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 3-plr-114777-99 date date parent sub sub purchaser seller target date a date b date c date d e state x state y business z plr-114777-99 parent’s company official seller’s company official parent’s outside tax professional parent’s outside tax professional seller’s outside tax professional parent’s other authorized representatives this responds to your authorized representative’s letter dated date requesting on behalf of the taxpayers identified above an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent as common parent of the consolidated_group of which purchaser is a member and seller are requesting an 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 regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election effective on date a additional information was submitted in letters dated october and date the material information is summarized below parent a state x corporation is the common parent of a consolidated_group that has a fiscal_year ending september and uses an accrual_method of accounting sub a wholly owned subsidiary of parent owns e percent percent or more of the outstanding_stock of sub sub owns all of the outstanding_stock of purchaser prior to and as of the date of the qualified_stock_purchase described below sub sub and purchaser were included in parent’s consolidated federal_income_tax return target was an s_corporation incorporated in state y prior to the qualified_stock_purchase seller owned all of the stock of target target’s tax_year was the calendar_year target was engaged primarily in business z purchaser acquired all of the outstanding_stock of target from seller for notes pursuant to a stock purchase agreement dated date b effective date a in a fully taxable transaction it is represented that parent and purchaser are not and were not at all times relevant related to seller within the meaning of sec_338 and purchaser’s acquisition of all of the outstanding_stock of target qualified as a qualified_stock_purchase as defined in sec_338 following the acquisition new target was included in parent’s consolidated_return plr-114777-99 purchaser and seller intended to file the election the election was due on date c but for various reasons it was not filed on date d which is after the due_date for the election parent seller parent’s company official seller’s company official parent’s outside tax professional parent’s outside tax professional and seller’s outside tax professional discovered that the election was not filed the period of limitations on assessment under sec_6501 has not expired for parent’s purchaser’s seller’s or target’s taxable_year in which the acquisition sale was consummated the taxable_year in which the election should have been filed or for 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 the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase 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_338 defines a qualified_stock_purchase 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 12-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 elect jointly 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 qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 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 plr-114777-99 sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 c 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 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 parent and seller to file the election provided parent and seller show 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 plr-114777-99 information affidavits and representations submitted by parent seller parent’s company official parent's outside tax professional and parent’s other authorized representatives explain the circumstances that resulted in the failure to timely file the valid election the information also establishes that parent’s company official was responsible for the election that parent and seller relied on parent’s company official to timely make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent 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 parent as the common parent of the consolidated_group of which purchaser is a member and seller to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on the taxpayers' seller's parent's purchaser’s and target’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 talking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the 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 sec_301_9100-3 the above extension is also conditioned on i parent and seller signing the election and ii parent and seller treating the acquisition sale of target’s stock as a sec_338 transaction parent as agent for 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 parent and seller must file or amend their returns as applicable for the year in which the transaction was consummated to report the transaction as a sec_338 transaction and to attach thereto a copy of this letter and a copy of the election along with the information required with the election form if they already reported the transaction as a sec_338 transaction they must amend their returns to attach a copy of the election the information requested therewith and a copy of this letter pursuant to sec_1_338_h_10_-1 target’s s election is not terminated accordingly target is not required to file an s_short_year return ie a year that ended the day before the acquisition nor a one day short return as a non-affiliated c_corporation plr-114777-99 we express no opinion as to whether the acquisition sale of target’s stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target’s stock qualifies for sec_338 treatment or 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 s who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter is being sent to seller and to parent’s and seller's authorized representatives pursuant to the powers of attorney on file in this office sincerely yours assistant chief_counsel corporate by


t c memo united_states tax_court ilya roytburd petitioner v commissioner of internal revenue respondent docket no filed date ilya roytburd pro_se harry j negro for respondent memorandum opinion halpern judge by notice_of_deficiency dated date the notice respondent determined deficiencies in and additions to petitioner’s federal_income_tax as follows additions to tax_year deficiency sec_6651 sec_6651 sec_6654 dollar_figure big_number dollar_figure big_number to be determined to be determined dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar petitioner bears the burden_of_proof see rule a background petitioner filed a petition an amended petition and a second amended petition petitioner showed his address in each as being in newtown pennsylvania respondent moved to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under sec_6673 the motion the motion was called for hearing on date and petitioner and respondent’s counsel appeared and were heard thereafter we disposed of the motion by order of the same date granting in part and denying in part in that order we stated petitioner’s second amended petition contains nothing but frivolous and groundless arguments that merit no extended discussion we found however that certain allegations made by petitioner at the hearing could be construed as petitioner’s assertion that respondent erred in the notice in petitioner makes no argument that the burden_of_proof has shifted to respondent pursuant to sec_7491 nor would we sustain that argument since among other things as discussed infra petitioner has introduced no credible_evidence that the bank_deposits herein described have a nontaxable source see sec_7491 making a positive adjustment of dollar_figure to petitioner’ sec_2002 taxable_income on account of unexplained deposits to petitioner’s bank account at sovereign bank and in determining that he was liable for self-employment_tax on that income we advised petitioner that bank_deposits are prima facie evidence of income and we pointed him to authority for that proposition we deemed petitioner to have conceded all adjustments to income made by respondent in the notice except for the aforementioned dollar_figure adjustment and the related determination of self-employment_tax liability we further deemed petitioner to have conceded all additions to tax determined in the notice we denied without prejudice that portion of the motion asking for a penalty under sec_6673 we reviewed for petitioner’s benefit the provisions of sec_6673 and we warned him petitioner is herewith expressly advised that the court may very well impose on him a substantial penalty under sec_6673 if he persists in advancing frivolous or groundless arguments or if he should subsequently be found to have instituted or to have maintained this action primarily for delay subsequently on date we held a trial at the trial respondent conceded that the dollar_figure adjustment was overstated by dollar_figure and that petitioner had no liability for self-employment_tax we accepted those concessions