tom reed petitioner v commissioner of internal revenue respondent docket no 27604-11l filed date p failed to file federal_income_tax returns timely for years through p subsequently submitted delinquent returns but failed to fully satisfy the outstanding tax liabil- ities p submitted two separate offers-in-compromise oics to settle the outstanding tax_liabilities r rejected the first oic r returned the second oic r issued a final notice_of_intent_to_levy p requested a collection_due_process_hearing collec- tion hearing p raised issues during the collection hearing regarding r’s handling of the two oics and requested that the returned oic be reopened r concluded that he did not have the authority to reopen the returned oic and sustained the final notice_of_intent_to_levy p contends that r abused his discretion in sustaining the final notice_of_intent_to_levy p argues that r abused his discretion by concluding that he lacked the authority to reopen an oic based on doubt as to collectibility that r returned to p years before the collection hearing commenced r argues this court lacks jurisdiction to determine whether he abused his discretion because p pro- posed no new oic during the collection hearing r further argues that this court lacks jurisdiction because p has no judicial review rights relating to r’s rejecting or returning an oic held this court has jurisdiction to determine whether r abused his discretion in sustaining the final notice_of_intent_to_levy held further r cannot be required to reopen an oic based on doubt as to collectibility that r returned to p years before the collection hearing commenced held further r did not abuse his discretion in sustaining the final notice_of_intent_to_levy verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie reed v commissioner george w connelly jr heather m pesikoff and renesha n fountain for petitioner david baudilio mora and gordon p sanz for respondent opinion kroupa judge this collection review matter is before the court because petitioner challenges a determination notice see sec_6330 respondent issued the determination notice sustaining a final notice_of_intent_to_levy proposed levy action the primary issue we are asked to decide is whether respondent abused his discretion in sustaining the proposed levy action we hold he did not determining whether respondent abused his discretion requires us to first consider three questions two of these questions involve well-trodden areas of law the remaining question involves an issue of first impression that question is can respondent be required to reopen an offer-in-com- promise oic based on doubt as to collectibility that he had returned to petitioner as unprocessable years before a collec- tion due process hearing collection hearing commenced we hold that respondent cannot be required to reopen an oic based on doubt as to collectibility that he had returned to petitioner as unprocessable years before the collection hearing commenced background some of the facts have been stipulated and are so found the stipulation of facts and its accompanying exhibits are all section references are to the internal_revenue_code in effect at all relevant times this question concerns the interaction of sec_7122 and sec_6330 and the consequences that flow from the commissioner’s rejecting an oic versus his returning an oic the court previously addressed a different question on similar facts see lloyd v commissioner tcmemo_2008_15 the court at first had difficulty deciphering the taxpayer’s exact argument in lloyd the court ultimately concluded however that the taxpayer in lloyd was arguing that an appeals officer abused his discretion in failing to use the taxpayer’s reasonable collection potential as calculated in con- nection with an earlier returned oic petitioner here on the other hand argues respondent abused his discretion by concluding in the determina- tion notice that he lacked the authority to reopen an oic based on doubt as to collectibility that he had returned to petitioner as unprocessable years before the collection hearing commenced verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie united_states tax_court reports incorporated by this reference petitioner resided in texas at the time he filed the petition petitioner failed to file federal_income_tax returns timely for years through years at issue petitioner eventually filed returns for the years at issue delinquent returns but did not fully satisfy his liabilities for the taxes penalties and interest arising from the delinquent returns outstanding tax_liabilities petitioner subsequently sub- mitted two separate oics to settle his outstanding tax liabil- ities a the offer petitioner first submitted an oic in offer to respondent’s houston offer_in_compromise unit offer unit respondent determined the outstanding tax_liabilities at the time petitioner submitted the offer to be more than dollar_figure petitioner proposed in the offer to settle his outstanding tax_liabilities for dollar_figure which was less than of the outstanding tax_liabilities based on doubt as to collectibility the offer unit concluded respondent could reasonably collect more from petitioner than petitioner had proposed to pay in the offer accordingly the offer unit proposed that the offer be rejected petitioner appealed the proposed rejection to the internal_revenue_service appeals_office in houston texas houston appeals houston appeals determined that petitioner had received dollar_figure from a real_estate sale in houston appeals further determined that petitioner used a small por- tion of the real_estate proceeds to pay business_expenses and lost the remaining proceeds through high-risk day trading in the stock market houston appeals therefore found that peti- tioner had dissipated the real_estate proceeds with inten- tional disregard for his outstanding tax_liabilities houston appeals included the dissipated real_estate proceeds in the calculation of an acceptable offer amount and sustained the offer unit’s decision to reject the offer petitioner and respondent have stipulated that the years giving rise to the underlying federal_income_tax liabilities span through we note however that each of the oics petitioner submitted included as well the underlying federal_income_tax liabilities are not presently at issue accordingly we merely note this discrepancy the contents of the delinquent returns are not presently at issue verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie reed v commissioner b the offer petitioner next submitted an oic to the offer unit in offer the offer proposed settling the outstanding tax_liabilities which exceeded almost one-half million dol- lars for dollar_figure based on doubt as to collectibility the offer unit determined that petitioner had failed to demonstrate he was in compliance with his federal_income_tax obligations at the time he submitted the offer the offer unit returned the offer to petitioner as unprocessable peti- tioner then exchanged several letters with the offer unit petitioner attempted through the letter exchange to have the offer unit reconsider its returning the offer to this end petitioner argued that he was in fact in compliance with his federal_income_tax obligations at the time he submitted the offer petitioner also argued in the letter exchange that he should be given the opportunity to become compliant if in fact he was not at the time he submitted the offer petitioner continued to make payments during the pendency of the letter exchange consistent with the offer the letter exchange ultimately failed however to convince the offer unit to alter its decision to return the offer to peti- tioner c the collection_due_process_hearing respondent subsequently issued a final notice_of_intent_to_levy levy notice for the years at issue petitioner timely requested a collection hearing settlement officer liana a white so white at houston appeals was assigned to con- duct the collection hearing the relevant issues petitioner raised at the collection hearing involved the manner by which respondent had handled the offer and the offer so white issued the determination notice in late sustaining the proposed levy action petitioner timely filed the petition the distinction between a rejected oic and a returned oic is impor- tant as we later explain briefly a taxpayer has the right to administra- tively appeal the commissioner’s rejecting an oic but has no right to ap- peal the commissioner’s returning an oic verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie united_states tax_court reports discussion we must now decide whether respondent abused his discretion in sustaining the proposed levy action we focus on the manner by which respondent addressed the issues peti- tioner raised during the collection hearing petitioner advances two theories to argue respondent abused his discretion petitioner first attacks so white’s conclusion that she lacked the authority to reopen the offer during the collection hearing see sec_6330 petitioner contends that so white’s conclusion lacks a sound basis in fact or law petitioner next attacks respondent’s rejecting the offer and returning the offer peti- tioner makes several related arguments under this theory the thrust of these arguments is that respondent improperly rejected the offer and improperly returned the offer petitioner argues that respondent abused his discretion in sustaining the proposed levy action in light of these improprieties we first address the scope of our jurisdiction because respondent argues we lack jurisdiction we next address the standard of our review we then address each of petitioner’s theories and its related arguments in turn a scope of jurisdiction we now review the scope of our jurisdiction the tax_court is a court of limited jurisdiction sec_7442 85_tc_527 we may exercise jurisdiction only to the extent expressly authorized by congress 127_tc_109 questions of juris- diction are fundamental and must be addressed whenever it appears this court may lack jurisdiction 35_tc_177 we have jurisdiction to determine whether we have jurisdiction stewart v commissioner t c pincite respondent argues this court lacks jurisdiction because petitioner proposed no new oic during the collection hearing and the court therefore has nothing to consider respondent also argues this court lacks jurisdiction because petitioner has no right of judicial review of respondent’s rejecting the offer or returning the offer we are perplexed by the arguments that respondent raises as they appear to miss verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie reed v commissioner the thrust