internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b06-plr-103267-01 date date legend purchaser parent seller target executive b executive s date a date c date f date g date h state a state c b outside professional this is in response to a letter dated date submitted by your authorized representative requesting an extension of time to make a joint election pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations additional information was submitted in a letter dated date purchaser and seller’s parent request an extension to file a sec_338 election pursuant to sec_338 of the internal_revenue_code code and sec_1_338_h_10_-1 of the income_tax regulations the election regarding purchaser's acquisition of target on date a all citations in this letter to regulations under sec_338 are to the regulations as in effect for date a the material information submitted for review is summarized below both purchaser and seller’s parent are the common parents of consolidated groups purchaser is incorporated in state a seller and seller’s parent are both incorporated in state c target is incorporated in state c prior to date a target was a wholly owned subsidiary of seller who was a wholly owned subsidiary of seller’s parent as such target was a member of seller’s consolidated_group on date a purchaser purchased b of the stock of target with cash and a note payable according to the representations provided by the taxpayer purchaser was not related to seller or seller’s parent within the meaning of sec_338 the transaction meets the requirements of a qualified_stock_purchase as defined under sec_338 at the time of the purchase of target all parties intended to make the election the election was due on date f however for various reasons the election was not made on or about date g a date after date f outside professional's personnel discovered that the election was not filed in a timely manner outside professional immediately contacted executive b of this failure to effect the election in a timely manner at that time executive b instructed outside professional to begin the preparation of the request for relief both seller’s parent and purchaser filed income_tax returns as if a valid sec_338 election had been made the parties have represented that the period of limitations on assessment under sec_6501 has not expired for purchaser’s seller’s parent’s seller’s or target’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the acquisition is a qualified_stock_purchase which is defined under sec_338 as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the 12-month_acquisition_period and the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as selling all of its assets and distributing the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included on the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 provides that if a sec_338 election is made for the target_corporation it is irrevocable sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 elections under sec_338 for corporations making qualified_stock purchases in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability for the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations under sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and seller’s parent to file the election provided purchaser and seller’s parent show that they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government the affidavits representations and information submitted from purchaser seller’s parent executive b executive s and outside professional explain the circumstances surrounding the failure to make the election the information establishes that a competent tax professional was responsible for the election and was aware of all relevant facts that purchaser and seller’s parent relied on the tax professional to make the election and that the interests of the government will not be prejudiced if relief is granted sec_301_9100-3 based on the facts and information submitted and the representations made by the taxpayers we conclude the taxpayers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 have been met and granting relief will not prejudice the interests of the government therefore an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of the letter for purchaser and seller’s parent to file the election with respect to the acquisition of target the above extension of time is conditioned on the fact it will not produce a lower tax_liability for purchaser’s group seller’s parent’s group and target in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the industry director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 purchaser and seller must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter should be attached to the election form purchaser and seller’s parent having reported the acquisition as a sec_338 transaction must amend their applicable returns within days of the issuance of this letter_ruling to attach a copy of the election and the information required therewith and a copy of this letter we express no opinion regarding whether the acquisition sale of target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or if sec_338 is applicable as to the amount of gain_or_loss if any recognized by target on its deemed asset sale in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the industry directors should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest if any that would otherwise be applicable still apply 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 taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent purchaser must provide seller’s parent with a copy of this letter pursuant to a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative sincerely associate chief_counsel corporate by senior technician reviewer branch


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 b02 - plr-155348-03 date date ---------------------- ---------------------------- this letter responds to a letter dated date and subsequent x -------------------------------------------- a ------------------------ ----------------------------------------------- d1 dear ------------------ correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code intended to elect for x to be an s_corporation effective d1 however a inadvertently failed to timely file a form_2553 election by a small_business_corporation for x any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d1 along with a copy of this letter with the the information submitted states that a the president and sole shareholder of x sec_1362 provides that if - a an election under sec_1362 is made for except as specifically set forth above no opinion is expressed concerning the plr-155348-03 appropriate service_center within days from the date of this letter then such election will be treated as timely made for d1 federal tax consequences of the facts described above under any other provision of the code include whether x was or is a small_business_corporation under sec_1361 provides that it may not be used or cited as precedent letter is being sent to x’s authorized representative in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer requesting it sec_6110 sincerely j thomas hines chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 corp plr-119388-07 date date internal_revenue_service number release date index number ------------------------------- ------------------------------ --------------- ------------------------------ ---------------------------- legend acquiring ------------------ ------------------------------- -------------------------------------------------- llc ------------------------------------------------ ----------------------------------------------- ----------------------- ----------------------------- ----------------------------------------------- ----------------------- ------------------------------------------------------------- ------------------------------- ----------------------- --------------------------------------- ------------------------------- ---------------------- --- ----------- llc sub target a b ---------------------------------------------------------------------- ------------------------------------- plr-119388-07 c d e f g h i business x ------------- --- ----------------- ----------------- --------------- ------------------- ------------------- --------------------- -------------------- -------------------- -------------------- ------------------- --------------------- --------------------- --------------------- date date date date date date date date bank bank year dear ---- --------------- --------------------------------------------------- ---------------------------- ------- this letter responds to your letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction additional information plr-119388-07 was received on date and date the material information submitted for consideration is summarized below summary of facts acquiring has one class of common_stock outstanding and is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return acquiring is the sole member of llc a limited_liability_company that is disregarded as an entity separate from acquiring for federal_income_tax purposes and the sole shareholder of sub acquiring is engaged in business x prior to date target had one class of common_stock and one class of preferred_stock outstanding and was engaged in business x prior to date llc a limited_liability_company taxed as a partnership for federal_income_tax purposes owned all of the preferred_stock and more than a of the common_stock of target on date acquiring llc llc and target executed a merger agreement providing that i target would transfer all of its assets to llc in exchange for common_stock of acquiring and llc 1's assumption of