office_of_chief_counsel internal_revenue_service memorandum number release date cc psi rsmith postu-106944-14 uilc date date to associate area_counsel -------------- large business international attn ------------------------------ from branch chief branch passthroughs special industries subject ---------------------- this chief_counsel_advice responds to an email request for assistance dated date this advice may not be used or cited as precedent legend taxpayer sub date date date date year n ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------------------------- --------------------- ------------------ ----------------- ------ postu-106944-14 government agency regulator issue after a mid-year s election termination is the annual income of an s_corporation taxpayer with one qsub sub pro-rated pursuant to sec_1362 or must the s_corporation and the qsub use a closing of the books method must the parent and subsidiary follow the same method facts before date taxpayer a family-owned s_corporation was a holding_company that held sub taxpayer made a qsub election with respect to sub effective date taxpayer revoked its s_corporation_election by filing a revocation with the service and thereupon became a c_corporation sub also became a c_corporation sub had significant bank bad_debts arise during year some of which occurred during the sub’s post termination c period taxpayer and its shareholders have sufficient aaa and basis to absorb the losses if we permit them to use the pro_rata method because under that method n of the losses will be attributed to the short s year date through date on date sub was closed by government agency which appointed regulator as receiver in receivership taxpayer still held all of the sub stock but regulator had functional control_over sub law sec_1_1361-4 provides that in general for federal tax purposes-- i a corporation that is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and items of income deduction and credit of the s_corporation sec_1_1361-5 provides that the termination of a qsub election is effective at the close of the last day of the parent's last taxable_year as an s_corporation if the parent's s election terminates under sec_1_1362-2 sec_1_1361-5 provides that if a qsub election terminates under sec_1_1361-5 the former qsub is treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the termination from the s_corporation parent in exchange for stock of the new corporation the tax treatment of this transaction or of a larger transaction that includes this transaction will be determined under the internal_revenue_code and general principles of tax law including the step_transaction_doctrine for purposes of determining the application of postu-106944-14 sec_351 with respect to this transaction instruments obligations or other arrangements that are not treated as stock of the qsub under sec_1_1361-2 are disregarded in determining control for purposes of sec_368 even if they are equity under general principles of tax law sec_1362 provides that in the case of an s_termination_year for purposes of title a the portion of such year ending before the 1st day for which the termination is effective shall be treated as a short taxable_year for which the corporation is an s_corporation b the portion of such year beginning on such 1st day shall be treated as a short taxable_year for which the corporation is a c_corporation sec_1362 provides that except as provided in sec_1362 and sec_1362 and d the determination of which items are to be taken into account for each of the short taxable years referred to in paragraph shall be made-- a first by determining for the s termination year-- i the amount of each of the items of income loss deduction or credit described in sec_1366 and ii the amount of the nonseparately_computed_income_or_loss and b then by assigning an equal portion of each amount determined under subparagraph a to each day of the s_termination_year sec_1362 provides that a corporation may elect to have paragraph not apply sec_1362 provides that an election under sec_1362 shall be valid only if all persons who are shareholders in the corporation at any time during the s_short_year and all persons who are shareholders in the corporation on the first day of the c_short_year consent to such election sec_1362 provides that the taxable_income for the short_year described in sec_1362 shall be placed on an annual basis by multiplying the taxable_income for such short_year by the number of days in the s_termination_year and by dividing the result by the number of days in the short_year the tax shall be the same part of the tax computed on the annual basis as the number of days in such short_year is of the number of days in the s_termination_year analysis in general a corporation does not close its books when its s status terminates rather the corporation allocates items of income gain loss deduction and credit between the s_short_year and the c_short_year on a pro_rata basis items allocable to the s_short_year pass through to the shareholders and items allocable to the c_short_year are assumed by the c_corporation however a corporation may elect to close its books rather than allocating its annual income pro_rata postu-106944-14 for federal_income_tax purposes sub and taxpayer were treated as the same entity until taxpayer voluntarily revoked its s election on date after the termination of taxpayer’s s election sub and taxpayer became two separate c corporations pursuant to sec_1_1361-5 after taxpayer’s s election termination sub became a new corporation newco acquiring all of the assets of sub immediately before the termination from taxpayer in exchange for stock of the new corporation therefore sub became an entirely new corporation that did not exist prior to taxpayer’s s election termination taxpayer believes that the income allocation rules of sec_1362 apply to newco and that all items of income gain loss deduction and credit attributable to taxpayer sub and newco are allocable pro_rata during year conclusion following the termination of taxpayer’s s election taxpayer and newco formerly sub are two separate c corporations assuming all the requirements are met taxpayer’s deemed transfer of all the assets and liabilities of sub to newco in exchange for newco stock is treated as a sec_351 transaction thereafter unless taxpayer and newco elected to file on a consolidated basis newco’s income must be separately accounted for on its own return in other words newco’s items of income gain loss deduction and credit cannot be combined with those of the taxpayer for proration under sec_1362 note however if taxpayer’s deemed transfer of liabilities exceeded the fair value of the transferred assets the transaction will not qualify for sec_351 treatment sec_351 requires a net value exchange where the fair value of assets transferred exceed the liabilities assumed by the transferee see generally meyer v united_states ct_cl h g 44_bta_1182 revrul_59_296 if the deemed transfer of sub’s assets and liabilities to newco fail to qualify under sec_351 the transaction would be taxable accordingly taxpayer will need to recognize gain_or_loss on the transaction moreover should any of the transferred assets have a basis in excess of fair value a loss asset the loss will be deferred under sec_267 until the loss property is transferred outside the sec_267 controlled_group in other words taxpayer can recognize the loss on the transferred assets if any when regulator took over newco on date thus newco former sub cannot prorate any items that arose after the s election termination however the parent taxpayer may choose to either prorate or close its books pursuant to sec_1362 and in fact the parent is required to prorate unless it elects otherwise pursuant to sec_1362 prorated items include all items of income gain loss deduction and credit that arose in either taxpayer or sub prior to the s election termination as well as all items of income gain loss deduction and credit that arose in taxpayer only after the s election termination see the current thinking of the irs as evidenced by prop_reg sec_1_351-1 postu-106944-14 this cca does not address when or how or the extent to which any bad_debts became deductible to the taxpayer sub or newco during year 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


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 psi b01 plr-141002-15 date date legend trust ---------------------------------------------------------------------------------------------------- ---------------------------- debtor -------------------------------------------------------------------- date ------------------ date --------------------- date ------------------ date date date date date ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ------------------------------------ dear ------------------- this is in response to your letter dated date submitted on behalf of trust requesting a ruling that trust will retain its status as a liquidating_trust under sec_301_7701-4 of the procedure and administration regulations if trust’s term is extended plr-141002-15 facts the information submitted states that debtor filed a voluntary petition under chapter of the bankruptcy code in the united_states bankruptcy court on date on date debtor submitted to the bankruptcy court the plan_of_reorganization the plan on date the plan was confirmed by the bankruptcy court on date the plan became effective and trust was established and approved by the bankruptcy court to facilitate the liquidation of the estate the initial term of trust was three years ending date on date the bankruptcy court extended the term of trust by two years to date pursuant to the provisions of the trust agreement trust was created for the purpose of liquidating the assets of trust with no objective to continue or engage in the conduct_of_a_trade_or_business except to the extent reasonably necessary to and consistent with the liquidating purpose of trust trust shall not receive or retain cash in excess of a reasonable amount to meet claims and contingent liabilities including disputed claims or to maintain the value of the assets during liquidation cash not available