t c summary opinion united_states tax_court derrick james ballard-bey petitioner v commissioner of internal revenue respondent docket no 4382-13s filed date derrick james ballard-bey pro_se christopher r moran for respondent summary opinion dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure on date respondent issued a notice_of_deficiency to petitioner in which he determined the following deficiencies and penalties penalty year deficiency sec_6662 dollar_figure dollar_figure big_number big_number big_number big_number after concessions the issues for decision are whether petitioner is entitled to deduct on schedule c profit or loss from business_losses from his book writing activity for and is entitled to a dependency_exemption deduction for each of and and is liable for sec_6662 accuracy-related_penalties for the years in issue all amounts are rounded to the nearest dollar petitioner and respondent signed a stipulation of settled issues other adjustments made in the notice_of_deficiency are computational and will not be discussed background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference petitioner resided in maryland when he filed his petition dependency_exemption deductions petitioner and his wife kimberly b ballard-bey married in date at or around the time they married petitioner’s wife moved out of her mother’s home and into petitioner’s apartment at the time that petitioner’s wife moved into his apartment petitioner’s childhood friend darcy abney who was otherwise homeless was already living there mr abney lived with petitioner during and part of was unemployed during those years and apparently had no other source of support petitioner also provided food to mr abney while mr abney lived with him during and mr abney would occasionally spend a few nights at a girlfriend’s home but would always return to live with petitioner two months after petitioner and his wife married a dispute over mr abney’s presence in the apartment led to petitioner and his wife’s separating until sometime in petitioner’s book writing activity during the years in issue petitioner was employed by the washington metropolitan area transit authority in or around late or early petitioner was referred by a coworker to james wise for tax guidance apparently mr wise was the proprietor of a tax_return preparation business named a wise tax choice operating from an office in capitol heights maryland during their first meeting petitioner and mr wise discussed petitioner’s budding book writing activity and in particular certain tax-related recordkeeping requirements for that activity by the end of petitioner had completed a second rough draft of a book about transitioning out of involuntary treatment facilities and imprisonments something with which he was familiar in early petitioner contacted several traditional publishing houses to inquire about the possibility of having his book published petitioner became dissatisfied with the long and uncertain process associated with publishing through a traditional publishing house and decided that self-publishing was a better option petitioner needed a content editor a line editor and a book formatter book editors at the time however petitioner could not afford to hire book editors and decided that he would sell items related to the subject matter of his book writing activity including t-shirts and mugs and different things the income from which he would use to hire book editors and consultants to prepare his book for publication in petitioner met peter bowerman a consultant and a moderator of a writing group called absolute writing in january or date petitioner hired mr bowerman to help him select an effective and marketable book title for his rough draft deciding at the time on redefine your mind make your next step count in march or date petitioner on mr bowerman’s recommendation hired a web site and graphic design company named di natale design inc di natale design to create a logo a book cover and a web site template di natale design referred petitioner to blizzard digital a web hosting and design company petitioner hired blizzard digital to build a web site from which he could sell his book and other related items and to provide other internet-related services for the web site including annual web hosting web site optimization and social media services also in petitioner retained renee l duff an intellectual_property attorney to assist him with copyright and trademark matters with respect to his book writing activity specifically ms duff helped petitioner file electronic copyright applications for the logo and artwork created by di natale design and register the trademark redefine your mind with the u s patent and trademark office petitioner also hired john hinds in to provide consultation with respect to the book title chapter titles trademark strategies and web site design by fall petitioner had completed a 600-page draft but had not raised the funds necessary to hire book editors and publish the book petitioner in an attempt to generate the funds needed to publish his book and on the recommendation of mr hinds purchased t-shirts from mid florida sportswear inc on date the t-shirts were embroidered with various designs that petitioner created petitioner intended to sell the t-shirts which were delivered to him in date through his web site and through free workshops that he planned on hosting at prisons and involuntary treatment facilities petitioner was able to sell some of the t-shirts in and as of the end of petitioner’s book had not been published petitioner’s federal_income_tax returns mr wise prepared petitioner’s electronically filed and federal_income_tax returns mr wise placed spurious items on the returns petitioner approved the filing of the returns without reviewing them included in each of the and returns was a claimed dependency_exemption deduction for mr abney for each year in issue petitioner’s return included a schedule c related to his book writing activity as relevant on his and schedules c petitioner reported gross_receipts of dollar_figure and dollar_figure for and respectively and zero gross_receipts for and reported net losses of dollar_figure dollar_figure and dollar_figure respectively the net losses are taken into account in the computation of the adjusted_gross_income shown on petitioner’s and returns during the audit petitioner prepared amended returns for and respondent received those amended returns on date but did not accept or process either return discussion as we have observed in countless opinions deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any petitioner described his principal business or profession as author on the schedules c attached to his and returns and as computer tech on the schedule c attached to hi sec_2011 return apparently the schedule c like the and schedules c relates to petitioner’s book writing activity despite the misnomer the parties stipulated that petitioner’s book writing activity did not have any gross_receipts for or claimed deduction rule a 503_us_79 292_us_435 a taxpayer claiming a deduction on a federal_income_tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid_or_incurred sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir 43_tc_824 sec_1_6001-1 income_tax regs dependency_exemption deductions according to petitioner he is entitled to a dependency_exemption deduction for mr abney for each of and respondent contends that petitioner did not establish that he provided more than one-half of mr abney’s support and therefore he is not entitled to a dependency_exemption deduction for mr abney for or a taxpayer is entitled to a dependency_exemption deduction only if the claimed dependent is a qualifying_child or a qualifying_relative as defined under sec_152 and d sec_152 a qualifying_child is defined as the petitioner does not claim that the provisions of sec_7491 are applicable and we proceed as though they are not taxpayer’s child brother sister stepbrother stepsister or a descendant of any of them sec_152 and the term child includes a legally adopted individual and a foster_child placed in the care of the taxpayer by an authorized_placement_agency or by a court order sec_152 mr abney is not a qualifying_child because he is not related to petitioner and is not an adopted_child or a foster_child an individual who is not a qualifying_child may still under certain conditions qualify as a dependent if he or she is a qualifying_relative sec_152 under sec_152 a qualifying_relative