t c memo united_states tax_court oceanic leasing douglas f spaulding tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date george mac vogelei and phillip j terry for petitioner and for arthur willner a moving party christian a speck for respondent memorandum opinion cohen chief_judge following settlement with the participating parties to this proceeding respondent filed a motion for entry of decision pursuant to rule b before acting on respondent's motion we here decide the motion by arthur willner willner to dismiss for lack of jurisdiction as to him based on willner's contention that he is not a partner in the partnership known as oceanic leasing that is the subject of this proceeding and the motion by willner requesting leave to file a notice of election to participate willner concedes that we have jurisdiction over the partnership items of oceanic leasing even though that entity was a sham and not a bona_fide partnership he contends however that the partnership losses claimed by him on his individual_income_tax_return for under the names oceanic leasing vi and oceanic leasing xxxv and under the single federal identification_number of oceanic leasing related to different partnerships use of the term partnership as singular or plural in this opinion is for convenience and does not have any legal significance with respect to the separateness or validity of any entity mentioned unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure hardin's oceanic leasing factual background c robert hardin hardin conducted a tax_return preparation business in san francisco california known as the tax company in hardin commenced solicitation of clients to invest in partnerships engaged in equipment_leasing transactions hardin executed or caused to be executed various agreements identifying partnerships by the name oceanic leasing followed by roman numerals such as oceanic leasing iv oceanic leasing vi and oceanic leasing xxxv the agreements named hardin and one or more other individuals as partners in most cases the capital_contribution of hardin shown in the partnership_agreement was dollar_figure while contributions to be made by other partners were typically in the thousands of dollars as hardin secured additional investors he used the funds of those investors to make payments to earlier investors thus operating the activity as a so-called ponzi scheme in this regard he created or caused to be created various fictitious equipment leases fabricating or forging the identities of various businesses in or about date hardin prepared and caused to be filed a form_1065 u s partnership return of income in the name of oceanic leasing for the form_1065 showed the address of oceanic leasing as bridgeway sausalito california the sausalito address and its employer_identification_number ein as the return reported a loss of dollar_figure allegedly arising out of equipment_leasing transactions the form_1065 attached copies of schedules k-1 for various investors reporting alleged distributable shares of ordinary_loss and tax_credits the persons shown as partners on the schedules k-1 attached to the form_1065 were only a few of the scores of persons who had executed partnership agreements with hardin for equipment_leasing partnerships operating under the name oceanic leasing followed by a roman numeral willner was not one of the persons shown on the schedules k-1 attached to the form_1065 filed by hardin in a class action suit was filed in the superior court of the state of california for the county of san francisco by an investor in the hardin entities the superior court appointed a receiver to take over the operations of oceanic leasing and related hardin entities in findings_of_fact filed date in the superior court action the superior court found among other things the receiver and her accountants employed pursuant to the court's order authorizing receiver to employ accountants entered date completed an extensive review of the available books_and_records of oceanic and tax company and have identified a total of about different entity names used in connection with defendants' operations including about purported oceanic leasing entities and about purported aerocapital entities although it appears from the business records that oceanic leasing and aerocapital entities would typically be set up as purported general partnerships it appears that virtually all of the capital contributed to the entities may have been pooled in joint bank accounts no separate books of accounts appear to have been kept for the different entities in most cases the entities may not have acquired specific identifiable assets and income and expenses may have been consolidated without regard to the entity's name or its nominal activity price v hardin no the superior court authorized the receiver to pool all entities and transactions for purposes of the receivership on date hardin was indicted in the u s district_court for the northern district of california for various crimes arising out of his investment transactions including oceanic leasing transactions criminal proceedings against him were resolved in willner's oceanic leasing at the end of willner was introduced to hardin by linda calef calef willner his mother his brother and hardin entered into an agreement for a partnership to be known as oceanic leasing vi he claims but calef denies that calef was also a member of a partnership known as oceanic leasing vi willner received a schedule_k-1 for reporting his alleged share of losses for oceanic leasing vi willner did not produce to respondent or at trial a copy of any written_agreement relating to this partnership it appears from other correspondence that any such agreement was signed after date willner executed a document dated date purporting to be a partnership_agreement between hardin calef arthur and susan willner and anne latta latta for a partnership known as oceanic leasing xxxv the sausalito address was shown as the principal_place_of_business of the partnership according to the agreement hardin calef the willners and latta each were to contribute dollar_figure to the partnership in a first amendment to partnership_agreement dated date the capital contributions of the partners were increased to dollar_figure the contributions called for by the documents were never made willner received schedules k-1 from hardin one schedule_k-1 showed oceanic leasing vi at the sausalito address the form reported his distributive_share of loss as dollar_figure willner also received a schedule_k-1 that showed oceanic leasing xxxv at the sausalito address and set forth his distributive_share of loss as dollar_figure both of the schedules k-1 received by willner used the same ein for oceanic leasing to wit when he received the schedules k-1 willner called hardin and asked about use of the same employer identification numbers for oceanic leasing vi and oceanic leasing xxxv he was told that such use was not an error willner prepared a form_1040 u s individual_income_tax_return for himself and his wife for on that form_1040 he claimed losses from oceanic leasing vi and oceanic leasing xxxv in the amounts shown on the schedules k-1 received by him showing the oceanic leasing ein for each he also attached to his form_1040 a form_3468 computation of investment_credit claiming dollar_figure attributable to oceanic leasing xxxv using the same ein latta who along with willner executed the agreement referring to oceanic leasing xxxv claimed oceanic leasing losses using ein on her individual return for without reference to xxxv the form_1065 filed by hardin attached a schedule_k-1 for latta willner gave hardin payments totaling approximately dollar_figure from through those payments included a check dated date in the amount of dollar_figure payable to oceanic leasing without any roman numeral designation willner received oceanic leasing checks in the amounts set forth below and bearing the indicated notations in the lower left corner date amount notation date date feb date date date date date date date dollar_figure dollar_figure big_number dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure ocean ol ol none all of the checks bore the name and sausalito address of oceanic leasing and were written on the same bank account willner believed that hardin was completely in control of running the business of the partnerships and acquiesced in hardin's conduct with respect to the partnerships in or after willner along with others began to suspect problems with respect to hardin's activities willner was aware of and believed that he was a beneficiary of the superior court class action commenced against hardin during an internal_revenue_service irs audit of his tax_return willner claimed and was allowed a theft_loss from his involvement with hardin which loss was applied towards tax due and owing for earlier years respondent's oceanic leasing in the irs commenced an audit of janet grove grove who had claimed on her individual_income_tax_return partnership losses under the name oceanic leasing xxxiii with the sausalito address and ein the agent examining grove's return thereafter contacted hardin and commenced an audit of the oceanic leasing form_1065 for the agent discovered that grove and others had claimed partnership