t c memo united_states tax_court douglas e kahle petitioner v commissioner of internal revenue respondent docket no filed date p an individual owned rental real_estate which produced passive losses under sec_469 i r c p was also a partner in partnership a which had nonpassive losses from a nonrental real_estate operation held p could not combine the rental operation and nonrental operation into a single undertaking and thus could not deduct passive losses as active losses because the resultant undertaking would not pass the common location ownership test of sec_1_469-4t temporary income_tax regs fed reg date and because the de_minimis exception of sec_1_469-4t temporary income_tax regs fed reg date is not satisfied held further p was liable for additions to tax under sec_6653 and sec_6661 i r c and for a penalty under sec_6662 i r c douglas e kahle pro_se veena luthra for respondent memorandum opinion tannenwald judge respondent determined the following additions to tax and penalty for petitioner's federal income taxe sec_1 year additions to tax i r c secs penalty a a a dollar_figure dollar_figure dollar_figure -- dollar_figure -- -- dollar_figure after concessions the issue before us is whether petitioner's rental operations may be combined with a nonrental partnership operation so that petitioner may deduct losses from the rental operation as nonpassive losses based on our decision on this issue we shall have to decide whether petitioner is liable for additions to tax for delinquent filing negligence and substantial_understatement and an accuracy-related_penalty for negligence there are no deficiencies due because of net_operating_loss carrybacks to the years and from the taxable_year however it is necessary to determine whether deficiencies would otherwise have been due if not for such carrybacks in order to determine whether additions to tax are proper 21_tc_191 affd 216_f2d_693 1st cir and cases cited thereat see also 105_tc_1 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure background this case was submitted fully stipulated under rule the stipulation of facts and attached exhibits are incorporated herein by this reference and found accordingly petitioner is an individual residing at the time the petition in this case was filed in virginia beach virginia the returns for the periods here involved were filed with the internal_revenue_service at norfolk virginia petitioner's individual return for the taxable_year was filed delinquently on date petitioner's individual return for the taxable_year was filed delinquently on date petitioner was general_partner of the pilot house associates ii partnership associates associates built the pilot house condominium project project and the condominium units were owned by associates until sold associates constituted for purposes of sec_469 a nonpassive activity of petitioner for the taxable years and associates reported the following gross_receipts and cost_of_goods_sold for the years at issue gross_receipts cost_of_goods_sold gross_income dollar_figure big_number dollar_figure big_number dollar_figure big_number dollar_figure big_number petitioner's shares of associates' nonpassive losses were as follows year loss dollar_figure big_number in associates sold two units of the project pilot house unit and pilot house unit to petitioner during and petitioner rented out these units he owned and rented out other units that are not the subject of this dispute we shall refer to petitioner's rental of units and as the rental operation petitioner's gross_income with respect to the rental operation was as follows unit dollar_figure big_number -0- -0- petitioner incurred losses with respect to the rental operation as follows unit dollar_figure big_number dollar_figure big_number in petitioner sold unit statutory and regulatory framework the issue before us is whether petitioner's rental operation should be classified as a nonpassive activity for purposes of sec_469 that section was designed to limit deductions of losses from passive activities s rept 1986_3_cb_713 to this end taxpayers generally may not deduct passive_activity_losses except against passive_activity income sec_469 rental activities are generally passive sec_469 the passive_loss_rules involve three terms of art operations are the most basic business unit under the regulations undertakings consist of one or more operations activities consist of one or more undertakings application of the rules hinges on a determination of whether the taxpayer's operations can be combined into undertakings and then into activities for the purpose of aggregating passive_income and passive losses and active income and active losses this determination is made according to the rules set out in sec_1_469-4t temporary income_tax regs fed reg date this section is made applicable to the tax years at issue by sec_1_469-11 income_tax regs the initial determination is whether each operation involved is a separate undertaking each undertaking owned by a taxpayer is usually then a separate and distinct activity sec_1_469-4t b temporary income_tax regs fed reg in certain cases however a taxpayer may aggregate its separate undertakings into a single activity sec_1_469-4t k temporary income_tax regs fed reg operations that constitute a separate source_of_income are treated as a single undertaking only if the operations are conducted at the same location and owned by the same person sec_1_469-4t temporary income_tax regs fed reg operations are separate undertakings if one of these two prongs is not met sec_1_469-4t c i temporary income_tax regs fed reg operations are owned by the same person if and only if one person within the meaning of sec_7701 is the direct owner of such operations sec_1_469-4t temporary income_tax regs fed reg the term person includes an individual partnership_association company or corporation sec_7701 even if two operations are considered the same undertaking under the foregoing location ownership test rental operations and nonrental operations are still considered to be separate undertakings unless less than percent of the gross_income of the paragraph c undertaking is attributable to either the rental or nonrental operation the de_minimis exception sec_1_469-4t ii and iii temporary income_tax regs fed reg a combination undertaking is then subject_to the predominant character rule under sec_1_469-4t temporary income_tax regs supra with reference to sec_1_469-1t temporary income_tax regs fed reg date a combined rental-nonrental undertaking has the character of the rental operation only if the gross_income from the combined operation represents amounts paid principally for the rental of property that is the entire undertaking is treated as rental or nonrental depending on the predominant character of the income if a rental operation is classified as a separate undertaking it may be combined under certain circumstances only with another rental undertaking into a single activity sec_1_469-4t temporary income_tax regs fed reg there is no possibility under the regulations for a rental undertaking to be combined with a nonrental undertaking into one activity thus if rental and nonrental operations cannot be combined into one undertaking under the regulations they cannot be combined at all discussion combination of operations into one undertaking petitioner incurred losses with respect to the rental operation rental real_estate losses would normally be passive sec_469 petitioner seeks to deduct those losses as non- passive losses this may only be accomplished if the rental operation is combined with petitioner's share of the nonpassive project into one undertaking neither party contends that petitioner's rental operation is not a rental real_estate operation also both parties agree that associates' project is a nonpassive nonrental operation it is the possible combination of this rental operation with this nonrental operation upon which the parties do not agree the combination of operations into undertakings occurs using the two-pronged test found in sec_1_469-4t temporary income_tax regs supra applying the first prong it is clear that petitioner's rental operation and associates' project are conducted at the same location sec_1_469-4t temporary income_tax regs fed reg but the combination fails the second prong of the test because the two operations are not owned by the same person id sec_1_469-4t temporary income_tax regs supra is clear that operations are owned by the same person if and only if one person within the meaning of sec_7701 is the direct owner of such operations emphasis added units and are owned by petitioner a natural_person whereas the project is owned by the associates partnership a separate legal person see wiseman v commissioner tcmemo_1995_203 petitioner points to sec_1_469-4t temporary income_tax regs fed reg and argues that effective_control is the measure of ownership under sec_1_469-4t temporary income_tax regs supra sec_1_469-4t temporary income_tax regs fed reg makes common_control as defined in sec_1_469-4t temporary income_tax regs supra a precondition to the aggregation of trade_or_business undertakings into a single activity not the combination of operations into a single undertaking furthermore by its plain language this provision does not apply to rental operations moreover the reference to direct ownership in sec_1_469-4t temporary income_tax regs supra makes it clear that ownership not control is the relevant factor in determining combinability under this section thus because we find that the ownership test of sec_1_469-4t temporary income_tax regs supra has not been met we hold that petitioner may not combine the rental operation and his share in associates' nonpassive operations into a single undertaking see wiseman v commissioner supra see also mertens law of federal income_taxation