internal_revenue_service national_office technical_advice_memorandum date number release date third party contact none index uil no case-mis no district_director manhattan 2518-dollar_figure tam-108572-04 cc psi b04 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend --------------------------------------- -------------------------------------- ------------------------------------ ----------------------------- ---------------- -------------------- --------------------- - - decedent beneficiary ---------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- order date state x ---------------------------------------------------------------------- -------------------- - - - - ------------- - -------------------------- --------------------------- ------- ------- - - date date year year - ------------------------------------------------------ citation issue does decedent’s residuary bequest to beneficiary an individual who is a member of a religious_order and has taken a vow of poverty qualify for an estate_tax charitable deduction under sec_2055 of the internal_revenue_code tam-108572-04 conclusion decedent’s residuary bequest to beneficiary does not qualify for a deduction under sec_2055 facts order took perpetual vows vow of poverty and has been subject_to those vows at all times since that date the vow of poverty taken by beneficiary states in pertinent part decedent and beneficiary were siblings on date beneficiary as a member of i beneficiary make to god in your hands reverend mother superior in place of the most reverend archbishop the simple vows of poverty chastity and obedience for life according to the constitution of order order is a religious_organization described in sec_2055 to which bequests are deductible under sec_2055 the code of canon law provides in part sec_4 when the nature of an institute requires members to renounce their goods totally this renunciation is to be made before perpetual profession and as far as possible in a form that is valid also in civil law it shall come into effect from the day of profession the same procedure is to be followed by a perpetually professed religious who in accordance with the norms of the institute’s own law and with the permission of the supreme moderator wishes to renounce goods in whole or in part sec_5 professed religious who because of the nature of their institute totally renounce their goods lose the capacity to acquire and possess goods actions of theirs contrary to the vow of poverty are therefore invalid whatever they acquire after renunciation belongs to the institute in accordance with the institute’s own law article fourth of decedent’s will provides that if beneficiary survives decedent died testate on date a resident of state x survived by beneficiary decedent’s will had been executed on date several years after date under the terms of decedent’s will beneficiary was appointed the executrix of decedent’s estate decedent beneficiary may select whatever contents of decedent’s apartment and personal effects as beneficiary chooses any contents and personal effects not selected by beneficiary will pass to a named third party if both beneficiary and the third party predecease decedent the contents and personal effects are to be distributed in the same manner as the residuary_estate article fifth of decedent’s will states tam-108572-04 i direct that all the rest residue and remainder of my estate both real and personal_property of whatsoever kind nature and description and wheresoever the same may be situated shall be given to beneficiary if beneficiary predeceases me it shall be given to order decedent’s estate consisted primarily of securities and cash beneficiary serving in her capacity as executrix of decedent’s estate transferred title to the securities to the name of the order and transferred cash to the order the transfers to order occurred in year and year more than months after decedent’s date of death law and analysis sec_2055 provides for a deduction from the gross_estate for the value of property included in the gross_estate and transferred by the decedent during life or by will to or for_the_use_of organizations or for purposes described in sec_2055 - including under sec_2055 any corporation organized and operated exclusively for religious purposes sec_2055 in flush language further provides that for purposes of this subsection the complete termination before the date prescribed for filing of the estate_tax_return of a power to consume invade or appropriate property for the benefit of an individual before such power has been exercised by reason of the death of such individual or for any other reason shall be considered and deemed to be a qualified_disclaimer with the same full force and effect as though he had filed such qualified_disclaimer sec_20_2055-2 of the estate_tax regulations provides that in the case of a bequest devise or transfer made by a decedent dying after date the amount of the bequest devise or transfer for which a deduction is allowable under sec_2055 includes an interest which falls into the bequest devise or transfer as a result of either i a qualified_disclaimer under sec_2518 or ii the complete termination of a power to consume invade or appropriate property for the benefit of an individual by reason of the death of such individual or for any other reason if the termination occurs within the period of time including extensions for filing the decedent’s federal estate_tax_return and before such power has been exercised sec_2046 provides that for estate_tax purposes disclaimers of property interests passing upon death are treated as provided in ' sec_2518 provides that if a person makes a qualified_disclaimer of an interest in property the estate gift and generation-skipping_transfer_tax provisions will apply to that interest as if it had never been transferred to such person tam-108572-04 under ' b the term qualified_disclaimer means an irrevocable and unqualified refusal by a person to accept an interest in property provided the disclaimer is in writing the disclaimer is received by the transferor of the interest his legal_representative or the holder of legal_title to the property not later than the date which is months after the later of the date on which the transfer creating the interest is made or the date on which the person refusing the interest attains age the person disclaiming the interest has not accepted the interest or any of its benefits and as a result of the disclaimer the interest passes without any direction by the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer sec_2518 provides that a written transfer of the transferor’s entire_interest in the property which meets the requirements of sec_2518 and and which is to a person who would have received the property had the transferor made a qualified_disclaimer shall be treated as a qualified_disclaimer under ' b of the gift_tax regulations if a qualified_disclaimer is made the property is treated for federal gift estate and generation-skipping_transfer_tax purposes as passing directly from the transferor and not from the disclaimant to the person entitled to receive the property as a result of the disclaimer sec_25_2518-2 provides that in order to qualify as a qualified_disclaimer the disclaimer must be in writing and the writing must identify the interest in property disclaimed and be signed by either the disclaimant or by the disclaimant’s legal_representative in addition ' c provides that the written disclaimer must be delivered to the transferor’s legal_representative etc no later than the date which is months after the date on which the transfer creating the interest in the disclaimant is made under ' d a qualified_disclaimer cannot be made with respect to an interest in property if the disclaimant has accepted the interest or any of its benefits expressly or impliedly prior to making the disclaimer under ' d if a beneficiary who disclaims an interest in property is also a fiduciary actions taken by such person in the exercise of fiduciary powers to preserve or maintain the disclaimed property eg directing the harvesting of a crop or maintenance of a home is not treated as an acceptance of such property a for purposes of this section the term disposition shall include a disposition under a will the law of state x at citation provides in pertinent part tam-108572-04 b any beneficiary of a disposition may renounce all or part of his interest provided however that a surviving joint tenant or tenant by the entirety may not renounce that portion of an interest in joint property or property held by the entirety which is allocable to amounts contributed by him to the interest in such property such renunciation shall be in writing signed and acknowledged by the person renouncing and shall be filed in the office of the clerk of the court having jurisdiction over the will or trust agreement governing the property of which the disposition would otherwise be made or the court which issued the letters of administration within nine months after the effective date of the disposition such renunciation shall be accompanied by an affidavit of the renouncing party that he has not received any compensation in money or money’s worth for such renunciation d unless the creator of the disposition has otherwise provided the filing of the renunciation as provided in this section has the same effect with respect to the renounced interest as though the renouncing person had predeceased the creator or the decedent the person making the disclaimer must in the written disclaimer instrument affirmatively and unequivocally renounce his or her right to a property interest in a manner that is not subject_to revocation or retraction estate of chamberlain v commissioner t c memo further in order to constitute a qualified_disclaimer under sec_2518 the disclaimer must satisfy the requirements of sec_2518 and in addition must be effective under applicable local law if the disclaimer is not effective under applicable local law then the property will in fact pass to the disclaimant 100_tc_42 in general a bequest to an individual that the individual is required to transfer to a religious_order pursuant to a vow of poverty in effect at the time of the decedent’s death does not qualify for an estate_tax charitable deduction under sec_2055 under these circumstances the property does not pass from the decedent to the religious_order pursuant to the terms of the testamentary instrument rather the property passes to the religious_order from the individual subject_to the vow of poverty pursuant to the contractual arrangement between the individual and the order revrul_68_459 1968_2_cb_411 revrul_55_759 1955_2_cb_607 in 33_tc_870 the decedent bequeathed shares of her residuary_estate to two children who were subject_to vows of poverty as members of religious orders at the time the will was executed the effect of the vow of poverty was to make the beneficiaries incapable of acquiring property by any means and any property acquired by the beneficiaries automatically became property of their respective order the court concluded that the decedent who knew that property given to her daughters who were subject_to the vow of poverty would pass to the orders the estate contends that beneficiary’s vow of poverty entered into on date in the instant case as was the situation