losses based on schedules k-1 received from hardin but not attached to the form_1065 filed by hardin for oceanic leasing hardin admitted to the revenue_agent that the partnership in which grove was involved was a hoax hardin continued to supply information to the revenue_agent hardin alternatively referred to oceanic leasing as a single entity sometimes using the term big daddy and referred to separate oceanic leasing partnerships by number he advised the revenue_agent that each partnership had a separate agreement that there was no overriding partnership_agreement for oceanic leasing and that oceanic leasing was a collection of separate partnerships the revenue_agent determined that the schedules k-l attached to the form_1065 did not reconcile with the losses reported on the return or equal 100-percent interests in the partnership the agent began identifying various individuals who had claimed oceanic leasing partnership losses in order to arrive at interests totaling percent the revenue_agent solicited hardin's appointment as tax_matters_partner and secured from him an agreement to extend the period of limitations on adjustments arising out of the form_1065 she believed that she was operating under the partnership provisions of the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_324 codified at sections the notice of final_partnership_administrative_adjustment fpaa that is the subject of this proceeding was mailed date to douglas f spaulding as tax_matters_partner the partnership was identified as oceanic leasing at the sausalito address with ein all of the losses and credits claimed on the form_1065 were disallowed at the time of the notice the revenue_agent had identified at least persons who had claimed losses from oceanic leasing with the same identification_number as the partnership form_1065 that she was auditing among those identified by the revenue_agent was willner a copy of the fpaa was sent to willner in the petition filed date the adjustments in the fpaa were challenged on the following grounds the facts on which the petitioner relies as the basis of his case are as follows a not all income and expenses shown on the partnership's tax_return are the result of fictitious sham transactions b some of the business activity actually occurred and c property purchased by the partnership was a depreciable b had a useful_life of at least years c was tangible_personal_property and d was placed_in_service during the taxable_year in a trade_or_business petitioner further alleges that the statutory period for making an assessment for the taxable_year has expired trial of this case commenced in san francisco california in date calef appeared by counsel and moved for dismissal of the case for lack of jurisdiction as to her claiming that she was not a partner in the partnership that was a subject of this proceeding the trial was thereafter continued several times for purposes of settlement discussions among various interested partners in date calef's motion to dismiss was withdrawn as a result of a settlement reached between herself and respondent on date respondent filed a motion for entry of decision pursuant to rule b the settlement involves allowing investors to deduct theft losses_incurred as a result of their dealings with hardin willner receives no benefit from the settlement on date willner filed a motion for leave to file notice of election to participate in order to contend that he was not a partner in the partnership that is the subject of this proceeding and on date he filed his jurisdictional motion discussion m ushrooming administrative problems experienced by the internal_revenue_service in auditing returns of partnerships particularly tax_shelter partnerships with numerous partners led to the enactment of the tefra partnership proceedings in 101_tc_365 the purpose of the new procedures was to provide a method for uniformly adjusting items of partnership income loss deduction or credit without the necessity of separate proceedings for each partner id pincite 87_tc_783 willner here seeks to avoid the normal consequences of our determination in this action which would be an assessment against him based on disallowance of all partnership losses claimed by him on his return under the name and ein of oceanic leasing see sec_6225 d and e a 95_tc_243 cf n c f energy partners v commissio89_tc_741 that a partnership is a sham does not preclude applicability of the provisions of tefra sec_6233 provides a general_rule --if a partnership return is filed by an entity for a taxable_year but it is determined that the entity is not a partnership for such year then to the extent provided in regulations the provisions of this subchapter are hereby extended in respect of such year to such entity and its items and to persons holding an interest in such entity see also sec_301_6233-1t a c temporary proced admin regs fed reg date willner does not deny that hardin's activities were fraudulent he does not deny that we have jurisdiction with respect to the partnership that is the subject of these proceedings and he has stipulated that the fpaa was timely willner contends that sec_6233 does not apply to him because he was not a partner in the entity that filed a partnership return for he relies on the schedules k-1 attached to the form_1065 which did not include a schedule_k-1 for him he seeks relief on the basis that the schedules k-1 on which he relied in claiming losses were not attached to any partnership return he defines the issue as were arthur and susan willner partners in the entity that filed a partnership return for using the words of the statute we would define the issue as whether arthur and susan willner were persons holding an interest in such entity the evidence supports a finding that willner was a person holding an interest in the entity that is the subject of this proceeding he claimed tax benefits on the assumption that a return was filed for the partnerships in which he invested bearing the single ein he received cash payments from a single bank account with respect to the partnerships in which he invested he acquiesced in hardin's total control of all entity business with knowledge that hardin was handling as a unit what were identified as multiple partnerships he regarded himself as the beneficiary of a class action that treated the superficially separate partnerships as a single entity and he did not raise his claim in this action until he saw that the action would neither lead to a determination in favor of the partnership nor a settlement that would benefit him the nexus between his claims of partnership losses and credit and the entity that is the subject of this proceeding exists by contrast there is no evidence that separate partnerships known as oceanic leasing vi or oceanic leasing xxxv ever engaged in any activity other than the fraudulent leasing transactions engaged in by hardin in the name of oceanic leasing willner did not comply with the terms of the agreements on which he relies willner acquiesced in hardin's fraudulent activities so long as they brought him tax benefits and cash distributions exceeding his contributions see 100_tc_353 where a partner has voluntarily permitted another partner's petition and apparent authority to exist the situation should not redound to their own benefit and to respondent's detriment the procedural difficulties of tefra do not require us to reward him for investing in sham entities that did not file separate partnership returns for the years for which he claimed fictitious partnership losses willner points out various inconsistent actions taken and errors made by respondent's revenue_agent respondent makes various arguments based on speculation as to what must have been the arrangement between hardin and various individual investors certain of those investors testified and respondent presented documentary_evidence concerning the tax treatment of other investors we have not discussed in this opinion either the errors made by the revenue_agent or the differences among other persons who invested in hardin's oceanic leasing scheme nor have we discussed the complex and frequently changing positions of other investors who have appeared during the pendency of this proceeding the only issue before us is whether willner had an interest in the entity that is the subject of this proceeding we hold that he did his motion to dismiss for lack of jurisdiction will be denied willner's motion for leave to file notice of election to participate was made solely for purposes of raising the jurisdictional issue and did not set forth any independent statements to show his preparedness to litigate the case on the merits or reasons why respondent's motion for entry of decision should not be granted as stated in the notes to the amendments to the rules_of_practice and procedure adopted date with respect to rule b any objecting partners would have to make a substantial showing in order for the court to grant their motion for leave to file a notice of election to participate t c pincite no such showing having been made the motion for leave to file notice of election to participate will be denied and respondent's motion for entry of decision will be granted appropriate orders will be issued and a decision in accordance with respondent's motion will be entered


