests of partnership1 since year2 limited_partnership interests of partnership1 have been publicly traded on the exchange in a letter dated date taxpayer represents subject_to confirmation by ongoing diligence taxpayer reasonably estimates that as of date3 through public trading and issuances of limited_partnership interests percent or more of the economic interests in partnership1 have changed ownership since partnership1 acquired its interest in partnership3 in year1 conversion of partnership1 to a corporation transaction on date4 partnership1 converted to a state corporation in a non-taxable transaction for federal_income_tax purposes the steps taken to complete the transaction are as follows partnership1 transfers all of its assets to a new state corporation newco2 in exchange for stock of newco2 newco2 is classified as a corporation for federal_income_tax purposes subsequent to partnership1’s contribution to newco2 partnership1 converts under state law to a corporation newco1 newco1 is classified as a corporation for federal_income_tax purposes in this transaction partnership1 transfers all of its interests in partnership3 and partnership2 to newco2 taxpayer represents that these transfers cause actual and deemed transfers of partnership3 interests resulting in increases to the tax basis of the intangible asset for the benefit of newco2 or partnership2 under sec_743 taxpayer makes the following additional representations before the transaction the intangible asset is a sec_197 intangible that is not amortizable under the anti-churning_rules of sec_197 and sec_1_197-2 of the income_tax regulations in the hands of partnership3 plr-114627-18 since date1 partnership3 has been the only direct user of the intangible asset partnership5 has never been related to partnership1 or its predecessor or partnership2 within the meaning of sec_197 and sec_1_197-2 partnership1 has had a sec_754 election in effect since its inception the transferor and transferee of any actual or deemed transfer of interests in partnership3 as a result of the transaction will be related within the meaning of sec_197 and sec_1_197-2 immediately before and after the transaction ruling requested taxpayer has requested a ruling that the increases to the tax basis of the intangible asset a sec_197 intangible under sec_743 for the benefit of newco2 or partnership2 that result from the transaction will be amortizable under sec_197 to the extent those basis adjustments relate to interests in partnership3 that were i acquired from the principals or ii indirectly acquired by public investors after the formation of partnership3 law and analysis sec_197 provides that a taxpayer shall be entitled to an amortization deduction with respect to any amortizable sec_197 intangible the amount of such deduction shall be determined by amortizing the adjusted_basis for purposes of determining gain of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired sec_197 provides that except as provided in sec_197 no depreciation or amortization deduction shall be allowable with respect to any amortizable sec_197 intangible sec_197 provides that for purposes of sec_197 except as otherwise provided in sec_197 the term amortizable sec_197 intangible means any sec_197 intangible a which is acquired by the taxpayer after date and b which is held in connection with the conduct_of_a_trade_or_business or an activity described in sec_212 sec_197 provides that the term amortizable sec_197 intangible shall not include any sec_197 intangible a which is not described in sec_197 e or f and b which is created by the taxpayer plr-114627-18 sec_197 shall not apply if the intangible is created in connection with a transaction or series of related transactions involving the acquisition of assets constituting a trade_or_business or substantial portion thereof sec_197 provides that for the exclusion of intangibles acquired in certain transactions see sec_197 anti-churning_rules sec_197 provides that for purposes of sec_197 the term amortizable sec_197 intangible shall not include any sec_197 intangible which is described in sec_197 or b or for which depreciation or amortization would not have been allowable but for sec_197 and which is acquired by the taxpayer after date if i ii iii the intangible was held or used at any time after date and on or before date by the taxpayer or a related_person the intangible was acquired from a person who held such intangible at any time on or after date and on or before date and as part of the transaction the user of such intangible does not change or the taxpayer grants the right to use such intangible to a person or a person related to such person who held or used such intangible at any time on or after date and on or before date for purposes of sec_197 the determination of whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the secretary sec_197 provides that for purposes of sec_197 a person is related to any person if the related_person bears a relationship to such person specified in sec_267 or sec_707 or the related_person and such person are engaged in trades_or_businesses under common_control within the meaning of sec_41 and b in applying sec_267 or sec_707 percent shall be substituted for percent a person shall be treated as related to another person if such relationship exists immediately before or immediately after the acquisition of the intangible involved sec_197 provides that with respect to any increase in the basis of partnership property under sec_732 sec_734 or sec_743 determinations under sec_197 shall be made at the partner level and each partner shall be treated as having owned and used such partner’s proportionate share of the partnership assets sec_1_197-2 provides that any increase in the adjusted_basis of a sec_197 intangible under sec_743 relating to the optional adjustment to the basis of partnership property after transfer of a partnership_interest is treated as a separate sec_197 intangible for purposes of determining