t c memo united_states tax_court paul k hanashtro petitioner v commissioner of internal revenue respondent docket no filed date bruce eb gardner for petitioner melinda williams peter reilly and john q walsh for respondent memorandum opinion panuthos chief special_trial_judge this case is before the court on petitioner's motion to dismiss for lack of jurisdiction ’ petitioner contends that the notices of unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure deficiency at issue in this case are invalid and or that the notices of deficiency were rescinded before the filing of the petition as discussed in greater detail below we will deny petitioner's motion to dismiss however we will dismiss for lack of jurisdiction and strike the allegations in the petition pertaining to the taxable_year background paul k hanashiro petitioner failed to file timely federal_income_tax returns for and on date respondent mailed separate notices of deficiency to petitioner determining deficiencies in and additions to his federal income taxes for and as follows additions to tax_year deficiency sec_6651 sec_6654 a dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure as of the date of mailing of the notices of deficiency respondent had prepared a total of three examination reports regarding petitioner's tax_liability for and on date respondent prepared separate examination reports for and the examination_report for lists a balance due of dollar_figure comprising tax of dollar_figure deficiency of dollar_figure less prepayment_credits of dollar_figure the deficiencies determined for and are consistent with these examination reports interest of dollar_figure and an estimated_tax penalty of dollar_figure the examination_report for lists a balance due of dollar_figure comprising tax of dollar_figure deficiency of dollar_figure less prepayment_credits of dollar_figure interest of dollar_figure and an estimated_tax penalty of dollar_figure a third examination_report dated date which included the proposed disallowance of the prepayment_credits allowed in the earlier examination reports for and states that petitioner owes balances of dollar_figure dollar_figure and dollar_figure for taxes interest and estimated_tax penalties for and respectively in late date counsel for petitioner wrote to nancy l jones at respondent's kansas city service_center to request that the notices of deficiency for and be withdrawn on the grounds that the notices were arbitrary and inaccurate ms jones was listed as the person to contact in the notices of deficiency on date petitioner filed a tax_return for in which he claimed a refund of dollar_figure on date counsel for petitioner wrote to revenue_agent tom spolrich in chicago who had recently contacted petitioner to request the withdrawal of the notices of deficiency for and on date petitioner filed tax returns for and claiming refunds of dollar_figure and dollar_figure respectively in a letter to petitioner dated date revenue_agent john mayer stated the purpose of this letter is to inform you that your case has been changed from statu sec_24 day to statu sec_12 under examination if you have any questions you can reach me at telephone number omitted on date counsel for petitioner wrote to revenue_agent mayer as follows this letter concerns my request for the irs to withdraw the notices of deficiency dated date for the and tax years as you may be aware on date i wrote nancy l jones in the kansas city service_center requesting that the notices of deficiency be withdrawn however to date i have not receive a response to my correspondence your letter dated date suggests the status of the above referenced tax returns have been changed from statu sec_24 day to statu sec_12 under examination but does not address my concerns regarding the withdrawal of the deficiency notices enclosed you should find a copy of my letters to ms jones and the respective deficiency notices it is my understanding that each deficiency_notice will be drawn sic no later than monday date i will need written confirmation that the notices have been officially withdrawn to avert filing a petition with the u s tax_court to protect the interests of my client on date pincite p m counsel for petitioner hand- delivered a petition for redetermination to the court's petitions section the petition although contesting petitioner's tax_liability for and states that no notice_of_deficiency was issued to petitioner for at the time the petition was filed petitioner resided in chicago illinois on date following an examination of petitioner's late-filed tax returns for and respondent issued an examination_report which states that petitioner is entitled to refunds of dollar_figure dollar_figure and dollar_figure for and respectively on date revenue_agent mayer executed form_8626 agreement to rescind notice_of_deficiency covering the notices of deficiency for and and sent a copy of the form_8626 to counsel for petitioner for his signature by letter dated date counsel for petitioner responded as follows this letter concerns the agreement to rescind notice_of_deficiency form for tax years and this letter also concerns why we will not execute the form_8626 we received today via facsimile when you called pincite pm est on june 9th you were informed that u s tax_court petitions were filed at approximately pm earlier that day you were also informed that rescission of the notices was no longer necessary based on our agreement of june 1st you stated all the tax_deficiency notices would be withdrawn by june 8th on june 5th i informed you that your letter changing the status of this case from days to examination did not address my concerns on june 8th i did not hear from you regarding withdrawing the tax_deficiency notices accordingly on june 9th i filed u s tax_court petitions covering the tax years and a review of the form_8626 received on june 11th prohibits execution if a u s tax_court petition contesting the deficiencies has already been filed accordingly we can not execute the form_8626 in good_faith since we have already filed the petitions fn ref omitted on date petitioner filed an amended petition which includes allegations that the notices of deficiency for and are invalid petitioner subsequently filed a motion to dismiss for lack of jurisdiction arguing that the notices of deficiency for and are invalid and the notices were rescinded by oral agreement before the filing of the petition respondent filed an objection to petitioner's motion to dismiss respondent's objection included the allegation that the court lacks jurisdiction over the taxable_year on the ground that no valid notice_of_deficiency had been issued to petitioner for that year at the time that the petition was filed a hearing in this case was conducted at the court's motions session in washington d c counsel for both parties appeared at petitioner seeks to have the notices of deficiency declared invalid or rescinded to avoid having his claim_for_refund for barred by the so-called 2-year look-back rule prescribed in sec_6512 b b see 516_us_235 the tax_court lacks jurisdiction to award a refund of taxes made more than years before the date of mailing of a notice_of_deficiency if on the date that the notice_of_deficiency is mailed the taxpayer has not filed a tax_return for that year the hearing and offered argument in support of their respective positions discussion the court's jurisdiction to redetermine a deficiency depends upon the issuance of a valid notice_of_deficiency and a timely filed petition see rule a c 93_tc_22 90_tc_142 sec_6212 expressly authorizes the commissioner after determining a deficiency to send a notice_of_deficiency to the taxpayer by certified or registered mail pursuant to sec_6213 the taxpayer ha sec_90 days or days if the notice is addressed to a person outside of the united_states from the date that the notice_of_deficiency is mailed to file a petition with the court for a redetermination of the deficiency at a minimum the notice must indicate that the commissioner has determined a deficiency in tax in a definite amount for a particular taxable_year and that the commissioner intends to assess the tax in due course see 88_f2d_650 2d cir 44_tc_382 affd 373_f2d_45 10th cir petitioner contends that the notices of deficiency are invalid on the ground that respondent attached conflicting examination reports to the notices petitioner's contention is similar to an argument that the court addressed in 90_tc_110 in campbell the commissioner mailed a notice_of_deficiency to the taxpayers including a cover letter reciting in standard language that it was a notice_of_deficiency and listing the taxable_year as well as the amounts of the deficiency and additions to tax a notice_of_deficiency waiver form and several pages purportedly explaining the adjustments although the cover letter and the waiver clearly related to the taxpayers the commissioner had inadvertently attached to the notice a seven-page explanation of adjustments for an unrelated taxpayer in response the taxpayers filed a petition and later a motion to dismiss attacking the validity of the notice_of_deficiency see id pincite upon review of the matter we noted that the first two pages of the deficiency_notice clearly referred to the taxpayers as the subjects of the notice while the explanation of adjustments may have caused confusion there was no indication in the notice that the commissioner failed to consider information relating to the taxpayers in making the deficiency determination see id pincite viewing the record as a whole we concluded that the commissioner had determined a deficiency against the taxpayers and inadvertently attached the wrong computational sheets to the notice_of_deficiency see id accordingly we denied the taxpayers' motion to dismiss as in campbell v commissioner supra the notices of deficiency in question include standard