internal_revenue_service number release date index number -------------------- ------------------------------------------ ----------------------------------------- in re ------------------------- --------------------------------------- ------------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b04 plr-116830-14 date october legend -------------------------------- -------------------------------------------------------- --------------------- --------------------------------------------------------- ------------------------------------ ---------------------------------------------------------------------- grantor spouse grantor trust trust trust -------------------------------------------------------------- date date date date date date date date child taxpayers 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------------------------------------------------------------------------------------------ court ----------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --- ----------------------------------------------------------------------------------- plr-116830-14 -------------------------------------------- ---------------------- ----------------------------------------------------------------------------- county farm agreement of sale -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- -------------------------------------------------- a v w x y z limited_partnership trustee trustee year -------------------- ---------- ---------- ----------------- ------------ ------------ ------------ ------------------------- -------------------------------- ------- dear ------------- this letter responds to your authorized representative’s letter of date requesting rulings on the gift estate and generation-skipping_transfer gst tax consequences of a proposed transaction the facts and representations submitted are summarized as follows on date grantor established an irrevocable_trust trust for the benefit of himself spouse and his lineal_descendants grantor died on date and spouse died on date the corporate trustee of trust is trustee on date grantor established a revocable_trust trust for the benefit of himself on date grantor amended trust so that income was paid in equal shares to his daughter grantor 1’s spouse spouse and his son child for life in addition on date grantor released his right to further amend or revoke trust on date by court order trust as amended was divided into two irrevocable equal trusts one for the benefit of spouse and her descendants trust and one for the benefit of child and his descendants grantor died on date the corporate trustee of trust is trustee trust and trust and the trust beneficiaries of those trusts taxpayers are the parties requesting this ruling currently the beneficiaries of trust and trust are essentially the same trust provides that the trustees are to pay the net_income for the benefit of grantor 1’s issue share and share alike per stirpes trust terminates twenty-one years after the death of the survivor of grantor 1’s three children trust provides that the trustees are to pay the net_income to spouse’s issue per stirpes trust terminates twenty-one plr-116830-14 years after the death of the last surviving lineal descendant of grantor living at the time of grantor 2’s death trust and trust together own farm in county trust owns y acres and trust owns z acres the acreage in farm owned by trust and trust is generally contiguous however the acreage owned by each trust was acquired at different times so that some of the parcels owned by each trust are land-locked and access to these parcels from a public road is only possible via easements over acreage owned by the other trust the trustees of both trusts have decided it is in the best interest of trust and trust to sell the property in a coordinated sale the real_estate owned by each trust is subject_to various zoning and land use restrictions and is not currently serviced by public water and sewer the property is currently zoned for agricultural and residential use and for public land use farm has been on the market for several years since year the purchaser is limited_partnership which is owned by a who is a lineal descendant of both grantor and grantor and is the trustee of a_trust that is a current beneficiary of trust and a contingent beneficiary of trust a is a licensed real_estate broker and is a developer of residential real_estate in the area where farm is located the agreement of sale was negotiated by trustee of trust and trustee of trust with some input from the beneficiaries the trusts and a the purchaser were represented by separate counsel it is represented that the sale price is dollar_figurex which is consistent with two independent appraisals and recent land sales in the area upon completion of all closings trust will receive w percent of the purchase_price and trust will receive v percent of the purchase_price the sellers’ obligations are conditioned on trust and trust receiving approval of the sale from court the beneficiaries of trust and trust performing certain conditions in the event trust terminates prior to the closing of the sale the beneficiaries of trust and trust approving and ratifying the agreement of sale and the taxpayers receiving a favorable private_letter_ruling trust will terminate on date and trust will terminate at a much later date yet to be determined trust and trust were irrevocable prior to date it is