is an individual a who bears a qualifying relationship to the taxpayer b whose gross_income for the year is less than the sec_151 exemption_amount c who receives over one-half of his or her support from the taxpayer for the taxable_year and d who is not a qualifying_child of the taxpayer or of any other taxpayer for the taxable_year sec_152 a - h lists eight types of qualifying relationships seven of which involve various familial relationships which do not apply to the circumstances herein the eighth type of qualifying relationship applies to an individual other than the taxpayer’s spouse who has the same principal_place_of_abode as the taxpayer and is a member of the taxpayer’s household for the taxable_year sec_152 in order for an individual to be considered a member of a taxpayer’s household the taxpayer must maintain the household and both the taxpayer and the individual must occupy the household for the entire taxable_year sec_1_152-1 income_tax regs a temporary absence from the household will not prevent an individual from being considered as living with the taxpayer for the entire year id a taxpayer maintains a household when he or she pays more than one-half of the expenses for the household see sec_2 revrul_64_41 c b part on the basis of petitioner’s testimony and a notarized statement of mrs ballard-bey the court is satisfied that mr abney resided with petitioner and had the same principal_place_of_abode as petitioner during and see rasco v commissioner tcmemo_1999_169 petitioner paid rent and provided food for the home there is no evidence of another source of maintenance of the household as defined in sec_1_2-2 income_tax regs the court is further satisfied that no individual other than petitioner supported mr abney and that mr abney had no other source_of_income or support because mr abney had no other source_of_income or support we assume for purposes of the test that petitioner provided more than one-half of mr abney’s support as defined in sec_1_152-1 income_tax regs see halbin v commissioner tcmemo_2009_18 mr abney was a contemporary of petitioner and over the age of in and and thus could not be a qualifying_child of another taxpayer see sec_152 thus petitioner has satisfied sec_152 a - d accordingly petitioner is entitled to a dependency_exemption deduction for mr abney for and petitioner’s book writing activity schedules c according to petitioner he is entitled to the deductions claimed on the and schedules c relating to his book writing activity because those deductions represent expenses he paid in the operation of his book writing business respondent contends that petitioner engaged in neither a trade_or_business within the meaning of sec_162 nor an active trade_or_business within the meaning of sec_195 during either of the years in issue according to respondent any expenditures relating to petitioner’s book writing activity are nondeductible startup expenses under sec_195 respondent further argues that even if petitioner was engaged in an active trade_or_business he failed to substantiate most of his schedule c expenses according to respondent petitioner has substantiated approximately dollar_figure and dollar_figure for and respectively of his schedule c expenses sec_162 generally allows a deduction for ordinary and necessary expenses paid in connection with carrying_on_a_trade_or_business sec_212 generally allows a deduction for expenses paid_or_incurred in connection with an activity engaged in for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income under both provisions however expenses must be associated with a trade_or_business or other income-producing activity that is functioning at the time the expenses are incurred 93_tc_684 aff’d in part remanded in part u s app lexis 10th cir date see also woody v commissioner tcmemo_2009_93 aff’d 403_fedappx_519 d c cir glotov v commissioner tcmemo_2007_147 a taxpayer is not carrying_on_a_trade_or_business for sec_162 purposes until the business is functioning as a going concern and performing the activities for which it was organized 345_f2d_901 4th cir vacated and remanded on other grounds 382_us_68 see also glotov v commissioner tcmemo_2007_147 business operations with respect to the activity must have actually commenced mckelvey v commissioner tcmemo_2002_63 aff’d 76_fedappx_806 9th cir until that time expenses related to that activity are not ‘ordinary and necessary’ expenses currently deductible under sec_162 nor are they deductible under sec_212 but rather are ‘start-up’ or ‘pre-opening’ expenses woody v commissioner tcmemo_2009_93 citing hardy v commissioner t c pincite startup expenses although not currently deductible may generally be deducted over time pursuant to sec_195 id whether a taxpayer’s activities constitute the carrying on of a trade_or_business requires an examination of the facts and circumstances of each case id see also 480_us_23 the court has focused on three factors to indicate the existence of a trade_or_business whether the taxpayer undertook the activity intending to earn a profit whether the taxpayer is regularly and actively involved in the activity and whether the taxpayer’s activity has actually commenced see woody v commissioner tcmemo_2009_93 upon consideration of the evidence the court concludes that petitioner undertook his book writing activity with the honest intent to generate a profit nonetheless petitioner’s profit-seeking activity was not functioning as a going concern in or although it appears that petitioner took steps directed toward establishing an active book writing business his plans to commence the book writing venture he described at trial were not realized by the end of from through wrote an unpublished rough draft developed a web site platform from which he intended on selling his book once published and other related items and consulted with various professionals in preparation of starting his business at no point during either year in issue did petitioner as his testimony confirms ever offer any item for sale on his web site or otherwise nor did he as of the end of publish his book petitioner has not met his burden of showing that the startup phase was completed and that the profit seeking began in or thus the expenses relating to the book writing activity were not ordinary and necessary business_expenses or sec_212 expenses for the years in issue and are considered startup expenses that cannot be currently deducted iii accuracy-related_penalties respondent determined that petitioner is liable for an accuracy-related_penalty under sec_6662 for each year in issue sec_6662 and b and imposes a penalty on the portion of an underpayment attributable to any one of various factors including negligence disregard of rules or regulations or substantial_understatement_of_income_tax negligence includes any failure to make a reasonable attempt to comply with the provisions of the code including any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs under sec_7491 respondent has the burden of production with respect to the accuracy-related_penalty see 116_tc_438 for petitioner claimed schedule c deductions of dollar_figure that he has conceded in full for petitioner claimed schedule c deductions of dollar_figure on his return as originally filed and for petitioner claimed schedule c deductions of dollar_figure petitioner substantiated approximately dollar_figure and dollar_figure for and respectively of his schedule c expenses respondent has met his burden that being so it is petitioner’s burden to establish that the imposition of the penalty is not appropriate see id pincite see also rule a 290_us_111 sec_6664 provides an exception to the sec_6662 penalty if it is shown that there was reasonable_cause for any portion of the underpayment and the taxpayer acted in good_faith the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s effort to assess his proper tax_liability id circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in view of the taxpayer’s experience knowledge and education id according to petitioner the penalties are not applicable because he relied upon mr wise to compute the federal_income_tax liabilities shown on his returns under certain circumstances a taxpayer’s reliance upon professional advice may establish the taxpayer’s reasonable_cause and good_faith with respect to an underpayment_of_tax if the taxpayer establishes that the professional was provided with complete and accurate information an incorrect return was a result