t c memo united_states tax_court estate of louise nevelson deceased mike nevelson executor petitioner v commissioner of internal revenue respondent docket no filed date on date the court filed a stipulation of settled issues in this case in relevant part the stipulation provided that e would provide r with documentation necessary to substantiate certain administration_expenses on or before date and the parties would submit a decision document to the court on or before date r now moves for entry of decision based on this stipulation e moves to defer entry of decision until the earlier of date payment of d’s federal gift_taxes or any other date agreed to by the parties held the court will grant r’s motion and enter a decision based on the stipulation richard j bronstein for petitioner meryl silver for respondent memorandum opinion laro judge respondent moves for entry of decision and she has lodged a proposed decision with the court executor objects to respondent’s motion and he moves to defer entry of decision until the earlier of date payment of decedent’s federal gift_taxes or any other date agreed to by the parties respondent objects to executor’s motion as discussed herein we will grant respondent’s motion and enter her proposed decision unless otherwise stated section references are to the internal_revenue_code in effect for the relevant dates rule references are to the tax_court rules_of_practice and procedure dollars unless otherwise noted are rounded to the nearest dollar the term decedent refers to louise nevelson the term executor refers to mike nevelson background decedent was an artist until her death on date when she died she resided in new york county new york decedent’s estate includes thousands of her works_of_art executor resided in new fairfield connecticut when he petitioned the court on date to redetermine respondent’s determination of a dollar_figure deficiency in decedent's estate's federal estate_tax and a dollar_figure addition thereto under sec_6653 respondent’s determination wa sec_1 respondent agrees with executor that the deficiency and addition_to_tax will be dollar_figure and dollar_figure respectively if continued reflected in a notice_of_deficiency issued to petitioner on date executor later petitioned the court on date to redetermine respondent’s determination with respect to decedent’s federal gift_taxes this determination which appeared in a notice_of_deficiency dated date was as follows taxable_year ended deficiency a additions to tax sec sec_6653 dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number --- big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number --- --- --- --- --- --- dollar_figure --- --- --- --- --- respondent also determined that decedent was liable for an addition to her gift_tax under sec_6653 the two cases resulting from the petitions were consolidated on date for purposes of trial briefing and opinion on date the resulting case was settled with the simultaneous execution of a decision document in the gift_tax case and a stipulation of settled issues the stipulation in the estate_tax case a decision was entered in the gift_tax case on date determining deficiencies in decedent’s gift taxe sec_1 continued the maximum credit allowable for state_death_taxes under sec_2011 is allowed and additions thereto totaling more than dollar_figure million respondent assessed these deficiencies on date to date executor has not made any payments with respect thereto the stipulation states as follows the parties hereby stipulate and agree that they have agreed to resolve the above-entitled case on the basis that the works_of_art created by the decedent and unsold on the date of her death were not transferred by the decedent to sculptotek inc during her lifetime and are therefore includible in her gross_estate the gross_estate is dollar_figure the total amount of adjusted_taxable_gifts is dollar_figure a the administration_expenses claimed on petitioner’s form_706 as adjusted by the statutory_notice_of_deficiency issued by respondent will be allowable as deductible expenses b additional administration_expenses including statutory executor’s commissions under new york law and reasonable legal fees also will be allowable as deductible expenses to the extent such expenses are properly claimed as administrative expenses and are substantiated a the amount of federal gift_tax including interest and penalties that the parties have agreed is due in the related proceeding bearing docket no will be allowed as deductions to the extent such tax interest and penalties are paid b the amount of related new york gift_tax including interest and penalties also will be allowed as deductions to the extent such tax interest and penalties are paid new york state_death_taxes in the amount of dollar_figure or such amount necessary to secure the maximum credit allowable will be allowed as a credit to the extent such taxes are paid petitioner shall produce the documentation necessary to substantiate the expenses referred to in paragraph b on or before date a decision document in the above-entitled case shall be filed on or before date upon mutual agreement of the parties the court extended the last day by which the decision document had to be filed to date discussion respondent moves the court to enter a decision based on her decision document lodged with the court the lodged document reflects the terms of the stipulation taking into account only those administration_expenses that executor had substantiated as of the date of respondent’s motion herein executor's principal objection to respondent’s proposed decision is that in computing the estate_tax deficiency owed by the estate the proposed decision fails to allow deductions for expenses that have not yet been incurred executor asks the court to defer entry of decision for up to years so that decedent’s estate may benefit from all of the deductions to which the estate allegedly is entitled executor alleges that decedent’s estate will incur the length of the requested deferral appears to be based on a letter that petitioner’s counsel received from a valuation company in new york new york in relevant part the author of the letter states in my view the estate of louise nevelson is in a unique position to realize within a period of three to five years very substantial economic rewards from its extraordinary collection of work by this major artist it has the ability to bring to market works by continued additional administration_expenses such as executor’s commissions legal fees accounting fees bookkeeping fees and expenses relating to sales of art necessary to raise cash for the payment of taxes and other art-related expenses executor alleges that he cannot currently pay decedent’s gift_taxes because the estate is short on cash and the estate will have to consummate a substantial transaction in order to pay decedent’s gift_taxes executor alleges that he cannot sell the estate’s assets in the near future because he will receive less than fair value executor relies primarily on 81_tc_246 supplemented by 81_tc_949 in support of his motion executor also asserts that the court will be minimally inconvenienced by holding the record open for the requested period of time we disagree with executor’s arguments and we find his reliance misplaced first estate of bailly is clearly distinguishable on its facts in that case the commissioner had no objection to a deferral of the decision whereas here the continued the artist in a variety of price levels and it is in the enviable position of being capable of presenting for sale to experienced collectors and museums examples of the most highly recognizable and prized sculptures of her career as well as more modestly valued works that are attractive to beginning collectors and smaller museums executor also claims that decedent’s federal gift_taxes remain unpaid because he has yet to receive a bill from the internal_revenue_service we give this argument little regard deferral sought by the executor is directly contrary to the terms of the parties' stipulation subsequent to that case congress provided an alternative for relief in similar cases see sec_7481 rule executor agreed with respondent to settle the case according to the terms of that stipulation two of these terms are that petitioner shall produce the documentation necessary to substantiate the additional administration_expenses referred to in paragraph b on or before date and a decision document in the above-entitled case shall be filed on or before date in entering into these terms as well as the stipulation in general both executor and respondent agreed to concede some rights which each might have asserted against the other see 26_tc_171 the stipulation like a contract binds both parties to the terms thereof 87_tc_1451 and must be enforced by this court unless justice requires that we do otherwise see 85_tc_359 69_tc_694 saigh v commissioner supra under the facts at hand justice does not require that we do otherwise the stipulation voluntarily entered in to as a settlement of this lawsuit must be given binding effect the parties struck a bargain in the stipulation and executor must live with the benefits and burdens of it accordingly we will grant respondent’s motion for entry of decision based on her proposed decision we have considered all arguments made by executor for a contrary result to the extent that we have not discussed any of his arguments we have found them to be without merit to reflect the foregoing an appropriate order and decision will be entered