presented in estate of callaghan and the tam-108572-04 nevertheless intended to transfer the property to her daughters the court noted that the clear language of the will indicated that the decedent’s intent was to benefit her children primarily and that if she had wanted to transfer the property to the orders she could have done so directly the court in concluding that the bequest didn’t qualify under sec_812 the predecessor of sec_2055 found that the decedent didn’t intend to benefit charity directly and refused to apply a constructive trust argument to the transfer see also 338_f2d_376 ct_cl 311_f2d_681 9th cir 297_f2d_36 2nd cir 60_tc_618 59_tc_361 other cases cited above under the terms of the decedent’s will the residuary_estate passed to beneficiary and not to order the residuary_estate was distributed to order pursuant to beneficiary’s obligation under the vow of poverty in accordance with the cited cases and revenue rulings the residuary bequest does not qualify for the charitable deduction under sec_2055 prior to decedent’s death constitutes a qualified_disclaimer which satisfies the requirements of sec_2518 or in the alternative constitutes a transfer treated as a disclaimer that satisfies the requirements of sec_2518 further as a result of the disclaimer beneficiary is treated as pre-deceasing decedent and consequently the disclaimed interest passes to order under the residuary clause of decedent’s will accordingly the estate concludes that the disclaimed bequest qualifies for the charitable deduction under sec_20_2055-2 specifically the vow was an irrevocable and unqualified refusal to accept the bequest that was in writing further because beneficiary is the executrix of decedent’s estate beneficiary as a practical matter received the disclaimer within the month period after decedent’s death finally beneficiary’s actions as executrix in administering decedent’s estate and transferring funds to order were the actions taken in a fiduciary capacity and thus did not constitute acceptance of the property interests or direction regarding disposition of the interests by the disclaimant however we do not believe that the vow of poverty entered into by beneficiary on date constitutes a qualified_disclaimer under sec_2518 first the vow did not satisfy the state law requirements for a valid disclaimer for example there is no indication that the instrument was filed with the appropriate probate_court as required by state law or that any other statutory procedural requirements were satisfied see citation see also estate of bennett v commissioner cited above t c pincite disclaimers renouncing certain trust interests that were defective under state law because not timely filed in court did not satisfy the requirements of sec_2518 further the vow first the estate argues that the vow satisfies the requirements of sec_2518 tam-108572-04 would not have the effect of treating beneficiary as predeceasing the decedent for inheritance purposes such that the property did not pass to beneficiary similarly the vow did not contain the specific language required to satisfy sec_2518 and sec_25_2518-2 the vow is not a written refusal to accept the property interest passing from decedent and does not describe or designate the particular property being disclaimed as required by those sections see estate of chamberlain v commissioner cited above purported renunciation that failed to designate or describe the particular property disclaimed was not a qualified_disclaimer residuary_estate to order that is treated as a qualified_disclaimer pursuant to sec_2518 transferor’s entire_interest in the property which meets the requirements of sec_2518 and and which is to a person who would have received the property had the transferor made a qualified_disclaimer shall be treated as a qualified_disclaimer sec_2518 as follows the applicable legislative_history describes the purpose for the enactment of the estate argues in the alternative that beneficiary made a transfer of the as discussed above sec_2518 provides that a written transfer of the sec_2518 requires among other conditions that the disclaimer be effective under local law to pass title without direction on the part of the person making the disclaimer as a result a disclaimer that is ineffective under local law cannot be treated as a qualified_disclaimer for purposes of the federal estate and gift_tax even if the disclaimant transfers the property to the individual who under local law would have received the property if there had been an effective disclaimer in order to provide uniform treatment among states the committee believes that where an individual transfers property to the person who would have received the property had the transferor made an effective disclaimer under local law the transfer will be treated as an effective disclaimer this legislative_history indicates that the section was intended to apply in h_r rep no pincite situations where the disclaimant could not effectively disclaim under state law but could satisfy the federal requirements under sec_2518 for example in a situation where under state law the disclaimer has to be made within months of decedent’s death rather than the month period allowed under federal_law in such a situation under sec_2518 if the transferor transfers the property more than 6_month but within months after the decedent’s death to the person who would take the property if a valid state law disclaimer had been executed and the other requirements of sec_2518 are satisfied then the transfer is treated as a qualified_disclaimer to put it another way sec_2518 applies only if the state law disclaimer was tam-108572-04 not available to the transferor at the time of the transfer or assignment sec_2518 was not intended to be used in lieu of an available state law disclaimer where state and federal_law are consistent any other interpretation of sec_2518 would make sec_2518 and b superfluous in 100_tc_42 which supports this interpretation of the application of sec_2518 the court stated sec_2518 assumes that a transfer to the beneficiary has already occurred under local law because a disqualified disclaimer did not avoid the transfer that beneficiary can still avoid the effects of the disqualified disclaimer by making a written transfer to the person who would have received the property had the beneficiary made an effective disclaimer sec_2518 should not be viewed as a catch-all provision to save defective or disqualified disclaimers but as an entirely new relief provision under which after a disclaimer has been disqualified that is the disclaimer is not valid under state law the would-be disclaimant makes an actual written transfer to the person who otherwise would have received the property had the disclaimer been valid under local law the relief of sec_2518 was designed to eliminate the gift_tax consequences for the beneficiary who had made a disclaimer that was disqualified not valid under state law and who then made an actual written transfer to another individual in this case beneficiary was never foreclosed at any time during the nine month period after the decedent’s death from making a disclaimer that would have satisfied both applicable state x law and sec_2518 accordingly sec_2518 does not apply in this case further we do not believe the transfer satisfies the requirements of sec_2518 in any event first we note that the assets were actually transferred by beneficiary to the order more than nine months after decedent’s death further even assuming beneficiary’s execution of the vow on date is viewed as the act of transfer the vow would not satisfy the requirements of sec_2518 to qualify under sec_2518 there must be a written transfer from the disclaimant to a named person who would have received the property if a legal disclaimer had been made in this case as noted above the vow does not describe or designate the particular property being disclaimed or purport to assign the property to the order 89_tc_550 rev’d on other grounds 872_f2d_84 4th cir the decedent’s estate also argues that beneficiary’s vow of poverty resulted in the termination of beneficiary’s interest in the residuary bequest this termination of her interest in the residuary_estate constitutes the termination of a power to consume invade or appropriate that is treated as a qualified_disclaimer under the flush language of sec_2055 quoted above and sec_20_2055-2 tam-108572-04 however a review of relevant case law treatises and legislative_history indicates that the flush language treating a termination of a power as a disclaimer of the power only applies to powers to consume invade or appropriate for the benefit of a noncharitable beneficiary that would cause a charitable_bequest of a remainder or similar interest to fail to qualify for a charitable deduction under sec_20_2055-2 the language does not apply to the termination of property interests within months of death see revrul_76_546 c b sec_2055 of the code and the regulations thereunder provide for death to operate as a disclaimer only with respect to a power to consume invade or appropriate property it does not apply to other interests stephens maxfield lind calfee and smith federal estate_and_gift_taxation c 8th ed congress has not elected to treat the death of one who has a property interest as a disclaimer of the interest see also lowndes kramer and mccord federal estate_and_gift_taxes 3rd ed in merchant’s national bank v commissioner 583_f2d_19 1st cir the terms of a testamentary_trust provided for income to be paid to a noncharitable beneficiary for life with the remainder to a qualified charity the income_beneficiary died ½ months after the decedent and the corpus passed to the charity the estate argued that under the sec_2055 flush language the termination of the life tenant’s income_interest prior to the due_date of the estate_tax_return is treated as if the life_tenant disclaimed the income_interest accordingly the estate argued that a charitable deduction should be allowed for the entire value of the trust corpus without reduction for the noncharitable income_interest the court determined that the flush language did not operate to treat the termination of the beneficiary’s income_interest as a disclaimer of that interest as follows our first question is whether the district_court erred in holding that the death of the life_tenant before the prescribed filing_date of the estate_tax_return operated as a disclaimer of a power to consume invade or appropriate property the issue is more specifically whether mildred's interest a simple life interest is also a power to consume t he legislative_history points to a deliberate focus on a power to consume principal in the effort to equate death to a statutory disclaimer a case involving the estate of solomon allinger had been brought to the attention of the senate_finance_committee hearings before committee on finance united_states senate 83d cong 2d sess on h_r part i the testator had left his residuary_estate to a charitable_remainder_trust subject however to a payments of net_income to his wife for her life and b a power in the trustee in its discretion to expend principal for the life_tenant the wife died within days after testator's death the problem which the executors faced was that under 320_us_256 64_sct_108 88_led_35 and union planters national