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 intl b03 plr-143939-12 date date legend taxpayer -------------------------------------------------------------------------------- dear --------------------------------------------------------- this is in response to a letter dated date as well as additional subsequent communications that was submitted on your behalf by your authorized representative taxpayer requests a ruling that it may elect to retroactively change for its taxable years through 20----from the tax book_value tbv method to the alternative_tax book_value atbv method of asset valuation for purposes of apportioning interest_expense the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination taxpayer is a domestic_corporation and the parent of a group of affiliated corporations that files a consolidated u s federal_income_tax return taxpayer represents that on its tax returns for taxable years through it used the tbv method pursuant to temp sec_1_861-9t to apportion its interest_expense deductions including for purposes of sec_199 and sec_904 taxpayer represents further that for its taxable_year it elected to use the atbv method as described in sec_1_861-9 to apportion its interest_expense sec_864 of the internal_revenue_code provides that a ll allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income see also temp sec_1_861-8t sec_1_861-9 through and temp sec_1_861-9t through 861-12t set forth the plr-143939-12 rules specific to the apportionment of interest_expense temp sec_1 9t g ii provides that a taxpayer may elect to determine the value of its assets on the basis of either the tax book_value or the fair_market_value of its assets special rules permitting the use of the atbv method are set forth in sec_1_861-9 sec_1_861-9 states that except as provided in that paragraph a taxpayer may elect to use the atbv method with respect to any taxable_year beginning on or after date the only exception provided in that paragraph is that pursuant to temp sec_1_861-8t a taxpayer that has elected the fair_market_value_method must obtain the permission of the commissioner prior to electing the atbv method any election to use the atbv method under sec_1 i i applies to all subsequent taxable years of the taxpayer unless revoked by the taxpayer revocation of such an election other than in conjunction with an election to use the fair_market_value_method for a taxable_year prior to the sixth taxable_year for which the election applies requires the consent of the commissioner see sec_1_861-9 example taxpayer requests a ruling that it may elect to retroactively change for its taxable years 20----through including by filing amended returns for those years from tbv method to the atbv method of asset valuation for purposes of apportioning interest_expense under sec_1_861-9 a retroactive change by filing amended returns for affected years from the tbv method to the atbv method is permitted accordingly taxpayer may elect to retroactively change for its taxable years through by filing amended returns for those years from the tbv method to the atbv method of asset valuation for purposes of apportioning interest_expense for all purposes of the internal_revenue_code including sec_199 and sec_904 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to taxpayer sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-143939-12 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely anne o'connell devereaux senior technical reviewer branch office of associate chief_counsel international


internal_revenue_service number release date index no re ein- legend department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-105103-99 date trust grandparent grandparent daughter trust a beneficiary trustee date date date x corporation charity a dear this is in response to your letter dated date in which you requested a ruling regarding the application of the generation-skipping_transfer gst tax provisions of chapter of the internal_revenue_code specifically you requested a ruling that the exempt status of trust a for gst tax purposes would not be affected by the following i the trustee’s consent to corporation’s s election on behalf of trust a ii the trustee’s execution of an electing_small_business_trust election on behalf of trust a and iii the trustee’s execution of the shareholder agreement on behalf of trust a according to your submission on date grandparent transferred x to trust an irrevocable_trust pursuant to article of trust trust was immediately divided into four separate trusts of equal value for the benefit of grandparent 1's four children including daughter article a of the trust agreement provides that the trustee shall pay to each beneficiary for whom a_trust is named plr-105103-99 and his or her descendants or any one or more of them such part or all of the income and principal of the trust even though exhausting the trust at such time or times and in such equal or unequal proportions among them as the trustee shall decide considering the needs best interests and welfare of such beneficiary and his or her descendants in that order and as a group any undistributed_income of a_trust shall be accumulated and from time to time added to principal article c provides that if a beneficiary for whom a_trust is named dies before the complete distribution of that trust then on the death of such beneficiary the principal of that trust shall be distributed to or for the benefit of such of the beneficiary’s descendants then living or thereafter born in such proportions and subject_to such trusts powers and conditions as such beneficiary may provide and appoint by will specifically referring to this power to appoint pursuant to article d any part of a_trust not effectively disposed of by any other provisions shall be divided and allocated on the death of the beneficiary for whom such trust is named per stirpes among the then living descendants of such beneficiary if any if there are no living descendants of the beneficiary the portion of the trust not effectively disposed of will be divided and allocated per stirpes among the then living descendants of the nearest lineal ancestor of the beneficiary who also is a descendant of grandparent and of whom one or more descendants then are living or if none per stirpes among the then living descendants of grandparent each share allocated to a beneficiary for whom a_trust is named shall be added to that trust and each share allocated to any other beneficiary shall be retained in trust as a separate trust named for him or her and disposed of as provided in article of trust article e of the trust agreement states that notwithstanding any other provisions in the trust agreement no property shall be retained in a_trust created under trust or pursuant to the exercise of any power_of_appointment under trust for more than twenty-one years after the death of the last to die of the descendants of grandparent who were living on date each trust if any still retained in trust at the end of that period shall be distributed immediately to the beneficiary for whom the trust is named article provides that any part of the trust property or any separate trust not effectively disposed of by article shall be distributed to charity a daughter died on date without having exercised her limited testamentary_power_of_appointment over the property held in trust for her benefit accordingly the corpus of daughter’s plr-105103-99 trust was distributed equally to three trusts established for the benefit of daughter’s descendants including trust a for the benefit of beneficiary and his descendants the primary asset of trust a is stock in corporation a c_corporation the corporation’s board_of directors proposes to elect to treat corporation as a small_business_corporation an s_corporation trustee proposes to consent to the s election in order to convert corporation to an s_corporation each of its shareholders must be eligible to hold s_corporation stock as of the first day of the year for which the election is to take effect trustee proposes to make an election under sec_1361 to treat trust a as an electing_small_business_trust so that it will qualify as an eligible s_corporation shareholder in an effort to ensure the continuing qualification of corporation as an s_corporation trustee intends to enter into a shareholder agreement with corporation and corporation’s other shareholders to protect the s election under the sec_3 of the proposed shareholder agreement no shareholder may transfer and no person may acquire the legal or beneficial_ownership of any share if such transfer or acquisition would cause the s status of the corporation to terminate specifically no transfer may be made to any person that is not eligible to be a shareholder of an s_corporation under the applicable provisions of the code as in effect at the time of the purported transfer in addition no shareholder may affirmatively transfer shares to a person if the transfer would cause the corporation to exceed the maximum number