internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-139832-01 date date x date date date state this responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted discloses that x is a corporation organized under the laws of state on date on date x converted from a state corporation to a state limited_partnership this conversion may have created a second class of stock which would have terminated x’s s_corporation_election x intended that x would continue to be treated as an s_corporation when advised that the conversion may have caused x’s s election to terminate x converted back to a state corporation on date x was unaware that the conversion to a state limited_partnership could potentially terminate x’s s_corporation_election x represents that it did not intend to terminate its s_corporation_election and that during the termination period it has timely and consistently filed its tax returns consistent with its treatment as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate other than a_trust described in sec_1361 and other than an plr-139832-01 organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 of the code provides that an election to be treated as an s_corporation terminates whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the date the s_corporation ceases to meet the requirements of a small_business_corporation sec_1362 sec_1362 of the code provides that if an election to be treated as an s_corporation was terminated under sec_1362 or the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in such termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to that period then notwithstanding the terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary s rep no 97th cong 2d sess 1982_2_cb_718 in discussing sec_1362 of the code provides in part as follows if the internal_revenue_service determines that a corporation's subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts based on revproc_99_51 1999_52_irb_760 date section dollar_figure of revproc_2000_3 i r b date provides that the service will not rule on the following issue because it is being studied plr-139832-01 sec_1361 - definition of a small_business_corporation - whether a state law limited_partnership electing under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation has more than one class of stock for purposes of sec_1361 the service will treat any request for a ruling whether a state law limited_partnership is eligible to elect s_corporation status as a request for a ruling on whether the partnership complies with sec_1361 conclusions based upon the information submitted and the representations set forth above we conclude that if x’s conversion from a state corporation to a state limited_partnership created a second class of stock and thereby terminated x's s_corporation_election that the termination was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x's subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code in particular no opinion is expressed or implied concerning whether x's s election was valid under sec_1362 this ruling is directed only to the taxpayer that 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 the taxpayer s david r haglund sincerely 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 city of columbus ohio petitioner v commissioner of internal revenue respondent docket no 3301-95b filed date david l miller and david a rogers for petitioner marsha a sabin sunita b lough and joel e helke for respondent supplemental memorandum opinion tannenwald judge this case is before the court on remand from the court_of_appeals for the district of columbia circuit in 112_f3d_1201 d c cir vacating and remanding 106_tc_325 the issue for decision is whether the prepayment by petitioner of its indebtedness constitutes investment-type_property under sec_148 the findings of facts are set forth in our previous opinion 106_tc_325 and are incorporated herein by this reference we repeat only those facts necessary to an understanding of the instant issue in the state of ohio created a fully funded statewide pension fund for police officers and firefighters the state fund to replace the unfunded plans maintained by petitioner and other ohio municipalities the state fund assumed and guaranteed the pre-1967 pension liabilities of such municipalities including petitioner the state fund obligation state law required each municipality to transfer its pension liabilities and assets to the state fund and to pay the state fund either immediately or over time with interest an amount equal to its accrued unfunded pension liability petitioner transferred its pension liabilities and assets on date and chose to pay its accrued unfunded pension liability over time the city obligation petitioner made scheduled payments until date when it entered into a prepayment agreement with the state fund whereby petitioner paid the balance remaining on the city obligation the remaining obligation in a lump-sum equal to unless otherwise indicated all statutory references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure percent of the outstanding principal balance plus interest from the time of the prepayment agreement until date of the lump-sum payment petitioner made the lump-sum payment on date the prepayment petitioner proposed to issue tax-exempt_bonds to finance the lump-sum payment and requested a ruling from respondent that the interest on the proposed bonds would be exempt under sec_103 respondent denied petitioner's request on the ground that such bonds would be arbitrage_bonds pursuant to sec_148 in our original opinion we attributed the prepayment to the acquisition of the state fund obligation in city of columbus v commissioner t c pincite and concluded that the bonds would be arbitrage_bonds the court_of_appeals reasoned that if we were correct in that attribution the proposed bonds could not be arbitrage_bonds because the arbitrage provisions did not apply retroactively to the transaction city of columbus v commissioner f 3d pincite6 the court_of_appeals remanded the case and defined the scope of the remand as follows the purpose of sec_148 is to prevent states and local governments from using tax-exempt_bond proceeds to acquire higher yielding investment_property even if a prepayment for property may itself be investment_property it remains to be seen whether the city of columbus by satisfying its obligation to the state fund in was making a prepayment for property before the anti-abuse regulations sec_1_148-10 income_tax regs is considered that question must be resolved id pincite it is clear that the threshold question is a narrow one does the acquisition of one's indebtedness constitute an acquisition of property so as to bring sec_148 into play it is petitioner's position that the prepayment extinguished its indebtedness to the state fund and that it acquired no property in that transaction it is respondent's position that petitioner's prepayment was investment-type_property respondent describes the result of petitioner's prepayment as the city received economic property through this investment use respondent argues that to allow petitioner to issue tax-exempt_bonds contravenes the intent of sec_148 through the use of a vehicle similar to that of the prepayment for property or services described in sec_1_148-1 income_tax regs the purpose of sec_148 is to prevent the use of tax- exempt bonds to acquire higher-yielding investment_property city of columbus v commissioner f 3d pincite conf rept 1986_3_cb_1 the arbitrage restrictions are expanded to apply to the acquisition of any property_held_for_investment other than another bond exempt from tax under code sec_103 sec_1_148-10 income_tax regs sec_148 defines investment_property to include any security any obligation any annuity_contract and any we left this question aside in our original opinion and the court_of_appeals did likewise 106_tc_325 revd and remanded 112_f3d_1201 d c cir investment-type_property it is the scope of investment-type_property that is at issue herein sec_1_148-1 income_tax regs states investment-type_property includes any property other than property described in sec_148 b c or e that is held principally as a passive vehicle for the production_of_income except as otherwise provided a prepayment for property or services is investment-type_property if a principal purpose for prepaying is to receive an investment return from the time the prepayment is made until the time payment otherwise would be made unquestionably petitioner by prepaying the remaining city obligation extinguished its preexisting debt while petitioner received an economic benefit from prepaying its debt we do not think it was paying for property petitioner purchased