for distribution and cash pending distribution will be held in demand and time deposits such as short-term certificates of deposit in banks or other savings institutions or other temporary liquid investments such as treasury bills trust is required under the terms of trust to distribute to the beneficiaries of trust at least annually its net_income and all net_proceeds from the sale of trust's assets except that trust may retain an amount of net_proceeds or net_income reasonably necessary to maintain the value of the property or to meet claims or contingent liabilities trust provides that the beneficiaries of trust will be treated as the grantors and deemed owners of trust it further provides that the parties will value all assets transferred to trust consistently and use such values for all federal_income_tax purposes trust provides that the transfer of trust assets to trust will be treated for all federal tax purposes as a deemed transfer by the debtor to the beneficiaries followed by a deemed transfer by the beneficiaries to trust as of the date of the request trust had not distributed amounts in trust to its beneficiaries trust represents that from its establishment trust has been formed and operated consistent with a classification as a liquidating_trust trust now represents that certain developments generally beyond the control of the trustee of trust have occurred that make it impossible to completely liquidate trust by date the end of its two year extension trust requests a ruling that it will retain its status as a liquidating_trust in compliance with sec_301_7701-4 if trust's term is extended by the bankruptcy court for another three years ending on date plr-141002-15 law and analysis sec_671 of the internal_revenue_code provides that where it is specified in subpart e that the grantor or another person shall be treated as the owner of any portion of a_trust there then shall be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust that are attributable to that portion of the trust to the extent that such items would be taken into account under chapter of the code in computing taxable_income or credits against the tax of an individual sec_1_671-4 of the income_tax regulations provides that except as provided in sec_1_671-4 and items of income deduction and credit attributable to any portion of a_trust that under the provisions of subpart e sec_671 and following part i subchapter_j chapter of the code is treated as owned by the grantor or another person should not be reported by the trust on form_1041 u s income_tax return for estates trusts but should be shown on a separate statement attached to that form sec_677 provides in part that the grantor shall be treated as the owner of any portion of a_trust whether or not the grantor is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a non-adverse party or both may be distributed to the grantor or the grantor's spouse or held or accumulated for future distribution to the grantor or the grantor's spouse sec_301_7701-4 provides that certain organizations which are commonly known as liquidating trusts are treated as trusts for purposes of the internal_revenue_code an organization will be considered a liquidating_trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it and if its activities are all reasonably necessary to and consistent with the accomplishment of that purpose a liquidating_trust is treated as a_trust for purposes of the code because it is formed with the objective of liquidating particular assets and not as an organization having as its purpose the carrying on of a profit-making business which normally would be conducted through business organizations classified as corporations or partnerships however if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned the status of the organization will no longer be that of a liquidating_trust conclusion based on the information submitted and the representations made we conclude that an extension of trust's term to date will not adversely affect trust’s status as a liquidating_trust under sec_301_7701-4 plr-141002-15 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code we express no opinion on whether trust qualifies as a liquidating_trust under sec_301_7701-4 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative sincerely joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 b03 - plr-107987-13 date date legend x ---------------------------------------------------- ----------------------------------------------------- y ---------------------------------------------------- ------------------------------------------------ z ---------------------------------------------------- ---------------------------------------------------------------------- country d1 -------- ------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 facts the information submitted states that x was formed on d1 as a limitada under the laws of country x’s default classification is an association_taxable_as_a_corporation because all members have limited_liability as of d1 x had more than one member including y z is the general_partner of y x intended to elect to be treated as a partnership for federal tax purposes effective d1 however a form_8832 entity plr-107987-13 classification election electing to be treated as a partnership effective d1 was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in ' under sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless an entity elects otherwise a foreign eligible_entity is an association if all members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing a form_8832 with the service_center designated on the form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed 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 a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-107987-13 conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed or implied as to whether x is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x s authorized representative sincerely associate chief_counsel passthroughs special industries by ___________________________________ james a quinn senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number info release date conex-116464-10 uil the honorable john kerry united_states senator one bowdoin square 10th floor boston massachusetts attention -------------- dear senator kerry i am responding to your letter dated date on behalf of the -------------------- ------ --------------------------- the --------------- has asked for assistance in expediting an irs payment of their court-ordered refund for the case of ------------------------------- -------- ----- ------------------------------------ in ------------------------------- the united_states district_court for the district of ---------------- -------------------- held that certain wages paid to correctional officers in massachusetts were not subject_to medicare taxes under the continuing employment exception to medicare sec_3121 accordingly the court ruled that the correctional officers and the ----------------------------------------------are entitled to refunds of the medicare taxes they had paid although the court issued its opinion in favor of the plaintiffs in ------- it did not enter a final judgment for the refund amounts until ------- on ----------------------- the court ordered the united_states to pay refunds to the ----------------------------------------------of dollar_figure------------------for tax years ------- through ------ --------------------------------------------------------------------------------------------------------------------- inclusive plus interest i regret that the law prohibits me from responding to you about your inquiry sec_6103 of the internal_revenue_code i cannot disclose any taxpayer_return_information including information about whether a matter is pending before the irs and information conex-116464-10 about the status of any matter pending before the irs without the written authorization of the taxpayer or taxpayers affected by the disclosure however as explained in a telephone conversation with tippi jilek of your staff the irs treats a constituent’s written correspondence to a member of congress asking for help with a specific federal tax issue as a consent to allow the disclosure of the constituent’s tax information to the member accordingly a written request from your constituent will enable me to assist you in this matter i am sorry that i cannot provide any information at this time if you have further questions about return_information please call me at -------------------- or --------------------- of my staff at -------------------- sincerely _________________________ nancy j marks division counsel associate chief_counsel tax exempt government entities


internal_revenue_service department of the treasury index number number release date u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-105917-99 date date legend company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly since a after the end of its taxable_year beginning on a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-105917-99 sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


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 psi b02 plr-145672-05 date date x y --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ------------------------ country -------- ---------------------- this responds to a letter dated date and subsequent d1 dear ----------------- correspondence submitted on behalf of x by its authorized representative requesting that the service grant x an extension of time pursuant to ' of the procedure and administration regulations for x to file an election to be classified as a disregarded_entity for federal tax purposes the information submitted states that x was formed under the laws of country x represents that it is eligible to be treated as a disregarded_entity for federal tax purposes y the indirect owner of x intended for x to be treated as a disregarded_entity effective d1 however x did not timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only plr-145672-05 one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be file on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve 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 code except e g h and i sec_301_9100-1 defines a regulatory election to include 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the information submitted we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to and elect to be treated as a disregarded_entity effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-145672-05 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely heather c maloy associate chief_counsel passthroughs special industries