represented that no additions have been made to trust or trust after date you have requested the following rulings the execution and or the carrying out of the terms of the agreement of sale and the exercise of any right obligation or remedy hereunder will not constitute an addition to either trust or trust or cause trust or trust to lose its gst tax exempt status under b a of the tax_reform_act_of_1986 or under plr-116830-14 sec_26_2601-1 of the generation-skipping_transfer_tax regulations and distributions from trust and trust will not be subject_to gst tax under sec_2601 of the internal_revenue_code provided that no additions actual or constructive are otherwise made to trust or trust the entering into the agreement of sale and the carrying out of the terms thereof will not cause any beneficiary of either trust or trust to make or be deemed to have made a taxable gift to any other beneficiary or to a the execution and or the carrying out of the terms of the agreement of sale will not cause any beneficiary to be required to include in his or her taxable_estate trust assets owned by trust or trust unless such assets have been distributed to such person prior to his or her death ruling sec_2601 imposes a tax on each generation skipping transfer under a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph sec_26_2601-1 b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the plr-116830-14 time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust trustees will seek court approval of the sale of farm trustees will join with all living beneficiaries of trust and trust in the proposed court proceeding the agreement of sale will only be binding on trust and trust if the trusts receive approval from court as part of the proceedings the trustees will petition the court to appoint a guardian and trustee ad litem to represent the interests of minor unborn and unascertained descendants of grantor and grantor in addition the agreement of sale is binding only if trust and trust receive from all beneficiaries of trust and trust ratification and approval of the agreement of sale as part of the court approval process court must determine that the agreement of sale is fair and reasonable which determination includes the determination that the price reflects a fair_market_value and that the other terms of the sale are reasonable in this case trust and trust were irrevocable prior to date therefore trust and trust are currently exempt from gst tax the agreement of sale and sale of farm is binding on trust and trust only if court approves the sale the execution and or the carrying out of the terms of the agreement of sale and the sale of farm are administrative in nature and will not shift a beneficial_interest in trust or trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to entering into the agreement of sale or the sale of farm further execution of the agreement of sale and the sale of farm does not extend the time for vesting of any beneficial_interest in trust or trust beyond the period provided for in the original trusts plr-116830-14 based on the facts submitted and the representations made we conclude that the execution and or the carrying out of the terms of the agreement of sale and the exercise of any right obligation or remedy thereunder will not constitute an addition to either trust or trust or cause trust or trust to lose its gst tax exempt status under b a of the tax_reform_act_of_1986 or under sec_26_2601-1 and distributions from trust and trust will not be subject_to gst tax under sec_2601 provided that no additions actual or constructive are otherwise made to trust or trust ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by 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_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift and shall be included in computing the amount of the gifts made during the calendar_year sec_25_2512-8 of the gift_tax regulations provides that transfers reached by the gift_tax are not confined to those only which being without a valuable consideration accord with the common_law concept of gifts but embrace as well sales exchanges and other dispositions of property for a consideration to the extent that the value of the property transferred by the donor exceeds the value in money_or_money's_worth of the consideration given therefor however a sale exchange or other transfer of property made in the ordinary course of business a transaction which is bona_fide at arm's length and free from any donative_intent will be considered as made for an adequate_consideration in money_or_money's_worth trust and propose to sell acreage in farm it is represented that the trustees have obtained two independent appraisals on the value of farm and that the sales_price is consistent with the appraisals and other sales of land in the area the agreement of sale has been negotiated at arm’s length by the corporate trustees of trust and trust the beneficiaries of both trusts must consent to the sale the trusts and a the purchaser were represented by separate counsel to secure approval of court the trustees will have to demonstrate that the agreement of sale is fair reasonable and plr-116830-14 that the terms are arm’s length the trustees have a fiduciary duty to act in the best interests of all of the beneficiaries based on the facts submitted and the representations made and provided court approves the agreement of sale and