or received nothing beyond the state fund obligation it received under the transaction other than the discount for prepaying its obligation to the state such discounts normally are considered discharge_of_indebtedness income not investments sec_61 284_us_1 10_f3d_68 2d cir 87_tc_1412 the discount here at issue was realized by the prepayment which is not considered a sale_or_exchange in cases where a purchase-money debt is owed to the seller the reduction generally is treated as a purchase_price_adjustment sec_108 house v commissioner tcmemo_1995_92 respondent seeks comfort from consolidated edison co of new york inc v united_states supra in that case the taxpayer prepaid real_property_taxes to new york city and received a discount it contended that the discount was tax-exempt_interest the court_of_appeals for the second circuit rejected that contention and held that the discount was includable in gross_income the court_of_appeals then went on to hold that under the particular circumstances involved the taxpayer was entitled to deduct the full amount of the accrued taxes unreduced by the discount on the ground that it utilized the economic value of the discount to make the payments there is not the slightest indication by the court_of_appeals that it considered the economic value of the discount as constituting property which is the issue involved herein such being the case and given the totally different circumstances involved herein we find respondent's reliance on consolidated edison co of new york inc misplaced the long and short of the matter is that the discount involved herein had economic value but that value cannot be equated with property for which petitioner made the prepayment consequently we answer in the negative the threshold question delineated by the remand since there is no prepayment for property we hold that the prepayment in and of itself does not constitute investment-type_property such being the case petitioner's bonds are not arbitrage_bonds cf 90_tc_832 lending of bond proceeds is not an investment with the result that such use does not give rise to arbitrage decision will be entered for petitioner as the court_of_appeals for the district of columbia circuit stated in city of columbus v commissioner f 3d pincite we also have no doubt that the transaction was a prepayment but was the city's prepayment for property only if it was may the prepayment itself be treated as investment-type_property under the regulation


internal_revenue_service number release date index number ---------------- ------------------------------ -------------------------------------- in re --------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ---------------- telephone number -------------------- refer reply to cc psi b04 plr-145705-13 date may legend grantor child child child child date date trust a_trust trust trust trust corporate trustee individual state foundation dear -------------- ----------------- ------------------------------------------------ ----------------------------------------------- ------------------------------------------------ ------------------------------------------------ ------------------------------- ------------------------ ---------------- ---------------------------- --------------------------- ---------------------------- ---------------------------- ----------------------------- ---------------------------- ------------ --------------------------- this letter responds to your authorized representative’s letter dated date requesting rulings under sec_2041 and sec_2514 of the internal_revenue_code the facts submitted and representations made are as follows on date grantor created an irrevocable_trust trust a that created separate trusts for the benefit of each of grantor’s four children trust trust trust and trust were created respectively for the benefit of child child child and child children’s trusts state law governs all questions relating to the management administration investment distribution and duration of the children’s trusts plr-145705-13 pursuant to the terms of trust a each of the children’s trusts has three initial trustees the investment trustee the administrative trustee and the distribution trustee all three trustees must serve at all times grantor is the initial investment trustee corporate trustee an unrelated corporate trust company is the administrative trustee the property of each of the children’s trusts is held by corporate trustee distributions of trust property are made by corporate trustee but only at the direction of the distribution trustee prior to date an independent person who is not a current beneficiary or a_related_or_subordinate_party within the meaning of sec_672 serves as the sole distribution trustee of each of the children’s trusts individual is currently serving as the independent distribution trustee on or after date when the named beneficiary of the respective children’s trust attains the age of the named beneficiary may serve as the distribution trustee in conjunction with the independent distribution trustee on or after date when the named beneficiary attains the age of the named beneficiary may serve as the sole distribution trustee pursuant to the terms of trust a distributions of trust property from the children’s trusts and the administration of the children’s trusts are subject_to the review of an approval committee the approval committee is comprised of child child child and child approval committee members are not fiduciaries but may not act capriciously maliciously or fraudulently if any child of grantor ceases to be a member of the approval committee no replacement of that member is to be named and the remaining children will continue to act as the sole members of the approval committee the approval committee will terminate at such time that no child of grantor is serving under the terms of trust a the distribution trustee holds the following powers subject_to approval committee consent with respect to the children’s trusts power to amend prior to date with the unanimous consent of the approval committee the independent distribution trustee may a amend the trust a instrument any designation filed by any officeholder or any declaration filed by any beneficiary and b invalidate or override any such designation or declaration or failure to designate or declare article c overriding power_of_appointment prior to date with the unanimous consent of the approval committee the independent distribution trustee may a distribute the trust property to or for the benefit of such one or more persons or organizations including children through as the independent distribution trustee determines in his discretion and b exercise any power granted to the approval committee elsewhere in the trust a instrument article c lifetime distributions to trust beneficiaries during the child’s life the administrative trustee is to pay to the child so much or all of the income and principal as plr-145705-13 the distribution trustee decides is advisable with the consent of the approval committee after giving priority to payments to the child during the child’s life the administrative trustee is to pay to one or more of the child’s descendants so much or all of the income and principal as the distribution trustee decides is advisable with the consent of the approval committee for purposes of this paragraph consent of the approval committee mean sec_50 percent vote if three or more members are acting or unanimous vote if two or fewer members are acting article under the terms of trust a the approval committee has at all times the following powers with respect to the children’s trusts a testamentary distributions - nongeneral_power_of_appointment at the death of the named beneficiary the named beneficiary has a nongeneral_power_of_appointment over the remaining property of his or her respective trust the approval committee acting by majority vote may override the primary beneficiary’s exercise of his or her power_of_appointment in favor of the primary beneficiary’s surviving_spouse in whole or in part by notice thereof delivered to each trustee and the spouse within nine months after the child’s death the approval committee acting by unanimous vote may override in whole or in part the primary beneficiary’s exercise of his or her power_of_appointment for the benefit of any entity or person other than the primary beneficiary’s surviving_spouse for any reason considering only whatever circumstances it determines appropriate by notice thereof delivered to each trustee and appointee within nine months after the child’s death article sec_2 c and b testamentary distributions - default allocations at death on the primary beneficiary’s death the administrative trustee