id office uilc cca_2010072009035737 ---------- number release date from ------------------- sent tuesday date am to ---------------------------- cc ----------- subject re qsubs small_partnership_exception and tmp questions i agree completely with your analysis that a qsub in effect a disregarded_entity constitutes a pass-thru_partner and thus disqualifies the partnership from the small_partnership_exception to tefra under rev_rul i also agree that it can be designated as tmp assuming that at least under state law it constitutes a separate_entity the deemed liquidation of the qsubs when the s corp election was made should have no effect on the tmp designation both because it occurred before the tmp designation was made and because only a state law dissolution would terminate a tmp designation


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar tep ra az re substitute mortality_table ruling taxpayer plan dear this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for the plan has been granted with respect to the populations specified in this letter this ruling is effective for a period of plan years beginning with the plan_year commencing date your request has been granted in accordance with sec_430 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 this approval applies to the following specific populations male annuitants including disabled participants female annuitants including disabled participants male nonannuitants including disabled participants female nonannuitants including disabled participants in granting this approval we have only considered whether the substitute mortality rates were developed in accordance with sec_1_430_h_3_-2 of the treasury regulations regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request permission is hereby granted to use the substitute mortality rates shown in the table below for the plan approved for use beginning with the plan_year commencing date substitute mortality tables base_year male female annuitants annuitants nonannuitants nonannuitants female male o k d w r k a o d n a o o o s _ - d p d n m n m n m n d m n n m n n w w h w w w w w w o o male annuitants female annuitants male nonannuitants female nonannuitants age a4 -45 o7 v7 male female annuitants annuitants nonannuitants nonannuitants female male age the above rates were developed based on an experience study period from date through date with a base_year of the rates were calculated by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations indicated in the table below using the mortality ratio and credibility weighting factor determined by aggregating male and female experience as shown in the table below male and female male and female annuitants nonannuitants mortality ratio credibility weighting factor the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of sec_1_430_h_3_-2 of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under section h a of the code and sec_1_430_h_3_-1 of the regulations other than annual updates to the static mortality tables issued pursuant to sec_1_430_h_3_-1 of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations in particular sec_1_430_h_3_-2 provides that the use of substitute mortality tables must be discontinued after a significant change in coverage unless the plan’s actuary certifies in writing to the satisfaction of the commissioner that the substitute mortality tables used for the population continue to be accurately predictive of future mortality of the population taking tino account the effect of the change in the population for this purpose a significant change in coverage occurs if the number of individuals covered by the substitute mortality_table for a plan_year is less than percent or more than percent of either the average number of individuals in that population over the years covered by the experience study on which the substitute mortality_table is based or the number of individuals covered by the substitute mortality_table in a plan_year for which a certification described in sec_1 h - c iii a of the regulations was made the number of nonannuitants as of date was already less than of the average number of individuals covered during the experience study accordingly this certification is needed each year that the number of nonannuitants remains le sec_80 or becomes greater than of the average number of nonannuitants included in the experience study or becomes less than or more than of the number of nonannuitants as of date the date of the most recent certification that the mortality tables are accurately predictive of the mortality of the remaining population so that the service can review these certifications the following information must be provided by the october immediately following the end of each plan_year beginning with the pian year due october the number of actual deaths during the experience study period used to develop the substitute mortality tables and the beginning and ending dates of the experience study period a table showing the number of expected deaths and actual deaths reported separately for each year beginning with deaths during through the year preceding the most recent actuarial valuation and in total a table similar to the stability demonstration required under section of revproc_2017_55 showing the average number of participants in the population included in the experience study and the number of participants in the population as of the end of each plan_year beginning with date through the date immediately preceding the most recent 2vu1924u actuarial valuation expressed both as a headcount and as a percentage of the average number of participants in the experience study a table showing a comparison of i the average ages and ii percentage of the population by the following monthly single_life_annuity brackets under dollar_figure between dollar_figure and dollar_figure between dollar_figure to dollar_figure between dollar_figure to dollar_figure between dollar_figure and dollar_figure and dollar_figure and over for the population in the experience study and at the end of each plan_year beginning with date through the date immediately preceding the most recent actuarial valuation the table should also show the average age and average benefit amount for the population in total for both the experience study data and at the end of each plan_year beginning with date through the date immediately preceding the most recent actuarial valuation an explanation of any material changes in the population and a certification by the enrolled_actuary for the plan as to whether the substitute mortality_table is accurately predictive along with any additional demographic or other information to substantiate this claim a certification signed by the enrolled_actuary stating that a the enrolled_actuary is current with educational requirements set forth by the joint board for the enrollment of actuaries as well as any other actuarial designations asserted b the enrolled_actuary was personally involved in the determination that the c substitute mortality_table is still accurately predictive and provides the actuary’s best estimate for the plan in determining that the substitute mortality_table is still his or her best estimate the enrolled_actuary took into consideration the effect of business combinations plan mergers or spinoffs and settlements other risk transfers and other events that would have similar effects on the relevant populations and d the enrolled_actuary has the specific knowledge and experience to make the judgements set forth above and attests to these representations this information must be provided to david m ziegler or to another individual designated by the service by fax at or to the following address internal_revenue_service attn mr david m ziegler te_ge se t ep ra t a2 nca-630 constitution ave nw washington dc failure to provide this information by the due_date may result in the requirement that the standard mortality tables must be used for purposes of sec_430 of the code beginning with the plan_year during which the deadline for providing this information is missed this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have sent a copy of this letter to your authorized representatives pursuant to a power_of_attorney on file in this office and to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contact id at sincerely cc david m ziegler manager employee_plans actuarial group


department of the treasury internal_revenue_service washington d c tax exempt ano government entities division uniform issue list feb se tl epira ts legend taxpayer a ira x ira y checking account s limited_partnership r amount c financial advisor t year date date date dear this is in response to your letter dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested 24vs9210368 page taxpayer a asserts that on date taxpayer a received a distribution from ira x in amount c taxpayer a asserts that his failure to accomplish a rollover of amount c was due to financial advisor error in failing to establish a rollover of amount c into ira y as directed by taxpayer a during year taxpayer a discussed with financial advisor t his plan for ira x to make an investment in limited_partnership r subsequently taxpayer a learned that the custodian for taxpayer a's ira x would not allow an investment in limited_partnership r but the bank maintaining taxpayer’s ira y would accept limited_partnership r as an investment taxpayer a acting under the direction of financial advisor t arranged for the distribution on date of amount c from ira x and deposited amount c into a checking account s with the understanding he would be making a rollover_contribution of amount c into ira y and then the custodian of ira y pursuant to the plans of taxpayer a and financial advisor t would subsequently acquire an investment in limited_partnership r following the direction of financial advisor t taxpayer a intended to issue a check in amount c payable to ira y as a rollover of amount c however financial advisor t intervened and instead specifically instructed taxpayer a to make the amount c check payable to the escrow agent for limited_partnership r following the direction of financial advisor t taxpayer a issued a check on date from checking account sdollar_figure payable to the escrow agent for limited_partnership r in amount