of the theories petitioner advances moreover it is fundamental that we have jurisdiction in collection matters if the commissioner issues a determination notice and a tax- payer timely files a petition see 114_tc_604 114_tc_176 both conditions apply here accordingly we have jurisdiction to review the determination so white made to sustain the proposed levy action sec_6330 114_tc_492 b standard of review we now focus on the standard we apply in determining whether respondent abused his discretion petitioner does not argue the validity of his outstanding tax_liabilities accordingly we review the determination sustaining the pro- posed levy action for abuse_of_discretion sego v commis- sioner t c pincite goza v commissioner t c pincite we must therefore decide whether respondent acted in a manner that was arbitrary capricious or without a sound basis in fact or law 125_tc_301 aff ’d 469_f3d_27 1st cir c authority to reopen the offer we now address petitioner’s contention that so white had the authority to reopen the offer during the collection hearing so white proposed during the collection hearing a collection alternative based on petitioner’s then-current financial data petitioner rejected the collection alternative so white proposed petitioner argued that so white had to instead reopen the offer and apply the payments peti- tioner made during the pendency of his letter exchange with the offer unit toward the offer so white concluded that she lacked authority to reopen the offer petitioner con- tends so white’s conclusion has no sound basis in fact or law and therefore respondent abused his discretion peti- tioner urges us to so find because reopening the offer would permit respondent to treat petitioner as having met his payment obligations under the offer and doing so would seemingly extinguish his outstanding tax_liabilities as he paid the amount he offered to pay in the offer verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie united_states tax_court reports this issue of first impression concerns the interaction of sec_7122 and sec_6330 and the consequences that flow from the commissioner’s rejecting an oic versus his returning an oic we begin by reviewing the authority congress granted to the commissioner to compromise unpaid tax_liabilities see sec_7122 we then turn to whether the commissioner can exercise this compromise authority in the context of a collection hearing see sec_6330 sec_7122 we first look to the commissioner’s authority to com- promise an unpaid tax_liability the commissioner is required to collect all federal_income_tax liabilities sec_6301 the commissioner has discretion however to com- promise an unpaid tax_liability sec_7122 the pertinent regulations set forth doubt as to collectibility as one of three grounds for compromising an unpaid tax_liability sec_301_7122-1 proced admin regs doubt as to collect- ibility exists where a taxpayer’s assets and income are less than the taxpayer’s unpaid tax_liability id sec_6330 we now turn to the commissioner’s exercise of this com- promise authority in the context of a collection hearing a taxpayer has a right to a collection hearing with an appeals officer before the commissioner can levy on the taxpayer’s property sec_6330 the appeals officer may consider an oic proposed during a collection hearing sec_6330 a taxpayer must propose an oic for it to be considered during the collection hearing see sullivan v commissioner tcmemo_2009_4 godwin v commissioner tcmemo_2003_289 aff ’d 132_fedappx_785 11th cir interaction of sec_7122 and sec_6330 we now address whether the commissioner can be required to reopen an oic based on doubt as to collectibility that he returned to a taxpayer years before a collection hearing commenced petitioner urges us to adopt the theory that respondent can be required to do so see sec_6330 we decline to adopt petitioner’s theory for two reasons verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie reed v commissioner first adopting the theory petitioner advances would impermissibly expand the commissioner’s authority to com- promise an unpaid tax_liability the commissioner must evaluate an oic proposed during a collection hearing according to his authority to compromise an unpaid tax_liability see sec_6330 sec_7122 136_tc_475 aff ’d 502_fedappx_1 d c cir here petitioner requested in that respondent consider the offer based on doubt as to collectibility taxpayers must submit current financial data when pro- posing an oic based on doubt as to collectibility see sul- livan v commissioner tcmemo_2009_4 godwin v commissioner tcmemo_2003_289 the theory petitioner advances would impermissibly expand the commissioner’s authority by allowing the commissioner to evaluate an oic based on doubt as to collectibility using a taxpayer’s past financial circumstances see sec_7122 see eg internal_revenue_manual irm pt date finan- cial data should be no more than six months old irm pt date same presently for example petitioner’s theory would have allowed petitioner to effectively propose an oic based on doubt as to collectibility in using his financial data from respondent in turn would be forced to evaluate the oic based on doubt as to collectibility using financial data that only by mere chance reflects petitioner’s then-current financial circumstances and second adopting the theory petitioner advances would substantially interfere with the statutory scheme congress created taxpayers may currently seek administrative review of the commissioner’s rejecting an oic sec_7122 tax- payers currently have no right however to seek review of the commissioner’s returning an oic sec_301 f ii proced admin regs the theory petitioner advances would in effect create additional layers of adminis- trative and judicial review of the commissioner’s returning an oic before a collection hearing commences see sec_6330 petitioner’s theory would not create analogous layers of review however for the commissioner’s returning an oic after a collection hearing concludes see id whether a tax- payer may access these new layers of review would therefore depend on when the commissioner returns an oic peti- verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie united_states tax_court reports tioner offers no and we can find no reasonable explanation for such disparate treatment based only on when the commissioner returns an oic d rejecting the offer we now turn to respondent’s rejecting the offer peti- tioner submitted the offer based on doubt as to collect- ibility an oic based on doubt as to collectibility is accept- able if it reflects the taxpayer’s reasonable collection poten- tial rcp murphy v commissioner t c pincite revproc_2003_71 sec_4 2003_2_cb_517 an oic will generally be rejected if the rcp meets or exceeds the amount offered in the oic irm pt date the value of dissipated assets may be included in a tax- payer’s rcp see tucker v commissioner tcmemo_2011_67 aff ’d 676_f3d_1129 d c cir irm pt dollar_figure date so white reviewed the account transcripts and other information in respondent’s files relating to respondent’s rejecting the offer so white determined that houston appeals had rejected the offer based on its finding that petitioner received and dissipated approximately dollar_figure from the real_estate sale in so white determined that houston appeals had properly included the dissipated real_estate proceeds in the calculation of an acceptable offer amount so white further determined that respondent’s rejecting the offer was proper based on a reasoned anal- ysis of the facts before her accordingly respondent did not abuse his discretion in sustaining the proposed levy action in light of his rejecting the offer e returning the offer we now turn to respondent’s returning the offer the commissioner has an established policy of requiring tax- payers to be in compliance with current filing and estimated_tax payment requirements to be eligible for collection alter- moreover it appears that petitioner may have been precluded from even raising this issue at the collection hearing in because it was raised and considered at the administrative hearing on petitioner’s appeal of the rejection of the offer see sec_6330 129_tc_58 respondent does not raise this argument however and we therefore need not decide this issue verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie reed v commissioner natives see otto’s e-z clean enters inc v commissioner tcmemo_2008_54 accordingly the commissioner does not abuse his discretion by returning an oic based on a tax- payer’s obligations scharringhausen v commissioner tcmemo_2008_26 citing 461_f3d_610 5th cir to meet current failure tax so white reviewed the files and transcripts pertaining to and so white testified and the record confirms that petitioner was required to pay an addition_to_tax for failure to pay estimated_tax for so white found this addition_to_tax arose from petitioner’s failure to meet his cur- rent estimated_tax obligations at the time he submitted the offer for consideration so white determined that respondent’s returning the offer was proper based on a reasoned analysis of the facts before her accordingly respondent did not abuse his discretion in sustaining the pro- posed levy action in light of his returning the offer f conclusion petitioner did not raise any other meritorious challenges to so white’s determination to sustain the proposed collection action nor did petitioner otherwise introduce any credible_evidence or persuasive arguments that would convince us that so white acted in a manner that was arbitrary capri- cious or without a sound basis in fact or law the record reflects that so white verified that respondent satisfied all applicable legal and administrative require- ments considered all relevant issues petitioner raised and balanced the intrusiveness of the proposed collection actions against the need for effective tax collection see sec_6330 we therefore conclude so white did not abuse her discretion by sustaining the proposed collection action we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent f verdate mar feb jkt po frm fmt sfmt v files boundv wit bvacdb reed jamie