of the preparer’s mistakes and the taxpayer demonstrates good-faith reliance on a competent professional see 112_tc_317 aff’d without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir see also 115_tc_43 aff’d 299_f3d_221 3d cir reliance on a return preparer is not reasonable where even a cursory review of the tax_return would reveal errors 88_tc_654 petitioner has not established that he provided mr wise with complete and accurate information or that mr wise was a competent professional mr wise placed on the returns schedule c and itemized_deductions to which petitioner was not entitled furthermore petitioner admitted at trial that he approved the filing of the returns without reviewing them had he reviewed the returns we are confident that petitioner would have noticed deductions for expenses that he did not incur accordingly petitioner’s reliance on mr wise does not establish that he acted with reasonable_cause and in good_faith nor has he advanced any other argument or evidence establishing that he acted with reasonable_cause and in good_faith therefore the court sustains respondent’s determination that petitioner is liable for the sec_6662 accuracy-related_penalty for the years in issue we have considered all of the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service p o box cincinnati ohio number release date date date department of the treasury person to contact id number contact telephone numbers employer_identification_number legend uil l date of formation m testator n primary beneficiary o date of decision to replace primary beneficiary p date of lawsuit q court r dollars amount of each set-aside s first set-aside year t second set-aside year v date of settlement dear this is in response to your request dated date for advance approval of certain set asides described in internal_revenue_code sec_4942 based on information submitted we’ve determined that you don’t meet the requirements for approval of your request the basis for our conclusion is set forth in enclosure we'll make our proposed adverse determination_letter available for public inspection under internal_revenue_code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you don’t need to take any further action catalog number 58229x letter for important information about your responsibilities as a tax-exempt_organization go to www irs gov charities enter 4221-pf in the search bar to view publication 4221-pf compliance guide for c private_foundations which describes your recordkeeping reporting and disclosure requirements you should keep a copy of this letter in your permanent records if you have any questions please contact the person whose name and telephone are shown in the heading of this letter sincerely stephen a martin director exempt_organizations rulings and agreements enclosures enclosure notice letter catalog number 58229x issues enclosure do you qualify for advance approval of certain set asides described in internal_revenue_code sec_4942 no for the reasons stated below facts you were established in l upon the death of m m’s will named a primary beneficiary organization n which was to receive distributions from you for the sole purpose of enabling n to perform a specific charitable activity in o you concluded that n no longer performed the activity for which the will granted distributions to it you sought to replace n continue making distributions to n in p n sued you in the q to require you to you requested the irs approve set-asides of r dollars for the fiscal years ending s and t under sec_4942 of the code your request and subsequent submissions cited the litigation in the q as the reason for its request in response to our request for copies of court orders preventing you from distributing your assets you stated that there was no court order but in view of the litigation you had desisted from the attempt to make distributions on the advice of your counsel on v after you and n had adopted a mutually acceptable expenditure_responsibility agreement your counsel and n’s stipulated that the action and all claims and causes of action were settled and compromised and the action was dismissed with prejudice law sec_53_4942_a_-3 provides that in the event a private_foundation is involved in litigation and may not distribute assets or income because of a court order the private_foundation may seek and obtain a set-aside for a purpose described in sec_53_4942_a_-3 application of law you have not provided supporting documentation showing there is any court order prohibiting the distribution of assets or income as required for approval of a contingent set-aside described in sec_53_4942_a_-3 accordingly based on the information submitted your request for approval of the set-asides you have described must be denied letter catalog number 58229x


t c memo united_states tax_court estate of alfred j richard deceased gary h richard and peter c richard co-executors petitioners v commissioner of internal revenue respondent docket no filed date eric m kramer john j barnosky joseph t la ferlita and louis vlahos for petitioners donald alan glasel and marissa j savit for respondent memorandum findings_of_fact and opinion goeke judge respondent determined a dollar_figure deficiency in federal estate_tax for the estate of alfred j richard estate respondent also determined penalties under section of dollar_figure some issues in this case have been separated for purposes of trial and opinion the issue for decision in this opinion is whether or shares of preferred_stock in a j richard sons inc a j richard sons should be included in the estate we hold that only shares should be included in the estate findings_of_fact alfred j richard decedent was a resident of florida when he died on date his sons gary h richard and peter c richard are coexecutors of his estate and were residents of new york at the time the petition was filed a j richard sons was incorporated in new york on date a j richard sons is a holding corporation which owns and oversees the activities of various subsidiaries as of date there were big_number outstanding common shares in a j richard sons of those shares decedent owned big_number shares decedent’s spouse victoria richard owned shares gary richard owned shares and peter richard owned shares 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the date of decedent’s death pursuant to an amendment to a j richard sons’ certificate of incorporation dated date and an agreement dated date by and between decedent mrs richard and the corporation some of the corporate stock was recapitalized on date decedent and mrs richard exchanged all of their common_stock for class a preferred_stock as a result shares of class a preferred_stock were issued to decedent and shares of class a preferred_stock were issued to mrs richard gary and peter richard each retained shares of common_stock in a j richard sons decedent and mrs richard never elected to convert their class a preferred_stock into class b preferred_stock no additional shares of common_stock or preferred_stock were issued during decedent’s lifetime and no dividend distributions have ever been paid on the preferred_stock mrs richard passed away on date she was a florida domiciliary and resident at the time of her death although mrs richard executed a 2each share of class a preferred_stock has a par and redemption value of dollar_figure is noncumulative has voting rights and is convertible at the option of its holder into an equal number of shares of class b cumulative nonvoting preferred_stock class a preferred_stock shares carry equal voting rights per share to those of common_stock 3while no other shares of stock were issued during decedent’s lifetime at some point during decedent’s lifetime gary and peter richard transferred shares each to holding trusts for the benefit of decedent’s grandchildren will on date the will was not offered for probate until date no federal or state estate_tax returns were ever filed on behalf of mrs richard’s estate and no intestacy proceeding or probate of any other will if mrs richard had more than one will took place before the probate of mrs richard’s will is described further below at the time of decedent’s death in date decedent was the chairman of a j richard sons’ board_of directors and gary and peter richard were the only other directors at that time the officers of a j richard sons and the various operating subsidiaries included gary and peter richard but not decedent 4the will had been stored in a vault in an attorney’s