c after financial advisor t received amount c he issued an acknowledgement of receipt of amount c to taxpayer a but failed to complete the rollover of the amount c investment in limited_partnership r into ira y as taxpayer a intended taxpayer a did not discover the failure until after the 60-day period expired financial advisor t issued a letter dated date in which he claimed full responsibility for failing to complete the rollover of amount c into ira y as intended by taxpayer a taxpayer a further represents that he has not used amount c for any other purpose based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount c contained in sec_408 of the code the code’ sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code 2uvug921038 page sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code 2uu9210388 page revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a rollover of amount c was due to financial advisor error in failing to establish a rollover of amount c into ira y as directed by taxpayer a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount c from ira x pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter_ruling to make a rollover_contribution of an amount equal to amount c to an ira or iras described in code sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of code sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent page if you have any questions please contact sincerely yours qoanees v rances v sloan manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c summary opinion united_states tax_court nancy badayos magimot petitioner v commissioner of internal revenue respondent docket no 1590-08s filed date keith s blair john b snyder and jean hartman student for petitioner noelle c white for respondent dean special_trial_judge this case was heard under the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioner’s federal income taxes of dollar_figure for and dollar_figure for the issue for decision is whether petitioner was eligible for an exemption from income_tax in and under the convention with respect to taxes on income u s -phil art date u s t article background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference when petitioner filed her petition she resided in maryland petitioner electronically filed form sec_1040 u s individual_income_tax_return for and on schedule a itemized_deductions for she deducted dollar_figure of state_and_local_income_taxes and dollar_figure of income as tax exempt under article on schedule a for she deducted dollar_figure of state_and_local_income_taxes and dollar_figure of income as tax exempt under article on date respondent issued to petitioner a notice_of_deficiency disallowing the article deductions for and and the state and local income_tax deduction for petitioner is a citizen of the philippines and is trained as an educator with teaching experience in both the united_states and the philippines in the ravenswood city school district ravenswood in california interviewed her in the philippines and hired her to teach in the united_states petitioner agreed to teach at ravenswood and signed a 3-year teaching contract the amity institute amity a nonprofit organization that sponsors international educators to teach at schools in the united_states agreed to sponsor petitioner’s teaching visa for a 3-year term on date petitioner signed a 3-year contract with amity for its services petitioner then applied for an exchange visitor j-1 visa requesting a 3-year period from date through date she was issued a visa effective date through date petitioner arrived in the united_states on date and from date through date she taught at ravenswood in and petitioner earned dollar_figure and dollar_figure respectively and on schedule a she reported a miscellaneous itemized_deduction of dollar_figure for and dollar_figure for 1respondent also disallowed the standard_deduction for respondent concedes that petitioner is entitled to the standard_deduction for both and for and respondent determined that petitioner’s ravenswood salary was taxable_income discussion generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden of proving that those determinations are erroneous see rule a 290_us_111 in certain circumstances however sec_7491 places the burden_of_proof on the commissioner petitioner has not alleged that sec_7491 is applicable nor has she established compliance with the requirements of sec_7491 therefore the burden_of_proof does not shift to respondent the interpretation of treaty provisions must begin with the language of the treaty n w life assurance co of can v commissioner 107_tc_363 the role of the judiciary in interpreting treaty provisions is to decide their underlying intent or purpose 120_tc_430 the court therefore will begin its analysis by examining the treaty itself article teachers provides where a resident of one of the contracting states is invited by the government of the other contracting state a political_subdivision or local authority thereof or by a university or other recognized educational_institution in that other contracting state to come to that other contracting state for a period not expected to exceed years for the purpose of teaching or engaging in research or both at a university or other recognized educational_institution and such resident comes to that other contracting state primarily for such purpose his income from personal services for teaching or research at such university or educational_institution shall be exempt from tax by that other contracting state for a period not exceeding years from the date of his arrival in that other contracting state respondent contends that petitioner fails to qualify for benefits under article because she did not establish that she came to the united_states for a period not expected to exceed years for the purpose of teaching in support respondent cites the treasury_department technical explanation of article treasury_department technical explanation of the convention between the united_states and the philippines 1984_2_cb_412 treaty explanation the treaty explanation for article states that if the period of the visit had been expected to exceed two years then the exemption does not apply to any of the income earned id the plain language and the treaty explanation of article specify that petitioner must establish that she agreed to teach in the united_states for a period not expected to exceed years id in support of her contention that she did not expect her stay in the united_states to exceed years petitioner alleges that the length of the amity contract and the term of her visa stay are not indicative of her expectation she asserts that she was required to sign a 3-year contract with amity because amity did not offer contract terms for less than years and she was unaware that she could request a visa for less than years petitioner testified that she did not expect to remain in the united_states for over years during her first years in the united_states her family remained in the philippines and she visited them during her winter and summer breaks she signed only yearly apartment leases in the united_states and in she purchased a home in the philippines notwithstanding whether petitioner had a choice regarding the length of the amity contract she signed the contract the contract indicates that she expected to remain in the united_states for a period to exceed years petitioner alleges that had she not signed the contract she would not have been able to teach in the united_states but she did not provide the court with any credible_evidence beyond her testimony demonstrating that it was amity’s policy to restrict contract offers to a year term by signing a 3-year contract petitioner acknowledged that she would stay in the united_states for more than years without more the court cannot find that she expected to remain in the united_states for less than years in addition petitioner applied for a visa and requested a 3-year term indicating that she would remain in the united_states for over years the amity contract and petitioner’s request for a visa both of which were in effect for a 3-year period indicate that petitioner expected to stay in the united_states for more than years the record also indicates that ravenswood expected petitioner to teach at the school for years under their agreement the foregoing evidence indicates that all parties involved-- petitioner amity and ravenswood--expected petitioner’s stay in the united_states to extend for more than years therefore petitioner is not entitled to the benefit under article and respondent’s determination is sustained other arguments made by the parties and not discussed herein were considered and rejected as irrelevant without merit or moot to reflect the foregoing decision will be entered under rule