target's liabilities and ii target would distribute the acquiring common_stock in liquidation the merger the business purposes for the merger included increasing depth of customer relationships in the markets of business x operated by target and acquiring as well as cost savings due to operational synergies of the combined corporations on date llc liquidated in the liquidation llc distributed to its members all of its assets consisting solely of shares of target common and preferred_stock on date target declared and paid a dividend of approximately dollar_figureb to the holders of target preferred_stock the preferred dividend the preferred dividend was funded from cash of target in excess of its ordinary operating capital needs on date prior to effecting the merger target redeemed certain shares of target common_stock and options to acquire target common_stock from certain employee-shareholders for an aggregate price of approximately dollar_figurec the redemption the price per share was determined based on the valuation of target used for determining the exchange ratio in the merger the redemption was funded from cash of target in excess of its ordinary operating capital needs and paid concurrently with the closing of the merger on date following the redemption the parties completed the merger stock representing approximately d of acquiring was issued in the merger and following the merger former shareholders of target held less than of the stock of acquiring plr-119388-07 on date immediately following the merger bank and bank the lenders loaned approximately dollar_figuree to llc and sub the loan the lenders extended the loan based on the combined enterprise value of target and acquiring and conditioned the loan on the occurrence of the merger sub used approximately dollar_figuref of the loan proceeds to pay the balance of its loan obligations and llc used approximately dollar_figureg of the loan proceeds to pay the balance of loan obligations of target that were assumed by llc in the merger after taking into account various fees the lenders transferred dollar_figureh to acquiring on behalf of llc and sub which constituted the remaining balance of the loan proceeds on date acquiring declared a dividend in an amount equal to dollar_figurei the dividend to be paid pro_rata to shareholders of record of acquiring on date including the former target shareholders that received acquiring stock in the merger between date and date acquiring paid the dividend which was funded in significant part from the loan proceeds representations the following representations have been made in connection with the merger a the merger will be a reorganization within the meaning of sec_368 b except for indebtedness incurred by target more than eighteen months prior to date for the purposes of redeeming target preferred_stock which was not undertaken in anticipation of the merger the liabilities of target assumed by acquiring and the liabilities to which the transferred assets of target are subject were incurred by target in the ordinary course of business rulings based solely on the information submitted and the representations set forth above we rule as follows the cash distributed to acquiring’s shareholders paid pro_rata to all shareholders of record of acquiring after the merger is not money received by the former target shareholders in the merger for purposes of sec_356 and therefore is subject_to taxation pursuant to sec_301 see eg sec_1 l caveats plr-119388-07 the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process we express no opinion about the tax treatment of the transactions described above under other provisions of the internal_revenue_code or income_tax regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transactions described above that are not specifically covered by the above rulings we specifically express no opinion regarding the preferred dividend the redemption the qualification of the merger as a reorganization under sec_368 or the transfer of the loan proceeds to acquiring procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely ___________________ michael j wilder senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number --------------------- ------------------------------ ------------------------------------ --------------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc corp b03 plr-126188-09 date date common parent ------------------------------------- --------------------------------------------------------------------------------- ----------------------------------- ----------------------------------------------------------- parent ------------------------------------------------------------------------------------------------ --------------------------------------------------------- ----------------------------------- ------------------------ lossco ------------------------------------------------------------ -------------------------------------------------- checkbook ------------------------------------------------------------- ------------------------------------- purchaser -------------------------------------------- certain issues --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- date date date a b ---------------- ------------------ ---------------- -------------- -------------- plr-126188-09 c d -------- ------------- dear --------------- we respond to your authorized representative's request dated date for rulings on the federal_income_tax consequences of a consummated transaction additional information was submitted in letters dated july july august august october and date the information submitted for consideration is summarized below common parent is the common parent of an affiliated_group that files a consolidated_income_tax_return common parent owns all of the stock of parent parent owns all of the member interests of lossco a limited_liability_company that has elected to be classified as a corporation for federal_income_tax purposes lossco owns all of the member interests of checkbook a limited_liability_company that has elected to be classified as a corporation for federal_income_tax purposes lossco also owns directly or indirectly percent of the member interests of several other limited_liability companies that either have elected to be classified as corporations for federal_income_tax purposes or are treated as disregarded entities for federal_income_tax purposes included in this ownership chain is also the stock of one subchapter_c_corporation sub lossco and all the entities that are owned directly and indirectly by lossco that are classified as corporations for federal_income_tax purposes and sub are collectively referred to as subgroup checkbook acts as the checkbook for each member of subgroup in this role checkbook disburses all funds needed within subgroup’s business on behalf of subgroup members likewise it collects all funds on behalf of each subgroup member these funds are used by subgroup members for purposes of acquiring materials and providing operating capital for use in their business the funds that are collected by checkbook for the members of subgroup generally represent gross_receipts from sales in the ordinary course of business these transactions occur on a daily basis with cash being moved back and forth between checkbook and each member of subgroup the cash sweeps no interest has been charged or paid on the cash sweeps generally the net movement of cash from one subgroup member to and from checkbook would approximate the net_income of that subgroup member for what has been represented to be valid business reasons taxpayer has consummated the following transaction plr-126188-09 i ii iii iv on date parent contributed dollar_figurea of an overall dollar_figureb note to lossco as a contribution_to_capital lossco was the original issuer of this note parent was the original holder of this note on date parent sold percent of its member interests in lossco to purchaser an unrelated limited_liability_company that has elected to be classified as a corporation for federal_income_tax purposes in exchange for dollar_figurec cash and voting common and non-voting preferred equity interests estimated to be worth in excess of dollar_figured the purchase on date a sec_338 election was made for the purchase as a result of this election each of the other subgroup members was deemed to be sold in a qualified_stock_purchase and a sec_338 election was made for each of these members as a result of the sec_338 elections certain subgroup members were deemed to liquidate under sec_332 the sec_332 liquidations as a condition to and immediately following the overall transaction purchaser and parent agreed to cause lossco and its subsidiaries to file a voluntary petition for relief under chapter of the united_states bankruptcy code the expectation was that the bankruptcy would be completed in a successful and expedited fashion and that all equity of lossco as well as the newly-issued purchaser equity would retain its value through the bankruptcy filing purchaser’s bankruptcy plan projected that there would be value in the lossco business following parent’s resolution of certain issues lossco emerged from bankruptcy on date and was successful in resolving certain issues as anticipated at the time of the purchase taxpayer has made the following representations in connection with the transaction a b c d e all the sec_338 elections were made in a timely and valid manner as of date and prior to the dollar_figurea capital_contribution by parent lossco’s balance_sheet included liabilities of approximately dollar_figureb these liabilities exceeded the fair_market_value of lossco’s assets at that date lossco was insolvent as described in revrul_2003_125 c b for federal_income_tax