bank trust co v 335_us_595 69_sct_290 93_led_259 the mere existence of a broad power to invade principal was held to render the value tam-108572-04 of a charitable_remainder so uncertain that no deduction could be allowed the curative device of what is now sec_2055 was enacted to permit the death of a beneficiary of such a power before the due_date of the estate_tax_return to have the effect of a disclaimer the estate has argued that since a mere life interest was also involved in the allinger problem sec_2055 must also refer to an interest in income as well as power to invade the principal but it neglected to tell us that the allinger executors specifically acknowledged that the charitable deduction would have to be reduced by the value of the life_estate they took issue only with the doctrine as to powers merchant’s national bank v commissioner f 2d pincite in this case beneficiary received an outright bequest of property under decedent’s will the order was entitled to the property only if beneficiary predeceased the decedent as discussed in merchant’s national bank revrul_76_546 and the treatises cited above under the sec_2055 flush language the death of the noncharitable beneficiary or other event only operates as a disclaimer with respect to powers of invasion etc that would otherwise disqualify a charitable_remainder or similar bequest the provision does not apply with respect to an outright bequest to an individual such as the residuary bequest in this case that is in the case of an outright bequest to an individual payable to charity if the individual predeceased the testator the death of the individual after the testator’s death would not be treated as a disclaimer under the flush language accordingly we do not believe that the flush language of sec_2055 applies in this situation in any event a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent -end-


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 ita b03 plr-139678-16 date date legend taxpayer target bank1 bank2 accountingfirm date1 date2 date3 date4 date5 year1 year2 dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dear ------------- --------------------------------------- --------------------------------- ------------------------------ ----------------------------------- -------------- -------------------------- ----------------------- -------------------- ---------------- ------------------------ ------ ------ --------------- ---------- ---------------- ---------- --------------- ------------ ---------------- this letter responds to a letter dated date1 submitted on behalf of taxpayer requesting a ruling that taxpayer be granted an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file a safe_harbor plr-139678-16 election under revproc_2011_29 2011_18_irb_746 facts taxpayer is a corporation that designs develops manufactures distributes and sells a variety of -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- on date2 taxpayer submitted an indication of interest in acquiring target in year1 taxpayer entered into engagement letters with two investment banking firms bank1 and bank2 to serve as financial advisors in a potential acquisition of target both engagement letters called for a dollar_figurea fee contingent upon closing the transactions the agreement with bank2 also included a non-refundable monthly dollar_figureb retainer fee that would reduce its dollar_figurea contingent_fee both firms ultimately reduced their fees to dollar_figurec and bank2 reduced the monthly retainer to dollar_figured on date3 taxpayer submitted a revised indication of interest on date4 taxpayer and target entered into an exclusivity agreement the transaction closed on date5 as a result of this transaction taxpayer and target became related entities within the meaning of sec_267 of the internal_revenue_code the fees ultimately paid to bank1 and bank2 totaled dollar_figuree consisting of dollar_figuref in retainer fees incurred prior to date4 and dollar_figureg in success-based fees on its year1 form_1120 taxpayer deducted the dollar_figuref in retainer fees as expenses which did not facilitate the transaction further taxpayer deducted ---- of the success-based fees as amounts that did not facilitate the transaction and capitalized the remaining ---- under the safe_harbor election of revproc_2011_29 however taxpayer inadvertently did not include the election statement required by revproc_2011_29 with its year1 income_tax return this omission was not discovered until taxpayer’s year1 return was reviewed by a new employee of taxpayer in year2 upon discovery taxpayer engaged the services of accountingfirm to assist with its request to obtain relief under sec_301_9100-3 taxpayer asserts that no return that would be affected by this ruling is under examination before appeals or before a federal court law sec_263 provides generally that no deduction is allowed for any amount_paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate or any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made sec_1_263_a_-1 of the income_tax regulations provides that no deduction is allowed for an amount_paid to acquire or create an intangible which under sec_1 a - c i and a -4 d i a includes an ownership_interest in a corporation or other entity see also sec_1_263_a_-4 plr-139678-16 in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized see 503_us_79 397_us_572 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a covered transaction described in sec_1_263_a_-5 success-based_fee is an amount_paid to facilitate the transaction except to the extent the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction this documentation must be completed on or before the due_date of the taxpayer's timely filed original federal_income_tax return including extensions for the taxable_year during which the transaction closes section dollar_figure of revproc_2011_29 provides a safe_harbor election for allocating success based fees paid in business_acquisitions or reorganizations described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to treat of such success-based fees as amounts which do not facilitate the transaction and therefore are not required to be capitalized provided that the taxpayer capitalizes the remaining amount of the success- based fees as an amount which does facilitate the transaction the taxpayer must also attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted treated as not facilitating the transaction and capitalized treated as facilitating the transaction it is this last requirement that taxpayer requests permission to accomplish with this ruling_request taxpayer requests permission with this ruling_request to attach the statement required by section dollar_figure of revproc_2011_29 to its return by amending its original filed return and superseding it with a return with the proper election statement completed and attached plr-139678-16 sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register or a revenue_procedure published in the internal_revenue_bulletin 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 sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer - i ii iii iv v requests relief before the failure to make the election is discovered by the service inadvertently failed to make the election because of intervening events beyond the taxpayer's control failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or reasonably relied on a qualified_tax professional who failed to make the election or to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably or in good_faith if the taxpayer - i ii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election but chose not to file the election or plr-139678-16 iii uses hindsight in requesting relief when specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a lower tax_liability in the aggregate for all tax years affected by the election than the taxpayer would have had if the election had been timely filed the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief analysis taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in revproc_2011_29 the commissioner has the authority under sec_301_9100-1 and sec_301_9100-3 to grant an extension of time to file a late regulatory election the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith taxpayer requested relief before its failure to make the election was discovered by the service taxpayer did not affirmatively choose not to make the election after it was informed of the need to file the election rather taxpayer intended to take advantage of the safe_harbor provisions in revproc_2011_29 and filed its return for year1 reflecting those provisions but failed to include the required election statement taxpayer is not seeking to alter a return position for which an accuracy-related_penalty had been or could be imposed under sec_6662 at the time relief was requested taxpayer is not using hindsight in requesting relief and no specific facts have changed since the due_date for filing the election that make the election advantageous further based on the information and representations made by taxpayer granting an extension will not prejudice the interests of the government taxpayer will not have a lower tax_liability in the aggregate for year1 and all taxable years affected by the election had it been timely made if relief is granted to make the election at this time than taxpayer would have had if the election had been timely filed in addition year1 and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under sec_6501 before taxpayer receives the ruling granting an extension of time to make a late election plr-139678-16 ruling based solely on the facts submitted and the representations made we conclude that taxpayer acted reasonably and in good_faith and that granting the request will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied taxpayer is granted an extension of days from the date of this ruling to file the statement required by sec_4 of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees properly identifying the party making the election identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized 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 appropriate parties while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed or implied as to whether the taxpayer properly included the correct costs as its success-based fees subject_to the election or whether taxpayer’s transaction was within the scope of revproc_2011_29 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling should be attached to taxpayer's federal_income_tax returns for the tax years affected alternatively taxpayers filing returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling plr-139678-16 in accordance with the provisions of a power_of_attorney currently on file we are sending a copy of the ruling letter to your authorized representatives we are also sending a copy of this letter to the appropriate operating division director enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 sincerely jamie j kim assistant to the branch chief branch income_tax accounting enclosures copy of this letter copy for sec_6110 purposes cc