sec_24cdollar_figure cf 943_fsupp_603 e d va in any event petitioner cannot succeed herein because he cannot satisfy the de_minimis exception of sec_1_469-4t temporary income_tax regs supra sec_1_469-4t and ii a temporary income_tax regs fed reg date provides applicability i in general this paragraph f applies to a taxpayer's interests in trade_or_business undertakings within the meaning of paragraph f ii of this section ii trade_or_business undertaking for purposes of this paragraph f the term trade_or_business undertaking means any undertaking in which a taxpayer has an interest other than -- a a rental undertaking emphasis added for both years at issue the project had no gross_income because associates' cost_of_goods_sold exceeded its gross_receipts on project sales see 106_tc_268 supra pp because the project had no gross_income the gross_income from the rental operations cannot be less than percent of the project's gross_income and the rental operation cannot be combined into the active project operation in neither operation had any gross_income so the exception cannot be applied in when the rental operation had gross_income of dollar_figure the project operation could be combined via the de_minimis exception and the predominant character rule_of sec_1_469-1t temporary income_tax regs supra into the rental operation a result neither party seeks although petitioner attempts to rely upon the de_minimis exception it would work only to his detriment in this case cf moore v united_states supra pincite additions to tax and penalties for the taxable_year respondent has determined additions to tax for delinquency negligence and substantial_understatement under sec_6651 sec_6653 and sec_6661 for the taxable_year respondent has determined an addition_to_tax for delinquency under a and a penalty for negligence under sec_6662 petitioner has the burden_of_proof which is not lessened in a fully stipulated case rule a 104_tc_518 95_tc_82 affd 943_f2d_22 8th cir petitioner has conceded that the returns for both years at issue were filed delinquently and has offered no other evidence on the issues of additions to tax and penalties which he did not address in his brief accordingly we sustain respondent's determinations to reflect the foregoing and concessions of the parties decision will be entered under rule


t c memo united_states tax_court pamela osowski petitioner v commissioner of internal revenue respondent docket no filed date burton w kanter for petitioner paul l darcy for respondent memorandum opinion laro judge this case was submitted to the court fully stipulated under rule respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax and additions thereto of dollar_figure and dollar_figure under sec_6653 and sec_6659 respectively respondent also determined as to the entire deficiency that petitioner was liable for the time sensitive addition_to_tax under sec_6653 and the increased rate of interest under sec_6621 following concessions by the parties we must decide whether petitioner is liable for an addition_to_tax under sec_6659 equal to percent of the deficiency arising from a disallowed investment_tax_credit and loss that petitioner claimed from a partnership named grade partners grade and whether petitioner is liable for the increased rate of interest under sec_6621 on the deficiency we hold for respondent as to both issues section references are to the internal_revenue_code in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure background the parties have filed with the court a stipulation of facts and accompanying exhibits we find the stipulated facts accordingly and we set forth the relevant facts in this background section we also set forth in this section facts which we find from the exhibits and from matters which petitioner admitted under rule petitioner resided in new york new york when she petitioned the court petitioner timely filed her federal_income_tax return she claimed thereon a dollar_figure loss from grade a dollar_figure investment_tax_credit from grade an income_tax_liability exclusive of the investment_tax_credit of dollar_figure and an income_tax_liability after applying dollar_figure of the investment_tax_credit to of zero respondent disallowed the dollar_figure loss and the dollar_figure investment_tax_credit applied to petitioner has a 7-percent limited_partnership_interest in the profits and losses of grade grade in turn has a percent limited_partnership_interest in the profits and losses of degree associates degree degree is a limited_partnership with general_partner namely joel mallin degree’s stated purpose was to lease and exploit energy management systems equipment which when installed would control the use of energy in a plastics manufacturing plant operated by milor corporation an investment in degree carried a very high degree of risk degree’s promoter distributed a private_placement memorandum ppm on degree to potential investors the ppm listed cash-flow and economic projections for to ppm projections which were predicated upon the assumption that the projected level of energy conservation would be achieved the cost of energy would increase percent per year between and and the energy management systems equipment would remain useful for that 30-year period the ppm projections predicted total pretax receipts by degree of dollar_figure between and the present_value of which equals dollar_figure when discounted pincite percent ’ the ppm projections predicted that the total up-front investment by degree in the energy management systems equipment would be dollar_figure in which means that the net present_value of degree's net receipts was a negative dollar_figure dollar_figure less dollar_figure degree claimed that it placed the energy management systems equipment in service during and that the equipment had a tax basis and fair_market_value of dollar_figure grade's claimed share of the basis in the equipment was dollar_figure percent times dollar_figure and petitioner’s claimed share of that basis was dollar_figure percent times dollar_figure the equipment had a true fair_market_value of no more than dollar_figure and degree's claimed fair_market_value and tax basis of the equipment exceeded the equipment's true fair_market_value by approximately big_number percent petitioner never read the ppm and she never discussed the ppm with mr mallin before participating in degree petitioner had no experience in the development operation or marketing of energy management systems she had no knowledge of the components and equipment constituting the energy management systems equipment and she had no knowledge of whether or not the energy management systems equipment was installed in milor corporation ' the yield on long-term u s treasury bonds was generally percent in burton kanter is a tax attorney and petitioner was his executive secretary from date to date mr kanter advised petitioner to participate in degree and she relied solely upon his advice in making her decision to do so mr kanter has no experience in the development operation marketing or appraisal of energy management systems petitioner's participation in degree was not motivated by a desire for economic profit she participated in degree solely for tax reasons discussion we review respondent’s determination that petitioner is subject_to sec_6621 and sec_6659 petitioner as the taxpayer bears the burden of disproving that determination see rule a 290_us_111 in order to meet her burden_of_proof petitioner must introduce sufficient evidence to make a prima facie case establishing that respondent committed the errors alleged in the petition and overcome the evidence submitted by or otherwise favorable to respondent see lyon v commissioner 1_bta_378 the fact that the case was submitted to the court fully stipulated under rule does not change or otherwise lessen petitioner’s burden see 95_tc_82 affd on other issues 943_f2d_22 8th cir sec_6659 provides for an addition_to_tax for underpayments attributable to valuation overstatements a valuation_overstatement exists if among other conditions the adjusted_basis of property claimed on the return equals or exceed sec_150 percent of the correct basis see sec_6659 c as to the year at issue the addition_to_tax equal sec_30 percent of an underpayment attributable to a valuation_overstatement of percent or more unless the underpayment in tax is less than dollar_figure in which case the addition_to_tax does not apply see sec_6659 d an addition_to_tax under sec_6659 may apply to an underpayment by an individual partner where the overvaluation is made on the partnership return see 94_tc_473 petitioner does not deny that respondent correctly determined that she had an understatement_of_tax attributable to a valuation_overstatement within the meaning of sec_6659 petitioner asserts that respondent should waive the resulting addition_to_tax pursuant to sec_6659 sec_6659 authorizes respondent to waive all or part of an addition_to_tax for valuation_overstatement if a taxpayer establishes that he or she had a reasonable basis for the adjusted bases or valuations claimed on a return and that the claim was made in good_faith respondent's refusal to waive a sec_6659 addition_to_tax is reviewable by this court for abuse_of_discretion see 99_tc_132 on the record before us we are unable to conclude that respondent abused his discretion first we are unable to find that petitioner ever asked respondent to exercise his discretion before he issued the notice_of_deficiency to her absent a timely request for a waiver which we do not find was present here we cannot hold that respondent abused his discretion in not waiving an addition_to_tax under sec_6659 see 110_tc_189 haught v commissioner tcmemo_1993_58 cf lapin v commissioner tcmemo_1990_343 affd without published opinion 956_f2d_1167 9th cir even if