purposes lossco’s stock was worthless within the meaning of sec_165 the sec_332 liquidations qualified as sec_332 liquidations for federal_income_tax purposes and pursuant to sec_381 the attributes of each entity liquidated in the sec_332 liquidations carried over to lossco plr-126188-09 based solely on the information submitted and the representations set forth above we rule as follows provided that the requirements of sec_165 taking into account the provisions of sec_1_1502-80 are satisfied parent may claim a worthless_stock deduction under sec_165 upon the deemed liquidation of lossco resulting from the sec_338 election with respect to the purchase subject_to the application of sec_1_1502-36 see revrul_68_602 1968_2_cb_135 and revrul_2003_125 2003_2_cb_1243 for purposes of computing lossco's gross_receipts under sec_165 lossco will include in its aggregate gross_receipts all amounts received in intercompany_transactions that are described in sec_1_1502-13 as effective applicable on or after date intercompany_transactions and such amounts from intercompany_transactions will be treated as gross_receipts from passive sources to the extent they are attributable to the intercompany transactions' counterparty's gross_receipts from passive sources see sec_1_1502-13 b and c as effective applicable on or after date for purposes of these rulings gross_receipts from passive sources is defined as royalties certain rents dividends certain interest annuities and gains from sales of stock and securities as defined in sec_165 and its regulations for purposes of computing lossco's gross_receipts under sec_165 the cash sweeps will be characterized as if interest and dividend payments were made as appropriate for purposes of computing lossco's gross_receipts under sec_165 lossco will take into account the historic gross_receipts of the transferor corporations in the sec_332 liquidations provided however that lossco will eliminate gross_receipts from intercompany_transactions with the transferor corporations as appropriate to prevent duplication in applying ruling above for purposes of computing the gross_receipts from passive sources of lossco’s counterparty in an intercompany_transaction or any other counterparties in intercompany_transactions the counterparty will include in its aggregate gross_receipts all amounts it received in intercompany_transactions and such amounts from intercompany_transactions will be treated as gross_receipts from passive sources to the extent they are attributable to its counterparty's gross_receipts from passive sources in other words lossco's gross_receipts from passive sources is determined by looking at all of lossco’s gross_receipts from intercompany_transactions even if on its face the intercompany_transaction appears not to be gross_receipts from passive sources and sourcing the gross_receipts based on lossco’s counterparty’s plr-126188-09 gross_receipts from passive sources furthermore lossco’s counterparty in intercompany_transactions and lossco’s counterparty’s counterparty and so on until it reaches an ultimate counterparty will apply a similar rule 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 specifically no opinion was requested and no opinion is expressed concerning whether sec_338 applies to any portion of the transaction whether sec_166 applies whether parent otherwise meets the requirements of sec_165 whether any of the sec_332 liquidations qualify under sec_332 how basis adjustments under the consolidated_return_regulations should be made whether the cash sweeps constitute debt or equity or whether interest and dividends should actually be imputed for the cash sweeps other than as provided in ruling above this letter is directed only to the taxpayer s who requested it sec_6110 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 alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely filiz a serbes chief branch office of associate chief_counsel corporate


internal_revenue_service number release date index numbers -------------------------------------------- ------------------------------- --------------------------------------------- --------------------------- 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-118642-17 date december legend x ----------------------------------------------------- ------------------------------- d1 d2 country ----------------------- ----------------- ----------------------------- this is in response to a letter dated date and subsequent information submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a partnership for federal tax purposes effective d2 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a partnership for federal tax purposes 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 plr-118642-17 elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 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 conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a partnership for federal tax purposes effective d2 x shall make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms plr-118642-17 information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns 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 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 your authorized representative sincerely holly porter associate chief_counsel passthroughs special industries joy c spies by _____________________________ 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


third party communication date of communication month dd yyyy cca_2014051508420104 id uilc number release date from sent thursday date am to cc bcc subject re lcu rate - form_1042 w h tax -------- - we’ve considered your question about whether the large_corporate_underpayment rate applies to withholding taxes required by sec_1441 and and reported on form_1042 when the service issues a stat_notice we’ve concluded that it does as long as the other requirements of c such as threshold_amount owed by a c- corporation are met our general advice with respect to the lcu rate is that the statute doesn’t restrict the type of tax that it applies to because sec_6621 says large_corporate_underpayment means any underpayment_of_tax by a c_corporation the lcu regulation sec_301_6621-3 also does not restrict the type of tax the rate applies to the regulation contains several examples including ones that address fica and futa taxes but none for the withholding taxes you are asking about however in keeping with the plain language of the statute we concluded that sec_1441 and taxes are subject_to the lcu if you have any further questions or would like to discuss this advice please let me know thanks -------------- ----------------------- -------------- -------


internal_revenue_service index nos number release date cc dom it a plr-121508-98 ein attn date dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending august to a taxable_year ending december effective for the tax_year beginning date the taxpayer intends to elect s_corporation status for the tax_year immediately following the short_period and has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending december was due on or before date information furnished indicates that the taxpayer intended to make the change in a proper and timely manner but that due to an error or misunderstanding the form was not timely filed the information furnished also shows that the late filing was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government requests for relief involving a change in accounting_period that are filed more than days beyond the due_date of form_1128 are granted only in unusual and compelling circumstances based on the facts and information submitted and the representations made we have determined that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending december effective for the tax_year beginning date is considered timely filed pursuant to revproc_93_23 1993_1_cb_538 a user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer’s application after the user_fee is submitted the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 a copy of this letter is being furnished to the taxpayer’s district_director this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel income_tax and accounting s irwin a leib enclosures copy of this letter copy for sec_6110 purposes by irwin a leib deputy assistant chief_counsel