t c summary opinion united_states tax_court debra sue tussey petitioner v commissioner of internal revenue respondent docket no 2777-02s filed date debra sue tussey pro_se donald e edwards for respondent dean special_trial_judge this case was heard under the provisions of sec_7463 of the internal_revenue_code as in effect at the time the petition was filed unless otherwise indicated all other section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner's federal_income_tax of dollar_figure for petitioner failed to address in the petition or at trial the adjustment for unreported interest_income of dollar_figure and the issue is therefore conceded rule b the parties agree that petitioner is entitled to a child_tax_credit of dollar_figure and a hope scholarship credit of dollar_figure the issues remaining for decision are whether the entire amount of a distribution from petitioner's individual_retirement_account ira should be included in income whether petitioner is liable for the 10-percent additional tax on an early distribution from a qualified_retirement_plan and whether the internal_revenue_service irs misled petitioner and if so what is the effect of the action on this case the stipulated facts and exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in stillwater oklahoma background in may of petitioner graduated from nursing school petitioner had an ira with new york life_insurance and annuity corporation ny life her ira was a qualified_retirement_plan under sec_4974 during when petitioner was not yet years old she received a dollar_figure lump-sum_distribution from her ira she used at least dollar_figure of the distribution to buy her first house ny life issued to petitioner a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc showing a gross and taxable_distribution of dollar_figure petitioner has since received a corrected form 1099-r showing her distribution amount to have been dollar_figure petitioner attached the original form 1099-r she received from ny life to her federal_income_tax return for she reported on line 10a of the return total ira_distributions of dollar_figure and on line 10b a taxable_amount of dollar_figure petitioner did not report on her federal_income_tax return a 10-percent additional tax on an early distribution from a retirement_plan petitioner received a statutory notice dated date determining a deficiency of dollar_figure petitioner received from the irs a letter dated date stating that her account had been changed and that the amount she now owed was none a transcript of account for petitioner's tax_year shows that additional tax of dollar_figure was assessed on date and subsequently abated on date discussion petitioner argues that her tax treatment of the ira distribution follows the advice she received over the telephone from one or more irs employees she further argues that the date letter she received stating that the amount she owed for was none should mean that she does not owe any additional tax respondent concedes that dollar_figure of the money that petitioner used to buy a house qualifies under sec_72 and b for exclusion from the additional tax on early distributions from a qualified_retirement_plan respondent contends however that the entire distribution must be included in income and that the amount of the distribution in excess of dollar_figure is subject_to the additional 10-percent tax on early distributions from qualified_retirement_plans as to the letter of date respondent's position is that the letter was generated due to an abatement of the premature assessment of the deficiency in this case and has no legal significance here as there are no factual issues in dispute in this case sec_7491 is not implicated petitioner testified that unnamed irs employees told her that if her ira_distributions were used for the purchase of a new home they were not taxable and there would be no penalties whether or not petitioner was given incorrect advice by irs personnel bad advice is not binding on the commissioner 49_f2d_111 4th cir affg 19_bta_337 41_tc_316 affd 353_f2d_429 3d 1under certain circumstances however erroneous written advice may be grounds for abatement of the portion of any penalty or addition_to_tax attributable to the erroneous advice sec_6404 cir bagnell v commissioner tcmemo_1993_378 the court cannot disregard statutory terms even when the result in a particular case seems harsh ins v pangilinan 486_us_875 736_f2d_1168 7th cir affg 80_tc_783 the court will follow the statutory provisions governing the issue in this case with exceptions not applicable here any amount distributed from an ira must be included in income by the distributee as provided by sec_72 sec_408 therefore the entire ira distribution2 petitioner received in is includable in her income for the year in addition sec_72 provides that if a taxpayer receives any amount from a qualified_retirement_plan the taxpayer's tax shall be increased by an amount equal to percent of the portion of such amount which is includible in gross_income there is an exception to the additional tax required by sec_72 in the case of qualified first-time_homebuyer distributions sec_72 the maximum amount of a distribution that may be treated as a qualified_first-time_homebuyer_distribution however is dollar_figure sec_72 any amount of a distribution that petitioner received in exce sec_2for purposes of sec_72 all ira_distributions during the year are treated as one distribution sec_408 of dollar_figure remains subject_to the 10-percent additional tax required by sec_72 see id petitioner suggested during her testimony that she should be relieved from additional tax_liability because the irs sent her a letter after she had received the notice_of_deficiency saying that she owed no tax for the letter was not an agreement to rescind the notice_of_deficiency sec_6212 revproc_98_54 1998_2_cb_529 congress has provided that closing agreements under sec_7121 and compromise agreements under sec_7122 are the exclusive means by which the irs can administratively settle civil tax disputes with finality see 278_us_282 58_tc_69 see also 444_f2d_530 6th cir affg per curiam tcmemo_1970_212 the record is devoid of any evidence that petitioner and respondent entered into either a valid closing or compromise_agreement the evidence in the record indicates that there was a premature assessment of the proposed dollar_figure deficiency that was abated the abatement prompted the issuance of the letter stating that no tax was due the proposed deficiency may not properly be assessed until our decision in this case has become final see sec_6211 sec_6212 and sec_6213 reviewed and adopted as the report of the small_tax_case division under rule decision will be entered


t c memo united_states tax_court estate of dorothy morganson schauerhamer deceased karl c dean personal representative petitioner v commissioner of internal revenue respondent docket no filed date owen g fiore and john f ramsbacher for petitioner g michelle ferreira and kimberley j peterson for respondent memorandum findings_of_fact and opinion foley judge by notice_of_deficiency dated date respondent determined a dollar_figure deficiency in petitioner's estate_tax and a dollar_figure accuracy-related_penalty for negligence unless otherwise indicated all section references are to the internal_revenue_code in effect as of the date of the decedent's death and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues we must decide are as follows whether pursuant to sec_2036 the value of certain assets transferred to family partnerships is includable in the decedent's gross_estate we hold that it is whether petitioner pursuant to sec_6662 is liable for the accuracy-related_penalty for negligence we hold it is not findings_of_fact some of the facts have been stipulated and are so found at the time of her death on date dorothy schauerhamer decedent resided in salt lake city utah at the time the petition was filed petitioner's personal representative had a mailing address in salt lake city utah decedent and her husband willard schauerhamer had three adult children david schauerhamer diane liddiard and sandra bradshaw and jointly managed economy builders supply inc a closely_held_corporation engaged in the sale of building materials after willard's death in decedent took control of the business she also managed several rental properties in late november of decedent was diagnosed with colon cancer in early december of that year she retained an attorney travis bowen to set her business affairs in order mr bowen in consultation with decedent prepared an estate plan on date decedent along with her three children and their spouses met with mr bowen at his office mr bowen explained that three family limited_partnerships would be formed and that david sandra and diane would each become a general_partner in a partnership he explained that after the limited_partnerships were formed decedent's business holdings would be transferred to the partnerships with each partnership receiving an undivided one-third interest in the transferred assets he further advised that after the partnerships were formed and funded decedent would transfer limited_partnership interests to her children and their family members on date three substantially identical limited_partnership agreements were executed the certificates of limited_partnership were filed with the utah department of commerce on date the partnership agreements set forth numerous terms and covenants with respect to the partnerships pursuant to the partnership agreements david and decedent were the general partners in the david m schauerhamer family limited_partnership diane and decedent were the general partners in the diane kay liddiard family limited_partnership and sandra and decedent were the general partners in the sandra gayle bradshaw family limited_partnership each partnership_agreement also named decedent as the limited_partner in addition decedent was named the managing partner of each partnership the partnership agreements provided that decedent in her capacity as managing partner had full power to manage and conduct the partnership's business operation in its usual course from the time the partnerships were formed until shortly before decedent's death she managed the partnership assets the partnership agreements included provisions relating to capital contributions allocation_of_profits_and_losses partnership records management responsibilities and powers admission of new partners partnership dissolution and liquidation and agency relationships among partners the partnership agreements provided that decedent would contribute dollar_figure for her 1-percent interest as a general_partner and dollar_figure for her 95-percent interest as a limited_partner each of decedent's children was required to contribute dollar_figure for a 4-percent general_partner interest on date and on date decedent transferred some of her business_assets in undivided one-third shares to the partnerships the assets included real_estate partnership interests and notes receivable the assets transferred and their values as of