cca_2015072714492917 id uilc number release date from ---------------- sent monday date pm to -------------------------------------------- cc ----------------------------------------------- bcc subject fw combat_zone question - high priority hello ----------- we should not withdraw the notice_of_deficiency or in any way undo the exam e provides irc the assessment or collection of any internal revenue tax or of any liability to the united_states in respect of any internal revenue tax or any_action or proceeding by or on behalf of the united_states in connection therewith may be made taken begun or prosecuted in accordance with law without regard to the provisions of subsection a unless prior to such assessment collection action or proceeding it is ascertained that the person concerned is entitled to the benefits of subsection a here the notice_of_deficiency was issued before the irs ascertained that tp was entitled to a benefits sec_7508 benefits should be provided to tp going forward from the date irs ascertained that tp was entitled to those benefits hope that helps let me know if you have further questions ---------------- ---------------------- --------------------------------------- ---------------------


internal_revenue_service number release date index number - -------------------------------------------- ----------------------------- ---------------------------- - legend corporation state date date date b c department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-113281-04 date date -------------------------------------------- ------------- ---------------- ------------------ ------------------------ ---- -- dear---- application of ' b of the internal_revenue_code to corporation this is in reply to your letter dated date requesting a ruling regarding the the represented facts are as follows corporation was formed on date under the laws of state and operates a building in a cooperative form of ownership the building consists of b residential units and a commercial space which is leased to tenant corporation s lease with tenant expires on date corporation proposes to allocate shares of its authorized but unissued stock to the commercial space for future conversion of the space into c residential units corporation proposes to sell the stock to be allocated to the residential units to tenant and thereafter corporation and tenant will cancel the tenant’s lease corporation represents that the shares to be issued with respect to each unit will be fully paid up in an amount bearing a reasonable relationship to the portion of the value of corporation s equity in the building and land that is attributable to each unit plr-113281-04 the proprietary lease will entitle tenant as the purchaser of the additional shares attributable to the commercial space to occupy the unit either for retail purposes or as a residential apartment the owner of the unit will at all times have the right as against corporation to occupy the unit for dwelling purposes corporation represents that the local zoning law and building regulations currently permit modification of the commercial space to residential use as a matter of right the size and location of the commercial space is such that with certain modifications it could be converted into residential apartments corporation submits facts and representations to show that the cost of adding sleeping and cooking facilities is less than of the fair_market_value the units would have if they were sold as residential units you have specifically requested two rulings provided corporation satisfies the requirements of ' b a c and d neither the issuance of stock by corporation to be allocated to the commercial space nor the possible nonresidential use of the commercial space will prevent corporation from qualifying as a cooperative_housing_corporation within the meaning of ' b tenant who purchases the stock of corporation attributable to the commercial space for the commercial use of such space will qualify as a atenant-stockholder for purposes of ' b provided such stock is fully paid up in an amount which bears a reasonable relationship to the portion of the value of corporation s equity in the building and land which is attributable to the commercial space sec_216 provides that the term acooperative housing corporation means a corporation - a having one and only one class of stock outstanding b each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by the corporation c no stockholder of which is entitled either conditionally or unconditionally to receive any distribution not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation and d percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in ' a are paid_or_incurred is derived from tenant-stockholders sec_216 provides that the term atenant-stockholder means a person who is a stockholder in a cooperative_housing_corporation and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the secretary as bearing a reasonable relationship to the portion of the value of the corporation s plr-113281-04 equity in the house or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy revrul_74_241 1974_1_cb_68 holds that for purposes of ' b b the term aapartment in a building means an independent housekeeping unit consisting of one or more rooms containing facilities for cooking sleeping and sanitation normally found in a principal_residence revrul_90_35 1990_2_cb_48 provides that revrul_74_241 does not require that a unit presently contain all the facilities normally found in a principal_residence in order to constitute an apartment in a building for purposes of ' b b a unit will be treated as meeting that definition if the stockholder is entitled to convert the unit to an apartment as defined in revrul_74_241 solely by reason of ownership of stock in the cooperative_housing_corporation the conversion of the unit would be reasonable under all the facts and circumstances including structural feasibility and cost and the applicable local zoning building and fire codes permit both the conversion and residential use of the unit as a matter of right applying the above standards to the facts and representations submitted and subject_to the limitation below we conclude that provided corporation meets the requirements of ' b a c and d neither the issuance of stock by corporation to be allocated to the commercial space nor the possible nonresidential use of the commercial space will prevent corporation from qualifying as a cooperative_housing_corporation within the meaning of ' b we also conclude that tenant who purchases the stock of corporation attributable to the commercial space for the commercial or residential use of the space will qualify as a atenant-stockholder for purposes of ' b provided the stock is fully paid up in an amount which bears a reasonable relationship to the portion of the value of corporation s equity in the apartment building and land which is attributable to the commercial space which tenant is entitled to occupy except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion whether corporation otherwise meets the requirements of ' b this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling should be attached to the taxpayer s tax_return filed for the year in which the transaction referred to in this ruling is completed plr-113281-04 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative cc sincerely yours s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


t c no united_states tax_court textron inc and subsidiary companies petitioner v commissioner of internal revenue respondent docket no filed date a filed a consolidated_return with its wholly- owned subsidiary pr in during that year a distributed a note to pr in redemption of pr’s shares in a in p acquired more than percent of the stock of a and thereupon a and pr became members of p’s consolidated_group in a redeemed the note from pr later that year pr liquidated into a held under sec_1 d income_tax regs p may not take a deduction in for the capital_loss pr realized on the redemption of a’s note james p fuller kenneth b clark and david l forst for petitioner nancy b herbert and ruth m spadaro for respondent - opinion laro judge this case is before the court fully stipulated see rule petitioner petitioned the court to redetermine respondent’s determination of deficiencies in federal_income_tax for its taxable years ended date date date date date and date in the amounts of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively we decide herein whether petitioner is entitled to a claimed dollar_figure capital_loss for the taxable_year ended date taxable_year we hold it is not unless otherwise indicated section references are to the internal_revenue_code and the regulations thereunder in effect for the years in issue ’ rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded to the nearest dollar this case involves several issues some of which have been settled the other issues remaining for decision will be addressed in one or more subsequent opinions and or orders the applicable regulations were revised in with prospective effect see t d fed reg date generally effective for transactions in years beginning after date background textron inc textron