of persons who are allowable s_corporation shareholders sec_3 of the proposed shareholder agreement provides that no shareholder shall make any transfer of shares to any trust having multiple beneficiaries or amend any trust that owns shares to increase the number of beneficiaries unless all such beneficiaries are persons eligible to be transferees pursuant to sec_3 and immediately after such transfer or amendment the number of shareholders the corporation is deemed to have for purposes of sec_1361 would not exceed the maximum number of persons who are allowable s_corporation shareholders pursuant to that section notwithstanding any other provision of the shareholder agreement the shareholders and the corporation acknowledge and agree in sec_3 that none of the following shall be prohibited by the terms of the shareholder agreement i the addition of a_trust beneficiary due to the birth of an additional descendant of grandparent ii the exercise of a power_of_appointment granted to a beneficiary pursuant to the terms of any irrevocable_trust that is in existence on the date of the plr-105103-99 agreement and that owns shares iii the transfer of shares to any person in whose favor a power_of_appointment described in ii above is exercised or iv the distribution of shares to a a beneficiary of any irrevocable_trust that is in existence on the date of the agreement and that owns shares pursuant to the terms thereof or b to the beneficiary of any trust created pursuant to the exercise of a power_of_appointment described in ii above even if such addition exercise or distribution shall cause the termination of the corporation’s s election sec_3 provides that prior to any transfer or other_disposition of shares if the corporation in its discretion so requires an opinion of counsel to the corporation must first be received by the corporation the cost of which shall be borne by the shareholder whose shares are to be transferred or disposed of that the transferee is i eligible to be a shareholder of an s_corporation in accordance with the applicable_requirements of the code or ii that the transfer otherwise is allowable pursuant to the provisions of the shareholder agreement in addition to the other requirements of sec_3 of the shareholder agreement sec_3 provides that no transfer of shares including without limitation transfers pursuant to sec_3 shall be permitted and no purported transfer shall be effective until a permitted transferee has executed a supplemental signature page to the shareholder agreement all parties agree that upon execution and acceptance of a supplemental signature page the shareholder agreement shall be amended and the transferee shall have the rights and obligations of a shareholder under the agreement sec_3 of the shareholder agreement provides that shareholders possessing of the total voting power of all outstanding shares may at any time and from time to time agree in writing to authorize or ratify any transfer of shares which would otherwise not be permitted by the shareholder agreement in which event the transfer shall be deemed for all purposes to comply with the shareholder agreement notwithstanding any other provision of the agreement under sec_3 if a transfer of shares is required to be made pursuant to sec_3 iii or iv to a transferee who is not already a shareholder and who has not previously executed or currently refuses to execute a supplemental signature page to the shareholder agreement a non- consenting transferee certain procedures will apply the shareholders may allow the transfer of shares to the non- consenting transferee pursuant to the procedure set forth in sec_3 otherwise the shares that otherwise would be transferred to the non-consenting transferee shall instead be plr-105103-99 redeemed by the corporation for a price equal to the fair_market_value of the shares as of the valuation_date pursuant to sec_5 of the proposed shareholder agreement any purported transfer in violation of the shareholder agreement shall not affect the beneficial or legal ownership of shares section of the agreement states that subject_to any limitations on dividends or other distributions imposed by statute the corporation shall make pro_rata dividend distributions of money based on ownership of shares to pay the federal state and local income_tax on the income and gain of the corporation net of any_tax benefits produced for the shareholders by the corporation’s losses deductions and credits for the current_year and for each prior year during which the corporation’s s election was in effect that passes through to the shareholders under the applicable provisions of the code in respect of each taxable_year or portion thereof of the corporation for which its s election is in effect section of the proposed shareholder agreement provides that the corporation shall a not issue more than one class of shares b use its best efforts to avoid a termination of its s election and c in the event of a termination of the s election use its best efforts to distribute to each shareholder such shareholder’s net share of the corporation’s undistributed_taxable_income for all taxable years for which the s election was in effect to the extent permitted by law and consistent with the obligations of the corporation to creditors agreements to which the corporation is a party and other business considerations within the period when such a distribution will be considered a non-dividend distribution under sec_1371 section of the proposed shareholder agreement states that if the corporation’s status as an s_corporation is terminated inadvertently and the corporation wishes to obtain a ruling under sec_1362 each shareholder agrees to make any adjustments required pursuant to sec_1362 and approved by the corporation’s board_of directors a shareholder’s obligation to make such adjustments shall continue after the shareholder has ceased to own shares in the corporation and after the shareholder agreement has terminated except as directed by the shareholder agreement the existing trustee will continue to serve in the same manner as it previously served in addition trust a will continue to be administered in accordance with the terms and conditions set forth in trust sec_2601 imposes a tax on every generation-skipping_transfer sec_26_2601-1 of the generation-skipping plr-105103-99 transfer_tax regulations provides that the gst tax applies to any generation-skipping_transfer made after date sec_26_2601-1 provides an exception to this rule for any distributions from a_trust that was irrevocable on date however this exception does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust where additions were made to the trust after date in addition a modification to a_trust that results in a change in the quality value or timing of any beneficial_interest provided for under the trust instrument will cause the trust to lose its exempt status sec_26_2601-1 provides that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides a special rule for certain powers of appointment this section provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if- such power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise such power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years sec_2041 provides that the term general_power_of_appointment means a power that is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate in the present case it has been represented that trust a was irrevocable on date and that there have been no additions constructive or otherwise to trust a after that date based on the representations made and the facts submitted we conclude that there is no change in the quality value or timing of any beneficial_interest in trust a resulting from the plr-105103-99 following i the trustee’s consent to corporation’s proposed s election ii the trustee’s election to treat trust a as an electing_small_business_trust and iii the trustee’s execution of the proposed shareholder agreement therefore items i - iii above will not cause trust a to lose its exempt status with respect to the gst tax provided that there are no additions constructive or otherwise to trust a after date distributions from trust a to skip persons will not be subject_to the gst tax except as specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions of the code or under any other provisions of the code specifically we express no opinion on whether trust a will qualify as an electing_small_business_trust within the meaning of sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date cc dom fs fi p number release date tl-n-7506-98 uilc internal_revenue_service national_office field_service_advice memorandum for district_counsel from deborah a butler assistant chief_counsel field service cc dom fs subject mutual_fund distributor’ sec_12b-1 fee income and commission expenses 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 a b c d e f g h i j k l m tl-n-7506-98 n p issue sec_1 whether a mutual_fund distributor using the accrual_method of