office for many years and was not retrieved until date it appears that upon mrs richard’s death most persons did not know of the will and assumed decedent inherited all her assets in intestacy no one who knew of the will’s existence before date supplied information relating to it for purposes of this case although gary and peter richard were named coexecutors under mrs richard’s will before date they were never informed by their mother decedent or anyone else that the will existed thus they were not aware that they had been named the personal_representatives of mrs richard’s estate and did not seek to have the will probated until they discovered the will’s existence in 5this finding is based on testimony that until gary and peter richard were unaware their mother had any will as well as the fact that ownership of mrs richard’s preferred_stock shares was not transferred as it would have been had an intestacy proceeding taken place before her will was probated in after decedent’s death gary and peter richard asked thomas pohmer a j richard sons’ chief financial officer to cooperate with counsel for the estate in preparing the form_706 united_states estate and generation-skipping_transfer_tax return for the estate mr pohmer told counsel for the estate that mrs richard’ sec_140 shares of class a preferred_stock shares had passed to decedent because he assumed the shares had passed to decedent upon mrs richard’s death however at the time of decedent’s death record title to the shares remained in mrs richard’s name on a j richard sons’ preferred_stock ledger there were no shareholder meetings or votes at which the shares could have been voted between the dates of mrs richard’s death and decedent’s death the form_706 filed by the estate in date reported that decedent owned shares of preferred_stock preferred shares in a j richard sons at the time of his death gary and peter richard signed the form_706 as did john barnosky of the law firm farrell fritz p c the law firm representing petitioners in 6in a letter dated date to respondent’s counsel one of petitioners’ representatives stated that the firm representing petitioners surmised because all of the other properties owned by the decedent and victoria were held jointly with survivorship rights that her family assumed that the same was true of the preferred_stock insufficient evidence and testimony were provided for us to determine whether decedent’s family or acquaintances actually assumed the shares had been jointly owned by decedent and mrs richard this case the form_706 reported the value of the preferred shares at dollar_figure representing the number of shares believed to have been owned by decedent multiplied by the dollar_figure par and redemption value of each share decedent died testate on date a petition for administration was filed in the probate division of the circuit_court in st lucie county florida which sought to have decedent’s will probated in date petitioners filed a notice to creditors in the probate proceeding and in date an inventory of decedent’s estate was filed which included the preferred shares believed to have been owned by decedent the will was admitted to probate and all of decedent’s assets were distributed according to the instructions in his will an appraisal of the preferred shares on behalf of the internal_revenue_service in date found the value of the preferred shares to be dollar_figure as of the date of decedent’s death on date respondent issued a notice_of_deficiency determining that petitioners had undervalued the preferred shares reportedly owned by decedent at the time of his death 7some of decedent’s assets were used to pay various funeral and estate expenses the remainder was bequeathed to a_trust established in 8respondent’s expert determined that the shares were worth dollar_figure because the preferred shares constituted over one-third of the voting shares in a j richard sons sufficient to block any major change from occurring to the corporation respondent determined a deficiency of dollar_figure and penalties under sec_6662 of dollar_figure the estate timely filed a petition contesting the deficiency asserting that the value of the preferred_stock owned by decedent was only dollar_figure the rediscovery of mrs richard’s will in date raised the issue of whether decedent’s estate representatives properly included the shares in the estate or whether the shares should have been included in mrs richard’s estate and thereafter passed to a credit_shelter_trust created by mrs richard’s will a copy of mrs richard’s will was submitted to respondent in date and the will was offered for probate in the circuit_court for st lucie county florida st lucie circuit_court in date the documents filed with the st lucie 9mrs richard’s will directed that the credit_shelter_trust shall terminate at the death of my husband whereupon my trustees shall distribute the then principal thereof to my then living issue per stirpes mrs richard’s will further stated that i am the owner of preferred shares of stock in a j richard sons inc upon my death if my husband shall have predeceased me or upon his death if he survives me i direct my personal_representatives or trustees as the case may be to sell or redeem such shares the shares were never sold or redeemed rather the shares were divided evenly and distributed to gary and peter richard circuit_court state that the preferred_stock previously owned by mrs richard is the only asset of her estatedollar_figure on date petitioners filed with this court a motion for leave to amend petition requesting that they be permitted to amend their petition to challenge the inclusion of the shares in decedent’s estate on date the st lucie circuit_court issued an order admitting mrs richard’s will to probate and appointing gary and peter richard as personal_representatives of her estate as her will had directed on date we granted petitioners’ motion for leave to amend petition and filed the amendment the same day in the amendment petitioners allege that decedent owned only shares of preferred_stock in a j richard sons at the time of his death and that the value of those shares was only dollar_figure at the time of decedent’s death 10testimony established that mrs richard owned an automobile and jewelry during her life but no other evidence was presented regarding what became of these assets upon or before her death mrs richard’s will specifically bequeathed all her jewelry and the automobile to decedent if he survived her which he did opinion i burden_of_proof in general the burden_of_proof with regard to factual matters rests with the taxpayer under sec_7491 if the taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability and meets other requirements the burden_of_proof shifts from the taxpayer to the commissioner as to that factual issue because we decide this issue on the basis of the preponderance_of_the_evidence we need not decide upon which party the burden rests ii proper estate for inclusion of the shares respondent does not contest the validity of mrs richard’s will but makes several arguments that probate of her will does not affect the shares which had already been included in decedent’s estate and were distributed according to the instructions in his will respondent argues that the shares are more properly included in decedent’s estate as opposed to mrs richard’s estate in support of this argument respondent claims that the lack of formal ownership transfer of the shares to decedent is inconsequential and that the shares were never owned by or includable in victoria’s estate we disagree florida law governs the ownership of legal_title to the shares at issue the supreme court of the united_states has held that-- state law creates legal interests and rights the federal revenue acts designate what interests or rights so created shall be taxed our duty is to ascertain the meaning of the words used to specify the thing taxed if it is found in a given case that an interest or right created by local law was the object intended to be taxed the federal_law must prevail no matter what name is given to the interest or right by state law 309_us_78 in applying this rule we have observed that in determining a decedent’s interest in property we look to state law ‘state law which creates legal interests and rights in property including powers of appointment determines the nature scope and validity of such legal interests and rights ’ estate of fortunato v commissioner tcmemo_2010_105 