internal_revenue_service national_office technical_advice_memorandum date cc dom p si b7 number release date index uil no case mis no 2055-dollar_figure tam-102743-99 district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend decedent date date date date date date date date tam-102743-99 date date date x issue does the charitable_remainder_trust created under decedent’s trust satisfy the requirements of sec_2055 of the internal_revenue_code so that decedent’s estate is eligible for a deduction under sec_2055 for the present_value of the remainder_interest of the charitable_remainder_trust conclusion because the charitable_remainder_trust created under decedent’s trust is not in the form required in sec_2055 and is not a reformable_interest under sec_2055 decedent’s estate is not eligible for a charitable deduction under sec_2055 for the present_value of the remainder_interest of the charitable_remainder_trust facts on date decedent established decedent’s trust as originally drafted on date decedent’s trust provided for a revocable_trust during decedent’s lifetime paragraph iv a of decedent’s original revocable_trust provided that on decedent’s death the trustee was to create a marital_deduction_trust for decedent’s spouse to pay decedent’s debts taxes and expenses to make a specific pecuniary_bequest and to create a charitable_remainder_unitrust with the remainder of the original revocable_trust principal and any unpaid income of the original revocable_trust under the terms of decedent’s trust as originally drafted trustee was to pay a unitrust_amount equal to five percent of the net fair_market_value of the trust assets valued as of the first day of each taxable_year of the unitrust the terms of the original revocable_trust provided that the trustee pay the unitrust_amount to decedent’s spouse for life on the death of decedent’s spouse the trustee was to pay the unitrust_amount proportionally to thirteen individual beneficiaries for ten years or life whichever was shorter upon the death of the last survivor of those beneficiaries or at the end of the ten-year term whichever occurred first trustee was to distribute the entire trust principal and any unpaid income to thirteen charitable organizations tam-102743-99 decedent amended decedent’s trust times on date2 date date date date date date and date the amendments to decedent’s trust deleted the original post-death dispositive provisions and added new dispositive provisions in particular the amendments to decedent’s trust deleted the dispositive provisions related to the charitable_remainder_unitrust decedent died testate on date on date decedent’s trust became irrevocable the final terms of decedent’s trust as amended required trustee to pay trust income annually for life in equal shares to four beneficiaries if those beneficiaries survived decedent in the event any of the four beneficiaries predeceased decedent their life interest in the income lapsed and their life interest was to be divided and distributed to the survivors at the death of the last remaining member of the class of income beneficiaries the terms of decedent’s trust provide that the trust will terminate and the trust property and accrued income shall be distributed outright to several enumerated charities that are tax-exempt charities a federal estate_tax_return for decedent’s estate was filed timely on date on schedule o of the return the estate claimed a charitable deduction of x dollars taxpayer represents that this figure is the present_value of the remainder_interest in the charitable_remainder_trust established under decedent’s trust dated date law section sec_2055 provides in part that the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises and transfers to or for a corporation or certain other organizations organized and operated exclusively for religious charitable scientific literary or educational_purposes congress added sec_2055 to the code in d of the tax reform act of 1969_3_cb_1 pincite language in the legislative_history indicates that congress was concerned that under law prior to taxpayers were allowed a charitable deduction for a gift of a remainder_interest in trust to a charity and the charitable deduction was substantially in excess of the amount_of_the_gift the charity ultimately received sec_2055 was added to the code to prevent this perceived abuse by allowing a charitable deduction for bequests of partial_interests in property only if the bequests are in a prescribed form h_r rep 1969_3_cb_237 sec_2055 provides that where an interest in property other than an interest described in sec_170 passes or has passed from decedent to a person or for a use described in sec_2055 and an interest other than an interest that is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money or money’s worth from the decedent to a person or for a use not described in sec_2055 no deduction shall be tam-102743-99 allowed under sec_2055 for the interest that passes or has passed to the person or for the use described in sec_2055 unless- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly sec_664 as in effect for transfers in trust on or before date provides that a charitable_remainder_annuity_trust is a trust- a from which a sum certain which is not less than percent of the initial net fair_market_value of all property placed in trust is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 and c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use sec_664 as in effect for transfers in trust on or before date provides that a charitable_remainder_unitrust is a trust- a from which a fixed percentage which is not less than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 and tam-102743-99 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use sec_642 provides that a pooled_income_fund is a trust- a to which each donor transfers property contributing an irrevocable remainder_interest in such property to or for_the_use_of an organization described in sec_170 other than in clauses vii or viii and retaining an income_interest for the life of one or more beneficiaries living at the time of such transfer b in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers c that cannot have investments in securities that are exempt from income_tax d that includes only amounts received from transfers which meet the requirements of sec_642 e that is maintained by the organization to which the remainder_interest is contributed and of which no donor or beneficiary of an income_interest is a trustee and f from which each beneficiary of an income_interest receives income for each year for which he is entitled to receive the income_interest referred to in sec_642 determined by the rate of return earned by the trust for such year sec_2055 provides rules under which interests in a_trust may be reformed to comply with sec_2055 sec_2055 provides that a deduction is allowed under sec_2055 for any qualified_reformation sec_2055 defines the term qualified_reformation to mean a change_of a governing instrument by reformation amendment construction or otherwise that changes a reformable_interest into a qualified_interest but only if-- i any difference between i the actuarial value determined as of the date of the decedent's death of the qualified_interest and ii the actuarial value as so determined of the reformable_interest does not exceed percent of the actuarial value as so determined of the reformable_interest ii in the case of i a charitable_remainder interest the nonremainder interest before and after the qualified_reformation terminated at the same time or ii any other interest the reformable_interest and the qualified_interest are for the same period and tam-102743-99 iii the change is effective as of the date of the decedent’s death sec_2055 defines the term reformable_interest to mean any interest for which a deduction would be allowable under sec_2055 at the time of the decedent's death but for sec_2055 sec_2055 provides that generally the term reformable_interest does not include any interest unless before the remainder vests in possession all payments to persons other than an organization described in sec_2055 are expressed either in specified dollar amounts or a fixed percentage of the fair_market_value of the property sec_2055 provides that sec_2055 shall not apply to any interest if a judicial proceeding is commenced to change the interest into a qualified_interest not later the 90th day after -- if an estate_tax_return is required to be filed the last date including extensions for filing such return or if no estate_tax_return is required to be filed the last date including extensions for filing the income_tax return for the 1st taxable_year for which such a return is required to be filed by the trust sec_2055 provides that in the case of any interest passing under a will executed before date or under a_trust created before such date sec_2055 shall not apply sec_2055 defines the term qualified_interest to mean an interest for which a deduction is allowable under sec_2055 analysis sec_2055 disallows an estate_tax charitable deduction for the remainder_interest in a charitable_remainder_trust unless the trust is in the form of a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 under sec_2055 a reformable_interest meaning an interest for which a deduction would have been allowable at the time of the decedent's death under sec_2055 but for sec_2055 may be converted into a qualified_interest meaning an interest that meets the requirements of sec_2055 by a qualified_reformation sec_2055 provides that generally a reformable_interest does not include any interest unless before the remainder vests in possession all payments tam-102743-99 to the noncharitable beneficiaries are expressed either in specified dollar amounts or a fixed percentage of the fair_market_value of the property sec_2055 and iv however provides two exceptions to the general_rule first sec_2055 provides in part that sec_2055 does not apply to any interest if not later than days after the last date including extensions for filing an estate_tax_return a judicial proceeding is commenced to change the interest into a qualified_interest second sec_2055 provides that in the case of any interest passing under a will executed before date or under a_trust created before such date sec_2055 shall not apply sec_1_664-1 provides that for purposes of sec_664 and the regulations thereunder a_trust is deemed to be created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart e part subchapter_j chapter subtitle a of the code relating to grantors and others treated as substantial owners under the rules contained in sec_1_664-1 decedent’s trust is deemed to be created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart e part subchapter_j chapter subtitle a of the code in this case because decedent retained the power_to_revoke alter and amend decedent’s trust until her death decedent was treated as the owner of the entire trust corpus under the grantor_trust_rules until her death on date a date after date see sec_1_664-1 example thus the