the only issue left for disposition was respondent’s positive adjustment of dollar_figure to petitioner’ sec_2002 income the adjustment is described in the notice as an increase in petitioner’s taxable_income resulting from an analysis of hi sec_2002 bank_deposits at trial in support of the adjustment respondent proffered bank records pertaining to a savings account in petitioner’s name at sovereign bank and showing among other things deposits and wire transfers into the account as follows date date date date date total amount dollar_figure big_number big_number big_number dollar_figure source wire transfer wire transfer deposit deposit the two wire transfers were received by sovereign bank from first clearing corp the date deposit was of a check from the travelers indemnity co the date deposit is unexplained at trial petitioner acknowledged receiving a check for an insurance claim he also acknowledged receiving a check for unemployment_compensation he testified that the wire transfers were of money that he moved from other money market the records were accompanied by a certification of records by an official of sovereign bank we reserved ruling on the admissibility of the records to give petitioner a chance to argue on brief that the records should not be admitted into evidence since petitioner’s brief contains no argument on that score we deem no objection to be made and we receive the records into evidence without objection accounts he offered no further explanation or particulars of the deposits at the conclusion of the trial the court requested seriatim briefs respondent going first the court directed petitioner to the requirements of rule which among other things sets forth the requirements for the form and content of briefs respondent’s brief complies with the requirements of rule containing among other things proposed findings_of_fact and a legal argument petitioner answered respondent’s brief with a document that fails to comply with the requirements of rule it neither proposes any findings_of_fact nor makes any objection to respondent’s proposed findings_of_fact see rule e it contains only tax-protester rhetoric in substantial part it reads as follows respondent served petitioner with a notice_of_deficiency apparently based upon respondent’s mistaken belief that the petitioner for the time period stated in the notice was in fact a u s citizen and moreover a taxpayer as defined in sec_7701 petitioner has not conducted his life as a u s citizen for many years having learned discovered the differences between a natural born american citizen of the state and that of a 14th amendment federal citizen -- subject petitioner has long rejected the status of u s citizen and any writings or statements to the contrary by petitioner were based upon government deceit and deception in failing to advise petitioner of the consequences of that status petitioner denies being for the period at issue a resident and or citizen_of_the_united_states and is in fact domiciled in the sovereign republic of pennsylvania and claiming state citizenship respondent may have jurisdiction to assess u s citizens wherever resident but again petitioner rejects that status the tax at issue respondent seeks to impose upon petitioner goes far beyond congress’ constitutionally delegated powers before tax_court can proceed to adjudicate the matters herein respondent must first establish that petitioner is was a u s citizen during the period at issue absent the required personam jurisdiction this case must be dismissed signature ilya roytburd sovereign american citizen discussion i deficiencies in tax the only adjustment relating to the deficiencies in tax determined by respondent in the notice that remains at issue is respondent’s adjustment for of after a concession dollar_figure on account of unexplained bank_deposits respondent has produced evidence of those deposits and petitioner does not contradict the fact of the deposits moreover a bank deposit is prima facie evidence of income and respondent need not prove a likely source of that income 87_tc_74 petitioner bears the burden of proving that the income was from a nontaxable source or otherwise excluded from his gross_income by law see eg mantakounis v commissioner tcmemo_2002_306 petitioner makes no argument on brief concerning the bank_deposits and that failure is sufficient for us to conclude that he has abandoned the controversy with respect to those items see 91_tc_524 ndollar_figure moreover at trial petitioner’s only explanation of the unexplained deposits was by generalized uncorroborated and self-serving testimony that the unexplained deposits were primarily from purported other bank accounts petitioner did not identify those accounts he provided no statements showing deposits to and withdrawals from those accounts nor did he call any financial adviser or other person who could have corroborated his claim that he was merely redepositing already taxed or nontaxable funds petitioner had ample time and opportunity to obtain corroborating evidence we had advised him in our order disposing of the motion that respondent had identified unexplained deposits to his sovereign bank account and that unexplained bank_deposits were prima facie evidence of income we need not accept self-serving testimony even if unopposed 403_f2d_403 2d cir affg tcmemo_1967_85 see also tokarski v commissioner supra pincite under all the circumstances we are not required to accept the self-serving testimony of petitioner as gospel moreover we are entitled to infer from petitioner’s failure to offer evidence concerning the source of the deposits that such evidence would have been unfavorable to petitioner’s case see 6_tc_1158 affd 162_f2d_513 10th cir petitioner has failed to prove that deposits to his sovereign bank account in totaling dollar_figure were from a nontaxable source or otherwise excluded by law we sustain respondent’s determination_of_a_deficiency in tax for on account of the omission of that amount from petitioner’s taxable_income ii sec_6673 penalty in pertinent part sec_6673 provides a penalty of up to dollar_figure if the taxpayer has instituted or maintained proceedings before the tax_court primarily for delay or the taxpayer’s position in the proceeding is frivolous or groundless we have already determined that the second amended petition contains nothing but frivolous and groundless arguments in our order disposing of the motion we warned petitioner that we might impose on him a substantial penalty under sec_6673 if he persisted in advancing frivolous or groundless arguments or if he should subsequently be found to have instituted or to have maintained this action primarily for delay petitioner’s brief which we have set forth in substantial part shows that he has persisted in that sanctionable conduct moreover we can see little reason for petitioner’s having instituted this proceeding but to delay the collection of federal_income_tax due and owing petitioner has not only wasted his time but he has also wasted the time of respondent’s employees officers and counsel not to mention the waste of the court’s time in disposing of this case the purpose of sec_6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate 119_tc_285 petitioner is deserving of a substantial penalty we shall exercise our authority under sec_6673 and require petitioner to pay to the united_states a penalty of dollar_figure iii conclusion to reflect the foregoing an appropriate order will be issued and decision will be entered under rule


t c memo united_states tax_court gerald p and abbe l keane petitioners v commissioner of internal revenue respondent docket no filed date fred alan jones for petitioners laurel m robinson for respondent memorandum findings_of_fact and opinion dean special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioners' federal income taxes in the following amounts year deficiency dollar_figure big_number after concessions by both parties the remaining issue for decision is whether interest payments made on a promissory note executed pursuant to a settlement agreement with the u s department of health and human services qualify as deductible expenses at the time their petition was filed petitioners resided in hillsborough california some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by reference findings_of_fact petitioner gerald p keane is a physician and petitioner abbe l goll-keane is a registered nurse hereinafter references to petitioner refer to petitioner gerald p keane 2petitioners concede schedule c interest deductions for and to academic financial services of dollar_figure dollar_figure and dollar_figure respectively and to the university of rhode island of dollar_figure dollar_figure and dollar_figure respectively respondent concedes schedule c interest_paid by petitioners to first interstate bank in of dollar_figure petitioner graduated from brown university medical school brown in date while he was a student from through he received yearly tuition scholarships totaling dollar_figure