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01 plr-116999-00 date date legend x state d1 this responds to the letter dated date and additional information submitted on behalf of x requesting a ruling that x’s s_corporation_election will be effective as of the taxable_year beginning d1 facts x was incorporated under state law x’s shareholders intended that x be a subchapter_s_corporation since inception however an s_corporation_election under sec_1362 was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis 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 that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year cc psi b01 plr-116999-00 x did not timely file an election under sec_1362 to be treated as an s_corporation effective for the taxable_year beginning d1 x however has 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 assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter 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 otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 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’s authorized representative s dianna k miosi sincerely chief branch associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ----------------------- ------------------ -------------------------------------------- in re ruling_request 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-109161-14 date date legend taxpayer donor a b c d e trust trust date date date state state statute state statute state statute state statute state statute state statute dear ----------- ----------------------- ------------------ ------------------- ----------------------------- ------------------------------------ ----------------- ------------------------ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------- -------------------------- -------------------------- ------------------------- ----------- --------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- this responds to your authorized representative’s letter of date in which taxpayer requests a ruling that her execution and delivery of proposed plr-109161-14 disclaimers will not constitute a transfer subject_to federal gift_tax the facts and representations are as follows trust donor executed trust an irrevocable_trust on date a date prior to date under article second paragraph b of trust the trustees are to pay such sum or sums from time to time out of the income accumulated income or principal of trust to or for the benefit of a donor’s child or any of a’s descendants in the trustees’ sole and absolute discretion in the event of illness accident other misfortune or any emergency or if in the trustees’ judgment it is necessary to provide for the beneficiaries’ comfortable maintenance support or education trust will terminate years after the death of the survivor of a b and c and all of donor’s descendants living on date on termination the remaining trust principal and undistributed_income will be distributed free and clear of all trusts to the descendants of a who have no living ancestor who is a descendant of a per stirpes on date the date trust was executed donor had living descendants consisting of three children a b and c and eight grandchildren all of whom are still living d is a child of a and was not living on date taxpayer is d’s child and a’s grandchild under article second paragraph b taxpayer is one of the beneficiaries to whom the trustees may in their discretion make current distributions of income and principal in addition under article second paragraph b taxpayer will be entitled to receive a per stirpital portion of the trust remainder if taxpayer survives until the termination of trust and d dies prior to the time of distribution taxpayer will attain the age of on date taxpayer proposes to disclaim her contingent right to receive any distribution from trust on termination of the trust the disclaimer will be executed by taxpayer within nine months after date taxpayer has not received any discretionary distributions from trust trust a executed trust an irrevocable_trust on date a date prior to date under paragraph first of trust the trustees are to divide trust into three equal shares under paragraph first subparagraphs a b and c the income derived from the first one-third share is to be accumulated and added to principal the income of the second one-third share is to be paid to a and on a’s death to e if she survives a as his spouse however under paragraph third subparagraph d a reserved the right exercisable by will to direct a contrary disposition of the income of this one-third share to be effective after a’s death or e’s death if she survives a as his spouse the income of the remaining one-third share is to be paid to e so long as she is a’s spouse or has survived a as his spouse or to any plr-109161-14 of a’s descendants in the event of need occasioned by illness accident or other misfortune or in any emergency or if in the trustee’s discretion it is necessary for the comfortable maintenance support or education of any beneficiary or of his or her family under paragraph first subparagraph d after a’s death or on e’s later death if she survives a as his spouse the three shares of trust are to be combined into a single trust less any portion of the second one-third share for which a has made a contrary testamentary_disposition of the income pursuant to the right a reserved to do so in paragraph third subparagraph d along with accumulated income trust is then to be divided into equal shares one such share for each of a’s then living children and deceased children leaving surviving issue the surviving issue to take the deceased child’s share per stirpes during the continuation of the trust term the trustee is to pay to the beneficiaries a child of a if living or if a child dies his or her surviving issue by representation of a respective share so much income of that share as the trustee in the trustee’s discretion determines in addition under paragraph first subparagraph e after a’s death the trustee may distribute such principal as the trustee deems necessary to an income_beneficiary in the event of illness accident other misfortune or any emergency or if in the judgment of the trustee it is necessary for the comfortable maintenance support or education of any beneficiary or of the beneficiary’s family any amount_paid is to be charged against the share from which the beneficiary is then receiving or entitled to receive income under paragraph first subparagraph d trust is to terminate years after the death of the last survivor of a e and those of a’s children living on date on termination trust principal and accumulated income will be distributed free and clear of all trusts per stirpes to a’s descendants then living who have no living ancestor who is a descendant of a d was not yet born when a executed trust on date d is not one of the measuring lives determining the duration of trust hence d is a potential recipient of a one-third share of the remainder taxpayer is d’s child and a’s grandchild taxpayer as a’s descendant is entitled to distributions of income from a one-third share described above in the event certain needs arise after a and e have both died and if d has also died taxpayer if then living will be entitled as a surviving issue of d to distributions of income and principal of the trust share set_aside with respect to d it has been represented that e has died further on termination of trust taxpayer if living will be entitled to a distribution of all or a portion of the remainder of that share per stirpes taxpayer proposes to disclaim her contingent right to share in the distribution of trust on termination of the trust the disclaimer will be executed by taxpayer within nine months after date taxpayer has not received any income or principal distributions from trust plr-109161-14 law and analysis trust and trust are governed by the laws of state state statute provides in part that any person of sound mind and years of age or older may by last will devise his or her real or personal_property state statute provides in part that the legal_age at which a person becomes competent to contract in state is years state statute provides that a contingent future_interest may be disclaimed in whole or in part at any time before or within nine months after beneficiaries of the interest have been fully ascertained and their interests vested a vested interest subject_to defeasance or divestment is deemed a contingent_interest state statute provides in part that any individual to whom property or an interest therein is donatively transferred by any means including a transfer resulting from another disclaimer may disclaim all or any portion of the transfer unless the terms of the transfer otherwise provide the disclaimer will cause the terms of the transfer to be applied to the disclaimed transfer and to any future interests taking effect thereafter as if the disclaimant had died immediately before the transfer for all purposes the disclaimed interest is deemed to have passed directly from the transferor to the ultimate taker or takers and is not subject_to the claim of any creditor of the disclaimant a disclaimed portion of a transfer passes to the same ultimate taker or takers and in the same proportions as in the case of a disclaimer of all of the transfer state statute provides that each separate interest in property is subject_to disclaimer or acceptance and each separate interest including any specific amount part fraction or asset thereof or formula amount based on present or future facts independent of the disclaimant’s volition is subject_to disclaimer or acceptance state