cover letters listing the years deficiencies and additions to tax in dispute there is no question that the notices of deficiency pertain to petitioner's tax_liability although the conflicting examination reports that were purportedly attached to the notices of deficiency may have caused some confusion we are convinced that the notices of deficiency served to put petitioner on notice that respondent had determined deficiencies in his federal income taxes for and consequently we hold that the notices of deficiency are valid petitioner contends in the alternative that the notices of deficiency were rescinded by oral agreement before the date that the petition was filed the commissioner's authority to rescind a notice_of_deficiency derives from sec_6212 which provides sec_6212 authority to rescind notice_of_deficiency with taxpayer's consent --the secretary may with the consent of the taxpayer rescind any notice_of_deficiency mailed to the taxpayer any notice so rescinded shall not be treated as a notice_of_deficiency for purposes of subsection c relating to further deficiency letters restricted section we observe that at the time that the notices of deficiency were issued the only confusion concerned whether respondent would allow prepayment_credits to petitioner -- - a relating to restrictions applicable to deficiencies petition to tax_court and sec_6512 relating to limitations in case of a petition to tax_court and the taxpayer shall have no right to file a petition with the tax_court based on such notice nothing in this subsection shall affect any suspension of the running of any period of limitations during any period during which the rescinded notice was outstanding in sum sec_6212 authorizes the commissioner with the consent of the taxpayer to rescind any notice_of_deficiency mailed to the taxpayer if a notice_of_deficiency is rescinded the taxpayer has no right to file a petition with the court based on such a notice the record in this case shows that counsel for petitioner requested that the notices of deficiency be rescinded shortly after the notices were issued although the record suggests that respondent's agents were in general agreement that the notices should be rescinded counsel for petitioner insisted that the matter be committed to writing when no written rescission of the notices of deficiency was forthcoming counsel for petitioner filed a petition with the court moreover the day after filing the petition counsel for petitioner notified respondent that rescission of the notices of deficiency was unnecessary because of the filing of the petition the rescission of a notice_of_deficiency requires mutual consent by the commissioner and the taxpayer and such mutual consent must be objectively apparent see powell v commissioner tcmemo_1998_108 the record in this case indicates that petitioner and respondent may have intended to enter into an agreement but had not agreed to rescind the notices of deficiency before the filing of the petition indeed counsel for petitioner made it clear that he would not consider the notices of deficiency to be rescinded unless respondent reduced the agreement to writing when no written_agreement was forthcoming counsel for petitioner filed a petition on petitioner's behalf with the court under the circumstances we hold that the parties did not agree to rescind the notices of deficiency for and our holding on this point is not affected by revenue_agent mayer's date letter stating that petitioner's case had been changed from statu sec_24 day to statu sec_12 under examination see hesse v commissioner tcmemo_1997_333 slattery v commissioner tcmemo_1995_274 returning a case file from the 90-day section to the examination_division for purposes of a conference is not tantamount to a rescission petitioner also argues that he should be permitted to withdraw his petition and then execute the form_8626 that revenue_agent mayer forwarded to him on date however it is well settled that the filing of a timely petition contesting a valid notice_of_deficiency invests the court with jurisdiction to resolve finally the taxpayer's liability for the year in issue see 62_tc_519 a taxpayer may not unilaterally oust the court from jurisdiction see 57_tc_720 because petitioner filed a timely petition in response to valid notices of deficiency we will deny petitioner's motion to dismiss for lack of jurisdiction as a final matter we will dismiss for lack of jurisdiction and strike all allegations in the petition pertaining to petitioner's tax_liability for respondent did not issue a valid notice_of_deficiency to petitioner for and we so hold to reflect the foregoing an order denying petitioner's motion to dismiss for lack of jurisdiction and dismissing this case for lack of jurisdiction and striking the allegations in the petition pertaining to the taxable_year will be issued


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-104857-06 date date legend grantor spouse child a child b_trust date year year year year year year dollar_figurem dollar_figuren dollar_figureo dollar_figurep dollar_figureq dollar_figurer dear --------------- - - - - - - - - - - - - - - - - - - ---------------------------------------------- ---------------------------------------------- -------------------- ---------------------- --------------------------------------------------------- ------------------- ------- ------- ------- ------- ------- ------- ------------- ----------- ------------- ------------- ----------- ----------- this letter is in response to a letter from your authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of grantor’s and spouse’s respective generation-skipping_transfer gst exemptions plr-104857-06 the facts and representations submitted are summarized as follows grantor and spouse retained an attorney who in year drafted a_trust instrument trust for the primary benefit of their children child a and child b and their descendants however neither grantor nor spouse signed the instrument notwithstanding that the trust was not executed in year grantor transferred dollar_figurem to trust grantor and spouse each filed separate united_states gift and generation- skipping transfer_tax returns form sec_709 on which they elected under sec_2513 to treat all transfers in year as made one-half by each spouse the accounting firm that prepared the returns failed to include a copy of trust with the return and failed to allocate grantor’s and spouse’s available gst tax exemptions to the transfers to trust in year in year grantor and spouse transferred dollar_figuren to trust but pursuant to advice from the accounting firm did not file gift_tax returns for year consequently grantor and spouse did not allocate their available gst tax exemption to the transfers to trust in year on date in year grantor revised trust and formally executed the trust instrument such that trust was irrevocable subsequently in year grantor transferred dollar_figureo to trust grantor and spouse filed separate gift_tax returns on which they elected to treat the transfer in year as made one-half by each spouse the accounting firm prepared the returns and failed to allocate grantor’s and spouse’s available gst tax exemptions to the transfers to trust in year in year grantor transferred dollar_figurep to trust in two separate transfers grantor and spouse again filed separate gift_tax returns on which they elected to treat all transfers in year as made one-half by each spouse the accounting firm again prepared the returns and again failed to allocate grantor’s and spouse’s available gst tax exemptions to the transfers to trust in year likewise in year grantor transferred dollar_figureq to trust again grantor and spouse filed separate gift_tax returns on which they elected to treat the transfer in year as made one-half by each spouse the accounting firm again prepared the returns and again failed to allocate grantor’s and spouse’s available gst tax exemptions to the transfers to trust in year in year grantor and spouse each separately transferred dollar_figurer to trust because the transfers were made by each donor grantor and spouse did not elect to treat the transfers as made one-half by each spouse the accounting firm again prepared the returns and again failed to allocate grantor’s and spouse’s available gst tax exemptions to the transfers to trust in year plr-104857-06 it is represented that no additions have been made to trust since year and no distributions have been made to skip persons from trust sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2602 provides that the amount of the tax is the taxable_amount multiplied under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip under sec_2631 effective for the years involved in this case for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor 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_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than a direct_skip is made on form_709 sec_2642 provides in relevant part that if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return for such transfer the value of such property for purposes of determining the inclusion_ratio shall be its value as finally determined for purposes of chapter and such allocation shall be effective on and after the date of such transfer sec_2642 states that for purposes of determining the inclusion_ratio if an individual makes an inter_vivos transfer of property and the value of such property would be includible in the gross_estate of such individual under chapter if such individual died immediately after making such transfer other than by reason of sec_2035 plr-104857-06 any allocation of gst_exemption to such property shall not be made before the close of the estate_tax_inclusion_period etip sec_2642 provides generally that the value of such property shall be its value as of the close of the estate_tax_inclusion_period