from the department of health education and welfare now called the department of health and human services dhhs as part of the national health service corps nhsc scholarship program as a condition of receiving this award petitioner was obligated upon graduation to serve as a public health service commissioned_officer or a civilian member of the national health service corps in a designated area for a number of years equivalent to the term of the award after graduating from brown in date petitioner began his internship and residency at stanford university medical center stanford in the physical medicine and rehabilitation program petitioner's service requirement with nhsc was scheduled to begin upon his graduation from brown but petitioner expected to receive a deferment of his obligation until he completed the graduate training program at stanford dhhs agreed to the deferment of his service obligation the first year it was requested which was until date but when petitioner reapplied for the remaining years dhhs refused to grant subsequent deferments based on policy changes in the program on date when petitioner was denied deferment for his second year of the stanford graduate training program he made the decision not to leave stanford to fulfill his service obligation because he believed to do so would affect his standing in the program dhhs thereafter regarded him as in default and liable to the united_states for repayment of the scholarship money plus damages pursuant to a treble_damages clause in the contract health professional educational_assistance act of publaw_94_484 90_stat_2243 u s c sec 254o b supp iv petitioner believing he was not in default filed a civil suit in the united_states district_court for the district of columbia against the secretary of dhhs in keane v bowen civil_action no 86-02574-ss in date petitioner reached a settlement with dhhs and the case was dismissed under the terms of the agreement a promissory note was executed whereby petitioner agreed to pay dollar_figure to dhhs representing the dollar_figure in original principal and dollar_figure in previously accrued interest additional interest on the unpaid balance was also due at the rate of dollar_figure percent per annum in taxable years and petitioners claimed schedule c business deductions for the interest_paid on the promissory note in the amounts of dollar_figure dollar_figure and dollar_figure respectively respondent disallowed these deductions on the grounds that they were neither business_expenses under sec_162 nor deductible_interest expenses under sec_163 opinion respondent contends that the interest payments on the promissory note are nondeductible personal expenses the interest accrued on funds that were characterized in the promissory note as petitioner's medical school tuition and expenses therefore respondent argues that these payments are of a personal nature and do not qualify as either sec_162 business_expenses or sec_163 interest_expenses petitioner's position is that the interest payments are deductible business_expense because settlement of his claim with dhhs allowed petitioner to avoid his medical service obligation thereby enabling him to devote more time to his medical practice 3the settlement agreement and mutual release signed on behalf of the secretary and the petitioner states dr keane shall pay to the secretary the principal sum of one hundred twenty-five thousand dollars dollar_figure representing forty-five thousand eight hundred and five dollars dollar_figure in original principal ie the monies expended on dr keane's behalf for his medical school tuition and expenses plus previously accrued interest totaling seventy-nine thousand one hundred ninety-five dollars dollar_figure claimed by the secretary under u s c section 254o b plus additional interest on the unpaid balance compounded at the rate of seven and twenty-two one-hundreths sic percent per annum in a single lump-sum payment plus quarterly installments as set forth in the promissory note which is appended to this agreement as attachment emphasis added pursuit of his medical practice is a profit generating business activity which generates taxable_income and this petitioner argues should entitle him to deductions under sec_162 or sec_163 the interest incurred is not related to the repayment of medical school tuition and expenses petitioner argues rather the agreement is an entirely new contract and should be examined independently from the original scholarship agreement with dhhs even if the payments under the agreement do not constitute repayment of student loans respondent argues they are repayments of a qualified_scholarship under sec_117 meaning that interest payments incurred during repayment are not deductible because they are directly related to the production of tax-exempt_income and are subject_to the nondeductibility limitations of sec_265 the issue for decision is whether petitioner may deduct the interest portion of the payments he made pursuant to the settlement agreement with dhhs in deductions are strictly a matter of legislative grace and petitioner must prove his entitlement to any deductions claimed rule a 503_us_79 292_us_435 if petitioner can prove the interest payments were an expense incurred in carrying on his trade_or_business he may be entitled to business_expense deductions under sec_162 alternatively if petitioner can prove that his interest payments are not of a personal nature he may qualify for interest deductions under sec_163 sec_162 - trade_or_business expense a deduction shall be allowed for all ordinary and necessary expenses paid during the taxable_year in carrying on a taxpayer's trade_or_business sec_162 sec_1_162-1 income_tax regs an expense is ordinary if it arises out of the normal operations of the business 308_us_488 an expense is necessary if it is appropriate and helpful to the taxpayer's business 290_us_111 interest payments on a settlement may be deducted if the payments have a business origin and are proximately related to the taxpayer's trade_or_business 372_us_39 deputy v du pont supra pincite harden v commissioner tcmemo_1991_454 business origin is described as the character of the claim with respect to which an expense was incurred united_states v gilmore supra pincite it is not the consequence of the litigation on the taxpayer's trade_or_business it is the origin of the underlying claim which is determinative united_states v gilmore supra the question to be answered is out of what kind of transaction did petitioner's interest_expenses arise 59_tc_708 in this case petitioner's interest_expenses arose out of the settlement of his lawsuit with dhhs the settlement agreement was entered into to determine the respective rights of the parties as a result of petitioner's declaratory_judgment lawsuit petitioner correctly points out that the settlement agreement is a completely new contract between petitioner and dhhs but the fact that a new contract has been entered does not affect the nature of the claim we must look behind this new agreement to the underlying claim which brought about the settlement the lawsuit itself was the reason for the settlement and subsequent interest payments so we must examine the underlying nature of the lawsuit to determine whether it has a business origin the underlying claim of the lawsuit between petitioner and dhhs relates to the nhsc scholarship contract therefore the interest payments were made pursuant to the settlement of this contract dispute the nhsc contract provided that petitioner would receive scholarship tuition from dhhs in exchange for his promise to serve as an employee of dhhs for a term of years following graduation generally education expenditures are 4petitioner argues that his primary motive in settling the lawsuit with dhhs was to eliminate the chance that he would have to interrupt his medical practice to perform services for dhhs the record however indicates that this was not a realistic possibility dhhs sought from petitioner money damages not specific performance deductible only if they are incurred to maintain or improve the taxpayer's employment or to meet the express requirements of the job sec_1_162-5 income_tax regs educational expenses_incurred to allow the taxpayer to meet the minimum educational requirements for his job qualification are considered personal expenses and are not deductible 60_tc_814 law school expenses not deductible when legal education prepared taxpayer for new career sec_1_162-5 income_tax regs in this case petitioner is repaying money he received as a tuition scholarship while studying for his medical degree at brown a medical degree is a necessary step to practice medicine as a doctor repayment of these funds under the nhsc contract is therefore a personal_expense because the funds were originally expended to enable him to enter into a new profession petitioner's interest payments are personal expenditures and not incurred in carrying_on_a_trade_or_business deductions for them are disallowed under sec_162 sec_163 - interest_deduction petitioner alternatively argues that his interest payments are deductible under sec_163 generally sec_163 provides that interest on indebtedness is deductible by the taxpayer in the year it is paid sec_163 however substantial limitations are placed on this general_rule which may limit or prohibit the taxpayer from deducting indebtedness interest at all sec_163 provides that for an individual taxpayer personal_interest is nondeductible personal_interest is defined in sec_163 as the residual of what remains after considering five enumerated exceptions these exceptions are a interest_paid or accrued on indebtedness properly allocable to a trade_or_business other than the trade_or_business of performing services as an employee b any investment_interest within the meaning of subsection d c any interest which is taken into account under sec_469 in computing income or loss from a passive_activity of the taxpayer d any qualified_residence_interest within the meaning of paragraph and e any interest payable under sec_6601 on any unpaid portion of the tax imposed by sec_2001 for the period during which an extension of time for payment of such tax is in effect under sec_6163 or sec_6166 or under sec_6166a as in effect before its repeal by the economic_recovery_tax_act_of_1981 sec_163 the first exception relating to interest_paid on a trade_or_business expense is the only exception that potentially relates to petitioner's case petitioner maintains that the settlement of his claim with dhhs was a decision made out of concern for his private medical practice and thus payments made pursuant to the agreement are in pursuit of his trade_or_business this is essentially the same argument he makes in support of deductibility under sec_162 similar to our sec_162 analysis interest on indebtedness must be allocated in the same manner as its underlying debt sec_1_163-8t temporary income_tax regs fed reg date underlying debt is allocated by tracing specific disbursements of the proceeds to specific expenditures sec_1_163-8t temporary income_tax regs fed reg date if the underlying debt is incurred as a personal_expenditure the interest on that debt may not be deducted under sec_163 sec_1_163-8t ex temporary income_tax regs fed reg date personal expenditures are defined in the temporary income_tax regs sec_1_163-8t sec_52 fed reg date as any expenditure that is not a trade_or_business_expenditure a passive_activity_expenditure or an investment 5the record is devoid of facts or argument which suggests that petitioner's indebtedness interest is allocable to property_held_for_investment sec_163 passive_activity sec_163 a qualified_residence sec_163 or interest on any unpaid portion of tax imposed by sec_2001 sec_163 expenditure we have already concluded that the payments do not constitute trade_or_business expenditures and petitioner has offered nothing to show that his interest payments relate to either passive_activity or investment expenditures we therefore hold petitioner may not deduct his interest payments under sec_163 sec_265 - tax exempt_income respondent argues that sec_265 also prevents petitioner from deducting the interest_expenses here at issue because the court concludes that petitioner's interest payments are not deductible under either sec_162 or sec_163 we decline to examine the implications of sec_265 on petitioner's scholarship repayment for the foregoing reasons we sustain respondent's determination that petitioner is liable for the deficiency relating to the deduction of his interest payments for and to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date date uilc cc psi 1-cor-130089-00 we are responding to correspondence submitted on your behalf by cpa requesting relief in order to rescind the revocation of your s_corporation_election effective date although we are unable to respond to to your request as submitted this letter provides useful information relating to your request sec_1_1362-5 of the income_tax regulations explains that absent the commissioner’s consent an s_corporation whose election has terminated in your situation the election was terminated by an affirmative request for revocation may not make a new election under sec_1362 of the internal_revenue_code for five taxable years as described sec_1362 however the commissioner may permit the corporation to make a new election before the five-year period expires the corporation has the burden of establishing that under the relevant facts and circumstances that the commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of termination tends to establish that fact consent should be granted in the absence of this fact consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not part of a plan on the part of the corporation or of such shareholders to terminate the election in order for us to consider your request it must be submitted in accordance with the procedures for requesting a private_letter_ruling which are set out in revproc_2000_1 copy enclosed in addition revproc_2000_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc p a p o box ben franklin station washington dc direct to cc psi room please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosure revproc_2000_1


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date cc tege eoeg et2 genin-151027-08 number info release date uil ------------------------------ ---------------------------------------- ----------------------------------------- --------------------- ------------------------------------ dear -------------------- this letter responds to your question regarding whether notice_2006_10 2006_1_cb_386 applies to special allowances paid_by the ------------------------------------------------ -------------------------------------------------------------------------------------------------------------to employees and their dependents to reimburse expenses_incurred while evacuating from the hurricane ike disaster_area notice_2006_10 copy attached provides guidance on the federal income and employment_tax treatment of special allowances described in u s c sec_5523 and sec_5 c f_r c and b paid_by federal executive agencies to employees to reimburse certain expenses the employees and their dependents incurred while evacuating from the hurricane katrina core disaster_area and staying in a safe haven notice_2006_10 held in general that the special allowances described in the notice are excludable from the gross_income and wages of the employee to the extent that the expenses compensated by the special allowances are not otherwise compensated for by insurance or otherwise in addition federal executive agencies are not required to report the special allowances on form_w-2 wage and tax statement or to deduct and withhold taxes from these amounts nor will the internal_revenue_service service require either a federal_executive_agency or its employee to include the special allowances in wages for employment_tax purposes notice_2006_10 described how the service applies the code to special allowances paid_by federal executive agencies pursuant to u s c sec_5523 in the wake of a specific qualified_disaster as defined in sec_139 of the internal_revenue_code absent a change in the law we expect the service to take this position with genin-151027-08 respect to special allowances paid pursuant to this same statutory authority following other qualified disasters as defined in sec_139 this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2009_1 sec_2 2009_1_irb_7 date if you have any additional questions please contact our office at -------------------- sincerely catherine e livingston deputy division counsel deputy associate chief_counsel exempt_organizations employment_tax government entities tax exempt government entities