statute provides that a disclaimer is made by a writing showing an unconditional refusal to accept a transfer or a portion thereof signed by the disclaimant or representative and delivered on or before nine months after the transfer or by any later time provided in the particular case or pursuant to other provisions of this chapter and before any acceptance of the disclaimed interest delivery of a disclaimer may be accomplished by delivery to the transferor the transferor’s personal representative or other legal_representative or the holder of the legal_title to the property to which the interest related a disclaimer involving an estate or property within the jurisdiction of the probate division of a circuit_court may be filed in that division the right to disclaim exists notwithstanding any intention to the contrary expressed by the transferor and notwithstanding any limitation on the disclaimant such as a spendthrift provision or similar restriction plr-109161-14 sec_2501 imposes a tax on the transfer of property by gift during any calendar_year by any individual sec_2511 provides that the gift_tax imposed under sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that in the case of transfers that create an interest in the person disclaiming made before date where the law governing the administration of the decedent’s estate gives a beneficiary a right completely and unqualifiedly to refuse to accept ownership of property transferred from a decedent a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable_time after knowledge of the existence of the transfer is unequivocal is effective under local law and is made before the disclaimant has accepted the property compare with sec_2518 and sec_25_2518-1 through providing rules for determining whether a disclaimer is a qualified_disclaimer effective for estate and gift_tax purposes in the case of the disclaimer of an interest in property that is created in the beneficiary disclaiming a transfer made after date as noted above under sec_25_2511-1 if the interest to be disclaimed was created before date the disclaimant must disclaim the interest in the property within a reasonable_time after knowledge of the existence of the transfer that created the interest to be disclaimed in the case of a disclaimer of an interest in trust in general the transfer occurs when the trust is established rather than when the interest actually vests in the disclaimant if the transferor has not reserved any power over the trust see 455_us_305 however the time limitation for making the disclaimer does not begin to run until the disclaimant has attained the age of majority and is no longer under a legal disability to disclaim jewitt pincite see also sec_2518 and sec_25_2518-2 in this case taxpayer intends to disclaim her possible interest in the remainder of trust and trust within nine months of attaining age eighteen on date state statute sec_1 and provide that taxpayer has the authority at age eighteen to contract and execute a will under these circumstances the proposed disclaimers will be considered to be made within the time prescribed in sec_25_2511-1 under sec_25_2511-1 the disclaimers must be unequivocal revrul_76_56 1976_1_cb_292 which considers the application of sec_25_2511-1 concludes that a disclaimer is unequivocal if the disclaimant's act of refusal is unambiguous in its consequences that is the disclaimant must unqualifiedly refuse to accept ownership of the property for example a disclaimer is unequivocal if the disclaimed property must pass as otherwise provided in the instrument and not pursuant to the direction of the disclaimant in this case the disclaimed interests will not pass pursuant to any direction plr-109161-14 on the part of taxpayer state statute provides that taxpayer’s disclaimed interest will be deemed to have passed directly from the transferor to the ultimate taker or takers and is not subject_to the claim of any creditor of the disclaimant it further provides that a disclaimed portion of a transfer passes to the same ultimate taker or takers and in the same proportions as in the case of a disclaimer of all of the transfer cf sec_25 a i and d examples and regarding treatment of certain interests in the same property as separate interests eligible for qualified_disclaimer treatment under sec_2518 under sec_25_2511-1 the disclaimers must be effective under local law in this case state statute sec_3 and provide that an individual may make a valid disclaimer of any separate interest in property while retaining other separate interests in the same property further the disclaimers will be timely under state statute because the disclaimers will be made before or within nine months after beneficiaries of the interest have been fully ascertained and their interests vested consequently if taxpayer satisfies the procedural requirements prescribed under state statute the disclaimers will be valid under local law finally under sec_25_2511-1 the disclaimant must not have accepted the property before the disclaimer it has been represented that this is the case accordingly we conclude that based on the facts submitted and representations made assuming that the disclaimers are executed as proposed the disclaimers with respect to trust and trust will not constitute transfers subject_to the federal gift_tax the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the internal_revenue_code this ruling is directed only to taxpayer sec_6110 provides that it may not be used or cited as precedent plr-109161-14 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative sincerely lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------------- ---------------------------- ------------------------------ in 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-123443-10 date date legend decedent spouse date date date trust ---------------------------------------------------- ------------------------------------------------- ------------------------------------------------ ------------------------ -------------------------- ----------------------- ---------------------------------------------------- dear ---------------- this letter responds to your authorized representative’s letter of date requesting a ruling that pursuant to revproc_2001_38 2001_2_cb_124 the qualified_terminable_interest_property qtip_election made with respect to the family_trust is a nullity for federal gift estate and generation-skipping gst transfer_tax purposes the facts and representations submitted are as follows decedent died on date survived by spouse decedent established trust a revocable_living_trust on date which was restated it in its entirety on date spouse was executor of decedent’s estate article seven section dollar_figure of trust provides that if spouse survives decedent the trustee shall divide the remaining trust property into two separate shares to be designated as the marital share which becomes marital trust and the family share which becomes family_trust article seven section dollar_figure provides that the marital share will be a fractional share the numerator of the fraction is equal to the unlimited federal estate_tax_marital_deduction allowable to decedent’s estate reduced by the value for federal estate_tax purposes of any interest in property that qualifies for the federal estate_tax_marital_deduction and that passes or has passed from decedent to plr-123443-10 spouse other than under the terms of article seven the numerator is further reduced by the amount of decedent’s estate that is not taxable by reason of the unified_credit amount and state_death_tax_credit taking into account any taxable_gifts and any other federal estate_tax_deductions as finally determined for estate_tax purposes the denominator consists of the remaining trust property as finally determined for federal estate_tax purposes article seven section dollar_figure provides that the balance of the trust property will be allocated to the family share article eight section dollar_figure directs the trustee to distribute to or apply for the sole benefit of decedent’s wife all of the income of the marital trust not less frequently than quarterly section dollar_figure directs the trustee to distribute to or for the benefit of spouse as much of the principal of the marital trust as spouse may request in writing for any reason article eight section dollar_figure provides that upon the death of spouse the trustee will distribute all or any portion of the principal and any accrued and undistributed_income of the marital trust to any person or persons or to any entities as spouse directs by will living_trust or other written instrument that refers to this power_of_appointment article nine section dollar_figure directs that during spouse’s lifetime the trustee is to pay to or apply for the benefit of spouse all the net_income from the family_trust at least monthly section dollar_figure provides that the trustee will distribute to or for the benefit of spouse as much of the principal as the trustee considers necessary for her health education maintenance and support section dollar_figure provides that the family_trust terminates at the death of spouse article provides that any undistributed trust property on the death of spouse will be distributed to trusts for the benefit of decedent’s descendants the executor of decedent’s estate timely filed a form_706 united_states estate and generation-skipping_transfer_tax return on schedule m of form_706 the executor listed the assets of the family_trust by listing all the assets of the family_trust on schedule m the executor made a qtip_election with respect to those assets with the aid of new counsel spouse discovered that the qtip_election for the family_trust was not necessary to reduce the estate_tax liability to zero you request a ruling that pursuant to revproc_2001_38 c b the qtip_election made with respect to the family_trust on form_706 be treated in its entirety as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 where the election was not necessary to reduce the estate_tax liability to zero plr-123443-10 law and analysis sec_2001 of the internal_revenue_code imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that