petitioner had made such a timely request we find nothing in the record to establish that she had the requisite reasonable basis for the overstated valuation to overcome respondent’s determination the mere fact that she relied on mr kanter a tax professional in choosing to participate in degree does not mean that she reasonably reported the overstated valuation on her income_tax return indeed the facts of this case including the facts that petitioner was aware of mr kanter’s qualifications from their longtime close business relationship that mr kanter was not professionally qualified to evaluate or appraise the energy management systems equipment that petitioner never read the ppm and that petitioner never made an attempt independently to evaluate or appraise the energy management systems equipment point to the conclusion that any reliance that petitioner placed on mr kanter as to the valuation was unreasonable see 205_f3d_54 2d cir affg sann v commissioner tcmemo_1997_259 933_f2d_143 2d cir affg tcmemo_1989_684 singer v commissioner tcmemo_1997_325 in light of the strict standard for abuse_of_discretion we conclude that respondent did not err by not exercising his discretion under sec_6659 to waive the addition_to_tax for valuation_overstatement nor do we conclude that respondent erred as to the increased rate of interest under sec_6621 sec_6621 provides that increased interest is due if a substantial_underpayment is attributable to a tax_motivated_transaction a substantial_underpayment is an underpayment of more than dollar_figure see sec_6621 a tax-motivated transaction includes any valuation_overstatement under sec_6659 see sec_6621 a because we have determined that petitioner had a valuation_overstatement under sec_6659 we hold that petitioner is liable under sec_6621 for an increased rate of interest on the underpayment attributable thereto see barlow v commissioner tcmemo_2000_339 once we decide that there is a tax-motivated transaction such as a valuation_overstatement the determination of additional interest is largely t mechanical we have considered all arguments in this case and those arguments not discussed herein are irrelevant or without merit accordingly decision will be entered under rule


t c summary opinion united_states tax_court michael scott snelgrove sr petitioner v commissioner of internal revenue respondent docket no 19713-05s filed date michael scott snelgrove sr pro_se veena luthra for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for after concessions by respondent hereafter noted the sole issue for decision is whether petitioner under sec_151 is entitled to dependency_exemption deductions for two of his three children from a prior marriage some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner’s legal residence was sunbury north carolina petitioner was married in and prior to the year at issue divorced three children were born of this marriage and on his federal_income_tax return for the year at issue he claimed dependency_exemption deductions for the three children as dependents petitioner filed his return as a head-of-household under sec_2 and claimed the child_tax_credit under sec_24 with respect to each child in the notice_of_deficiency respondent disallowed the three dependency_exemptions and the child_tax_credit and changed petitioner’s filing_status to single at trial respondent conceded that petitioner was entitled to head-of-household filing_status and the dependency_exemption deduction for one child due to the fact that the child lived with petitioner during the year at issue the two other children lived with petitioner’s former spouse during the year at issue and the principal issue in this case is petitioner’s claims to the dependency_exemption deductions for the two children and the child_tax_credit petitioner claims entitlement to the dependency_exemption deductions based on an order by the state court that granted his divorce generally that order provided that petitioner was entitled to the dependency_exemption deductions for the children as to any year during which his former spouse only was employed part time respondent does not challenge the fact that petitioner’s former spouse was employed part time during the year at issue and petitioner would be entitled to the dependency_exemption deductions except for the fact that petitioner has not satisfied the requirements of sec_152 generally sec_151 allows a taxpayer to deduct an annual exemption_amount for each dependent as defined in sec_152 under sec_152 the term dependent means in pertinent part a son or daughter of the taxpayer over half of whose support was received from the taxpayer sec_152 in the case of a child of divorced parents sec_152 provides in pertinent part that if a child receive sec_2 child_tax_credit with respect to that dependent the record does not reflect whether respondent conceded the over half of his support from his parents who are divorced under a decree of divorce and the child is in the custody of one or both of his parents for more than one-half of the year then the child will be treated as receiving over half of his support from the parent having custody for a greater portion of the calendar_year referred to as the custodial_parent petitioner’s former spouse was the custodial_parent of the two children at issue the noncustodial_parent is entitled to claim the dependency_exemption deductions if one of three statutory exceptions in sec_152 applies if an exception applies the noncustodial_parent in this case petitioner is treated as providing over half of a child’s support this case therefore focuses on sec_152 sec_152 provides if the custodial_parent signs a written declaration that such custodial_parent will not claim such child as a dependent and the noncustodial_parent attaches such written declaration to the noncustodial parent’s return for the taxable_year the noncustodial_parent is entitled to the dependency_exemption deduction for that year the written declaration is embodied in form_8332 release of claim to exemption for child of divorced or separated parents that form consists of two parts part i which is for the release of the dependency_exemption for the current_year and part ii applies to releases for future years both parts if applicable must be signed by the custodial_parent releasing the exemptions and each part requires the year or years in the case of part ii to which the exemption is released and the names of the dependents petitioner’s former spouse did not execute a form_8332 however petitioner attached to his income_tax return a copy of the court order pursuant to which he claims entitlement to the dependency_exemption deduction for the two children respondent contends that this does not satisfy the requirements of sec_152 in 114_tc_184 the court addressed specifically whether an attachment to the tax_return of an order by the divorce court allowing the noncustodial_parent the dependency_exemption for a dependent satisfies the requirements of sec_152 where there is no accompanying signature by the custodial_parent agreeing to the release of the dependency_exemption deduction the court held that attaching a copy of the court order to the income_tax return does not satisfy the requirement of sec_152 in the absence of a signature by the custodial_parent agreeing to allowance of the dependency_exemption deduction to the noncustodial spouse and also stating the year or years as to which the noncustodial_parent is entitled to claim the dependency_exemptions petitioner has not satisfied these requirements and accordingly respondent is sustained in disallowing petitioner the dependency_exemption deductions for his two children reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service number release date index number -------------------------- -------------------------- -------------------------------- --------------------------- --------------------------------- - department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-104865-06 date june ---------------------------------- -------------------------- --------------------------------- ---------------------------- legend x --------------------------------------------------- y a --------------------------------------------------- b --------------------------------------------------- trust -------------------------------------------------- trust -------------------------------------------------- trust -------------------------------------------------- trust -------------------------------------------------- date date date date date ---------------------- --------------------- -------------------- ------------------- ----------------- ------------------------------------------ ------------------------------------------- -------------------------------------------- --------------------------------------- plr-104865-06 dear --------------- this responds to a letter dated date and additional correspondence submitted on behalf of x by its authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in date and elected to be treated as an s_corporation effective date on date pursuant to the terms of the a’s will trust was funded with shares of x stock however the trust agreement for trust contained a provision that allowed the income_beneficiary to designate a person other than herself to receive distributions of the principal of trust this provision prevented trust from satisfying all of the qsst requirements in sec_1361 therefore x's s election terminated on date nonetheless trust was administered at all times in a manner consistent with the requirements of a qsst under sec_1361 and has had only one income_beneficiary on date pursuant to the terms of b’s will trust trust and trust were funded with shares of x stock trust trust trust and trust are referred to collectively as the trusts each trust was intended