t c no united_states tax_court jack a fleischli a k a jack forbes petitioner v commissioner of internal revenue respondent docket no filed date in p had a net profit of more than dollar_figure from the practice of law p also earned dollar_figure from acting activities and had acting-related expenses of dollar_figure for a qualified_performing_artist may deduct from gross_income employee business_expenses related to his or her work as a performing artist if inter alia the individual has adjusted_gross_income before deducting those business_expenses of not more than dollar_figure sec_62 b i r c p contends that adjusted_gross_income in sec_62 i r c includes only adjusted_gross_income from the performance of services as a performing artist held the term adjusted_gross_income in sec_62 i r c means the same as adjusted_gross_income in sec_62 i r c and thus is computed based on a taxpayer’s gross_income from all sources jack a fleischli pro_se john d faucher for respondent colvin judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure and an accuracy- related penalty under sec_6662 a of dollar_figure respondent concedes that petitioner is not liable for the sec_6662 penalty after concessions the issue for decision is whether for purposes of sec_62 adjusted_gross_income includes only a taxpayer’s income from the performance of services as a performing artist or whether it means the same as adjusted_gross_income in sec_62 and thus is computed based on a taxpayer’s gross_income from all sources we hold that it means the same as adjusted_gross_income in sec_62 findings_of_fact some of the facts have been stipulated and are so found petitioner resided in california when the petition was filed section references are to the internal_revenue_code in effect for the applicable_year rule references are to the tax_court rules_of_practice and procedure we need not decide whether the burden_of_proof shifts to respondent under sec_7491 because the issue is one of law see sec_7491 petitioner was a self-employed practicing attorney in he earned a net profit of more than dollar_figure from the practice of law in petitioner also worked as an actor in he used the professional name jack forbes in that year he earned dollar_figure from acting and had acting-related expenses of dollar_figure he reported a net_loss from acting on a schedule c profit or loss from business attached to his return during an examination of petitioner’s return respondent allowed petitioner to treat his acting expenses as adjustments to gross_income for respondent determined that petitioner had adjusted_gross_income of more than dollar_figure in and that as a result petitioner may not deduct his acting expenses of dollar_figure as adjustments to gross_income under sec_62 and b opinion a whether adjusted_gross_income in sec_62 includes only income from the performance of services as a performing artist background in computing adjusted_gross_income a qualified_performing_artist may deduct from gross_income employee business_expenses incurred in connection with his or her performance of services in respondent concedes that these expenses are unreimbursed employee_expenses for the performing arts as an employee sec_62 a qualified_performing_artist is an individual who performs services in the performing arts for at least two employers during the tax_year and who receives at least dollar_figure from each of two of these employers whose related performing arts expenses are more than percent of such individual’s gross_income from the performance of those services and whose adjusted_gross_income is not more than dollar_figure before deducting those business_expenses sec_62 and respondent concedes that petitioner meets requirements and the parties dispute whether petitioner had adjusted_gross_income for purposes of sec_62 of more than dollar_figure in petitioner’s contentions regarding the statutory language petitioner contends that the term adjusted_gross_income in sec_62 includes only petitioner’s gross_income from acting activities not his gross_income from all sources we disagree adjusted_gross_income is in the case of an individual gross_income minus certain deductions sec_62 gross_income includes all income from whatever source sec_62 provides in pertinent part sec_62 adjusted_gross_income defined a general_rule --for purposes of this subtitle the term adjusted_gross_income means in the case of an individual gross_income minus the following continued derived unless excluded by law sec_61 thus in deciding whether petitioner qualifies under sec_62 as a performing artist we consider whether petitioner’s adjusted_gross_income computed based on his gross_income from all sources exceeds dollar_figure sec_62 provides that a qualified_performing_artist is an individual whose business_expenses exceed percent of his or her gross_income attributable to the performance of such services petitioner contends that sec_62 which imposes a ceiling on the amount of adjusted_gross_income an individual may earn during the tax_year and qualify as a qualified_performing_artist should be interpreted to mean the same as sec_62 that is to include only income from activities as a performing artist we disagree sec_62 refers to adjusted_gross_income not to gro sec_4 continued deductions certain trade and business deductions of employees -- b certain expenses of performing artists --the deductions allowed by sec_162 which consist of expenses paid_or_incurred by a qualified_performing_artist in connection with the performances by him of services in the performing arts as an employee income from activities as a performing artist we assume that congress intends a different meaning when it uses different language 520_us_1 232_f3d_854 11th cir 119_tc_317 affd 370_f3d_1228 d c cir petitioner contends that respondent is estopped from contending that petitioner is not a qualified_performing_artist for because respondent determined that petitioner was a qualified_performing_artist in we disagree the commissioner is not bound in any year to allow a deduction permitted for another year see 877_f2d_624 n 7th cir affg tcmemo_1987_295 713_f2d_347 8th cir affg tcmemo_1982_451 for purposes of sec_62 adjusted_gross_income means a taxpayer’s adjusted_gross_income from all sources petitioner’s adjusted_gross_income exceeded dollar_figure in thus petitioner was not a qualified_performing_artist under sec_62 and may not deduct from gross_income his employee business_expenses incurred as a performing artist b whether application of sec_62 violates petitioner’s constitutional rights of due process petitioner argues that the dollar_figure ceiling in sec_62 unconstitutionally discriminates against performing artists who earn more than dollar_figure annually petitioner cites 50_f3d_739 9th cir for the proposition that a tax is discriminatory if it is not imposed equally upon similarly situated groups and contends that respondent’s reading of adjusted_gross_income improperly discriminates between performing artists whose performing artist income does not exceed dollar_figure and performing artists whose performing artist income does not exceed dollar_figure but whose total income from all sources exceeds dollar_figure petitioner also argues that the internal_revenue_code unconstitutionally favors elementary and secondary school teachers who may deduct employee business_expenses up to dollar_figure from their gross_income regardless of the amount of income they earn over artists see sec_62 d we disagree with these arguments a tax statute which provides different treatment for different classes of persons generally does not violate the fifth_amendment if it has a rational basis 461_us_540 400_us_4 267_us_442 durham v commissioner tcmemo_2004_125 legislatures have particularly broad latitude in creating classifications and distinctions in tax statutes regan v taxation with representation supra 301_us_495 580_f2d_152 5th cir different tax_rates for single and married taxpayers are constitutional affg tcmemo_1977_405 550_f2d_1239 7th cir same by limiting the tax deduction at issue here to artists with incomes under dollar_figure congress clearly intended to benefit low-income performing artists we believe there is a rational basis for targeting the provision at issue here to performing artists with adjusted gross incomes not in excess of dollar_figure because they have a greater need for assistance than higher income performing artists petitioner points out that a statute constitutionally valid when enacted may become invalid by a change in the conditions to which it is applied citing 369_us_186 n and contends that the dollar_figure ceiling in sec_62 violates due process because the statute contains no provision to adjust for inflation petitioner cites no authority and we know of none supporting his contention that congress’s failure to adjust for inflation the dollar_figure ceiling in sec_62 invalidates the statute finally petitioner contends that we must carefully consider whether taxes imposed on performing artists which petitioner views as a politically impotent class are discriminatory see 728_f2d_628 4th cir petitioner misconstrues politically impotent class to include performing artists the term politically impotent class refers to a class of people subject_to tax but who are not allowed to vote id we conclude that application of sec_62 to petitioner is constitutional and does not violate petitioner’s constitutional rights to due process of law to reflect concessions and the foregoing decision will be entered under rule


t c summary opinion united_states tax_court michael e nordloh and sharon j nordloh petitioners v commissioner of internal revenue respondent docket no 20097-12s filed date michael e nordloh and sharon j nordloh pro_se benjamin d wolarsky for respondent summary opinion whalen judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered in this case is not reviewable by any other court and this opinion shall not be treated as precedent for any other case hereinafter all section references are to the internal_revenue_code as amended and in effect for the taxable_year in issue unless stated otherwise and all rule references are to the tax_court rules_of_practice and procedure these are some of the facts in this case in mr nordloh petitioner and his doctors believed that he had become disabled and was unable to work because of back pain representatives of the social_security administration ssa disagreed and denied petitioner’s application to the ssa for disability benefits ssd benefits petitioner appealed the ssa’s denial in the meantime he received disability payments under an employer-provided long-term disability policy with metropolitan life_insurance co metlife petitioners reported the disability payments received from metlife on their federal_income_tax returns and they paid tax on them petitioner accepted those disability payments with the understanding that he would repay them to metlife if his appeal of the ssa’s decision were successful and he received ssd benefits in petitioner’s application to the ssa was approved by an administrative law judge and in he received