t c summary opinion united_states tax_court michael d and christine r alexander petitioners v commissioner of internal revenue respondent docket no 12445-05s filed date michael d and christine r alexander pro sese aimee r lobo-berg for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax after a concession by petitioners the issues for decision are whether petitioners can deduct interest_paid on a home equity loan as an ordinary and necessary business_expense whether petitioners can deduct payments to their son as wage expense whether petitioners can deduct payments to their daughters as wage expense and whether respondent is estopped from disallowing petitioners’ claimed wage expense deductions background some of the facts have been stipulated and are so found petitioners michael alexander mr alexander and christine alexander mrs alexander are married and resided in bandon oregon at the time their petition was filed petitioners filed a joint federal_income_tax return for the taxable_year the tree farm in petitioners purchased a parcel of land in port orford oregon and began operating a tree farm over the next several years petitioners purchased various equipment for the tree farm including a tractor two trailers and a sprayer petitioners paid more than dollar_figure for the equipment which they petitioners concede dollar_figure of expense deductions claimed on schedule e supplemental income and loss the remaining adjustments in respondent’s notice_of_deficiency are computational therefore we do not address them purchased using credit cards petitioners deducted the interest payments on the credit card debt on schedule f profit or loss from farming in prior taxable years in or before petitioners obtained a home equity loan and used the proceeds to pay off the credit card debt incurred in connection with the equipment petitioners paid dollar_figure of interest on the home equity loan in and claimed that amount as an interest_expense_deduction on their schedule f respondent determined that the interest_expense was not paid_or_incurred in connection with the tree farm and therefore should not be deducted on schedule f instead respondent determined that the interest_expense should be deducted on schedule a itemized_deductions the seamstress business in mrs alexander operated a seamstress business from petitioners’ home during that year petitioners’ son steven was a 21-year-old college student in california when steven returned home for the summer he assisted mrs alexander with the seamstress business steven performed a variety of tasks such as purchasing supplies drafting sewing patterns and cleaning mrs all amounts are rounded to the nearest dollar alexander’s work space steven worked hours and was paid dollar_figure for an hourly rate of dollar_figure although steven worked only during the summer petitioners paid him the dollar_figure over the course of the year for example from january through date petitioners made payments to steven totaling dollar_figure petitioners treated these payments as wage advances in november and date petitioners made payments to steven totaling dollar_figure petitioners paid the majority of the dollar_figure directly to steven although a portion was paid to third parties on his behalf petitioners reported gross_receipts of dollar_figure for the seamstress business on schedule c profit or loss from business attached to their tax_return petitioners claimed expense deductions totaling dollar_figure of which amount dollar_figure represented the payments to steven there is no indication that petitioners paid employment_taxes on steven’s earnings or that they issued him a form_w-2 wage and tax statement there is no indication petitioners filed a form_940 employer’s annual federal unemployment futa_tax return or form sec_941 employer’s quarterly federal tax_return respondent disallowed the claimed wage expense deduction in full petitioners introduced a document they prepared titled steven’s hours which indicates that steven earned dollar_figure or dollar_figure per hour petitioners did not explain the discrepancy between the earnings shown on this document and the amount they actually paid steven the dog-breeding business in mrs alexander also operated a beagle-breeding business from petitioners’ home petitioners’ three daughters assisted mrs alexander with this business throughout the year petitioners’ daughters are margot who was years old in jca who was years old and jra who was years old the daughters performed tasks such as cleaning the dogs and the yard in which they exercised putting up fencing taking out the garbage and caring for newborn puppies petitioners credited each daughter with dollar_figure of earnings for a combined total of dollar_figure in general petitioners did not pay their daughters in cash instead petitioners kept a running total of their daughters’ earnings when a daughter wished to make certain purchases petitioners bought the goods or services for the daughter and deducted the purchase_price from the daughter’s running total if the balance of a daughter’s running total was insufficient to make a purchase the daughter was allowed to receive an advance or go negative petitioners did not require their daughters to pay for basic goods such as food their daughters were required however to pay for nonessentials such as their share of family ski trips or family trips to disneyland the daughters also paid for items such as books room decorations toys movie rentals and certain the court uses only the minor children’s initials items of clothing petitioners required their children to pay for such items because they wanted to instill a strong work ethic in them petitioners reported gross_receipts of dollar_figure for the dog- breeding business on a separate schedule c petitioners claimed expense deductions for the business totaling dollar_figure of which amount dollar_figure represented payments to their daughters there is no indication petitioners issued a form_w-2 to any of their daughters respondent disallowed dollar_figure of the claimed wage expense deduction it is not clear why respondent allowed the remaining dollar_figure discussion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of showing that the determinations are in error rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to respondent under certain circumstances we decide this case without regard to the burden_of_proof accordingly we need not decide whether sec_7491 applies in this case a taxpayer who is carrying_on_a_trade_or_business generally may deduct ordinary and necessary expenses paid_or_incurred in petitioners filed a motion to shift the burden_of_proof to respondent because the burden_of_proof does not affect the outcome of this case that motion was denied connection with the operation of the business sec_162 see also 403_us_345 110_tc_402 respondent does not dispute that the tree farm seamstress business and dog-breeding business each qualifies as a trade_or_business for federal_income_tax purposes thus we address only whether the expenses are ordinary and necessary and whether they were paid_or_incurred in connection with the respective businesses interest_expense on the home equity loan as a preliminary matter we note that petitioners claimed an interest_expense_deduction of dollar_figure which respondent disallowed in full petitioners introduced a form_1098 mortgage interest statement which shows dollar_figure of mortgage interest_paid petitioners did not introduce any evidence with respect to the remaining dollar_figure of the claimed interest_expense_deduction we therefore consider that petitioners have conceded that amount of the adjustment see 117_tc_117 n korchak v commissioner tcmemo_2005_244 n respondent’s determination is sustained to the extent of dollar_figure with respect to the remaining dollar_figure of interest_expense the parties agree this amount is deductible they disagree whether it is an itemized_deduction or a trade_or_business expense the distinction is important because sec_68 reduces itemized_deductions once a taxpayer’s adjusted_gross_income agi exceeds the applicable_amount see chu v commissioner tcmemo_2005_110 trade_or_business_expenses are not subject_to this limitation see bishop v commissioner tcmemo_2001_82 n in addition trade_or_business_expenses reduce the taxpayer’s agi thereby reducing the itemized_deductions lost under sec_68 id for petitioners to prevail on this issue the interest_expense must be properly allocable to a trade_or_business see sec_163 sec_1_163-8t temporary income_tax regs fed reg date provides the rules for the allocation of interest_expense for purposes of sec_163 119_tc_44 debt is allocated to expenditures in accordance with the use of the debt proceeds sec_1_163-8t temporary income_tax regs fed reg in general interest_expense accruing on a debt during any period is allocated to expenditures in the same manner as the debt is allocated id subject_to exceptions not relevant here the allocation is not affected by the use of an interest in any property to secure the repayment of such debt or interest id a trade_or_business_expenditure is an expenditure temporary regulations are entitled to the same weight as final regulations see peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir 98_tc_141 in connection with the conduct of any trade_or_business other than the trade_or_business of performing services as an employee sec_1_163-8t temporary income_tax regs fed reg petitioners incurred credit card debt to purchase equipment for the tree farm the credit card debt therefore was allocable to a trade_or_business_expenditure see sec_1_163-8t and c temporary income_tax regs supra the temporary regulations provide that to the extent proceeds of any debt the replacement debt are used to repay any portion of a previously existing debt the replacement debt is allocated to the expenditures to which the repaid debt was allocated sec_1 8t e temporary income_tax regs fed reg mr alexander credibly testified and we so find that petitioners used the proceeds from the home equity loan to repay the credit card debt the home equity loan therefore is replacement debt and the interest accruing thereon is properly allocable to a trade_or_business_expenditure see sec_1_163-8t temporary income_tax regs supra we hold for petitioners on this