sec_2642 provides that the term estate_tax_inclusion_period means any period after the transfer described in sec_2642 during which the value of the property involved in such transfer would be includible in the gross_estate of the transferor under chapter if the transferor died under sec_2652 and sec_26_2652-1 generally the transferor for purposes of the gst tax is the individual with respect to whom the property was last subject_to federal estate or gift_tax sec_2652 and sec_26_2652-1 provide that if under sec_2513 one-half of a gift is treated as made by an individual and one-half is treated as made by the spouse of the individual then for purposes of the gst tax each spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 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 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief 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 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 is 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 under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-104857-06 sec_301_9100-3 provides that in general requests for extensions of time requests for relief under sec_301_9100-3 will be granted when the taxpayer under sec_301_9100-1 a regulatory election includes an election whose due for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 under the provisions of sec_301_9100-3 provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government 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 to 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 therefore grantor and spouse are granted an extension of time of days from the date of this letter to make allocations of their respective gst exemptions with respect to the transfers to trust as follows sec_301_9100-3 provides that a taxpayer is deemed to have acted prior to date trust was subject_to an etip on date any amounts previously transferred to trust became completed gifts and the etip closed accordingly an extension is granted to allocate grantor and spouse’s gst exemptions with respect to the transfers to trust that became complete on date the allocations will be effective as of date and the inclusion_ratio resulting from these allocations will be determined based on the fair_market_value of trust as determined as of date in addition an extension is granted to allocate grantor and spouse’s gst exemptions with respect to transfers to trust made after date in year sec_3 through the allocations with respect to these transfers will be effective as of the dates of the transfers and the inclusion_ratio of the trust resulting from these allocations will be determined based on the value of the transfers to trust as determined for federal gift_tax purposes these allocations should be made on separate supplemental form sec_709 united_states gift and generation-skipping_transfer_tax return filed for year sec_3 through the forms are to be filed with the internal_revenue_service center cincinnati oh except as expressly provided herein no opinion is expressed or implied plr-104857-06 a copy of this letter should be attached to the supplemental form sec_709 copies are enclosed for this purpose concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the ruling contained in this letter is based upon information and representations submitted by grantor and spouse and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination pursuant to the power_of_attorney on file with this office this letter is being sent this ruling is directed only to the taxpayers requesting it sec_6110 to taxpayers' representative provides that it may not be used or cited as precedent sincerely william p o'shea associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purpose sec_2 copies of this letter cc


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-110931-12 date july internal_revenue_service number release date index number --------------------------------------------------------------- ------- ------------------------ ---------------------------------------- ------------------------------ re ------------------------------------------------ --------------------------------------------------------------- legend donor trust grandchild great-grandchild great-grandchild great-grandchild great-grandchild date date state state state statute state statute state statute state statute state statute state statute court ------------------------------------ ------------------------------------------------------------------------- ------------------------- -------------------------------- ------------------------------ -------------------------- ---------------------------- -------------------------- ------------------------- -------------- ------------------ --------------------------------------- ------------------------------------------- ----------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------------------------- dear ---------------------------------------------------- plr-110931-12 this letter responds to your authorized representative’s letter dated date requesting income estate gift and generation-skipping_transfer gst tax rulings with respect to the proposed division of trust the facts and representations submitted are summarized as follows trust was created by donor under an agreement effective date a date prior to date for the benefit of individual beneficiaries and charitable beneficiaries trust is for the primary benefit of the cla sec_1 individual beneficiaries which are defined by trust as the class consisting of the living issue the spouses of the living issue and all spouses of the deceased issue of donor’s grandchild grandchild to the extent that all the cla sec_1 individual beneficiaries are all deceased trust provides that the trustees may benefit other specified classes of individual beneficiaries trust is administered under the laws of state and is governed by the laws of state trust gives the trustees absolute discretion to distribute income or principal among the individual beneficiaries as well as charitable beneficiaries on an equal or unequal basis to divide the trust and to allocate assets on a pro_rata or non-pro rata basis specifically paragraph dollar_figure states in relevant part nature of benefits the payment of any benefits hereunder whether of income principal or otherwise shall be vested in the sole discretion of the trustees from time to time no potential individual beneficiary or charitable_beneficiary shall ever have any right title or interest in or claim to any part of any income principal or distribution which could have been made hereunder unless and until actually received by such individual beneficiary or charitable_beneficiary amounts of net_income capital_gains or other proceeds or amounts of principal not paid out to a beneficiary shall be accumulated and added to principal such payments among the members of a class of individual beneficiaries and charitable beneficiaries need not be equal either at the time of payment or at any future time and may be made to none to one to all or to any number of members of the class in any proportions both as between beneficiaries of the same class and as between individual beneficiaries and charitable beneficiaries all as determined by the trustees in their sole discretion sec_3 provides that upon termination of trust whether by the trustees’ election to distribute all remaining assets or due to applicable state law limiting the duration of trusts the trustees shall distribute the remaining assets to any or all members of the class of individual beneficiaries and charitable beneficiaries then eligible under the other provisions of this article as determined by the trustees in their sole discretion plr-110931-12 article authorizes the trustees to divide the trust and to allocate assets among divided trusts on a pro_rata or non-pro rata basis specifically sec_5 authorizes the trustees t o divide the trust determining values and designating particular assets for my beneficiaries to assign like or unlike properties to different beneficiaries or trusts to create or hold undivided interests in any property of the trust and to make distributions and payments in cash or in_kind or both great-grandchild great-grandchild great-grandchild and great-grandchild are currently the only children of grandchild great-grandchild is married and has two minor children great-grandchild great-grandchild and great- grandchild are not married and have no issue at the request of great-grandchild great-grandchild great-grandchild and great-grandchild one of the trustees petitioned court to divide trust subject_to adjustment for prior distributions to individual beneficiaries the trustees propose to divide trust on a pro_rata basis to the extent possible into four approximately equal separate trusts to be known as the divided trusts one for each respective great-grandchild’s family line each divided trust will be for the primary benefit of the class consisting of the child of grandchild the spouse of that child the living issue of that child the spouses of the living issue of that child and all spouses of the deceased issue of that child and charitable beneficiaries the dispositive provisions of each divided trust are the same except that the beneficiaries of each trust include each respective great-grandchild’s family line if all members of the class are deceased then the divided trust will terminate and the remaining assets and liabilities of the divided trust will be distributed to the then living issue of granchild per stirpes the trustees of trust will continue to be the trustees of the divided trusts on date court issued an order that authorized the trustees to divide trust upon the receipt of a favorable private_letter_ruling from the internal_revenue_service you have requested the following rulings after the proposed division the divided trusts