to satisfy the requirements of a qsst as described in sec_1361 additionally each of the current income beneficiaries of the trusts failed to elect to treat its respective trust as a qualified_subchapter_s_trust qsst on date y acquired all of the issued and outstanding_stock of x from its shareholders in connection with the due diligence relative to the acquisition by y of all of x's stock the failure_to_file the qsst elections was discovered each of the trust beneficiaries represent that his or her failure_to_file qsst elections was inadvertent and that the termination of x's s_corporation status was not motivated by tax_avoidance or retroactive tax planning additionally x and the trust beneficiaries represent that they have filed federal_income_tax returns consistent both with the treatment of the trusts as qssts effective as of the trusts’ respective dates of formation and x as an s_corporation x and each person who was a shareholder of x during the s_corporation termination period agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual plr-104865-06 sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 - a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if- an election under sec_1362 by any corporation- a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken- a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary plr-104865-06 based solely on the representations made and the information submitted we conclude that x's s_corporation_election terminated on date under sec_1362 because the terms of trust failed to qualify trust as a qsst and the beneficiary of trust failed to file a qsst election and that this termination of x's s election was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date through date provided x's s_corporation_election was valid and was not otherwise terminated under sec_1362 excluding the failure of the beneficiaries of trust trust and trust to file qsst elections all of x’s shareholders in determining their respective income_tax liabilities during the termination period must include their pro_rata share of the separately_stated items of income including tax-exempt_income loss deduction or credit and nonseparately stated computed items of income or loss of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 this ruling is conditioned upon the filing of a completed qsst election for each of the trusts effective date or date as the case may be with the appropriate service_center within days following the date of this letter a copy of this letter should be attached to the qsst elections if x or x’s shareholders fail to treat x as described above this ruling will be null and void except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x was or is a small_business_corporation or whether the trusts are otherwise eligible to be qssts this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely j thomas hines chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


tcmemo_1997_454 united_states tax_court john g goettee jr and marian goettee petitioners v commissioner of internal revenue respondent docket no filed date john g goettee jr and marian goettee pro_se pamela s wilson and helen f rogers for respondent memorandum opinion panuthos chief special_trial_judge this matter is before the court on respondent's motion to dismiss for lack of jurisdiction and respondent's motion for partial summary_judgment respondent asserts that the court lacks jurisdiction pursuant to sec_6404 to review respondent's denial of petitioners' requests for abatement of interest in the all section references are to the internal_revenue_code as amended unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure alternative respondent seeks partial summary_judgment that sec_6404 does not provide authority for respondent to abate interest assessed against petitioners for the taxable_year background on date petitioners filed form sec_843 claim_for_refund and request for abatement requesting that respondent abate interest for the taxable years and on date respondent issued a letter to petitioners proposing to disallow petitioners' requests for abatement of interest petitioners immediately requested further administrative review and the matter was assigned to appeals officer samuel e fish upon review of the matter appeals officer fish advised petitioners that in order to preserve their right for review in the tax_court petitioners should withdraw their original requests for abatement and file new requests after date although petitioners did not formally withdraw their original requests for abatement respondent concedes that petitioners' original requests were never formally disallowed in any event on date petitioners filed a second set of requests for abatement consistent with the advice of appeals officer fish on date respondent issued a notice of disallowance to petitioners stating that petitioners' requests for abatement of interest were only partially allowed insofar as respondent agreed to abate interest accruing during the period date to date--which for the most part coincided with the period that petitioners' requests for abatement were under consideration by respondent on date petitioners filed with the court a petition for review of respondent's denial of their requests for abatement of interest after filing an answer to the petition respondent filed a motion for partial summary_judgment that petitioners' request for abatement respecting the taxable_year was properly denied on the ground that respondent lacks the authority to abate interest for the taxable_year petitioners filed an opposition to respondent's motion for partial summary_judgment this matter was called for hearing at the court's motions session held in washington d c counsel for respondent appeared at the hearing and raised the argument that the court lacks jurisdiction under sec_6404 to consider the petition filed at the time the petition was filed petitioners resided at new windsor maryland at the hearing of this matter counsel for respondent stated that respondent had erred insofar as the date notice of disallowance provides for the abatement of a portion of the interest assessed against petitioners for the taxable_year however counsel for respondent stated that respondent would not attempt to reverse the erroneous abatement herein petitioner john g goettee jr appeared at the hearing and offered argument in opposition to respondent's position following the hearing respondent filed a motion to dismiss for lack of jurisdiction and a memorandum in support of the motion petitioners filed an objection to respondent's motion to dismiss to which respondent filed a reply discussion as a preliminary matter we must decide whether the court has jurisdiction over this matter the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress 85_tc_527 sec_6404 codified under sec_302 of the taxpayer bill of right sec_2 tbor publaw_104_168 110_stat_1452 provides the tax_court with authority to review the commissioner's denial of a taxpayer's request for abatement of interest sec_6404 provides in pertinent part as follows g review of denial of request for abatement of interest -- in general --the tax_court shall have jurisdiction over any_action brought by a taxpayer who meets the requirements referred to in sec_7430 to determine whether the secretary's failure to abate interest under this section was an abuse_of_discretion and may order an abatement if such action is brought within days after the date of the mailing of the secretary's final_determination not to abate such interest sec_302 of tbor 110_stat_1458 provides that sec_6404 applies to requests for abatement after the date of the enactment of this act tbor was enacted on date respondent maintains that we lack jurisdiction to review the denial of petitioners' requests for abatement of interest on the ground that petitioners' original requests for abatement of interest were filed prior to date respondent further contends that despite the appeals officer's advice to the contrary petitioners may not refile their requests for abatement after date for the purpose of invoking the court's jurisdiction in 109_tc_92 we considered the question of the court's jurisdiction to review the commissioner's denial of a request for abatement of interest where the request was filed prior to date but denied by the commissioner after date the commissioner took the position that the court lacked jurisdiction to review the denial of the request for abatement in question because the request had been filed prior to date in rejecting the commissioner's position we concluded that sec_302 of tbor which establishes the effective date of sec_6404 allows the court to exercise its jurisdiction with respect to requests for abatement of interest pending on date we concluded that the commissioner's interpretation of the provision was overly restrictive and inconsistent with congress' intent to provide for increased protections of taxpayer rights in complying with the internal_revenue_code and in dealing with the internal_revenue_service irs in its administration of the tax laws h rept pincite banat v commissioner supra pincite but cf 109_tc_96 the court lacks jurisdiction to review a request for abatement of interest that was both filed and denied prior to date consistent with our holding in banat v commissioner supra we reject respondent's contention that we lack jurisdiction to review the denial of petitioners' requests for abatement in particular there is no dispute that petitioners' requests for abatement were pending on date further on date respondent issued a notice of disallowance to petitioners that constitutes a final_determination to partially deny petitioners' requests for abatement pursuant to sec_6404 in light of petitioners' timely petition for review we hold that petitioners properly invoked the court's