quoting estate of posner v commissioner t c memo as a federal court we are not bound by the decision of a state trial_court such as the st lucie circuit_court which admitted mrs richard’s will to probate unless the 11respondent’s argument on this point is somewhat unclear it appears to be based on a theory of estoppel that as a result of various actions taken and beliefs held by the parties involved decedent’s estate should now be barred from denying decedent’s ownership of the shares and including the shares in mrs richard’s estate decision was affirmed by the state’s highest court 387_us_456 at the time of mrs richard’s death fla stat ann sec_732 provided that the death of the testator is the event that vests the right to devises unless the testator in his or her will has provided that some other event must happen before a devise shall vest fla stat ann sec_731 west provides that the term ‘devise ’ when used as a noun means a testamentary_disposition of real or personal_property courts have consistently held under these and similar statutes14 that title to property bequeathed in a probated will is deemed to have passed to a devisee upon the death of the testator regardless of when the will is probated see estate of 443_f2d_1266 5th cir 12the statute has not been substantially altered in the years since mrs richard’s death it currently provides that the death of the testator is the event that vests the right to devises unless the testator in the will has provided that some other event must happen before a devise vests fla stat ann sec_732 west 13this was true both at the time of mrs richard’s death and today although at the time of mrs richard’s death the term was defined in fla stat ann sec_731 14the precursor to fla stat ann sec_732 was fla stat ann sec_731 which provided that the death of the testator is the event which vests the right to legacies or devises unless the testator in his will has provided that some other event must happen before a legacy or devise shall vest in sum the power_of_appointment like a legacy or devise is inchoate pending probate and dates back to the date of death upon probate the power_of_appointment given to the devisee under her husband’s will was created immediately upon the death of the husband subject_to later perfection by probate 418_f2d_551 5th cir husband died in although his will bequeathing all his property to his wife was not probated until the passage of title to wife under the will dated back to the time of her husband’s death rice v greene so 2d fla dist ct app wife of deceased husband conveyed the same real_property left to her in husband’s will to two parties and litigation ensued regarding wife’s holding title in the property the court noted that husband’s death vested wife’s rights in the property i t is clear that because wife never offered husband’s will for probate she lacked marketable title to the property however she clearly acquired equitable_title to the property upon her husband’s death respondent claims that fla stat ann sec_732 is not determinative of ownership of the shares because decedent became the owner of the shares after the death of his wife despite the lack of formal transfer of ownership to himdollar_figure citing 387_us_456 respondent correctly asserts that we may decide in which estate the shares should have been included because the decision of the st lucie circuit_court admitting mrs richard’s will to probate was not affirmed by the highest court in florida respondent then argues that given the facts of this case we should hold that the shares are more properly includable in decedent’s estate however upon a review of the facts we find that decedent never owned the shares and that it is more proper to include the shares in mrs richard’s estate respondent claims that if the decedent sought to change the name on the shares vote those shares or transfer them he would have been permitted to do so since all the other shareholders believed he owned them while it is possible that respondent’s hypotheticals might have happened they did not in fact title to the shares remained in mrs richard’s name from the time of her death until the death of decedent and decedent never took any overt action to indicate that he was the owner of the sharesdollar_figure we believe these facts are evidence that the share sec_15respondent hints that decedent became the owner of the shares through misappropriation 16respondent points out that decedent signed above mrs richard’s name as well as above his own name on a certified resolution for a j richard sons in and claims this is evidence that decedent acted as the owner of mrs continued were not misappropriated by decedent or otherwise transferred to him indeed we believe these facts support the view that decedent never owned the shares regardless of what those around him may have believed and that decedent took no actions which were inconsistent with the terms of mrs richard’s will decedent did nothing to cause the shares to be included in his estate rather the personal_representatives of his estate mistakenly believed decedent owned the shares and listed the shares as part of the estate’s inventory after decedent’s death respondent repeatedly faults gary and peter richard for actions they failed to take as representatives of mrs richard’s estate respondent claims that for more than thirteen years the fiduciaries did nothing until they themselves stood to lose financially and that gary and peter as their mother’s estate’s personal_representatives and as officers of the corporation had the ability to change the name on the stock certificates they had the responsibility to gather her estate’s assets in and would have known of their existence however we continued richard’s shares the resolution concerns corporate business such as a lease a sublease and a letter of representation makes no mention of corporate shareholders and provides that the resolutions contained therein were adopted by unanimous consent of directors in lieu of meeting in addition the area for signatures on the document is prefaced directors consent although two of the signatures were those of persons who were shareholders but not directors we believe it more likely that decedent signed the document in his capacity as a director of the corporation rather than in his capacity as a corporate shareholder have found that gary and peter richard did not seek to have mrs richard’s will probated sooner because they were not aware that the will existed until date indeed once they learned of the existence of mrs richard’s will gary and peter richard promptly sought to have it probated respondent also faults gary and peter richard for other actions they took or failed to take first respondent faults them for including only the shares in the inventory of mrs richard’s estate ignoring other assets she may have owned at the time of her death such as jewelry and an automobile second respondent faults them for failing to sell the shares or have them redeemed by a j richard sons as directed by mrs richard’s willdollar_figure finally respondent alleges gary and peter richard among others violated new york state law by failing to hold annual shareholder meetings for a j richard sons at which the preferred shares might have been voted between mrs richard’s and decedent’s deaths we do not believe these actions are sufficient to require assigning the shares to decedent’s estate instead of mrs richard’s first the allegation that gary and peter richard may have failed to include certain other assets in mrs richard’s 17petitioners claim on brief that they tried to have the shares redeemed and that the corporation refused insufficient evidence was presented for us to determine whether petitioners actually tried to have the shares redeemed estate does not mean that inclusion of the shares was improper failure to include jewelry an automobile or other assets may be an issue to be addressed in another case similarly the fact that the shares were not sold may reflect a breach of a fiduciary duty to be addressed in another case and forum but does not mean that the shares were not properly included in mrs richard’s estate finally we see no connection between failure to hold shareholder meetings for a closely held family- owned corporation such as a j richard sons and any nefarious plans regarding the shares indeed gary and peter richard were not aware of mrs richard’s will until logically eliminating the possibility of their participation in any