accounting should include the fees earned with respect to mutual_fund shares in the year that the shares are issued or in the year the fees are received whether a mutual_fund distributor using the accrual_method of accounting may deduct commissions paid to broker dealers with respect to the issuance of mutual_fund shares in the year the commissions are paid_or_incurred conclusion sec_1 the 12b-1 fees at issue cannot be reasonably estimated at the time the shares are sold thus they cannot be accrued into income until actually paid to the distributor further factual development is necessary to answer this question facts we ask that you further develop the facts in this case further factual development may establish that the facts used herein are incorrect a the taxpayer is the distributor of approximately g mutual funds sponsored and advised by various banks and investment advisors the taxpayer is a registered broker-dealer pursuant to the securities exchange act of u s c sec_78a et seq and is a member of the national association of securities dealers b is registered as an open-end management investment_company pursuant to the investment_company act of u s c sec_80a-1 et seq the act and is the sponsor of approximately f different series of mutual funds as a registered investment_company b is not permitted to directly or indirectly finance the distribution of its mutual funds except under a plan adopted pursuant to c f_r sec_270 12b-1 rule 12b-1 promulgated pursuant to sec_12 of the act furthermore as a p c the parent of b for regulatory purposes may not act as the distributor of mutual funds tl-n-7506-98 b and the taxpayer entered into a distribution services agreement agreement a plan adopted pursuant to rule 12b-1 a rule 12b-1 plan under the agreement b appointed the taxpayer as the distributor of the mutual funds to sell the shares to the public the taxpayer markets and merchandises the shares trains and supervises its registered representatives reviews advertisements and sales literature for compliance with various securities laws and qualifies the shares for sale under the securities laws of the various states as distributor the taxpayer is required to use its best efforts to sell the shares and to conform with the requirements of all federal and state laws under the agreement the taxpayer receives fees 12b-1 fees to help finance the costs of marketing the shares b calculates the 12b-1 fees and distributes the fees to the taxpayer on a monthly basis because a mutual fund’s net asset value nav changes daily the 12b-1 fees cannot be precisely calculated at the time the shares are sold the 12b-1 fees reduce b’s earnings b offers class a and class b mutual_fund shares for sale to and issues the shares directly to investors the only commission expenses at issue are those relating to the class b shares to purchase the class b shares the investor can either contact b directly or can purchase the shares through an independent broker- dealer or other financial_institution when the investor contacts b directly the investor is referred to a broker-dealer associated with b usually e which will be the investor’s broker-dealer an investor who purchases shares directly from b can either mail a check to e payable to b or he may wire money to d the transfer agent transfer agent the investor never writes a check payable to the taxpayer the investor must also send to b a completed account application the shareholder of record will be the investor if he purchases shares directly from b when an investor contacts b directly by calling the b telephone number the investor will speak with an individual who is identified as a registered_representative of the taxpayer this individual is actually an employee of the transfer agent an investor who purchases shares from an independent broker-dealer pays for the shares by sending a check to the broker-dealer payable to the broker-dealer an investor also may use a bank or other financial_institution to purchase shares either the investor or the broker-dealer may be the shareholder of record the broker-dealer completes all of the investor’s paperwork and informs the transfer agent of the purchase the transfer agent records the trade in b’s records and informs the taxpayer of the trade e or an independent broker-dealer forwards the payment to the transfer agent and the transfer agent sends the tl-n-7506-98 money to the b custodian account the transfer agent issues a confirmation sheet to the investor for the purchase b then issues the class b shares to the investor pursuant to the terms of the agreement shares purchased by the taxpayer are to be resold by the taxpayer to investors at the public offering price the taxpayer has the following rights to buy from the trust b the shares needed to fill unconditional orders for unsold shares of the funds as shall then be effectively registered under the securities act placed with the taxpayer by investors or securities dealers or depository institutions or other financial intermediaries acting as agent for their customers alternatively the taxpayer may act as the trust’s b’s agent to offer and to solicit offers to subscribe to unsold shares of the funds the investor must pay the following to purchase the class a shares an amount equal to the average daily nav of the shares of the mutual_fund an initial sales charge and a 12b-1 fee the broker-dealer receives the initial sales charge and the taxpayer receives the 12b-1 fees typically the 12b-1 fee equals h of the nav of the mutual_fund attributable to those shares the fees are not calculated based upon the taxpayer’s actual costs incurred in marketing and distributing the mutual_fund shares to purchase the class b shares the investor must pay an amount equal to the nav of the shares and a 12b-1 fee the investor pays no upfront sales charge but upon redemption of the shares he will be subject_to a contingent deferred sales charge cdsc if he held the shares fewer than seven years the 12b-1 fee for the class b shares typically j of the average daily nav attributable to those shares consists of a distribution servicing fee equal to i of the average daily nav and a maintenance fee equal to h of the average daily nav upon redemption of class a or class b shares the investor must either send the transfer agent the redemption order or call the transfer agent the transfer agent redeems the shares for the investor the cdsc is equal to a percentage of the lesser_of either the original purchase_price of the class b shares or the nav of the class b shares at the time of redemption the percentage of the cdsc declines from k in the first two years after the purchase of the class b shares to l in the seventh year after the purchase of the shares after seven years the class b shares automatically convert to class a shares and the investor is no longer liable for the cdsc tl-n-7506-98 the aggregate amount of fees and cdscs received by the taxpayer for any class of shares of any mutual_fund is limited by the agreement and cannot exceed m of the total issue_price plus interest plus an additional n per year both b and the taxpayer can terminate the agreement at any time upon days’ written notice the rule 12b-1 plan can also be terminated if the rule 12b-1 plan is terminated other than by a complete termination the taxpayer will continue to receive its allocable portion of the 12b-1 fees and the cdscs until the earlier of either four years after the date of the contract cancellation or such time as there exist no outstanding amounts due to the taxpayer a complete termination occurs when the directors have determined it is in the best interests of the shareholders and of the mutual_fund upon complete termination the cdsc is not altered the mutual_fund does not pay the 12b-1 fee to another party and the fund does not adopt another rule 12b-1 plan for a similar class of shares if there is a complete termination of the taxpayer’s contracts the taxpayer will be paid only the cdscs the taxpayer uses the accrual_method of accounting the taxpayer treats the 12b- fees as income in the year the taxpayer receives them the taxpayer treats the commissions it pays to the broker-dealer as ordinary and necessary business_expenses and currently deducts them law and analysi sec_1 timing of income for fees earned the 12b-1 fees are paid to the taxpayer monthly and are computed and accrued daily as a percentage of the average daily nav of the mutual_fund the taxpayer in some instances also receives cdscs the agreement provides that the taxpayer will be deemed to have fully earned its distribution fees upon the sale of shares for tax purposes both of these sources of income are included in income in the year received the request for assistance focuses only on the timing of income for the 12b-1 fees sec_451 provides that the amount of any item_of_gross_income shall be included in gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-1 provides that under an accrual_method of accounting_income is includible in gross_income when