id office uilc cca_2011090714094052 ---------------- 280f 280f number release date from ---------------------- sent wednesday september pm to ------------------- cc subject re revproc_2004_20 truck chassis auto chassis --------------------- hi ---------- - based on our discussion the taxpayer's --------------------------suv is not a passenger_automobile as defined in sec_280f based on it's gross vehicle rating of -------- and therefore is not subject_to the depreciation limits under sec_280f and revproc_2004_20 this weight rating and the manufacturer's classification as a car truck or van are the controlling factors not the type of chassis ---------------------- -------------------


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 ita b06 plr-104624-03 date legend legend taxpayer p x date date dear ------------------ ------------------------------------------- ------------------------ ------------------ ------------------------ ------------------------------------ - -------------------- -------------------------- this ruling is in reply to the letter submitted by p's authorized representatives that requested an extension of time under sec_301_9100-1 of the procedure and administration regulations to file the required form_970 application to use lifo inventory_method for taxpayer this request is made in accordance with sec_301_9100-3 p is the parent_corporation of an affiliated_group_of_corporations that files consolidated federal_income_tax returns included in these returns are various subsidiaries including taxpayer plr-104624-03 taxpayer was incorporated on date since its inception taxpayer has consistently accounted for all inventory_items in its x division under the last-in_first-out lifo inventory_method however p failed to attach the required form_970 for taxpayer to its federal_income_tax return for taxpayer s initial tax_year ended date the lifo inventory_method has also been consistently used for these inventory_items for financial reporting purposes beginning with the year ended date the failure_to_file the required form_970 was discovered in late during a review of taxpayer s lifo methods soon thereafter p's authorized representatives submitted this request for relief sec_472 of the internal_revenue_code provides that a taxpayer may use the lifo_method of inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribe sec_1_472-3 of the income_tax regulations provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the tax_year as of the close of which the method is first to be used a statement of its election to use such inventory_method under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections if the provisions of sec_301_9100-2 do not apply to a taxpayer s situation the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth the standards that the commissioner will use in determining whether to grant an extension of time to make a regulatory election it also sets forth information and representations that must be furnished by the taxpayer to enable the internal_revenue_service to determine whether the taxpayer has satisfied these standards the standards to be applied in this case are whether the taxpayer acted reasonably and in good_faith and whether granting relief would prejudice the interests of the government plr-104624-03 under sec_301_9100-3 a taxpayer that applies for relief for failure to make an election before the failure is discovered by the service ordinarily will be deemed to have acted reasonably and in good_faith however pursuant to sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election furthermore a taxpayer ordinarily will not be considered to have acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise if the tax consequences of more than one taxpayer are affected by the election the government s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made further the interests of the government are ordinarily prejudiced if the tax_year in which the regulatory election should have been made or any_tax years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer s receipt of a ruling granting relief under sec_301_9100-3 the information and representations furnished by p and taxpayer establish that taxpayer has acted reasonably and in good_faith in this request furthermore granting an extension will not prejudice the interests of the government accordingly an extension of time is hereby granted for p to file the necessary form_970 for the tax_year ended date this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_970 when it is filed no opinion is expressed as to the application of any other provisions of the code or the regulations which may be applicable to the transaction specifically no opinion is expressed regarding the propriety of the lifo inventory methods used by taxpayer this ruling is directed only to p and taxpayer who had requested it sec_6110 provides that it may not be used or cited as precedent plr-104624-03 in accordance with the terms of a power_of_attorney on file with this office a copy of this ruling is being sent to p's two designated representatives sincerely thomas a luxner chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court russell streiffert petitioner v commissioner of internal revenue respondent docket no 24162-10l filed date in docket no 3613-04l p and his wife challenged a notice_of_determination by the irs appeals_office sustaining a proposed levy to collect their joint federal-income-tax liability for the tax_court dismissed the case because the petition did not contain any arguments with legal basis the court ordered p and his wife to pay a penalty of dollar_figure under sec_6673 the u s court_of_appeals dismissed the untimely notice of appeal that p and his wife filed and imposed a dollar_figure sanction against them under fed r app p in docket no 3853-05l p challenged a notice_of_determination by the irs appeals_office sustaining a proposed levy to collect his federal income-tax liabilities for the tax years and and a dollar_figure frivolous-return penalty assessed against him for the tax_year the notice_of_determination included the determination that p’s return for was frivolous the tax_court dismissed the case because the arguments in the petition were frivolous and groundless the court ordered p to pay a penalty of dollar_figure under sec_6673 p now files a petition challenging a notice_of_determination by the irs appeals_office sustaining a proposed levy to collect his federal income-tax liability for the tax_year and a notice_of_federal_tax_lien to collect a his federal income-tax liabilities for the tax years and b the dollar_figure frivolous-return penalty assessed against him for the tax_year held p’s argument that the irs failed to personally interview him to ascertain his income-tax liabilities is without merit held further p cannot challenge the merits of his income-tax and frivolous-return-penalty liabilities anyway under sec_6330 a taxpayer may not challenge the existence or amounts of liabilities in a proceeding before the irs appeals_office if the taxpayer had a prior opportunity to raise the challenge with respect to p’s income-tax liabilities for and if p received notices of deficiency then his right to file a petition in the tax_court for redetermination of the deficiencies constituted his prior opportunity to challenge the existence or amounts of the income-tax liabilities if he did not receive notices of deficiency then he could have presented his challenges to the existence or amounts of the income-tax liabilities to the irs appeals_office at his prior two proceedings at that office the first proceeding involved the year the second proceeding involved the years and even if the irs appeals_office had refused to consider his challenges he could have asserted the challenges directly in the tax_court cases by which he sought review of the appeals office’s determinations with respect to hi sec_2002 income-tax liability we consider p to have received a notice_of_deficiency with respect to the dollar_figure frivolous-return penalty assessed against p for the tax_year p had a prior opportunity to challenge the existence and amount of the penalty in the second proceeding at the irs appeals_office held further p maintained this proceeding to delay collection of his liabilities his position is meritless we impose an sec_6673 penalty of dollar_figure russell streiffert pro_se gordon p sanz and randall g durfee for respondent memorandum opinion morrison judge this case is an appeal pursuant to sec_6330 by which the petitioner mr russell streiffert seeks this court’s review of a determination by the irs appeals_office sustaining the filing of a notice_of_federal_tax_lien to collect mr streiffert’s income-tax liabilities for and the filing of a notice_of_federal_tax_lien to collect mr streiffert’s dollar_figure frivolous-return penalty for and a proposed levy to collect mr streiffert’s income-tax liability for the respondent whom we refer to as the irs has moved for summary_judgment and for the court to impose a penalty under sec_6673 we will grant the motion except as otherwise noted all citations of sections refer to the internal_revenue_code_of_1986 as amended u s c and in effect at all relevant times background the following facts are based on the assertions in the irs’s motion papers that are supported in accordance with tax_court rule_of practice and procedure and as to which mr streiffert did not raise any genuine dispute as to any material fact at the time he filed his petition mr streiffert resided in texas mr streiffert has been involved in three cases before the u s tax_court including the present case all three cases are described below the first case russell and sharon streiffert v commissioner_tax_court docket no 3613-04l on date after a collection-review hearing the irs appeals_office issued a notice determining to proceed with a proposed levy to collect the joint federal_income_tax liability of mr streiffert and his wife ms sharon streiffert for the tax_year order pincite docket no 3613-04l date the appeals office’s notice_of_determination stated that the streifferts had only raised frivolous issues which we the appeals_office could not address during a collection_due_process_hearing ie a collection-review hearing entry no ex a pincite docket no 3613-04l date the notice stated that the requirements of all applicable law and administrative procedure had been followed although it did not specifically state whether a notice_of_deficiency had been issued for the notice did not state that the streifferts had had a prior opportunity to dispute their underlying tax_liability or that they were barred from contesting their underlying tax_liability at the collection-review hearing the streifferts filed a petition with the tax_court challenging the notice_of_determination order pincite docket no 3613-04l date that case was assigned docket no 3613-04l the court dismissed the streifferts’ case for failure to state a claim upon which relief could be granted id pincite it observed that the streifferts’ petition and other filings contained a hodgepodge of rhetoric unsupported assertions and legalistic gibberish without any actual legal basis id pincite it ordered the streifferts to pay a penalty of dollar_figure under sec_6673 id pincite the court warned the streifferts that it would consider imposing larger penalties if they advanced similar arguments in future litigation id pincite the streifferts filed an untimely notice of appeal which the u s court_of_appeals for the fifth