is the common parent of an affiliated_group_of_corporations within the meaning of sec_1504 the textron group that filed a consolidated federal_income_tax return for its taxable_year for certain periods of time members of the textron group included paul revere corporation paul revere and avco corporation avco before joining the textron group in avco was the common parent of its own affiliated_group_of_corporations within the meaning of sec_1504 the avco group in date paul revere purchased four million shares of avco stock for dollar_figure million avco’s remaining stock was owned by the general_public and traded on the new york stock exchange in date avco acquired all of the stock of paul revere and paul revere became a member of the avco group paul revere still owned the four million shares of avco stock at the time it was acquired by avco on date avco redeemed all of paul revere’s avco stock the stock_redemption in return for this stock paul revere received a promissory note from avco the avco note with a face_amount and fair_market_value of dollar_figure and other_property paul revere realized a dollar_figure loss on the stock when the petition was filed in this case petitioner’s principal_place_of_business was providence rhode island q4e- redemption pursuant to sec_1 b income_tax regs the avco group did not recognize this loss instead paul revere’s basis in the avco stock was allocated to the property distributed in the stock_redemption including the avco note in accordance with sec_1_1502-31 ii income_tax regs avco and paul revere were members of the avco group at all times from to textron began to acquire stock in avco in and by date textron had acquired in excess of percent of the outstanding_stock of avco and thereupon avco and paul revere became members of the textron group on date avco redeemed the avco note from paul revere for dollar_figure in cash the note redemption this was dollar_figure less than paul revere’s basis in the avco note paul revere was liquidated into avco in a tax-free liguidation under sec_332 on date avco remained with the textron group through textron as parent of the textron group claimed on its tax_return a dollar_figure long-term_capital_loss on the note redemption discussion we decide whether the textron group may deduct the loss realized by paul revere on the redemption of the avco note in sec_1001 generally requires gain_or_loss to be the tax treatment of the stock_redemption is not in dispute - - recognized upon an exchange of property see also sec_1271 amounts received by the holder on the retirement of any debt_instrument are considered to be amounts received in exchange for the instrument respondent asserts however that the loss suffered by paul revere on the note redemption is deferred by reason of sec_1 d income_tax regs which provides exception for obligations acquired in tax-free exchanges if - a a member received an obligation of another member in exchange for property ob the basis of the obligation was determined in whole or in part by reference to the basis of the property exchanged and c the obligation has never been held by a nonmember then any gain_or_loss of any member on redemption or cancellation of such obligation shall be deferred and subparagraph of this paragraph shall not apply petitioner offers four independent reasons why sec_1 d income_tax regs does not apply to defer its loss on the note redemption sec_1 d income_tax regs operates solely to override sec_1 d income_tax regs and cannot otherwise defer gains or losses paul revere did not receive the avco note in a tax-free_exchange the avco note was previously held by a nonmember of the textron group and paul revere did not receive the avco note in exchange for property we address these arguments in turn whether sec_1 d operates solely as an exception to sec_1 d the flush language of sec_1 d income_tax regs provides that if the enumerated requirements are met then any gain_or_loss of any member on redemption or cancellation of such obligation shall be deferred and subparagraph of this paragraph shall not apply petitioner reads this language to mean that sec_1 d income_tax regs operates solely to override sec_1 d income_tax regs and does not otherwise operate to defer gains and losses we disagree sec_1 d income_tax regs is a restoration provision ie it establishes the circumstances under which an intercompany gain_or_loss deferred elsewhere in the consolidated_return_regulations is triggered into income e restored specifically sec_1 d income_tax regs restores gains or losses deferred with respect to an obligation under sec_1 d income_tax regs gains and losses deferred under sec_1 d income_tax regs are those that are recognized under the code to a member during a consolidated_return_year because of a sale or disposition other than a redemption or cancellation of an obligation of another member the parties agree that sec_1 d income_tax continued if as petitioner contends sec_1 d income_tax regs functions solely to prevent gains and losses from being restored by sec_1 d income_tax regs then it would be inapplicable where there had been no previous deferral under sec_1 d income_tax regs however the example set forth in the regulations at sec_1 d income_tax regs disproves petitioner’s contention in the example a corporation receives a security from its newly formed subsidiary in a sec_351 exchange and the security is later redeemed in when these regulations were implemented and at all times through the year at issue no gain_or_loss was recognized under the code on the receipt of a continued regs is inapplicable both to the stock_redemption and the note redemption the full text of sec_1 d iii income_tax regs is as follows this subparagraph may be illustrated by the following example example corporation p forms a subsidiary s in a transaction to which sec_351 applies and receives as a result of such transaction in addition to stock a security with a face value of dollar_figure and a basis of dollar_figure if the security is redeemed for dollar_figure the dollar_figure gain on redemption is deferred and is not taken into account until p ceases to be a member or the stock of s is treated as disposed of under this subparagraph - - security in exchange for property in a sec_351 transaction ’ thus the corporation’s gain in the sec_351 exchange would not have been recognized under the code as required to invoke sec_1 d income_tax regs as a result sec_1 d income_tax regs operated independently in the example to defer the gain on the redemption of the security and not as an override of sec_1 d income_tax regs accordingly we find that gains or losses on the redemption of an obligation may be deferred under sec_1 d income_tax regs irrespective of the application of sec_1 d and income_tax regs whether the stock_redemption was a tax free exchange the heading to sec_1 d income_tax regs refers to obligations acquired in tax-free exchanges petitioner argues that the stock_redemption was not a tax- free exchange because stock redemptions are taxable under sec_302 sec_35l a read sec_351 no gain_or_loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock_or_securities in such corporation and immediately_after_the_exchange such person or persons are in control as defined in sec_368 of the corporation sec_351 was amended in to provide that securities could no longer be received tax-free under the provision see omnibus budget reconciliation act of publaw_101_239 103_stat_2106 - it is well settled that the heading of a section does not limit the plain meaning of the text see 331_us_519 114_tc_343 the text of sec_1 d income_tax regs requires only that an obligation be received in exchange for property and that the basis of the obligation be determined by reference to the basis of the property exchanged paul revere received the avco note in exchange for its avco stock and its basis in the note was determined by reference to its basis in the stock see sec_1_1502-31 b income_tax regs thus we find the stock_redemption to be a qualifying exchange covered by the provision whether paul revere was a nonmember sec_1 d income_tax regs applies only if the obligation at issue has never been held by a nonmember sec_1 d c income_tax regs sec_1 d c income_tax regs does not specify how or when a corporation’s status as a member or nonmember is to be determined petitioner focuses on the word nonmember and concludes that the deferral of paul revere’s loss ended in even if the heading did limit the scope of the provision the avco group recognized no gain_or_loss on the stock_redemption because the redemption was governed by sec_1 b income_tax regs the fact that the redemption would have been taxable under sec_302 had avco and paul revere not been members of the same consolidated_group is immaterial -- - upon avco’s redemption of the note because paul revere held the note for years before paul revere became in a member of the textron group ’ throughout that 7-year period paul revere and avco both had been members of the avco group we disagree with petitioner’s interpretation of the word nonmember in sec_1 d income_tax regs because it reads that word out of context and in isolation the salient fact is that paul revere having held the note from the date of its issuance was a member