shall allocate any trust property not disposed of by the primary beneficiary’s nongeneral_power_of_appointment per stirpes among the named beneficiary’s then living descendants or if none per stirpes among grantor’s living descendants if the primary beneficiary fails to exercise his or her power_of_appointment in whole or in part or to the extent the approval committee overrides the primary beneficiary’s exercise of a power_of_appointment the approval committee acting by majority vote may override the default allocation at the primary beneficiary’s death by allocating the trust property among such one or more of grantor’s descendants in such proportions as the approval committee decides acting by majority vote by notice thereof delivered to each trustee and descendant of grantor within nine months after the primary beneficiary’s death article sec_2 d and termination event the independent distribution trustee if any shall determine if a termination event has occurred with respect to a primary beneficiary however the approval committee acting by majority vote may negate the independent distribution trustee’s determination that a termination event has occurred the approval committee by percent vote if three members are acting or unanimous vote if two or fewer members are acting separately may determine that a termination event has occurred with respect to a primary beneficiary article a plr-145705-13 minimization powers after termination unless the approval committee acting by majority vote provides otherwise or the approval committee acting by a percent vote separately invokes a minimization power defined below following the occurrence of a termination event with respect to a primary beneficiary and until such primary beneficiary’s trust early termination_date the independent distribution trustee if any shall reduce such primary beneficiary’s benefits from the trust by exercising any one or more of the following minimization powers a limit distributions to such primary beneficiary to minimal support or eliminate distributions entirely b restrict limit or eliminate the provisions of primary beneficiary’s special_power_of_appointment c deem the primary beneficiary deceased for the purpose of acting as or appointing any officeholder under any trust hereunder except that a child of grantor may not be removed from the approval committee and d deem the primary beneficiary deceased for all purposes of article except article d allocations at death article b distribution upon trust early termination_date upon a primary beneficiary’s trust early termination_date the approval committee can exercise its overriding power_of_appointment to distribute so much or all of the trust property of the trust named for the primary beneficiary to or for the benefit of one or more of grantor’s descendants and foundation in such proportions as the approval committee directs prior to the early termination_date if the approval committee does not act by the early termination_date the default allocation i sec_50 percent among the named beneficiary’s living descendants per stripes or if none per stirpes among grantor’s living descendants and percent to foundation article c rulings requested while more than one of grantor’s children are acting on the approval committee none of the committee powers will be considered a general_power_of_appointment under sec_2041 while more than one of grantor’s children are acting on the approval committee none of the committee powers will be considered a general_power_of_appointment under sec_2514 ruling sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date plr-145705-13 or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate sec_20_2041-1 of the estate_tax regulations provides in part that the term power_of_appointment includes all powers which are in substance and effect powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations for example if a_trust instrument provides that the beneficiary may appropriate or consume the principal of the trust the power to consume or appropriate is a power_of_appointment similarly a power given to a decedent to affect the beneficial_enjoyment of trust property or its income by altering amending or revoking the trust instrument or terminating the trust is a power_of_appointment sec_20_2041-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of the estate sec_2041 provides in part that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person -- if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power sec_20_2041-3 provides in part that an interest adverse to the exercise of a power is considered as substantial if its value in relation to the total value of the property subject_to the power is not insignificant a taker in default of appointment under a power has an interest which is adverse to an exercise of the power a co-holder of the power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in plr-145705-13 favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y in this case the approval committee is composed of only grantor’s four children with respect to each of the children’s trusts the approval committee has broad powers to amend the trust to alter distributions made by the distribution trustee and to make distributions from the trusts while the approval committee is acting no funds can be distributed from any trust without the approval committee’s consent we conclude therefore that the members of the approval committee have interests that are adverse to the other members because every distribution is subject_to approval committee consent including the default allocations provided under the terms of trust a the approval committee is empowered to prevent all distributions from all of children’s trust sec_1 through after date the approval committee has a jointly-held overriding power_of_appointment to appoint to any person or organization including themselves on the death of one child of grantor the power will pass jointly to the surviving three children of grantor thus as in the example in sec_20_2041-3 the surviving three children are considered to have interests adverse to the exercise of the power of the deceased child accordingly based on the facts submitted and the representations made we conclude that while more than one of grantor’s children are acting on the approval committee none of the committee powers will be considered a general_power_of_appointment under sec_2041 ruling sec_2501 provides for the imposition of a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the possessor’s estate plr-145705-13 sec_25_2514-1 of the gift_tax regulations provides in part that the term power_of_appointment includes all powers which are in substance and effect powers of appointment received by the donee of the power from another person regardless of the nomenclature used in creating the power and regardless of local property law connotations for example if a_trust instrument provides that the beneficiary may appropriate or consume the principal of the trust the power to consume or appropriate is a power_of_appointment similarly a power given to a donee to affect the beneficial_enjoyment of a_trust property or its income by altering amending or revoking the trust instrument or terminating the trust is a power_of_appointment sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date which is exercisable by the possessor only in conjunction with another person -- if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that an interest adverse to the exercise of a power is considered as substantial if its value in relation to the total value of the property subject_to the power is not insignificant a taker in default of appointment under a power has an interest which is adverse to an exercise of the power a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y plr-145705-13 in this case the approval committee is composed of only grantor’s four children with respect to each of the children’s trusts the approval committee has broad powers to amend the trust to alter distributions made by the distribution trustee and to make distributions from the trusts while the approval committee is acting no funds can be distributed from any trust without the approval committee’s consent we conclude therefore that the members of the approval committee have interests that are adverse to the other members because every distribution is subject_to approval committee consent including the default allocations provided under the terms of trust a the approval committee is empowered to prevent all distributions from all of children’s trust sec_1 through after date the approval committee has a jointly- held overriding power_of_appointment to appoint to any person or organization