the date of decedent's death were as follows assets transferred value ho ho gourmet restaurant building dollar_figure southwick motor company building economy builders supply building cambridge south subdivision lot alpine utah lot kern county california east south property 5-percent interest in economy land rentals partnership 15-percent interest in redwood village apartments partnership 5-percent interest in schauerhamer family limited_partnership note receivable from david schauerhamer and warren bradshaw notes receivable from economy builders supply inc assets transferred airport system refunding revenue bond intermountain power agency supply revenue bonds big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number value dollar_figure big_number also on date decedent executed documents ie relating to each of the three partnerships entitled assignment of interest in limited_partnership each assignment stated that a dollar_figure interest in the partnership was being assigned on date decedent executed an additional assignments of partnership interests ie relating to each of the three partnerships in the amount of dollar_figure each all assignments were made to family members the partnership agreements each required that all income from the partnership be deposited into a partnership account shortly after the partnerships were formed each partnership's initial capital was deposited into partnership bank accounts decedent deposited into an account jointly held by her and david all partnership income and income from other sources she did not maintain any records to account separately for partnership and nonpartnership funds decedent utilized the account as her personal checking account and from this account she paid personal and partnership expenses decedent's executor filed form_706 united_states estate and generation-skipping_transfer_tax return dated date on that return the estate did not include in the gross_estate the value of the dollar_figure limited_partnership interests decedent had assigned to family members the estate did however include the value of the remaining partnership interests the amounts included were based on advice from competent tax professionals and a property appraisal company in the notice_of_deficiency issued to petitioner respondent determined a dollar_figure deficiency and a dollar_figure accuracy-related_penalty for negligence the deficiency was based on respondent's determination that the value of the assets contributed to the partnerships was includable in decedent's gross_estate the deficiency was also based on a determination that petitioner had undervalued certain assets the petition in this case was filed on date opinion as a preliminary matter the parties disagree as to whether decedent owned at the time the partnerships were funded a property located pincite east south with a stipulated date- of-death value of dollar_figure respondent determined that decedent owned the property and petitioner therefore bears the burden of proving otherwise rule a the documentation petitioner has presented is inadequate to satisfy petitioner's burden_of_proof as a result we conclude that decedent owned the east south property at the time the partnerships were funded respondent contends that the value of the assets transferred to the purported partnerships is includable in decedent's gross_estate pursuant to sec_2033 sec_2036 or sec_2038 we conclude that the value of the assets is includable pursuant to sec_2036 as a result we do not address sec_2033 and sec_2038 sec_2036 provides that a decedent's gross_estate includes the value of all property interests transferred other than for full_and_adequate_consideration_in_money_or_money's_worth by a decedent during her life where she has retained for life the possession or enjoyment of the property or the right to the income from the property the term enjoyment refers to the economic benefits from the property 65_tc_296 affd 547_f2d_32 2d cir thus enjoyment as used in the death_tax statute is not a term of art but is synonymous with substantial present economic benefit mcnichol's 265_f2d_667 3d cir affg 29_tc_1179 retained enjoyment may exist where there is an express or implied understanding at the time of the transfer that the transferror will retain the economic benefits of the property 437_f2d_1148 4th cir 73_tc_82 the understanding need not be legally enforceable to trigger sec_2036 estate of rapelje v commissioner supra the retention of a property's income stream after the property has been transferred is very clear evidence that the decedent did indeed retain 'possession or enjoyment ' 62_tc_861 whether there was an implied agreement is a question of fact to be determined with reference to the facts and circumstances of the transfer and the subsequent use of the property id pincite the facts of this case establish that an implied agreement existed among the partners decedent owned the assets subsequently transferred to the partnerships and collected the income these assets generated on date decedent formed the partnerships and contributed some of her business holdings the partnership agreements required that each partnership maintain a bank account and that all income from the partnerships be deposited into these accounts after the formation of the partnerships a partnership bank account was opened in the name of each partnership and each partnership's dollar_figure of initial capital was deposited into the account as the partnerships earned_income however decedent in violation of the partnership agreements did not deposit the income into the partnership accounts instead she deposited the income into the account she utilized as her personal checking account where it was commingled with income from other sources such deposits of income from transferred property into a personal account are highly indicative of possession or enjoyment id sharlet schauerhamer david's wife diane and sandra testified at trial that they were aware that decedent was depositing the funds into her personal rather than a partnership account moreover they acknowledged that the formation of the partnerships was merely a way to enable decedent to assign interests in the partnership assets to members of her family the assets and income would be managed by decedent exactly as they had been managed in the past where a decedent's relationship to transferred assets remains the same after as it was before the transfer sec_2036 requires that the value of the assets be included in the decedent's gross_estate guynn v united_states supra estate of hendry v commissioner supra pincite petitioner contends that decedent did not spend any of the partnership funds for her personal benefit petitioner bases this contention on bank statements relating to the account and the testimony of richard haynie decedent's accountant neither is adequate to support petitioner's contention the bank statements indicate that on the date of decedent's death the balance in the account exceeded the partnership income that she had deposited there is no evidence however to establish that she did not spend the partnership income and later deposit income from other sources in addition mr haynie testified that decedent did not spend partnership funds for her personal benefit his testimony which was apparently based on his review of the bank statements and not any personal independent knowledge fails to establish petitioner's contention as a result the value of the partnership assets is includable in decedent's gross_estate pursuant to sec_2036 sec_6662 imposes an accuracy-related_penalty in an amount equal to percent of the portion of any underpayment to which the section applies the section applies to among other items the portion of an underpayment attributable to negligence or disregard of rules or regulations sec_6662 negligence has been defined as the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 it includes the failure to make a reasonable attempt to comply with the internal_revenue_code sec_6662 respondent contends that petitioner understated the value of decedent's gross_estate petitioner contends that it relied on professional accountants attorneys and appraisers in preparing the returns in essence petitioner contends that any understatements of tax were in good_faith and due to reasonable_cause see sec_6664 the regulations state that whether an underpayment_of_tax is made in good_faith and due to reasonable_cause will depend upon the facts and circumstances of each case sec_1_6664-4 income_tax regs reliance on the advice of a professional will constitute good_faith and reasonable_cause only where such reliance was reasonable id we conclude that petitioner acted reasonably and in good_faith in relying on the advice of tax professionals and property appraisers as a result petitioner is not liable for the accuracy-related_penalty for negligence we have considered all other arguments made by the parties and found them to be either irrelevant or without merit to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date uil legend county dear contact person contact's identification_number telephone number employer_identification_number we have considered your representative’s letter requesting approval of your scholarship grant procedures under sec_4945 of the internal_revenue_code code facts a private_foundation under sec_509 you have been recognized as an organization described in sec_501 of the code and your college scholarship grants classified as grantees will be program will be for graduating seniors of all the high schools in county a committee of individuals on the basis of pertinent criteria such as grade selected by all transcripts test scores activities personal statements and interviews the selection of scholarship recipients will be on an objective and nondiscriminatory basis you have stated that eligible for no disqualified_person as defined in sec_4946 with respect to you will consideration your donors will not be allowed to designate scholarship recipients or other the grants will provide money for tuition and may pay for other educational grantees expenses of attending college you stated that there will be approximately eligible students each year you intend initially to grant to scholarships per year you may at your discretion make a scholarship loan rather than a scholarship grant but will do so in the same procedural manner be if a scholarship is awarded to a student enrolled in a medical school described in sec_170 of the code such scholarship may cover up to the entire amount of the recipient’s tuition board room books supplies travel costs and incidental_expenses