circuit dismissed 140_fedappx_527 5th cir it imposed a dollar_figure sanction on the streifferts under federal rule of appellate procedure observing that the streifferts’ arguments have at all times been frivolous and without merit id pincite the second case russell streiffert v commissioner_tax_court docket no 3853-05l on date after a collection-review hearing the irs appeals_office issued a notice determining to proceed with a proposed levy to collect mr streiffert’s federal_income_tax liabilities for the tax years and and a dollar_figure frivolous-return penalty that the irs had assessed against mr streiffert for tax_year order pincite docket no 3853-05l date entry no ex b 2d pincite docket no 3853-05l date the notice_of_determination stated that mr streiffert was precluded from challenging the underlying income-tax liabilities at the collection-review hearing because he had previously received a statutory_notice_of_deficiency for and entry no ex b 2d pincite docket no 3853-05l date the notice_of_determination also stated that mr streiffert was liable for the dollar_figure frivolous-return penalty because the notice concluded the form_1040 u s individual_income_tax_return he had submitted to the irs for tax_year was frivolous id pincite on date mr streiffert filed a petition with the tax_court challenging the appeals office’s notice_of_determination order pincite docket no 3853-05l date because the petition contained nothing but frivolous and groundless arguments the court dismissed the case for failure to state a claim upon which relief could be granted id pincite the court ordered mr streiffert to pay a penalty under sec_6673 of dollar_figure id pincite the court observed that mr streiffert had raised frivolous and groundless arguments in the streifferts’ prior case at docket no 3613-04l id pincite the third and present case russell streiffert v commissioner_tax_court docket no 24162-10l on date after a collection-review hearing the irs appeals_office determined to sustain the following collection actions the filing of a notice_of_federal_tax_lien to collect mr streiffert’s income-tax liabilities for and the filing of a notice_of_federal_tax_lien to collect mr streiffert’s dollar_figure frivolous-return penalty for and a proposed levy to collect mr streiffert’s income-tax liability for the notice_of_determination reflected that the hearing with mr streiffert had been conducted by correspondence the notice stated that at the hearing mr streiffert had challenged the assessments of income-tax liability for and on the grounds that the irs had not conducted an examination interview the notice stated that the challenge was unmeritorious the guidelines set forth under the code_of_federal_regulations under are not mandatory these procedural rules are directory the failure of the service to conduct a face to face examination does not make the assessments invalid the notice stated that the irs had issued statutory notices of deficiency regarding and the notice stated that mr streiffert was unable to dispute his underlying liabilities because he had had a prior opportunity to do so the taxpayer has had ample opportunities to present evidence of his tax_liability the taxpayer is no stranger to tax_court the taxpayer has previously petitioned tax_court under sec_6330 collection_due_process for proposed levy action tax_court case under docket number addressed liability for tax_year tax_court case under docket number addressed liabilities for tax_year s and civil penalty assessment under internal_revenue_code irc a for tax_year the tax_court cases mentioned above were dismissed for lack of jurisdiction the taxpayer is unable to raise the liability due to prior opportunity the notice determined that mr streiffert was liable for the dollar_figure frivolous- return penalty because the notice concluded he had submitted a frivolous form_1040 for the tax_year on or about date mr streiffert filed a 366-line petition with the tax_court challenging the appeals office’s notice_of_determination the irs moved to strike the petition except for line sec_216 through on the grounds that the material raised frivolous arguments on date the court struck the petition except for line sec_216 through and a three-paragraph introduction at the beginning of the petition on date the irs filed a motion for summary_judgment and for the court to impose a penalty under sec_6673 in the motion the irs contends that during the prior two tax_court cases and the related collection- review hearings mr streiffert had had prior opportunities to challenge the income-tax liabilities for the years through and the frivolous-return penalty for the year the irs contends that during his last collection-review hearing mr streiffert did not deny receiving a notice_of_deficiency for mr streiffert responds that the notices of deficiency and the assessments of the income-tax liabilities and the frivolous-return penalty are invalid because the irs did not conduct an examination interview regarding his income-tax liabilities for those years he contends that the source of his right to an examination interview is found in sec_601_105 statement of procedural rules he also contends that he did not receive any notices of deficiency summary of the three cases the following table reflects the types of liabilities and tax periods involved in the three cases tax_court litigation irs collection activity against mr streiffert key 04l docket no 3613-04l wife is co-party 05l docket no 3853-05l 10l docket no 24162-10l type of collection activity annual tax period and type of liability income_tax income_tax sec_6702 penalty income_tax levy 05l 05l 05l 04l involving joint liability income_tax income_tax income_tax income_tax 05l 05l 05l 10l lien 10l 10l 10l 10l 10l 10l 10l 10l i summary_judgment discussion summary_judgment may be granted where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law tax ct r pract proc a and b the party moving for summary_judgment here the irs bears the burden of showing that there is no genuine dispute as to any material fact and factual inferences will be drawn in the manner most favorable to the party opposing summary_judgment here mr streiffert 79_tc_340 however tax_court rule_of practice and procedure d provides when a motion for summary_judgment is made and supported as provided in this rule an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but such party’s response by affidavits or declarations or as otherwise provided in this rule must set forth specific facts showing that there is a genuine dispute for trial when a taxpayer fails to pay any federal tax_liability within days of notice_and_demand for payment the irs may collect the unpaid tax by levy on the taxpayer’s property pursuant to sec_6331 before the irs may proceed with a levy the taxpayer is entitled to administrative review pursuant to sec_6330 administrative review takes the form of a hearing before the irs appeals_office sec_6330 the pertinent procedures for this collection-review hearing are set forth in sec_6330 first the appeals_office must obtain verification from the treasury_department that the requirements of any applicable law or administrative procedure have been met sec_6330 second the taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including challenges to the appropriateness of the collection action and offers of collection alternatives sec_6330 sec_6330 provides that the taxpayer may contest the existence and amount of the underlying tax_liability but only if the taxpayer did not receive a notice_of_deficiency and did not otherwise have an opportunity to dispute such tax_liability see 129_tc_178 oyer v commissioner tcmemo_2003_178 slip op pincite aff’d 97_fedappx_68 8th cir a similar collection-review hearing is also afforded to a taxpayer upon the irs’s filing of a notice_of_federal_tax_lien sec_6320 after the appeals_office has issued its determination the taxpayer may appeal the determination to the tax_court pursuant to sec_6330 as mr streiffert has done in such an appeal we review de novo any determination of the appeals_office as to the underlying liability that is properly at issue see 125_tc_301 aff’d 469_f3d_27 1st cir 114_tc_604 114_tc_176 as to other matters we review the determination of the appeals_office for abuse of discretion--that is we decide whether the determination was arbitrary capricious or without sound basis in fact or law murphy v commissioner t c pincite sego v commissioner t c pincite goza v commissioner t c pincite as reflected in his response to the motion for summary_judgment mr streiffert’s attack on the determination of the appeals_office is that the irs’s examination of his income-tax liabilities failed to include a personal interview with him the irs interprets mr streiffert’s lack-of-interview argument to be an attempt to contest his underlying tax_liabilities it contends that mr streiffert was not entitled to contest his underlying tax_liabilities at the collection-review hearing because he had prior opportunities to do so these views are reflected in the following passage from the irs’s motion petitioner did have a prior opportunity to contest the underlying tax_liability and participated meaningfully in a previous administrative_proceeding and previous judicial proceeding petitioner was previously before this court in docket nos 3613-04l and 3853-05l docket no 3613-04l involved the year and docket no 05l involved the years and docket no 3853-05l also involved the civil penalty pursuant to sec_6702 for the year during his collection_due_process_hearing petitioner did not dispute receipt of the notice_of_deficiency for the year furthermore in his petition petitioner does not dispute receipt of the notice_of_deficiency for the year petitioner’s main argument appears to be that he was denied an in office examination pursuant to title sec_601_105 petitioner is thereby precluded from challenging the existence or amount of his underlying tax_liability for the years and as well as the civil penalty assessed pursuant to sec_6702 for the year before this court accordingly the validity of the underlying tax_liabilities for and is not properly at issue before the court and respondent is entitled to judgment as a matter of law that petitioner is liable for the underlying liabilities for said years and for the civil penalty for the year citations omitted as we explain below we hold that mr streiffert’s lack-of-interview argument is without merit and that it is barred by sec_6330 unlike regulations the statement of procedural rules is not mandatory 304_f2d_560 4th cir 65_tc_511 the statement of procedural rules cannot confer any rights on taxpayers see luhring f 2d pincite montgomery v commissioner t c pincite therefore mr streiffert’s argument that he was unlawfully denied an examination interview is without merit furthermore mr streiffert’s lack-of-interview argument is a challenge to the existence of income-tax liabilities for the and tax years the irs was authorized to send him notices of deficiency determining deficiencies of income_tax see sec_6212 if he received notices of deficiency for these years he could have disputed these income-tax liabilities by filing a tax_court petition seeking redetermination of the deficiencies see sec_6213 if he did not receive notices of deficiency he could have challenged the