a lump-sum payment of dollar_figure from the ssa this triggered petitioner’s obligation to repay the disability payments received from metlife by check dated date petitioner repaid dollar_figure to metlife there are three issues for decision first whether petitioners are allowed a deduction on their return for the repayment of dollar_figure made during to metlife second whether petitioners must include in gross_income the lump-sum payment of ssd benefits totaling dollar_figure received in and if so the amount to be included and third whether petitioners are liable for an accuracy-related_penalty under sec_6662 and b based upon an underpayment due to a substantial_understatement_of_income_tax background petitioner’s disability and his claim for disability benefits circa petitioner began experiencing back pain due to medical problems with his back and he underwent back surgery petitioner’s back problems left him unable to work and after a number of months he was declared disabled by his doctors as a result petitioner applied to the ssa for ssd benefits initially his claim was denied by the ssa and he appealed petitioner began collecting disability payments in under a long-term disability policy with metlife that had been provided by his employer petitioner’s insurance_contract with metlife is not included in the record but the parties agree that the contract required that petitioner apply for ssd benefits at the onset of disability the disability payments made by metlife be offset by any ssd benefits petitioner received and petitioner repay any overpayment of benefits to metlife metlife paid disability benefits to petitioner during and and petitioners reported those benefits on their income_tax returns for those years in date petitioner’s claim for ssd benefits was finally allowed following a hearing before an administrative law judge in a letter dated date shortly after the hearing petitioner’s attorney explained that in due course petitioner would receive a formal award notice and a retroactive check from the ssa the attorney warned petitioner that under the terms of his disability insurance_policy with metlife he might owe to metlife some or most of the amount received from the ssa the attorney’s letter states as follows it may be possible to receive your retroactive check before you receive this award notice either way when you receive this check please deposit it into your bank account i strongly advise you not to spend any of this money including any retroactive children’s benefits you may owe some if not most of it to your long term disability insurer metlife under the terms of your policy petitioner did not receive any ssd benefits from the ssa until date when he received a lump-sum payment of dollar_figure petitioner also received an ssa-1099 social_security_benefit statement which stated that the lump-sum payment was composed of ssd benefits of dollar_figure for dollar_figure for dollar_figure for and the balance dollar_figure for as a consequence of receiving the lump-sum payment from the ssa petitioner became obligated to reimburse metlife for some or most of the disability benefits that metlife had paid under petitioner’s long-term disability policy initially petitioner did not know the amount he owed to metlife and he had to make a number of telephone calls in order to find out by letter dated date petitioner transmitted a check payable to metlife for dollar_figure that amount is composed of disability payments totaling dollar_figure for dollar_figure for and dollar_figure for a representative of metlife wrote to petitioner on date stating that petitioner’s check dated had satisfied the overpayment of disability benefits to petitioner petitioners’ return for petitioners were uncertain about how the disability payments received from the ssa and the repayment to metlife should be treated for tax purposes for that reason they requested an extended filing deadline for their return and they hired a tax professional victoria l wofford an enrolled_agent to prepare their return as prepared by ms wofford petitioners’ return claimed the amount repaid to metlife in dollar_figure as a deduction in computing petitioners’ adjusted_gross_income see generally sec_62 the same deduction was carried over to modified_adjusted_gross_income magi as defined by sec_86 and it was used in computing the amount of taxable ssd benefits under the formula set forth in sec_86 see sec_86 petitioners’ return reported receiving total ssd benefits of dollar_figure of which dollar_figure was taxable we have replicated petitioners’ computation of the taxable ssd benefits dollar_figure in appendix a petitioners’ return discloses the fact that they claimed a deduction of dollar_figure the amount repaid to metlife as an adjustment_to_gross_income in the following note attached to the return taxpayer received a lump sum payment from social_security in the amount of dollar_figure dollar_figure was for dollar_figure was for dollar_figure was for and dollar_figure was for however taxpayer reported third party sick_pay wages from metlife agent ein - in tax years and sic taxpayer then had to repay the third party sick_pay payor metlife once the lump sum distribution was received from the social_security adminis- tration the repayment made to metlife was for the amount of dollar_figure therefore taxpayer is taking an adjustment to income reported on line of this tax_return for the third party repayment since he has already paid income_tax on those monies in previous years respondent’s notice and petitioners’ amended_return for circa date petitioners received from respondent a notice cp-2000 proposing changes to their return that would increase their tax by dollar_figure and imposing a penalty of dollar_figure this notice is not included in the record petitioners responded to the notice by letter dated date in which they submitted form 1040x amended u s individual_income_tax_return for the amended_return was prepared by thomas j gilday certified_public_accountant a tax professional different from the one who had prepared petitioners’ original return the explanation of changes section of the amended_return states that petitioners were filing the amendment to their return for two reasons taxpayer sic reported incorrect amount of social_security on original return and taxpayer sic incorrectly deducted repayment of prior year income - repayment was actually in the first correction made by the amended_return was to increase the amount of taxable ssd benefits from dollar_figure the amount reported on the original return to dollar_figure an increase of dollar_figure in petitioners’ adjusted_gross_income the second correction was to increase petitioners’ adjusted_gross_income by the amount repaid to metlife in dollar_figure these two corrections increased petitioners’ taxable_income by dollar_figure dollar_figure dollar_figure as a result of these changes the amended_return computed dollar_figure as petitioners’ corrected tax_liability for taxable_year petitioners’ letter dated date states that petitioners were also submitting to respondent an amended_return for that amended_return is not included in the record but according to petitioners’ letter it showed an overpayment of dollar_figure presumably the overpayment is the result of deducting the amount repaid to metlife dollar_figure petitioners’ letter states that they had combined the amount due for dollar_figure with the overpayment for dollar_figure and they were submitting a payment to respondent for the difference dollar_figure to satisfy all outstanding debts with the irs notice_of_deficiency for approximately one month later respondent issued a notice_of_deficiency to petitioners determining a deficiency of dollar_figure in petitioners’ tax together with an accuracy-related_penalty under sec_6662 of dollar_figure this tax_deficiency is identical to the additional tax computed in the notice cp-2000 described above that respondent sent to petitioners in date the deficiency was based upon increasing the amount of taxable ssd benefits from dollar_figure the amount reported on petitioners’ original return to dollar_figure and several consequent adjustments we have replicated respondent’s computation of the amount of taxable ssd benefits dollar_figure in appendix b the notice_of_deficiency did not adjust petitioners’ taxable_income by disallowing the deduction claimed on petitioners’ original return for the amount repaid to metlife dollar_figure as discussed above this second adjustment was made in petitioners’ amended_return increased deficiency on date respondent issued a second notice to petitioners notice cp22a advising them that respondent had made changes to their return for to correct your taxable social_security_benefits and education credit the notice also increased the accuracy-related_penalty and statutory interest according to the notice as a result of these changes the amount due from petitioners was dollar_figure this amount due was based on petitioners’ revised tax_liability of dollar_figure increase in tax of dollar_figure plus decrease in credit of dollar_figure which is the same amount reported in petitioners’ amended_return before trial respondent’s attorney filed a motion for leave to file first amendment to answer in which respondent sought an increase of dollar_figure in the amount of the deficiency for the motion was unopposed by petitioners and was granted by the court the increased deficiency sought by respondent dollar_figure plus the deficiency determined in the notice_of_deficiency dollar_figure total dollar_figure this is dollar_figure more than the deficiency computed in petitioners’ amended_return dollar_figure according to respondent’s first amendment to answer this