of the textron group when the note was redeemed petitioner’s reading is incongruous with the purpose of the consolidated_return_regulations and leads to an unreasonable result the provisions of the regulation in question must be construed consistently with the framework of the consolidated_return_regulations in light of their overall purpose and regulatory scheme cf 42_f3d_537 9th cir affg t cc 112_tc_19 see also 83_tc_943 sec_1_1502-1 and b income_tax regs defines group and member as follows a group the term group means an affiliated_group_of_corporations as defined in sec_1504 see sec_1_1502-75 as to when a group remains in existence ob member the term member means a corporation including the common parent which is included within such group canons of statutory construction apply to interpretation of treasury regulations 529_f2d_1000 canons of statutory construction used to interpret administrative regulations the consolidated_return_regulations are built on the premise that members of a consolidated_group are a single economic entity with regard to intercompany_transactions and distributions and that resulting gains or losses are given effect only when the transferred property or stock of the transacting member leaves the consolidated_group see also sec_1_1502-13 sec_1 income_tax regs see generally bittker lokken federal taxation of income estates and gifts par pincite 2d ed the basic concept underlying the consolidated_return provisions is that the consolidated_group is a single taxable enterprise whose tax_liability ought to be based on its dealings with outsiders rather than on intragroup transactions this single_taxpayer concept lies at the heart of the treatment of intercompany_transactions which with some exceptions to prevent tax_avoidance are eliminated in computing the group’s consolidated_taxable_income petitioner’s interpretation of sec_1 d c income_tax regs conflicts with this framework at the time avco redeemed its note from paul revere both were members of the textron group and both remained members as of the end of the taxable_year there were no dealings with outsiders that would -- entitle the group to take into account the loss from that intercompany_transaction for purposes of sec_1 d income_tax regs we determine the status of paul revere as a member or nonmember of the textron consolidated_group at the time of redemption of the note we interpret the word nonmember in that provision of the regulations as applying to cases where a member of a consolidated_group cancels or redeems an obligation that is held or was held by a corporation that is a nonmember at the time of cancellation or redemption we do not read sec_1 d income_tax regs as applying to cases such as we have here where a corporation noteholder was acquired by and became a member of the consolidated_group before the note’s redemption or cancellation our reading is supported by consideration of the result that would have occurred had avco redeemed paul revere’s avco stock in for cash in that case paul revere’s loss on the redemption would have been deferred under sec_1 b income_tax regs and would have continued to be deferred as of the end of the taxable_year even though avco and paul revere were then members of the textron group rather than the avco group see sec_1_1502-13 sec_1 b f income_tax regs termination of a consolidated_group due to the acquisition of its common parent by a nonmember does not restore deferred gains and losses if the members of the terminating group become members of another group the subject loss therefore would have continued to be deferred in the year in which petitioner now claims it is deductible petitioner seeks a result different from a cash redemption relying on the mere fact that avco redeemed the stock for a note rather than cash we do not believe that this distinction in fact leads to a different result petitioner offers no explanation why the consolidated_return_regulations would give effect to gains and losses realized in intercompany redemptions paid for with debt but not those realized in intercompany redemptions paid for by cash or other_property in fact we understand petitioner to concede that paul revere’s status as a member of the textron group at the time the loss was realized on the note redemption satisfies the membership requirement of sec_1 d a income_tax regs a member received an obligation of another member in exchange for property even though paul revere was not a member of the textron group at the time it received the avco note in exchange for the avco stock we conclude that paul revere is a member for purposes of sec_1 d c income_tax regs and that the avco note was never held by a nonmember whether the avco stock was property deferral under sec_1 d income_tax regs is required only if the obligation is received by a member in exchange for property see sec_1 d a income_tax regs the term property is undefined in the regulations the parties agree that paul revere received the avco note in a redemption satisfying the requirements of sec_302 petitioner argues that because stock of the distributing_corporation is not considered property in a sec_302 transaction the reference in sec_1 d income_tax regs to property excludes the avco stock given up by paul revere in the stock_redemption ’ petitioner further argues that this reading 1s consistent with the economic_substance of the transaction because this would permit petitioner to recognize and take into account the substantial economic loss that paul revere realized in the redemptions the pre-1966 consolidated_return_regulations deferred to code definitions when a word used in the regulations was not specifically otherwise defined ’ see foster v commissioner sec_317 provides for purposes of this part sec_301 through ‘property’ means money securities and any other_property except that such term does not include stock in the corporation making the distribution or rights to acquire such stock t d 1966_2_cb_362 promulgated new consolidated_return_regulations under sec_1502 of the code the new continued - - tcmemo_1966_273 modified and remanded on a different issue sub nom 417_f2d_285 10th cir the regulations abandoned that rule in favor of a more general requirement that the code or other law shall be applicable to the group to the extent the consolidated_return_regulations do not exclude its application sec_1_1502-80 income_tax regs here the consolidated_return_regulations are on point so contrary provisions in the code are inoperative see 83_tc_202 though sec_166 and sec_585 otherwise entitled bank to take a bad_debt deduction arising from an intercompany loan election of consolidated_return treatment required deferral under sec_1 d income_tax regs while the stock_redemption met the requirements of sec_302 avco and paul revere had elected consolidated treatment and thus the tax consequences of the stock_redemption were determined under sec_1504 and sec_1 b and b income_tax regs these provisions do not exclude stock of the redeeming corporation from the definition of property continued regulations were applicable to taxable years beginning after date -- - the only authority cited by petitioner in support of its position is tech adv mem date the tam concluded that the definition of redemption in sec_317 may have some general application in the determination of whether a redemption took place for the purposes of sec_1_1502-13 f income_tax regs petitioner reads into this that respondent’s administrative position was that the definition of property set forth in sec_317 is similarly relevant to the interpretation of the consolidated_return_regulations this assumption is inaccurate in g_c_m big_number date respondent determined that the gain realized on a consolidated subsidiary’s distribution of its parent’s stock to its parent in a sec_311 transaction resulted in a deferral of gain pursuant to sec_1 c income_tax regs the g_c_m found the stock of the parent_corporation to be property for purposes of the consolidated_return_regulations even though the stock was held by the parent as treasury_stock after the distribution the g_c_m concurrently looked to the sec_317 definition of 2technical advice memoranda tams and private letter rulings have no precedential value but merely represent the commissioner’s position as to a specific set of facts see sec_6110 bunney v commissioner t c __ __ on slip op pincite 3a general counsel memorandum is a legal opinion from one division of the commissioner’s office_of_chief_counsel to another and is not binding on this court see 104_tc_191 redemption to interpret sec_1_1502-13 income_tax regs thus respondent did not consider the two positions to be contradictory we are not aware that respondent has ever taken the position administratively or otherwise that the definitions found in sec_317 are universally applicable to interpret the consolidated_return_regulations in any case as stated above had avco redeemed the stock for cash the gain_or_loss would have been deferred under sec_1 b income_tax regs under petitioner’s interpretation a consolidated taxpayer could elect to recognize losses on the redemption of the stock between members at its whim instead of redeeming depreciated member stock with cash it could simply redeem the stock with debt and then