except as limited by sec_2056 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides the general_rule that a marital_deduction is not allowed for an interest passing to the surviving_spouse that is a terminable_interest an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides an exception to this terminable_interest_rule in the case of qtip for purposes of sec_2056 qtip is treated as passing to the surviving_spouse and no part of the property is treated as passing to any person other than the surviving_spouse under sec_2056 qtip is property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that the election to treat property as qtip under sec_2056 is made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable sec_2044 provides that the value of the gross_estate includes the value of any property in which the decedent had a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 sec_2519 and b provide that any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest sec_2652 provides that in the case of property subject_to an election under sec_2056 the surviving_spouse will be treated as the transferor of the property for generation-skipping_transfer_tax purposes in the absence of a reverse_qtip_election under sec_2652 plr-123443-10 in general under revproc_2001_38 a qtip_election under sec_2056 will be treated as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 where the election was not necessary to reduce the estate_tax liability to zero based on values as finally determined for federal estate_tax purposes the revenue_procedure provides an example where a qtip_election was made when the taxable_estate before allowance of the marital_deduction was less than the applicable_exclusion_amount under sec_2010 another example set forth in the revenue_procedure is where the decedent's will provides for a credit_shelter_trust to be funded with an amount equal to the applicable_exclusion_amount under sec_2010 with the balance of the estate passing to a marital trust intended to qualify under sec_2056 the estate makes qtip elections with respect to both the credit_shelter_trust and the marital trust the qtip_election for the credit_shelter_trust was not necessary because no estate_tax would have been imposed whether or not the qtip_election was made for that trust see revproc_2001_38 sec_2 in this case after funding the marital trust the qtip_election made for the family_trust was not necessary to reduce the estate_tax liability to zero because no estate_tax liability would have been imposed whether or not the election was made no qtip_election was necessary with respect to the marital trust because those bequests qualify for the marital_deduction under sec_2056 after applying the unified_credit amount under sec_2010 the estate’s federal estate_tax liability is reduced to zero consequently we rule that the qtip_election made for the family_trust is null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the property held in the family_trust will not be includible in the gross_estate of spouse under sec_2044 and spouse will not be treated as making a gift under sec_2519 if spouse disposes of the income_interest with respect to that property further spouse will not be treated as the transferor of the property in the family_trust for generation-skipping_transfer_tax purposes under sec_2652 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 in addition we express or imply no opinion regarding the value of the property transferred to the trusts the ruling contained in this letter is 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 the ruling it is subject_to verification on examination 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 the estate and generation-skipping_transfer_tax rulings in this letter apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-123443-10 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 james f hogan chief branch associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes cc


t c memo united_states tax_court james douglas kellam petitioner and dawn y griffin intervenor v commissioner of internal revenue respondent docket no filed date james douglas kellam pro_se lauren n may for respondent memorandum findings_of_fact and opinion paris judge this case is before the court on a petition disputing a notice_of_deficiency and a final_determination denying petitioner’s request from joint_and_several_liability relief under sec_6015 c or f unless otherwise indicated all section references are to the internal continued the parties settled many of the issues and the remaining issues are whether petitioner is entitled to relief from joint_and_several_liability under sec_6015 c or f for understatements of tax for the tax years and and whether petitioner is liable for an accuracy-related_penalty under sec_6662 for findings_of_fact some of the facts are stipulated and are so found the stipulations of facts and the attached exhibits are incorporated herein by this reference petitioner resided in illinois when he petitioned the court petitioner and ms griffin timely filed joint returns for the and tax years petitioner and ms griffin had an unusual banking situation before their date divorce petitioner and ms griffin shared a bank account but petitioner was not listed as an account_holder instead petitioner was an authorized user and the bank issued him a debit card associated with the account petitioner deposited money into the account and could view the account balance but he could not write checks on the account continued revenue code code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure ms griffin and petitioner were still married and living together when ms griffin prepared their federal tax_return for petitioner was present when ms griffin prepared the return ms griffin claimed the following erroneous deductions dollar_figure for cash charitable_contributions dollar_figure for two cars they had given her children as noncash charitable_contributions dollar_figure for unreimbursed employee_expenses dollar_figure for tax preparation fees dollar_figure for student_loan interest payments and dollar_figure for safe deposit box rental expenses also ms griffin did not report an dollar_figure state_income_tax refund on their joint_return ms griffin asked petitioner whether he wanted to review the return before filing but petitioner chose not to review the return before it was electronically signed and filed on date petitioner and ms griffin shared the dollar_figure refund for the tax_year petitioner and ms griffin separated and began living in different residences in date ms griffin prepared the joint_return for herself and petitioner for the return however petitioner was not present for the preparation and was not given an opportunity to review the return before filing instead petitioner supplied his income information to ms griffin who although ms griffin’s explanation described the gift as a non-charitable donation the mistake in law would disqualify the donation independently prepared the return ms griffin then electronically filed the return without consulting petitioner further ms griffin did not provide petitioner a copy of the joint_return until two weeks after she filed it on the federal tax_return ms griffin claimed the following erroneous deductions dollar_figure for cash charitable_contributions dollar_figure for unreimbursed employee_expenses and dollar_figure for tax preparation fees in addition ms griffin did not report a dollar_figure state_income_tax refund on the joint_return for tax_year on the basis of the information provided on their federal tax_return petitioner and ms griffin received a refund of dollar_figure after petitioner’s federal_income_tax return was filed but before the refund was received the illinois department of revenue sought additional tax from ms griffin and petitioner ms griffin received the federal tax_refund of dollar_figure and told petitioner she was withholding a portion of his share to pay the state tax as a result of ms griffin’s actions petitioner received only approximately one-third of the federal tax_refund respondent initiated an audit for petitioner’s and taxable years on date during the audit petitioner filed form_8857 request for innocent spouse relief on date respondent issued a statutory_notice_of_deficiency determining an accuracy-related_penalty for the notice of deficiency disallowed all the deductions described above and adjusted petitioner’s tax_liabilities for the unreported income the notice_of_deficiency also was accompanied by a final_determination denying petitioner’s request for relief from joint_and_several_liability for and on date petitioner timely petitioned the court for redetermination of the deficiencies and for review of the final_determination ms griffin filed a notice of intervention on date the court dismissed ms griffin as intervenor for lack of prosecution on date opinion petitioner asks the court to redetermine the deficiencies and to review respondent’s final_determination denying his request for relief from joint_and_several_liability for and under sec_6013 a husband and wife filing a joint_return are jointly and severally liable for all tax for the taxable_year including interest petitioner claims that he is entitled to relief under sec_6015 from the tax_liabilities reflected on the notice_of_deficiency dated date for tax years and except as otherwise provided in sec_6015 the spouse requesting relief generally bears the burden_of_proof rule a 119_tc_306 aff’d 101_fedappx_34 6th cir sec_6015 relieves a spouse of joint_and_several_liability in three situations if the spouse inter alia did not know or have reason to know of a tax understatement attributable to the nonrequesting spouse when the return was signed if a divorced or separated spouse seeks to limit individual liability to the portion of the deficiency allocable to him or her and in the case of a deficiency or any unpaid tax if it is inequitable to hold the spouse liable for the tax and if relief is unavailable to the taxpayer under the other two provisions see sec_6015 c f i relief under sec_6015 under sec_6015 a taxpayer seeking relief from