issue to the extent of dollar_figure payments to petitioners’ son compensation is deductible as a trade_or_business expense only if it is reasonable in amount based on services actually rendered and paid_or_incurred see o’connor v commissioner tcmemo_1986_444 sec_1_162-7 income_tax regs compensation meeting those requirements is deductible even if the employer is a parent and the employee a child 77_tc_934 hamdi v commissioner tcmemo_1993_38 affd without published opinion 23_f3d_407 6th cir when a familial relationship is involved however the court closely scrutinizes the transaction 48_tc_439 hamdi v commissioner supra sec_262 generally disallows deductions for personal living or family_expenses a normal supposition when payments are made to dependent_children or when items are purchased for them is that the money or items are in the nature of support and thus nondeductible under sec_262 holtz v commissioner tcmemo_1982_436 in deciding whether payments to a child are deductible we examine all the facts and circumstances eller v commissioner supra facts that militate against the deductibility of such payments include failing to pay employment taxes7 and file the employment_tax sections of the internal_revenue_code are in subtitle c sec_3111 and sec_3301 impose taxes on employers under the federal_insurance_contributions_act fica and the federal_unemployment_tax_act futa respectively based on wages paid to employees see images in motion inc v commissioner tcmemo_2006_19 sec_3101 imposes a tax on employees based on their wages paid which the employer is required to collect under sec_3102 id for purposes of fica employment does not include service performed by a child under the age of in the employ of his father or mother sec_3121 for continued information returns8 with respect to the child paying the child a flat amount determined at the beginning of the year that is not based on the services actually performed a lack of correlation between the dates and amounts of payments and the hours allegedly worked by the child failing to maintain adequate_records of the child’s hours worked and amounts earned and compensating the child for services which are in the nature of routine family chores see denman v commissioner supra o’connor v commissioner supra hable v commissioner tcmemo_1984_485 furmanski v commissioner tcmemo_1974_47 there is no indication that petitioners paid employment_taxes on the dollar_figure they paid steven nor is there any indication petitioners filed a form_940 or w-2 these facts tend to negate petitioners’ contentions that the payments continued purposes of futa employment does not include service performed by a child under the age of in the employ of his father or mother sec_3306 because steven wa sec_21 years old when he performed services for the seamstress business sec_3121 and sec_3306 are inapplicable the return of the federal unemployment tax is required to be filed on form_940 sec_601_401 statement of procedural rules all other returns of federal employment_taxes_generally are required to be filed on form_941 id in addition wages paid to an employee are required to be reported on form_w-2 sec_1_6041-2 income_tax regs to steven were intended as and constituted payments for bona_fide business employment see furmanski v commissioner supra mrs alexander testified that she calculated she could pay steven approximately dollar_figure for the summer steven therefore was paid a flat amount determined at the beginning of the year rather than an amount based on the services he actually performed this fact militates against the deductibility of the payments see furmanski v commissioner supra petitioners paid steven the majority of the dollar_figure either before he started working in the summer or well after the summer had ended thus there was a lack of correlation between the dates of the payments and the hours steven worked this fact also weighs against the deductibility of the payments see o’connor v commissioner supra petitioners recorded steven’s hours and wages on a list they kept on their refrigerator although the list was not introduced into evidence the information contained thereon appears to be summarized in the document titled steven’s hours see supra note petitioners also introduced a document titled steve’s summer work schedule the schedule the schedule lists a number of tasks and hours worked such as go get thread and machine needles at fabric store pick up bags for vacuum cleaner learn how to draw up pattern from measurements hours clean sewing room box up materials and move downstairs prepare to paint hours go rent rug shampooer shampoo carpet sewing room hours clean up and vacuum hours and go to san francisco with mom to help get wedding fabric hours each document indicates that steven worked hours it is not clear when petitioners prepared these documents or whether they accurately reflect steven’s hours duties and earnings even if we accept the accuracy of the documents many of the tasks that steven performed are in the nature of routine family chores such as cleaning vacuuming taking out garbage and accompanying mrs alexander on shopping trips such chores are part of parental training and discipline rather than the services rendered by an employee for an employer denman v commissioner supra pincite finally we note that even if steven performed tasks that were not routine family chores the schedule does not separately identify the number of hours he spent on such tasks where a taxpayer establishes that he incurred a business_expense but cannot prove the amount of the expense the court may approximate the amount allowable bearing heavily against the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir affg in part and remanding 11_bta_743 king v commissioner tcmemo_2006_112 to apply the cohan_rule however the court must have a reasonable basis for estimating the amount of the expense 85_tc_731 keenan v commissioner tcmemo_2006_45 here the record does not provide a reasonable basis for estimating the portion of steven’s compensation if any that is deductible we therefore do not apply the cohan_rule on the basis of all of the facts and circumstances we conclude that the payments to steven represent personal living or family_expenses see sec_262 the tasks that steven performed are mostly in the nature of routine family chores petitioners predetermined the amount they would pay him and failed to observe the formalities of the employee-employer relationship such as paying employment_taxes filing information returns and paying steven promptly for the hours he worked thus petitioners cannot deduct the payments to steven as wage expense respondent’s determination is sustained payments to petitioners’ daughters petitioners’ daughters were under years old in petitioners therefore were not required to pay employment_taxes on their earnings or file forms and see sec_3121 sec_3306 petitioners were required however to issue their daughters forms w-2 see sec_1_6041-2 income_tax regs petitioners’ failure to do so undercuts their assertion that their daughters were bona_fide employees of the dog-breeding business see haeder v commissioner tcmemo_2001_7 taxpayer’s failure to issue wife a form_w-2 militated against the deductibility of payments to her see also martens v commissioner tcmemo_1990_42 affd 934_f2d_319 4th cir on the issue of how the daughters’ compensation was determined mrs alexander’s testimony was inconsistent she initially testified that petitioners predetermined they could pay each daughter approximately dollar_figure for the year she later testified however that petitioners paid each daughter dollar_figure an hour it is difficult to believe that each daughter earned exactly dollar_figure for the year unless that amount was predetermined furthermore we note that dollar_figure was the amount of the standard_deduction in see sec_63 revproc_97_57 sec_3 1997_2_cb_584 as a result each daughter could earn up to dollar_figure without having to pay federal_income_tax we conclude that petitioners paid their daughters a flat amount that was determined at the beginning of the year rather than an hourly rate this fact weighs against the deductibility of the payments see furmanski v commissioner tcmemo_1974_47 as mentioned supra the daughters generally did not receive cash from petitioners in addition the daughters received advances when they needed to make purchases we have held that similar arrangements indicate a lack of correlation between the dates and amounts of payments and the hours allegedly worked by the children see o’connor v commissioner tcmemo_1986_444 this arrangement therefore militates against the deductibility of the payments as they did with their son petitioners recorded their daughters’ hours and earnings on a list that they kept on the refrigerator the list was not made part of the record petitioners did introduce a summary of each daughter’s hours the summaries as well as a week-by-week description of each daughter’s tasks titled timesheet the time sheet the time sheet includes