earlier planning regarding the shares considering the preceding facts and arguments we find that upon probate of mrs richard’s will in the passage of title to the shares to the credit_shelter_trust dated back to the time of mrs richard’s death in dollar_figure we further find that no actions were taken from the time of mrs richard’s death to the probate 18it was not clear from the evidence provided whether the shares were ever actually transferred to the credit_shelter_trust before being distributed to gary and peter richard however respondent did not make any arguments regarding transfer of the shares to the credit_shelter_trust and we therefore deem this potential issue to be waived by respondent see 238_f3d_860 ndollar_figure 7th cir issues not addressed or developed are deemed waived--it is not the court’s obligation to research and construct the parties’ arguments aff’g tcmemo_1999_192 of her will which changed ownership of the shares or which would make it more proper for the shares to be included in decedent’s estate rather than mrs richard’s estate iii florida statute_of_limitations and statute of nonclaim fla stat ann sec_733 west provides in part-- no claim or demand against the decedent’s estate that arose before the death of the decedent including claims of the state and any of its political subdivisions even if the claims are unmatured contingent or unliquidated no claim for funeral or burial expenses no claim for personal_property in the possession of the personal representative and no claim for damages including but not limited to an action founded on fraud or another wrongful act or omission of the decedent is binding on the estate on the personal representative or on any beneficiary unless filed in the probate proceeding on or before the later of the date that i sec_3 months after the time of the first publication of the notice to creditors or as to any creditor required to be served with a copy of the notice to creditors days after the date of service on the creditor even though the personal representative has recognized the claim or demand by paying a part of it or interest on it or otherwise the personal representative may settle in full any claim without the necessity of the claim being filed when the settlement has been approved by the interested persons fla stat ann sec_733 west provides in pertinent part that notwithstanding any other provision of the code years after the death of a person neither the decedent’s estate the personal representative if any nor the beneficiaries shall be liable for any claim or cause of action against the decedent respondent claims that since petitioners are seeking to remove an asset from the decedent’s probate_estate they are bound by the provisions of fla stat ann sec_733 and respondent argues that both statutes prevent petitioners from moving an asset from decedent’s estate and placing it in mrs richard’s estate we disagree finding that neither statute applies in this case florida state appellate courts have consistently held that a claim and liability arising after a decedent’s death is not subject_to fla stat ann sec_733 and dollar_figure joseph v estate of joseph so 3d fla dist ct app coba v craig so 2d fla dist ct app thompson v hodson so 2d fla dist ct app swenszkowski v compton so 2d fla dist ct app citing in re estate of kulow so 2d fla dist ct app although under 387_us_456 we are not bound to follow 19a statutory exception is made for claims for funeral and burial expenses see fla stat ann sec_731 ‘claim’ means a liability of the decedent whether arising in contract tort or otherwise and funeral expense the term does not include an expense of administration or estate inheritance succession or other death taxes west specifically mentioning claims for funeral or burial expenses decisions of the florida state appellate courts we find their interpretation of fla stat ann sec_733 and persuasive and adopt it as discussed supra decedent did nothing to cause the shares to be included in his estate rather the personal_representatives of his estate mistakenly believed decedent owned the shares and listed the shares as part of decedent’s estate after his death thus no claim against decedent’s estate by mrs richard’s estate arose during decedent’s lifetime and any claim by mrs richard’s estate for the shares is not subject_to fla stat ann sec_733 and as a result respondent’s argument on this point fails iv dominion and control of the shares respondent argues that even if decedent did not own the shares they are still includable in his estate because he exercised dominion and control_over them in support of this argument respondent again brings up several of the points we have previously addressed such as the fact that the shares were listed in the inventory of decedent’s estate that other owners and directors of a j richard sons believed decedent owned the shares and that decedent signed above mrs richard’s name on a certified resolution for a j richard sons in dollar_figure 20as previously discussed we have found that mr richard signed this corporate resolution in his capacity as a director of the corporation as opposed to a continued however we believe these facts most of which stemmed from the mistaken beliefs of persons other than decedent do not provide a great deal of support for respondent’s argument indeed we believe the facts including decedent’s lack of action in seeking to vote transfer or otherwise benefit from the shares more strongly support petitioners’ argument that decedent never exercised dominion or control_over the shares perhaps most importantly we note that as of decedent’s death title to the shares remained in mrs richard’s name on a j richard sons’ preferred_stock ledger after considering the evidence presented we find that decedent never exercised dominion and control_over the shares in issue respondent’s argument on this point thus fails v whether the position taken by petitioners on the form_706 filed by the estate is binding the form_706 filed by the estate reported that at the time of his death decedent owned preferred shares the shares plus the shares decedent had owned since positions taken in a tax_return signed by a taxpayer or return preparer may be treated as admissions and the taxpayer or return preparer cannot disavow returns he or she prepared without cogent proof that they are continued corporate shareholder incorrect 121_tc_308 28_tc_121 aff’d 255_f2d_833 3d cir crigler v commissioner tcmemo_2003_93 aff’d 85_fedappx_328 4th cir respondent argues that petitioners failed to supply cogent proof that the shares in issue were not owned by decedent and are thus bound by the position reported in the filed form_706 we disagree we believe that the rediscovery of mrs richard’s will in its admission to probate which under florida law causes the credit shelter trust’s ownership of the shares to date back to the date of mrs richard’s death and other facts previously discussed in this opinion constitute cogent proof that the shares were not owned by decedent at the time of his death and were incorrectly included in decedent’s estate on the form_706 as a result petitioners are not bound by the position taken on the filed form_706 vi conclusion we hold that of the preferred shares included in decedent’s estate on the form_706 were not properly included in decedent’s estate rather the shares were more properly includable in mrs richard’s estate in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg eo2 plr-148377-02 date date legend taxpayer state council authority act dear this is in response to a ruling_request submitted on behalf of taxpayer dated date the request has been further supplemented by additional documentation and correspondence dated date and date taxpayer requests a ruling that its income is excludable from gross_income for federal_income_tax purposes under sec_115 of the internal_revenue_code facts taxpayer is a corporation created under the nonprofit public benefit corporation law of state according to its articles of incorporation taxpayer is organized exclusively for the purpose of assisting in the provision of adequate safe and sanitary residential housing nationwide and for any other public purposes related thereto these related purposes will include making available low-cost financing opportunities to homebuyers for the purchase of residential housing with particular emphasis on assisting low- income minority and first-time homebuyers taxpayer will work in cooperation with local