joint_and_several_liability must meet five conditions a joint_return was filed for the taxable_year there is an understatement_of_tax attributable to an erroneous item of the taxpayer’s spouse the taxpayer establishes that in signing the return he or she did not know and had no reason to know of the understatement it is inequitable to hold the taxpayer liable for the deficiency attributable to the understatement and the taxpayer timely elects the benefits of sec_6015 a taxpayer must satisfy all five requirements to qualify for relief see alt v commissioner t c pincite petitioner filed joint returns and timely elected relief under sec_6015 and e accordingly petitioner bears the burden to show there is an understatement_of_tax attributable to an erroneous item of ms griffin in signing the return he did not know and had no reason to know of the understatement and it is inequitable to hold him liable for the deficiency attributable to the understatement see id a sec_6015 for convenience sec_6015 will be analyzed first under sec_6015 a requesting spouse must show he or she did not know and had no reason to know that there was an understatement_of_tax at the time he or she signed the return for deductions a taxpayer has reason to know of an understatement if at the time the taxpayer signed the return the taxpayer had enough knowledge of the facts underlying the claimed deductions that it would have caused a reasonably prudent taxpayer in the taxpayer’s position to question the legitimacy of the deductions 74_f3d_1528 7th cir rev’g tcmemo_1994_241 for unreported income a spouse has reason to know of the understatement if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the understatement 887_f2d_959 9th cir 524_f2d_617 7th cir aff’g 62_tc_223 see also sec_1_6015-2 income_tax regs several factors are relevant to whether a taxpayer had reason to know of the understatement including his or her level of education involvement in the financial and business activities of the family any substantial unexplained increases in the family’s standard of living and the culpable spouse’s evasiveness and deceit about the family’s finances resser v commissioner f 3d pincite none of the factors is controlling or given more weight than another the factors shall be weighed as a whole at the time ms griffin was preparing the tax returns for tax years and petitioner was a high school graduate studying for a college degree--which he later earned considering the level of petitioner’s education this factor weighs in favor of denying relief for both the and tax years petitioner lived with ms griffin throughout the tax_year and knew enough about the family finances that he should have questioned the legitimacy of the large expenses’ qualifying as deductions petitioner knew the family had previously purchased two automobiles and that they had been given to ms griffin’s children petitioner’s knowledge of the dollar_figure and dollar_figure transactions for the cars shows that he was aware of major family_expenses his knowledge of major family_expenses should have led him to question the unreimbursed employee_expenses of dollar_figure and at the very least to question the expenses associated with his employment petitioner also shows he was involved with the family’s finances because he deposited and withdrew money from the shared account further petitioner directly acknowledged that he would have questioned ms griffin about the deduction if he had looked at the return before it was filed accordingly this factor weighs in favor of denying relief no evidence was presented showing ms griffin was deceptive or evasive about family finances for the tax_year in fact ms griffin prepared the return in petitioner’s presence and asked him directly whether he would like to review the return before filing but he declined petitioner cannot avoid liability by actively electing to be uninformed about the contents of his federal tax_return especially when he was specifically asked to review it this factor weighs in favor of denying relief the cost of the automobiles makes up most of the noncash charitable_contribution_deduction that respondent denied for the tax_year ms griffin reported dollar_figure of unreimbursed employee_expenses for herself and dollar_figure for petitioner for the tax_year no evidence was presented about substantial unexplained increases in the family’s standard of living and it is therefore a neutral factor for both the and tax years petitioner had enough knowledge of the facts underlying the claimed deductions that it would have caused a reasonably prudent taxpayer in his position to question their legitimacy accordingly petitioner had reason to know of the understatement_of_tax that resulted from the deductions claimed for the tax_year and he is not entitled to relief from joint_and_several_liability under sec_6015 for the understatement attributable to those expenses petitioner had reason to know of the state_income_tax refunds for both the and tax years as noted above for unreported income a spouse has reason to know of an understatement_of_tax if a reasonably prudent taxpayer could be expected to know that the return contained the understatement when he or she signed the return see sec_1_6015-2 income_tax regs petitioner had reason to know of the understatement because he and ms griffin had previously received a refund from the state of illinois he cannot avoid liability by choosing not to acknowledge the refund accordingly petitioner is not entitled to relief from joint_and_several_liability for the understatements of tax attributable to the unreported state_income_tax refunds received in tax years and under sec_6015 because he had reason to know of the income petitioner’s situation drastically changed during the tax_year and he did not know and did not have reason to know of the understatement_of_tax for that year during the tax_year petitioner separated from ms griffin and she moved out of the marital home petitioner did not show the same level of involvement with the family finances in and ms griffin opened a new bank account in early for which petitioner was neither an account_holder nor an authorized user all of the federal tax_refund went directly into ms griffin’s account and petitioner received only a small portion of the refund from ms griffin this factor weighs in favor of relief ms griffin did not deny petitioner access to the bank records but she was evasive when she filed the joint federal tax_return without his review and did not provide him a copy until two weeks after she had filed it petitioner’s only involvement in preparing the tax_return was giving ms griffin his forms w- wage and tax statement after receiving his forms w-2 ms griffin prepared and filed the joint_return without any other input from petitioner unlike the tax_return ms griffin did not offer petitioner a chance to review the return before she filed it and petitioner did not receive a copy of the return until two weeks after ms griffin filed it this factor weighs in favor of relief together the facts indicate that petitioner did not know or have reason to know of the understatement_of_tax from erroneous deductions claimed for the tax_year accordingly petitioner satisfies sec_6015 with respect to the erroneous deductions claimed for the tax_year b sec_6015 a taxpayer must show that the understatement_of_tax is attributable to erroneous items of the nonrequesting spouse under sec_6015 generally an erroneous item is attributed to the individual whose activities gave rise to the item sec_1_6015-1 income_tax regs in deciding who is attributed erroneous items the court has attributed items to the spouse who wrongfully reported or claimed the item with certain exceptions not applicable here see dillon v commissioner tcmemo_1998_5 estate of killian v commissioner tcmemo_1987_365 the facts in the record demonstrate that although these cases arose under former sec_6013 the court has determined that cases interpreting similar terms under sec_6013 remain instructive in its analysis in cases under sec_6015 see 119_tc_306 aff’d 101_fedappx_34 6th cir juell v commissioner tcmemo_2007_219 becherer v commissioner tcmemo_2004_282 the terms attributable to an item of the individual with continued the deductions for the tax_year are solely attributable to ms griffin ms griffin independently prepared the tax_return she was in control of all the documents needed to file the return and she claimed the deductions of her own accord petitioner truthfully testified that he would not have claimed the deductions accordingly petitioner satisfies the sec_6015 requirement for the erroneous deductions because the erroneous deductions claimed on his tax_return are all attributable to ms griffin c sec_6015 under sec_6015 the requesting spouse must prove that it is inequitable to hold him liable for the understatement taking into account all the facts and circumstances the most often considered factors are whether there has been a significant benefit to the spouse claiming relief and whether the failure to continued whom the requesting spouse filed the joint_return ‘the nonrequesting spouse’ of revproc_2003_61 sec_4 2003_2_cb_296 is similar to the terms attributable to grossly_erroneous_items of one spouse of sec_6013 the analysis for attributing items to one spouse or the other is essentially the same the state_income_tax refund for tax_year however is not attributable solely to ms griffin petitioner did not testify or otherwise provide evidence showing that the state_income_tax refund is solely attributable to ms griffin accordingly even if petitioner did not have reason to know of the state_income_tax refund under sec_6015 he would be precluded from relief because the item is partially attributable to him report the correct_tax liability on the joint_return results from concealment overreaching or any other wrongdoing on the part of the nonrequesting spouse see alt v commissioner t c pincite only the portion of the understatement_of_tax resulting from the erroneous deductions is reviewed under this section because it is the only part of the understatement that meets the requirements of sec_6015 discussed above