consistent with your scholarship procedures as a condition of such medical scholarship a recipient must a number of years equal to the duration of the agree to practice medicine in county for scholarship he or she receives from you you will pay the grants or loans directly to educational institutions described in sec_170 in the manner provided by sec_53_4945-4 of the foundation and similar you have established procedures for retention of excise_tax regulations regulations records annual reports and supervision and investigation rulings requested you have requested us to rule that your scholarship procedure meets sec_4945 of the code that scholarship grants awarded by you pursuant to your scholarship grant procedure will not be taxable_expenditures under sec_4945 and that your scholarship administration satisfies the requirements for supervision and investigation in sec_53_4945-4 of the regulations law sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or educational_purposes sec_509 of the code provides that certain organizations exempt from federal_income_tax under sec_501 are private_foundations subject_to the provisions of chapter of the code sec_4941 of the code in general provides for excise_tax on and requires correction of any use of a private foundation’s assets for the benefit of any disqualified_person as defined in sec_4946 sec_4945 of the code imposes excise_tax on a private foundation's making of any taxable_expenditure as defined in pertinent part by sec_4945 and sec_4945 sec_4945 of the code provides that a taxable_expenditure includes an amount_paid by a private_foundation as a grant to an individual for study or other similar purposes by such individual unless the grant meets the requirements under sec_4945 of the code for approval in advance by the service sec_4945 of the code provides that a taxable_expenditure under sec_4945 does not include any grant to an individual for study if the grant is made under a procedure approved in advance by the service constitutes a scholarship under sec_117 of the code as in effect on the day before the tax reform act of date and is to be used for study at an educational_organization described in sec_170 sec_4945 of the code provides that subsection d shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if is demonstrated to the satisfaction of the secretary that--the purpose of the grant is to achieve a specific objective produce a report or other similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee it sec_4946 of the code indicates a substantial_contributor a director a manager of the private_foundation further sec_4946 provides that a disqualified_person includes the family of a disqualified_person a disqualified_person is officer part that an or in defined grandchildren and spouses of children grandchildren and great grandchildren under sec_4946 including spouse ancestors children grandchildren great sec_53_4945-4 of the regulations provides that if by the 45th day after a request for approval of grant procedures has been properly submitted to the internal_revenue_service the private_foundation has not been notified that its grant-making procedures are not acceptable its grant-making procedures shall be considered as approved from the date of submission of its request for approval until receipt of actual notice from the internal_revenue_service that such procedures do not meet the requirements of sec_4945 of the code sec_53_4945-4 of the regulations requires that grantees under sec_4945 of the code must be selected on an objective and non-discriminatory basis the group of eligible grantees must be broad enough to enable the giving of the grants to achieve an exempt_purpose the criteria for selection of grantees must be related to the exempt_purpose of the grant the persons selecting the grantees must not be in a position to derive a private benefit directly or indirectly if certain potential grantees are selected over others sec_53_4945-4 of the regulations provides that at least once per year the private_foundation must obtain a reporting verified by the educational_institution on the grantee's progress for each academic period sec_53_4945-4 of the regulations provides that if grantee reports submitted or other information including failure to submit reports indicate that any part of a grant is not being used for purposes of the grant the grantor foundation is under a duty to investigate and while conducting its investigation must withhold further payments the grantor's reasonable steps to recover misused grant funds must include legal action where appropriate unless legal action would not in all probability result in satisfaction of execution on the judgment sec_53_4945-4 of the regulations provides that the annual report under sec_53_4945-4 and the duty to investigate under sec_53_4945-4 of the regulations can also be met if the grantor pays the scholarship grant under sec_4945 of the code to the grantee's educational_institution which agrees to use the grant funds only if the grantee is enrolled at such educational_institution and the grantee's standing is consistent with the purposes and conditions of the grant sec_53_4945-4 of the regulations provides that the grantor private_foundation must retain adequate_records on all of its grants to individuals for study or similar purposes under sec_4945 of the code such records include all information which the foundation secures to evaluate the qualifications of potential grantees identification of all grantees including any relationship of a grantee to the grantor foundation sufficient to assure that such grantee is not a disqualified_person under sec_4946 specification of the amount and purpose of each grant and the follow-up information which the grantor obtains from the grantees under sec_53 c and c cited above revrul_77_44 1977_1_cb_355 indicates that a scholarship grant to a grantee who makes a moral commitment to perform service in a particular area after graduation is a grant to further an exempt_purpose under sec_4945 of the code rather than sec_4945 and that such grant is not excludable from income under sec_117 analysis conclusion based upon the information you submitted as to your scholarship grants to nonmedical school students and assuming that your program will be conducted as proposed with a view to providing objectivity and nondiscrimination in that your procedures in the awarding of such scholarship grants comply with the requirements of sec_4945 of the code expenditures made in accordance with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code the awarding of grants we rule based on the information you submitted as to your possible scholarship grants to medical school students who intend to practice in county and assuming that your program will be conducted as proposed with the awarding of grants we rule that your procedures in the awarding of such scholarship grants comply with the requirements of sec_4945 of the code expenditures made in accordance with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 or sec_4945 a view to providing objectivity and nondiscrimination in similarly we rule that your scholarship loans if any made instead of or in addition to your scholarship grants under the same scholarship procedures approved above comply with the requirements of sec_4945 of the code and thus such scholarship loans made in will accordance taxable_expenditures within the meaning of sec_4945 or sec_4945 scholarship procedures constitute approved your with not in reply to your other specific rulings requested we rule with respect to the both nonmedical and medical scholarships that as so provided by sec_53_4945-4 of the regulations your payment of grants or loans directly to the educational institutions in the manner described in that sec_53_4945-4 will satisfy the supervision requirement of sec_53_4945-4 and the investigation and recovery requirement of sec_53_4945-4 this ruling letter is conditioned on the understanding that there will be no material_change in the facts upon which it is further conditioned on the premise that no grants will be made to your organization's creators officers directors trustees or members or spouses of the selection committee or for any purpose inconsistent with the purposes described in sec_170 of the code is based it this approval of your grant-making procedures is a one-time approval of your system of standards and procedures for selecting recipients of grants that meets the requirements of sec_4945 of the code as to nonmedical school grants and sec_4945 as to any grants to attend medical school with a moral commitment to practice as a doctor in the county this approval will apply to succeeding grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in this request this ruling will be made available for public inspection under sec_6110 of the code after for details see enclosed notice a copy of this ruling with deletions which we intend to make if you disagree with our proposed certain deletions of identifying information are made notice of intention to disclose available for public inspection is attached to notice deletions you should follow the instructions in notice this ruling letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent because this ruling letter could help to resolve any questions please keep it in your permanent records sincerely ronald j shoemaker manager exempt_organizations technical group enclosure notice