nonprofit agencies and regional lenders to provide mortgage loan financing and down-payment assistance to families and individuals in the state and nationwide who otherwise may not be able to afford to purchase a home taxpayer will provide and service second mortgage and in some cases first mortgage loan opportunities to homeowners and will arrange for the availability of mortgage loans through its lenders or through the issuance of mortgage revenue bonds purchased by banks and other eligible investors by offering second mortgage loan financing taxpayer can assist homebuyers in providing up to of the cash needed at closing as a result of the opportunities it will provide taxpayer will be assisting state counties and other local governments nationwide in satisfying their local_government legal obligations of providing for the improvement and development of housing and making adequate provision for the housing needs of all segments of the community all of taxpayer’s directors must concurrently in accordance with its bylaws serve as certain board members or officers or a designee of the council and of the authority the council is a state nonprofit public benefit corporation organized exclusively for the purpose of exercising functions of government and other public purposes more specifically the council’s purpose is to represent the collective interests including maximizing rural housing options of its members all of which are rural counties of the state the authority was created pursuant to state act its purpose is to assist its own member counties in satisfying their state law requirement to prepare and implement plans to improve and develop housing for all economic segments of the community among its activities the authority fulfills its purpose by financing residential mortgages issuing bonds necessary to effect its purposes and offering a variety of homebuyer assistance programs including offering second mortgages to residents within the borders of its member counties it is represented that given the success of the authority taxpayer was formed to provide services to state counties not served by the authority as well as on a nationwide level similar to those provided by the authority for its member counties because taxpayer’s directors are also directors or officers of the council and authority selected by the member counties of those entities taxpayer’s board_of directors is determined by the state counties that are members of the council and the authority taxpayer’s articles of incorporation state that it is not organized for the private gain of any person accordingly it is represented that no part of the funds of taxpayer may inure to the benefit of or be distributed to any private individual except that taxpayer may pay reasonable_compensation for services rendered and reimburse directors for reasonable and necessary expenses_incurred in relation to their duties as directors initially the council will provide administrative services to taxpayer for which taxpayer will pay reasonable_compensation it is represented that taxpayer will not engage in any type of partnership arrangement or share income with any organization that is not either a non-federal governmental entity or an entity whose income is excludable under sec_115 of the code its articles of incorporation provide that upon taxpayer’s dissolution all of taxpayer’s assets after satisfaction of taxpayer’s liabilities will be distributed to the council it is further represented that any revenues generated by taxpayer in excess of its business operating needs will be contributed to the council should the council cease to exist taxpayer’s articles state that all remaining assets will be distributed directly to the state counties that were members of the council all income received by the council is to be used to accomplish its purpose of benefitting its member counties it is represented that none of the council’s income will accrue to an organization that is not either a non-federal governmental entity or an entity whose income is excludable under sec_115 of the code it is further represented that the council intends to amend its articles of incorporation to provide that no part of the net_earnings shall inure to the benefit of any member or private shareholder and that upon dissolution the council’s assets after satisfaction of the council’s liabilities will be distributed only to its member counties it is represented that the council meets the requirements of sec_115 of the code law and analysis both taxpayer and the council have executed a power_of_attorney with respect to the matters discussed in this ruling sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of an essential_governmental_function and accruing to a state political_subdivision of a state or the district of columbia all the facts and circumstances relating to the organization are considered to determine whether the organization performs an essential_governmental_function and whether the income of the organization accrues to a state or political_subdivision of the state revrul_90_74 1990_2_cb_34 concerns an organization formed operated and funded by political subdivisions to pool their casualty risks and other risks arising from their obligations concerning public liability workers’ compensation or employees’ health obligations the ruling states that the income of such an organization is excluded from gross_income under sec_115 so long as private interests do not participate in the organization or benefit more than incidentally from the organization the benefit to the employees of the insurance coverage obtained by the member political subdivisions was deemed incidental to the public benefit revrul_77_261 1977_1_cb_45 holds that income from a fund established under a written declaration of trust by a state for the temporary investment of positive cash balances of a state and its political subdivisions is excludable from gross_income under sec_115 the ruling reasons that the investment of positive cash balances by a state or political_subdivision in order to receive some yield on the funds until needed to meet expenses is a necessary incident of the power of the state or political_subdivision to collect taxes and raise revenue the ruling also concludes that for purposes of sec_115 the investment fund’s income accrues for the sole benefit of state x and its participating political subdivisions because they have an unrestricted right to their proportionate share of such income in this case taxpayer was formed exclusively for the purpose of assisting in the provision of adequate safe and sanitary residential housing and for any other public purposes related thereto with emphasis on providing low-cost financing opportunities to families and individuals who otherwise may not be able to afford to purchase a home its current and proposed activities as represented are related to that purpose the objectives of taxpayer constitute an essential_governmental_function within the scope of sec_115 of the code in addition to deriving income from the performance of an essential_governmental_function income of taxpayer must accrue to the state or a political_subdivision of the state in this case all income of taxpayer accrues to the council or should it no longer exist to the council’s member counties it is represented that the council meets the requirements of sec_115 of the code as such all income of the council is used exclusively for the benefit of its member counties furthermore it is represented that the council intends to amend its articles of incorporation to provide that in the event of the council’s dissolution all of the council’s assets are distributed to its member counties based on the information submitted the income of taxpayer and the council does not accrue other than incidentally to the benefit of any private individual accordingly the income of taxpayer accrues to political subdivisions of the state based on the information submitted representations made and authorities cited we conclude that taxpayer’s income is excludable from gross_income for federal_income_tax purposes under sec_115 of the internal_revenue_code this ruling is contingent the continuing accuracy of the representations made and upon the council’s amending its articles of incorporation as represented because this ruling is dependent on the amendment of this document the ruling applies only for periods on and after the date on which the amendments become effective except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely elizabeth purcell chief exempt_organizations branch office of the division counsel associate chief_counsel tax exempt and government entities enclosure