petitioner did not significantly benefit because he received only a part of the federal_income_tax refund for the tax_year ms griffin withheld most of petitioner’s share presumably to pay a state tax_deficiency the record does not clearly establish that petitioner’s share was actually used on his behalf instead petitioner was denied the opportunity to choose how to use his portion of the refund and he did not significantly benefit from the understatement further normal support is not considered a significant benefit and there is no evidence that petitioner received anything beyond normal support see 992_f2d_1256 2d cir citing 93_tc_355 aff’g tcmemo_1992_228 in addition ms griffin overreached when she excluded petitioner from participating in the federal tax_return preparation ms griffin’s wrongdoing stemmed from denying petitioner the opportunity to review the tax_return and delaying giving him a copy of the return these actions show that she overreached and possibly concealed information from petitioner accordingly petitioner satisfies sec_6015 because he did not significantly benefit and ms griffin overreached when filing the tax_return in sum under sec_6015 petitioner is relieved of joint_and_several_liability for the understatement_of_tax attributable to the erroneous deductions ms griffin claimed for the tax_year but remains jointly liable for the understatement_of_tax attributable to the unreported state_income_tax refund for the tax_year petitioner is also not entitled to relief from joint_and_several_liability under sec_6015 for any part of the tax_year ii relief under sec_6015 under sec_6015 a divorced or separated spouse may elect to limit liability for a deficiency on a joint_return to the portion allocable to him or her a taxpayer can make a valid election only if the taxpayer is no longer married to is not part of the same household of or is legally_separated from his or her spouse the taxpayer makes a timely election and the secretary does not demonstrate that the taxpayer had actual knowledge at the time the taxpayer signed the return of an item giving rise to a deficiency sec_6015 b and c a sec_6015 election under sec_6015 a taxpayer’s election of relief under this section is not valid if the secretary demonstrates the taxpayer had actual knowledge at the time of signing the tax_return of any item giving rise to a deficiency which is not allocable to the taxpayer in other words a taxpayer cannot elect relief from joint_and_several_liability under sec_6015 for items attributable to his or her spouse that he or she knew about when he or she signed the tax_return as noted above respondent bears the burden of proving actual knowledge for this limitation to apply to prove actual knowledge of fictitious or inflated deductions the secretary must prove the taxpayer actually knew that the expenditure was not incurred or not incurred to that extent sec_1_6015-3 income_tax regs this knowledge limitation disqualifies only items giving rise to the deficiency that are not allocable to the requesting spouse sec_6015 consequently respondent must prove petitioner had actual disqualifying knowledge of the items attributable to ms griffin however some of the items taken into account that gave rise to the deficiency may be allocated partly to ms griffin and partly to petitioner therefore respondent must also prove petitioner had actual disqualifying knowledge of the items giving rise to the deficiency which are partly allocated to ms griffin for the tax_year respondent must prove that petitioner had actual disqualifying knowledge of cash charitable_contributions noncash charitable_contributions unreimbursed employee_expenses tax preparation fees safe deposit box rental expenses and student_loan interest payments respondent must show that petitioner knew each expenditure was not incurred or not incurred to the extent claimed because the deductions are fictitious or inflated see sec_1 c i b income_tax regs respondent must also show that petitioner knew of the state_income_tax refund respondent has met the burden of proving that petitioner knew about the unreported income and knew the fictitious expense deductions were not incurred or not incurred to the extent reported for tax_year petitioner admitted that he knew there were not any unreimbursed employee_expenses for that year he also admits that the noncash charitable_contributions were not made because the expenses related to gifts to his stepchildren petitioner was in the room with ms griffin when she was preparing their return for tax_year and he could see there were not any expenses_incurred for tax preparation further he knew the family did not rent a safe deposit box make any cash charitable_contributions or pay student_loan interest last petitioner knew of the state_income_tax refund received in the tax_year in addition to support actual knowledge we may look to whether a requesting spouse made a deliberate effort to avoid learning about the item to be shielded from liability sec_1_6015-3 income_tax regs petitioner was offered the specific chance to review the federal tax_return for tax_year but deliberately chose to not look at it accordingly petitioner is not relieved of joint_and_several_liability under sec_6015 for the tax_year for the tax_year respondent must prove petitioner had actual disqualifying knowledge of the state_income_tax refund charitable cash contributions tax preparation expenses and unreimbursed employee_expenses as noted above petitioner’s living and filing circumstances drastically changed for the tax_year petitioner and ms griffin no longer lived in the same household and ms griffin prepared the joint tax_return independently respondent did not provide any information to show that petitioner had actual knowledge of the deductions claimed on the tax_return ms griffin could have incurred expenses while living apart from petitioner and never indicated to him that she had the expenses further petitioner did not know about the expenses through reviewing the federal tax_return because he was not given an opportunity to see the return before it was filed last respondent did not provide any information to show that petitioner had actual knowledge of the state_income_tax refund’s being excluded accordingly petitioner could validly elect sec_6015 relief because respondent has not met his burden of proving petitioner knew about the erroneous items in the tax_year see sec_6015 a taxpayer may make an election under sec_6015 after a deficiency is asserted but not later than two years after the secretary commences collection activities with respect to that taxpayer the statute does not specify at what point a deficiency is deemed to be asserted in other words the statute is silent to whether a deficiency can be asserted before the commissioner issues a notice_of_deficiency when a statute is ambiguous or silent we may look to the statute’s legislative_history to determine congressional intent 481_us_454 114_tc_324 through the consolidated appropriations act pub_l_no app g sec a stat pincitea-640 congress clarified sec_6015 by allowing taxpayers to make the election at any time after a deficiency for such year is asserted subject_to the two-year limitation noted above the conference_report accompanying the change indicated that a deficiency is considered to have been asserted by the irs at the time the irs states that additional taxes may be owed most commonly this occurs during the examination process it does not require an assessment to have been made h_r conf rept no pincite this means that a taxpayer does not have to wait for an assessment and may elect relief under sec_6015 once the commissioner asserts additional tax during an audit further according to sec_1_6015-5 income_tax regs a request for relief may be made in connection to an audit or examination while the election was made before respondent issued a notice_of_deficiency the election was not premature because respondent had asserted a deficiency through the audit see h_r conf rept no supra pincite sec_1_6015-5 income_tax regs accordingly petitioner timely filed for sec_6015 relief to make a valid sec_6015 election petitioner must also show he was no longer married to--or not a member of the same household as--ms griffin when he made the sec_6015 election see sec_6015 and ii a judgment of dissolution of marriage was issued on date for the marriage between petitioner and ms griffin petitioner filed form_8857 request for innocent spouse relief on date accordingly petitioner satisfies the sec_6015 marriage requirement because he was not married to ms griffin when he elected relief under sec_6015 consequently petitioner satisfies all the election requirements under sec_6015 for the tax_year b sec_6015 and d allocation petitioner’s liability is limited to the portion of the deficiency allocable to him for the tax_year see sec_6015 generally the portion of the deficiency on a joint_return allocated to an individual is the amount that bears the same ratio to the deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under sec_6015 bears to the net amount of all items taken into account in computing the deficiency sec_6015 items giving rise to a deficiency on a joint_return shall be allocated between spouses as if separate returns had been filed sec_6015 the requesting spouse is liable only for his or her proportionate share of the deficiency that results from the allocation sec_6015 in addition to attributing the fictitious deductions to ms griffin for the tax_year under sec_6015 the misreported deductions are solely allocated to ms griffin under sec_6015 and d as noted above the touchstone for allocation rests on allocating items in the same manner as they would have been allocated if the spouses had filed separate returns for the taxable year see sec_6015 petitioner truthfully testified that he would not have claimed the fictitious deductions on his return his candor indicated that the fictitious deductions for tax the tax_year should be allocated to ms griffin further petitioner was not involved in the preparation of the return for the tax_year and was not in a position to add or question any potential deductions between