income-tax liabilities at the collection-review hearings ie the two hearings that culminated in notices of determination dated date and date respectively or if wrongfully denied an opportunity to contest the income- tax_liabilities by the appeals_office he could have challenged his liabilities in his cases before the tax_court appealing from the notices of determination ie in docket no 3613-04l and docket no 3853-05l respectively he is therefore barred from challenging his income-tax liabilities for and in this case see sec_6330 sego v commissioner sec_6330 provides that if the taxpayer did not receive a notice_of_deficiency the taxpayer can challenge the existence or amount of the underlying liability at the collection-review proceeding with the irs appeals_office if the irs appeals_office refuses to hear the challenge the taxpayer can appeal the appeals office’s determination to the tax_court see eg arroyo v commissioner tcmemo_2013_112 slip op pincite deciding underlying tax_liability t c pincite taxpayer who received a notice_of_deficiency had an earlier opportunity to dispute the liability 126_tc_356 taxpayer did not receive the notice_of_deficiency at an administrative_proceeding to consider a proposed levy to collect the deficiency the irs appeals_office wrongfully refused to let the taxpayer contest his underlying tax_liability the taxpayer did not appeal the appeals office’s determination to the tax_court it was held that the taxpayer’s right to appeal was an opportunity to challenge the underlying liability as to the year mr streiffert has failed to demonstrate that there is a genuine dispute that he received a notice_of_deficiency see tax ct r pract proc b the motion for summary_judgment alleged that mr streiffert did not deny having received a notice_of_deficiency in his response to the motion for summary_judgment mr streiffert denies receiving a notice_of_deficiency this unsworn denial is insufficient it was not made in an affidavit or a declaration see id and it is not supported by any other acceptable materials see id for purposes of summary_judgment we therefore consider mr streiffert to have received the notice_of_deficiency see tax ct r pract proc d mr streiffert was therefore not entitled in the collection-review hearing to challenge his income-tax liability for see sec_6330 sego v commissioner t c pincite mr streiffert is also barred from challenging his liability for the frivolous- return penalty for he had an opportunity to challenge his liability for the penalty during the collection-review hearing at issue in streiffert v commissioner t c dkt no 3853-05l date the notice the appeals_office issued after the hearing reflected that the appeals_office had determined that mr streiffert had filed a frivolous form_1040 and is therefore liable for the frivolous-return penalty ii section-6673 penalty sec_6673 authorizes the tax_court to impose a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in a proceeding is frivolous or groundless a section-6673 penalty is justified the arguments mr streiffert advances in this dispute are meritless his petition was designed to delay collection of tax rather than resolve a real dispute we hold that mr streiffert is liable for a penalty of dollar_figure to reflect the foregoing an appropriate order and decision will be entered


t c memo united_states tax_court alexander f goralski and kathleen r perillo petitioners v commissioner of internal revenue respondent docket no filed date frank agostino francis cannataro specially recognized john genova and rafael lamberti specially recognized for petitioners eugene a kornel for respondent memorandum findings_of_fact and opinion dean special_trial_judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax and an accuracy-related_penalty of dollar_figure under sec_6662 the issues for decision are whether petitioners are entitled to the first-time_homebuyer credit for pursuant to sec_36 and are liable for the accuracy-related_penalty under sec_6662 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference petitioners resided in new york when they filed their petition alexander goralski petitioner grew up in new york and lived with his parents in a house in elmsford new york elmsford home petitioner’s mother continued to live at the elmsford home until she passed away in date at the time of his mother’s passing petitioner’s sister lived in the elmsford home while petitioner lived in a new york city apartment nyc apartment petitioner received his bachelor’s degree in finance and accounting from pace university in and was working as a licensed certified_public_accountant in new york during the year at issue while attending pace university from through petitioner resided at the pace dormitories he later moved into the 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 nyc apartment petitioner resided at the nyc apartment until he moved to the elmsford home in petitioner’s sister was deeply affected by the death of their mother so in date petitioner moved back to the elmsford home and moved all of his belongings into the elmsford home to assist his sister with her grieving and recovery he continued to work in new york city and maintained his social circles and friends in new york city while living at the elmsford home petitioner slept at the home and used the address of the elmsford home for internal_revenue_service filings and other mailings but at times he had packages mailed to his work place and to homes of other parties with whom he had relationships by early petitioner decided to look for a place closer to that of his then girlfriend now his wife kathleen perillo and in date petitioner moved into an apartment in yonkers new york during the time that petitioner resided at the elmsford home he did not own or rent any other homes or property in date the elmsford home was deeded to petitioner and his sister as tenants-in-common by their mother’s estate in date petitioner purchased a condominium in yonkers new york condo and moved there when petitioners filed their income_tax return they claimed a first-time_homebuyer credit fthbc in connection with the purchase of the condo respondent issued petitioners a notice_of_deficiency dated date disallowing the claimed fthbc and determining an accuracy-related_penalty of dollar_figure burden_of_proof opinion as a preliminary matter we consider petitioners’ contention that the burden_of_proof has shifted to respondent pursuant to sec_7491 generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer has the burden of proving it incorrect rule a 290_us_111 sec_7491 provides an exception that shifts the burden_of_proof to the commissioner as to any factual issue relevant to a taxpayer’s liability for tax if the taxpayer introduces credible_evidence with respect to that issue and the taxpayer satisfies certain other conditions including substantiation of any item and cooperation with the government’s requests for witnesses documents other information and meetings sec_7491 see also rule a the taxpayer bears the burden of proving that the taxpayer has met the requirements of sec_7491 135_tc_471 aff’d 668_f3d_888 7th cir because we decide the factual issues in the instant case on the preponderance_of_the_evidence the allocation of the burden_of_proof is immaterial see 131_tc_185 fthbc sec_36 allows an individual who is a first-time_homebuyer of a principal_residence in the united_states to claim a tax_credit during the year the residence is purchased sec_36 defines a first-time_homebuyer as any individual if such individual and if married such individual’s spouse had no present ownership_interest in a principal_residence during the 3-year period ending on the date of the purchase of the principal_residence to which this section applies petitioners are eligible as first-time homebuyers if neither ms perillo nor petitioner had a present ownership_interest in a principal_residence after date and before date see 138_tc_51 for purposes of the fthbc sec_36 provides that the term principal_residence has the same meaning as in sec_121 in general whether property is used by a taxpayer as the taxpayer’s residence depends upon all the facts and circumstances sec_1_121-1 income tax regs a property used by a taxpayer as the taxpayer’s residence may include a houseboat a house trailer or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative_housing_corporation sec_1_121-1 income_tax regs a taxpayer’s residence is ‘the place where he actually lives or has his home ’ 40_tc_345 quoting webster’s unabridged third new international dictionary aff’d 326_f2d_760 2d cir whether a taxpayer uses a property as his or her principal_residence depends upon all the facts and circumstances when a taxpayer maintains more than one residence see sec_1_121-1 income_tax regs ordinarily the taxpayer’s principal_residence if the taxpayer maintains more than one residence is the property the taxpayer uses during most of the year see id sec_1 b income_tax regs provides principal_residence in addition to the taxpayer’s use of the property relevant factors in determining a taxpayer’s principal_residence include but are not limited to- i the taxpayer’s place of employment ii the principal_place_of_abode of the taxpayer’s family members iii the address listed on the taxpayer’s federal and state tax returns driver’s license automobile registration and voter registration card iv the taxpayer’s mailing address for bills and correspondence v the location of the taxpayer’s banks and vi the location of religious organizations and recreational_clubs with which the taxpayer is affiliated petitioner lived in only one residence at the time that he lived at the elmsford home petitioner asserts however that the court should look to the facts_and_circumstances_test as if he had maintained more than one residence in determining whether the elmsford home was his principal_residence under the facts_and_circumstances_test petitioner asserts that because he did not intend to maintain the elmsford home as his principal_residence it was not his principal_residence petitioner cites several cases in support of his argument that an intent to not maintain a dwelling as a principal_residence permanently should be controlling in this case the taxpayer in 137_tc_159 had purchased a home that was undergoing renovations and consequently he was unable to occupy it during the renovations the taxpayer first lived in a rental unit and then moved in with his daughter during all relevant periods the taxpayer worked near his newly purchased home and he intended to occupy the home as his principal_residence after the renovations the court concluded that the taxpayer intended to use the home as his primary residence and therefore the taxpayer was entitled to the fthbc the taxpayers in foster sold a home in date and purchased a home in date claiming the fthbc the taxpayers claimed that they had not resided in the first home since date however one or both of the taxpayers continued to maintain a driver’s license with the old home’s address they kept the home fully furnished they hosted family parties at the old home they continued to have bills and correspondence sent to the old address they kept personal belongings at the old home and they frequently stayed overnight at the old home the court concluded that under the facts and circumstances