increase in the amount of the deficiency was necessary to correct unspecified errors in petitioners’ amended_return for and in respondent’s notice cp22a discussion we must decide whether petitioners are liable for the tax_deficiency of dollar_figure asserted by respondent for taxable_year we must also decide whether petitioners are liable for the accuracy-related_penalty imposed by sec_6662 burden_of_proof generally the commissioner's determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that the determinations are erroneous see rule a the burden_of_proof shifts to the commissioner if the taxpayer produces credible_evidence to support the deduction or other tax_benefit at issue as long as the taxpayer has complied with the substantiation requirements and has cooperated with the secretary with regard to all reasonable requests for information sec_7491 see also 116_tc_438 the commissioner must also bear the burden_of_proof as to any new_matter or increased deficiency sought by the commissioner in the answer e g 77_tc_881 see rule a there are two substantive tax issues for decision in this case the first is whether petitioners are allowed to deduct for taxable_year the amount repaid to metlife during dollar_figure because we decide this issue on the preponderance_of_the_evidence we need not decide which party has the burden_of_proof see 131_tc_185 the second issue is whether petitioners can exclude from gross_income the ssd benefits of dollar_figure received during at trial petitioners asserted that the ssd benefits were not received under a claim of right and should be excluded from gross_income this assertion is contradicted by petitioners’ original return for and by their amended_return for that year both of those returns included the ssd benefits in gross_income we find that petitioners introduced no credible_evidence with respect to this issue and that sec_7491 does not apply accordingly petitioners bear the burden_of_proof as to this issue see rule a with respect to a taxpayer's liability for any penalty sec_7491 places the burden of production on the commissioner thus the commissioner is required to come forward with sufficient evidence showing that it is appropriate to impose the penalty on the taxpayer see higbee v commissioner t c pincite once the commissioner meets this burden of production the taxpayer must come forward with persuasive evidence that the commissioner's determination is incorrect see id pincite see also rule a tax_deficiency the asserted deficiency of dollar_figure is based principally upon the disallowance of a single deduction petitioners claimed for the amount they repaid to metlife during dollar_figure on their return petitioners claimed that amount as a deduction in computing adjusted_gross_income see generally sec_62 petitioners omitted the deduction in their amended_return but the notice_of_deficiency did not reflect that change as shown by the amended_return the effect of omitting the deduction is twofold first the taxable_amount of ssd benefits is increased from dollar_figure the amount reported on petitioners’ return to dollar_figure an increase of dollar_figure compare appendix a infra with appendix b second petitioners’ adjusted_gross_income and taxable_income are increased by the amount of the deduction dollar_figure thus removing the deduction for the amount repaid to metlife in from petitioners’ return caused petitioners’ taxable_income to increase by approximately dollar_figure ie dollar_figure dollar_figure deduction of the amount repaid to metlife the first substantive tax issue is whether in computing adjusted_gross_income for taxable_year petitioners can properly deduct the amount that they repaid to metlife dollar_figure petitioners who report income and expenses under the cash_receipts_and_disbursements_method of accounting made that expenditure by check in sec_461 provides that deductions are to be taken into account for the taxable_year that is the proper taxable_year under the method_of_accounting used in computing the taxpayer's taxable_income under our system of annual accounting each item_of_income and expense has a singular correct treatment under a taxpayer’s chosen method_of_accounting see crisp v commissioner tcmemo_1989_668 taxpayers such as petitioners who use the cash_receipts_and_disbursements_method of accounting generally are entitled to deduct an expenditure for the taxable_year in which the expenditure is made see sec_1_446-1 income_tax regs for a taxpayer using the cash_method_of_accounting e xpenditures are to be deducted for the taxable_year in which actually made see also sec_1_461-1 income_tax regs under the cash_receipts_and_disbursements_method of accounting amounts representing allowable deductions shall as a general_rule be taken into account for the taxable_year in which paid thus as cash_method taxpayers petitioners are entitled to deduct the amount repaid to metlife if at all only for the year of repayment see humphrey v commissioner tcmemo_1995_110 wl at they are not allowed to deduct that expenditure on their return for see udeobong v commissioner tcmemo_2016_109 whether the ssd benefits are includible in gross_income petitioners’ second argument is that the ssd benefits received in are not includible in gross_income as mentioned above this argument is contradicted by petitioners’ return for and by their amended_return both of which reported the ssd benefits in gross_income contrary to those returns petitioners claim that petitioner did not have control of that money because he was contractually obligated to pay it to metlife petitioner stated the following at trial i'm being asked to pay taxes for a second time on the social_security money when i'd already paid taxes on that equivalent money once in the met life payments to me and there's i guess in the 348_us_426 case it asks what's considered as income and it says income is realized whenever there are instances of undeniable accessions to wealth over which the taxpayer has complete dominion i didn't have control of that money i mean i was either going to get to keep the money that met life gave me if i wasn't disabled but if i was declared disabled i had to pay it back in effect petitioners argue that the ssd benefits were not received under a claim of right and are not includible in gross_income because of petitioner’s contractual obligation to reimburse metlife it is well established that a taxpayer need not treat as income moneys which he did not receive under a claim of right which were not his to keep and which he was required to transmit to someone else as a mere conduit e g 56_tc_530 aff’d 492_f2d_286 7th cir on the other hand it is also well established that if a taxpayer receives a payment under a claim of right and without restriction or limitation as to the disposition of the payment then the taxpayer has received taxable_income even if it still may be claimed that he is not entitled to retain the payment and even though he may be liable to restore its equivalent see n am oil consol v burnet 286_us_417 in this case the record does not reflect that petitioner received the ssd benefits as a mere conduit without a claim of right we agree with petitioners that petitioner’s receipt of ssd benefits in triggered his contractual obligation to metlife to repay the disability payments that metlife had advanced under his long-term disability policy we also agree that it was financially prudent for petitioner to keep the ssd benefits intact so that he could use those funds to repay metlife however there is no evidence to show that petitioner’s contractual obligation to metlife imposed a legal restriction on his use or disposition of the ssd benefits in fact the letter written by petitioner’s attorney on date shortly after the hearing in which petitioner was found to be disabled suggests the opposite in that letter the attorney directed petitioner to deposit the check into your bank account and he advise d petitioner not to spend any of this money because he might need it to repay metlife thus the attorney’s letter merely advised petitioner not to spend the lump-sum payment of ssd benefits contrary to petitioners’ argument the letter is a recognition that there was nothing to prevent petitioner from spending the ssd benefits and that petitioner was under no legal restriction in his use or disposition of that money certainly the attorney mentioned no legal restriction on petitioner’s use and disposition of the funds furthermore the attorney instructed petitioner to deposit the lump-sum check into his bank account and thus commingle the ssd benefits with his other funds it is evident that petitioner followed his lawyer’s advice because he issued a check to repay metlife from his bank account several weeks later petitioner thus took full control of the lump-sum payment of ssd benefits and commingled those funds with his other bank funds on the record in this case we find that petitioners were under no restriction as to their use or disposition of the ssd benefits totaling dollar_figure received from the ssa in we further find that petitioners received the ssd benefits in under a claim of right and those funds are includible in their gross_income accuracy-related_penalty the notice_of_deficiency determined that petitioners are liable for the accuracy-related_penalty for an underpayment due to a substantial_understatement_of_income_tax sec_6662 and b imposes a penalty equal to of the amount of any underpayment attributable to a substantial_understatement_of_income_tax an understatement is the amount by which the correct_tax exceeds the tax reported on the return sec_6662 the understatement is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 and ii in determining whether an understatement