the parties we can deduce that ms griffin would have claimed the fictitious deductions on her separate_return because petitioner did not participate in the preparation of the joint_return and he truthfully testified he would not have claimed the deductions on his own return accordingly no portion of the deficiency related to the fictitious deductions is allocated to petitioner however the state_income_tax refund is not solely attributable to ms griffin and consequently part of the deficiency resulting from the error will be allocated to petitioner erroneous items of income are allocated to the spouse who was the source of the income sec_1_6015-3 income_tax regs in the absence of clear_and_convincing evidence of a different allocation an erroneous item owned jointly by the spouses is allocated to each spouse id petitioner in petitioner’s words tax returns for the federal government aren’t something you screw with you do it the right way you take deductions you’re legally allowed and you don’t take the ones you’re not allowed that’s just me and ms griffin owned the state_income_tax refund jointly and did not provide evidence to support an allocation other than to each spouse accordingly or dollar_figure of the dollar_figure state_income_tax refund is allocable to petitioner pursuant to sec_6015 the amount of the deficiency allocable to each spouse is directly proportional to the net amount of erroneous items allocable to the spouse compared to the net amount of all erroneous items the net amount of all erroneous items is dollar_figure for the tax_year the total deficiency for the tax_year for petitioner and ms griffin is dollar_figure following sec_1_6015-3 income_tax regs petitioner is allocated dollar_figure of the deficiency for the tax_year petitioner was eligible for relief and validly elected to limit his liability to the portion of the deficiency allocable to him under sec_6015 following the allocation guidelines under sec_6015 and sec_1 d i a income_tax regs petitioner may limit his liability to the portion of the deficiency that resulted from his share of the unreported state_income_tax refund petitioner is therefore relieved from joint_and_several_liability for the the dollar_figure includes deductions for unreimbursed employee_expenses of dollar_figure charitable cash contributions of dollar_figure tax preparation expenses of dollar_figure and state_income_tax refund of dollar_figure tax_year but for the dollar_figure liability resulting from his share of the unreported state_income_tax refund iii relief under sec_6015 if relief is not available under b or c sec_6015 provides that the commissioner may grant equitable relief from joint_and_several_liability if he finds that taking into account all of the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or deficiency petitioner is entitled to relief for the tax_year under both sec_6015 and c and therefore the court will not analyze the tax_year for equitable relief under subsection f in cases brought under sec_6015 the court applies a de novo standard of review as well as a de novo scope of review see 132_tc_203 petitioner bears the burden of proving that he is entitled to equitable relief under sec_6015 see rule a the court has jurisdiction to determine whether a taxpayer is entitled to equitable relief under sec_6015 sec_6015 pursuant to sec_6015 the commissioner has issued revenue procedures the commissioner uses in determining whether a taxpayer is entitled to relief from joint_and_several_liability see revproc_2003_61 2003_2_cb_296 modifying and superseding revproc_2000_15 2000_1_cb_477 revproc_2003_61 supra lists factors the commissioner uses in deciding whether to grant sec_6015 relief the court may consider these guidelines but is not bound by them revproc_2003_61 supra provides a three-step analysis to follow in evaluating a request for relief the first step includes seven threshold conditions that must be met to request equitable relief under sec_6015 respondent concedes that petitioner meets the threshold requirements of notice_2012_8 2012_4_irb_309 which for purposes of this case are substantially the same as the conditions in revproc_2003_61 supra accordingly petitioner meets the seven threshold conditions for equitable relief under rev_proc supra the second step of rev_proc sec_4 c b pincite provides three conditions that if met will ordinarily qualify a requesting spouse for relief under sec_6015 with respect to an underpayment of a properly reported liability this step is inapplicable to petitioner because he did not properly report the liability petitioner claimed erroneous deductions and failed to on date the commissioner published notice_2012_8 2012_4_irb_309 concerning a proposed revenue_procedure that if finalized would revise the factors to be examined in determining a requesting spouse’s claim for equitable relief report a state_income_tax refund these errors disqualify petitioner from sec_6015 relief under revproc_2003_61 sec_4 because he did not properly report his tax_liability when the requesting spouse satisfies the seven threshold conditions but does not qualify for relief under revproc_2003_61 sec_4 he or she may still be eligible for equitable relief under sec_6015 revproc_2003_61 sec_4 c b pincite a requesting spouse is eligible for relief if taking into account all facts and circumstances it is inequitable to hold the requesting spouse liable for the underpayment revproc_2003_61 sec_4 a contains a nonexclusive list of factors that the commissioner considers when determining whether to grant equitable relief the factors are marital status economic hardship in the case of a deficiency knowledge or reason to know of the item giving rise to the deficiency the nonrequesting spouse’s legal_obligation significant benefit compliance with tax laws spousal abuse and mental and physical health of the nonrequesting spouse this test cannot be applied mechanically no single factor is determinative and all factors are considered and weighed appropriately haigh v commissioner tcmemo_2009_140 the only factor that clearly favors granting petitioner relief for the tax_year is his marital status the other factors either weigh against relief or are neutral in addition the court finds that petitioner significantly benefited from filing a joint_return when determining whether a requesting spouse significantly benefited directly or indirectly from the underpayment the fact that the requesting spouse received a benefit of the return from the underpayment may be taken into account sec_1_6015-2 income_tax regs petitioner benefited from filing a joint_return with ms griffin for the tax_year because he was able to spend the refund from the joint_return petitioner testified that he and ms griffin jointly spent the federal_income_tax refund for the tax_year the refund was erroneous and therefore petitioner benefited from the joint_return by using the money from the return in a manner of his choosing accordingly petitioner is not entitled to relief from joint_and_several_liability under sec_6015 for the tax_year iv accuracy-related_penalty sec_6662 and b and provides that a taxpayer is liable for a accuracy-related_penalty on any part of an underpayment attributable to negligence or disregard of rules or regulations or any substantial_understatement_of_income_tax for purposes of sec_6662 negligence means any failure to make a reasonable attempt to comply with the code sec_6662 a taxpayer is negligent if he or she fails to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 negligence is strongly indicated where a taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction credit or exclusion on a return that would seem to a reasonable person to be exceptionally beneficial under the circumstances see sec_1_6662-3 income_tax regs for purposes of sec_6662 disregard means any careless reckless or intentional disregard sec_6662 a disregard of rules is careless if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position sec_1_6662-3 income_tax regs a disregard of rules is reckless if the taxpayer makes little or no effort to determine whether a rule_or_regulation exists under circumstances which demonstrate a substantial deviation from the standard of conduct that a reasonable person would observe id petitioner was at least careless for the tax_year petitioner did not make any effort to review the return when given the chance much less determine whether any of the positions taken were correct before filing the tax_return ms griffin told petitioner that they expected a federal_income_tax refund for that year but petitioner did not make any effort to validate the positions required to receive the refund accordingly petitioner is liable for the penalty for the tax_year under sec_6662 because he carelessly disregarded rules and regulations the accuracy-related_penalty can be avoided if a taxpayer shows that he or she acted reasonably and in good_faith sec_6664 the determination of whether a taxpayer acted in good_faith is factual and is made on a case-by-case basis sec_1_6664-4 income_tax regs relevant factors for the court to consider include the knowledge and experience of the taxpayer and reliance on the advice of a qualified professional id petitioner did not seek any professional tax_advice with regard to the tax_return he relied only on ms griffin’s conclusions that the positions taken to receive the refund were correct in conclusion petitioner is not relieved of joint_and_several_liability for the tax_year petitioner is however relieved of joint_and_several_liability for the understatement_of_tax attributable to all of the erroneous deductions under sec_6015 for the tax_year further petitioner validly elected to limit his liability to the portion of the deficiency attributable to him under sec_6015 and d he is liable for a dollar_figure deficiency which is his share of the deficiency resulting from the unreported state_income_tax refund the court has considered all of the arguments made by the parties and to the extent they are not addressed herein they are considered unnecessary moot irrelevant or without merit to reflect the foregoing an appropriate decision will be entered