the old home was the taxpayers’ principal_residence in date petitioner argues that foster is instructive here because he did not live in the elmsford home for very long and lived in the elmsford home only because his mother had passed away petitioner argues that as in woods intent is the most important factor and he did not intend to use the elmsford home permanently petitioner contends that under the facts and circumstances the elmsford home was not his principal_residence because the elmsford home increased his commute time since it was further away from his place of employment the move was necessary because he needed to assist his sister while she was grieving the loss of their mother he purchased the condo in part because he thought he was eligible for the credit and he and his wife planned to make the home their principal_residence he desired to live in his new home but was unable to because specific circumstances made acquiring a principal_residence impractical until a later date and he did not furnish the elmsford home petitioner further argues that he did not act like an owner of a principal_residence petitioner alleges that he was forced to forgo renewing his lease on the nyc apartment and move into the elmsford home and that it was a transitional living arrangement that could change at any time if his sister were to improve petitioner’s arguments that we should look to the facts and circumstances and that the above-referenced cases support his position that the elmsford home was not his principal_residence are without merit in 135_tc_1 this court looked to apply accepted principles of statutory construction to ascertain congressional intent with respect to the definition of principal_residence it is a well-established rule_of construction that if a statute does not define a term the term is given its ordinary meaning see 444_us_37 it is also well established that a court may look to sources such as dictionaries for assistance in determining the ordinary meaning of a term see 524_us_125 we look to legislative_history to ascertain congress’ intent if the statute is ambiguous see 481_us_454 the court in gates looked to the american heritage dictionary of the english language 4th ed which defines principal as f irst highest or foremost in importance rank worth or degree chief the court found that the combined term principal_residence was not clear and unambiguous and then turned to legislative_history to ascertain congress’ intent regarding the proper tax treatment of the sale of a principal_residence the court focused on the meaning of residence and property and did not inquire as to congressional intent with respect to the term principal however in 506_us_168 the supreme court noted that in deciding whether a location is the principal_place_of_business the commonsense meaning of principal suggests that a comparison of locations must be undertaken id pincite the court further noted that this view is confirmed by the definition of principal which means ‘most important consequential or influential’ merriam webster’s collegiate dictionary 10th ed courts cannot assess whether any one business location is the ‘most important consequential or influential’ one without comparing it to all the other places where business is transacted commissioner v soliman u s pincite likewise a court cannot consider whether a residence is most important consequential or influential without comparing it to another residence therefore regardless of whether the term principal is ambiguous we need not decide that here because there was no residence with which to compare the elmsford home because there was no other residence we need not engage in a facts_and_circumstances_test in determining whether it was petitioner’s principal_residence petitioner lived at the elmsford home and slept there during the relevant period petitioner argues that he did not intend to remain there however there was no other place in which he could have resided or another residence to which to return regardless of how little time petitioner spent at the elmsford home or because we conclude that we need not look to the facts and circumstances of this case in determining whether the elmsford home was petitioner’s principal_residence we need not address petitioner’s argument that suggests principal is ambiguous under the facts and circumstances analysis whether he intended to live elsewhere he resided at the elmsford home and did not maintain any other residence during the relevant period petitioner had an ownership_interest in the elmsford home when it was deeded to him and his sister in date and it was his only and thus his principal_residence accordingly petitioner is not entitled to the fthbc for accuracy-related_penalty sec_6662 and b and imposes a penalty of of the portion of an underpayment_of_tax attributable to the taxpayer’s negligence disregard of rules or regulations or substantial_understatement_of_income_tax negligence includes any failure to make a reasonable attempt to comply with the code including any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs a substantial_understatement includes an understatement of income_tax that exceeds the greater of of the tax required to be shown on the return or dollar_figure see sec_6662 sec_1_6662-4 income_tax regs the sec_6662 accuracy-related_penalty does not apply with respect to any portion of an underpayment if the taxpayer proves that there was reasonable_cause for such portion and that he acted in good_faith with respect thereto sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess the proper tax_liability the knowledge and the experience of the taxpayer and any reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs generally the most important factor is the taxpayer’s effort to assess the taxpayer’s proper tax_liability id petitioner lived in the elmsford home at a difficult time after his mother’s passing his sister was experiencing difficulty with her mother’s loss and petitioner felt that in order to support his sister he should stay at the elmsford home petitioner credibly testified that it was not a permanent situation and that although he was living at the residence and did not have another residence he intended to move out of the elmsford home which he did when he secured an apartment in new york in date the court is satisfied that under the circumstances of this case petitioner acted with good_faith and had reasonable_cause for believing that he was entitled to the fthbc petitioner though he is an accountant is not a lawyer although he owned a home as a tenant-in-common he did not purchase the home it was acquired as a result of his mother’s passing and he researched the relevant law before claiming the credit to ensure he was entitled to it petitioner credibly testified that he never intended to make the elmsford home his principal_residence given the foregoing the court finds that there was an honest misunderstanding of law that was reasonable in the light of all the facts and circumstances including petitioner’s experience knowledge and education see sec_1_6664-4 income_tax regs accordingly the court does not sustain respondent’s imposition of the accuracy-related_penalty under sec_6662 in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued and decision will be entered for respondent as to the deficiency and for petitioners as to the accuracy- related penalty under sec_6662 because the court does not sustain the imposition of the accuracy-related_penalty we need not discuss how the accuracy-related_penalty might be calculated in the case of a disallowed fthbc see generally rand v commissioner t c ___ date


t c no united_states tax_court pei fang guo petitioner v commissioner of internal revenue respondent docket no filed date p a citizen of canada entered the united_states in to work as a post-doctoral fellow at a university she resided in the united_states until date when her employment contract with the university ended after unsuccessfully attempting to find other employment in the united_states p returned to canada sometime in p applied for and received unemployment_compensation from the state of ohio for she timely filed a federal_income_tax return on which she treated her unemployment_compensation as exempt from tax under the convention between the united_states of america and canada with respect to taxes on income and on capital treaty p was a nonresident_alien during p contends that her unemployment_compensation is exempt from u s income_tax under article xv of the treaty which covers dependent_personal_services r contends that article xv does not apply and that article xxii which covers other income applies and allows the united_states to tax her unemployment_compensation held article xv of the treaty does not exempt p’s unem- ployment compensation from u s income_tax held further article xxii of the treaty governs the tax treat- ment of p’s unemployment_compensation and permits the united_states to tax it pei fang guo pro_se peter n scharff for respondent opinion lauber judge the internal_revenue_service irs or respondent deter- mined under section deficiencies in petitioner’s federal_income_tax for and as follows year deficiency dollar_figure big_number 1all statutory references are to the internal_revenue_code code in effect for the years at issue and all rule references are to the tax_court rules of prac- tice and procedure we round all monetary amounts to the nearest dollar after concessions the sole question remaining for decision is whether u s - source unemployment_compensation that petitioner received during is ex- empt from federal_income_tax under the convention with respect to taxes on income and on capital can -u s date t i a s no treaty this appears to be a question of first impression in this or any other court petitioner contends that her unemployment_compensation is exempt from u s tax under article xv of the treaty which covers dependent personal ser- vices respondent contends that article xv does not apply and that article xxii of the treaty which covers other income applies to make her unemployment_compensation taxable we agree with respondent background this case was submitted fully stipulated under rule there is no dis- pute as to the following facts which are drawn from the parties’ stipulation of facts as amended and the attached exhibits petitioner resided in montreal can- ada when she petitioned this court 2for petitioner concedes that wage income of dollar_figure was properly in- cludible in her gross_income and that she was not entitled to deduct student_loan interest of dollar_figure petitioner asks that we abate interest on the deficiency un- der sec_6404 but we lack jurisdiction to do this in a deficiency case see sec_6404 petitioner has been a citizen of canada from to the present in octo- ber she moved to ohio to take a position as a post-doctoral fellow at the uni- versity of cincinnati uc she was employed there from date through date on a nonimmigrant professional visa she has never applied to be a lawful permanent resident_of_the_united_states petitioner’s employment contract with uc expired on date after unsuccessfully attempting to find other employment in the united_states she returned to canada and re-established her canadian residency on date she remained a canadian resident through the end of and was