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-119557-98 date date legend x state d1 d2 this responds to your letter dated date and additional information submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholders intended that x be a subchapter_s_corporation effective d2 however an s_corporation_election under sec_1362 was not timely filed sec_1362 provides that a small_business_corporation may elect to be an s_corporation law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one half months of a corporation’s taxable cc dom p si plr-119557-98 year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of its tax_year x’s s_corporation_election was not filed timely for the election to be effective as of its tax_year beginning on d2 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d2 we conclude that x will be recognized as an s_corporation effective as of d2 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d2 with the applicable service_center within days after issuance of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca_2010122009045551 ---------------------------- number release date from ---------------- sent monday date am to --------------------- cc ------------------------- subject re payments on accounts ------------------------ hi ---------- -- revproc_2005_18 provides that a taxpayer may designate a remittance as a sec_6603 deposit by including a written_statement stating type of tax tax_year and amount of and basis for the disputable_tax based on the facts given and the application of revproc_2005_18 the taxpayer's remittances do not satisfy this criteria and are therefore undesignated remittances undesignated remittances are treated as payments of tax as a result the application of the remittance to the ------- deficiency was appropriate the remittances made for ------- and ------- should be treated the same--as payments of tax additionally an undesignated remittance that is treated as a payment of tax may be assessed upon posting to the taxpayer's account see revproc_2005_18 sec_4 therefore the assessment of the ------- liability was also appropriate even if the amount remitted as a payment is not assessed it will be taken into account in determining whether there is a deficiency and whether a notice_of_deficiency should be issued id the facts indicate there was no assessment for ------- and ------- with respect to payments made before the issuance of a notice_of_deficiency the service has the discretion to assess any amounts made as a payment see sec_301_6213-1 the service should assess the amounts characterized as payments of tax for ------- and ------- from the facts it appears that for ------- and ------- there is a deficiency even after the remittances are taken into account as payments of tax under the circumstances a notice_of_deficiency should be issued with respect to the remaining balance this will toll the period of limitations for assessment with respect to the amount shown on the notice_of_deficiency the notice_of_deficiency can also advise that we are denying the taxpayer's protest disallowing her claim_for_refund for the amounts remitted this will grant the taxpayer access to the tax_court for those amounts with respect to any_tax year in which the remittance is insufficient to satisfy the full deficiency_interest and penalty--such as ------- and ---------the principles of revproc_2002_26 applies the amount will be applied to tax penalty and interest in that order until the amount is absorbed if you have any further questions give me a call ------------------- -------------- ----------------------


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 2-plr-116025-98 date date x a date year dear this letter responds to your date ruling_request and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date of year with two wholly-owned subsidiaries a the president of x represents that the shareholders intended for x to elect to be an s_corporation from the date of incorporation x relied on its attorney and accountant to coordinate the preparation and filing of form_2553 election by a small_business_corporation however due to miscommunication the attorney believed that the accountant had prepared form_2553 along with the forms to effect qualified_subchapter_s_subsidiary qsss elections for the two subsidiaries the accountant believed that the attorney had prepared and filed form_2553 with the other incorporation documents timely qsss elections were made for x’s subsidiaries believing that form_2553 had been timely filed x filed form_1120s u s income_tax return for an s_corporation and the shareholders filed form sec_1040 u s individual_income_tax_return consistent with x being an s_corporation for year the service_center informed x that it could not process form_1120s because it had no evidence that a form_2553 had been filed for x sec_1362 of the code provides that if-- a an election under sec_1362 is made for 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 the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year further because x’s s election will be effective for its year taxable_year the qsss elections for x’s two subsidiaries will also be effective for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours j thomas hines senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court estate of harry fagan jr decehased first citizens bank executor petitioner v commissioner of internal revenue respondent docket no filed date maria m lynch for petitioner edwina l charlemagne for respondent memorandum opinion cohen chief_judge respondent determined a deficiency in the federal estate_tax of the estate of harry fagan jr in the amount of dollar_figure the issues for decision are whether the amount included in the gross_estate as a bequest from viola k fagan should be increased to restore amounts incurred for administrative expenses of her estate and whether the amount of the charitable deduction should be reduced by federal estate and state inheritance taxes this case was submitted fully stipulated pursuant to rule unless otherwise indicated all section references are to the internal_revenue_code as in effect as of the date of decedent's death and all rule references are to the tax_court rules_of_practice and procedure the stipulated facts are incorporated herein by this reference harry fagan jr decedent died on date a resident of wake county north carolina the executor of decedent's_estate is first citizens bank the principal office of which was located in raleigh north carolina at the time of the filing of the petition issue bequest from viola k fagan background decedent was predeceased by his mother viola k fagan mrs fagan who died on date a resident of north carolina a portion of her estate passed to decedent under her will pertinent excerpts from mrs fagan's will are as follows article i i desire and direct that all my just debts be paid without unnecessary delay by my co-executors hereinafter named and appointed article ii i direct that all federal_estate_taxes and all costs of administration be paid from the residuary portion of my estate in order that that portion of my estate passing to my son harry fagan jr under article iii of this will will not be diminished because of the payment of federal_estate_taxes i further direct that all state inheritance taxes be assessed against the receiving beneficiary article iii i give and bequeath to my son harry fagan jr one-half of my gross_estate this bequest is not to be diminished because of any federal_estate_taxes which are assessed against my estate but my son is responsible for the payment of his state inheritance taxes from his share article xv all the rest and residue of my property after the payment of federal_estate_taxes shall be divided into two equal shares one share was to be paid to a granddaughter and one share was to be held in trust for a grandson in calculating the amount of mrs fagan's bequest to decedent as reported on her federal estate_tax_return the executor of mrs fagan's estate subtracted administrative expenses dollar_figure and debts dollar_figure from her gross_estate dollar_figure and then multiplied the remaining amount by one- half for a result of dollar_figure respondent determined that the amount included in decedent's gross_estate as the bequest from mrs fagan's estate should be increased by dollar_figure half of the total administrative expenses on the ground that such expenses should not have been deducted in determining the value of the bequest the parties do not dispute the subtraction of the debts from mrs fagan's gross_estate before determining decedent's one- half share discussion generally the value of the gross_estate of a decedent includes the value of all of the decedent's property real or personal tangible or intangible wherever situated to the extent of the decedent's interest therein at the time of death sec_2031 sec_2033 state law determines property interests 309_us_78 thus our decision on this issue involves a determination of decedent's property rights under mrs fagan's will pursuant to the laws of the state of north carolina where the terms of a will are not clear unequivocal and unambiguous it is the responsibility of the courts to interpret the will pittman v thomas n c s e 2d under north carolina law 'the intention of the testator is the polar star which is to guide in the interpretation of all wills and when ascertained effect will be given to it unless it violates some rule_of law or is contrary to public policy ' id quoting clark v connor n c s e 2d in determining a testator's intent the will is to be considered as a whole and in light of the circumstances at the time the will was made id where possible effect is to be given to every clause phrase and word coppedge v coppedge n c s e 2d technical words are presumed to have been used in their technical sense unless the other language of the will evidences a contrary intent in which case the words will be given their ordinary and popular meaning kale v forrest n c s e 2d t he use of particular words clauses or sentences must yield to the purpose and intent of the testator as found in the whole will id petitioner argues that mrs fagan's will is ambiguous in that article ii states that the payment of both administrative costs and federal_estate_taxes is to come from the residue but that the purpose is to not diminish her son's bequest by federal_estate_taxes it is petitioner's position that mrs fagan's intent was to relieve her son's share only of federal_estate_taxes petitioner also points to the second sentence in article iii which reads this bequest is not to be diminished because of any federal_estate_taxes as exonerating the bequest to decedent only from federal estate_tax in addition petitioner argues that mrs fagan did not intend the term gross_estate in article iii in a technical sense but in the sense opposite to that of net estate in other words meaning not reduced by federal estate_tax on the basis of the foregoing petitioner maintains that decedent's share of mrs fagan's estate should be reduced by one-half of the administrative expenses of that estate respondent's position is that the term gross_estate was meant in the technical sense used for federal estate_tax purposes and that mrs fagan intended for decedent to receive one-half of all of the property in which she had an interest at the time of her death the only diminution was that resulting from the instruction in article i to pay her debts respondent points to article ii as clearly stating mrs fagan's intent that her son's share not be decreased by either the federal estate_tax or the administrative costs in that she instructed that those items be paid from the residuary_estate and his portion was a specific_bequest not part of the residue petitioner's interpretation of mrs fagan's will would