will continue to be exempt from the gst tax the proposed division will not cause any beneficiary to have made a taxable gift the proposed division will not cause any portion of the assets of the divided trusts to be includible in the gross_estate of any beneficiary the allocation of assets and liabilities of trust in approximately equal shares whether done on a pro_rata or a non-pro rata basis will not cause trust the divided trusts or any beneficiary to recognize any ordinary_income or loss or capital_gain or loss plr-110931-12 the adjusted_basis of the assets received by the divided trusts will be the same as the respective adjusted_basis of the assets held by trust pursuant to sec_1015 the holding periods of the assets received by the divided trusts will be the same as the holding periods of the assets in trust pursuant to sec_1223 law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer the term ageneration-skipping transfer is defined in sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example illustrates a situation where in grantor established an irrevocable_trust for the benefit of grantor's two children a and b and their issue under the terms of the trust the trustee has the discretion to plr-110931-12 distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter state statute authorizes a trustee to divide any trust whenever created into two or more separate trusts if the trustee determines that dividing the trust is in the best interests of all persons interested in the trust and will not substantially impair the accomplishment of the purposes of the trust state statute authorizes a trustee to petition the court for an order to construe interpret or reform the terms of a_trust or authorize a deviation from the terms of a_trust state statute provides that a n irrevocable_trust may be modified or terminated upon the consent of all of the beneficiaries if continuance of the trust on its existing terms is not necessary to carry out a material purpose state statute provides that if any beneficiary does not consent to a requested modification or termination of a_trust by the other beneficiaries the court with the consent of the other beneficiaries may approve a requested modification or partial_termination if the rights or interests of the beneficiaries who do not consent are not significantly impaired or adversely affected state statute provides that w ithout approval of court and except as otherwise provided by the terms of the trust a trustee may combine two or more trusts into a single trust or divide a_trust into two or more separate trusts if the combination or division does not impair the rights of any of the beneficiaries or substantially affect the accomplishment of the trust purposes plr-110931-12 in this case trust will be divided into four divided trusts the proposed division will not result in a shift of any beneficial_interest in the trusts to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed division will not extend the time for vesting of any beneficial_interest in the divided trusts beyond the period provided for in trust accordingly based on the facts submitted and the representations made we conclude that after the proposed division the divided trusts will continue to be exempt from the gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the beneficiaries of the divided trusts will have the same interests after the division that they had as beneficiaries under trust because the beneficial interests of the beneficiaries are substantially the same both before and after the proposed division no transfer of property will be deemed to occur as a result of the division accordingly based on the facts submitted and the representations made we conclude that the proposed division will not cause any beneficiary to have made a taxable gift ruling sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has plr-110931-12 retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend revoke or terminate or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death in order for sec_2036 through to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the proposed division of trust does not constitute a transfer within the meaning of sec_2036 through the beneficiaries of the divided trusts will have the same interests after the division that they had as beneficiaries under trust accordingly based on the facts submitted and the representations made we conclude that the proposed division will not cause any portion of the assets of the divided trusts to be includible in the gross_estate of any beneficiary ruling sec_61 provides that gross_income includes gains derived from dealings in property and under sec_61 from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized plr-110931-12 sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained revrul_56_437 1956_2_cb_507 provides that a partition of jointly owned property pursuant to state law is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition state statute authorizes trustees to distribute property and money in divided or undivided interests and adjust resulting differences in valuation in this case the trustees have authority under trust state law and court order to divide trust and to allocate assets on a pro_rata or non-pro rata basis the beneficiaries do not acquire their interest in the divided trusts as a result of the exchange of their interests in trust but by reason of the trustees’ exercise of their existing authority to allocate assets on a pro_rata or non-pro rata basis in further trust the proposed transaction is analogous to the partition of a joint interest under revrul_56_437 accordingly based on the facts submitted and the representations made we conclude that the division of trust and allocation of assets and liabilities of trust to each divided trust in approximately equal shares will not cause trust the divided trusts or any beneficiary to recognize any ordinary_income or loss or capital_gain or loss ruling sec_5 and sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss plr-110931-12 recognized to the grantor upon such transfer under the law applicable to the year in which the transfer was made sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining the basis_of_property where more than one person acquires an interest in property by transfer in trust under sec_1_1015-1 property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer's hands as it would have in the hands of such other person in this case sec_1001 does not apply to the proposed transaction thus after the division of trust and transfer of the assets into the divided trusts the adjusted_basis of the assets received by the divided trusts will be the same as the respective adjusted_basis of the assets held by trust pursuant to sec_1015 furthermore we conclude that under sec_1223 the holding periods of the assets received by the divided trusts will be the same as the holding periods of the assets in trust in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-110931-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely ______________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


t c memo united_states tax_court william m smith petitioner v commissioner of internal revenue respondent docket no filed date william m smith pro_se jonathan j ono for respondent memorandum findings_of_fact and opinion haines judge respondent determined a deficiency in petitioner’ sec_2002 federal_income_tax of dollar_figure as well as additions to tax under sec_6651 of dollar_figure and sec_6654 of dollar_figure unless otherwise indicated all section references are to continued the issues for decision are whether petitioner failed to report wages interest a state_income_tax refund and other income of dollar_figure dollar_figure dollar_figure and dollar_figure respectively in and whether petitioner is liable for sec_6651 and sec_6654 additions to tax findings_of_fact the parties’ stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in lahaina hawaii at the time the petition was filed in petitioner was employed by the county of maui in hawaii and received wage income of dollar_figure and had withheld dollar_figure in federal_income_tax using third-party payor information respondent determined that in petitioner also received dollar_figure of interest from the maui county employees federal credit_union dollar_figure as an income_tax refund from the state of hawaii and dollar_figure from the hawaii public employees health fund petitioner did not file a federal_income_tax return for and other than tax withheld of dollar_figure failed to make estimated_tax payments continued the internal_revenue_code code as amended and rule references are to the tax_court rules_of_practice and procedure amounts are rounded to the nearest dollar in the notice_of_deficiency respondent determined that petitioner was entitled only to the standard_deduction one personal_exemption and tax_rates applicable to a single individual petitioner did not present any evidence or make any arguments with respect to deductions exemptions or filing_status we conclude that he has abandoned any argument with respect to these issues on date respondent mailed a notice_of_deficiency to petitioner for the notice_of_deficiency correctly identified petitioner’s name address and social_security_number petitioner timely filed his petition on date trial was held on this matter on date opinion at trial petitioner admitted receiving dollar_figure of wage income from maui county dollar_figure of interest_income from the maui county employees federal credit_union and a dollar_figure income_tax refund from the state of hawaii in although petitioner asserted he did not receive dollar_figure from the hawaii public employees health fund as reported on the information_return of the payor he was a public employee in the state of hawaii in and produced