jurisdiction pursuant to sec_6404 see rule b we now turn to respondent's motion for partial summary_judgment that petitioners are not entitled to abatement of interest for the taxable_year on the ground that respondent lacks authority to abate interest for that year summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 petitioners' requests for abatement of interest are based upon sec_6404 which provides authority for the commissioner to abate the assessment of interest and deficiency attributable to errors and delays by an officer_or_employee of the internal_revenue_service in performing a ministerial_act although not at issue here we observe that sec_6404 and e also provides authority for the commissioner to abate assessments of interest sec_6404 applies where the sec_6404 was enacted under the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 and applies to interest accruing with respect to deficiencies or payments for tax years beginning after date see tax_reform_act_of_1986 publaw_99_514 100_stat_2085 petitioners object to respondent's motion for partial summary_judgment on the ground that the assessment for interest for the taxable_year is attributable to the disallowance of net operating losses arising in and that petitioners carried back to the taxable_year based upon our review of sec_6404 we hold that respondent lacks the authority to grant a request for abatement of interest for the taxable_year although the deficiency that respondent assessed against petitioners for the taxable_year is attributable to the disallowance of net operating losses for later years it nevertheless is clear that the interest in question which is computed from the due_date of petitioners' tax_return for is attributable to tax due for the taxable_year see 109_tc_1 fluor assessment is attributable in whole or in part to a mathematical error if the return was prepared by an officer_or_employee of the internal_revenue_service acting in his official capacity to provide assistance to taxpayers in the preparation of income_tax returns and sec_6404 applies with respect to the assessment of interest on an erroneous refund of dollar_figure or less where the taxpayer has not caused the erroneous refund corp v united_states ___ f 3d ___ fed cir and cases discussed therein we are obliged to apply the law as written because sec_6404 does not grant authority to the commissioner to abate interest accruing on deficiencies for tax years beginning before date we decline to graft on to the provision an exception for interest assessed as the result of the disallowance of the carryback of net operating losses to the taxable_year consequently we shall grant respondent's motion for partial summary_judgment to reflect the foregoing an order will be issued denying respondent's motion to dismiss for lack of jurisdiction and granting respondent's motion for partial summary_judgment


department of the treasury internal_revenue_service washington d c date uilc number info release date the honorable james a leach member u s house of representatives 1st avenue ne cedar rapids ia attention gary grant dear congressman leach this letter is in response to an inquiry from your staff assistant mr gary grant dated date asking for information on self-employment_tax owed by farmers on rental income mr grant explains that a number of your constituents believe that an inequity exists between the tax treatment farmers receive compared to other businesses with rental income as explained in the following general information if a farmer materially participates in farming pursuant to an arrangement between the farmer and a tenant his rental income is subject_to self-employment_tax sec_1401 of the internal_revenue_code the code imposes a self-employment_tax on an individual’s self-employment_income sec_1402 of the code provides generally that the term self-employment_income means the net_earnings_from_self-employment derived by an individual sec_1402 of the code excludes from the definition of net earning from self-employment rentals from real_estate and from personal_property leased with the real_estate including such rentals paid in crop shares together with the deductions attributable thereto sec_1402 was amended by the social_security amendments of ssa of public law 84th cong to limit the exclusion of rentals from real_estate from net_earnings_from_self-employment as amended this section provides that the exclusion of rentals from real_estate shall not apply to any income derived by the owner or tenant of land if a such income is derived under an arrangement between the owner or tenant and another individual which provides that such other individual shall produce agricultural or horticultural commodities on such land and that there shall be material_participation by the owner or tenant in the production or the management_of_the_production of such agricultural or horticultural commodities and b there is material_participation by the owner or tenant with respect to any such agricultural or horticultural commodity the purpose of the ssa of was to extend the coverage of the old-age survivors and disability insurance program to individuals who were not otherwise covered s rep 84th cong 2d sess 1956_2_cb_1255 senate report therefore farmers will benefit by receiving social_security coverage that they would not enjoy but for the statutory expansion of coverage in mizell v commissioner t c memo the tax_court concluded that the term arrangement in sec_1402 and the corresponding regulations is not limited to contractual relationships nor to terms and conditions included in a single agreement contractual or otherwise instead the court recognized that the term arrangement may refer to a relationship or overall understanding between or among parties in connection with a specific activity or situation mizell was followed by three recent tax_court opinions mcnamara v commissioner t c memo appeal pending no 8th cir hennen v commissioner t c memo appeal pending no 8th cir bot v commissioner t c memo appeal pending no 8th cir this letter will be available for public inspection after names addresses and other identifying information have been deleted under the freedom_of_information_act i hope the above information responds to your concerns if i can be of further assistance in this matter please contact me or john richards identification_number at sincerely jerry e holmes chief branch tax exempt and government entities


internal_revenue_service number release date index number ------------------------------------------------------------ ---------------------------- --------------------- ---------------------------------------------- re ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-140527-15 date date legend decedent spouse date date ----------------------- ----------------------- ------------------------ -------------------------- dear ------------------------------------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime plr-140527-15 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-140527-15 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means 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_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-140527-15 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-140527-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


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 tege eoeg teb presp-143645-06 date date dear ----------------- this letter is in response to your application_for an allocation of authority to issue --------- ----------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix a because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller presp-143645-06 share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-143645-06 borrwer name appendix a project type project location ---------------------------- wind facility -------- -------------------------------- --------- amount requested ---------------


uniform issue list no - department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division tr elv st7 t aug attn legend state group c employees plan x plan y statute d statute e statute f dear this is in response to a ruling_request dated date as supplemented by additional correspondence dated date date date date date date date date and date from your authorized representative concerning the pick up of certain employee contributions to plan x under sec_414 of the internal_revenue_code the code’ and the federal_income_tax treatment of certain transfers of funds from plan y to plan x the following facts and representations have been submitted pursuant to statute d the state created plan x in as a defined benefit pension_plan and retirement_system for the benefit of group c employees plan x is intended to meet the qualification requirements of sec_401 of the code to the extent that section applies to a governmental_plan under code sec_414 under statute d employee contributions to plan x are mandatory for group c employees effective date each participant has been required to contribute a certain percentage of their base annual salary to plan x in the form of a deduction from compensation the state is required to reduce the current salary of group c employees and pay the mandatory employee contribution directly to plan x in lieu of contributions by the individual participants no option to receive the mandatory_contributions in cash has ever been permitted such an option is specifically precluded by statute d the state has treated the mandatory employee contributions in a manner consistent with sec_414 of the code as such they have been treated as employer contributions for federal_income_tax purposes - pursuant to state statute the state also established plan y a defined contribution pension_plan qualified under sec_401 of the code plan y covers employees of the state and