retire the debt we decline petitioner’s invitation to interpret an undefined term so as to achieve this anomalous result petitioner’s interpretation would undermine the structure of the consolidated_return_regulations by treating as recognition events what are purely intragroup transactions as to petitioner’s economic_substance argument the consolidated_return_regulations were promulgated under the congressional mandate of sec_1502 to regulate the privilege of filing consolidated_returns once an eligible group of corporations consents to consolidation both the taxpayer and the government are bound by the consolidated_return_regulations see -- - sec_1502 though paul revere may have realized a genuine economic loss on a separate_entity basis recognition of that loss is deferred by reason of petitioner’s election to be bound by the consolidated_return_regulations whether the loss was restored upon liquidation of paul revere as a final matter we note that the liguidation of paul revere in did not restore paul revere’s loss on the note redemption a member’s gain_or_loss deferred by sec_1 d income_tax regs is restored immediately before the earlier of the time when the deferring member in this case paul revere ceases to be a member or when the stock of the debtor member in this case avco is considered to be disposed of by any member see sec_1 d income_tax regs however in the event the deferring member ceases to be a member because its assets are acquired by another member of the group in a transaction described in sec_381 such as a sec_332 liquidation the gain_or_loss is not so restored see sec_1 e income_tax regs paul revere ceased to be a member of the textron group when it liguidated in a sec_332 transaction thus the liquidation was not a restoration event in reaching our holdings herein we have considered all arguments made by the parties and to the extent not discussed above we find those arguments to be irrelevant or without merit to reflect the foregoing an appropriate order will be issued


number release date id office uilc cca_2009030310312442 ---------------- from ------------------ sent tuesday march am to --------------------- cc ------------------ subject fw redemption case good morning my answers are in red as you can see this advice has been reviewed i agree with your proposed answers i am working on a really involved redemption case and we have run into quite a few snags some of the issues that we have to figure out asap are as follows what do we actually do with a redemption check if the purchaser of the property refuses to accept it i know we still have a valid redemption but do we just hold on to it until they change their mind do we mail it to them by certified mail plr seems to answer this the service should deposit the funds into the district director's fund--the fund is probably called something different eg the area director's fund since the reorg the following language is from the plr is the successful evasion of the service's diligent attempts to tender a redemption check the equivalent of a refusal to accept tender our research fails to disclose any case law involving redemption by the service under sec_7425 where a party willing and able to do so offers to pay another a sum of money and is told that it will not be accepted the offer is a tender without the money being produced the court stated that it had taken this same view in many previous cases in guthrie the plaintiff's actions in attempting to redeem from the purchaser or his lawyer were frustrated as just stated guthrie dealt with redemptions from distraint sales under sec_6337 rather than redemptions from nonjudicial sales pursuant to sec_7425 however based upon the rationale set forth by the tenth circuit in guthrie we are of the opinion that with respect to sec_7425 redemptions the successful evasion of the service's diligent attempts to tender a redemption check is tantamount to the refusal to accept tender with the result that redemption should be deemed to have been accomplished as you have indicated in your memorandum irm permits the service in the event it is unable to accomplish tender of the redemption check to deposit that check into the district director's account we believe the purpose behind this provision is to establish that there was an actual tender of the redemption funds by documenting and segregating this money into a separate_account and not returning it back into the revolving fund evidence has been established of the fact that an attempt at redemption was made we further believe that the placing of the check in the director's safe would tend to accomplish the same result but caution that the date of placement in the safe should also be documented this date should be considered to be the date of redemption which date in our opinion causes additional interest to cease to accrue as we stated in our response to your sixth question we believe that the successful evasion of the service's diligent attempts to tender a redemption check is tantamount to the refusal to accept tender the ultimate result being that redemption should be deemed to have been accomplished turner v sanchez n m p 2d does the purchaser now have the ability after we have already obtained the redemption funds and attempted to serve the redemption check on him but before the redemption certificate is recorded to pay us to release our right_of_redemption under sec_301_7425-4 or any other theory under that reg there is no time period stated for when they can request for a release service has a right to release its right_of_redemption up until the time of the filing of the certification of redemption however as per above we believe that the successful evasion of the service's diligent attempts to tender a redemption check is tantamount to the refusal to accept tender the ultimate result being that redemption should be deemed to have been accomplished turner v sanchez n m p 2d once the redemption is accomplished the purchaser no longer has the right to request the service to release its right to redemption it seems to us that the this was a redemption from a nonjudicial_sale and the right to redeem expires march i appreciate any help you can provide


internal_revenue_service department of the treasury number release date index number in re taxpayer affiliate affiliate individual a date a dear washington dc person to contact telephone number refer reply to cc intl plr-106003-00 date date legend this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the agreement and certifications described in sec_1_1503-2 with respect to affiliates and for the tax_year ended on date a additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process individual a was hired as a tax consultant to handle senior level tax compliance responsibilities however he inadvertently failed to include the dual consolidated losses of affiliates and in the dual_consolidated_loss elections for the tax_year ended on date a taxpayer is requesting relief before the failure to make the dual_consolidated_loss elections was discovered by the irs sec_301_9100-1 provides that the commissioner may grant a taxpayer a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i under the standards set forth in sec_301_9100-3 in re plr-106003-00 sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation sec_1_1503-2 fixes the time to file the agreement and certifications therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the agreement and certifications described in sec_1_1503-2 with respect to affiliates and for the tax_year ended on date a the granting of an extension of time to file the agreement and certifications is not a determination that taxpayer is otherwise eligible to make the election sec_301_9100-1 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to taxpayer sincerely allen goldstein reviewer office of the associate chief_counsel international