finds the agreement of sale is fair reasonable and that the terms are arm’s length we conclude that the entering into the agreement of sale and the carrying out of the terms thereof will not cause any beneficiary of either trust or trust to make or be deemed to have made a taxable gift to any other beneficiary or to a ruling sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2035 provides that if the decedent transferred by trust or otherwise an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent's death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the transferred interest or relinquished power had been retained by the decedent on the date of death the value of the gross_estate shall include the value of any property or interest therein that would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_consideration in money_or_money's_worth by trust or otherwise under which the decedent has retained for his life or for any period not ascertainable without reference to the decedent's death or for any period which does not in fact end before the decedent's death - the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if the possession or enjoyment thereof can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of the reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of the property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at plr-116830-14 any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of the decedent's death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death in order for sec_2035 through to apply a decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in this case the corporate trustees of trust and trust propose to sell farm to limited_partnership owned by a in exchange for dollar_figurex the acreage in farm is an asset of each trust the beneficiaries are not transferring assets to trust trust or any other trust accordingly the beneficiaries are not transferors for purposes of sec_2036 sec_2037 or sec_2038 based on the facts submitted and the representations made we conclude that the execution and or the carrying out of the terms of the agreement of sale will not cause any beneficiary to be required to include in his or her taxable_estate trust assets owned by trust or trust unless such assets have been distributed to such person prior to his or her death the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-116830-14 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely _____________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes


t c memo united_states tax_court kugene w alpern petitioner v commissioner of internal revenue respondent docket no filed date fugene w alpern pro_se gregory j stull for respondent memorandum opinion goldberg special_trial_judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure after a concession by respondent ’ the issues for determination are whether the tax_court lacks jurisdiction in this case because of an automatic_stay pursuant to u s c sec_362 whether petitioner must include individual_retirement_account ira_distributions of dollar_figure in gross_income for the taxable_year and petitioner’s correct filing_status for the taxable_year the stipulations of fact the supplemental stipulations of fact and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in morton grove illinois petitioner has degrees in pharmacy and chemistry from the university of michigan petitioner has worked in the chemistry pharmaceutical and computer consulting fields petitioner married phyllis alpern in and has three sons from the marriage phyllis alpern ceased living with petitioner on date and they were divorced on date pursuant to a judgment for dissolution of marriage of the circuit_court of cook county illinois county department domestic relations division circuit_court petitioner disputes the respondent concedes that petitioner correctly excluded his social_security_benefits from gross_income in the judgment for dissolution of marriage incorporated by reference a related memorandum order which the circuit_court continued validity of the divorce judgment and contends that he is still married to phyllis alpern on date petitioner filed a voluntary petition in bankruptcy under chapter of the u s bankruptcy code in the u s bankruptcy court for the northern district of illinois fastern division bankruptcy court case no 93-b-07643 the bankruptcy court entered an order discharging the debtor in this case on date by order dated date the bankruptcy court granted petitioner’s motion to convert the case to a chapter proceeding under the bankruptcy code an order of discharge of debtor under the chapter proceeding was entered on date by the bankruptcy court in petitioner received ira_distributions of dollar_figure from fidelity service co fidelity though petitioner reported total ira_distributions of dollar_figure on line 15a of his federal_income_tax return he reported only dollar_figure as the taxable_amount of his ira_distributions for on line 15b of his return in addition petitioner did not attach a form_8606 nondeductible iras contributions distributions and basis to continued had previously entered in the case on date fidelity reported two separate ira_distributions for the taxable_year to the internal_revenue_service on forms 1099-r statements for recipients of distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc in the amounts of dollar_figure and dollar_figure his