all the events have occurred that fix the right to receive income and the amount of the income can be determined with reasonable accuracy the all_events_test see also sec_1 tl-n-7506-98 c ii a all the events that fix the right to receive income occur when the required performance takes place payment is due or payment is made whichever happens earliest see 372_us_128 rev ruls 1984_1_cb_127 and 1980_2_cb_162 in this case because the taxpayer is deemed to have earned the distribution fee upon the sale of the shares all events fixing the taxpayer’s right to receive the distribution fee income occurs when the shares are sold notwithstanding that distribution services may be performed after the sale occurs a case involving a similar issue is 107_tc_282 aff’d 161_f3d_1231 9th cir cert_denied 120_sct_67 in schwab the issue was the timing of commission income for stock sales the trade_date is the day a trade occurs and is the day on which a customer’s order is executed by locating a seller or purchaser for securities subsequent to trade execution taxpayer performs functions of recording figuration confirmation comparison and booking the settlement occurs on the date that payment is transferred from buyer to seller and certificates from seller to buyer taxpayer argued that its commission was earned upon delivery of the securities and payment of the purchase_price which is the settlement_date it argued that the acts performed subsequent to the trade_date were integral parts of the service for which it is paid a commission and represents a substantial percentage of the brokerage services provided respondent argued that the execution of the order on the trade_date was the essential service and marks the time at which taxpayer’s right to receive and the customer’s obligation to pay the commission arose actions remaining to be performed after the trade_date are ministerial and effectuate the mechanics of the transfer and merely confirm the trade executed the court agreed that the income fixing event was the execution of a trade and the subsequent functions effectuating the mechanics of the transfer and confirmation of the trade were ministerial acts t c pincite the possibility that a trade might not be settled was a condition_subsequent to the trade execution which was the event fixing the right to commission income id citing 198_f2d_214 2d cir aff’g in part and rev’g in part 16_tc_882 the second prong of the all_events_test requires that the amount of the income be determined with reasonable accuracy that is estimates for purposes of the all_events_test must be made with facts and procedures available to the taxpayer at the end of the taxable_year and whether the estimate is reasonably accurate depends on the validity and reliability of the methodology used in making the estimate 750_f2d_1466 9th cir discussing the all_events_test for accrued deductions under sec_461 accrual of income is not required and is prohibited for deductions if the full amount cannot be determined with reasonable accuracy thus where it is obvious that some amount will be paid to the taxpayer as a result of a transaction but the full amount has yet to be determined accrual of some arbitrarily determined amount is not required for example if an accrual_method taxpayer using a calendar_year provides services to his client during december and january with the charge to be determined after all services have been rendered no amount of income will be accrued at the end of the first year even though it is obvious that the december services alone entitle the taxpayer to some amount of income stephen f gertzman federal tax_accounting 2d ed see also kinkead v commissioner 35_tc_152 acq 1961_2_cb_4 no amount of service income accruable at end of taxpayer’s taxable_year where amount to be paid was to be determined by payor two months later based on what was fair and reasonable for the services rendered the measure of income depended upon future events and contingencies similarly a reasonably accurate determination of the amount can not be made where the amount is determined by reference to the value of stock that fluctuates significantly see revrul_72_32 1972_1_cb_48 in this case the fsa request states that 12b-1 fees are based on daily nav and how long shares will be outstanding neither of which are determinable in advance yet it is suggested that the taxpayer may have in its own books_and_records data that will permit it to predict changes in the net asset value of its mutual funds and to predict how long shares will be outstanding this view is based on 286_us_290 income to be received can be determined with reasonable accuracy when the taxpayer has in its own books and accounts data to which it can apply the calculations required to make a reasonable estimate of the amount but the books_and_records at issue in continental tie were needed to calculate operating income for two periods of time the court recognized that some degree of exercise of opinion and judgment was involved id pincite b ut in spite of these inherent difficulties we think it was possible for a carrier to ascertain with reasonable accuracy the amount of the award to be paid_by the government id pincite the petitioner had instructions issued by the commission of the method to be followed in allocating charges to operation during periods under inquiry it does not appear that a proper effort would not have obtained a result approximately in accord with what the commission ultimately found the books and accounts fixed the maximum amount of any probable award and if petitioner had endeavored tl-n-7506-98 to make reasonable adjustments of book figures it could have arrived at a figure to be accrued for the year id pincite we believe that the estimate required in continental tie is far more predictable than attempting to predict the nav of mutual funds based on the stock market which obviously fluctuates greatly based on many types of worldwide social and economic events which are entirely unpredictable we do not view continental tie as authority for requiring income accrual under the facts of this case deduction of sales commissions a is the distributor a dealer_in_securities is capitalization required the first issue to be resolved is whether the distributor is a dealer_in_securities within the meaning of sec_1_263_a_-2 if the distributor is a dealer then the commissions may be deducted in the year paid_or_incurred otherwise the deductibility of those expenditures is dependent upon whether the expenditures result in the creation or enhancement of a separate and distinct asset or whether they result in a long-term future benefit special rules govern the treatment of commissions paid_by securities dealers sec_1_162-1 provides that commissions are among the items included in business_expenses for dealers in securities sec_263 of the code does not otherwise require capitalization of those expenses sec_1_263_a_-2 provides that commissions paid in selling securities are an offset against the selling_price except that dealers in securities may treat selling commissions as an ordinary and necessary business_expense under this latter regulation dealers in securities may deduct the commissions paid to sell securities a dealer_in_securities is not defined in sec_162 and sec_263 or in regulations under either of those sections sec_1_471-5 which provides a definition of a dealer_in_securities is relied upon by the courts to determine if a taxpayer is treated as a dealer_in_securities for purposes of sec_263 see eg 299_us_175 464_f2d_53 8th cir under this regulation a dealer is a merchant of securities whether an individual partnership or corporation with an established place of business regularly engaged in the purchase of securities and their resale to customers that is one who as a merchant buys securities and resells them to customers for the gains and profits derived therefrom sec_1_471-5 similarly the act u s c sec_80a-2 a provides that a dealer is any person regularly engaged in the business of buying and selling securities for his own account whether a particular person is a dealer is a factual question and the courts examine various tl-n-7506-98 factors to determine dealer status 312_us_212 16_tc_1026 acq 1951_2_cb_3 the incoming advice request discusses various cases analyzing the factual question of the definition of a dealer_in_securities and supporting the view that the taxpayer at issue should not be treated as a dealer because it does not and cannot buy and sell mutual_fund shares as a principal but acts merely as an agent the most important factor in determining if a person is a dealer is whether that person as a principal purchases securities and resells them to customers this addresses the central requirement that a dealer act as a merchant a dealer buys and sells on his own account not as an agent for another and earns a profit from the mark-up on the sale or other dealer concession helvering v fried u s pincite see also 468_us_207 n in fried the dealer at issue regularly