charitable_remainder_trust created under decedent’s trust as amended is considered to be created on date further decedent amended decedent’s trust several times after date the amendments to decedent’s trust deleted the original post-death dispositive provisions including the dispositive provisions creating the charitable_remainder_unitrust and added new charitable dispositive provisions that were not in the form required in sec_2055 or b based on the facts presented the charitable_remainder_trust created under decedent’s trust is not a reformable_interest as that term is defined in sec_2055 because the payments from the charitable_remainder_trust to the noncharitable beneficiaries are not expressed either in specified dollar amounts or a fixed percentage of the fair_market_value of the property and the requirements in the two special rules that are exceptions to the general_rule are not satisfied the special rule contained in sec_2055 is not satisfied because a timely judicial proceeding was not commenced within the time limit prescribed in sec_2055 which under the facts of this case requires the proceeding to be commenced not later than the 90th day after the last date for filing the estate_tax_return including extensions further the special rule contained in sec_2055 applicable to any interest passing under a will executed before date or under a_trust created before date is not applicable in this case because the charitable interest passed under a_trust created after date for purposed of sec_2055 tam-102743-99 because the charitable_remainder_trust created under decedent’s trust as amended is not in the form required in sec_2055 and because the trust is not a reformable_interest we conclude that decedent’s estate is not eligible for a charitable deduction under sec_2055 for the present_value of the remainder_interest of the charitable_remainder_trust 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


t c summary opinion united_states tax_court matthew hudack and kristen hudack petitioners v commissioner of internal revenue respondent docket no 3432-04s filed date matthew hudack pro_se michael s hensley for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed unless otherwise indicated all subsequent section references are to the internal_revenue_code code in effect at relevant times and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined deficiencies in petitioners’ federal income taxes as well as accuracy-related_penalties as follows year deficiency dollar_figure big_number penalty sec_6662 dollar_figure big_number after petitioners’ concessions the issues for decision are whether matthew hudack petitioner was a statutory_employee for and years in issue and whether petitioners are liable under sec_6662 for accuracy-related_penalties for the years in issue adjustments to the amounts of petitioners’ itemized_deductions and the alternative_minimum_tax are purely computational matters the resolution of which depends on our disposition of the first disputed issue background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and the accompanying exhibits at the time that the petition was filed petitioners resided in santa ana california for petitioners concede that they are not entitled to claimed business promotion expenses of dollar_figure and client costs expenses of dollar_figure in petitioner received his license to sell life_insurance products in the state of california from to date and from date to at least the date of trial petitioner worked for the manufacturers life_insurance co usa manulife selling life_insurance products manulife is a toronto-based insurance_company that sells annuities group pensions insurance policies and college savings plans and provides investment account management services on date petitioner executed a regional director employment agreement agreement with manulife which was in effect during the years in issue the agreement required petitioner to serve manulife full time as a primary representative and an integral part of manulife’s sales service for an indefinite period the agreement also required petitioner to agree not to sell solicit market or otherwise promote financial products for any company other than manulife and its subsidiaries without manulife’s written consent and to adhere to all policies procedures and written rules and regulations of manulife including manulife’s codes of conduct under the agreement petitioner was an at-will employee the agreement provided that petitioner was attached to manulife’s orange county sales office in irvine california irvine office and assigned him the southern california sale sec_3 manulife ha sec_29 regional directors nationwide territory the agreement set petitioner’s compensation on a commission schedule based on the business category for the products that he sold in addition manulife provided petitioner with an annual reimbursement allocation which petitioner could use for any business-related expense petitioner however was responsible for business_expenses exceeding his reimbursement allocation manulife did not pay petitioner for vacation days but manulife provided that petitioner was eligible to enroll in its benefit and retirement plans petitioner’s responsibilities were to identify sales opportunities for insurance agents brokers financial planners and stockbrokers and to provide financial plans for their clients as the regional director petitioner reported his goals and objectives to the western regional manager in his sales presentations petitioner used financial planning information packets that were preapproved by manulife petitioner’s only office location was the irvine office petitioner purchased hi sec_4 although not further explained in the record it appears that petitioner received an annual base salary of dollar_figure for old sales commissions as evidenced in his monthly compensation statements the record does not disclose the amount of petitioner’s reimbursement allocation nor does it explain manulife’s reimbursement procedures for petitioner led the company in sales for life_insurance products own computer fax machine and cellular phone for use in his sales activities but he paid no rent or other business_expenses eg utilities office supplies and equipment furniture and copier in connection with the irvine office those expenses were paid_by manulife in the irvine office manulife employed two support staff employees to assist petitioner manulife issued forms w-2 wage and tax statement to petitioner reporting wages or other compensation of dollar_figure and dollar_figure for and respectively the forms w-2 also reported that manulife withheld the applicable payroll_taxes the forms w-2 further indicated that petitioner participated in manulife’s health insurance program pension_plan and deferred_compensation plan manulife did not check box for statutory_employee petitioners timely filed a form_1040 u s individual_income_tax_return for each of the years in issue petitioners attached to each return inter alia a schedule c profit or loss from business on each schedule c petitioner identified his principal business or profession as life_insurance sales and his business address as the irvine office petitioner reported the following on the schedules c we note that the form_w-2 box for statutory_employee contained a handwritten x year gross receipt sec_1 total expenses net profit 2dollar_figure big_number dollar_figure big_number dollar_figure big_number gross_receipts included the amounts reflected on the respective forms w-2 issued by manulife as well as self- employment income from other sources in petitioner received self-employment_income of dollar_figure from manulife which was reported on a form 1099-misc miscellaneous income expenses consisted of advertising automobile expenses commissions and fees depreciation insurance legal and professional services office expenses rent or lease of equipment supplies travel meals and entertainment utilities and other expenses petitioner consulted with his return preparer w r frey mr frey and discussed the nature of his work following the consultation mr frey advised petitioner to file as a statutory_employee in the notice_of_deficiency respondent determined that petitioner was a common_law_employee and therefore not permitted to report income and expenses on schedule c respondent further determined that petitioners are liable for the accuracy-related_penalty under sec_6662 we note that petitioner did not report on his return any reimbursement income or its associated expense because he considered it a wash discussion a petitioner’s employment status9 generally adjusted_gross_income means gross_income less trade_or_business_expenses except in the case of the performance of services by an employee sec_62 as relevant herein an individual performing services as an employee may deduct expenses_incurred in the performance of services as an employee only as miscellaneous_itemized_deductions on schedule a itemized_deductions and then only to the extent such expenses exceed percent of the individual’s adjusted_gross_income sec_62 a d a and b a in contrast an individual who qualifies as a statutory_employee as defined under sec_3121 is not subject_to the sec_67 2-percent limitation for expenses_incurred in the performance of services as an employee revrul_90_93 c b dollar_figure thus a statutory_employee under sec_3121 is allowed to deduct expenses from gross_income on schedule c that otherwise would be we render a decision on the merits based on the preponderance_of_the_evidence without regard to the burden_of_proof under sec_7491 revrul_90_93 1990_2_cb_33 provides that an individual treated as a statutory_employee under sec_3121 for employment_tax purposes who would otherwise be characterized as an independent_contractor is not considered an employee for purposes of sec_62 and sec_67 and therefore may deduct business_expenses on schedule c subject_to the 2-percent