federal_income_tax return a form which is required for reporting the receipt of ira_distributions in a notice_of_deficiency respondent determined that all the ira_distributions from fidelity for the taxable_year were includable in gross_income and therefore included an additional dollar_figure of ira_distributions from fidelity in petitioner’s gross_income tax_court jurisdiction first petitioner contends that the order of discharge of debtor which was entered in case no 93-b-7643 on date is void ab initio because of fraud on the part of the bankruptcy court therefore he asserts that the bankruptcy petition is still pending and that the provisions of u s c sec_362 are applicable petitioner specifically alleges that the judge in the bankruptcy proceedings received a bribe of at least dollar_figure petitioner contends that any order issued by the judge in case no 93-b-7643 is therefore void for fraud this court is a court of limited jurisdiction and may exercise its jurisdiction only to the extent authorized by congress see sec_7442 320_us_418 85_tc_527 this includes federal income estate_and_gift_taxes which are subject_to the deficiency_notice requirements of sec_6212 and sec_6213 because this court is a court of limited jurisdiction petitioner’s fraud argument is misplaced the court lacks jurisdiction to review or set_aside the order of discharge entered by the bankruptcy court therefore petitioner’s contention that the bankruptcy discharge is void because of fraud on the court is not proper subject matter for our decision we accordingly reject petitioner’s contention that the property of the estate is still under the consideration of the bankruptcy court and the order of discharge of debtor dated date has no force and effect according to petitioner’s contentions the automatic_stay of tax_court proceedings under u s c sec_362 was still in effect when he filed the tax_court petition his petition is premature and the tax_court lacks jurisdiction to determine petitioner’s tax_liability for the year in issue sec_6212 expressly authorizes the commissioner after determining a deficiency to send a notice_of_deficiency to the taxpayer by certified or registered mail the taxpayer in turn generally ha sec_90 days from the date the notice_of_deficiency is mailed to file a petition in this court for a redetermination of the deficiency see sec_6213 an exception to the normal 90-day filing period arises where the taxpayer has filed a petition for relief under the bankruptcy code in particular u s c sec_362 provides in pertinent part a except as provided in subsection b of this section a petition filed under sec_301 sec_302 or sec_303 of this title operates as a stay applicable to all entities of-- the commencement or continuation of a proceeding before the united_states tax_court concerning the debtor in short the filing of a bankruptcy petition invokes the automatic_stay that precludes the commencement or continuation of proceedings in this court see 97_tc_544 the period that the automatic_stay remains in effect is prescribed in u s c sec_362 as follows c except as provided in subsections d e and f of this section-- the stay of an act against property of the estate under subsection a of this section continues until such property is no longer property of the estate and the stay of any other act under subsection a of this section continues until the earliest of-- a the time the case is closed b the time the case is dismissed or c if the case is a case under chapter of this title concerning an individual or a case under chapter or of this title the time a discharge is granted or denied while we do not have subject matter jurisdiction to determine whether a tax_deficiency has been discharged in a bankruptcy proceeding it is clear that we do have jurisdiction to determine whether we lack jurisdiction because of the continuance of an automatic_stay see 95_tc_655 if the stay pursuant to u s c sec_362 had been in effect on date the date on which petitioner filed a petition the tax_court would not have jurisdiction the record however reflects that the order of discharge of debtor was entered by the bankruptcy court on date and terminated the stay pursuant to u s c sec_362 c c petitioner’s contention that the automatic_stay continues until the property is no longer property of the bankruptcy_estate at which time the bankruptcy proceeding is completely closed is based on u s c sec_362 however the proceedings before us fall under u s c sec_362 c c wherein the stay of any other act is lifted upon order of discharge in a chapter bankruptcy proceeding the proceeding before us is not an act against the property of the bankruptcy_estate per u s c sec_362 see 65_f3d_127 9th cir we therefore find that the automatic_stay ended with the entry of the date order of discharge of debtor since petitioner filed his petition with this court on date we hold that we have jurisdiction to adjudicate petitioner’s federal tax_liability for the year in issue individual_retirement_account respondent determined that petitioner received taxable_distributions from his ira during the year in issue of dollar_figure and that petitioner failed to include dollar_figure of that amount in gross_income for the taxable_year petitioner contends that he is entitled to exclude from gross_income dollar_figure of the ira distribution on the grounds that he had a basis in the ira contributions sec_408 provides