the amortization period under sec_197 with plr-114627-18 respect to the basis increase the intangible is treated as having been acquired at the time of the transaction that causes the basis increase except as provided in sec_1 j i b dealing with an increase in the basis of the item of the partnership’s recovery_property under sec_743 that is attributable to sec_704 built-in_gain when the partnership elects to use the remedial allocation method sec_1_197-2 provides that this paragraph h applies to sec_197 intangibles for this purpose sec_197 intangibles are goodwill and going_concern_value that was held or used at any time during the transition_period and any other sec_197 intangible that was held or used at any time during the transition_period and was not depreciable or amortizable under prior_law sec_1_197-2 provides that the purpose of the anti-churning_rules of sec_197 and sec_1_197-2 is to prevent the amortization of sec_197 intangibles unless they are transferred after the applicable effective date in a transaction giving rise to a significant change in ownership or use special rules apply for purposes of determining whether transactions involving partnerships give rise to a significant change in ownership or use see sec_1_197-2 the anti-churning_rules are to be applied in a manner that carries out their purpose sec_1_197-2 provides in pertinent part that a person is related to another person for purposes of sec_1_197-2 if the person bears a relationship to that person that would be specified a in sec_267 determined without regard to sec_267 and by substitution sec_267 if those sections were amended by substituting percent for percent or b in sec_707 if that section were amended by substituting percent for percent sec_1_197-2 provides that a person is treated as related to another person for purposes of sec_1_197-2 if the relationship exists in the case of a single transaction immediately before or immediately after the transaction in which the intangible is acquired sec_1_197-2 provides that in determining whether the anti-churning_rules apply to any increase in the basis of a sec_197 intangible under sec_743 the determinations are made at the partner level and each partner is treated as having owned and used the partner’s proportionate share of partnership property in determining whether the anti-churning_rules apply to any transaction under another section of the internal_revenue_code the determinations are made at the partnership level unless under sec_1_701-2 the commissioner determines that the partner level is more appropriate sec_1_197-2 provides generally that the anti-churning_rules do not apply to an increase in the basis of a sec_197 intangible under sec_743 if the person acquiring the partnership_interest is not related to the person transferring the partnership plr-114627-18 interest in addition the anti-churning_rules do not apply to an increase in the basis of a sec_197 intangible under sec_743 to the extent that the partnership_interest being transferred was acquired after the partnership acquired the sec_197 intangible provided - i the sec_197 intangible was acquired by the partnership after date and is not amortizable with respect to the partnership ii the partnership_interest being transferred was held after the partnership acquired the sec_197 intangible by a person or persons the post-contribution person or persons other than the person transferring the partnership_interest or persons who were related to the person transferring the partnership_interest and iii the acquisition of such interest by the post-contribution person or persons was not part of a transaction or series of related transactions in which the person transferring the partnership_interest or persons related to the person transferring the partnership_interest acquired such interest sec_1_197-2 provides that solely for purposes of sec_1 h v a and a partner who acquires an interest in a partnership in exchange for a contribution of property to the partnership is deemed to acquire a pro_rata portion of that interest in the partnership from each person who is a partner in the partnership at the time of contribution based on each such partner’s proportionate interest in the partnership revrul_87_115 1987_2_cb_163 states that when an upper-tier partnership has a sec_754 election in effect the transfer of an interest in the upper-tier partnership is treated as a transfer of an interest in the upper-tier partnership’s interest in the lower-tier partnership for purposes of sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year when such election was filed and all subsequent years unless revoked by the partnership subject_to sec_1_754-1 sec_754 provides that if a partnership files an election in accordance with regulations prescribed by the secretary the basis of partnership property shall be adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions by the property by the partnership and to all transfers of interests in the partnership during the taxable_year when such election was filed and all subsequent years unless revoked by the partnership subject_to sec_1_754-1 sec_743 provides in part that in the case of a transfer of an interest in a partnership by sale_or_exchange a partnership with respect to which the election provided in sec_754 is in effect shall increase the adjusted_basis of the partnership plr-114627-18 property by the excess of the basis to the transferee partner of his interest in the partnership over his proportionate share of the adjusted_basis of the partnership property of the requirements for amortization under sec_197 only the anti-churning_rules are in question in this case special rules are provided for partnerships in sec_1_197-2 and specific rules for sec_743 basis adjustments are provided in sec_1_197-2 on date1 after date partnership3 was formed by partnership5 and partnership1 in a transaction that qualified for non-recognition under sec_721 partnership5 contributed the