physi- cally present in the united_states for only two days that year following termination of her uc employment contract petitioner applied to the ohio department of job and family services department for unemployment_compensation the department approved that application because of her prior employment with uc during she received biweekly unemployment com- pensation of dollar_figure from the department it issued her a form 1099-g certain government payments reporting this compensation and reporting that no federal_income_tax had been withheld petitioner timely filed with the irs for her taxable_year form 1040nr-ez u s income_tax return for certain nonresident_aliens with no dependents on schedule oi other information she took the position that her unemployment_compensation was exempt from federal_income_tax under article xv of the treaty she reported the unemployment_compensation as taxable on her canadian income_tax return for no canadian tax was due because of offset- ting deductions and credits the irs selected petitioner’ sec_2012 return for examination and in a timely notice_of_deficiency determined that she had failed to report taxable unemploy- ment compensation of dollar_figure she timely petitioned this court for redetermina- tion discussion the irs’ determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving them erroneous rule a 290_us_111 petitioner does not contend that the burden_of_proof should shift to respondent under sec_7491 in any event only legal issues remain so the burden_of_proof is irrelevant see eg 115_tc_523 the parties agree that petitioner during was a nonresident_alien ie a person who was neither a citizen nor a resident_of_the_united_states see sec_7701 nonresident_alien individuals generally are taxed on their u s -source income see sec_871 sec_872 the parties agree that petitioner’s unemployment_compensation by analogy to other items of income specified in sec_861 was u s -source income they agree that gross_income includes unemployment_compensation sec_85 and that this income was effectively connected with the conduct by petitioner of a u s trade_or_business see sec_871 the sole question presented is whether petitioner’s unemployment_compensation was exempt from federal_income_tax under the treaty when interpreting a treaty or other international agreement we begin with its text 486_us_694 we interpret a treaty according to the ordinary meaning of its terms con- sistently with their context and the agreement’s object and purpose 548_us_331 treaties are contracts between sov- ereigns and as such should be construed to give effect to the signatories’ intent 489_us_353 because treaties are con- strued more liberally than private agreements we may ascertain their meaning by looking beyond the written words to the history of the treaty the parties’ negotia- tions and the practical construction they have adopted 470_us_392 see 120_tc_430 n w life assurance co of can v commissioner 107_tc_363 the treaty was signed on date and entered into force on date the first two amending protocols signed respectively on date and date also entered into force on date the treaty has since been amended three more times neither the treaty nor its protocols specify how unemployment compensa- tion shall be treated only the third protocol even mentions unemployment com- pensation it does so for the sole purpose of clarifying that such compensation shall not be included within the category of b enefits under the social_security legislation in a contracting state for purposes of article xviii of the treaty which governs pensions and annuities see third protocol art 3see protocol amending the convention with respect to taxes on income and on capital can -u s date s treaty doc second protocol amending the convention with respect to taxes on income and on capital can -u s date as amended by the protocol on date s treaty doc 4see revised protocol amending the convention with respect to taxes on income and on capital can -u s date as amended by the protocols on date and date s treaty doc third protocol protocol amending the convention with respect to taxes on income and on cap- ital can -u s date as amended by the protocols on date date and date s treaty doc protocol amending the convention with respect to taxes on income and on capital can - u s date as amended by the protocols on date date date and date s treaty doc in contending that her unemployment_compensation is exempt from u s tax petitioner relies on article xv of the treaty captioned dependent_personal_services paragraph thereof governs the treatment of salaries wages and other similar remuneration derived by a resident of a contracting state in respect of an employment petitioner’s unemployment_compensation did not take the form of salaries or wages the term remuneration is not defined by the treaty and therefore its meaning shall have the meaning which it has under the law of that state concern- ing the taxes to which the convention applies art iii we thus look to the code for guidance as to the meaning of remuneration the term remuneration is not defined in title_26 that term makes two major appearances in the code it appears in sec_3401 which supplies defi- nitions for purposes of withholding income_tax from wages and in sec_3121 which supplies definitions for purposes of withholding fica tax from wages sec_3401 provides that the term ‘wages’ means all remuneration other than fees paid to a public official for services performed by an employee for his employer including the cash_value of all remuneration including benefits paid in any medium other than cash sec_3401 then provide sec_23 excep- tions for certain types of remuneration paid to certain types of employees sec- tion a provides that the term ‘wages’ means all remuneration for employ- ment including the cash_value of all remuneration including benefits paid in any medium other than cash like sec_3401 sec_3121 provides numer- ous exceptions for certain types of remuneration paid to certain types of em- ployees just as unemployment_compensation does not constitute wages or salar- ies we conclude that it does not constitute similar remuneration derived in respect of an employment within the meaning of article xv although neither sec_3121 nor sec_3401 supplies a comprehensive definition of remu- neration both strongly associate that term with wages and benefits paid_by an employer to an employee petitioner was not employed by uc when she received her unemployment_compensation and she received that compensation not from her former employer but from the state of ohio cf sec_3402 provid- ing that a supplemental unemployment_compensation benefit received from an employer shall be treated as if it were payment of wages by an employer to an employee for a payroll_period and shall be subject_to wage withholding 134_sct_1395 finding severance payments made by an employer to an employee to be supple- mental unemployment_compensation benefits under sec_3402 even if unemployment_compensation were thought to be remuneration de- rived in respect of an employment article xv would not help petitioner paragraph thereof provides that salaries wages and other similar remuneration derived by a resident of a contracting state in respect of an employment shall be taxable only in that state unless the employment is exercised in the other contract- ing state if the employment is so exercised such remuneration as is derived therefrom may be taxed in that other state ibid if petitioner’s unemployment_compensation were thought to be remuner- ation derived in respect of an employment it would have to be regarded as remuneration derived in respect of her former employment with uc see ibid that employment was exercised in the united_states paragraph accordingly provides that such remuneration may be taxed in the united_states paragraph of article xv provides two exceptions to the general_rule set forth above as applicable here it would allow canada rather than the united_states to tax petitioner’s remuneration notwithstanding that she exercised her em- ployment in the united_states if such remuneration did not exceed dollar_figure in u s currency or petitioner was present in the united_states for or fewer days during and her remuneration was not borne by an employer who is a resident_of_the_united_states petitioner’s unemployment_compensation dollar_figure exceeded dollar_figure and although she was present in the united_states for only two days during her remuneration if such it was was borne by the department which is a resident_of_the_united_states because paragraph of article xv is thus inapplicable paragraph would allow the united_states to tax her unemployment_compensation if it were thought to be remuneration derived in respect of an employment in short petitioner’s reliance on article xv is misplaced article xv does not govern unemployment_compensation because such income is not remunera- tion derived in respect of an employment and even if article xv did ap- ply its provisions would permit the united_states to tax that income given the inapplicability of article xv respondent contends that unemploy- ment compensation is governed by article xxii of the treaty captioned other income this catchall provision covers items of income not dealt with elsewhere in the treaty it provides items of income of a resident of a contracting state wherever arising not dealt with in the foregoing articles of this convention shall be taxable only in that state except that if such income arises in the other contracting state it may also be taxed in that other state art xxii this provision expressly permits the united_states to tax petitioner’s unem- ployment compensation because it arose here the technical explanation to arti- cle xxii states that t he determination of where income arises is made under the domestic laws of the respective contracting states unless the convention specifies where the income arises see treasury_department technical explana- tion of the convention between the united_states of america and canada with respect to taxes on income and on capital date as amended by the protocols on date and date 1987_2_cb_298 the treaty does not specify where unemployment_compensation arises and we thus look to u s law to determine its source petitioner has conceded that under the code her unemployment_compensation arose in the united_states finally petitioner contends that if she were required to pay u s tax on her unemployment_compensation she would be subjected to double_taxation in contra- vention of the treaty paragraph of article xxiv captioned elimination of double_taxation provides that double_taxation shall be avoided in the case of a u s citizen or resident by this country’s allowance of a credit for any canadian income_tax paid because petitioner is not a u s citizen or resident paragraph does not apply to her paragraph a of article xxiv provides that i n the case of canada double_taxation shall be avoided by canada’s allowance of a de- duction from canadian income_tax for among other things income_tax paid to the united_states on profits income or gains arising in the united_states be- cause such relief would be granted by canada not by the united_states we lack jurisdiction to consider petitioner’s entitlement to relief under paragraph to reflect the foregoing decision will be entered for respondent