employees of any political_subdivision of the state that elects to participate in plan y employees participating in plan y are required to contribute a percentage of their compensation to plan y this amount is deducted by the employer each payroll_period and paid over to the plan’s trust statute f requires the state or other adopting employer to pick up and pay the mandatory_contributions to plan y pursuant to sec_414 of the code statute e as submitted to the internal_revenue_service the service in proposed form on date provides for the purchase of credited service for employees participating in plan x such as credited service for employment with a political_subdivision or agency of the state for leave of absence or military service the state proposes to implement a program under which an employee will have several options for purchasing credited service or for the reinstatement of forfeited credited service due to a prior refund of contributions two of the available options include employee payments made through payroll deduction or a direct trustee-to-trustee transfer from a code sec_401 plan including plan y these provisions will become effective upon the receipt of a favorable letter_ruling from the service concerning their tax consequences a covered_employee who is eligible to purchase credited service through payroll deduction is required to make an irrevocable election to purchase the credited service as permitted under statute e the irrevocable election must specify the number of payroll periods that deductions will be made from the employee’s compensation and the dollar amount_of_deductions for each payroll_period during the specified number of payroll periods the deductions will cease upon the earliest of the employee’s termination of employment with the employer the employee’s death or completion of the specified payroll deduction period if an employee terminates employment before all payments are made the employee’s benefits shall be based only on the payments actually made with respect to the credited service purchased under statute e the amounts paid under the payroll deduction program are paid_by the employer in lieu of contributions by the employee making the election and - the employee does not have the option of choosing to receive the contributed amounts directly in cash the state also proposes to allow employees to use funds from plan y for the limited purpose of purchasing credited service on behalf of employees participating in plan x or for the reinstatement of forfeited credited service under statute e plan x permits the acceptance of funds by reason of a direct trustee-to-trustee transfer from an account established for the benefit of an employee in plan y the amounts transferred from plan y will be applied to reduce the employee’s outstanding indebtedness at the time that the contributions are received by plan x based on the foregoing facts and representations you have requested the following rulings that amounts deducted and withheld from the salary of covered employees pursuant to statute d qualify as employee contributions that are picked up by the state under code sec_414 and as such are not included in gross_income for federal_income_tax purposes that amounts deducted and withheld from the salary of covered employees pursuant to statute d qualify as employee contributions that are picked up by the state under code sec_414 and as such do not constitute wages for federal_income_tax withholding purposes that amounts deducted and withheld from the salary of covered employees for purposes of purchasing additional credited service pursuant to statute e qualify as employee contributions that are picked up by the state under code sec_414 and as such are not included in the employee’s gross_income for federal_income_tax purposes that amounts deducted and withheld from the salary of covered employees for purposes of purchasing additional credited service pursuant to statute e qualify as employee contributions that are picked up by the state under code sec_414 and as such do not constitute wages for federal_income_tax withholding purposes that the picked-up contributions permitted under statutes d and e will not be treated as annual_additions for purposes of code sec_415 that amounts transferred in a direct trustee-to-trustee transfer to the plan x trust from an account established in an exempt trust for the benefit of the employee in plan y which is a code sec_401 qualified_plan to purchase additional credited service pursuant to statute e will not result in ordinary_income to the employee under sec_72 of the code with respect to ruling_request sec_1 and code sec_414 provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in code sec_401 established by a state government or a political_subdivision thereof or any agency_or_instrumentality of any one of the foregoing and are picked up by the employing unit the federal_income_tax treatment to be accorded contributions that are picked up by the employer within the meaning of code sec_414 is specified in revrul_77_462 1977_2_cb_358 in that revenue_ruling the employer school district agreed to assume and pay the amount employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district's picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of code sec_3401 the school district's contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding for federal_income_tax purposes is required from the employees’ salaries with respect to such picked-up contributions the issue of whether contributions have been picked up by an employer within the meaning of code sec_414 is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 these revenue rulings established that the following two criteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan furthermore it is immaterial for purposes of the applicability of code sec_414 whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both in revrul_87_10 1987_1_cb_136 the service considered whether contributions designated as employee contributions to a governmental_plan are excludable from the gross_income of the employee the service concluded that to satisfy the criteria set forth in revenue rulings and with respect to particular contributions the required specification of designated employee contributions must be completed before the period to which such contributions relate plan x satisfies the criteria set forth in code sec_414 revrul_81_35 and revrul_81_36 by providing that the state will pick up and make contributions to plan x in lieu of contributions by eligible employees and that no employee will have the option of receiving such amount directly in cash instead of having it contributed to plan x accordingly with respect to ruling_request sec_1 and we conclude that the amounts deducted and withheld from the salary of covered employees to pay mandatory employee contributions pursuant to statute d are picked up by the state within the meaning of sec_414 of the code and that such amounts will be treated as employer contributions and will not be includable in employees’ gross_income for the taxable_year in which such amounts are contributed with respect to ruling_request sec_3 and statute e provides for the purchase of additional credited service for employees participating in plan x if a group c employee elects to purchase additional credited service under one of the provisions of statute e and agrees to do so by payroll deduction the employee and the state may further agree that the state will pick up the contributions that the employee is required to pay for the purchase of additional credited service any election to have payroll deductions for the purchase of additional credited service picked up by the state is irrevocable statute e provides that the state will pay the picked-up amount directly to plan x in lieu of such payment by the employee the payroll deductions shall continue to be picked up until the earlier of termination of employment or the completion of all the required_payments for the additional credited service statute e further provides that the covered_employee will not have the option of choosing to receive the picked-up amounts instead of having them paid_by the state to plan x accordingly we conclude that the amounts deducted and withheld from the salary of covered employees to purchase additional credited service pursuant to statute e are picked up by the state within the meaning of sec_414 of the code and that such amounts will be treated as employer contributions and will not be included in employees’ gross_income for the taxable_year in which such amounts are contributed because we have determined with respect to mandatory employee contributions under statute d and additional service_credit contributions under statute e that the picked-up amounts are to be treated as employer contributions they are excepted from wages as defined in code sec_3401 for federal_income_tax withholding purposes therefore no withholding of federal_income_tax is required from the salaries of group c employees with respect to such picked-up amounts with respect to ruling_request sec_415 of the code provides in general that a participant’s benefit expressed as an annual_benefit cannot exceed the lesser_of a dollar_figure as adjusted for cost-of-living increases or b percent of the participant's average compensation_for the high_three_years the percent of compensation limit under sec_415 does not apply to governmental plans sec_415 of the code provides in general that contributions and other annual_additions for a participant may not exceed the lesser_of a dollar_figure as adjusted for cost-of-living increases or b percent of the participant's_compensation sec_1 d of the income_tax regulations provides in part that where a defined_benefit_plan provides for mandatory employee contributions the annual_benefit