and consistently engaged in purchases and resales of the securities and always had the securities it specialized in on hand that is they were actually received and delivered also in 77_f2d_323 2d cir the court held that a floor trader was not a dealer because he purchased for customers of a firm with which he was associated and not for himself see also securities indus ass’n supra a person who purchases and sells securities but does not transact business with customers is not a dealer customers are important because dealers are viewed as profiting from bringing sellers and buyers together and not from changes in the value of securities without customers a person cannot act as a middleman and therefore cannot be a dealer if the distributor is not a dealer whether the commissions require capitalization must be addressed as noted in the request for fsa sec_162 provides a deduction for an accrual_method taxpayer only when an expenditure is an ordinary_and_necessary_expense incurred during the taxable_year and made to carry on a trade_or_business see 403_us_345 there is no dispute that the commission expenses were incurred in the taxable years at issue nor is it disputed that the expenditures were necessary in the accepted sense of appropriate and helpful in the carrying on of the taxpayer’s business as distributor the resolution of this issue turns on whether the commissions were ordinary the principal function of the term ordinary in sec_162 is to clarify the distinction between those expenses that are currently deductible and those that are in the nature of capital expenditures which if deductible at all must be amortized over the life of the asset 110_tc_402 appeal docketed no 1st cir date tl-n-7506-98 an expenditure that creates or enhances a separate and distinct asset or generates a significant long-term benefit is a capital_expenditure not an ordinary_expense see 503_us_79 lincoln savings loan 403_us_345 110_tc_402 an appropriate inquiry in deciding issues of capitalization is the duration and extent of any benefits that the taxpayer received from its expenditures fmr corp supra 106_tc_445 in fmr supra the court decided the capitalization issue on whether the expenditure provided the taxpayer with a significant long-term benefit in that case the taxpayer was the sole distributor of the shares of fidelity mutual funds fidelity’s regulated_investment_companies or rics the majority of the rics managed by the taxpayer were open-end mutual funds like in the instant case each of the mutual funds followed a distinct investment approach as in the instant case the taxpayer’s activities in creating and managing the various rics were governed by the act which requires that the management contracts between an adviser and a mutual_fund have an initial term of years be renewable annually thereafter and be terminable at will by the mutual fund’s board_of trustees upon days notice without penalty the act also requires that the initial management_contract and all annual renewals be approved by a majority of independent directors trustees the principal issue in fmr was whether the taxpayer was entitled to a sec_162 deduction for expenditures incurred in launching rics in the years in issue these expenditures included costs to develop the concept for each ric to develop the initial marketing plan to draft the management_contract to form the rics to obtain the board_of trustees’ approval of the contract and to register the new rics with the securities_and_exchange_commission sec the court refused to determine whether the management_contract with each mutual_fund represented a separate and distinct asset the contracts were signed prior to the sale of any fund share and thus prior to the fund having any value but focused its examination of the duration and extent of any benefits the taxpayer received from its expenditures despite the termination provision contained in the act the court found that in the experience of the mutual_fund industry it is highly unusual for a management_contract to be either terminated or not renewed contracts are only canceled upon a finding of fraud or continued mismanagement in examining whether the taxpayer derived a long-term benefit from the start-up_expenditures the court looked to whether those expenditures secured an advantage to the taxpayer which has a life of more than one year the court found tl-n-7506-98 that the start-up expenses_incurred by the taxpayer resulted in a benefit to the taxpayer which could be expected to produce returns for many years in the future and therefore were not deductible expenditures that benefit current operations generally are deductible in this regard benefits such as repeat business increased market share or the expansion of an existing business are not sufficient to require capitalization see revrul_2000_4 i r b in lykes energy inc subs v commissioner tcmemo_1999_77 the taxpayer was a public_utility that distributed natural_gas in florida and was subject_to regulation by the florida public service commission psc pursuant to the energy efficiency and conservation act feeca the psc required the taxpayer to design and administer programs that would reduce consumption of high cost petroleum and lower electrical energy consumption the taxpayer operated several programs generally designed to accomplish these goals the programs at issue increased the taxpayer's rate base number of customers and sales a portion of the costs of each such program consisted of subsidies for people who bought gas appliances for the taxpayer or an affiliate while the remaining portion of the costs of each program were promotional or selling_expenses unrelated to a specific sale the future_benefits resulting from the programs were the same regardless of the portion of the cost that constituted a subsidy for current sales of appliances in either event future_benefits resulted from the cost of the program being included in the taxpayer's rate base the increase in the number of customers in allowing a current deduction for the portion of each program related to sales of appliances the court reasoned that the amounts at issue benefitted the taxpayer currently by inducing customers to purchase appliances accordingly an immediate deduction was allowed even though the amounts at issue also resulted in future_benefits such as repeat business and sales of related products or commodities in contrast the court required capitalization of the portion of the cost of each program that was not related to sales of appliances in reaching this result the court reasoned that the increase in the number of customers and the resulting revenue from these customers was a significant future benefit in order to determine whether the taxpayer is a dealer and in order to evaluate whether the commissions must be capitalized we recommend that you verify certain facts discussed below tl-n-7506-98 b must commission expenses be amortized over the same period that related fees are taken into income for purposes of discussion we will assume that commission expenses are deductible in order to consider the argument that the doctrine_of clear_reflection_of_income requires that related items of income and expense be taken into income and deducted at the same time the incoming memorandum takes the position that in order to clearly reflect income the commission expenses must be amortized over the period that the 12b-1 fees are earned and reported as income specifically the memorandum focuses on the mismatch of the accrual of 12b-1 income and the accrual of immediate deductions for the related commission expenses under gaap costs and expenses are generally required to be deducted in the same period as the revenues to which those costs and expenses relate r wixon accountants’ handbook dollar_figure 4th ed the objective of matching is thus that costs and expenses directly identifiable with particular revenues be deducted in the same period or periods in which those revenues are recognized although some cases may suggest that the matching principle of financial_accounting requiring related items of income and expense to be recorded in the same taxable_year is also a dominant element of accrual tax_accounting in order for income to be clearly reflected this is not true gertzman pincite the matching principle is certainly relevant in testing whether a particular method clearly reflects income for tax purposes but matching is not of itself the determinative test for finding a fixed liability or for permitting a deduction id that is a goal of matching income and expenses does not defeat the proper timing for income and deductions under the all_events_test thus an accrued deduction should be taken even though related to an income item not yet recognized under 367_us_687 a taxpayer must recognize prepaid_income when received even though this would mismatch expenses and revenue contrary to generally accepted commercial accounting principles american auto u s pincite furthermore the court indicated that to say that an