is substantial the amount of the understatement is reduced by any portion attributable to an item if there is or was substantial_authority for the taxpayer's treatment of the item or if the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached thereto and there is a reasonable basis for the tax treatment of the item by the taxpayer sec_6662 in this case as discussed above we find that there is an understatement in petitioners’ income_tax for we also find that the understatement is substantial thus respondent has met his burden of production under sec_7491 to come forward with sufficient evidence to show that it is proper to impose the penalty see higbee v commissioner t c pincite petitioners contend that they are not liable for the accuracy-related_penalty under sec_6662 because there was a reasonable_cause for their underpayment and they acted in good_faith sec_6664 provides that no penalty shall be imposed with respect to any portion of an underpayment if the taxpayer demonstrates that there was reasonable_cause for that portion of the underpayment and that the taxpayer acted in good_faith sec_1_6664-4 income_tax regs the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability id reliance on the advice of a professional tax adviser constitutes reasonable_cause and good_faith if taking all circumstances into account such reliance was reasonable and the taxpayer acted in good_faith id to demonstrate that the reliance was reasonable and in good_faith the taxpayer must prove by preponderance_of_the_evidence that t he adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser's judgment see 115_tc_43 aff’d 299_f3d_221 3d cir after receiving the ssd benefits from ssa and issuing a check to metlife petitioners knew that they would need help filing their return for accordingly they requested an extended filing deadline and they retained a tax professional from a reputable firm to prepare the return they provided the necessary information to the adviser and they filed the return as prepared by the adviser taking into account all of the circumstances including their experience knowledge and education it was reasonable for them to rely on the adviser after receiving a notice from the irs raising a question about the return petitioners retained a different tax adviser to give them further advice regarding their proper tax_liability the second adviser prepared amended returns for and petitioners accepted the advice of the second adviser and they filed those amended returns in these proceedings respondent has accepted the amended_return for as essentially correct taking all of the facts and circumstances into consideration we find that petitioners acted with reasonable_cause and in good_faith in an effort to assess their proper tax_liability and they are not liable for an accuracy-related_penalty under sec_6662 for a substantial_understatement_of_income_tax to reflect the foregoing decision will be entered under rule appendix a petitioner’s computation of amount of social_security_benefits includible in gross_income base_amount big_number big_number big_number big_number big_number big_number adjusted_base_amount wages salaries tips etc taxable interest ordinary dividends taxable refunds credits or offsets business income or loss total income self-employment health ins repayment to metlife adjustments excess described in sec_86 sec_86 include the lesser_of sec_86 sec_86 big_number sec_86 magi soc sec benefits sec_86 soc sec benefits sec_86 sec_86 base_amount -big_number big_number big_number big_number big_number big_number soc sec benefit sec_50 of excess big_number big_number amount of soc sec benefits includible in gross_income big_number big_number big_number big_number big_number big_number magi soc sec benefits adjusted_base_amount big_number big_number big_number big_number big_number big_number big_number big_number big_number sec_86 excess described in sec_86 sec_86 additional_amount amount includible is the lesser_of a the sum of i of excess plus ii lesser_of amount determined under par or of adjusted base less base_amount or b soc sec benefits appendix b respondent’s computation of amount of social_security_benefits includible in gross_income base_amount big_number big_number big_number big_number big_number adjusted_base_amount wages salaries tips etc taxable interest ordinary dividends taxable refunds credits or offsets business income or loss total income self-employment health ins repayment to metlife adjustments excess described in sec_86 sec_86 include the lesser_of sec_86 sec_86 big_number sec_86 magi soc sec benefits sec_86 soc sec benefits sec_86 sec_86 base_amount -big_number big_number big_number big_number big_number big_number soc sec benefit sec_50 of excess big_number big_number amount of soc sec benefits includible in gross_income big_number big_number magi soc sec benefits adjusted_base_amount big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number sec_86 excess described in sec_86 sec_86 additional_amount amount includible is the lesser_of a the sum of i of excess plus ii lesser_of amount determined under par or of adjusted base less base_amount or b soc sec benefits


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa b04 gl-144298-07 uilc date date to cc sb pit attn julia l wahl from joseph w clark senior technician reviewer cc pa b04 procedure administration subject whether a revenue_officer should reissue a levy and notice of seizure to a revocable_trust holding real_property where those notices list the taxpayer in the name and address and due from fields but the notice of seizure describes the property as being held by the revocable_trust as nominee or alter ego of the taxpayer this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend x y revocable_trust revocable_trust a city a county a state a number a street a ------------------- ---------------------------------- ------------------------------------------------- ------------- -------------- ------------------------ ------------- --------- ------------------- --------- --------------- ---------------------- gl-144298-07 zip code a country a bank a utility company a yr1 yr5 yr15 yr17 issues whether the revenue_officer should reissue a levy form 668-b ics and notice of seizure form to the revocable_trust holding real_property where those notices list x in the name and address and due from fields but the notice of seizure form describes the property as being held by the revocable_trust as nominee or alter ego of x --------------------------------------- ------- ------- ------- ------- conclusions in describing the party against whom the levy was issued the levy form 668-b ics does not list x in his capacity as the trustee of the revocable_trust or as the nominee or alter ego of x the levy should be reissued with x as trustee of the revocable_trust and as the nominee or alter ego of x and with the address of the trustee in the due from field this information should be placed on the levy form where the taxpayer’s name and address would normally be inserted if the service were seizing property titled directly in the name of x the delinquent taxpayer the notice of seizure form should also be reissued and the name and address field should include x as trustee of the revocable_trust and as nominee or alter ego of x along with the trustee’s address this form should also include x’s name and address not in his capacity as trustee in the due from field and the legal description of the city a property including the street address should be retained in the description of property field see i r m sec_5 dollar_figure and exhibit facts x owes delinquent yr1 income taxes which were assessed on october yr5 although the taxes in this matter were assessed october yr5 and the collection statute_of_limitations would normally expire years later on october yr15 the service maintains that x’s continuous absences from the united_states during this time period suspended the collection statute’s running until october yr17 sec_6502 and sec_6503 this memorandum therefore assumes that the collection statute_of_limitations will not bar a levy or foreclosure suit gl-144298-07 x’s mother transferred certain real_property located in city a state a to revocable_trust a she thereafter obtained a mortgage on the property upon the mother’s death two years later x became the trustee of revocable_trust a subsequently x transferred the property out of revocable_trust a to himself for no consideration by a grantor deed x then transferred the parcel for no consideration to x as trustee of the revocable_trust the service did not file a notice_of_federal_tax_lien against x in county a until after x transferred the real_property to the revocable_trust the revenue_officer handling this matter has verified the following facts in regard to x’s control_over the real_property located in city a i x pays the mortgage for the property by wiring funds from a country a bank account in the name of y to a bank a account in the joint names of x and his mother ii telephone and water bills for the property are paid from the bank a account iii x enrolled in an automatic payment plan with utility company a to have the bills paid automatically and iv the real_estate_taxes are paid_by credit card although it is not clear whose card it is during february yr15 the service filed a nominee lien against x as the trustee of the revocable_trust as nominee or alter ego of x in county a state a the property appears to be worth substantially more than the outstanding balance on the mortgage on september yr15 the revenue_officer handling this matter issued a notice of seizure from and on this form he inserted x’s name and address in the name and address field and x’s name in the due