render void her direction that all costs of administration be paid from the residuary portion of my estate paying the costs out of the residue does not contradict or interfere with the purpose of not diminishing decedent's share by federal_estate_taxes paying such costs out of the residue gives effect to the first sentence of article ii and of article iii although under this construction the term gross_estate does not totally coincide with the term as used on the federal estate_tax_return to wit assets before deduction of debts charging administrative costs to the residue is more consistent with that meaning moreover no language in mrs fagan's will expresses an intent contrary to the use of gross_estate as a technical term the final clause in the first sentence of article ii referring only to estate_taxes and similar limiting language in article iii merely reflect that absent any reference to federal_estate_taxes the burden of such taxes would have been allocated to all the legatees including decedent under the apportionment provision of chapter 28a article of the general statutes of north carolina specific language preventing this consequence with respect to administrative costs was unnecessary because there is no provision of north carolina law apportioning such costs we sustain respondent's position on this issue issue decedent's charitable_bequests background on date decedent executed a will anda trust agreement the trust agreement was between decedent as grantor and first citizens bank as trustee decedent also named first citizens bank as executor of his will in decedent's will he left his automobile to his son and the rest of his tangible_personal_property to his daughter decedent made no other specific bequests and left the residue of his estate to the trust decedent's will contains the following pertinent provisions article i directions to executor dollar_figure claims against my estate i direct my executor hereinafter named to pay out of the general funds of my estate the cost of the administration of my estate all my legal debts expenses of last illness and funeral_expenses dollar_figure payment of taxes i direct my executor to pay out of my residuary_estate otherwise passing under article iii hereof and as soon as practical all inheritance estate transfer and succession taxes payable by reason of my death including interest and penalties thereon in the discretion of my executor assessed on my property or interest included in my gross_estate for tax purposes i direct that my executor shall not require that any part of such taxes by sic recovered from paid_by or apportioned among the recipients of or those interested in such property article iii disposition of residuary_estate all the rest residue and remainder of my property real and personal tangible and intangible wheresoever situate and howsoever held including any property over which i may have a power_of_appointment herein referred to as my residuary_estate i give devise and bequeath to first-citizens bank trust company as trustee under that certain trust agreement dated the 17th day of june wherein i am the grantor and first-citizens bank trust company is trustee to be held and administered as a part of the trust hereby sic created article v administrative provisions dollar_figure payments by trustee to executor under that trust agreement referred to in article iii above i provided that the trustee thereunder shall pay to my executor certain amounts as required by my executor for payment of debts funeral_expenses costs of administration of my estate and the inheritance and estate_taxes payable upon my estate by reason of my death i expressly authorize and empower my executor to request from time to time in writing from said trustee the required amounts for payment of such debts expenses and taxes the trust agreement established a_trust of the proceeds of certain life_insurance policies on the life of decedent to be received by the trustee as beneficiary plus other_property received by the trustee from decedent or third parties the trust was revocable by decedent who also reserved the right to receive the income and such portions of principal as decedent requested article iv of the trust agreement provides for the disposition of the trust estate remaining at the time of decedent's death including property devised or bequeathed under decedent's will by dividing the remaining estate into three shares designated as shares a b and c shares a and b each egual to one-fifth of the trust estate were to be placed in trust for decedent's daughter and son respectively share c constituting three-fifths of the trust estate was to be distributed one-fourth to each of four charitable organizations the trust agreement provided that the portions disposed of under share c shall not be reduced by any taxes chargeable against the grantor's gross_estate in addition article v of the trust agreement provides dollar_figure use of trust funds to pay estate debts the trustee shall pay to the executor or administrator of the estate of the grantor from the principal of the trust of shares a and b such sum or sums as such executor or administrator certified to be necessary to discharge the liability of the estate of the grantor for all inheritance legacy succession or estate_taxes due from or assessed against the estate of the grantor and such further sum or sums as the executor or administrator may certify to the trustee as being -- - required in order to pay the debts of the grantor his funeral_expenses cost of grantor's last illness and any other expenses of the administration of his estate on decedent's federal estate_tax_return the executor reported a gross_estate of dollar_figure the value of the assets contained in the trust and included in the gross_estate was stated as dollar_figure stocks and bonds owned by decedent were reported at a value of dollar_figure the gross_estate included dollar_figure in proceeds from life_insurance policies on decedent's life owned by and payable to the trust as beneficiary the trust was also the beneficiary of annuities totaling at least dollar_figure additionally the estate reported real_estate mortgages notes bank accounts and other miscellaneous assets valued at more than dollar_figure the executor reported four charitable_bequests totaling dollar_figure three-fifths of the estate's residue no taxes were listed as being payable out of this property the estate reported and paid a tax of dollar_figure respondent determined that the total amount of the charitable_bequests should be reduced by dollar_figure for a portion of the estate's federal and state taxes on brief respondent concedes that due to a mathematical error the adjustment should have been only dollar_figure discussion sec_2055 allows a deduction from the value of the gross_estate for the value of charitable_bequests sec_2055 provides that if the federal estate_tax or any estate succession legacy or inheritance taxes are either by the terms of the will by the law of the jurisdiction under which the estate is administered or by the law of the jurisdiction imposing the particular tax payable in whole or in part out of the bequests legacies or devises otherwise deductible under this section then the amount deductible under this section shall be the amount of such bequests legacies or devises reduced by the amount of such taxes sec_2055 in effect provides that the deduction is based on the amount actually available for charitable uses that is the amount of the fund remaining after the payment of all death taxes sec_20_2055-3 estate_tax regs generally congress intended that the federal estate_tax should be paid out of the estate as a whole and that the applicable state law as to the devolution of property at death should govern the distribution of the remainder and the ultimate impact of the federal tax 317_us_95 in limited situations congress has specified where the estate_tax burden would fall see sec_2206 life_insurance powers of appointment 2207a marital_deduction property and 2207b reserved life_estate these situations deal with property that does not pass through the executor's hands in administering the estate see riggs v del drago supra pincite sec_2206 provides in part unless the decedent directs otherwise in his will if any part of the gross_estate on which tax has been paid consists of proceeds of policies of insurance on the life of the decedent receivable by a beneficiary other than the executor the executor shall be entitled to recover from such beneficiary such portion of the total_tax paid as the proceeds of such policies bear to the taxable_estate fn ref omitted chapter 28a article of the general statutes of north carolina is entitled apportionment of federal estate_tax n c gen stat sec_28a-27-2 provides in part a except as otherwise provided in subsection b of this section or computational statutes the tax shall be apportioned among all persons interested in the estate in the proportion that the value of the interest of each person interested in the estate bears to the total value of the interests of all persons interested in the estate the values as finally determined for federal estate_tax purposes shall be used for the purposes of this computation b in the event the decedent's will provides a method of apportionment of the tax different from the method provided in subsection a above the method described in the will shall control emphasis added the section then provides for exceptions not applicable to the instant case n c gen stat sec_28a-27-5 a provides in part a any interest for which a deduction or exemption is allowed under the federal revenue laws in determining the value of the decedent's net taxable_estate such as gifts or bequests for charitable public or similar purposes shall not be included in the computation provided for in g s 28a-27-2 to the extent of the allowable deduction or exemption petitioner's position is that decedent's charitable_bequests should not be reduced by any taxes petitioner argues that decedent's intent to pass the bulk of his estate to charity free of tax is clear from reading the provisions of the will and trust together alternatively petitioner argues if one looks only to the will decedent's instructions as to apportionment within the residue are ambiguous and therefore the north carolina apportionment statute applies to the apportionment of the taxes within the residue causing the charitable portion to be exempt from apportionment respondent's position is that decedent clearly instructed in his will that all taxes payable by reason of his death be paid from the residuary_estate without apportionment