attributable to such contributions is not taken into account for purposes of determining the maximum limitations under code sec_415 this regulation further provides that the mandatory employee contributions are considered a separate defined_contribution_plan maintained by the employer that is subject_to the limitations on contributions and other additions described in code sec_415 however employee contributions that are picked up by the employer pursuant to code sec_414 are treated as employer contributions and as such are not annual_additions to a separate defined_contribution_plan for purposes of sec_415 accordingly we conclude that the picked-up contributions under statutes d and e will not be treated as annual_additions for purposes of code sec_415 with respect to ruling_request sec_402 of the code provides in pertinent part that the amount actually distributed to any distributee by any employees’ trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to such distributee in the year in which so distributed under sec_72 relating to annuities revrul_67_213 1967_2_cb_149 holds that where a participant’s interest is transferred from a_trust forming part of one qualified employees’ plan to a_trust forming part of another qualified_plan no taxable_income will be recognized to the participant by reason of such transfer therefore with respect to ruling_request we conclude that amounts transferred in a direct trustee-to-trustee transfer from an employee’s account in the plan y trust to such employee’s account in the plan x trust in order to purchase additional credited service pursuant to statute e will not result in ordinary_income to the employee under sec_72 of the code by reason of such transfer these rulings are based on the assumption that plans x and y will be qualified under sec_401 of the code at the time of the proposed contributions and distributions this ruling is based on the conditions that a a group c employee who elects to purchase a particular type of past_service_credit may not make more than one irrevocable election to purchase that type of service_credit and b a group c employee may make more than one irrevocable election to purchase past_service_credit provided any subsequent election is for the purchase of a different type of the past_service_credit is irrevocable and does not alter or amend the terms and conditions of any prior election to purchase past_service_credit proposed pick-up contributions for the purchase of additional credited service under plan x cannot commence prior to the later of the date statute e as submitted to the service in proposed form on date is signed or put into effect no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement’ within the meaning of sec_3121 of the code this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative pursuant to a power_of_attorney on file in this office should you have any questions pertaining to this ruling you may contact of this office at sincerely yours i donzell h littlejohn acting manager employee_plans technical group enclosures deleted copy of the ruling letter notice of intention to disclose notice cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa aegoldstein postf-109581-13 uilc date date to mary p hamilton senior attorney boston group small_business self-employed from thomas w curteman jr senior technician reviewer branch procedure administration subject application of restitution payments this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issues whether the service must apply restitution payments that were ordered in connection to corporate income taxes to the corporate_income_tax liability or whether they may be applied to other unpaid tax_liabilities of the defendants taxpayers making those restitution payments conclusions the service may apply restitution payments as involuntary payments in the service’s best interest facts the following facts are what we understand from the office of appeals the service opened an audit for the corporation --------------------------------regarding income taxes for the following periods -------------------------------------- the audit resulted in a criminal investigation and charges under criminal tax statutes of the corporate principles ---------- --------- and his son ------------------------ as part of the judgment the taxpayers pleaded postf-109581-13 guilty to two different counts in the indictment count one ---------------------------------------- ----------and count seven ----------------------------- and were jointly ordered to pay criminal restitution totaling ------------------ the restitution was fully paid on --------------------- the corporation was not charged with tax crimes the service completed a civil examination for the father’s and son’s personal income taxes as well as and the corporation’s income taxes each taxpayer ------------------------- -----------------------------------------------------------------------and ---------------------------------------- -------------------------------------------------------------------------------------------------------each had a hearing with appeals regarding the proposal additional assessments after the hearings they agreed to additional assessments regarding both personal income taxes for ------------------------------and business income taxes for tax periods ------------------------- ----------------- ------- -------------- --------- ------------------------------------and ----------------------- ------also agreed to fraud penalties these additional assessments for individual liabilities were assessed for all periods on --------------------------and for the corporate liabilities on ----------------------------------------------- the service retained the restitution pending the outcome of the examination and credited the restitution payments only once the service assessed the personal and corporate taxes the restitution funds were credited as follows tax_liability deficiency1 restitution credited from --- ------------------- ---------------------- restitution credited from ------------------- -------------------------------------- ------ ----------------------- ----------------- ------ ----------------------- ------------------------------------ -------------------- --------------------------- ------------------------------------- -------------------------------------- ------------------------------- --------------------------- ------------------------------- --------------------------- ------------------------ ------------------------ ------------------------- ------ ------------------------ - ------------------------ ------------------------ ----- ------------------------ ------------------------ ------ ------------------------ the service only credited the restitution payments received to the tax_liabilities for the periods set out above not to any penalties or interest for those periods the restitution payments were first credited to pay the --------------personal additional income_tax liabilities again not including penalties or interest with the remainder credited to the corporation’s income_tax liabilities the taxpayers’ attorney filed a motion with the sentencing federal district_court for clarification of the restitution order the judge this amount does not include any assessed penalties relating to the respective tax periods postf-109581-13 would not amend the judgment and determined that the dispute was between the taxpayers and the irs law and analysis restitution is a compensation_for loss full or partial compensation paid_by a criminal to a victim not awarded in a civil trial for tort but ordered as part of a criminal sentence or as a condition of probation black’s law dictionary 19th ed when there is a tax-related crime the government and particularly the internal_revenue_service is usually the victim federal district courts may order a defendant to pay restitution pursuant to u s c to the service to compensate it for its actual loss caused by a convicted defendant restitution can also be ordered as part of a plea agreement if the defendant is convicted of a title criminal offence or as a condition of a supervised release or probation u s c a 3663a d b when a criminal tax case is settled between the defendant and the government the parties may enter into a plea agreement that among other things waives an appeal of the restitution order u s c a the defendant can object to certain provisions of the plea agreement including provisions that related to the existence and amount of tax loss failure to comply with the restitution order may result in the court holding the defendant in contempt and the result of a contempt determination may include the court revoking probation or resentencing the defendant see u s c 3613a the service treats a restitution payment as an involuntary payment because it is either a payment agreed to as a result of a plea agreement or a court order involuntary payments are defined as any payment received by agents of the united_states as a result of distraint or levy or from a legal proceeding in which the government is seeking to collect its delinquent taxes or file a claim therefor u s v pepperman 976_f2d_123 3d cir quoting 47_tc_65 the service will apply involuntary payments to satisfy the outstanding balances in the order that best serves the interests of the government considering the csed for all outstanding liabilities pepperman f 2d pincite amos t c pincite this will generally require application to the oldest tax oldest penalty and oldest interest in that order until fully used this order of payment application is based on revproc_2002_26 which provides the service’s position regarding payment application by the service of a partial payment of tax penalty and interest for one or more taxable periods in this case the service did not err in applying the taxpayer’s restitution payments as involuntary payments in the best interest of the government on date the federal excise_tax improvement act of feti act pub_l_no sec_3 amended sec_6201 to require the assessment and administrative collection of the amount of restitution under an order pursuant to u s c for failure to pay any_tax imposed under the i r c in the same manner as if such amount were such tax in this case restitution was ordered before date so the restitution amount cannot be assessed because the restitution- based assessment provisions of sec_6201 are not applicable to the facts in this case we reserve postf-109581-13 case development hazards and other considerations --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions for another time whether the analysis or legal hazards are different for the application of restitution payments made when the amount of restitution is assessed by the service