limitation of sec_67 see sec_62 petitioner contends that he was a statutory_employee under sec_3121 and therefore that he may report his business-related income and expenses on schedule c sec_3121 defines employee for employment_tax purposes as follows sec_3121 employee --for purposes of this chapter the term employee means-- any officer of a corporation or any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee or any individual other than an individual who is an employee under paragraph or who performs services for remuneration for any person-- b as a full-time_life_insurance_salesman under sec_3121 however the provisions of sec_3121 apply only if a full-time_life_insurance_salesman does not have the status of an employee under the usual common_law rules applicable in determining the employer-employee relationship lickiss v commissioner tcmemo_1994_103 therefore we must first determine whether petitioner was a common_law_employee during the years in issuedollar_figure for purposes of sec_62 subtitle a of the code does not define employee under these circumstances we apply common_law rules to determine whether an individual is an employee 503_us_318 weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir whether an individual is a common_law_employee is a question of fact 862_f2d_751 9th cir affg 89_tc_225 64_tc_974 among the relevant factors in determining the nature of an employment relationship are the following the degree of control exercised by the principal over the details of the work the taxpayer’s investment in the facilities used in the work the taxpayer’s opportunity for profit or loss the permanency of the relationship between the parties the principal’s right of discharge whether the work performed is an integral part of the principal’s business what relationship the parties believe they are creating and the provision of employee_benefits nlrb v united ins co 390_us_254 profl executive leasing inc v the parties agree that petitioner otherwise qualifies as a full-time_life_insurance_salesman pursuant to sec_3121 commissioner supra simpson v commissioner supra no one factor is determinative rather all the incidents of the relationship must be assessed and weighed nlrb v united ins co supra degree of control the crucial test to determine the nature of a working relationship is the employer’s right to control the manner in which the taxpayer’s work is performed weber v commissioner supra pincite it is not necessary for the employer to exercise control_over the details of the taxpayer’s work rather all that is necessary is that the employer have the right to control the details of the taxpayer’s work profl executive leasing inc v commissioner supra pincite 349_f2d_644 9th cir weber v commissioner supra pincite to retain the requisite control_over the details of an individual’s work the employer need not stand over the individual and direct every move made it is sufficient that the employer has the right to do so weber v commissioner supra pincite similarly the employer need not set the individuals’s hours or supervise every detail of the work environment to control the individual 823_f2d_337 9th cir while petitioner had control_over his own sales performance manulife had the right to control the manner in which he performed his work manulife set petitioner’s sales commission schedule his sales territory and his annual reimbursement allocation moreover manulife restricted petitioner’s ability to sell or promote other company’s financial products without manulife’s consent and required petitioner to use preapproved financial information packets to market manulife’s life_insurance products in addition manulife required petitioner to use the irvine office to conduct business and to use manulife’s support staff to assist him in his sales activities these facts suggest that manulife generally retained the right to regulate and direct petitioner’s business activities we give little or no weight to the fact that the agreement merely required petitioner to adhere to manulife’s policies procedures written rules and codes of conduct and that manulife required petitioner to report his goals and objectives to the western regional manager because the record does not identify the procedures for enforcement of the rules and for reporting requirements the totality of the evidence on this factor supports a finding that manulife had the right to control the manner in which petitioner performed his work and that petitioner therefore was an employee of manulife investment in facilities during the years in issue petitioner worked out of manulife’s irvine office which was his only work location indeed petitioner’s business contact information listed the irvine office as his business address moreover manulife employed at its irvine office two support employees to assist petitioner in his sales activities manulife was responsible for hiring supervising and paying these employees although petitioner provided his own computer and fax machine he was not otherwise responsible for any business_expenses associated with this office including rent office supplies equipment and furniture this factor strongly suggests that petitioner was an employee of manulife opportunity for profit or loss petitioner received commissions based on his sales performance manulife also reimbursed petitioner for his business_expenses up to an annual_limit compensation on a commission basis is entirely consistent with an employer-employee relationship tex carbonate co v phinney 307_f2d_289 5th cir 186_f2d_943 4th cir while petitioner conceivably could have suffered some loss as a result of his sales activities he may still be an employee under the common_law test if his risk of loss was negligible lewis v commissioner tcmemo_1993_635 radovich v commissioner tcmemo_1954_220 moreover the risk that he would not receive any commissions because of low sales performance is common to both employees and statutory employees other than his computer fax machine cellular phone and business_expenses that exceeded his annual reimbursement allocation petitioner did not have any capital investments or bona_fide liability for expenses such as salary payments to unrelated employees in his sales activities such that he would be subject_to a real risk of economic loss this factor supports a finding that petitioner was an employee of manulife permanency of relationship since becoming a licensed life_insurance salesman in petitioner has worked for manulife from to date and again from date to at least the date of trial moreover under the agreement petitioner was hired to work for an indefinite period of time this factor supports a finding that petitioner was an employee of manulife principal’s right to discharge the relationship between petitioner and manulife was terminable at the will of either party without any further compensation with respect to a statutory_employee the parties would likely have this same right therefore we accord this factor little or no weight integral part of business manulife is in the business of selling its products sales representatives such as petitioner are manulife’s key connection with its customers this factor supports a finding that petitioner was an employee of manulife see lewis v commissioner supra relationship parties believe they created petitioner contends that he was a statutory_employee on the forms w-2 however manulife did not mark the statutory_employee box further manulife paid the applicable payroll_taxes and did not issue a form_1099 the withholding of such taxes by manulife is consistent with a finding that petitioner was an employee see 388_f2d_74 8th cir weber v commissioner t c pincite this factor would support a finding that petitioner was an employee employee_benefits petitioner participated in manulife’s pension_plan and deferred_compensation plan moreover petitioner received health benefits through manulife’s group health insurance plan typically statutory employees are not entitled to participate in employee benefit plans there is an exception however for full-time life_insurance salespeople who are treated as employees for purposes of certain employee benefit programs maintained by a business sec_7701 we find this factor is neutral conclusion as to employment status on balance considering the record and weighing all of the factors we conclude that during the years in issue petitioner was a common_law_employee rather than a statutory_employee under sec_3121 therefore petitioner is not entitled to report gross_income and expenses on schedule c accordingly we sustain respondent’s determination on this issue b sec_6662 accuracy-related_penalty the final issue for decision is whether petitioners are liable for accuracy-related_penalties under sec_6662 for the years in issue sec_6662 imposes a penalty equal to percent of any underpayment_of_tax that is attributable to either negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax see sec_6662 and b and the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws sec_6662 sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard sec_6662 sec_1_6662-3 income_tax regs an understatement of income_tax is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 an understatement is defined as the excess of the tax required to be shown on the return over the tax actually shown on the return sec_6662 whether the accuracy-related_penalty is applied because of negligence or disregard of rules or regulations or a substantial_understatement of tax sec_6664 provides an exception to imposition of the accuracy-related_penalty if the taxpayer establishes that there was reasonable_cause for the understatement and that the taxpayer acted in good_faith with respect to that portion sec_6664 sec_1_6664-4 income_tax regs see 469_us_241 although not defined in the code reasonable_cause is viewed in the applicable regulations as the exercise of ordinary business care and prudence sec_301_6651-1 