including themselves on the death of one child of grantor the power will pass jointly to the surviving three children of grantor thus as in the example in sec_25_2514-3 the surviving three children are considered to have interests adverse to the exercise of the power of the deceased child accordingly based on the facts submitted and the representations made we conclude that while more than one of grantor’s children are acting on the approval committee none of the committee powers will be considered a general_power_of_appointment under sec_2514 in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representative except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express no opinion on the trust provisions that permit the distribution trustee to distribute income or principal to trustees of other qualified trusts decanting we also express no opinion on the tax consequences of trust a or any beneficiary if the language of trust a is amended the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-145705-13 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely ___________________________________ leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service number release date index number ----------------------- ----------------------------------------------- -------------------------------------- --------------------------- -------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-152077-05 date date --------------------- ----------------------- legend legend x ----------------------- -------------------------------------------------- country d dear -------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152077-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152077-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun uil no se terra ty legend taxpayer a taxpayer b ira x ira y ira z amount a amount b amount c date date date date dear - - - this is in response to your request dated in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code page of the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that on date he received a distribution from ira x totaling amount a and that on date he received a distribution from ira y totaling amount b taxpayer a asserts that his failure to accomplish a rollover of amount a and amount b within the 60-day period prescribed by sec_408 of the code was due to surgery for a fractured hip and recovery in a skilled nursing facility during the 60-day rollover period taxpayer a’s medical_condition was due to a fall on date taxpayer a received amount b from ira y as proceeds paid on the death of his spouse taxpayer b taxpayer a represents that while it was his intention into another ira within the 60-day period his to rollover amount a and amount b medical_condition made it impossible for him to do so collecting information to file his tax_return for amount a and amount b had not been rolled over within the 60-day period recognizing his mistake taxpayer a deposited amount c an amount less than for equal to the sum of amount a and amount b in ira z on date that taxpayer a realized that it was only while based on these facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to amount c 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 i ii the entire amount received including money and other_property is paid into an ira for the benefit of such individual not later than the 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 an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 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 page of 90u93803 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 sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 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 the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover of amount c was caused by his medical_condition during the 60-day rollover period therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to amount c provided all other requirements of sec_408 of the code except the day requirement are met with respect to amount c which was rolled over into ira z amount c will be considered a rollover_contribution within the meaning of sec_408 of the code page of this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code 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 if you wish to inquire about this ruling please contact id - weekdays between a m and p m at correspondence to se t ep ra t4 please address all sincerely yours t donzell littlejohn manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury washington dc person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc psi 04-plr-121762-03 date march internal_revenue_service number release date index number - ------------------------------------------------------------ ------------ ------------------------ ------------------------------- --------------------------------- re ------------------------------------------------------ --------------------------------- ------------------------------------ -------------------- - legend grantor -------------------------------------------------- spouse ------------------------------------------------ trust ------------------------------------------------------- disinterested trustee ------------------- date --------------------- date --------------------------- year ------- dollar_figurew ------------ dollar_figurex ----------- dollar_figurey --------- child a -------------------------------------------- child b ----------------------------------------- child c ------------------------------------------- court ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ state -------------------- dear ----------------------------------- this is in response to your date letter and prior correspondence in which you requested rulings concerning the federal estate generation-skipping_transfer and income_tax consequences of the proposed division of three trusts plr-121762-03 facts the facts and representations submitted are summarized as follows on date prior to date grantor established an inter_vivos irrevocable_trust trust and transferred to trust cash in the amount of dollar_figurew bonds valued at dollar_figurex and non-voting common_stock valued at dollar_figurey in year the total value of the transfer was reported by grantor on a timely filed gift_tax_return on which grantor and spouse elected to split the gift_for federal gift_tax purposes no additions or contributions have been made to trust after date at the time trust was established grantor had three living children child a child b and child c and no other issue article ii of trust provides that the trustees are to allocate all property of trust by right of representation among grantor s issue living at the time such property is received by the trustees pursuant to article ii the trustees held the trust property in three separate trusts child a_trust child b_trust and child c trust one for each of the grantor’s children each child’s trust so allocated is to be held and disposed of by the trustees upon the terms set forth in article iii article iiia provides that net_income and principal of each child’s trust is to be paid to grantor s child or child s issue as the disinterested trustee deems desirable for the health education maintenance and support of any one or more of such persons the disinterested trustee may also pay net_income and principal to any other descendant of grantor for health education maintenance or support although the needs of grantor s child and child s issue should be given primary consideration article iiib provides that during grantor s lifetime whenever a gift is made to a child’s trust the child of grantor and each of the child s then living issue shall have the right to make a withdrawal from the principal of that child’s trust the amount which may be withdrawn by the child shall be the lesser_of the amount_of_the_gift and twice the maximum amount then permitted as an annual exclusion from taxable_gifts to a single donee under sec_2503 of the internal_revenue_code the amount which may be withdrawn by each of the issue of such child shall be the lesser_of a the amount_of_the_gift reduced by the amount which may be withdrawn by the child and b twice the maximum amount then permitted as an annual exclusion from taxable_gifts to a single donee under sec_2503 such right shall be exercisable in writing by the holder of the right to withdraw within days after the date of the gift but not later than the end of the calendar_year in which such gift is made article iiic provides that upon the death of a child of grantor the trustees are to pay the remaining principal of the child s trust together with any then undistributed plr-121762-03 income in accordance with the exercise by such child