intangible asset to partnership3 in exchange for its interest in partnership3 and partnership1 contributed cash and other assets in exchange for its interest in partnership3 partnership3 has used the intangible asset since then in its trade_or_business under sec_1_197-2 each of the partners of partnership3 was deemed to acquire their interest in partnership3 from the other and each was deemed to acquire a proportional interest in the assets of partnership3 since the intangible asset was not amortizable in partnership5’s hands it is also not amortizable in the hands of partnership3 sec_197 and sec_1_197-2 this will continue to be true after the transactions subject_to this ruling occur this ruling addresses the sec_743 adjustments that are allocable to the intangible asset that result from the transfer of partnership2 and partnership3 interests to newco2 a newly formed corporation in a non-taxable transaction each sec_743 adjustment results in a separate intangible asset that is analyzed under sec_1 h v at the partner level sec_1_197-2 and sec_1_197-2 partners are treated as directly owning and using their proportionate share of partnership assets sec_197 in this case the anti-churning_rules do not apply to a sec_743 adjustment if one of two tests is met either i the transferee is not related to the transferor or ii the requirements of sec_1_197-2 are met the basis adjustments do not satisfy the first test because the transferor and the transferee of any actual or deemed transfer of partnership3 interests as a result of the transaction will be related within the meaning of sec_197 and sec_1_197-2 immediately before and after the transaction thus any transferee entitled to a basis_adjustment will be related to the transferor for purposes of the anti-churning_rules therefore the basis adjustments will be amortizable under sec_197 only if the requirements of sec_1_197-2 are met principals transactions in the case of the interests in partnership3 that partnership1 and partnership2 acquired in the principals transactions the partnership3 interests that are transferred to newco2 were originally owned by partnership5 and distributed to the exercising plr-114627-18 principal through a series of non-recognition transactions taxpayer has represented that no principal exercised their d in connection with or as part of a plan that included the formation of partnership3 with respect to the interests in partnership3 acquired by partnership1 and partnership2 from the principals the requirements of sec_1_197-2 are met because i the principals transactions occurred after partnership3 acquired the intangible asset and therefore the interests in partnership3 that partnership1 and partnership2 acquired in the principals transactions occurred after partnership3 acquired the intangible asset also partnership3 acquired the intangible asset after date and the intangible asset is not amortizable in the hands of partnership3 ii the principals’ interests in partnership3 that are being transferred were held after partnership3 acquired the intangible asset by partnership5 a person other than partnership1 or partnership2 further taxpayer has represented that partnership5 has never been related to partnership1 or its predecessor or partnership2 within the meaning of sec_197 and sec_1_197-2 and iii the acquisition of the interests in partnership3 by partnership5 was not part of a transaction or series of related transactions in which partnership1 and partnership2 acquired its partnership3 interest from the principals that is the exercise of the d occurred in transactions independent from the formation of partnership3 public trading with respect to the interests in partnership3 acquired by partnership1 upon the formation of partnership3 on date1 the requirements of sec_1_197-2 are met because i partnership1 acquired its interest in partnership3 after partnership3 acquired the intangible asset also partnership3 acquired the intangible asset after date and the intangible asset is not amortizable in the hands of partnership3 and ii in its letter dated date taxpayer represents subject_to confirmation by ongoing diligence taxpayer reasonably estimates that as of date3 through public trading and issuances of limited_partnership interests --- percent or more of the economic interests in partnership1 have changed ownership since partnership1 acquired its interests in partnership3 in year1 as stated in revrul_87_115 when an upper-tier partnership has a sec_754 election in effect any sec_743 adjustment resulting from the deemed transfer is segregated and allocated solely to the transferee of the upper-tier partnership_interest plr-114627-18 further with respect to any increase in the basis of partnership property under sec_743 a partnership is treated as an aggregate of its owners under the anti-churning_rules sec_197 applying sec_1_197-2 for purposes of sec_1_197-2 the public owners of partnership1 are treated as acquiring interests in partnership3 when each public_owner purchased an interest in partnership1 subsequent to the formation of partnership3 in year1 because the public owners of partnership1 acquired interests in partnership3 after those interests were held by unrelated owners in transactions independent from the formation of partnership3 sec_1_197-2 and iii are satisfied for those acquisitions based on taxpayer’s representation in a letter dated date that taxpayer reasonably estimates that as of date3 which is one business_day before date through public trading and issuances of limited_partnership interests --- percent or more of the economic interests in partnership1 have changed ownership since partnership1 acquired its interests in partnership3 in year1 the increases to the tax basis of the intangible asset for the benefit of newco2 or partnership2 under sec_743 resulting from partnership1’s transfer of interests in partnership3 to newco2 are amortizable under sec_197 to the extent those interests were treated as previously acquired