no evidence to dispute his receipt of that amount thus respondent established the requisite evidentiary foundation connecting petitioner with the receipt of dollar_figure in see 680_f2d_1268 9th cir 596_f2d_358 9th cir revg 67_tc_672 92_tc_661 mcmanus v commissioner tcmemo_2006_68 petitioner bears the burden of proving respondent’s determinations are incorrect see rule a petitioner produced no evidence to dispute respondent’s determination of petitioner’s receipt of the dollar_figure in therefore this court finds petitioner received dollar_figure of income from the hawaii public employees health fund in petitioner also asserted he was not liable for the deficiencies making tax-protester arguments including he is not a taxpayer respondent has no jurisdiction over him and respondent lacks authority to assert income_tax deficiencies petitioner’s assertions have been rejected by this court and other courts and we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir see eg wetzel v commissioner tcmemo_2005_211 rejecting as frivolous the argument that the taxpayer was not a taxpayer nunn v commissioner tcmemo_2002_250 rejecting as without merit the argument that the commissioner had no jurisdiction over the taxpayer or his documents this court rejects petitioner’s tax-protester arguments as frivolous and without merit respondent determined that petitioner is liable for additions to tax under sec_6651 for failure_to_file an income_tax return for and under sec_6654 for failure to make estimated_tax payments for respondent bears the burden of production with respect to petitioner’s liability for the additions to tax sec_7491 116_tc_438 to meet his burden of production with respect to sec_6651 respondent must come forward with sufficient evidence indicating it is appropriate to impose the addition_to_tax higbee v commissioner supra pincite sec_6651 imposes an addition_to_tax for failure_to_file a return on the date prescribed determined with regard to any extension of time for filing unless petitioner can establish that his failure was due to reasonable_cause and not due to willful neglect petitioner admitted he did not file a federal_income_tax return for respondent has met his burden of production this court finds that the failure_to_file a federal_income_tax return for was not due to reasonable_cause but was due to willful neglect therefore this court holds that petitioner is liable for the sec_6651 addition_to_tax for under sec_6654 the addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 127_tc_200 each required_installment of estimated_tax is equal to percent of the required_annual_payment sec_6654 the required_annual_payment is generally equal to the lesser_of percent of the tax shown on the individual’s return for that year or if no return is filed percent of his or her tax for such year or if the individual filed a return for the immediately preceding_taxable_year percent of the tax shown on that return sec_6654 wheeler v commissioner supra pincite heers v commissioner tcmemo_2007_10 a taxpayer has an obligation to pay estimated_tax for a particular year only if he has a required_annual_payment for that year wheeler v commissioner supra pincite respondent introduced evidence to prove petitioner was required to file a federal_income_tax return for petitioner did not file a return and petitioner failed to make estimated_tax payments with the exception of the withheld tax however in order to permit this court to make the analysis required by sec_6654 and to conclude that respondent met his burden of producing evidence that petitioner had a required_annual_payment for payable in installments under sec_6654 respondent also must introduce evidence showing whether petitioner filed a return_for_the_preceding_taxable_year and if so the amount of tax shown on that return respondent did not do so without that evidence this court cannot identify the number equal to percent of the tax shown on petitioner’ sec_2001 return complete the comparison required by sec_6654 and conclude petitioner had a required_annual_payment for that was payable in installments under sec_6654 consequently respondent’s determination regarding the sec_6654 addition_to_tax is not sustained although petitioner’s arguments were frivolous and without merit he was not previously warned that a penalty might be imposed under sec_6673 for this reason only this court declines to impose a penalty under sec_6673 but strongly admonishes petitioner that if he persists in failing to file his income_tax returns and in pursuing tax-protester arguments this court will not be so favorably inclined in the future in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 4-plr-113078-01 date date legend decedent trust spouse child child child brother brother niece nephew nephew plr-113078-01 ancestor date date state court property b dear this responds to your letter dated date requesting rulings regarding the application of sec_2518 of the internal_revenue_code to disclaimers of interests in certain trusts and regarding the application of sec_2056 to the division of the marital_deduction share of a_trust facts decedent died testate on date survived by spouse child child and child all of decedent’s children are minors decedent was the settlor and trustee of trust a revocable_trust created on date sec_5 of the trust agreement provides if the settlor is survived by his wife and by issue upon the death of the settlor the trustee shall divide the trust estate remaining after the special gift described in sec_5 into two shares hereafter referred to as the marital_deduction share and the nonmarital share a the nonmarital share shall consist of all of the settlor’s interests in closely held businesses as defined in article and in assets that do not qualify for the marital_deduction plr-113078-01 b the nonmarital share shall be divided into as many shares of equal market_value as are necessary to create one share for each of the settlor’s children then living and one share for each of the settlor’s children then deceased and survived by issue each share created for a child of the settlor who has reached the age of thirty-five years shall be distributed outright and free of trust to that child each share created for a child of the settlor who is under the age of thirty-five years shall be held administered and distributed as a separate trust according to the terms of the child’s trust as set forth in article each share created for the issue then living of a deceased child of the settlor shall be distributed outright and free of trust to those issue in the manner provided in state probate code c the marital_deduction share shall consist of all assets not allocated to the nonmarital share under sec_5 a d the marital_deduction share shall be held administered and distributed according to the terms of the marital trust as set forth in article article a indicates that the marital trust is intended to qualify for the federal estate_tax_marital_deduction as qualified_terminable_interest_property under sec_2056 under article e of the trust agreement the marital trust is to terminate upon the death of the settlor’s wife at that time article g provides that the balance of the trust principal shall be distributed as follows i all of the tangible_personal_property in the trust shall be divided among the settlor’s issue then living in the manner provided in state probate code and as they agree or if they are unable to agree as the trustee determines ii the remaining property in the trust shall be divided into as many shares of equal market_value as are necessary to create one share for each of the settlor’s children then living and one share for each of the settlor’s children then deceased and survived by issue each share created for a child of the settlor who has reached the age of thirty-five years shall be distributed outright and free of trust to that child each share created for a child of the settlor who is under the age of thirty-five years shall be held administered and distributed as a separate trust according to the terms of the child’s trust as set forth in article each share created for the issue then living of a deceased child of the settlor shall be distributed outright and free of trust to those issue in the manner provided in state probate code plr-113078-01 iii if none of the settlor’s children are living at the time that the trust property would otherwise be divided into shares pursuant to the foregoing provisions of this subsection instead of dividing the property into shares and distributing it in the manner provided above the trustee shall distribute all of the trust property outright to the settlor’s then-living issue in the manner provided in state probate code iv if the property of the trust is not completely disposed of by the preceding provisions the trustee shall pay over and deliver the undisposed of property outright and free of trust to the issue then living of ancestor the settlor’s father who are to take in the manner provided in state probate code and if there are none to the settlor’s heirs article dollar_figure provides in order to satisfy a pecuniary gift or to distribute or divide trust assets into shares or partial shares the trustee may distribute or divide those assets in_kind or divide undivided interests in those assets or sell all or any part of those assets and distribute or divide the property in cash in_kind or partly in cash and partly in_kind property distributed to satisfy a pecuniary gift under this instrument shall be valued at its fair_market_value at the time of distribution this section shall apply only to the extent that it does not conflict with the provisions in this instrument specifying allocation of assets involving the marital_deduction gift several disclaimers are proposed a guardian ad litem has been appointed by court for each of child child child and