generally that any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 the term individual_retirement_plan includes an ira sec_7701 a a for this purpose all ira’s are treated as one contract all distributions during any taxable_year are treated as one distribution and the value of the contract the income_on_the_contract and the investment_in_the_contract are computed as of ‘ though petitioner failed to include dollar_figure of ira_distributions in gross_income on his federal_income_tax return respondent determined in the notice_of_deficiency that the correct amount includable in gross_income for the taxable_year was dollar_figure the close of the calendar_year in which the taxable_year begins see sec_408 generally a taxpayer is allowed a basis in ira contributions to the extent the contributions are considered an investment_in_the_contract sec_408 sec_72 defines generally investment_in_the_contract as being the consideration paid for the contract less amounts previously received under the contract that are excludable from gross_income thus nondeductible_contributions a taxpayer has made to a retirement_plan may be excluded from gross_income when such distributions are made see 108_tc_54 in addition form_8606 must be attached to the return for reporting the receipt of ira_distributions if the taxpayer made any nondeductible_ira_contributions before or during the taxable_year the derivation and computation of the amounts reported on the forms 1099-r by fidelity are not in dispute the only question is whether these amounts are includable in petitioner's gross_income at trial petitioner testified that he did not remember how he calculated the excluded portion of his ira or whether any portion of the ira_distributions was from nondeductible_ira_contributions in addition petitioner failed to produce any_tax records which would have established nondeductible_ira_contributions during or before the taxable_year in sum the record is devoid of any evidence regarding petitioner’s alleged nondeductible_ira_contributions except for petitioner's brief self-serving testimony we are not required to accept a taxpayer's self-serving unverified and undocumented testimony and we decline to do so here see 87_tc_74 petitioner failed to establish that he was entitled to exclude the dollar_figure portion of his ira_distributions for from gross_income for the taxable_year in issue respondent is sustained on this issue filing_status petitioner contends that his correct filing_status for the taxable_year is married_filing_separately respondent contends that petitioner’s correct filing_status for is single because petitioner and his wife were divorced on date as evidenced by the judgment for dissolution of marriage and petitioner was unmarried during the year in issue as with the bankruptcy order discussed above petitioner contends that the divorce judgment of the circuit_court was obtained by fraud and is also void ab initio petitioner claims that the fraud perpetrated in the circuit_court included the failure of phyllis alpern to file a valid petition in the divorce proceeding as stated above this court is a court of limited jurisdiction petitioner seeks a remedy to set_aside the judgment for dissolution of marriage which cannot be properly addressed in this forum particularly in the area of family law we must rely on the premise that ‘ the whole subject of the domestic relations of husband and wife parent and child belongs to the laws of the states and not to the laws of the united states’ 280_us_379 quot136_us_586 therefore we have long recognized that marital status for tax purposes generally is governed by local law see 64_tc_552 affd per curiam 550_f2d_1201 9th cir consequently we decline to disregard the divorce judgment or treat it as a nullity in this case petitioner merely alleges that the divorce was not final and has introduced no evidence to support that allegation we find that petitioner and phyllis alpern were divorced as of date and that petitioner was unmarried during the year in issue petitioner’s correct filing_status for is single respondent is sustained on this issue to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court thomas p ruggeri petitioner v commissioner of internal revenue respondent docket no filed date thomas p ruggeri pro_se james h harris jr for respondent memorandum findings_of_fact and opinion gale judge respondent determined a deficiency in petitioner’ sec_2002 federal_income_tax of dollar_figure and additions to tax under sec_6651 of dollar_figure under sec_6651 of dollar_figure and under sec_6654 of dollar_figure unless otherwise noted all section references are to the internal_revenue_code_of_1986 as in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar after concessions the issues for decision are whether petitioner is liable for a sec_6651 addition_to_tax for failure_to_file a timely return for and whether petitioner is liable for a sec_6651 addition_to_tax for failure to pay the amount shown as tax due on a return for findings_of_fact some of the facts have been stipulated and are incorporated by this reference at the time the petition was filed petitioner resided in new jersey petitioner did not file a timely federal_income_tax return for by a statutory_notice_of_deficiency dated date respondent determined an income_tax deficiency of dollar_figure and additions to tax pursuant to sec_6651 of dollar_figure pursuant