from field this notice of seizure also included the following in the description of property field description of the property x as trustee of the revocable_trust as nominee or alter ego of x in the real_property situated in state a city and county of city a legally described as follows this real_property is a single residence more commonly known as number a street a city a state a zip code a a levy form 668-b ics also issued september yr15 listed x’s name address and country a in the due from field this memorandum assumes that that this notice of seizure and the levy form 668-b ics were served upon x as the trustee of the revocable_trust gl-144298-07 law and analysis a third party holds property as a nominee for a taxpayer where the taxpayer’s property is titled in the name of the third party but the taxpayer in fact retains beneficial_ownership of the property long v united_states 958_f2d_367 4th cir united_states v barton u s tax cas cch p big_number 9th cir 791_fsupp_1450 d mont listing factors considered in determining nominee status aff’d on other grounds 999_f2d_1387 9th cir 211_f3d_280 n 5th cir noting that concepts of nominee transferee and alter ego are independent bases for attaching property of a third-party to satisfy a delinquent taxpayer's liability sharp management llc v united_states ustc p big_number w d wash government proved nexus between taxpayer and funds in bank account held by limited_liability_company by virtue of a nominee relationship i r m sec_5 determining when nominee lien should be filed under the doctrine_of limited_liability the owner of a corporation is not liable for the corporation’s debts 768_f2d_686 5th cir there is an exception to this rule commonly known as the alter ego doctrine this can be established when the owner of a corporation dominates and controls it to the point that the separate corporate identity becomes merely a sham ie it does not exist independent of its controlling shareholder and it was established for no reasonable business_purpose or for fraudulent purposes oxford capital supra jon-t chemicals supra in that situation all of the assets of the corporation may be levied upon to satisfy the tax_liabilities of a delinquent taxpayer-shareholder jon-t chemicals f 2d pincite see also 728_f2d_1085 8th cir church an unincorporated association was the alter ego of delinquent taxpayers when the service seeks to collect delinquent taxes by either seizing the property held by a third-party under a nominee or alter ego theory or by filing a lien against such third party the notice_of_levy or notice_of_federal_tax_lien should expressly list such third party as the taxpayer’s nominee or alter ego 300_f3d_814 7th cir lien notice identified the taxpayer as orvill macklin nominee of gerald macklin oxford capital supra levy imposed on funds of oxford as nominee alter ego of taxpayer rx staffing corporation 629_f2d_162 d c cir irs filed notices of tax_liens against pacific development inc as the ‘alter ego and nominee’ of park the i r m sets forth the service’s internal operating procedures including guidance in regard to the correct forms to use in connection with property seizures upon determining that it is necessary to seize property in which a taxpayer has an interest to gl-144298-07 collect delinquent taxes the service uses the levy form 668-b following the seizure the notice of seizure form is issued i r m sec_5 in this case the levy form 668-b ics includes only x’s name and address in the due from field and makes no mention of the revocable_trust because the service seeks to seize the real_property located in city a which is titled in the name of the revocable_trust the levy should name x as trustee of the revocable_trust and as the nominee or alter ego of x i r m sec_5 conducting the seizure and exhibit include instructions and a table showing how to complete the notice of seizure form it states that if the seizure involves real_property and the taxpayer is not the owner of record the notice should be addressed to such owner of record the taxpayer’s name and address goes into the due from box and the legal description of the real_property including the address and street location if available should be inserted into the description of property field the revenue_officer should reissue the notice of seizure and include x as trustee of the revocable_trust and as nominee or alter ego of x plus the revocable trust’s address in the name and address field x’s name and address should be placed in the due from field and the legal description and street address of the city a property should be retained in the description of property field case development hazards and other considerations --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------- in oxford a wrongful_levy case the government’s levy was issued on oxford as nominee transferee alter ego agent and or holder of a beneficial_interest of taxpayer rx staffing corporation f 3d pincite the fifth circuit_court of appeals observed that based on the record before it the government may have had cause to believe that oxford held the property of rx its wholly owned subsidiary_corporation the delinquent taxpayer as a nominee but not cause to believe that rx was oxford’s alter ego the appellate court opined that at the time of levy the record reflected that the service had cause to believe only one bank account of oxford the account held the property of the taxpayer as a result the levy upon the other bank accounts would have been wrongful under sec_7426 with respect to notices of levy that name alter egos or nominees i r m sec_5 states that area_counsel is to advise the revenue_officer in regard to the issuance of such levies and the language to be included on the pre-levy notice and levy gl-144298-07 because at the time of levy there was no reason to believe that the other accounts held property of the delinquent taxpayer f 3d pincite the appeals court in oxford found that because the magistrate judge did not apply the proper burden-shifting framework under 896_f2d_152 5th cir it was not possible to determine based on the record whether the irs had cause to believe that rx was oxford’s alter ego or whether the service developed substantial evidence of nominee liability at the time of the evidentiary hearing sufficient to prevent a finding of wrongful_levy accordingly the case was remanded back to the magistrate judge for further proceedings to apply the proper burden-shifting framework to determine if the service proved nexus by substantial evidence and if oxford could then prove that the levy was otherwise wrongful eg that the levy was imposed without a sufficient evidentiary basis to do so f 3d pincite under oxford therefore the service must develop facts sufficient to support the alter ego theory at the time the levy is imposed see also 467_f3d_655 7th cir in lien foreclosure action government failed to present evidence that property owner was the nominee or alter ego of his taxpayer- tenants where evidence showed only that taxpayers were friends of the owner and taxpayers held only contractual right to purchase property --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- 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 department of the treasury number release date index number re ruling under sec_41 of the internal_revenue_code washington dc person to contact telephone number refer reply to cc psi 07-plr-124594-01 date date legend taxpayer corporation a corporation b date x y dear we received letters dated date and date from taxpayer’s authorized representative requesting permission for taxpayer to revoke its election under sec_41 of the internal_revenue_code this letter responds to that request taxpayer is an accrual basis taxpayer and the common parent of an affiliated_group of companies on date corporation a completed a merger with corporation b it is represented that this constituted a reverse_acquisition under sec_1_1502-75 of the income_tax regulations corporation a was renamed taxpayer and corporation b became a wholly-owned subsidiary of taxpayer prior to its acquisition by corporation a corporation b was a calendar_year taxpayer for the taxable_year ending on x corporation b elected to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 corporation a had not elected to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 however by reason of the reverse_acquisition it is represented that taxpayer was deemed to have made the sec_41 election before the due_date of its return including extensions for the taxable_year ending on y taxpayer submitted a request to revoke its election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred on or after the taxable_year ending on y and all subsequent taxable years for taxable years beginning after date taxpayers may elect to determine their research_credit under the alternative_incremental_research_credit rules of sec_41 sec_41 provides that any election under sec_41 shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary based solely on the facts submitted and representations made we grant permission for taxpayer to revoke its election to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred during the taxable_year ending on y taxpayer should compute its credit for increasing research expenses for the taxable_year ending on y and all succeeding taxable years using the general_rule of sec_41 provided that taxpayer does not make a new election to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures taxpayer treated as qualified_research_expenses 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant 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 sincerely leslie h finlow chief branch associate chief_counsel passthroughs special industries