of a special_power_of_appointment to the extent such child shall fail to exercise this power_of_appointment the principal and income is to be paid to the child s then living issue by right of representation or in default of such issue to grantor s then living issue by right of representation article va provides that a special_power_of_appointment is one exercisable to or for the benefit of grantor s issue living at the death of the holder of the power or thereafter born in such proportions as the holder of the power shall appoint by will article vb provides that each trust shall terminate in all event sec_21 years after the death of the survivor of all of grantor s issue living on the date of trust article xii defines the term athe disinterested trustee to mean all trustees who are not eligible and who are not legally obligated to support any person who is eligible to receive current distributions of income or principal from any trust created under trust each child allowed his her power_of_withdrawal granted under article iiib to lapse in year the trustees petitioned court seeking its approval to divide child a_trust child b_trust and child c trust into separate trusts pursuant to the proposed severance child a1 trust child b1 trust and child c1 trust will hold the assets from child a_trust child b_trust and child c trust attributable to the first dollar_figure of the original contribution to each such trust over which child a child b and child c allowed his her respective withdrawal power to lapse further pursuant to the proposed severance child a2 trust child b2 trust and child c2 trust will hold the assets from child a_trust child b_trust and child c trust attributable to that portion of the original contribution to each such trust in excess of dollar_figure over which child a child b and child c allowed his her respective withdrawal power to lapse the division will be on a fractional basis with each trust receiving an appropriate fraction of each asset held by the trust on date court ordered that the trustees of trust upon receipt of favorable rulings from the internal_revenue_service are authorized to sever each of the three child s trusts allocating each asset on a fractional share basis into two separate trusts the trustees request the following rulings after the severance of child a_trust child b_trust and child c trust i none of the post-severance trusts will be includable in the gross_estate of the grantor or spouse for federal estate_tax purposes ii the assets of child a1 trust child b1 trust and child c1 trust will not be includable in the particular child’s gross_estate for federal estate_tax purposes and iii the assets of child a2 trust child b2 trust and child c2 plr-121762-03 trust will be includable in the particular child’s gross_estate for federal estate_tax purposes under sec_2041 and b the proposed severance of each child s trust will not affect the gst exempt status of child a_trust child b_trust child c trust child a1 trust child b1 trust child c1 trust child a2 trust child b2 trust or child c2 trust the proposed severance of each child s trust will not be treated as a taxable_event for federal_income_tax purposes ruling_request sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of the decedent's death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_consideration in money_or_money's_worth by trust or otherwise under which he or she has retained for life or for any period not ascertainable without reference to his her death or for any period which does not in fact end before his or her death b the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if the possession or enjoyment thereof can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent plr-121762-03 acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such a nature that if it were a transfer of property owned by the decedent such property would be includable in the decedent’s gross_estate under sec_2035 through inclusive sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate sec_2041 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of the power to the extent that the property that could have been appointed by exercise of the lapsed power during the calendar_year exceeds the greater of dollar_figure or percent of the aggregate value at the time of such lapse of the assets out of which the exercise of the lapsed powers could be satisfied in the present case neither grantor nor spouse retained any interests in child a_trust child b_trust or child c trust for purposes of sec_2036 sec_2037 sec_2038 or sec_2041 accordingly the assets of the post-severance trusts will not be includible in grantor’s or spouse’s gross_estate for federal estate_tax purposes each child allowed his her power_of_withdrawal granted under article iiib of trust to lapse in year pursuant to the proposed severance of each child’s trust child a1 trust child b1 trust and child c1 trust will hold the assets from child a_trust child b_trust and child c trust attributable to the first dollar_figure of the original contribution to each such trust over which child a child b and child c allowed his her respective withdrawal power to lapse the lapse of this withdrawal power was not a release of a general_power_of_appointment under sec_2041 in addition each child has a special_power_of_appointment to appoint the principal of his her respective trust upon his her death under article va of trust to or for the benefit of grantor’s issue living at the death of the powerholder or thereafter born each child’s special_power_of_appointment is not a general_power_of_appointment as defined in sec_2041 accordingly the assets of child a1 trust child b1 trust and child c1 trust will not be includible in the particular child’s gross_estate for federal estate_tax purposes pursuant to the proposed severance of each child’s trust child a2 trust child b2 trust and child c2 trust will hold the assets from child a_trust child b_trust and child c trust attributable to that portion of the original contribution to each such trust in plr-121762-03 excess of dollar_figure over which child a child b and child c allowed his her respective withdrawal power to lapse under sec_2041 such lapse is treated as a release of a general_power_of_appointment for purposes of sec_2041 and accordingly the assets of child a2 trust child b2 trust and child c2 trust will be includible in the particular child’s gross_estate for federal estate_tax purposes ruling_request sec_2601 imposes a tax on every generation-skipping_transfer gst within the meaning of subchapter_b under section a of the tax_reform_act_of_1986 act and ' a of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and ' b i the tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter but only if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust it is represented that no additions actual or constructive have been made to trust child a_trust child b_trust or child c trust after date plr-121762-03 the proposed severance of child a_trust child b_trust and child c trust will not result in a shift of any beneficial_interest in such trusts to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed severance will not extend the time for vesting of any beneficial_interest in the new trusts beyond the period provided for in the trusts accordingly the proposed severance of child a_trust child b_trust and child c trust will not affect the gst exempt status of those trusts or the resulting trusts child a1 trust child b1 trust child c1 trust child a2 trust child b2 trust or child c2 trust for purposes of chapter ruling_request sec_61 provides that gross_income means all income from whatever source derived sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 properties exchanged are materially different if the properties embody legal entitlements different in_kind or extent or if the properties confer different rights and powers id pincite in cottage savings the court held that mortgage loans made to different obligors and secured_by different homes embodied distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in defining what constitutes a material difference for purposes of sectioni1001 a the court stated that properties are different in the sense plr-121762-03 that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite in analyzing the instant trust division for sec_1001 to apply there must be a sale or disposition of an interest in property and the property interests exchanged must be materially different a_trust division unless prescribed by the original trust or local law is a deemed sale or disposition of an interest in property in this context a deemed sale or disposition of an interest of property is an exchange of materially different interests in property subject_to sectioni1001 if either the original trust assets are allocated to the post-severance trusts in a non-pro rata manner or the post-severance trusts contain new or additional terms and conditions in revrul_69_486 1969_2_cb_159 distinguished by revrul_83_61 1983_1_cb_78 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not convey authority to the trustee to make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement between the trustee and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 the present case is distinguishable from revrul_69_486 because all of the assets from child a_trust child b_trust and child c trust will be divided and allocated pro_rata between the post-severance trusts accordingly the proposed transaction will not be treated as a pro_rata distribution followed by an exchange of assets among the beneficiaries of the child s trusts a_trust division may also result in the exchange of materially different interests in property if a post-severance trust contains new or additional terms and conditions revrul_56_437 1956_2_cb_507 provides that a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever the joint_interests but do not acquire a new or additional interest as a result thereof the transaction here is similar to the kinds of transactions discussed in revrul_56_437 since the trusts here are to be divided but all other provisions of the trusts will remain unchanged thus the proposed transaction will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries accordingly it is also consistent with the supreme court's opinion in cottage savings to find that the interests of the beneficiaries in the post-severance trusts will not differ materially from their interests in the original trusts the proposed division will not change the interests of the beneficiaries instead the beneficiaries will be entitled to plr-121762-03 the same benefits after the proposed transaction as before therefore the proposed severance of each child s trust will not constitute a taxable disposition under sec_1001 a copy of this letter should be attached to any income estate or generation- skipping transfer_tax returns that you may file relating to these matters in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for the ruling it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner senior counsel branch office_of_chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes cc ------------------------------------------ ------------------------------------------ ------------------------------- ------------------------------------------- ------------------------ ------------------------------------ --------------------------------------


t c memo united_states tax_court john lewis hill petitioner v commissioner of internal revenue respondent docket no 29332-12l filed date john lewis hill pro_se anne m craig for respondent memorandum opinion vasquez judge pursuant to sec_6320 and sec_6330 petitioner john lewis hill seeks review of respondent’s determination to proceed unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure with collection the matter is before the court on respondent’s motion for summary_judgment filed pursuant to rule and to impose a penalty under sec_6673 mr hill objects to respondent’s motion after a concession the issues for decision are whether mr hill is liable for a dollar_figure frivolous_return penalty under sec_6702 for whether respondent abused his discretion in sustaining a proposed levy and a notice_of_federal_tax_lien for and whether the court should impose a penalty under sec_6673 we conclude that there is no genuine dispute as to any material fact background mr hill resided in florida at the time that the petition was filed with the court mr hill filed his form_1040 u s individual_income_tax_return for on date with the exception of line sec_40 and sec_41 showing the standard_deduction as a positive amount and a negative_amount respectively and line showing the exemption_amount each line on mr hill’s form_1040 was either the internal_revenue_service irs assessed two separate dollar_figure frivolous_return penalties under sec_6702 for one on date and the other on date respondent now concedes that the march penalty was invalid and will abate it left blank or filled in with a zero mr hill reported taxable_income of zero for and did not make any estimated_tax payments mr hill attached to his form_1040 a document purporting to correct to zero the amounts reported on various forms 1099-misc miscellaneous income the document attached to mr hill’s form_1040 included the following statement the purpose of this document is to rebut and correct payments made to myself john l hill by third party payers for the year that erroneously allege gains profit or income made in the course of a trade_or_business as the term trade_or_business is defined under s ection a income for the purpose of an income_tax or gross_income for the purpose of an income_tax the corrected amounts indicate the proper amount of gains profit or income made in the course of a trade_or_business as the term trade_or_business is defined under s ection a income for the purpose of an income_tax or gross_income for the purpose of an income_tax paid to me the recipient by those third party payers on date more than three years after mr hill filed his form_1040 the irs completed a form_8278 assessment and abatement of miscellaneous civil penalties based on the form_1040 on date the irs assessed a dollar_figure civil penalty against mr hill for filing a frivolous income_tax return the the document attached to mr hill’s form_1040 for purported to correct forms filed by blue cross blue shield of florida inc united health care insurance co and north american health_plans inc and a consolidated form 1099-misc filed by ameritrade mr hill also attached to his form_1040 a letter in which he objected to filing a form_1040 and questioned respondent’s authority to request one irs subsequently issued mr hill a final notice--notice of intent to levy and notice of your right to a hearing levy notice dated date and a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 nftl dated date on date mr hill timely submitted a form request for a collection_due_process or equivalent_hearing in response to the levy notice and the nftl the irs received the form on date and mr hill’s case was assigned to settlement officer joe breazeale settlement officer breazeale of the irs office of appeals appeals in jacksonville florida mr hill requested that communications be conducted exclusively via u s mail as a result mr hill and settlement officer breazeale exchanged several letters and the collection_due_process_hearing cdp hearing was conducted through this exchange in his letters mr hill took several frivolous positions arguing that he was not liable for income_tax because he is not a withholding_agent under sec_1461 was not involved in a trade_or_business and did not have any income from a trade_or_business he also claimed that his form_1040 had been stamped and the levy notice stated that mr hill owed over dollar_figure in civil penalties and interest this amount included the dollar_figure penalty assessed on date as well as the dollar_figure penalty assessed on date which respondent has since conceded see supra note processed as valid and that the irs was therefore required to treat it as valid he did not offer any collection alternatives in his letters to mr hill settlement officer breazeale stated that mr hill’s form_1040 was not processed as valid explaining that when the irs receives a tax_return a date stamp is placed on the return to show the date that it was received the date stamp does not make the return valid settlement officer breazeale also informed mr hill that the arguments raised in the document attached to mr hill’s form_1040 were frivolous on date appeals issued mr hill a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination sustaining the proposed levy and the notice of lien filing mr hill timely petitioned the court i summary_judgment discussion the purpose of summary_judgment is to expedite litigation and avoid costly time-consuming and unnecessary trials fla peach corp v commissioner 90_tc_678 we may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party sundstrand corp v commissioner t c pincite however the nonmoving party may not rest upon mere allegations or denials but instead must set forth specific facts showing that there is a genuine dispute rule d see sundstrand corp v commissioner t c pincite because we find that there is no genuine dispute as to any material fact this case is ripe for summary_judgment ii jurisdiction a statutory framework sec_6321 imposes a lien in favor of the united_states on all property and rights to property of a taxpayer liable for tax when a demand for payment of the tax has been made and the taxpayer fails to pay the tax sec_6320 provides that the secretary shall furnish the taxpayer with an nftl within five business days after the notice of lien is filed sec_6331 authorizes the secretary to levy upon property and property rights of a taxpayer liable for tax if the taxpayer fails to pay the tax within days after notice_and_demand for payment is made see sec_6671 see also blaga v commissioner tcmemo_2010_170 slip op pincite sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of the right to a hearing before the levy is made if a taxpayer requests a hearing in response to an nftl or a notice_of_levy pursuant to sec_6320 or sec_6330 a hearing shall be held before an impartial officer_or_employee of appeals sec_6320 b the hearing under sec_6320 generally shall be conducted in a manner consistent with the procedures set forth in sec_6330 d and e sec_6320 at the hearing the taxpayer may raise any relevant issue including appropriate spousal defenses challenges to the appropriateness of the collection action and collection alternatives sec_6330 in addition to considering issues raised by the taxpayer under sec_6330 the appeals officer must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 a taxpayer is precluded from contesting the existence or amount of the underlying tax_liability unless the taxpayer did not receive a notice_of_deficiency for the liability in question or did not otherwise have an earlier opportunity to dispute the liability sec_6330 see also sego v commissioner t c the phrase underlying tax_liability includes the sec_6702 frivolous_return penalty see 130_tc_44 following a hearing appeals must determine whether to sustain the filing of the lien and whether proceeding with the proposed levy is appropriate in making that determination appeals is required to take into consideration the verification required by sec_6330 relevant issues raised by the taxpayer and whether the proposed lien or levy action appropriately balances the need for efficient collection_of_taxes with the taxpayer’s concerns regarding the intrusiveness of the proposed collection action sec_6330 b standard of review sec_6330 grants this court jurisdiction to review appeals’ determination in connection with a collection hearing where the underlying tax_liability is properly at issue we review the taxpayer’s liability de novo see 114_tc_176 we review all other determinations for abuse_of_discretion 117_tc_183 sego v commissioner t c pincite goza v commissioner t c pincite appeals abuses its discretion if it acts arbitrarily capriciously or without sound basis in fact or law 112_tc_19 mr hill may challenge the assessment of the frivolous_return penalty under sec_6702 because he has not had a prior opportunity to dispute the assessment accordingly we review mr hill’s liability for the sec_6702 penalty de novo we otherwise review appeals’ determination to proceed with collection actions regarding mr hill’s unpaid sec_6702 penalty for abuse_of_discretion iii sec_6702 penalty a taxpayer is liable for a frivolous_return penalty under sec_6702 if three requirements are met see callahan v commissioner t c pincite lindberg v commissioner tcmemo_2010_67 first the taxpayer must have filed a document that purports to be an income_tax return sec_6702 second the purported return must have either not contained information on which the substantial correctness of the self-assessment may be judged or contained information that on its face indicated that the self-assessment was substantially incorrect id third the defect must have been based on a position which the secretary has identified as frivolous or reflected a desire which appeared on the purported return to delay or impede the administration of federal tax laws sec a the amount of the penalty is dollar_figure sec_6702 the commissioner bears the burden_of_proof with respect to whether a taxpayer is liable for a frivolous_return penalty sec_6703 respondent produced mr hill’s form_1040 for in which mr hill reported zero income claimed the standard_deduction and two personal exemptions and reported no tax_liability the form_1040 constitutes a document that purports to be an income_tax return see callahan v commissioner t c pincite shirley v commissioner tcmemo_2014_10 at mr hill’s form_1040 was a zero return containing information that on its face indicated that the self-assessment was substantially incorrect blaga v commissioner slip op pincite courts have held repeatedly that a zero return reporting no income and no tax_liability reflects a frivolous position id slip op pincite see also tickel v united_states 815_f2d_706 6th cir himes v united_states 802_f2d_458 in congress amended sec_6702 increasing the penalty from dollar_figure to dollar_figure and broadening its reach to include other types of frivolous tax submissions tax relief and health care act of pub_l_no div a sec_407 sec_120 stat pincite see also alexander v commissioner tcmemo_2012_75 slip op pincite the amendment was effective for submissions made and issues raised after the date the secretary first prescribed a list of frivolous positions pursuant to sec_6702 the secretary first prescribed a list of frivolous positions on date in notice_2007_30 2007_1_cb_883 mr hill filed his form_1040 on date therefore sec_6702 as amended applies in this case 6th cir the secretary also has identified this position as frivolous see notice_2008_14 2008_1_cb_310 modifying and superseding notice_2007_30 2007_1_cb_310 accordingly respondent has met his burden_of_proof by showing that mr hill’s form_1040 satisfied all three requirements of sec_6702 we find mr hill liable for a sec_6702 penalty of dollar_figure for filing a zero return for the tax_year iv determination to proceed with collection in his response to respondent’s motion for summary_judgment and penalty under sec_6673 and during the summary_judgment hearing mr hill raised arguments that this court and others have consistently determined to be frivolous see hill v commissioner tcmemo_2013_265 at garber v commissioner tcmemo_2012_47 slip op pincite aff’d 500_fedappx_540 7th cir however during the summary_judgment hearing respondent’s counsel invited the court’s attention to a potential statute_of_limitations issue as we have said of similar arguments on previous occasions these arguments are frivolous and devoid of any basis in the law we need not refute them with somber reasoning and copious citation of precedent to do so might suggest that they have some colorable merit see 737_f2d_1417 5th cir 136_tc_498 guthrie v commissioner tcmemo_2006_81 as respondent’s counsel explained the sec_6702 penalty was assessed on date--more than three years after mr hill’s form_1040 was filed sec_6501 establishes a general_rule that taxes imposed under title_26 must be assessed within three years after a return is filed if the sec_6702 penalty is considered a tax for purposes of sec_6501 and mr hill’s form_1040 does not fall within any of the exceptions to the general three-year_rule then assessment of the sec_6702 penalty would be barred the court directed the parties to submit briefs on this issue on brief mr hill adopts as his own argument the sec_6501 statute_of_limitations issue raised by respondent’s counsel he argues that the sec_6702 penalty is a tax for purposes of sec_6501 that the penalty was assessed more than three years after he filed his tax_return and that his form_1040 was a valid_return respondent argues that the sec_6702 penalty is not a tax for purposes of sec_6501 and even if it were mr hill’s form_1040 did not constitute a valid_return for purposes of sec_6501 because we find that mr hill’s form_1040 was not a valid_return we need not address whether the sec_6702 penalty is considered a tax for purposes of sec_6501 a document is sufficient for commencing the period of limitations under sec_6501 if it meets the four-part test enunciated in 82_tc_766 aff’d per curiam 793_f2d_139 6th cir first there must be sufficient data to calculate tax_liability second the document must purport to be a return third there must be an honest and reasonable attempt to satisfy the requirements of the tax law and fourth the taxpayer must execute the return under penalties of perjury see eg 112_tc_83 respondent argues that mr hill’s form_1040 fails the beard test because it does not provide sufficient data to calculate mr hill’s tax_liability and does not constitute an honest and reasonable attempt to satisfy the tax law mr hill denies that his form_1040 was frivolous and argues that respondent has failed to show any evidence that disputes petitioner’s evidence that shows certain amounts he received during the year are not taxable_income as the income_tax laws apply to himself mr hill also cites service_center advice pincite date for the proposition that o nce an otherwise frivolous_return is treated as valid it is a valid_return for all tax purposes this argument does not have merit as we in doing so mr hill again reverts to the same frivolous arguments that he has unsuccessfully relied upon throughout these proceedings and in other proceedings before this court see eg hill v commissioner tcmemo_2013_265 have previously stated service_center advice is not precedent is not law and is not binding moreover service_center advice does not state that if the commissioner mistakenly begins to process a frivolous_return as valid the commissioner may not correct the error laue v commissioner tcmemo_2012_105 slip op pincite we also note that there is no credible_evidence that mr hill’s return was processed as valid while mr hill places great weight on the fact that the irs stamped his return received and no statute issue neither stamp indicates that the irs considered his return valid at any point mr hill’s form_1040 for was a frivolous zero return that failed to provide sufficient data to calculate tax_liability or to reasonably attempt to satisfy the requirements of the tax law cf eg 672_f2d_875 11th cir protest documents duplicating in part u s individual_income_tax_return form 1040’s but containing no financial data are not tax ‘returns’ for the purposes of sec_7203 618_f2d_280 5th cir the bare act of filing a form_1040 does not constitute a tax ‘return’ under sec_7203 consequently even if the sec_6501 settlement officer breazeale also informed mr hill that the irs had not processed his return as valid limitations_period applies to the sec_6702 penalty--which we do not decide--mr hill’s form_1040 was not valid and the limitations_period would not have begun to run see sec_6501 in the case of failure_to_file a return the tax may be assessed at any time we find that respondent’s assessment of the sec_6702 penalty is not barred by the statute_of_limitations that appeals’ determination to proceed with collection was not an abuse_of_discretion and that the proposed collection action is sustained v sec_6673 sanction sec_6673 authorizes the court to impose a penalty not to exceed dollar_figure if the taxpayer took frivolous or groundless positions in the proceeding or instituted or maintained the proceeding primarily for delay respondent seeks a penalty because mr hill raised frivolous arguments mr hill is no stranger to this court and has been sanctioned on several occasions despite the rebukes he has received in prior cases mr hill initiated respondent has asked the court to impose a sec_6673 penalty on mr hill on multiple occasions in the case at docket no 13267-09l we warned mr hill not to raise frivolous arguments again but declined to impose a sec_6673 penalty in the case at docket no 15452-10l we imposed a dollar_figure penalty in the case at docket no we imposed a dollar_figure penalty and in a consolidated proceeding under docket nos and we imposed continued these proceedings using arguments that this court has found to be frivolous hill v commissioner tcmemo_2013_265 at garber v commissioner tcmemo_2012_47 slip op pincite mr hill continued to espouse these frivolous arguments leading up to and throughout the summary_judgment hearing however mr hill pivoted away from these frivolous arguments after the court directed the parties to submit briefs on the statute_of_limitations issue mr hill’s checkered history notwithstanding he has succeeded here in arguing an issue that merits consideration while we hold that mr hill’s form_1040 was invalid and that the period of limitations is open mr hill made some arguments on brief that were not frivolous although a taxpayer who makes frivolous arguments is not immune from penalty just because some of his arguments are not frivolous we decline to sanction mr hill in this case we do however strongly warn mr hill once again that he may be subject_to further sec_6673 penalties in future cases if he persists in maintaining proceedings to delay or to advance frivolous arguments continued dollar_figure for each of the consolidated cases for total penalties of dollar_figure in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we find them to be moot irrelevant or without merit to reflect the foregoing an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n toll free contact number name of qualified_subsidiary employer_identification_number person to contact and id number release number release date uil date date se t eo ra t3 dear ------------- this letter is in reply to your request for a ruling concerning the status for federal tax purposes of your qualified_subsidiary your exemption as a title-holding corporation under sec_501 of the internal_revenue_code was recognized by our exemption_letter to you dated date your qualified_subsidiary was formed by you for the purpose of holding title to real_property the information submitted shows that percent of the stock of your subsidiary has been held by you at all times during its existence sec_501 of the code provides for the exemption from federal_income_tax of title-holding corporations or trusts that hold title to real_property and otherwise meet the requirements of sec_501 sec_501 of the code provides that a corporation may be a qualified_subsidiary of an exempt title-holding organization if percent of its stock is held at all times during such corporation's existence by an exempt title-holding organization the code further provides that the qualified_subsidiary will not be treated as a separate corporation for federal tax purposes in addition all of the qualified subsidiary's assets liabilities and items of income deduction and credit will be treated as belonging to the exempt parent title-holding organization based upon the information provided we rule that the above-named subsidiary is your qualified_subsidiary corporation as described in sec_501 of the code therefore you and your qualified_subsidiary shall be treated for federal tax purposes as a single entity as long as you and your qualified_subsidiary continue to meet all of the requirements of sec_501 your activities and those of your qualified_subsidiary corporation will be considered in the aggregate to determine whether you continue to qualify for exempt status consequently any activity conducted by a qualified_subsidiary corporation that is not permitted under sec_501 may cause you to lose your exempt status your qualified_subsidiary corporation is not required to file federal tax and information returns that are generally required under federal tax law since it is treated as part of its exempt parent title-holding organization as the exempt parent title-holding organization you are required to file all federal returns including form_990 return of organization exempt from income_tax required by sec_6033 of the code using your employer_identification_number the form_990 must include financial information applicable to your qualified_subsidiary corporation the information pertaining to your qualified_subsidiary corporation should not be listed separately but should be aggregated with the information applicable to you therefore you and your qualified_subsidiary corporation must be on the same annual_accounting_period form_990 should be filed with the ogden service_center ogden ut when form_990 return of organization exempt from income_tax is filed please provide the information listed below with your return the name address and employer_identification_number if any of each qualified_subsidiary a statement that you have held percent of the stock of each named qualified_subsidiary at all times during the subsidiary's existence the name and address of any previously qualified_subsidiary and an explanation as to why the subsidiary is no longer a qualified_subsidiary a statement describing any changes during the tax_year in the purposes character or method of operation of each qualified_subsidiary please use the employer_identification_number indicated in the heading of this letter on all returns you file and in all correspondence with the internal_revenue_service your qualified subsidiaries should not apply for their own employer_identification_number because this letter could help resolve any questions about your exempt status you should keep it in your permanent records if you have any questions about this letter call the toll free number indicated in the heading of this letter or send correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh james f langley lois g lerner director exempt_organizations rulings agreements sincerely