to sec_6651 of dollar_figure and pursuant to sec_6654 of dollar_figure with respect to petitioner’ sec_2002 taxable_year petitioner filed a timely petition for redetermination 1respondent has conceded that petitioner is not liable for an addition_to_tax pursuant to sec_6654 for the parties have stipulated petitioner has a balance due with respect to hi sec_2002 federal_income_tax of dollar_figure on date approximately year after the notice_of_deficiency was issued and months after the petition was filed petitioner and his wife filed a joint federal_income_tax return for which respondent accepted as filed on the basis of the accepted return respondent now concedes that the deficiency is equal to dollar_figure the amount reported on the delinquent_return that petitioner is not subject_to an addition_to_tax pursuant to sec_6654 and that the additions to tax under sec_6651 and are in the lesser amounts of dollar_figure and dollar_figure respectively the accepted return reported tax due of dollar_figure withholdings of dollar_figure and no other tax_payments for resulting in a balance due of dollar_figure the return reported wages of dollar_figure in connection with petitioner’s services as a sales manager petitioner’s returns for and were all filed late sometime in petitioner’s wife had contracted lyme disease she had a severe case which left her bedridden at times petitioner believed that the disruption in his household which included three minor children caused by his wife’s illness would prevent him from filing on time and so he instructed hi sec_2computed as of date 3petitioner’s pay stubs reported his earnings as divided between regular bonus and commissions employer to over-withhold on his earnings in an effort to eliminate any penalties for late filing the return was filed and the and returns were mailed exactly years after their due dates on april of and respectively the returns all reported overpayments of tax ranging from dollar_figure to dollar_figure petitioner was aware that his return for was due on date he believed that he was in an overpayment posture for as he had been with the prior years’ returns and was preoccupied with filing his return on or before date petitioner learned that his withholdings for were less than the tax due for that year and that he had a balance due sometime in after respondent had issued a notice_of_deficiency for in january of opinion we must decide whether petitioner is liable for additions to tax under sec_6651 for failure_to_file a timely return for and under sec_6651 for failure to pay the amount shown as tax due on a return for under sec_7491 respondent has the burden of production with respect to petitioner’s liability for the additions to tax this means that respondent must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalties 116_tc_438 once respondent meets his burden of production petitioner bears the burden_of_proof with respect to any exculpatory factors such as reasonable_cause see id pincite the determination of whether reasonable_cause exists is based on all the facts and circumstances see estate of hartsell v commissioner tcmemo_2004_211 merriam v commissioner tcmemo_1995_432 affd without published opinion 107_f3d_877 9th cir sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for any failure_to_file a return by its due_date the addition is equal to percent of the amount_required_to_be_shown_as_tax on the return for each month or portion thereof that the return is late up to a maximum of percent see id the addition is imposed on the net amount due calculated by reducing the amount_required_to_be_shown_as_tax on the return by any part of the tax which is paid on or before its due_date see sec_6651 the addition will not apply if it is shown that the failure_to_file a timely return was due to reasonable_cause and not due to willful neglect see sec_6651 see also 469_us_241 a failure_to_file is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time sec_301_6651-1 proced admin regs see united_states v boyle supra pincite willful neglect is interpreted as a conscious intentional failure or reckless indifference united_states v boyle supra pincite petitioner’s return for was due on date see sec_6072 petitioner filed a return for on date almost years after its due_date these undisputed facts satisfy respondent’s burden of production under sec_7491 and establish petitioner’s liability for the sec_6651 addition_to_tax unless petitioner can establish reasonable_cause for his failure_to_file timely see higbee v commissioner supra pincite petitioner claims that his late filing was due to reasonable_cause because he had a good-faith belief that he was in an overpayment posture for and thus not subject_to penalties on the late filing and the circumstances surrounding his wife’s lyme disease and its ongoing complications caused extreme disruption in his household which precluded timely filing we have no reason to doubt that petitioner believed he was in an overpayment posture for when he let the filing deadline pass he had overpayments for the preceding years and he plausibly explained that for his employer apparently made an error in the rate of withholding used with respect to petitioner’s commission income as compared to petitioner’s regular salary nonetheless his good-faith but mistaken belief that the sec_6651 addition would not apply because the year’s tax had been overpaid does not