their respective unborn issue and for niece nephew nephew the unborn issue of brother and the unborn issue of brother the guardian ad litem on behalf of child child and child will disclaim a fractional share of the respective child’s nonmarital share trust determined by a fraction the numerator of which is the amount equal to the value of the nonmarital share as finally determined for federal estate_tax purposes reduced by the estate_tax exempt_amount and the denominator is an amount equal to the value of the nonmarital share as finally determined for federal estate_tax purposes in addition the guardian ad litem on behalf of child child and child will disclaim all rights and interests in the martial trust remainder under article g i article g ii and as an issue of ancestor under article g iv of the trust agreement the guardian ad litem on behalf of the unborn issue of child child and child will disclaim all rights and interests in the martial trust remainder under article g i article g ii article g iii and as an issue of ancestor under article g iv of the trust agreement the estate_tax exempt_amount is defined in part as the largest amount if any that can pass free of federal estate_tax based on the credit allowable against such tax under sec_2010 of the internal_revenue_code with certain specified adjustments plr-113078-01 brother and brother will disclaim their respective remainder interests in the marital trust as an issue of ancestor under article g iv of the trust agreement the guardian ad litem for niece nephew nephew the unborn issue of brother and the unborn issue of brother will disclaim their respective remainder interests in the marital trust as an issue of ancestor under article g iv of the trust agreement the trust agreement is silent regarding the effect of a disclaimer by any beneficiary other than spouse it has been represented that all of the proposed disclaimers will be irrevocable in writing and delivered to the appropriate party within months of decedent’s death it has also been represented that none of the disclaimants will have accepted the disclaimed interests or any benefits therefrom following the execution of the proposed disclaimers the trustee acting pursuant to a power granted in the trust agreement will divide the marital_deduction share into two separate marital trusts marital trust a and marital trust b in all respects the terms of the two trusts will be identical to those provided for under article regarding the marital trust property b is a closely_held_business as defined in article of the trust agreement decedent owned a minority interest in property b the trustee will allocate the interest in property b passing to the marital_deduction share as a result of the above disclaimers to marital trust b all property of the marital_deduction share other than the property b interest allocated to marital trust b will be allocated to marital trust a pursuant to sec_2056 separate elections will be made to treat both marital trust a and marital trust b as qualified_terminable_interest_property you have requested the following rulings all of the proposed disclaimers will constitute qualified disclaimers under sec_2518 and the federal estate_tax_value of the property passing at decedent’s death to the three nonmarital share trusts will in the aggregate equal the applicable_exclusion_amount as described in sec_2010 if all of the proposed disclaimers are qualified disclaimers the property allocated to marital trust a will be treated for federal estate_tax purposes as passing directly from decedent to marital trust a and property b allocated to marital trust b will be treated for federal estate_tax purposes as passing directly from decedent to marital trust b ruling_request no -- disclaimers sec_2518 provides that if a person makes a qualified_disclaimer with respect to any interest in property subtitle b relating to the estate gift and generation- skipping transfer_taxes shall apply with respect to such interest as if the interest had never been transferred to such person sec_2518 provides that the term qualified_disclaimer means an irrevocable and unqualified refusal by a person to accept an interest in property but plr-113078-01 only if -- a the date on which the transfer creating the interest in such refusal is in writing such writing is received by the transferor of the interest the transferor’s legal_representative or the holder of the legal_title to the property to which the interest related not later than the date which is months after the later of -- such person is made or benefits and direction on the part of the person making the disclaimer and passes either -- such person has not accepted the interest or any of it sec_4 as a result of such refusal the interest passes without any b the day on which such person attains age a to the spouse of the decedent or b to a person other than the person making the disclaimer sec_25_2518-1 of the gift_tax regulations provides that if a qualified_disclaimer is made the property is treated for federal gift estate and generation- skipping transfer_tax purposes as passing directly from the transferor and not from the disclaimant to the person entitled to receive the property as a result of the dislaimer under sec_25_2518-2 in order to constitute a qualified_disclaimer the disclaimed interest must pass without any direction on the part of the person making the disclaimer to a person other than the disclaimant the requirements of a qualified_disclaimer under sec_2518 are not satisfied if the disclaimant either alone or in conjunction with another directs the redistribution or transfer of the property or interest in property to another person or has the power to direct the redistribution or transfer of the property or interest in property to another person unless such power is limited by an ascertainable_standard under sec_25_2518-3 the disclaimer of all or an undivided portion of any separate interest in property may be a qualified_disclaimer even if the disclaimant has another interest in the same property in general each interest in property that is separately created by the transferor is treated as a separate interest for example if an income_interest in securities is bequeathed to a for life then to b for life with the remainder_interest in such securities bequeathed to a’s estate and if the remaining requirements of sec_2518 are met a could make a qualified_disclaimer of either the income_interest or the remainder or an undivided portion of either interest a could not however make a qualified_disclaimer of the income_interest for a certain number of years in sec_25_2518-3 example under the terms of e's will e's shares of stock in x y and z corporations are transferred to a_trust the trust instrument provides that all income is to be distributed currently to f and g in equal parts until f attains the age of years at that time the corpus of the trust is to be divided equally between f and g plr-113078-01 f disclaims f’s entire income_interest in the trust while retaining the interest f has in corpus the example concludes that the disclaimer is a qualified_disclaimer sec_25_2518-3 example describes a situation where under the terms of a testamentary_trust w is to receive all trust income_for_life the trustee has the power to invade trust corpus for the support and maintenance of d during the life of w at w’s death the trust corpus is payable to d d disclaims the right to receive distributions of trust corpus during w’s lifetime but retains the right to receive the remainder on w’s death the example concludes that d’s disclaimer is a qualified_disclaimer sec_25_2518-3 provides that a disclaimer of an undivided portion of a separate interest in property that meets the other requirements of sec_2518 and the corresponding regulations is a qualified_disclaimer an undivided portion of a disclaimant’s separate interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in such property in order to satisfy the requirements of sec_2518 a disclaimer must be valid under applicable local law 872_f2d_84 4th cir that is because state law determines whether a property interest passes from one to another the disclaimer must constitute an effective renunciation under state law estate of bennett v commissioner 100_tc_67 under state law a disclaimer on behalf of a minor is to be made by the guardian of the estate of the minor if one has been appointed or if none has been appointed by a guardian ad litem upon a hearing the court in its discretion may make an order authorizing or requiring the guardian to execute and file the disclaimer if the court determines taking into consideration all of the relevant circumstances that the minor as a prudent person would disclaim the interest if he or she had the capacity to do so under state law unless the creator of the interest provides for a specific disposition of the interest in the event of a disclaimer the interest disclaimed shall descend go be distributed or continue to be held as to a present_interest as if the disclaimant had predeceased the creator of the interest or as to a future_interest as if the disclaimant had died before the event determining that the taker of the interest had become finally ascertained and the taker’s interest indefeasibly vested a disclaimer relates back for all purposes to the date of the death of the creator of the disclaimed interest or the determinative event as the case may be disclaimers by child child and child in the present case the guardian ad litem for child child and child will seek court approval to execute the disclaimers it is represented that the disclaimers will be irrevocable in writing delivered to plr-113078-01 the executor of decedent’s estate not later than months after decedent’s death and that child child and child have not accepted any benefits from the disclaimed property further each child’s