accounting_method used by a taxpayer is in accord with generally_accepted_accounting_principles and practices is not to hold that for income_tax purposes it so clearly reflects income to be binding on the treasury id pincite this concept was expanded upon by the court in 439_us_522 when it discussed the vastly different objectives that financial and tax_accounting have financial useful information to management shareholders etc tax equitable collection of revenue and given tl-n-7506-98 this diversity even contrariety of objectives any presumptive equivalency between tax and financial_accounting would be unacceptable accrual of an item as income in a particular year is not required merely because the expenses attributable to that item were deducted from gross_income in that year as a practical matter the income_tax laws must operate on an annual basis and there is no assurance under either an accrual or cash_basis of accounting that there will be complete correlation between items of income and deductions pertinent thereto 39_tc_443 acq as to this issue 1965_2_cb_6 see also 30_tc_1166 corrected aff’d 274_f2d_208 5th cir under either the cash or the accrual_method it is possible that expenses paid or accruable may be deductible in a year that is either prior or subsequent to the year in which the income related to such expenses is includible this is simply the result of the facts that taxable_income must be computed on an annual basis and that the computation of taxable_income does not necessarily follow business accounting practices similarly in 89_tc_181 nonacq 1990_2_cb_1 the taxpayer sold certain goods that required preparation and installation the costs of such preparation and installation were deducted currently while the income from the sales was deferred under the installment_method the commissioner sought to have the court deny the current deduction on the basis that the resulting mismatch of related items of income and expense did not clearly reflect income the court disagreed stating that taxpayer complied with all requirements relating to inventory costing and use of the installment_method and that clear_reflection_of_income implements and does not contradict statutory and case law also in koebig koebig inc v commissioner tcmemo_1964_32 taxpayer accrued as income amounts billed during the year but it deducted expenses actually incurred even when expenses were incurred after the last billing date the commissioner sought to disallow the deduction of expenses_incurred after the period to which the bill related the court rejected a precise matching argument and found the taxpayer’s income was clearly reflected the fact that an accrual_method of reporting income does not always give a precise matching of income and expenses does not mean that it does not clearly reflect the income the commissioner is not empowered to reconstruct income on some other system to secure more favorable tax results it is immaterial that the method used by the commissioner tl-n-7506-98 in recomputing income would also clearly reflect income or would result in a more precise matching of income with expenses id in fidelity assoc inc v commissioner tcmemo_1992_142 the tax_court rejected the commissioner’s attempt to require an accrual_method taxpayer to defer its deduction of selling_expenses and commissions on the basis of the clear_reflection_of_income standard the court held that the deductions in question satisfied the all_events_test did not create an asset having a useful_life extending substantially beyond the end of the taxable_year and could not be deferred on the basis of any asserted mismatching lastly we will comment on two cases cited in the incoming memorandum in 104_fsupp_237 n d ohio we are unable to determine from the facts discussed in the opinion when all the events occurred to fix the fact of the taxpayer’s liability for commissions paid to its salesmen if as seems possible the fact of liability for commissions paid or credited to salesmen’s accounts on orders not shipped until the following year was fixed as of the end of the taxable years in question we would currently take the position that such year end commissions are deductible notwithstanding that the related_income is not accruable until the succeeding year under the facts of this case though the taxpayer was seeking a change in method_of_accounting which requires approval by the commissioner a change in method_of_accounting may not be made retroactively as sought by this taxpayer see 891_f2d_1579 fed cir we agree with the tax court’s opinion in 108_tc_448 aff’d in part rev’d in part 184_f3d_786 8th cir with respect to the payments to the vsc administrator the tax_court allowed amortization fees may be recognized in equal annual increments over the maximum time period provided for in the contract to which they relate t c pincite in contrast the 8th circuit sanctioned an immediate deduction 184_f3d_786 we note that the 8th circuit’s discussion of this issue is devoid of analysis cites no case law and resulted in an unvarnished beneficial result for the taxpayer matter of fairness it is not fair id we strongly disagree with the 8th circuit’s approach in allowing a deduction for the administrators’ fee in conclusion we strongly recommend against pursuing a mismatch of income and expense clear_reflection_of_income argument as an alternative argument to either the income_or_deduction side of this case tl-n-7506-98 case development hazards and other considerations we have had many discussions and meetings during which additional factual development was discussed much of which was memorialized resulting in a comprehensive list of questions and additional facts to develop we shall not repeat all of the questions and additional facts to develop here but shall only emphasize the more significant ones in order to determine whether the taxpayer is a dealer and in order to evaluate whether the commissions must be capitalized we recommend addressing the following tl-n-7506-98 tl-n-7506-98 please call if you have any further questions __________________________ carol p nachman acting technical assistant field service division


department of the treasury internal_revenue_service washington d c sep tax_exempt_and_government_entities_division uniform issue list through legend state a statute b system x dear this is in response to a letter dated date as supplemented by correspondence dated date and date submitted on your behalf by your authorized representative regarding rulings under sec_72 of the internal_revenue_code the code’ the following facts and representations were submitted in connection with your request normal retirement_system x also provides that a participant who is eligible for a system x is a defined_benefit_plan that provides pension benefits to non-certified employees of public schools in state a pursuant to statute b system x a plan intended to be qualified under code sec_401 is maintained by state a and its provisions are found in statute b benefits under system x are funded through both mandatory employee contributions and employer contributions benefits under system x are based on the participant's age and years of credited service and payable in monthly installments retirement allowance upon the participant’s retirement retirement allowance who has not previously received a retirement allowance including a disability retirement allowance and who meets certain age and or service requirements may elect to receive a partial lump sum distribution lump sum payment by notifying system x when applying for retirement benefits provides that the monthly retirement allowance a participant would have received absent such an election will be reduced on an actuarially equivalent basis system x permitted participants to withdraw their accumulated employee contributions on termination of employment historically accepted after-tax employee contributions from non-state retirement plans that may be attributable to employee contributions made prior to or from state plans that did not have a withdrawal feature on date system x does not accept nor has it on may statute b based on the above facts and representations you request rulings that alump sum payment from system x is eligible for the special tax treatment under code sec_72 as modified by sec_1011a b of tamra and alump sum payment paid before or with the first annuity_payment under system x will be treated as having been received before the annuity_starting_date and will be excluded from gross_income up to the amount of the participant’s pre-1987 after-tax employee contributions with regard to the above ruling requests code sec_72 provides that except as otherwise provided in this chapter gross_income includes any amount_received_as_an_annuity whether for a period certain or during one or more lives under an annuity endowment or life_insurance_contract code sec_72 generally applies to any amount received under an annuity_contract but which is not received as an annuity code sec_72 provides that any