the following entries for margot the oldest daughter walk dogs clean yard and haul garbage hours total for the week walk dogs bleach dog bowls treat dogs for fleas clip nails cut grass in beagle yard dollar_figure hours total for the week and walk dogs pick up yard hose kennels pick up kennels clean sliding doors hours total for the week the time sheet includes similar entries for jca and jra it is not clear when the summaries and time sheet were prepared or whether the information reflected in those documents is accurate furthermore as with the tasks that steven performed most of the daughters’ tasks are in the nature of routine family chores such as cleaning mowing the yard and taking out the garbage to the extent the daughters performed tasks other than routine family chores the time sheet does not provide a reasonable basis for applying the cohan_rule see vanicek v commissioner t c pincite on the basis of all of the facts and circumstances we conclude that the payments to the daughters represent personal living or family_expenses see sec_262 petitioners failed to issue forms w-2 and predetermined the amounts they would pay their daughters the daughters’ tasks were mostly in the nature of routine family chores and there was a lack of correlation between the payments they received and the hours they worked accordingly petitioners cannot deduct the payments to their daughters as wage expense respondent’s determination is sustained estoppel petitioners contend that at some point before or during they spoke to an employee of the internal_revenue_service irs concerning their plan to hire their children as employees petitioners contend the irs employee indicated that petitioners could deduct the compensation paid to their children petitioners thus appear to argue that respondent is estopped from disallowing their claimed deductions equitable_estoppel is a judicial doctrine that precludes a party from denying his own acts or representations which induced another to act to his detriment 98_tc_695 it is well settled however that the commissioner cannot be estopped from correcting a mistake of law even where a taxpayer may have relied to his detriment on that mistake 104_tc_13 affd 140_f3d_240 4th cir an exception exists only in the rare case where a taxpayer can prove he or she would suffer an unconscionable injury because of that reliance id pincite the following conditions must be satisfied before equitable_estoppel will be applied against the government a false representation or wrongful misleading silence by the party against whom the opposing party seeks to invoke the doctrine an error in a statement of fact and not in an opinion or statement of law ignorance of the true facts reasonable reliance on the acts or statements of the one against whom estoppel is claimed and adverse effects of the acts or statement of the one against whom estoppel is claimed id in addition the court_of_appeals for the ninth circuit requires the party seeking to apply the doctrine against the government to prove affirmative misconduct miller v commissioner tcmemo_2001_55 petitioners have not demonstrated affirmative misconduct by respondent nor have they established the other elements necessary for equitable_estoppel to apply accordingly respondent is not estopped from disallowing the claimed wage expense deductions reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi plr-103651-00 date date number release date index number legend c bylaws buy-sell_agreement year date date date date date a b c d dear in a letter dated date and other submissions you requested a ruling presented on behalf of c on the application of sec_2703 of the internal_revenue_code to a proposed amendment to the articles of incorporation and bylaws of c this letter responds to that request the facts and representations submitted are as follows c was incorporated as a c_corporation but adopted subchapter_s status on date on date c amended the articles of incorporation to change the authorized capitalization of c to a shares of voting common_stock with a par_value of one dollar per share all but b percent of the plr-103651-00 shares are issued and outstanding the remaining shares in c are treasury shares article i section b of the bylaws states in relevant part that treasury shares held by c in a fiduciary capacity will not be counted in determining the total number of outstanding shares at any given time the bylaws of c were adopted in year article v of the bylaws contains restrictions on the voluntary transfer of stock article v of the bylaws has not been amended since year in addition the shareholders of c entered into the buy-sell_agreement on date and amended that agreement on date and date articles ii through v of the buy-sell_agreement contain additional restrictions on the voluntary transfer of stock c proposes to effect a recapitalization of c with a shares of voting common_stock with a par_value of one dollar per share and the addition of c shares of nonvoting common_stock with a par_value of one dollar thereafter c will declare a dividend of the nonvoting common_stock with each shareholder receiving d shares of nonvoting common_stock for each share of voting common_stock that the shareholder currently holds currently c is owned by three related shareholders taxpayer represents that the only difference between the voting common_stock and nonvoting common_stock is the right to vote taxpayer further represents that the nonvoting common_stock will have the right to vote as a class for certain major corporate decisions like a merger of c that is required under the applicable state law finally taxpayer represents that the voting common_stock will have the right to vote on the same matters as the nonvoting common_stock plus all other matters including but not limited to the election of the directors taxpayer represents that no amendment will be made to article v of the bylaws or the buy-sell_agreement as a result of the recapitalization of c and the issuance of nonvoting common_stock requested ruling the recapitalization of c to create nonvoting common_stock in addition to the voting common_stock the amendment of the bylaws and the articles of incorporation to add nonvoting common_stock and the issuance of nonvoting common_stock will not result in a substantial modification of the buy-sell_agreement or the bylaws under sec_2703 law sec_2703 provides that for purposes of subtitle b the value of any property shall be determined without regard to any option agreement or other right to acquire or use the property at a price less than the fair_market_value of the property without regard to such option agreement or right or any restriction on the right to sell or use such property plr-103651-00 section e a ii of the revenue reconciliation act of p l 104_stat_1388 provides that sec_2703 applies to i agreements options rights or restrictions entered into or granted after date and ii agreements options rights or restrictions that are substantially_modified after date see sec_25_2703-2 sec_25_2703-1 provides in relevant part that a right or restriction may be contained in a partnership_agreement articles of incorporation corporate bylaws a shareholders’ agreement or any other agreement sec_25_2703-1 provides that sec_2703 does not apply to any right or restriction satisfying the following three requirements-- i the right or restriction is a bona_fide business arrangement ii the right or restriction is not a device to transfer property to the natural objects of the transferor’s bounty for less than full and adequate_consideration in money or money’s worth and iii at the time the right or restriction is created the terms of the right or restriction are comparable to similar arrangements entered into by persons in an arm’s length transaction sec_25_2703-1 generally provides that a right or restriction that is substantially_modified is treated as a right or restriction created on the date of the modification any discretionary modification of a right or restriction whether or not authorized by the terms of the agreement that results in other than a de_minimis change to the quality value or timing of the rights of any party with respect to property that is subject_to the right or restriction is a substantial modification if the terms of the right or restriction require periodic updating the failure to update is presumed to substantially modify the right or restriction unless it can be shown that updating would not have resulted in a substantial modification the addition of any family_member as a party to a right or restriction including by reason of a transfer of property that subjects the transferee family_member to a right or restriction with respect to the transferred property is considered a substantial modification unless the addition is mandatory under the terms of the right or restriction or the added family_member is assigned to a generation determined under the rules of sec_2651 no lower than the lowest generation occupied by individuals already party to the right or restriction