disclaimer of a fractional interest in their respective nonmarital share will satisfy the requirements of sec_25_2518-3 however to be qualified disclaimers for purposes of sec_2518 the disclaimers must be valid under applicable local law in this regard we express no opinion as to whether the disclaimers by child child and child decedent’s minor children are valid under applicable local law however provided the disclaimers are valid under state law the disclaimers will be qualified disclaimers under sec_2518 see estate of goree v commissioner tcmemo_1994_331 therefore provided the disclaimers by child child and child are qualified disclaimers the federal estate_tax_value of the property passing at decedent’s death to the three nonmarital share trusts will in the aggregate equal the applicable_exclusion_amount disclaimers by brother brother the guardian ad litem on behalf of niece nephew nephew and the guardian ad litem on behalf of the unborn issue of child child child brother and brother it is represented that the disclaimers will be irrevocable in writing delivered to the executor of decedent’s estate not later than months after decedent’s death and that the disclaimants have not accepted any benefits from the disclaimed property it is further represented that the disclaimers are valid under state law therefore based on the facts and representations we conclude that the disclaimers executed by brother brother and the guardian ad litem on behalf of niece nephew nephew and the guardian ad litem on behalf of the unborn issue of child child child brother and brother satisfy the requirements of sec_2518 ruling_request no -- qualified_terminable_interest_property sec_2056 provides that the value of a decedent's taxable_estate is determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides the general_rule that no deduction is allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest passing to the surviving_spouse will terminate or fail sec_2056 provides an exception to the terminable_interest_rule in the case of qualified_terminable_interest_property sec_2056 provides that qualified_terminable_interest_property is treated as passing to the surviving_spouse and no part of such property is treated as passing to any person other than the surviving_spouse thus the value of such property is deductible from the value of the gross_estate under sec_2056 plr-113078-01 sec_2056 defines the term qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 and the regulations thereunder provide that the surviving_spouse will be considered to have a qualifying_income_interest_for_life if the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals and no person including the surviving_spouse has a power to appoint any part of the property to any person other than the surviving_spouse during the surviving spouse's lifetime sec_20_2056_b_-7 of the estate_tax regulations provides that the election under sec_2056 may relate to all or any part of property that meets the requirements of sec_2056 provided that any partial election must be made with respect to a fractional or percentage share of the property so that the elective portion reflects its proportionate share of the increase or decrease in value of the entire property for purposes of applying sec_2044 or sec_2519 the fraction or percentage may be defined by formula sec_20_2056_d_-2 provides that if an interest in property passes from a decedent to a person other than the surviving_spouse and the person other than the surviving_spouse makes a qualified_disclaimer with respect to such interest and the surviving_spouse is entitled to such interest in property as a result of such disclaimer the disclaimed interest is treated as passing directly from the decedent to the surviving_spouse in the present case after execution of the proposed disclaimers the trustee proposes to divided the marital_deduction share into two separate trusts martial trust a and marital trust b each with terms identical to the terms of the marital trust as provided in article of the trust agreement we conclude that provided the disclaimers by child child and child are valid and effective under state law and are therefore qualified disclaimers for purposes of sec_2518 the property allocated to marital trust a will be treated for federal estate_tax purposes as passing directly from decedent to marital trust a and the interest in property b allocated to marital trust b will be treated for federal estate_tax purposes as passing directly from decedent to marital trust b except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it sec_6110 plr-113078-01 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling is being sent to the taxpayer and the taxpayer’s other authorized representative sincerely associate chief_counsel passthroughs and special industries by__________________________ george l masnik chief branch


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable number release date index uil no case-mis no district_director ----------------- 6050i tam-128309-04 ------------------------- taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference x year year ------------------- ------- ------- ----------------- ----------------------- ------------------------ ---------------- --------------- ------------------ legend issue sec_1 do the reporting requirements of sec_6050i of the internal_revenue_code code apply when a single customer purchases multiple items of personal_property at the same time and pays for the purchase via a series of cash payments totaling in excess of dollar_figure are x’s employees deemed separate recipients for purposes of sec_6050i of the code is x subject_to either the failure_to_file_correct_information_returns penalty under sec_6721 or the intentional disregard penalty under sec_6721 of the code tam-128309-04 conclusion sec_1 the reporting requirements of sec_6050i apply when a single customer purchases multiple items of personal_property at the same time and pays for the purchase via a series of cash payments totaling in excess of dollar_figure x’s employees are not deemed separate recipients for purposes of sec_6050i x is subject_to the sec_6721 failure_to_file correct information_return penalty x is not subject_to the sec_6721 intentional disregard penalty facts x is a retail business that sells household furnishings and accessories furniture although no individual item of furniture has a sales_price exceeding dollar_figure customers purchase multiple pieces of furniture at the same time causing the total sales_price to exceed dollar_figure for the single purchase customers can pay for their purchases in full at the time of sale or may make a deposit on their purchase and pay the balance by installment customers can pay with cash credit check or a combination of the three if the customer makes a deposit the customer must pay the remaining balance before delivery customers paying through installment deposits often make many small cash payments at various times until their balance is paid in full the customers at issue paid x for their purchases via cash installments typically the employee making the sale is not the employee collecting payment various employees receive multiple payments of currency from customers over a series of weeks and months usually in amounts less than dollar_figure when an employee receives a payment from a customer the employee enters the payment into the computer system transmitting the payment to a central unit once x’s central unit receives the payment information x settles the payment against the customer’s account because of security policies x has not authorized its employees to access customer account histories because of this restriction employees cannot determine the aggregate amount of payments made by a customer on a purchase on september year the internal_revenue_service service concluded the first of two form_8300 report of cash payments over dollar_figure received in a trade_or_business compliance reviews the service determined that x failed to file nine forms for tax_year upon the service’s request the vice president of finance mailed a letter to each of the nine customers who made cash payments in excess of dollar_figure requesting a copy of their driver’s license and social_security card none of the customers responded to the request as a result the nine forms were prepared and filed with incomplete information tam-128309-04 the service did not propose any penalties for x’s failure_to_file_correct_information_returns for year the service informed the vice president of finance that a subsequent compliance review could occur in addition the service explained the sec_6050i reporting requirements and specifically stated that x was required to issue a form_8300 when a customer makes cash payments exceeding dollar_figure whether the payment is made in a single installment or through multiple installments after the discussion the vice president of finance signed an acknowledgement of requirements to file form_8300 the vice president of finance has not changed on june year the service mailed an initial appointment letter to x scheduling a subsequent form_8300 compliance review in july on july year and again on july year x prepared and mailed a form_8300 to separate customers during the july year review the service identified five additional transactions requiring x to issue and file a form_8300 because of x’s failure_to_file these forms the service recommended imposing sec_6721 and sec_6721 penalties against x x contested the proposed penalties x argues that it satisfied the sec_6050i reporting requirement and therefore imposing a penalty is incorrect discussion do the reporting requirements of sec_6050i apply when a single customer purchases multiple items of personal_property at the same time and pays for the purchase via a series of cash payments totaling in excess of