department of the treasury internal_revenue_service washington d c date number release date cc dom fs it a uilc internal_revenue_service national_office field_service_advice memorandum for deborah a butler assistant chief_counsel field service cc dom fs from subject accuracy-related and fraud penalties -- carryback this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer a b c d date year year year dollar_figuredollar_figuredollar_figuredollar_figuredollar_figuredollar_figurex y court issues whether the sec_6662 accuracy-related_penalty or the sec_6663 fraud_penalty may by imposed on taxpayer for the year taxable_year where the capital losses generated in year by a partnership formed by taxpayer were carried back to year by taxpayer’s amended_return which requested a refund that was not allowed by the irs conclusions the year amended_return did not generate a rebate or result in an underpayment that is subject_to the accuracy-related_penalty under sec_6662 or the fraud_penalty under sec_6663 thus the accuracy-related_penalty and fraud_penalty are not applicable to the disallowed refund amount requested in the amended_return for year facts on date taxpayer sold its wholly owned subsidiary a and related assets this sale generated a capital_gain of approximately dollar_figuredollar_figuredollar_figure in year taxpayer formed d to engage in transactions to generate phantom capital losses to offset the a gain d is one of x partnerships formed with the assistance of c as the vehicle for creating large capital losses to offset large gains through the use of the sec_453 installment_sales provisions in year d claimed a capital_loss of dollar_figuredollar_figure at that time taxpayer and its wholly owned subsidiary b a member of taxpayer‘s consolidated_group held more than a y percent interest in d taxpayer claimed a tax loss of dollar_figuredollar_figurefor year and filed an amended year return carrying the loss back to year based on a court opinion in only dollar_figureof that loss was allowed the service did not act upon taxpayer’s refund claim presumably because it stemmed from a tefra partnership that was under audit the transcript of account for taxpayer also reflects no activity relating to the carryback claim law and analysis for returns due after date sec_6662 imposes an accuracy-related_penalty on any portion of an underpayment attributable to misconduct set forth in sec_6662 the amount of the penalty is percent of the portion of the underpayment resulting from the misconduct the penalty is increased to percent in the case of a gross_valuation_misstatement sec_6662 the accuracy-related_penalty for negligence disregard of rules or regulations a substantial_understatement or a substantial or gross_valuation_misstatement applies to any portion of an underpayment for a year to which a loss deduction or credit is carried when the portion is attributable to negligence disregard of rules or regulations a substantial_understatement or a substantial or gross_valuation_misstatement in the year in which the carryback or carryover of the loss deduction or credit arises the loss or credit_year sec_1_6662-3 sec_1_6662-4 sec_1_6662-5 the percent accuracy- related penalty is imposed on any portion of an underpayment for a carryback_year the return for which is due without regard to extensions before date if that portion of the underpayment is attributable to negligence disregard of rules or regulations a substantial_understatement or a substantial_valuation_misstatement in a loss or credit_year and the return for the loss or credit_year is due without regard to extensions after date sec_1_6662-3 sec_1_6662-4 sec_1_6662-5 similarly the percent accuracy-related_penalty is imposed on any portion of an underpayment for a carryback_year the return for which is due without regard to extensions before date if that portion of the underpayment is attributable to a gross_valuation_misstatement in a loss or credit_year and the return for the loss or credit_year is due without regard to extensions after date sec_1_6662-5 sec_6663 provides for the imposition of a penalty for fraud the fraud_penalty imposed at the rate of percent applies to the portion of an underpayment attributable to fraud sec_6663 a deficiency is due to fraud where it is caused by the carryback or carryover of a fraudulent loss see eg 923_f2d_1005 2d cir it can be concluded from the language of sec_6662 and sec_6663 that an underpayment is a prerequisite to imposition of the penalty thereunder in the case of income taxes imposed under subtitle a an underpayment for purposes of the fraud_penalty as well as the accuracy-related_penalty means the amount by which any income_tax imposed exceeds the excess of the sum of the amount shown as the tax by the taxpayer on his return and the amounts not so shown but either previously assessed or collected without assessment over the amount of rebates sec_6664 sec_1_6664-2 the term rebate means so much of an abatement credit refund or other repayment as was made on the ground that the tax imposed was less than the excess of the amount shown as the tax by the taxpayer on his return and amounts not so shown previously assessed or collected without assessment over rebates previously made the definition of rebate for purposes of sec_6662 and sec_6664 is similar to the definition of rebates under sec_6211 b for purposes of determining a tax_deficiency under sec_6211 sec_301_6211-1 courts have found that a rebate was generated when the irs has recalculated a taxpayer’s tax_liability and issued a tax_refund or credit for a given year as a result of an amended_return filed or tentatvie carryback adjustment claimed by a taxpayer see eg 78_tc_100 and 97_tc_704 in pesch where a tentative_carryback_adjustment resulted in a tax_refund the tax_court held that such tax_refund was a rebate under sec_6211 similarly in baldwin the tax_court held that a credit against unpaid taxes that is allowed as a result of a tentative_carryback_adjustment for a net_operating_loss under sec_6411 constitutes a rebate within the meaning of sec_6211 courts have not found that a rebate was generated where the irs rejected an amended_return or a tentative_carryback_adjustment and did not issue a tax_refund or credit see eg fayeghi v commissioner tcmemo_1998_297 and dover corporation v commissioner tcmemo_1997_339 aff’d per curiam 148_f3d_70 2d cir in fayehi the commissioner did not accept taxpayers’ amended_return which reflected that the correct_tax liability was less than the tax reflected on the original return in rejecting taxpayers’ effort to bar collection of the difference between the tax_liability reported on the original return and the tax_liability reflected on the amended_return on the ground that the amount was a rebate that caused a tax_deficiency the tax_court agreed with the commissioner that rejection of a claim_for_refund or abatement in an amended_return does not convert the disallowed claim into a deficiency similarly in dover the tax_court held that the commissioner’s rejection of a corporation’s amended returns for two tax years which were filed after the issuance of the notice_of_deficiency for those years did not convert the disallowed claims for refund into deficiencies for those years in the instant case the irs rejected taxpayer’s amended_return as a result the irs did not recalculate or reduce taxpayer’s year liability or issue a refund_or_credit to taxpayer on the basis that the tax reported was less than the correct amount of tax as a consequence the year amended_return did not generate a rebate or result in an underpayment that is subject_to the accuracy-related_penalty under sec_6662 or the fraud_penalty under sec_6663 thus the accuracy-related and fraud penalties are not applicable to the disallowed refund amount requested in the amended_return for year case development hazards and other considerations if you have any further questions please call willie e armstrong jr at by thomas d moffitt senior technician reviewer income_tax and accounting branch


t c summary opinion united_states tax_court eric d walker and lynn walker petitioners v commissioner of internal revenue respondent docket no 7566-06s filed date eric d walker pro_se brian a pfeifer for respondent carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 pursuant to sec_7463 the decision to be entered is not reviewable by any unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended in effect for the relevant period other court and this opinion shall not be cited as precedent for any other case in a notice_of_deficiency issued to petitioners on date respondent determined a dollar_figure deficiency in and a dollar_figure sec_6662 accuracy-related_penalty with respect to petitioners’ federal_income_tax the issues for decision are whether petitioners are entitled to certain trade_or_business expense deductions some claimed on a schedule a itemized_deductions and some claimed on a schedule c profit or loss from business and whether petitioners are liable for the accuracy-related_penalty background some of the facts have been stipulated and are so found petitioners married on date they filed a timely joint federal_income_tax return for that year at the time the petition was filed they resided in florida eric d walker petitioner is an electrician who at all times relevant was a member of local of the international brotherhood of electrical workers ibew local is located in atlanta georgia but petitioner did not work within the jurisdiction of local or anywhere within the state of georgia during instead he traveled repeatedly up and down the east coast from massachusetts to florida in search of or in connection with available union-based employment opportunities ibew procedures required that he announce his availability for employment in any given location by visiting the local chapter of the ibew and signing whatever paperwork was required this procedure had to be repeated periodically as long as petitioner was unemployed which he was during part of and continued to look for jobs although he actively sought employment using the process described above throughout petitioner was employed only from time to time from may through date and only for various employers in new jersey while working in new jersey petitioner stayed in a ymca or in a rented house petitioner spent days in new jersey during including those days when he was present there either working or looking for work following his marriage in march petitioner spent only days in georgia lynn walker lived with her mother in florida during both before and after petitioners were married petitioner spent a fair amount of time