sec_25_2703-1 provides that a substantial modification does not include-- i a modification required by the terms of a right or restriction ii a discretionary modification of an agreement conferring a right or restriction if the modification does not change the right or restriction plr-103651-00 iii a modification of a capitalization rate used with respect to a right or restriction if the rate is modified in a manner that bears a fixed relationship to a specified market interest rate and iv a modification that results in an option_price that more closely approximates fair_market_value based on the information submitted and representations made the articles of incorporation the bylaws and the buy-sell_agreement were adopted before date consequently those three agreements are exempt from the application of sec_2703 provided the articles of incorporation the bylaws and the buy-sell_agreement are not substantially_modified as set forth in sec_25_2703-1 based on the information submitted and representations made we conclude that the proposed amendment of the articles of incorporation and the bylaws for the recapitalization of c to create voting and nonvoting common_stock and the issuance of the nonvoting common_stock will not result in other than a de_minimis change to the quality value or timing of the rights of any party with respect to property subject_to the right or restriction the proposed amendment of the articles of incorporation and the bylaws therefore does not constitute a substantial modification for purposes of sec_25_2703-1 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under the cited provisions or any other provision of the code this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely christine e ellison chief branch associate chief_counsel passthroughs and special industries enclosures copy of letter copy for sec_6110 purposes


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 br - plr-119416-99 date date legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 the shareholder of x intended that x elect to be treated as an s_corporation effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year plr-119416-99 however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely signed dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------- ----------------------- --------------------------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------------- ------------------------------------------------------- telephone number ---------------------- refer reply to cc psi b03 plr-121845-16 date date legend x ---------------------------- --------------------------------------------- state -------------- date ------------------------- date -- ----------------------- date ---------------------- y ----------------------- -------------------------------- trust ------------------------------- --------------------------------------- partnership ----------------------------------- ------------------------------------------------- --------------------------------------------- m ---- n -- plr-121845-16 dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the code facts x was organized on date as a corporation under the laws of state effective date x elected to be treated as an s_corporation originally y owned all of the shares of x partnership was also formed on date at that time y and or trust a grantor_trust wholly owned by y owned m of partnership’s interests two individuals owned the other n of partnership’s interests on date y transferred her shares of x to partnership and subsequently made gifts of partnership interests to others in or around date x learned that the transfer of its shares to partnership terminated its s_corporation status in response partnership immediately divested all shares of x distributing those shares outright to the partners in accordance to their respective interests in partnership so that all of the owners of x are now permitted shareholders x represents that x and its shareholders intended for x to be an s_corporation effective date and that x has filed all returns consistent with x’s status as an s_corporation since date x further represents that during the years at issue all income of partnership attributable to x was allocated to the individual partners as though the individual partners owned the x stock directly x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided in sec_1362 of the code law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate and a_trust plr-121845-16 described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides in relevant part that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter of the code as owned by an individual who is a citizen or resident_of_the_united_states qualifies as a shareholder pursuant to sec_1361 sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 further provides that the termination shall be effective on and after the date of cessation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary conclusion based on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date when y transferred shares of x stock to partnership however we conclude that such termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was otherwise valid and apart from the inadvertent termination ruling described above has not otherwise terminated under sec_1362 except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other plr-121845-16 provision of the code specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation the ruling contained in this letter is based upon information and representations submitted by the taxpayer and is accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request it is subject_to verification on examination this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending copies of this letter to your authorized representative sincerely holly porter chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct uniform issue list financial firm s taxpayer a ira x financial firm w amount d amount e amount f individual b dear in response to your date and date letters submitted on your this is behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested in date taxpayer a after discussions with her brother was persuaded that the investment performance of her individual_retirement_account ira x at financial firm w was not as she expected accordingly taxpayer a met with individual b of financial firm s taxpayer a informed individual b that she wanted to open an ira rollover account with the funds checks from financial firm w totaling amount d which represented the balance in her ira over to financial firm s in ira x at financial firm w taxpayer a then endorsed two taxpayer a believed that amount d was rolled over into an ira at financial firm dollar_figure until she received notice from the internal_revenue_service in early and learned that her funds had not been rolled over into an ira on or about date taxpayer a withdrew amount e from her account maintained with financial firm s based on the facts and representations you request that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount f amount d less amount e sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers - sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - the entire amount received including money and any other_property is paid into i an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into ii an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers code sec_408 provides in general that rules similar to the rules of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the trust is maintained code sec_408 provides that paragraph d shall not apply to any amount to the extent such amount is required to be distributed under subsection a sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred indicates that taxpayer a failed the information presented on behalf of taxpayer a to accomplish a rollover due to the mistake of financial firm s to follow the taxpayer's instructions to deposit amount d into a rollover ira taxpayer a directed individual b at financial firm s to complete the rollover because of error on the part of individual b amount d was not rolled over into an ira but was deposited into a non- ra account therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the withdrawal of amount f amount d less amount e previously used by taxpayer a pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter_ruling to make a rollover_contribution of an amount equal to amount f to another ira or iras described in code sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of code sec_408 pursuant to code sec_408 this letter_ruling does not authorize the rollover of any amount required to be distributed in accordance with code sec_401 made applicable to an ira under code sec_408 if any no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact dann lcase address all correspondence to se t ep ra t3 sincerely yours frences to n manager employee_plans technical group _ enclosures deleted copy of letter_ruling notice of intention to disclose