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 fip b02 plr-124179-06 date date -------------------- -------------------------------- ----------------------------------------------- ------------------------------------------------------------ legend trust fund a ---------------------------------------------------- fund b ---------------------------------------------------- state a state b v w x y z index ----------------------------------------------------------------------------------------------------------- ------------- ------------ -------- --- --- -- ---------------------------------------------------------------------------------------- plr-124179-06 dear ----------------- correspondence dated date and date submitted by your authorized representative on behalf of fund a and fund b collectively the funds funds request that the internal_revenue_service rule that income and gain arising from the commodities-linked note described in this letter will constitute qualifying_income to funds under sec_851 of the internal_revenue_code_of_1986 as amended the code this responds to the request dated date and supplemental facts fund a is organized as a series of a business_trust trust under the laws of fund b is a corporation organized under the laws of state b fund b is state a_trust is registered as an open-end management investment_company under the investment_company act of u s c 80a-1 et seq as amended the act fund a qualifies as a regulated_investment_company ric under sec_851 of the code registered as a closed-end management investment_company under the act fund b qualifies as a ric under sec_851 of the code each fund intends to invest in commodities-linked notes having the terms and conditions of the following note note the note will be issued to a fund at par_value of dollar_figurev its payout formula will be determined with reference to index its term will be one year and one day a fund as holder of the note has the right to put the note to the issuer at the calculated redemption price based on the closing index as of the end of the next business_day after notification to the issuer in addition if the index falls to a level that is equal to or more than w below the beginning index value on any day the note will knockout and automatically redeem based on the closing index value of the next business_day the repayment obligation upon early redemption knockout or at maturity equals the face_amount of the note plus or minus the following adjustment in calculating the adjustment the face_amount of the note is multiplied by a a leverage factor of x and by b the percentage of the increase or decrease of the beginning index level compared to the ending index level for the applicable_period the total is then adjusted to account for a coupon amount calculated at a y rate times the face_amount of the note for an annual fee amount of z basis points of the notional value leveraged face_amount of the note and for the reversal of an interest factor included in the index funds make the following representations with respect to this note the issuer of the note will receive payment in full of the purchase_price of the a fund while holding the note will not be required to make any payment to plr-124179-06 note substantially contemporaneously with the delivery of the note the issuer of the note in addition to the purchase_price paid for the note whether as margin settlement payment or otherwise during the life of the note or at maturity to-market margining requirements of the commodities exchange act u s c as amended cea and delivery or option on such a contract subject_to the cea the note is not marketed as a contract of sale of a commodity for future the issuer of the note is not subject by the terms of the instrument to mark- law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources sec_851 defines qualifying_income in relevant part as- dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric’s business of investing in such stock securities or currencies sec_2 of the act defines the term security as- any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing plr-124179-06 instrument that is predominantly a security sec_2 of the cea provides that a hybrid instrument shall be considered to be predominantly a security if- sec_2 of the cea provides that the cea is not applicable to a hybrid a the issuer of the hybrid instrument receives payment in full of the purchase_price of the hybrid instrument substantially contemporaneously with the delivery of the hybrid instrument b the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase_price paid under subparagraph a whether as margin settlement payment or otherwise during the life of the hybrid instrument or at maturity c the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements and d the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea sec_2 of the cea provides in part that for purposes of sec_2 of the cea mark-to-market margining requirements do not include the obligation of an issuer of a secured debt_instrument to increase the amount of collateral held in pledge for the benefit of the purchaser of the secured debt_instrument to secure the repayment obligations of the issuer under the secured debt_instrument conclusion based on the facts as represented we rule that income and gain arising from the note constitute qualifying_income to funds under sec_851 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely susan thompson baker susan thompson baker assistant to the branch chief branch office of the associate chief_counsel financial institutions products


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-113620-99 date date legend x d1 state this responds to your letter dated date together with subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable plr-113620-99 year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely signed dianna k miosi dianna k miosi chief branch office_of_chief_counsel passthroughs special industries


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 b01 - plr-125297-03 date march legend x z a b ------------------ ----------------------- ------------------ ----------------------- ------------------------ ------------------------ -------------------- ------------------------ state country d1 y1 y2 y3 ------ ---------------------- ---------------------- ------- ------- ------- dear ---- ---------------- requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts this letter responds to a letter dated date submitted on behalf of x x intended to elect to be treated as a partnership effective d1 however x sec_301_7701-3 provides guidance on the classification of a foreign plr-125297-03 according to the information submitted x was organized in y1 under the law of country x is owned by a and b both of whom are citizens of country a and b have limited_liability under the law of country on d1 x established z a state limited_liability_company in y3 x sold off its entire_interest in z inadvertently failed to timely file the proper election law and analysis eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise sec_301_7701-3 provides that an entity classification must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 elections sec_301_9100-3 provides extensions of time making elections that do not meet the requirements of sec_301_9100-2 provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an sec_301_9100-2 provides automatic extensions of time for making certain requests for relief under sec_301_9100-3 will be granted when the taxpayer sec_301_9100-1 through provide the standards that the except as specifically provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer requesting it sec_6110 plr-125297-03 extension of time of days from the date of this letter to make an election to be treated as a partnership for federal tax purposes effective d1 provided that x z a and b file proper u s tax returns for years y2 through y3 and their y3 tax returns include the income effectively connected with x’s u s business resulting from the sale of x’s interest in z in y3 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form concerning the federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent s heather c maloy enclosures cc heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes sincerely