constitute reasonable_cause see morgan v commissioner tcmemo_1984_384 affd 807_f2d_81 6th cir wilkinson v commissioner tcmemo_1982_429 petitioner also claims that the circumstances surrounding his wife’s lyme disease and its ongoing complications constitute reasonable_cause for his late filing the court has found reasonable_cause where the taxpayer or a member of the taxpayer’s family experiences an illness or incapacity that prevents the taxpayer from filing his or her tax_return see eg tabbi v commissioner tcmemo_1995_463 reasonable_cause found where the taxpayers’ son had heart surgery and the taxpayers spent months continuously in the hospital with him and the taxpayers filed their return months after their son’s death harris v commissioner tcmemo_1969_49 reasonable_cause found where the taxpayer’s activities were severely restricted and the taxpayer was in and out of hospitals because of various severe medical ailments including stroke paralysis heart attack bladder trouble and breast cancer on the other hand the court has not found reasonable_cause where the taxpayer does not timely file but is able to continue his or her business affairs despite the illness or incapacity see eg 88_tc_1175 no reasonable_cause found where the taxpayer had a long history of delinquent filing of returns and the taxpayer was actively involved in preparing and executing business-related documents despite illness during years at issue watts v commissioner tcmemo_1999_416 reasonable_cause not found where although the taxpayer’s mother and daughter were both ill and the taxpayer frequently took them to see doctors the taxpayer also performed extensive architectural services in the taxpayer’s business wright v commissioner tcmemo_1998_224 reasonable_cause not found where the taxpayer had capacity to attend to matters other than filing tax returns despite the trauma of his mother’s disappearance and death affd without published opinion 173_f3d_848 2d cir while we do not minimize the difficulties that may have arisen on account of petitioner’s wife’s illness in a household with three children the fact remains that petitioner remained gainfully_employed earning significant income during through after the onset of his wife’s illness in his trial testimony petitioner certainly implied that he remained similarly employed during when hi sec_2002 return became due in any event there is no evidence that he became unemployed or that he experienced significantly greater disruption in from his wife’s illness than had been experienced in previous years in sum petitioner was able to attend to business matters during the period in addition petitioner was a chronic late filer he conceded that he was aware that hi sec_2002 return was due on date but that he was preoccupied with getting his return filed at that time his return was filed and his and returns were mailed exactly years after their due dates--that is petitioner was filing one return per year notwithstanding a 3-year backlog the pattern was broken with respect to the return because petitioner received a notice_of_deficiency for that year in date o rdinary business care and prudence requires greater diligence in the circumstances of a multiyear delinquency sec_301_6651-1 proced admin regs cf judge v commissioner supra pincite- history of delinquency relevant to lack of reasonable_cause for late filing on the basis of the foregoing we hold that petitioner did not have reasonable_cause for his failure_to_file timely accordingly we sustain respondent’s determination of the sec_6651 addition_to_tax for sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for any failure to pay the tax shown on a return on or before the date prescribed for payment of such tax the addition is equal to percent of the amount shown as tax on the return for each month or fraction thereof during which the failure to pay continues up to a maximum of percent see id for purposes of computing the addition_to_tax for any given month the amount of tax_shown_on_the_return is reduced by the amount of the tax which is paid on or before such month and by the amount of any credit against the tax which may be claimed on the return see sec_6651 amounts withheld from wages as tax during any calendar_year are allowed as a credit against the income_tax of the wage recipient for the taxable_year which begins in that calendar_year see sec_31 the addition will not apply if it is shown that the failure to pay timely was due to reasonable_cause and not due to willful neglect see sec_6651 a failure to pay is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence in providing for payment of his tax_liability and was nevertheless either unable to pay the tax or would suffer an undue_hardship if he paid on the due_date sec_301_6651-1 proced admin regs see merriam v commissioner tcmemo_1995_432 ‘undue hardship’ requires more than an inconvenience to the taxpayer it requires the risk 4the sec_6651 addition_to_tax is reduced by the amount of the sec_6651 addition for any month or fraction thereof to which an addition_to_tax applies under sec_6651 and see sec_6651 of a substantial financial loss resulting from making the tax payment on time merriam v commissioner supra petitioner’s return for showed a tax due of dollar_figure petitioner conceded that as of the time of trial no portion of this amount had been paid these undisputed facts satisfy respondent’s burden of production