prior to its distribution to the trust as residuary beneficiary and that because of that clear instruction apportionment as provided in the north carolina statutes is avoided respondent argues that the provision in the trust regarding apportionment to the noncharitable trust beneficiaries applies only to those taxes required to be paid from trust assets that is if the residuary portion of the estate were insufficient to pay all debts expenses and taxes we agree with respondent decedent's instructions were clear as to where the burden of the taxes should fall paragraph dollar_figure of his will provided that all taxes payable by reason of his death on his property or interest included in his gross_estate were payable from the residuary portion of his estate he also expressly provided that there be no apportionment among the recipients of or those interested in such property because of decedent's instructions in his will on this subject neither sec_2206 nor the method of apportionment found in chapter 28a article of the general statutes of north carolina applies to the apportionment of the federal estate_tax petitioner's position seeks to import into the will the apportionment provision of a separate document namely the trust agreement in order to determine how decedent's residuary_estate should be distributed see generally shoup v american trust co n c s h 2d as a general_rule the construction of a will is not to be influenced by provisions of other nontestamentary documents petitioner ignores the distinction between determining how an estate is to be divided and how the burden of taxes is allocated the apportionment clause in the trust agreement deals with an allocation of the tax burden on property that the beneficiaries of the trust are entitled to receive from the trust not what the trust is entitled to receive from the grantor-decedent's estate accordingly we hold that the amount of decedent's deductions for charitable_bequests is to be reduced by the amount of federal estate and state inheritance taxes in accordance with the parties' concessions and the above holdings decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-114241-99 date date re legend parent purchaser target shareholder target state x date a date b date c company official tax professionals dear this letter responds to a letter dated date on behalf of the above taxpayers requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and seller are requesting the extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax plr-107561-99 regulations the election with respect to purchaser's acquisition of the target stock on date a the information submitted for consideration is summarized below parent a state x corporation uses the accrual_method of accounting and a calendar_year purchaser a state x corporation uses the accrual_method of accounting and a calendar_year all the stock in purchaser was at the time of the transaction described below and still is held by parent target a state x corporation is an s_corporation that uses the accrual_method of accounting and a calendar_year prior to date a all the stock in target was held by target shareholder part directly and part together with his wife through a grantor_trust of which he and his wife are co-trustees on date a parent purchaser target and target shareholder entered into a stock purchase agreement that provided for purchaser to purchase all the outstanding target stock from target shareholder also on date a purchaser acquired all of the stock in target from target shareholder pursuant to the stock purchase agreement for cash and a note in a fully taxable transaction the note constituted less than half of the total consideration gain on the sale has not and will not be reported on the installment_method and the taxpayers do not intend to use the provisions of sec_453 with regard to this sale following the acquisition new target was included in purchaser’s consolidated_return it is represented that i purchaser was not related to seller within the meaning of sec_338 and ii purchaser's acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and seller intended to file the election the election was due on date b however for various reasons a valid election was not filed on date c which is after date b or shortly thereafter company official tax professionals and purchaser’s and or target’s authorized representatives discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessments under sec_6501 has not expired for purchaser’s seller’s or target’s taxable_year s in which the acquisition occurred the taxable_year s in which the election should have been filed or any taxable_year s 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 i the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and ii the acquisition is a qualified_stock_purchase qsp sec_1_338-1 provides that a sec_338 election is an election to apply sec_338 to target sec_338 specifies the requirements for making a sec_338 election sec_1_338_h_10_-1 provides that if a sec_338 election is made for target a sec_338 election is deemed made for plr-107561-99 target sec_338 defines a qsp as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the month acquisition period 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 jointly elect to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qsp is generally 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 in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or is 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 qsp of the target_corporation stock sec_1_338_h_10_-1 and provide that if a sec_338 election is made for the target_corporation it is irrevocable and a sec_338 election is deemed made for the target_corporation more specifically target is treated as if while a member of the selling group or owned by the selling affiliate or s_corporation shareholders it distributed all of its assets in complete_liquidation if target is an s_corporation immediately before the acquisition_date nothing in the sec_338 provisions prevents a holder of target stock from taking deemed sale gain into account under sec_1366 and sec_1367 see sec_331 or sec_332 for gain_or_loss recognized by the old target shareholders as a result of the deemed liquidation sec_1_338_h_10_-1 no gain_or_loss is recognized on the sale_or_exchange by the selling_consolidated_group or the selling affiliate or an s_corporation shareholder of target stock included in the qsp if target is an s_corporation immediately before target’s acquisition_date the sale_or_exchange of old target does not result in a termination of the sec_1362 election for the s_corporation sec_1_338_h_10_-1 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 plr-107561-99 corporation shareholders on form_8023 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 or the common parent of the consolidated_group of which the purchasing_corporation is a member or the selling affiliate or s_corporation shareholders and the selling corporation or the common parent of the consolidated_group of which the selling corporation is a member or the selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by each 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 of 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 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 provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government 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 ie 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 to file the election provided purchaser and seller show they acted reasonably and in good_faith the plr-107561-99 requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser seller company official target shareholder and his wife and tax professionals explain the circumstances that resulted in the failure to timely file a valid election the affidavit of the company official the chief financial officer of parent states that he was the company official responsible and relied on for the election by purchaser the company official and purchaser and seller relied on the tax professionals the affidavit for the tax professionals for purchaser and the affidavit for the tax professional for seller state that purchaser and seller relied on them for the election and that they failed to ensure that the election was timely made based on the facts and information submitted including the representations made we conclude that purchaser and seller have shown 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 accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and seller to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on i both purchaser and seller signing the election ii both purchaser and seller treating the acquisition sale of the target stock as a sec_338 transaction and iii the taxpayers’ ie purchaser’s and seller’s tax_liability if any being not lower 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 in addition the above extension of time is also conditioned on target shareholder not using sec_453 dealing with the installment_method to report the gain on the sale no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the district 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 than it would have been if the election had been timely made taking into account the time_value_of_money 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 see announcement 1998_2_irb_38 a copy of this letter should be attached to the election form purchaser and seller must amend their returns to report the transaction as a sec_338 transaction for the year in which the transaction was consummated and they must attach to the return a copy of this letter and a copy of the election or it they plr-107561-99 already reported the transaction as a sec_338 transaction they must merely amend their returns to attach a copy of the election and a copy of this letter we express no opinion i as to whether the acquisition sale of target’s stock qualifies as a qsp under sec_338 ii as to whether the acquisition sale of target’s stock qualifies for sec_338 treatment or iii if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and thus by seller on target’s deemed asset sale in addition we express no opinion as to the tax 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 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 district_director s 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 that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the powers of attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours assistant chief_counsel corporate by bernita thigpen deputy assistant chief_counsel counsel corporate