proced admin regs see united_states v boyle supra pincite the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1 b income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess the proper tax_liability including reliance on the advice of a tax_return_preparer id by virtue of sec_7491 respondent has the burden of production with respect to the accuracy-related_penalty to meet this burden respondent must produce sufficient evidence indicating that it is appropriate to impose the penalty see 116_tc_438 once respondent meets this burden of production petitioner must come forward with persuasive evidence that respondent’s determination is incorrect rule a see higbee v commissioner supra as a defense to the penalty petitioner bears the burden of proving that he or she acted with reasonable_cause and in good_faith see sec_6664 see also higbee v commissioner supra sec_1_6664-4 income_tax regs respondent satisfied his burden of production under sec_7491 because the record shows that petitioners substantially understated their income_tax for the years in issue see sec_6662 higbee v commissioner supra pincite accordingly petitioners bear the burden of proving that the accuracy-related_penalty should not be imposed with respect to any portion of the understatement for which they acted with reasonable_cause and in good_faith see sec_6664 higbee v commissioner supra pincite the mere fact that we held against petitioners with respect to petitioner’s employment status does not in and of itself require holding for respondent on the accuracy-related_penalty see 103_tc_711 petitioners contend that they are not liable for accuracy- related penalties because they reasonably relied on their tax_return_preparer on the basis of the entire record in this case and in light of the nature of petitioner’s occupation as a life_insurance salesperson we find that petitioners’ reliance on their tax_return_preparer that petitioner was a statutory_employee was reasonable therefore petitioners are not liable for the accuracy-related_penalties for the years in issue accordingly respondent’s determination on this issue is not sustained we have considered all of the other arguments made by the parties and to the extent that we have not specifically addressed them we conclude that they are without merit reviewed and adopted as the report of the small_tax_case division to reflect our disposition of the disputed issues as well as petitioners’ concessions decision will be entered for respondent as to the deficiencies in taxes and for petitioners as to the penalties


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------------- ----------------------------------- ------------- ------------------------------ legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number --------------------- refer reply to cc psi b1 plr-128255-08 date date x -------------------------------------------------- --------------------------------------------------- state date date date date date year year a b c d e ---------- ---------------------- ---------------------- --------------------------- -------------------------- -------------------------- ------- ------- -- ---- ---- -- -- plr-128255-08 dear ------------- this letter responds to a request dated date written on behalf of x requesting relief under sec_1362 for an inadvertent s_corporation termination facts you have represented that the facts are as follows x is a corporation organized under the laws of state on date x also made an s_corporation_election effective date effective date x elected to revoke its status as an s_corporation pursuant to sec_1362 x has two classes of stock class a common_stock voting and class b common_stock non-voting which are identical in all respects except for voting rights each share of class a common_stock and class b common_stock has equal rights to distributions dividends and liquidation proceeds as part of a stock incentive compensation program x granted shares of restricted_class b common_stock restricted_stock to certain key employees effective date year restricted_stock and date year restricted_stock the restricted_stock was subject_to vesting in equal increments over a years commencing on date and date respectively the year restricted_stock was granted to b key x employees and the year restricted_stock was granted to c key x employees d of the b employees granted year restricted_stock and e of the c employees granted year restricted_stock the electing individuals timely filed sec_83 elections with respect to the restricted_stock notwithstanding these elections during the taxable years year and year x did not treat the unvested restricted_stock for which a sec_83 election was made as outstanding_stock of x x was unaware that the restricted_stock for which a sec_83 election was made should have been treated as outstanding as of the date of the grants x now requests a ruling that if x’s failure to treat the restricted_stock for which a sec_83 election was made as outstanding_stock of x caused x's s election to terminate then the termination of x constituted an inadvertent termination within the meaning of sec_1362 x represents that it will take the following corrective actions for year and year x will treat all of the restricted_stock for which a sec_83 election was made as outstanding for all purposes x will make corrective distributions to the electing individuals with respect to the restricted_stock for which a sec_83 election was made plr-128255-08 as would have been made had such restricted_stock been treated as outstanding during year and year and x will treat the portion of the distributions made to historical shareholders in year in excess of the pro_rata amount as a loan from x to such shareholders and the historic shareholders will repay the loan to x law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that a corporation is generally treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the agreement is to circumvent the one class of stock requirement although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1_1361-1 provides that buy-sell agreements among shareholders agreements restricting the transferability of stock and redemption agreements are disregarded in determining whether a corporation's outstanding shares of stock confer identical rights unless a principal purpose of the agreement is to circumvent the one class of stock requirement and the agreement establishes a purchase_price that at the time the agreement is entered into is significantly in excess of or below the fair_market_value of the stock agreements that provide for the purchase or redemption of stock at book_value or at a price between fair_market_value and book_value are not considered to establish a price that is significantly in excess of or below the fair_market_value of the stock and thus are disregarded in determining whether the outstanding shares of stock confer identical rights plr-128255-08 sec_1_1361-1 provides that bona_fide agreements to redeem or purchase stock at the time of death divorce disability or termination of employment are disregarded in determining whether a corporation's shares of stock confer identical rights sec_1_1361-1 provides that a determination of book_value will be respected if the book_value is determined in accordance with generally_accepted_accounting_principles including permitted adjustments or if the book_value is used for a substantial nontax purpose sec_1_1361-1 provides that for purposes of subchapter_s stock that is issued in_connection_with_the_performance_of_services within the meaning of sec_1 f and that is substantially nonvested within the meaning of sec_1_83-3 is not treated as outstanding_stock of the corporation and the holder of that stock is not treated as a shareholder solely by reason of holding the stock unless the holder makes an election with respect to the stock under sec_83 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based upon the information submitted and the representations set forth above we conclude that if the erroneous failure to treat the restricted_stock of x as plr-128255-08 outstanding_stock of x caused x's s election to terminate the termination was an inadvertent termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date through date provided that x's subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to your authorized representative sincerely david r haglund david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------- ------------------------------------------------- ------------------------------- ------------------------------ ------------------------------- in re ---------------------------------------------------- ------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- -------------------------------------------------- telephone number -------------------- refer reply to cc fip b04 plr-134547-14 date date legend taxpayer ---------------------------------------------------------- --------------------------------------------------------------- series state individual company managementco cpafirm1 cpafirm2 date1 date2 taxyear1 taxyear2 taxyear3 ------------------------------------------- ------------ --------------------------------- -------------------------------------------------------- ----- ---------------------------- ----------------------- ------------------ ------------------ ------ ------ ------ plr-134547-14 taxyear4 ------ dear ---- --------------- this is in reply to taxpayer’s request pursuant to sec_301_9100-3 of the procedure and administration regulations for an extension of time to make the election under sec_831 of the internal_revenue_code facts taxpayer was formed on date1 taxyear1 as a series of a limited_liability_company series under the limited_liability_company act of state and is licensed by state to issue property and casualty insurance contracts taxpayer was required to file a separate federal_income_tax return in compliance with published