amount not received as an annuity and which is received on or after the annuity_starting_date shall be included in gross_income code sec_72 provides that notwithstanding any other provision of sec_72 in the case of any non-annuity amount received before the annuity_starting_date from a qualified_plan sec_72 shall apply to such amounts code sec_72 provides that a non-annuity payment which is received before the annuity_starting_date shall be included in gross_income to the extent allocable to the income_on_the_contract and shall not be included in gross_income to the extent allocable to the investment_in_the_contract code sec_72 provides that in the case of a plan which on date permitted withdrawal of any employee contributions before separation_from_service subparagraph a shall apply only to the extent that amounts received before the annuity_starting_date when increased by amounts previously received under the contract after date exceed the investment_in_the_contract as of date sec_1011a b of the technical_and_miscellaneous_revenue_act_of_1988 ‘tamra’ pub_l_no 1988_3_cb_1 created the following special rule that in the case of a retirement_plan maintained by a state which on date permitted withdrawal by the employee of employee contributions other than as an annuity code sec_72 shall be applied without regard to the phrase before separation_from_service in paragraph d and by treating any amount received other than as an annuity before or with the first annuity_payment as having been received before the annuity_starting_date in this case with respect to ruling_request system x is a state plan that provided for the withdrawal of after-tax employee contributions on date on separation_from_service system x permits an eligible_participant to elect a lump sum payment that under statute b is paid on or before commencement of payment of the participant’s monthly retirement allowance thus with regard to ruling_request a lump sum payment satisfies the requirements for the special relief afforded code sec_72 as modified by tamra thus we conclude with respect to ruling_request that a lump sum payment will be treated as being received before the annuity_starting_date and taxable only to the extent such payment exceeds the participant's investment_in_the_contract as of date ie pre-1987 after-tax employee contributions any portion of a_lump sum payment received in excess of the pre-1987 investment_in_the_contract will be taxable pursuant to the pro_rata basis recovery rule_of sec_72 no opinion is expressed as to the federal tax consequences of the transaction described above under any other provisions of the code the above rulings are based on the assumption that system x is qualified under code sec_401 and its related trust exempt from tax under sec_501 a at all relevant times this ruling is directed only to the specific taxpayer that requested it code sec_6110 provides that it may not be used or cited by others as precedent a copy of this letter_ruling is being sent to your authorized representative pursuant to a power_of_attorney on file with this office should you have any questions or concerns regarding this letter please contact sincerely yours cll a wokins carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of ruling cc


t c memo united_states tax_court gerald h evans petitioner v commissioner of internal revenue respondent docket no filed date gerald h evans pro_se mary p hamilton for respondent memorandum findings_of_fact and opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 ' unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent issued a so-called affected items notice_of_deficiency for the taxable_year in the notice respondent determined that petitioner was liable for additions to tax for negligence under sec_6653 and a in the amounts of dollar_figure and percent of the interest due on dollar_figure respectively and an addition_to_tax for valuation_overstatement under sec_6659 in the amount of dollar_figure the issues for decision are as follows whether respondent issued a valid affected items notice_of_deficiency sufficient to toll the period of limitations for assessment and collection we hold that such a notice was issued whether the execution of form_4549 by the parties barred respondent from subsequently issuing the affected items notice_of_deficiency we hold that the execution of form_4549 did not bar respondent from issuing such notice petitioner concedes that he is liable for the additions to tax in dispute if respondent prevails on the two enumerated issues findings_of_fact some of the facts have been stipulated and they are so found petitioner resided in lambertville new jersey at the time that his petition was filed with the court petitioner filed a joint income_tax return with his then wife linda evans for the taxable_year in issue subsequently but before the filing of the petition herein petitioner and linda evans were divorced during through petitioner owned a corporation known as g h evans company evans co in respondent commenced an examination of evans co for its taxable years through through a revenue_agent named robert m coar agent coar during the corporate examination agent coar determined that petitioner had received interest-free use of corporate funds based on this determination agent coar extended the examination to include petitioner's joint income_tax returns for the taxable years through petitioner's accountant eric lear represented petitioner during the examination at the conclusion of the examination agent coar made several income adjustments to petitioner's and taxable years the adjustments for the taxable_year were for unreported dividends from two sources evans co and an unrelated payor and additional wage income from an unrelated source in a conversation with his supervisor agent coar stated that these adjustments gave rise to the total_tax liability attributable to petitioner's individual examination petitioner agreed to agent coar's adjustments and in date executed form_4549 income_tax examination changes an agent of respondent executed the form during the following month form_4549 stated in pertinent part as follows consent to assessment and collection - i do not wish to exercise my appeal rights with the internal_revenue_service or to contest in the united_states tax_court the findings in this report therefore i give my consent to the immediate_assessment and collection of any increase in tax and penalties and accept any decrease in tax and penalties shown above plus any interest as provided by law it is understood that this report is subject_to acceptance by the district_director in date petitioner invested in a partnership known as pbb recycling associates ii pbb petitioner became a limited_partner of pbb owning a 3-percent interest in the profits losses and capital therein during pbb was a limited_partner in a partnership known as taylor recycling associates taylor taylor was a first-tier tefra partnership involved in plastics recycling pbb owned a 91-percent interest in the profits losses and capital of taylor on his return petitioner claimed a net_loss anda business_energy_investment_credit consistent with the schedule_k-1 that he received from pbb the propriety of such loss and credit was not within the scope of agent coar's examination and agent coar did not question either the loss or the credit during the course of his examination of petitioner's return on date respondent issued a notice of final_partnership_administrative_adjustment fpaa for the taxable_year to the tax_matters_partner tmp of pbb as a partner of taylor thereafter a partnership proceeding captioned taylor recycling associates dl k associates a partner other than the tax_matters_partner v commissioner docket no the taylor case was commenced in this court on behalf of taylor on date the court entered decision in the taylor case pursuant to the commissioner's motion for entry of decision under rule b all deductions and credits claimed by taylor in connection with its plastics recycling activities were disallowed thereafter on date respondent issued the affected items notice_of_deficiency for determining additions to tax under sec_6653 and and petitioner appealed from the notice and filed his petition with this court on date opinion tolling of the period of limitations petitioner claims that the period of limitations for assessment and collection for the additions to tax in dispute has expired because of respondent's failure to issue a valid notice_of_deficiency we disagree pursuant to the general_rule of section a the period for assessing any income_tax attributable to partnership items or affected items for a partnership taxable_year will not expire until the later of a date that i sec_3 years after the partnership files its information_return for the taxable_year in question or the last day for filing such return for such year the 3-year minimum period may be extended suspended or otherwise modified as provided in section as pertinent herein section d provides that the running of the period of limitations specified in subsection a is suspended from the date on which the notice of final_partnership_administrative_adjustment is mailed to the partnership's tmp through the date on which the decision of this court becomes final and for year thereafter pursuant to sec_7481 and sec_7483 if a timely notice of appeal is not filed the decision of this court becomes final days after the decision is entered in this regard there is no dispute that the period for assessing the additions to tax in dispute expired no earlier than date 1ie year and days from the entry of decision in the taylor case sec_6503 provides that the running of the period of limitations on assessment and collection will be tolled upon the mailing of a notice_of_deficiency under sec_6212 in the present case respondent mailed the affected items notice_of_deficiency on date nearly months before the expiration of the period for assessment and collection under section accordingly the only issue is whether the notice_of_deficiency is valid petitioner claims that the notice was not mailed to his last_known_address and is therefore invalid a notice_of_deficiency is valid if the taxpayer actually receives the notice and thereafter files a timely petition in the tax_court 81_tc_42 this rule applies regardless of the address to which the notice is mailed id further such a notice serves to toll the period of limitations for assessment and collection under sec_6503 id in frieling v commissioner supra a notice_of_deficiency was mailed on the last day of the 3-year period of limitations for assessment and collection but the notice was not sent to the taxpayers at their last_known_address nonetheless the taxpayers actually received the notice and petitioned the tax_court within the requisite 90-day period the court held that the notice_of_deficiency satisfied sec_6212 and that the period of limitations was tolled by the mailing of the notice petitioner filed a timely petition with the court on date petitioner's actual receipt of the notice_of_deficiency and his subsequent filing of a timely petition with this court render moot any inquiry regarding the address to which the notice_of_deficiency was mailed the notice_of_deficiency is valid and the notice therefore tolled the running of the period of limitations for assessment and collection alternatively petitioner contends that the notice_of_deficiency is not valid because respondent failed to mail the notice to the address provided on the partnership return for the the 90-day period for filing a petition with the court expired on date the 90th day being a sunday sec_7503 year in issue in this regard petitioner refers to the requirements under sec_6223 as previously mentioned under the facts of this case the address to which respondent mailed the notice_of_deficiency is irrelevant because petitioner received the notice and filed a timely petition regardless as pertinent here sec_6223 requires the commissioner to send the notice of beginning administrative_proceeding nbap and the fpaa to each partner whose name and address is furnished to the commissioner under paragraph c of that section unless additional information is provided the commissioner is required to use the address shown on the partnership return in mailing the nbap and the fpaa however there is no requirement under sec_6223 that the commissioner mail an affected items notice_of_deficiency toa taxpayer at an address provided in the partnership return rather as provided under section a a the normal deficiency procedures apply to affected items that require partner-level determinations the additions to tax involved herein---additions for negligence under sec_6653 and for overvaluation understatement under section 6659--are affected items requiring factual determinations at the individual partner level see n c f energy partners v commissio89_tc_741 as a result normal deficiency procedures apply in this case and as discussed above under normal deficiency procedures the notice_of_deficiency involved herein is valid see frieling v commissioner supra in light of the foregoing we hold that respondent issued a valid notice_of_deficiency and that such notice served to toll the running of the period of limitations for assessment and collection effect of form_4549 petitioner also contends that the execution of form_4549 conclusively determined his total_tax liability for and that respondent is therefore barred from making any subsequent assessment for that year it has long been established that the statutory procedure provided under sec_7121 is the exclusive method by which an agreement regarding a taxpayer's tax_liability may be accorded finality see 65_tc_351 and cases cited therein see also person v commissioner tcmemo_1985_211 because congress has provided a way in which the commissioner may be bound the possibility of being bound by some other procedure is precluded sec_7121 authorizes the commissioner to enter into an agreement in writing referred to as a closing_agreement with any person in respect of any_tax for any taxable_period see sec_7121 sec_7701 b a closing_agreement becomes final and conclusive when approved by the commissioner sec_7121 sec_301_7121-1 proced admin regs provides that all closing agreements shall be executed on forms prescribed by the internal_revenue_service the internal_revenue_service has prescribed forms and for this purpose form_866 entitled agreement as to final_determination of tax_liability is used to determine conclusively the taxpayer's total_tax liability for a taxable_period on the other hand form_906 entitled closing_agreement on final_determination covering specific matters is used if the agreement relates to one or more separate items affecting the tax_liability of the taxpayer sec_601_202 statement of procedural rules petitioner did not execute a form_866 to determine conclusively his total_tax liability for nor did he even execute form_906 to finalize the disposition of any specific matter for that year petitioner merely executed form_4549 income_tax examination changes form_4549 is not a closing_agreement under sec_7121 and the form is not prescribed by the internal_revenue_service to be used as a closing_agreement see hudock v commissioner supra form_4549 does not contain language purporting to be respondent's final agreement concerning petitioner's tax_liability by executing the form_4549 petitioner merely consented to the immediate_assessment and collection of the deficiency proposed therein therefore respondent is not precluded from determining an additional deficiency for see id further respondent is not equitably estopped from determining additions to tax attributable to partnership affected items for the doctrine_of equitable_estoppel is applied against the commissioner with the utmost caution and concern 76_tc_209 affd 810_f2d_209 d c cir one of the elements required for the application of the doctrine_of equitable_estoppel is that the person claiming its benefit must be adversely affected by the acts or statements of the person against whom an estoppel is claimed see 90_tc_684 86_tc_157 there is no detrimental reliance on the part of a taxpayer who pursuant to the execution of form_4549 simply pays a tax that was lawful for the taxpayer to pay hudock v commissioner supra pincite an additional element required for the application of the doctrine_of equitable_estoppel is a false representation or wrongful misleading silence by the one against whom estoppel is claimed petitioner claims that respondent's agent falsely represented that the adjustments made on the form_4549 constituted petitioner's total_tax liability assuming that agent coar made such a representation it must be considered in light of agent coar's authority and the scope of agent coar's examination agent coar's examination involved petitioner's individual taxes in issue herein are so-called affected items consisting of additions to tax for negligence and overvaluation see n c f energy partners v commissioner supra pincite the tekfra rules codified at sec_6221 through segregate adjustments attributable to an individual's interest ina partnership that are subject_to tefra from all other adjustments that can be made to the individual's return see 87_tc_783 agent coar was therefore restricted from examining affected items as part of petitioner's individual tax case see id in view of this fact the total adjustments agent coar could make to petitioner's taxable_year would necessarily exclude any adjustments for affected items thus any representation by agent coar must be viewed in the context of agent coar's limited authority and the restricted scope of his examination in light of the foregoing the execution of form_4549 with respect to the year did not preclude respondent from subsegquently issuing an affected items notice_of_deficiency for the same taxable_year to reflect our disposition of the disputed issue as well as the parties' stipulation of settled issues decision will be entered for respondent