by public investors since the formation of partnership3 on date1 conclusions based solely on the facts and representations submitted and the law and analysis as set forth above we rule that the increases to the tax basis of the intangible asset a sec_197 intangible under sec_743 for the benefit of newco2 or partnership2 that result from the transaction will be amortizable under sec_197 to the extent those basis adjustments relate to interests that i were previously acquired from the principals or ii were treated as previously acquired by public investors subsequent to the formation of partnership3 on date1 except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code or regulations specifically no opinion is expressed or implied concerning the federal_income_tax treatment of any transactions described in this letter including the transaction that taxpayer represents occurred on date4 this letter_ruling is conditioned upon taxpayer demonstrating the extent that the ownership of partnership1’s interests changed between date1 and date3 the rulings contained in this letter_ruling are based upon facts and representations submitted by taxpayer accompanying penalty of perjury statements executed by appropriate parties while this office has not verified any of the material plr-114627-18 submitted in support of this letter_ruling request all material is subject_to verification on examination a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant a copy is enclosed for that purpose alternatively a taxpayer filing its federal_income_tax return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling this letter_ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate operating division director sincerely s kathleen reed kathleen reed branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------- ------------------------ --------------------------- ty ------ 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 intl b03 plr-139178-15 date date legend taxpayer a taxpayer b corp c year amount x year amount y --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- -------------- -------------- ------------------ ------ ------------ ------ -------------------------------- dear ------------------------- this is in response to your letter dated date requesting permission to revoke an election under sec_301_7701_b_-4 for year the ruling contained in this letter is based upon information and representations submitted by taxpayer a and taxpayer b and accompanied by a penalty of perjury statement executed by them 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 taxpayer a was a resident_of_the_united_states for year under the substantial_presence_test of sec_7701 of the internal_revenue_code taxpayer b taxpayer a’s spouse did not meet the substantial_presence_test for year taxpayer b elected to be treated as a resident under sec_301_7701_b_-4 for year and complied with the election procedure requirements set forth in sec_301_7701_b_-4 including attaching the statement described in paragraph c of plr-139178-15 sec_301_7701_b_-4 to form_1040 for year which was filed jointly with taxpayer a sec_301_7701_b_-4 provides that the election made by taxpayer b to be treated as a resident under sec_301_7701_b_-4 for year may not be revoked without the approval of the commissioner or_his_delegate in year taxpayer a and taxpayer b each owned of corp c a foreign_corporation taxpayer b performed personal services for corp c after the election because both taxpayer a and taxpayer b were residents of the united_states for year they were united_states_shareholders under sec_957 of the code and corp c was a controlled_foreign_corporation under sec_957 taxpayers a and b reported on their form_1040 as joint filers for year a subpart_f inclusion pursuant to sec_951 in amount x in year both taxpayer a and taxpayer b were residents of the united_states under the substantial_presence_test of sec_7701 of the code taxpayers a and b received in year a distribution from corp c in amount y an amount in excess of amount x taxpayers a and b jointly filed form_1040 for year on which they reported the receipt of previously_taxed_income under sec_959 in amount x and a taxable_distribution from corp c in the amount of the excess of amount y over amount x taxpayers a and b represent that with approval granted to taxpayer b to revoke the election to be treated as a resident under sec_301_7701_b_-4 for year taxpayer a and taxpayer b will file an amended form_1040 as joint filers for year reporting amount y the entire amount of the distribution that they received in year from corp c as taxable_income and none as previously_taxed_income under sec_959 of the code taxpayer a will file an amended form_1040 for year to change status from joint_return to married_filing_separately reporting all required taxable_income and taxpayer b will file if needed a form 1040nr for year to report taxable u s source income if any based solely on the information submitted and the representations made approval is granted to taxpayer b to revoke the election to be treated as a resident under sec_301_7701_b_-4 for year except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to taxpayers a and b sec_6110 of the code provides that it may not be used or cited as precedent plr-139178-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to the amended form_1040 as joint filers for year which taxpayers a and b will file the amended form_1040 married_filing_separately which taxpayer a will file for year and the form 1040nr which taxpayer b will file for year if needed as referenced above sincerely richard l chewning senior counsel branch office of associate chief_counsel international cc


t c memo united_states tax_court richard c joss petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in park city utah during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued f 3d 7th cir we concluded our opinion with a citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1