dollar_figure law in general sec_6050i of the code provides that any person engaged in a trade_or_business and who in the course of such trade_or_business receives more than dollar_figure in cash in transaction or or more related transactions shall make the return described in subsection b with respect to such transaction or related transactions at such time as the secretary may by regulations prescribe the treasury regulations regulations explain that the sec_6050i reporting requirements apply to multiple cash installment payments or other similar payments or prepayments received on or after date relating to a single transaction or two or more related transactions sec_1_6050i-1 addresses reporting when the initial payment is dollar_figure or less sec_1_6050i-1 of the regulations provides that if the initial payment does not exceed dollar_figure the recipient must aggregate the initial payment and subsequent payments made within one year of the initial payment until the aggregate amount exceeds dollar_figure and report with respect to the aggregate amount within days after receiving the payment that causes the aggregate amount to exceed dollar_figure tam-128309-04 sec_1_6050i-1 of the regulations provides that for amounts received on or after date the term cash is defined as the coin and currency of the united_states or of any other country which circulate in and are customarily used and accepted as money in the country in which issued sec_6050i of the code requires that the recipient receive the cash payments exceeding dollar_figure in one transaction or or more related transactions sec_1_6050i-1 states that the transaction is the underlying event precipitating the payer’s transfer of cash to the recipient transactions include but are not limited to a sale_of_goods or services and may not be divided into multiple transactions in order to avoid reporting under sec_6050i of the code for example a person who has an agreement with a gold dealer to purchase dollar_figure in gold bullion may not recast the transaction into four separate dollar_figure transactions to avoid the sec_6050i reporting requirements see treas reg ' 6050i-1 c iii example analysis x argues that it has met the sec_6050i reporting requirements because it filed a form_8300 whenever a salesperson received cash in excess of dollar_figure in one payment from a customer because the transactions at issue are solely cash transactions the analysis of the term cash ends with sec_1_6050i-1 the transaction x must file an information_return if in the course of its trade_or_business x receives more than dollar_figure in cash in one transaction or or more related transactions the transaction is the underlying event precipitating the payer’s transfer of cash to the recipient see treas reg ' 6050i-1 c i the reporting requirements of sec_6050i focus on the cause of payment and receipt of cash rather than the acts of paying and receiving aggregate cash payments if the customer’s initial payment does not exceed dollar_figure x must aggregate the initial payment and subsequent payments made within one year of the initial payment until the aggregate amount exceeds dollar_figure x must report the aggregate amount within days of receiving the payment that caused the aggregate amount to exceed dollar_figure see treas reg ' 6050i-1 b here in a single sale customers purchased multiple pieces of furniture having a total sales_price in excess of dollar_figure the underlying event or cause of payment was the purchase of furniture by the customer therefore the transaction occurred when x’s customer in a single sale purchased multiple pieces of furniture from x and the total sales_price exceeded dollar_figure because x’s customers paid for the purchase via a series of cash payments totaling in excess of dollar_figure x should have filed a form_8300 within days of receiving the payment that caused the total to exceed dollar_figure tam-128309-04 are x’s employees deemed separate recipients for purposes of sec_6050i of the code law sec_1_6050i-1 of the regulations defines the term recipient as the person receiving the cash the regulations specify that each store division branch department headquarters or office comprising a portion of a person’s trade_or_business shall be deemed a separate recipient sec_1_6050i-1 provides an exception to the definition for branches specifically the regulation states that a branch that receives cash payments will not be deemed a separate recipient if the branch or a central unit linking such branch with other branches would in the ordinary course of business have reason to know the identity of payers making cash payments to other branches of such person the regulations illustrate this exception by providing two examples in example n an individual purchases dollar_figure and dollar_figure of regulated_futures_contracts from two different branches of commodities broker x on the same day and pays in cash each branch of commodities broker x transmits the sales information regarding each of n’s purchases to a central unit of commodities broker x which settles the transactions against n’s account the example concludes that commodities broker x must report the two related sales because the separate branches of commodities broker x are not deemed to be separate recipients see treas reg ' 6050i-1 c iii example in example an individual places five dollar_figure cash wagers at separate racetrack betting windows owned and operated by a corporation the example concludes that each betting window is deemed a separate cash recipient because each betting window does not have reason to know the identity of persons making wagers at other betting windows in the ordinary course of business since no individual recipient received cash in excess of dollar_figure the corporation is not required to report under sec_6050i analysis x argues that its operations are synonymous to that of a racetrack’s since x’s employees do not have access to the customer’s payment histories and cannot determine previous payments made by a customer x argues that individual employees do not have reason to know the customer’s payment history and therefore each employee should be deemed a separate recipient we disagree with x’s analogy x’s situation is closer to the fact pattern in example as in example x’s employees transmit each cash payment received from a customer for a purchase to a central unit once the central unit receives the payment information the payment is settled against tam-128309-04 the customer’s account this information updates the payment status of a customer’s account and allows x to determine when a customer has paid off his or her balance x has reason to know the identity of persons making payments to its employees in the ordinary course of business through its central unit therefore x must report the related cash payments employees who transmit payment information to an employer’s central unit are not separate recipients for purposes of sec_6050i is x subject_to either the failure_to_file_correct_information_returns penalty under sec_6721 or the intentional disregard penalty under sec_6721 of the code law sec_6721 provides that in the case of a failure described in sec_6721 by any person with respect to an information_return such person shall pay a penalty of dollar_figure for each return with respect to which such a failure occurs but the total amount imposed on such person for all such failures during any calendar_year shall not exceed dollar_figure sec_6721 provides that the failures subject_to the penalty include a any failure_to_file an information_return with the secretary on or before the required_filing_date and b any failure to include all of the information required to be shown on the return or the inclusion of incorrect information sec_6724 defines information_return as including any statement of the amount of payments to another person required by sec_6050i a higher penalty is imposed on persons who intentionally disregard their filing duties sec_6721 provides that if one or more failures described in sec_6721 are due to intentional disregard of the filing requirement imposed by sec_6050i or the correct information reporting requirement then with respect to each such failure sec_6721 c and d shall not apply the penalty imposed under sec_6721 shall be dollar_figure or if greater percent of the aggregate amount of the items required to be reported correctly and the dollar_figure limitation under sec_6721 shall not apply and the penalty shall not be taken into account in applying such limitation or any similar limitation under sec_6721 to penalties not determined under sec_6721 sec_301_6721-1 of the regulations provides that a failure is due to intentional disregard if it is a knowing or willful failure_to_file timely or failure to include correct information whether a person knowingly or willfully fails to file timely or fails to include correct information is determined on the basis of all the facts and circumstances in the particular case analysis tam-128309-04 x failed to file forms with the secretary within days of receiving the cash payment exceeding dollar_figure from the customer for year because of the failure_to_file these forms the service is entitled to impose a sec_6721 failure_to_file correct information_return penalty for each of the missed forms therefore the service may impose a sec_6721 penalty against x for the failure_to_file forms in year the imposition of a sec_6721 penalty is determined on the basis of all the facts and circumstances in the particular case considering all the facts and circumstances we do not believe that x’s conduct was willful or that x intentionally disregarded its filing_requirements for year accordingly we do not suggest imposing a sec_6721 intentional disregard penalty against x for year caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent