t c summary opinion united_states tax_court elliott rodney thomas and mildred marie thomas petitioners v commissioner of internal revenue respondent docket no 17678-10s filed date elliott rodney thomas and mildred marie thomas pro sese sebastian voth for respondent summary opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case in a notice_of_deficiency dated date notice respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax imposed a dollar_figure sec_6651 addition_to_tax and imposed a dollar_figure sec_6662 accuracy-related_penalty petitioners have conceded the adjustment giving rise to the deficiency there remain in dispute the imposition of the above-referenced addition_to_tax and the accuracy-related_penalty and whether petitioners are entitled to certain deductions not claimed on their joint federal_income_tax return and whether petitioners’ rental real_estate activity is a passive_activity within the meaning of sec_469 background some of the facts have been stipulated and are so found petitioners are and were at all times relevant married to each other they are and were when the petition was filed residents of california 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure during petitioners or at least one of them owned a four-unit apartment house in east los angeles california that was built from the ground up by elliott r thomas petitioner a single-family house in los angeles and a condominium unit in las vegas nevada each of these properties was held for rent and rented during the year in issue rental properties for the most part petitioner performed all of the management and maintenance work required in connection with the rental properties in addition to other activities he collected rents paid the bills cleaned the rental units between tenants initiated and pursued legal eviction proceedings painted and repaired damages to the extent that supplies or building materials were needed in order to maintain the rental properties petitioner routinely traveled to various locations to purchase those supplies and or materials except for mowing the lawns and making certain electrical repairs petitioner pretty much did whatever needed to be done in order to maintain the rental properties in a condition that would allow for their rental petitioner did not however maintain a contemporaneous log that detailed the time spent performing services in connection with the rental properties petitioner or petitioners also owned a house in new orleans louisiana new orleans house the new orleans house was severely damaged by hurricane katrina in petitioners claimed a casualty_loss deduction loss deduction for those damages on their federal_income_tax return return the loss deduction was disallowed in a notice_of_deficiency issued to petitioners on date petitioners petitioned this court at docket no in response to that notice_of_deficiency tax_court case the tax_court case was resolved by settlement and decision was entered on date the loss deduction was allowed for petitioners’ joint federal_income_tax return return was filed on date which preceded the date that the tax_court case was settled unsure of whether the loss caused by hurricane katrina was properly deductible in or they again claimed the deduction on their return the income and deductions attributable to the rental properties are reported on a schedule e supplemental income and loss included with petitioners’ return taking into account deductions that total dollar_figure the schedule e shows a net_loss of dollar_figure that loss is taken into account in the dollar_figure of adjusted_gross_income reported on petitioners’ return the casualty_loss deduction claimed on petitioners’ return is disallowed in the notice having been allowed the loss deduction petitioners’ now concede that adjustment they continue to dispute the imposition of the sec_6651 addition_to_tax and the sec_6662 accuracy-related_penalty after the petition in this case was filed petitioners prepared and submitted to respondent an amended federal_income_tax return amended_return the amended_return has not been processed the schedule e included with the amended_return shows deductions not claimed on the schedule e included with the return according to the amended_return the additional deductions are attributable to rental property expenses for auto and travel--dollar_figure insurance--dollar_figure legal and other professional fees--dollar_figure repairs--dollar_figure and utilities- -dollar_figure petitioners now claim entitlement to these additional deductions in this proceeding respondent not only does not agree that petitioners are entitled to the additional rental property deductions now claimed but in an amendment to answer filed after receipt of the amended_return seeks an increased deficiency see sec_6214 according to the amendment to answer the loss from the rental properties whether computed as shown on the return or the amended_return 2petitioners’ claim to additional deductions is not made in a pleading the issues relating to those additional deductions were tried by consent see rule b is a loss from a passive_activity and any deduction for such a loss is limited by sec_469 loss from rental properties discussion the schedule e included with petitioners’ return shows a dollar_figure loss from the rental properties rental loss a deduction for the rental loss is taken into account in the adjusted_gross_income reported on that return the rental loss is not adjusted in the notice respondent now takes the position that the rental loss was incurred in a passive_activity and the deduction attributable to that loss is limited by sec_469 according to respondent’s amendment to answer petitioners’ rental loss deduction is limited to dollar_figure see sec_469 and the deficiency is correspondingly increased according to petitioners petitioner is a taxpayer described in sec_469 and therefore the sec_469 limitations do not apply to the rental loss deduction here in dispute the burden_of_proof is on respondent to establish otherwise see rule a 112_tc_183 tabrezi v commissioner tcmemo_2006_61 and that burden has not been met for petitioners’ rental loss deduction is not subject_to the limitations imposed by sec_469 accordingly respondent’s assertion of an increased deficiency in his amendment to answer is rejected petitioners’ claim for additional deductions as we have observed in opinions too numerous to count deductions are a matter of legislative grace and the taxpayer bears the burden_of_proof to establish entitlement to any claimed deduction rule a 503_us_79 292_us_435 this burden requires the taxpayer to substantiate deductions claimed by keeping and producing adequate_records that enable the commissioner to determine the taxpayer’s correct_tax liability sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir 43_tc_824 a taxpayer claiming a deduction on a federal_income_tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid_or_incurred see sec_6001 hradesky v commissioner t c pincite sec_1_6001-1 income_tax regs these principles apply with equal force regardle sec_3nothing suggests that the provisions of sec_7491 are applicable and we proceed as though they are not of whether a deduction is claimed on an original or amended federal_income_tax return or for the first time in a proceeding before this court the types of expenses underlying the additional deductions are contemplated by sec_162 and or and deductions for such expenses are allowable under the authority of one or the other of those sections according to respondent however petitioners are not entitled to increase their rental loss deduction as shown on the amended_return as an alternative to his reliance upon sec_469 respondent argues that petitioners have failed to substantiate the additional deductions taking into account the evidence submitted by petitioners in support of their claim to the additional deductions we find as follows with respect to each expense auto and travel petitioners are not entitled to an additional deduction for auto and travel_expenses because they have failed properly to substantiate the expenses to which the deduction relates sec_274 imposes strict substantiation requirements with respect to deductions for travel meals entertainment and listed_property expenses sec_1_274-5t temporary income_tax regs fed reg date listed_property includes passenger automobiles sec_280f insurance petitioners are not entitled to an additional deduction for insurance because they have failed to establish that an insurance expense in excess of the amount shown on their return has been paid_or_incurred legal and professional fees the evidence shows that petitioners paid closing costs totaling dollar_figure in connection with refinancing one of their rental properties the closing costs include a dollar_figure loan origination fee a dollar_figure processing fee a dollar_figure funding fee a dollar_figure tax service fee a dollar_figure wire transfer fee an dollar_figure flood cert fee a dollar_figure underwriting fee dollar_figure in interest and a dollar_figure escrow fee in general interest_paid or accrued by a taxpayer is allowable as a deduction sec_163 on the other hand amounts paid_or_incurred for lender’s services in connection with a loan are generally capital expenditures and must be amortized over the life of the loan 75_tc_424 aff’d without published opinion 691_f2d_490 3d cir petitioners are entitled to a deduction for the interest shown on the schedule e included with the amended_return no interest_deduction is shown on the schedule e included with the return except for the escrow fee the remaining fees represent charges for lender services which must be capitalized and amortized over the life of the loan because the life of the loan has not been established petitioners are not entitled to any such amortization deduction for the escrow fee can be neither deducted nor capitalized because petitioners did not establish that the amount was a fee it appears more likely that the label escrow fee is a misnomer and in fact represents an amount contributed to escrow repairs petitioners claimed an dollar_figure deduction for repairs expenses_incurred in connection with the rental properties this includes the cost of supplies petitioners purchased to make repairs at the rental properties petitioners provided receipts adequately substantiating the purchase of the supplies the schedule e included with petitioners’ return shows no deduction for repairs accordingly petitioners are entitled to a deduction for repairs expenses as shown on the schedule e included with the amended_return utilities petitioners claimed an dollar_figure deduction for utilities expenses_incurred in connection with one of their rental properties petitioners did not provide any receipts other substantiating documentation or testimony regarding this expense accordingly petitioners are not entitled to a deduction for utilities sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for failure_to_file a return by its due_date the addition equal sec_5 of the amount_required_to_be_shown_as_tax on the return for each month or fraction thereof that the return is late not to exceed sec_6651 the burden of production with respect to the imposition of the sec_6651 addition_to_tax imposed in the notice rests with respondent see sec_7491 in the absence of an extension the last date for petitioners to have timely filed their federal_income_tax return for was monday date see sec_6072 there is no dispute that petitioners’ federal_income_tax return was not received by respondent and filed until date more than one year after its due_date respondent’s burden of production has been satisfied a failure_to_file a tax_return on the date prescribed leads to a mandatory penalty unless the taxpayer shows that such failure was due to reasonable_cause and not due to willful neglect 114_f3d_366 2d cir 5april fell on a sunday in see sec_6072 sec_7503 aff’g tcmemo_1995_547 a showing of reasonable_cause requires a taxpayer to show that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to file the return within the prescribed time 469_us_241 sec_301_6651-1 proced admin regs petitioners rely on internal_revenue_service irs publication information for taxpayers affected by hurricanes katrina rita and wilma to establish that the late filing of their return was due to reasonable_cause and not due to willful neglect irs publication extended deadlines that apply to filing returns paying taxes and performing certain other time-sensitive acts for certain taxpayers affected by hurricane katrina rita or wilma until date as relevant here t he extension applies to deadlines either an original or extended due_date that occurred a fter date and before date for taxpayers affected by hurricane katrina to be eligible for the extension provided in irs publication petitioners must meet the definition of affected taxpayer as relevant here an affected taxpayer includes any individual whose main home is located in a covered disaster_area or whose principal_place_of_business is located in a covered disaster_area as noted petitioners’ return was due on or before date a date not within the period contemplated in irs publication furthermore petitioners’ main home was in california during the relevant period as was their principal_place_of_business consequently petitioners do not meet the definition of an affected taxpayer within the meaning of the publication lastly petitioners’ return was not filed until date long after the extension otherwise allowed accordingly the filing due_date for petitioners’ return was not extended in accordance with irs publication and petitioners are liable for a sec_6651 addition_to_tax sec_6662 accuracy-related_penalty sec_6662 imposes a penalty of of the portion of the underpayment_of_tax attributable to among other things a substantial_understatement_of_income_tax sec_6662 an understatement of income_tax is substantial within the meaning of sec_6662 if as relevant here the understatement exceeds dollar_figure see sec_6662 sec_1_6662-4 income_tax regs respondent bears the burden of production with respect to the imposition of the penalty imposed in the notice and here in dispute see sec_7491 and that burden has been satisfied because the understatement of income_tax here computed in the same manner as the deficiency even as reduced by the allowance of the additional deductions discussed above will exceed dollar_figure see sec_6211 sec_6662 sec_6664 that being so it is petitioners’ burden to establish that the imposition of the penalty is not appropriate see 116_tc_438 see also rule a 290_us_111 sec_6664 provides that the sec_6662 accuracy-related_penalty does not apply to any portion of an underpayment if the taxpayer establishes that there was reasonable_cause for and the taxpayer acted in good_faith with respect to the underpayment sec_1_6664-4 income_tax regs the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the pertinent facts and circumstances sec_1_6664-4 income_tax regs the deficiency the underpayment_of_tax required to be shown on petitioners’ return and the understatement of income_tax all result from the casualty_loss deduction claimed on petitioners’ return and disallowed in the notice at first glance it would seem that an underpayment_of_tax that results from the disallowance of a deduction allowed in a previous year would be subject_to the penalty according to petitioners however the penalty should not be imposed because they acted reasonably and in good_faith with respect to the underpayment_of_tax that resulted from the disallowance of the casualty_loss deduction because of the sequence of events we agree with petitioners the casualty_loss deduction claimed on petitioners’ return and return relates to the same occurrence that is the loss they sustained on account of the damages suffered to the new orleans house during hurricane katrina they are obviously not entitled to two deductions attributable to the same loss their entitlement to the loss deduction however was in question as of the date their return was filed claiming the casualty_loss deduction again for was intended to ensure that the deduction was allowed for one or the other of the years we find that petitioners had reasonable_cause and acted in good_faith with respect to the underpayment_of_tax attributable to the disallowed casualty_loss deduction claimed on their return consequently they are not liable for a sec_6662 accuracy-related_penalty for to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court sherianne s cotterell petitioner v commissioner of internal revenue respondent docket no 5912-02s filed date sherianne s cotterell pro_se andrew r moore for respondent pajak special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated 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 the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax this court must decide whether petitioner must include proceeds from a legal settlement in gross_income this case was submitted fully stipulated pursuant to rule all of the facts stipulated are so found petitioner resided in concord california at the time she filed her petition on her federal_income_tax return petitioner did not report dollar_figure from settlement proceeds respondent determined that petitioner was required to report this dollar_figure as income during petitioner received dollar_figure in settlement the settlement proceeds of a dispute between petitioner and a salt lake city utah television station the television station the dispute arose out of a television news report the news report concerning petitioner’s role as a court-appointed monitor of a consent decree following a civil rights class action involving the state of utah’s child welfare system the news report contained statements that petitioner believed were false and defamatory petitioner and her three children also believed they were subject_to harassment and embarrassment as a result of the news report petitioner engaged in several discussions with the television station’s counsel regarding the potential legal claims of petitioner and her children no complaint was filed in court during petitioner individually entered into a settlement agreement and release of all claims the settlement agreement with the owner and operator of the television station and the reporter involved in the news report petitioner received the settlement proceeds pursuant to the settlement agreement sec_61 provides that gross_income includes all income from whatever source derived unless excludable by a specific provision of the code sec_104 excludes from gross_income amounts received for personal physical injuries or physical sickness nothing in the record indicates and petitioner does not contend that the settlement proceeds are for personal physical injuries or physical sickness rather petitioner contends that the settlement proceeds are for claims on behalf of her children and her self and that respondent improperly attributed the income to petitioner rather than petitioner’s children petitioner believe s the entire sum is properly her children’s income there is no support in the record for petitioner’s characterization of the settlement proceeds as her children’s income petitioner has no written documentation to show that the children were to be considered as parties to the settlement the settlement agreement specifically listed petitioner individually as a party not her children the settlement agreement is governed by utah law under utah law petitioner would have been precluded from settling her children’s potential claims without court approval hawkins v peart p 3d utah the settlement agreement was signed by petitioner individually the check for the settlement proceeds was made payable to sherianne cotterell a form 1099-misc miscellaneous income was issued by the television station to petitioner as nonemployee compensation petitioner did not contact the television station to request that the form 1099-misc be reissued to any other party none of petitioner’s three children filed a income_tax return or otherwise reported as income any of the dollar_figure settlement proceeds petitioner deposited the dollar_figure settlement proceeds into a bank account in her name petitioner had the power to dispose_of the dollar_figure settlement proceeds as she deemed necessary we have no choice on this record but to sustain respondent’s determination reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-132345-03 date july legend x decedent y qsst trust trust a_trust b_trust c date date date date date plr-132345-03 state dear this letter is in response to your request for a ruling dated date on behalf of x seeking inadvertent termination relief under sec_1362 of the internal_revenue_code facts based upon the materials submitted and representations within x was incorporated under the laws of state on date x also elected to be treated as a s_corporation effective date on date decedent and y transferred their interests in x to trust a decedent died on date upon decedent’s death both trust c and the qsst trust were created qsst trust was created as a subtrust of trust b_trust a continued to hold the x stock and other assets on date which is the day after the two-year period expires on or about date the attorney for the estate discovered that x’s s_corporation status had terminated on date because trust a continued to hold the stock of x and the qualified_subchapter_s_trust qsst elections had not been timely filed for trust c and qsst trust at all times since decedent’s death the partied intended that the shares of x stock be held in a_trust that was a permitted s_corporation shareholder x represents that failing to file the qsst elections was not part of a plan to terminate x’s s election nor was it motivated by tax_avoidance or retroactive tax planning x represents that it has at all times operated as an s_corporation and was treated as such by its shareholders on their tax returns x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation that may be required by the commissioner law and analysis sec_1361 provides that the term s_corporation means with respect to any_tax year a small_business_corporation for which an election under a is in effect for the year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in c or an organization described in c who is not an individual plr-132345-03 sec_1361 provides that for purposes of b b a_trust which was described in c a i immediately before the death of the deemed owner and which continues in existence after such death is a permitted shareholder but only for the 2-year period beginning on the day of the deemed owner’s death sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under d such trust shall be treated as a_trust described in c a i and for purposes of a the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under d is made sec_1361 provides that the beneficiary of a qsst or his legal_representative may elect to have d apply sec_1361 provides that an election under d shall be effective up to days and months before the date of the election sec_1361 provides that a qsst means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust and iv upon termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of b of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states sec_1362 provides that except as provided in g a small_business_corporation may elect in accordance with the provisions of to be an s_corporation sec_1362 provides that an election under a terminates whenever the corporation ceases to be a small_business_corporation sec_1362 provides that an election under a by an corporation a was not effective for the taxable_year for which made determined without regard to b by reason of failure to meet the requirements of b or to obtain shareholder consents or b was terminated under paragraph or of d the secretary determines that te circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to f agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to plr-132345-03 such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based on the materials submitted and representations made within we conclude that x’s s_corporation_election was terminated on date when the two-year period described in c a ii expired we further conclude that the termination was inadvertent within the meaning of f under f x will be treated as if it were an s_corporation from date and thereafter provided the required qsst elections with an effective date of date are filed with the appropriate service_center within days from the date of this letter and x’s s_corporation_election was otherwise valid and not otherwise terminated under1362 d accordingly x’s shareholders in determining their respective income_tax liabilities during the termination period and thereafter must include their pro_rata share of the separately and nonseparately computed items of x as provided in and take into account any distributions made by x as provided in if x or any of x’s shareholders fail to treat x as described above this ruling shall be void a copy of this letter should be attached to the qsst election except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provisions of the code specifically we express or imply no opinion concerning whether x is otherwise qualified to be an s_corporation or whether qsst trust or trust c are otherwise qualified to be qssts this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to the taxpayer sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-110203-02 date date legend parent purchaser purchaser partnership target sellers date a date b company official tax professional plr-110203-02 this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to the acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group purchaser is a wholly owned subsidiary of parent purchaser is an llc wholly owned by purchaser and disregarded as an entity separate from purchaser for federal_income_tax purposes target is a foreign_corporation wholly owned by partnership a domestic_partnership sellers were the only partners of partnership on date a pursuant to a purchase agreement of the same date purchaser and purchaser acquired all of sellers’ partnership interests in partnership in exchange for cash it is represented that the acquisition of target by means of the acquisition of all of the partnership interests in partnership qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return target is a controlled_foreign_corporation within the meaning of sec_957 target is not a passive_foreign_investment_company for which an election under sec_1295 was in effect or foreign_investment_company or foreign_corporation the stock ownership of which is described in sec_552 parent intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or any taxable_year that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-110203-02 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2t d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent’s consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 parent must file the election in accordance with sec_1_338-2t d that is a new election on form_8023 must be executed on or after the date on this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form parent must file or amend as applicable its return to report the transaction as a sec_338 transaction for the taxable_year in which plr-110203-02 the transaction was consummated and for any other affected_taxable_year and to attach to the return a copy of this letter and a copy of the election we express no opinion as to whether the acquisition of the target’s stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative cc sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate


t c memo united_states tax_court ronald j murphy petitioner v commissioner of internal revenue respondent diane d murphy petitioner v commissioner of internal revenue respondent docket nos filed date petitioner husband h and petitioner wife w were divorced subsequently h was directed by a california court to pay monthly family support payments the marital payments to w h deducted the marital payments as alimony pursuant to sec_215 i r c w did not report the marital payments as gross_income pursuant to sec_71 i r c r disallowed h's deduction and included the marital payments in w's income held the marital payments are not alimony therefore h may not deduct such payments and w need not include them in gross_income held further r's determination of penalties under sec_6662 i r c against h is sustained ronald j murphy pro_se elainie honjas for petitioner in docket no matthew r kretzer and barbara leonard for respondent memorandum findings_of_fact and opinion halpern judge these cases have been consolidated for trial briefing and opinion because they involve a common question of fact and law viz whether payments made by petitioner ronald j murphy ronald murphy to petitioner diane d murphy diane murphy his ex-wife constitute alimony for purposes of the federal_income_tax in the notices of deficiencies and in her pleadings respondent has taken inconsistent positions disallowing alimony deductions to ronald murphy but requiring diane murphy to report alimony income respondent however does not ask us to sustain her inconsistent positions respondent is content that we determine the tax consequences of the subject payments the marital payments consistently between petitioners respondent has determined both deficiencies in income_tax and accuracy related penalties against ronald murphy those amounts are as follows year deficiency dollar_figure big_number penalty under sec_6662 dollar_figure big_number respondent has determined only deficiencies in income_tax against diane murphy those amounts are as follows year deficiency dollar_figure big_number the sole issue for consideration in diane murphy’s case is the tax treatment of the marital payments in ronald murphy’s case however we must also consider the accuracy related penalties moreover for respondent’s determination_of_a_deficiency in tax is based not only on the tax treatment of the marital payments but also on two additional adjustments to income one in the amount of dollar_figure described as itemized_deductions and the other in the amount of dollar_figure described as deduction for exemptions although no further explanation of the two additional adjustments accompanies respondent’s determination_of_a_deficiency in tax we suspect that those adjustments are consequential adjustments following from respondent’s adjustment with respect to the marital payments ronald murphy assigned no error with respect to those adjustments under our rules he is thus deemed to have conceded any issue with respect to those adjustments see rule b even if those two adjustments are merely consequential however and had error been assigned in the petition on that basis we would reach no different result because we uphold respondent’s adjustments with respect to the marital payments unless otherwise noted all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts filed by the parties and accompanying exhibits are incorporated herein by this reference when the petitions in these cases were filed ronald murphy and diane murphy resided in mountain view california and los altos california respectively petitioners were married in on date the superior court of california county of santa clara the superior court entered a judgment of dissolution of petitioners’ marriage on date petitioners stipulated and on date the superior court ordered that ronald murphy shall pay to diane murphy for family support the sum of dollar_figure for the month of january and dollar_figure on account of family support for the month of february at a settlement conference held on date the superior court orally ordered that commencing date ronald murphy would pay dollar_figure a month to diane murphy as family support with respect to diane murphy’s case only ronald murphy paid no more than dollar_figure and dollar_figure to diane murphy in and respectively ronald murphy made federal_income_tax returns for and on the basis of a calendar_year he made those returns on form sec_1040 u s individual_income_tax_return and for each year he claimed deductions for alimony paid to diane murphy for he claimed an alimony deduction of dollar_figure for he claimed an alimony deduction of dollar_figure diane murphy also made federal_income_tax returns for and on form sec_1040 on the basis of a calendar_year diane murphy reported no income related to alimony for either year petitioners have four children three of whom lived with diane murphy during and opinion i introduction we must determine whether certain payments made on account of the dissolution of the marriage of petitioners ronald murphy and diane murphy are alimony for federal_income_tax purposes if such payments the marital payments are alimony then they are deductible by ronald murphy and includable in gross_income by diane murphy if the marital payments are not alimony then they are not deductible by ronald murphy and are not includable in gross_income by diane murphy the relevant rules are found in sec_71 and sec_215 ii diane murphy as stated in the notices of deficiency and in her pleadings respondent has taken inconsistent positions with respect to petitioners respondent has required diane murphy to include the marital payments in gross_income but has denied ronald murphy any deductions on brief however respondent clearly favors diane murphy respondent does not make alternative proposed findings_of_fact but makes only proposed findings_of_fact that in sum are inconsistent with a finding that diane murphy received any alimony from ronald murphy respondent’s arguments are consistent with her proposed findings_of_fact accordingly we consider respondent as having conceded that none of the marital payments received by diane are alimony for purposes of diane murphy’s case we find that none of the payments made by ronald murphy to diane murphy are alimony we hold that no amount must be included in diane murphy’s income pursuant to sec_71 and we determine that there are no deficiencies in diane murphy’s income_tax for either or iii ronald murphy a trial in this case was held on date ronald murphy was present at the trial at the conclusion of the trial the court directed the parties to file briefs ronald murphy has filed no brief the requirement to file briefs is found in rule the provisions of which are not permissive but mandatory on occasion when a party has failed to file a brief we have dismissed the case with respect to those issues for which the party bore the burden_of_proof 84_tc_693 tactics employed by petitioners and their counsel were carefully calculated to prevent any meaningful resolution of their case affd without published opinion 789_f2d_917 4th cir or we have deemed the party to have conceded all such issues mock v commissioner tcmemo_1987_ petitioner clearly aware of his obligations to organize the extensive material presented at trial and to give the court his views of the controlling legal authorities more commonly however we have taken note of a party’s failure_to_file a brief and have gone on to decide the issues on which the party bore the burden_of_proof on the basis of the stipulation of facts and its attached exhibits the record made at trial and respondent’s brief e g 84_tc_716 giouzelis v commissioner tcmemo_1991_595 we shall follow that last course here ronald murphy has failed to carry his burden of proving that the marital payments are alimony within the meaning of sec_71 the stipulated facts establish that ronald murphy was ordered to pay family support under california law an order of family support is an order that combines child and spousal support see cal fam code secs west once sec_71 provides b alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse the california family code enacted in and operative from date was derived from the family law provisions of the california civil code code of civil procedure evidence code and probate code prior to the enactment of cal fam code secs and family support was made available under cal civ code secs d and p west see in re marriage of leathers cal rptr ct app people v dilday cal rptr 2d app dept super continued ordered by a court child_support survives the death of the payee custodial_parent and continues as an obligation of the payor noncustodial_parent in re marriage of mccann cal rptr 2d ct app in re marriage of gregory cal rptr ct app recently in ambrose v commissioner tcmemo_1996_128 we addressed a question concerning california family support in that case the taxpayer the ex-wife had argued that a part of the family support payments received by her was not alimony because under california law a noncustodial parent’s obligation for child_support is not terminated upon death of the custodial_parent the ex-wife the taxpayer was relying on the fact that cessation of payments on the death of the payee spouse is a necessary element of alimony sec_71 we said that to be successful the ex-wife would have to show that a portion of the family support payments received by her would survive her death we found against the ex-wife based on our holding that california law does not provide for the segregation of unallocated or undifferentiated child and spousal support payments ie family support an examination of the california cases we relied on which dealt with the remarriage not the death of the payee spouse danz v danz p 2d cal ct app hale v hale p 2d cal ct app shows that the trial courts could have continued continued ct the payments in question undiminished after the remarriage of the payee spouse see eg danz v danz supra pincite no abuse_of_discretion in trial court’s refusal to enforce husband’s obligation to pay combined alimony and child_support beyond remarriage of wife we have found no contrary authority on our own and as stated we have not been favored with a brief by ronald murphy for purposes of this case we shall assume that the obligation to make the marital payments could have survived the remarriage or death of diane murphy moreover there is insufficient evidence for us to find that the marital payments would not have survived the death of diane murphy before the majority of the children in her custody thus ronald murphy has failed to prove a necessary element of sec_71 viz the subparagraph d requirement of cessation on the death of the payee spouse and consequently he has failed to prove that the marital payments are alimony within the meaning of sec_71 finally respondent has determined sec_6662 penalties against ronald murphy for both and sec_6662 provides for the imposition of a penalty on any portion of an underpayment that is attributable to among other causes negligence or disregard of rules or regulations or any substantial_understatement_of_income_tax in the petition ronald murphy assigned error to respondent’s determinations of sec_6662 penalties but did not aver any facts in support of that assignment we assume that ronald murphy relies on our determining no or reduced deficiencies to defeat or ameliorate the penalties since we sustain the deficiencies determined by respondent we find no basis for redetermining the penalties determined by respondent on the premises stated we sustain respondent’s determinations of deficiencies and penalties with respect to ronald murphy decision will be entered for respondent in docket no decision will be entered for petitioner in docket no


t c memo united_states tax_court suzanne bland petitioner v commissioner of internal revenue respondent docket no filed date p filed joint federal_income_tax returns with her husband h for the and taxable years following h’s death p seeks relief from joint_and_several_liability under sec_6015 i r c with respect to the and tax_liabilities held p is not entitled to relief from joint_and_several_liability pursuant to sec_6015 i r c with respect to her and taxable years suzanne bland pro_se sarah a herson for respondent memorandum findings_of_fact and opinion wherry judge this case arises from a petition for judicial review of respondent’s determination denying relief from joint_and_several_liability under sec_6015 for the taxable years and the issue for decision is whether petitioner is entitled to relief from joint_and_several_liability under sec_6015 for the taxable years and findings_of_fact the parties have stipulated some of the facts the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time she filed her petition petitioner resided in california during the taxable years at issue petitioner was married to matthew d bland mr bland petitioner and mr bland signed and timely filed a joint form_1040 u s individual_income_tax_return joint income_tax return for each of the and tax years on the joint income_tax return petitioner and mr bland reported a tax liabilty of dollar_figure withholding credits of dollar_figure and a total_tax due of dollar_figure however no payment sec_1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure the parties have stipulated that petitioner is not entitled to any relief under sec_6015 or c accompanied the filing of the joint income_tax return because of mathematical errors on the joint income_tax return respondent recalculated the total_tax liability as dollar_figure with total_tax due of dollar_figure on the joint income_tax return petitioner and mr bland reported a tax_liability of dollar_figure withholding credits of dollar_figure and a total_tax due of dollar_figure again no payments accompanied the filing of petitioner’ sec_2002 joint income_tax return respondent sent a joint final notice_of_intent_to_levy and notice of your right to a hearing cdp_notice to petitioner and mr bland at their last_known_address by certified mail on date for the taxable_year the certified mail return receipt which accompanied the cdp_notice was signed and returned to respondent on date separate cdp notices were sent to petitioner and mr bland at their last_known_address by certified mail return receipt requested on date for the taxable_year the certified mail return receipts which accompanied the cdp notices were signed and returned to respondent separately on november and at the time petitioner signed the and joint income_tax returns she and mr bland were having financial difficulties although petitioner was aware that taxes were owed to the internal_revenue_service irs during the taxable years at issue she believed that mr bland had remitted payment upon submitting the joint income_tax returns on date mr bland passed away on or about date petitioner filed form_8857 request for innocent spouse relief requesting relief with respect to the and tax years respondent’s covington kentucky collection office initially denied petitioner’s request for innocent spouse relief for the and tax years on date on the basis that her request was not timely on date petitioner responded with a form statement of disagreement requesting that respondent reconsider the denial at respondent’s appeals_office appeals her reasons for the continued dispute paralleled those alluded to in her form i was under the impression that refunds due to us were used to pay for taxes we owed i did not do any of our tax returns and was not aware of the amounts owed to the irs i have always worked and paid my portion of the taxes it would be a definite hardship for me to maintain a home for myself teenage daughter without any relief from the taxes owed i barely kept my home due to my husband’s inability to work the last year of his life due to my adult son paying my utilities today i have been able to survive the last few years i was not aware of the tax_deficiency we owed petitioner received the requested reconsideration of her claim by appeals appeals’ case activity records show that joan c weiss reviewed petitioner’s case and spoke with petitioner by telephone on one occasion to explain her rights to her on date respondent sent to petitioner a final appeals determination denying her request for innocent spouse relief for tax years and petitioner on date filed a timely petition with this court contesting the adverse determination opinion in general married taxpayers may elect to file a joint income_tax return sec_6013 after making the election each spouse generally is jointly and severally liable for the entire federal_income_tax liability for that year whether as reported on the joint income_tax return or subsequently determined to be due sec_6013 see sec_1_6013-4 income_tax regs a spouse or former spouse may petition the commissioner for relief from joint_and_several_liability in certain circumstances see sec_6015 the commissioner may relieve a spouse or former spouse from joint_and_several_liability if taking into account all the facts and circumstances it would be inequitable to hold the taxpayer liable for any unpaid tax or deficiency sec_6015 we begin with the standard of review and the burden_of_proof respondent denied petitioner’s request for relief on the ground that petitioner had filed her request more than years after respondent’s first collection activity against her commenced for the and tax years since this fact violated one of the seven threshold conditions for granting relief discussed below respondent urges us to stop our inquiry here and find against petitioner we decline to do so since we have previously held that the 2-year limitations_period of sec_1_6015-5 income_tax regs is invalid with respect to claims for relief under sec_6015 in the alternative respondent argues that we should review the case for abuse_of_discretion however we have held that the applicable standard of review is de novo 132_tc_203 petitioner bears the burden of proving that she is entitled to relief under sec_6015 see rule a the commissioner has outlined procedures for determining whether a requesting spouse qualifies for equitable relief under sec_6015 see revproc_2003_61 2003_2_cb_296 we 2this court has held that the 2-year limitations_period prescribed by sec_1_6015-5 income_tax regs is invalid with respect to claims for relief under sec_6015 hall v commissioner t c slip op pincite 132_tc_131 revd 607_f3d_479 7th cir cf 54_tc_742 affd on other issues 445_f2d_985 10th cir as petitioner’s case is appealable to the court_of_appeals for the ninth circuit we follow this court’s precedent articulated in lantz and hall now analyze the facts under these procedures to determine whether petitioner qualifies for equitable relief i threshold conditions revproc_2003_61 sec_4 c b pincite sets forth seven threshold conditions that must be satisfied before the commissioner will consider a request for equitable relief under sec_6015 as follows i the requesting spouse filed a joint income_tax return for the taxable_year for which he or she seeks relief ii relief is not available to the requesting spouse under sec_6015 or c iii the requesting spouse applies for relief no later than years after the date of the commissioner’s first collection activity after date with respect to the requesting spouse iv no assets were transferred between the spouses as part of a fraudulent scheme by the spouses v the nonrequesting spouse did not transfer disqualified assets to the requesting spouse vi the requesting spouse did not file or fail to file the return with fraudulent intent and vii the federal_income_tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint income_tax return the record establishes that except for the 2-year filing limitation see 3see supra note supra note petitioner satisfies the threshold conditions of revproc_2003_61 sec_4 ii safe_harbor conditions if the threshold conditions are met the commissioner ordinarily will grant equitable relief under sec_6015 with respect to an underpayment of income_tax reported on a joint federal_income_tax return provided the following three safe_harbor conditions are satisfied i on the date of the request for relief the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse ii on the date the requesting spouse signed the joint income_tax return the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the tax_liability and iii the requesting spouse will suffer economic hardship if the commissioner does not grant relief id sec_4 c b pincite respondent contends that petitioner has not established that she meets any of the three safe_harbor requirements the court disagrees with respondent and finds that petitioner satisfies the first condition as at the time petitioner requested relief mr bland was deceased we view that circumstance with respect to petitioner as tantamount to her no longer being married see rosenthal v commissioner tcmemo_2004_89 with regard to the second criterion petitioner has admitted that she and mr bland were experiencing financial difficulties when they filed the and joint income_tax returns and that she was aware that there were amounts owed to the irs yet she claims that she was under the impression mr bland had taken care of the amounts owed either by remitting payment when he mailed in the joint income_tax returns or by applying refunds due towards the tax_liabilities for the years at issue however petitioner has not established that it was reasonable for her to rely on mr bland to pay the tax due especially considering that she and mr bland were experiencing financial difficulties therefore the court finds that this factor has not been met accordingly because petitioner does not meet all the requirements of the safe_harbor we need not address the third condition in order to conclude that petitioner does not qualify for relief under revproc_2003_61 sec_4 iii facts_and_circumstances_test a requesting spouse such as petitioner who satisfies the threshold conditions but fails to satisfy the safe_harbor conditions under revproc_2003_61 sec_4 is nevertheless eligible for relief under f if taking into account all the facts and circumstances it is inequitable to hold the requesting spouse liable for an underpayment revproc_2003_61 sec_4 c b pincite lists various factors to be considered in deciding whether to grant equitable relief under sec_6015 no single factor is determinative all factors are to considered and weighed appropriately and the listing of factors is not intended to be exhaustive id our analysis of the relevant factors and circumstances is set forth below a marital status we have already concluded that petitioner was widowed from mr bland the nonrequesting spouse at the time of her request this factor weighs in favor of relief b economic hardship if relief were denied the second consideration under revproc_2003_61 sec_4 is that the requesting spouse will suffer economic hardship if relief is not granted economic hardship for these purposes is defined as the inability to pay reasonable basic living_expenses if the requesting spouse is held liable for the tax owed see sec_301_6343-1 proced admin regs the ability to pay reasonable basic living_expenses is determined by considering among other things the following nonexclusive factors the taxpayer’s age employment status ability to earn number of dependents expenses for food clothing housing medical and transportation and any extraordinary circumstances id respondent computed petitioner’s gross monthly income and living_expenses and concluded that her income exceeded her expenses by dollar_figure per month and that holding her accountable for the tax owed would not result in economic hardship however petitioner testified at trial that she now has a car payment to make that she did not have at the time and lives on a strict strict budget in order to survive month to month and that she does not have the means to pay the tax_liabilities owed the court appreciates that petitioner’s financial circumstances are difficult but she has not presented any evidence to dispute respondent’s calculations she testified at trial that her car payment causes her monthly expenses to be greater than what she claimed on her form_8857 and that she incurs excessive medical_expenses but she provided no evidence to substantiate her testimony she candidly verified the accuracy of the expenses listed on her form_8857 and admitted that she receives an additional dollar_figure of monthly income on the record before us petitioner’s actual expenses are not enough for us to conclude that she would be unable to pay her basic living_expenses if relief were not granted accordingly this factor weighs against relief c knowledge or reason to know that the nonrequesting spouse would not pay the income_tax_liability as noted supra petitioner was aware that she and mr bland were facing financial difficulties accordingly we find that she did have reason to know that mr bland would not pay the and income_tax liabilities and therefore find this factor weighs against relief d nonrequesting spouse’s legal_obligation to pay the outstanding liability because petitioner and mr bland remained married until he died this factor is neutral e significant economic benefit a fifth factor is whether the requesting party received a significant economic benefit from the unpaid income_tax_liability appeals in its workpaper determined that petitioner did not receive a significant economic benefit this factor weighs in favor of relief f subsequent compliance with income_tax laws a sixth consideration is whether the requesting spouse made a good_faith effort to comply with federal_income_tax laws in subsequent years appeals determined that petitioner failed to report self-employment_income on the joint income_tax return and that on the joint_return for she and mr bland reported a balance due but made no payments petitioner provided no evidence to dispute respondent’s determinations this factor weighs against relief g abuse a seventh factor is abuse of the requesting spouse abuse by the nonrequesting spouse favors relief the record does not indicate petitioner suffered abuse from mr bland this factor is neutral h poor health when signing the return or requesting relief the final consideration is whether the requesting spouse was in poor health when signing the return or requesting relief the record does not indicate that petitioner was in poor health when she signed the and joint income_tax returns and appeals determined that petitioner was not in poor physical or mental health when she signed the returns or at the time she requested relief however petitioner testified at trial that she is diabetic takes seven medications a day and sees a doctor every two weeks yet petitioner provided no evidence to substantiate or corroborate her testimony on the record available the court cannot conclude that petitioner’s poor health weighs in favor of granting her relief therefore this factor is neutral iv conclusion about equitable relief as indicated by the foregoing analysis three factors are neutral two of the factors--marital status and significant benefit--favor relief three of the factors--economic hardship knowledge or reason to know and compliance with federal_income_tax laws--counsel against relief after weighing the testimony and evidence we conclude that petitioner is not entitled to equitable relief in reaching this conclusion we take into account that while her standard of living may be affected petitioner will not suffer economic hardship if required to pay the outstanding tax_liabilities accordingly the court finds that petitioner is not entitled to relief under sec_6015 the court has considered all other arguments made by the parties and to the extent not specifically addressed herein has concluded that they are without merit or are moot to reflect the foregoing decision will be entered for respondent