in florida during that year as of the end of date petitioner considered that his residence was in florida petitioner was in florida days during january days during february days during march days during april days during june days during september days during november and all of december petitioners’ self-prepared joint federal_income_tax return was timely filed that return includes a schedule c and a schedule a the schedule c identifies the business as spinal connection rehab and wellness and shows the proprietor as lynn walker there is no income reported on the schedule c and various deductions totaling dollar_figure result in a net_loss in that amount which is claimed as a deduction on petitioners’ return as relevant here on the schedule a petitioners claimed a dollar_figure unreimbursed employee_business_expense deduction most of which is attributable to meals_and_lodging expenses petitioners also claimed a dollar_figure loss from an s_corporation on their return that loss is identified as a nonpassive loss from a schedule_k-1 issued to petitioners by spinal connection rehab and wellness in the above-referenced notice_of_deficiency respondent disallowed the deduction for the net_loss reported on the schedule c disallowed a portion of the unreimbursed employee_business_expense deduction claimed on the schedule a allowed the standard_deduction applicable to petitioners’ filing_status as the remaining itemized_deductions respondent allowed totaled less than the standard_deduction and imposed an accuracy- the itemized_deductions otherwise allowed are taxes--dollar_figure gifts to charity--dollar_figure and miscellaneous deductions including unreimbursed employee business expenses--dollar_figure before the application of sec_67 related penalty under sec_6662 upon the ground that among other reasons the underpayment_of_tax required to be shown on petitioners’ return is a substantial_understatement_of_income_tax other adjustments made in the notice_of_deficiency are computational or have been agreed upon by the parties discussion deduction for net_loss claimed on the schedule c petitioners now agree that they are not entitled to a deduction for the net_loss shown on the schedule c although less than certain it appears that the expenses that generated the loss might have been duplicated in the loss claimed from the above-referenced s_corporation that loss has not been disallowed disallowed portion of the employee_business_expense deduction according to the notice_of_deficiency the portion of the employee business_expenses deduction attributable to travel meals_and_lodging was disallowed because respondent determined that those expenses if paid_or_incurred were not paid_or_incurred while petitioner was traveling away from home in pursuit of his employment according to respondent petitioner maintained no fixed place of abode or business locality consequently each place where petitioner worked became his principal_place_of_business and tax_home according to petitioner his residence and tax_home at least until the end of date was in stockbridge georgia where he lived with his brother in his brother’s house petitioner now acknowledges that amounts claimed on hi sec_2002 return for lodging were overstated but claims entitlement to a portion of the claimed deduction for lodging and the entire claimed deduction for meals expenses_incurred by an individual for meals_and_lodging are normally considered nondeductible personal or living_expenses sec_262 on the other hand expenses paid_or_incurred for meals_and_lodging if properly substantiated are deductible if paid_or_incurred by an individual while traveling away from home in pursuit of the individual’s trade_or_business sec_162 sec_274 in this regard the reference to the individual’s trade_or_business includes the trade_or_business of being an employee 91_tc_352 and the reference to the individual’s home means the individual’s tax_home henderson v commissioner tcmemo_1995_559 affd 143_f3d_497 9th cir in general the location of an individual’s tax_home is the location of his or her principal place of employment 72_tc_190 affd 662_f2d_253 4th cir if during the taxable_year the individual has no principal place of employment this court considers the individual’s permanent place of residence to be his or her tax_home 69_tc_920 if an individual has no principal place of employment or permanent residence during the taxable_year then this court considers that individual to have no tax_home from which the individual can be away from for purposes of deducting meals_and_lodging expenses otherwise deductible under sec_162 61_tc_855 petitioner’s profession and status as an ibew member required that he seek and or accept employment on a temporary basis in various locations during he had no principal_place_of_business during that year whether petitioner had a permanent place of residence during is questionable if he did then it was at his brother’s house only up until the date of his wedding on march and it was in florida at some point starting in november the meals_and_lodging expense deductions here in dispute relate to the period between those dates and the record does not support a finding that he paid_or_incurred any living expense in connection with his brother’s house or any other permanent place of residence while at the same time he was present and working in new jersey or elsewhere see kroll v we disagree with the suggestion made in the notice_of_deficiency that new jersey was petitioner’s tax_home during his employment there was clearly temporary this distinction however makes no difference to whether petitioner is entitled to deduct expenses for meals_and_lodging while working in new jersey commissioner 49_tc_557 noting that the purpose of sec_162 is to mitigate the burden of the taxpayer who because of the exigencies of his trade_or_business must maintain two places of abode and thereby incur additional and duplicate living_expenses because petitioner had neither a principal permanent place of residence nor a principal place of employment during the period to which the deductions for meals_and_lodging expenses relate he is not considered to have a tax_home for that period because the deductions for meals_and_lodging expenses relate to a period for which petitioner had no tax_home he is not entitled to those deductions respondent’s disallowance of the portion of the employee_business_expense deduction attributable to amounts for meals_and_lodging is sustained respondent acknowledges that petitioner is entitled to tolls and vehicle expenses_incurred in connection with his search for employment during the amounts already allowed for such expenses exceed the amounts petitioners substantiated and when taken into account with other itemized_deductions allowed or not challenged do not exceed the dollar_figure standard_deduction applicable to petitioners’ filing_status see sec_63 and c it is unnecessary therefore to consider petitioners’ entitlement to such deductions any further and respondent’s allowance of the standard_deduction in lieu of the itemized_deductions otherwise claimed and not disallowed is sustained the sec_6662 accuracy-related_penalty sec_6662 imposes an accuracy-related_penalty of percent of any portion of an underpayment_of_tax if among other reasons the underpayment is attributable to a substantial_understatement_of_income_tax sec_6662 d an understatement of income_tax is a substantial_understatement_of_income_tax if it exceeds the greater of dollar_figure or percent of the tax required to be shown on the taxpayer’s return sec_6662 ignoring conditions not relevant here for purposes of sec_6662 an understatement is defined as the excess of the amount of the tax required to be shown on the taxpayer’s return over the amount of the tax which is shown on the return sec_6662 in this case the understatement of income_tax is computed in the same manner as and is equal to the deficiency in dispute that is dollar_figure see sec_6211 sec_6662 under sec_7491 respondent has the burden of production with respect to the accuracy-related_penalty under sec_6662 to meet that burden respondent must come forward with sufficient evidence to show that imposition of the penalty is appropriate see 116_tc_438 we have sustained or petitioners have ten percent of the tax required to be shown on petitioners’ return is dollar_figure conceded the adjustments in the notice_of_deficiency that give rise to the deficiency respondent has satisfied his burden of production under sec_7491 with respect to the accuracy- related penalty under sec_6662 determined in the notice_of_deficiency because the underpayment_of_tax exceeds dollar_figure the accuracy-related_penalty does not apply to any part of an underpayment_of_tax if it is shown the taxpayer acted with reasonable_cause and in good_faith sec_6664 the determination of whether a taxpayer acted in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs petitioners bear the burden of proving that they had reasonable_cause and acted in good_faith with respect to the underpayment see higbee v commissioner supra pincite this they have failed to do respondent’s imposition of the sec_6662 accuracy- related penalty is sustained to reflect the foregoing decision will be entered for respondent