t c memo united_states tax_court james benjamin wood iii petitioner v commissioner of internal revenue respondent docket no 5508-06l filed date james benjamin wood iii pro_se jeffrey s luechtefeld for respondent memorandum opinion vasquez judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or the issues for decision are whether respondent may proceed with collection of petitioner’ sec_1 unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure and income_tax liabilities and whether petitioner is liable for a penalty pursuant to sec_6673 at the time he filed the petition petitioner resided in background florida petitioner failed to file federal_income_tax returns for and on date respondent prepared substitutes for return for and on date respondent assessed dollar_figure of tax for dollar_figure of tax for and interest and additions to tax for and on date respondent issued to petitioner a final notice-- notice_of_intent_to_levy and notice of your right to a hearing regarding petitioner’s outstanding and income_tax liabilities on date petitioner sent respondent a form request for a collection_due_process_hearing sec_6330 hearing request petitioner attached to the form several documents containing frivolous and groundless arguments questions and statements regarding his liability for income taxes the legality of imposing income taxes on individuals and respondent’s authority to collect income taxes settlement officer james feist was assigned to petitioner’s case in a letter dated date settlement officer feist acknowledged receipt of petitioner’s form and other materials date letter in the date letter settlement officer feist informed petitioner that the arguments he advanced were frivolous groundless or arguments that appeals_office employees may not consider requested petitioner submit relevant nonfrivolous information such as petitioner’s signed tax returns for and challenges to the appropriateness of collection actions or proposals of collection alternatives scheduled a phone conference with petitioner for date and attached a copy of an irs document entitled the truth about frivolous tax arguments which detailed several of the frivolous and groundless arguments that petitioner asserted in the materials he sent to respondent on date and numerous other dates petitioner sent to respondent additional materials containing frivolous and groundless arguments questions and statements additional frivolous materials settlement officer feist responded to petitioner’s additional frivolous materials and requested petitioner submit relevant nonfrivolous information regarding the years in issue settlement officer feist informed petitioner again that the arguments he advanced were frivolous groundless or arguments that appeals_office employees may not consider advised petitioner to contact him by date if petitioner wished to submit relevant nonfrivolous information for settlement officer feist’s consideration or to reschedule the phone conference and informed petitioner that if the appeals_office did not receive any additional information from petitioner appeals would review petitioner’s case based on the information in petitioner’s file on date settlement officer feist called petitioner at the phone number petitioner had provided no one answered settlement officer feist’s call settlement officer feist left a voice message stating that he could not determine that the assessments or proposed collection actions were incorrect based on the information petitioner had provided and that respondent would issue a notice_of_determination in petitioner’s case respondent issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination with respect to petitioner’s income_tax liabilities for and in the notice_of_determination respondent determined that the proposed levy should be sustained and that petitioner failed to file outstanding u s individual income_tax returns failed to make payments on the amounts assessed and failed to submit a viable collection alternative petitioner timely filed a petition for lien or levy action under sec_6320 or sec_6330 regarding his and tax_liabilities in the petition petitioner raised several frivolous and groundless arguments that he previously had raised in his sec_6330 hearing discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials and may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule a and b fla peach corp v commissioner 90_tc_678 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are viewed in a light most favorable to the nonmoving party 119_tc_252 85_tc_812 79_tc_340 the party opposing summary_judgment must set forth specific facts that show a genuine question of material fact exists and may not rely merely on allegations or denials in the pleadings 91_tc_322 87_tc_214 sec_6330 provides that no levy may be made on any property or right to property of a person unless the secretary first notifies him or her in writing of the right to a hearing before the appeals_office the appeals officer must verify at the hearing that the applicable laws and administrative procedures have been followed sec_6330 at the hearing a taxpayer may raise any relevant issues relating to the unpaid tax or the proposed levy including appropriate spousal defenses challenges to the appropriateness of collection actions and collection alternatives sec_6330 the person may challenge the existence or amount of the underlying tax however only if he or she did not receive any statutory_notice_of_deficiency for the tax_liability or did not otherwise have an opportunity to dispute the tax_liability sec_6330 where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo where the validity of the underlying tax is not properly at issue however the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 114_tc_176 settlement officer feist could not determine whether petitioner received notices of deficiency for and accordingly settlement officer feist allowed petitioner to challenge the validity of the underlying tax_liability for and as part of the sec_6330 hearing petitioner however failed to raise a nonfrivolous challenge to his underlying tax_liability instead petitioner chose to advance frivolous and groundless arguments throughout his sec_6330 hearing the petition and several pounds of spurious materials that petitioner filed in this case2 petitioner advanced shopworn arguments characteristic of tax-protester rhetoric that has been universally rejected by this and other courts see 848_f2d_1007 9th cir affg tcmemo_1987_225 784_f2d_1006 9th cir 771_f2d_471 10th cir affg tcmemo_1983_433 michael v commissioner tcmemo_2003_26 knelman v commissioner tcmemo_2000_268 affd 33_fedappx_346 9th cir we shall not painstakingly address petitioner’s assertions with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir per curiam petitioner has failed to make a valid challenge of his underlying tax_liabilities or to the appropriateness of respondent’s intended collection action offer alternative mean sec_2 for example among other things petitioner filed sworn suggestions of intentional policies and practices of jural deceit evidenced by consistent and repeated use of unverified process in response to petitioner’s verified challenge and notice of corrections to sworn motion to vacate order dated date for failure to prove the indispensable prerequisite jurisdictional fact following petitioner’s repeatedly set forth undisputedly relevant and verifiable challenge of collection or offer any spousal defenses these issues are now deemed conceded rule b accordingly we sustain respondent’s determination to proceed with collection for and ii sec_6673 sec_6673 authorizes this court to require a taxpayer to pay to the united_states a penalty not to exceed dollar_figure if the taxpayer took frivolous positions in the proceedings or instituted the proceedings primarily for delay a position maintained by the taxpayer is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir settlement officer feist repeatedly informed petitioner that petitioner’s arguments were frivolous and groundless and provided petitioner the truth about frivolous tax arguments which explains the defects in several of petitioner’s arguments settlement officer feist also prepared and sent petitioner several documents addressing petitioner’s frivolous and groundless arguments with citations to the constitution the internal_revenue_code and cases from the supreme court of the united_states the u s courts of appeals and the court at trial the court informed petitioner that the arguments he was advancing had been universally rejected by the courts that have considered them petitioner’s positions based on stale and meritless contentions are manifestly frivolous and groundless this has caused the court to waste limited resources accordingly we shall impose a penalty of dollar_figure pursuant to sec_6673 to reflect the foregoing an appropriate order and decision will be entered