under sec_7491 and establish petitioner’s liability for the sec_6651 addition_to_tax unless petitioner can establish reasonable_cause for his failure to pay timely see higbee v commissioner t c pincite petitioner makes the same claim of reasonable_cause with respect to the sec_6651 addition as previously discussed namely that he believed he had overpaid his tax for but reasonable_cause for purposes of the sec_6651 addition depends upon whether the taxpayer notwithstanding the exercise of ordinary business care and prudence was in fact unable to pay or would suffer undue_hardship if payment were made see bray v commissioner tcmemo_2008_113 estate of landers v commissioner tcmemo_2006_230 parker v commissioner tcmemo_2006_43 petitioner offered no evidence tending to show the foregoing we therefore hold that petitioner did not have reasonable_cause for his failure to pay timely accordingly we sustain respondent’s determination of the sec_6651 addition_to_tax for to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br 3-plr-117996-98 date december 11th ty legend corp x corp y n business date a this is in response to a letter dated date and supplemented by a letter dated date that was submitted on your behalf by your authorized representative requesting a ruling that corp x be permitted to use the tax book method of asset valuation for purposes of apportioning interest_expense for all tax years beginning on or after date 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 a ruling it is subject_to verification on examination corp x is a domestic_corporation that is the publicly traded parent of an affiliated_group_of_corporations that are engaged in n business corp x files a consolidated federal_income_tax return on a calendar_year basis corp x began using the fair_market_value cc intl br 3-plr-117996-98 method of asset valuation for allocating and apportioning interest_expense on its consolidated federal_income_tax return and has continued to use the fair_market_value_method of asset valuation for each taxable_year thereafter for tax years beginning in an affiliated_group_of_corporations could choose either the fair_market_value or the tax_book_value_method of asset valuation without regard to which method it had used in and without securing the consent of the commissioner in corp x elected pursuant to sec_1_861-9t of the income_tax regulations to apportion its interest_expense based upon the fair_market_value_method of asset valuation as set forth in sec_1_861-9t corp x now wishes to utilize the tax_book_value_method of asset valuation as set forth in sec_1_861-9t on date a corp x acquired corp y in a tax-free transaction prior to this date corp y was a domestic_corporation that was the publicly traded parent of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return on a calendar_year basis as a result of this transaction corp x’s consolidated federal_income_tax return will include corp y for part of the year corp y will file a separate consolidated federal_income_tax return for pre-acquisition portion of the calendar_year federal_income_tax returns for both corporations were stated to be due on date sec_864 of the internal_revenue_code provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-8t of the regulations also provides that taxpayers with interest_expenses are required to apportion their interest_expenses on the basis of assets such apportionment must be made on the basis of either the tax book_value of those assets or the fair_market_value of the assets once a taxpayer uses the fair_market_value_method of apportioning interest_expense the taxpayer and all related_persons must continue to use such method until the commissioner expressly authorizes a change in the method of asset valuation sec_1_861-9t sets forth the rules specific to the apportionment of interest_expense sec_1_861-9t provides that if the taxpayer chooses the fair_market_value_method of asset valuation the taxpayer must establish the fair market values of its assets to the satisfaction of the commissioner otherwise the commissioner may determine the appropriate values or require the taxpayer to use the tax_book_value_method of apportionment sec_1_861-9t sets forth the rules for determining the fair_market_value of the taxpayer's assets under the fair_market_value_method corp x requests permission to change to the tax_book_value_method of asset valuation pursuant to sec_1_861-8t and sec_1_861-9t for all tax years beginning on or after date cc intl br 3-plr-117996-98 the reasons for corp x’s desire to change its method of asset valuation for purposes of apportioning interest_expense are stated to be the use of the tax_book_value_method will decrease complexity and avoid potential disagreement with the service with respect to the fair_market_value of assets the taxpayer will be able to avoid the cost of having fair_market_value studies performed and greater certainty of tax results will be available to both the taxpayer and the service based solely upon the information submitted the representations made and the reasons given for this request it is held that corp x may change to the tax_book_value_method of asset valuation for the purpose of interest_expense apportionment for tax years beginning on or after date except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant sincerely barbara a felker branch chief office of associate chief_counsel international cc