guidance therefore it must make its own tax elections taxpayer was formed to provide insurance coverage to company and other affiliated operating companies that are ultimately owned by individual managementco a third- party administrator performed day-to-day administrative and operational functions under the terms of the series agreement between taxpayer and series series was responsible for taxpayer’s compliance with all applicable law and regulation series appointed cpafirm1 as professional advisors taxpayer represents that taxpayer believed that series cpafirm1 or managementco was responsible for ensuring compliance with taxpayer’s federal_income_tax filing obligations taxpayer later engaged cpafirm2 as an independent certified public accounting firm the due_date for taxpayer’s federal_income_tax return for taxyear1 ty1 return was march taxyear2 on behalf of taxpayer none of series cpafirm1 or managementco filed either a form 1120-pc u s property and casualty insurance_company tax_return or a form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns on or prior to march taxyear2 taxpayer represents that the ty1 return was untimely filed on date taxyear4 the due_date for taxpayer’s federal_income_tax return for taxyear2 ty2 return was march taxyear3 on behalf of taxpayer managementco prepared and filed a timely form_7004 for taxyear2 on or prior to march taxyear3 taxpayer represents that the ty2 return was untimely filed on date taxyear4 the due_date for taxpayer’s federal_income_tax return for taxyear3 ty3 return was march taxyear4 on behalf of taxpayer managementco prepared and filed a plr-134547-14 timely form_7004 for taxyear3 on or prior to march taxyear4 on extension cpafirm2 filed a timely ty3 return on date taxyear4 individual engaged cpafirm2 with respect to its ty1 return ty2 return and ty3 return in june taxyear taxpayer determined that no form_7004 had been filed for taxyear1 and that no ty1 ty2 or ty3 returns had been filed on its behalf cpafirm2 prepared and filed the ty1 ty2 and ty3 returns on date taxyear4 because the ty1 ty2 and ty3 returns were filed after their due dates taxpayer could not make a sec_831 election effective for taxyear1 taxyear2 or taxyear3 taxpayer relied exclusively on series cpafirm1 and managementco to meet its federal_income_tax filing obligations individual is not a tax expert and did not know that taxpayer’s ty1 ty2 and ty3 returns were not filed therefore taxpayer requests the relief of an extension of time to file the election taxpayer’s failure to make the election has not been discovered by the service taxpayer represents that granting relief will not result in a lower tax_liability than it would have paid had it filed the election timely requested ruling taxpayer requests a ruling under sec_301_9100-3 granting it an extension of time to make the election provided by sec_831 effective for taxyear1 and subsequent taxable years law in general non-life insurance_companies are subject_to tax on their taxable_income under sec_831 however sec_831 provides certain small companies ie companies including members of their control groups that do not have the greater of net written premiums or direct written premiums for the taxable_year in excess of dollar_figure an election to be subject_to tax on their taxable_investment_income only the election applies to the taxable_year for which the company made it and as long as the company continues to qualify for all subsequent taxable years unless revoked with the consent of the secretary under sec_301_9100-1 the commissioner may grant a reasonable extension of time but no more than six months except in the case of a taxpayer who is abroad under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory or statutory election the automatic or 12-month extension under sec_301_9100-2 does not apply to a sec_831 election plr-134547-14 the time and manner to make this election is not prescribed by statute but rather is prescribed by sec_301_9100-8 pursuant to sec_301_9100-8 the election is to be made by the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is to be effective by attaching a statement to the tax_return containing the information specified in sec_301_9100-8 accordingly the sec_831 election is a regulatory election sec_301_9100-1 under sec_301_9100-3 certain extension requests require the taxpayer to establish to the satisfaction of the commissioner that it acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if it requested relief before the failure to make the election was discovered by the service failed to make the election because of events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the need for the election reasonably relied on written advice from the service or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 sec_301_9100-1 cautions that granting an extension of time to make an election is not a determination that the taxpayer is otherwise eligible to make the election analysis based solely on taxpayer’s representations and the additional information required under sec_301_9100-3 taxpayer qualifies for an extension of time to make the election under sec_831 taxpayer is deemed to have acted in good_faith as defined by sec_301_9100-3 and the grant of relief will not prejudice the interests of the government because taxpayer will not have a lower tax than if the election had been timely made plr-134547-14 ruling accordingly under sec_301_9100-3 taxpayer is granted an extension of time until days following the date of this letter to make the election provided by sec_831 effective for taxyear1 and subsequent taxable years caveats 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 except as expressly provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspects of any transaction or item_of_income and no ruling granted as to whether taxpayer qualifies as an insurance_company under part ii of subchapter_l or as to taxpayer’s entity classification for federal_income_tax purposes temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see dollar_figure of revproc_2014_1 2014_1_irb_1 however when the criteria in dollar_figure of revproc_2014_1 2014_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely yours sarah lashley assistant to the branch chief branch office of associate chief_counsel financial institutions products


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-160691-04 date date - legend x y d1 d2 --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ----------------------- ------------------- ------------------- country ---------------------- dear -------------- this letter responds to a letter dated date as well as subsequent correspondence submitted by x’s authorized representative requesting rulings under sec_301_7701-3 and sec_301_9100-3 of the procedure and administration regulations specifically x is requesting the service’s consent to change y’s classification from a disregarded_entity to an association_taxable_as_a_corporation effective d1 facts series of subsidiary entities on d2 x and its subsidiary entities did not own any of y according to the information submitted x became the owner of y through a sec_301_7701-3 provides in part that a business_entity that is not sec_301_7701-3 provides that an eligible_entity may elect to be plr-160691-04 prior to d2 y a country eligible_entity had previously elected within sixty months prior to d1 to be treated as a disregarded_entity for federal tax purposes law and analysis classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes it further provides that an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the default classification of a foreign eligible_entity for federal tax purposes sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability or is an association if all members have limited_liability classified other than as provided in ' b by filing form_8832 entity classification election with the service_center designated on form_8832 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date the election is filed and cannot be more than months after the date on which the election is filed under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing_date or on the effective date of the entity’s prior election reasonable extension of time under the rules set forth in and to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_7701-3 provides that an election under ' c i sec_301_9100-1 provides that the commissioner has discretion to grant a sec_301_7701-3 provides that if an eligible_entity makes an election sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-3 sets forth the standards the commissioner will use to because the requirements of ' sec_301_9100-1 and sec_301_9100-3 have been based on the facts submitted and representations made we rule as follows because more than percent of the ownership interests of y as of d1 are plr-160691-04 making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of ' under ' a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government rulings owned by persons that owned no interests in y on the effective date of y’s previous classification change to a disregarded_entity we consent to y changing its classification for federal tax purposes less than months after this previous change satisfied we grant y an extension of time to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d1 y is to file form_8832 with the appropriate service_center within days from the date of this letter a copy of this letter should be attached to the election form federal tax consequences of the facts of this case under any other provision of the code letter to x’s authorized representatives under a power_of_attorney on file with this office we are sending copies of this except for the specific rulings above no opinion is expressed or implied as to the this ruling is directed only to the taxpayer on whose behalf it was requested plr-160691-04 sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes