tcmemo_2007_200 united_states tax_court kevin m moore petitioner v commissioner of internal revenue respondent docket no 17901-06l filed date kevin m moore pro_se monica j miller and laura a price for respondent memorandum findings_of_fact and opinion vasquez judge pursuant to sec_6330 petitioner seeks review of respondent’s determination to proceed with unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure collection of his and income_tax liabilities confronted with petitioner’s refusal to work toward a stipulation of facts on date respondent filed a motion to show cause why proposed facts in evidence should not be accepted as established pursuant to rule f respondent attached to his motion a proposed stipulation of facts and exhibits on date the court issued an order to show cause under rule f requiring petitioner to file a response on or before date as to why matters set forth in respondent’s motion should not be deemed admitted additionally the court ordered that if petitioner’s response was evasive or not fairly directed to the proposed stipulation or portion thereof that matter or portion thereof would be deemed stipulated for purposes of the pending case and an order would be entered accordingly pursuant to rule f on date petitioner filed a response to the court’s order to show cause on date the court made absolute its order to show cause under rule f and ordered that the facts and evidence set forth in respondent’s proposed stipulation of facts were deemed established findings_of_fact accordingly pursuant to rule f the facts set forth in the rule f motion are deemed stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed the petition petitioner resided in tampa florida petitioner failed to timely file federal_income_tax returns for and on date respondent sent petitioner statutory notices of deficiency for and on date respondent sent petitioner a statutory_notice_of_deficiency for respondent determined deficiencies in and additions to petitioner’s federal_income_tax as follows additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioner received the notices of deficiency and chose not to petition this court on date respondent sent petitioner a final notice--notice of intent to levy and notice of your right to a hearing with respect to petitioner’s and taxable years levy notice the levy notice amounts are rounded to the nearest dollar listed petitioner’s total outstanding liabilities as of that date as dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively a total of dollar_figure on date petitioner sent respondent a form request for a collection_due_process_hearing regarding his and tax years the only reason petitioner provided on the form for respondent not to proceed with collection was does not make sufficient money to help support myself on date petitioner had a face-to-face sec_6330 hearing with settlement officer james feist among other things petitioner requested that settlement officer feist provide evidence verifying the u s individual income_tax form sec_1040 and form 433-a in question are in compliance with the specifications of the paperwork reduction act pra and have been issued current and valid control numbers from the office of management and budget the only nonfrivolous issue petitioner raised at the hearing was financial hardship on or about date petitioner mailed settlement officer feist a copy of revrul_2006_21 2006_1_cb_745 regarding frivolous tax returns this revenue_ruling states that arguments regarding the paperwork reduction act--including that the paperwork reduction act allegedly relieves taxpayers of the duty to file income_tax returns--have no merit and are frivolous the revenue_ruling under the heading civil and criminal penalties notes that in addition to several other potential penalties taxpayers may be liable for a penalty of up to dollar_figure under sec_6673 if the taxpayer makes frivolous arguments in the united_states tax_court id c b pincite on the face of the revenue_ruling petitioner wrote that he had read the revenue_ruling petitioner attached a document containing frivolous and groundless arguments to the revenue_ruling on date respondent issued a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination to petitioner regarding his and tax years in the notice_of_determination respondent determined that the proposed collection action was appropriate petitioner failed to submit a viable collection alternative and collection should proceed in an attachment to the notice_of_determination respondent referred petitioner to the truth about frivolous tax arguments and provided an internet address to access the document on date the court held a trial in this matter that same day the court filed respondent’s and petitioner’s pretrial memoranda in his pretrial memorandum petitioner stated that he did not intend to call any witnesses petitioner’s pretrial memorandum contained frivolous and groundless arguments respondent’s pretrial memorandum again warned petitioner about the sec_6673 penalty for making frivolous arguments to the court on date petitioner filed a statement containing frivolous and groundless arguments petitioner’s statement also contained disparaging and disrespectful statements directed to the court that same day petitioner filed a voluminous document entitled petitioner’s motions which was replete with frivolous and groundless tax-protester arguments on date the court denied petitioner’s motions opinion i determination to proceed with collection sec_6330 provides that the secretary shall furnish taxpayers with written notice of their right to a hearing before any property is levied upon sec_6330 further provides that the taxpayer may request administrative review of the matter in the form of a hearing within a 30-day period sec_6330 and b pursuant to sec_6330 a taxpayer may raise at the sec_6330 hearing any relevant issue with regard to the commissioner’s collection activities including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and alternative means of collection 114_tc_604 114_tc_176 if a taxpayer received a statutory_notice_of_deficiency for the years in issue or otherwise had the opportunity to dispute the underlying tax_liability the taxpayer is precluded from challenging the existence or amount of the underlying tax_liability sec_6330 sego v commissioner supra pincite goza v commissioner supra pincite petitioner received notices of deficiency for and accordingly he cannot challenge his underlying liabilities for those years see sec_6330 sego v commissioner supra pincite goza v commissioner supra pincite at trial the court gave petitioner several opportunities to present evidence regarding his underlying liabilities for and the court asked petitioner several times whether he wanted to address his deficiencies or underlying liabilities when asked by the court whether he had anything to say about his deficiencies or underlying liabilities petitioner answered no accordingly we review respondent’s determination for and for an abuse_of_discretion see sego v commissioner supra pincite settlement officer feist conducted a thorough review of the financial information that petitioner provided to him upon the basis of petitioner’s financial information petitioner’s having taken no significant voluntary action as suggested towards resolving his tax situation and petitioner’s having paid only dollar_figure via withholding and dollar_figure via a estimated_tax payment towards assessed taxes of dollar_figure for through respondent determined that petitioner did not submit a viable collection alternative at trial the court asked petitioner several times whether he wanted to put on any evidence or had any evidence to submit regarding respondent’s determination petitioner did not take advantage of any of the repeated opportunities the court presented to him petitioner has failed to raise a spousal defense make a valid challenge to the appropriateness of respondent’s intended collection action or offer a viable alternative means of collection these issues are now deemed conceded see rule b accordingly we conclude that respondent did not abuse his discretion and we sustain respondent’s determination to proceed with collection ii sec_6673 sec_6673 authorizes this court to require a taxpayer to pay to the united_states a penalty not to exceed dollar_figure if the taxpayer took frivolous positions in the proceedings or instituted the proceedings primarily for delay a position maintained by the taxpayer is frivolous where it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir at trial the court repeatedly advised petitioner to address the issues in and present evidence regarding his case instead of presenting evidence or addressing the merits of his case petitioner belligerently shouted yelled and screamed irrelevant questions repeatedly at the court petitioner repeatedly interrupted the court and directed disrespectful statements to the court additionally rather than directing his attention to his case or the court petitioner shouted and called out to approximately a dozen persons in the gallery disrespectful and irrelevant remarks impugning the integrity of the court in 115_tc_576 we issued an unequivocal warning to taxpayers concerning the imposition of penalties pursuant to sec_6673 on those taxpayers who abuse the protections afforded by sec_6320 and sec_6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in such actions petitioner filed multiple frivolous documents with the court petitioner’s position based on stale and meritless contentions is manifestly frivolous and groundless and he has wasted the time and resources of this court we are convinced that petitioner instituted and maintained these proceedings primarily for delay although the amount is scarcely sufficient we shall impose a penalty of dollar_figure pursuant to sec_6673 iii additional sanctions as we stated in 119_tc_276 citations omitted all courts are vested with the inherent power to impose silence respect and decorum in their presence and submission to their lawful mandates it is established that this court has inherent power and authority to regulate and supervise proceedings before it so as to insure the integrity of its processes the court's inherent power extends to regulate both conduct before it and conduct beyond its confines the court has recognized its authority to maintain the integrity of its proceedings and its ability to provide relief for a party's misconduct in addition to our inherent power sec_7456 as pertinent to this case provides that the tax_court and each division thereof shall have power to punish by fine or imprisonment at its discretion such contempt of its authority and none other as-- misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice we note that the original version of the sec_6673 penalty dates back to however congress has not raised the amount of the sec_6673 penalty since see omnibus budget reconciliation act of publaw_101_239 sec a 103_stat_2400 for a discussion of the history of sec_6673 see 71_tc_633 in williams as is the case herein a dollar_figure penalty under sec_6673 was imposed because of the taxpayer’s obvious pattern of delay and extensive waste of the resources of the court system and the government id pincite in williams we considered whether it would be appropriate to impose a sanction on the taxpayer in addition to the dollar_figure sec_6673 penalty for his institution or maintenance of the proceeding for purposes of delay id we stated contempt of court may be civil or criminal depending upon the purpose being served ‘ c ivil contempt is coercive and remedial in character whereas criminal contempt is punitive to vindicate the authority of the court ’ id pincite- citations omitted because of the possibility of a monetary fine being imposed as a criminal sanction the taxpayer was provided with an opportunity to show cause why such a fine should not be imposed id pincite although petitioner’s actions herein were contemptuous we shall not reward petitioner by delaying this matter any further perhaps petitioner will see the error of his ways should he return to the court however and proceed similarly eg by engaging in belligerent or disrespectful misbehavior in the presence of the court to obstruct the administration of justice petitioner is on notice that the court will consider imposing appropriate sanctions pursuant to sec_7456 in addition to the penalty provided by sec_6673 to impress upon him that such misbehavior will not be tolerated by this court to reflect the foregoing an appropriate decision will be entered


department of the treasury internal_revenue_service washington d c date of f i c e of c h i e f c ou n s e l number release date cc ita tl-n-666-01 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel associate chief_counsel income_tax accounting cc ita from subject request for field_service_advice this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend x y a b blackacre whiteacre dollar_figureu dollar_figurev dollar_figurew dollar_figurex dollar_figurey dollar_figurez year year year issue sec_1 whether an exchange of property between x and y qualifies for nonrecognition treatment under sec_1031 tl-n-666-01 whether the subsequent disposition of the property by y triggers gain to x under sec_1031 conclusion sec_1 the exchange qualifies for nonrecognition treatment the subsequent disposition does not trigger gain to x facts in year a formed x a partnership a owned of x and b a’s son owned before forming the partnership a owned blackacre a contributed blackacre to x along with other_property in the vicinity of blackacre also in year b formed y an s_corporation on december of year y purchased whiteacre for dollar_figureu the property was percent financed and the loan personally guaranteed by a y initially leased whiteacre to an unrelated third party blackacre and whiteacre were like_kind for purposes of sec_1031 in year x and y exchanged blackacre for whiteacre at the time of the exchange blackacre was worth dollar_figurev and had a basis of dollar_figurew whiteacre was worth dollar_figurex and had an adjusted_basis of dollar_figurey x moved its business operations from blackacre to whiteacre and the parties systemically liquidated property they owned in the vicinity of blackacre and whiteacre over the next two years virtually all the other_property was sold optioned or donated to a charity which was expanding its operations in year a date more than two years after the exchange x sold whiteacre to the charity law and analysis sec_1001 provides the general_rule that gain_or_loss is realized on the sale_or_other_disposition of property sec_1031 provides an exception to this rule by providing that no gain_or_loss is recognized when a taxpayer exchanges property for property that is like-kind the basis_of_property acquired in a like-kind_exchange is the same as that of the property exchanged decreased by the amount of any money received by the taxpayer and increased by the amount of gain or decreased by the amount of loss to the taxpayer recognized on the exchange tl-n-666-01 sec_1031 provides that if a taxpayer exchanges property with a related_person resulting in the nonrecognition_of_gain_or_loss under sec_1031 and if within two years of such exchange the taxpayer or the related_person disposes of the property received on the exchange there is no nonrecognition_of_gain_or_loss on the exchange any gain_or_loss the taxpayer is required to recognize by reason of sec_1031 is taken into account as of the date of the disposition of the property sec_1031 provides that sec_1031 shall not apply to any exchange that is part of a transaction or series of transactions structured to avoid the purposes of sec_1031 the term related_person is defined under sec_1031 as any person bearing a relationship to the taxpayer described in sec_267 or sec_707 in this case all the parties were related under the attribution_rules however because the second_disposition occurred more than two years after the exchange sec_1031 does not literally apply we believe that the two-year_rule in sec_1031 is a safe_harbor that precludes application of sec_1031 to any transaction falling outside that period thus a taxpayer acquiring property from a related_party can avoid application of the rule in sec_1031 merely by waiting until after the two year period to dispose_of the property therefore sec_1031 does not apply to this situation because there was no attempt by either party to circumvent the rules rather the parties merely took advantage of what congress allowed them by enacting the two-year_rule the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits cannot be doubted 293_us_465 in our view the purpose of sec_1031 is to stop taxpayers from violating the two-year_rule and not to preclude taxpayers from planning to dispose_of property after the two- year period thus if a taxpayer exchanges property with a related_party intending to dispose_of the replacement_property after the two-year period sec_1031 would not require recognition of the original gain this analysis would not apply however if the exchange were a sham we believe that our view of sec_1031 is supported by the legislative_history nonrecognition will not be accorded to any exchange which is part of a transaction or series of transactions structured to avoid the purposes of the related_party rules for example if a taxpayer pursuant to a prearranged plan transfers property to an unrelated tl-n-666-01 party who then exchanges the property with a party related to the taxpayer within years of the previous transfer in a transaction otherwise qualifying under sec_1031 the related_party will not be entitled to nonrecognition treatment under sec_1031 emphasis added h_r rep no 101st cong 1st sess we think the key here is circumvention of the two-year_rule not a transfer with intent to dispose after the expiration of the two-year waiting_period case development hazards and other considerations one issue we see is a possible disparity in the value of the property under the facts presented the exchange was roughly even exchanged property worth subject_to a mortgage for property if however the original property was worth more than the property may have taken capital out of the corporation and contributed it to the partnership resulting in a constructive_dividend to and a gift to similarly if the reverse were true may have received a distribution from and made a gift to please call if you have any further questions heather c maloy by clifford m harbourt senior technician reviewer cc ita b01


internal_revenue_service p o box cincinnati oh number release date date date legend x school y dollar amount dear department of the treasury employer_identification_number contact person - id number contact telephone number uil we have considered your request for advance approval of your grant-making program under sec_4945 g of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 the purpose of the program is to provide one scholarship to deserving high school seniors who attend x the scholarship will be awarded annually to a deserving senior who exemplifies academic excellence self-expression commitment to life-long learning and social responsibility the scholarship will enable the recipient to continue their studies at the college or university of their choice in hopes of becoming energized citizen committed to leading their community by example towards a peaceful and healthful environment an annual announcement describing the scholarship will be made in senior english classes and posted on the website of x prior to memorial day of each graduation year applications will be made available to all high school seniors at x through the student service offices english classes and counseling offices a typical senior class at x has approximately students each of whom is eligible to apply for the scholarship applications will be judged using a five-point rubric according to the following criteria i up to five points will be awarded for academic performance as reflected on an applicant’s high school transcript based upon grade point average ii up to five points will be awarded for required essay i deserve this scholarship because with scoring based upon content mechanics and life circumstance five points will be awarded to an essay which is outstanding and well organized in all areas four points for an above -average essay with few major errors three points for an essay which is good in all areas two points for few errors in mechanics and content and one point for essay with many errors in mechanics and or the content is unclear or incomplete iii up to five points will be awarded for required essay i want to go to college because with scoring similar to that of required essay iv financial need with up to five points awarded based on information provided on x’s free and reduced lunch form submitted to x at the start of the school year with five points awarded to applications with extremely limited resources with information clearly indicating a clear and honest need for financial support four points will be awarded to applications with limited resources and without a scholarship the student will most likely not attend college without financial assistance three points will be awarded to applications that have secured other forms of financial aid from other sources and will probably attend college without securing a scholarship two points will be given to applicants that demonstrate limited need and it is apparent the applicant will be able to attend college without the scholarship one point will be given to applicants that do not demonstrate any financial need or appear to have submitted false information v up to five points will also be awarded for community service evaluated based upon information submitted by the applicant and points will be awarded as follows five points for fifty hours or more per year of documented community service four points awarded for forty to forty-nine hours three points for thirty to thirty-nine hours two points for twenty -five to twenty-nine hours and only one point for less than twenty-five hours of community service in determining the applicant’s scoring one representative from each of x’s curricular departments will read each application and provide a score from one to five for each essay the college counselor will read all applications and apply scores from one to five for financial need the registrar will score all applicants based on community service hours submitted as of the date of the application to insure objectivity and fairness all applications will have all students’ identifying information blacked out prior to determining scoring in the event that there is a scoring tie among applicants the community service forms will be evaluated and scored by x’s administrative team which includes the principal assistant principal counselors registrar administrative assistants and coordinators the applicant with the highest score average will be recommended to you for award of the scholarships no relatives of members of the selection committee or your officers directors or substantial contributors are eligible for awards made under the scholarship program upon receiving acceptance of the recommended applicant from you the principal of x will notify the recipient of their selection upon both the parents or legal guardian and the applicant signing a scholarship acceptance form you will remit a payment of dollar_figurey directly to the college or university of the winning applicant’s choice which must be defined in sec_170 ii the scholarship funds provided by you will be paid directly to the educational_institution attended by the recipient rather than to the recipient the selected educational_institution will use the funds exclusively to defray the recipient’s educational expenses you will receive a copy of a verified report from the educational_institution attended by the recipient at least once a year which will reflect the recipient’s attendance and performance you will designate a committee to review and follow-up on each recipient’s student progress reports if you discovers a misuse of scholarship funds you will take all reasonable and appropriate steps including legal actions to recover the misused funds you will not advance any further scholarship funds on behalf of the grantee until it is assured that no further misuse will take place in the event that a scholarship recipient stops withdraws or leaves school you will cease any further payments to the recipient’s educational_institution and will seek the return of any portion of the recipient’s tuition which has been advanced and remains refundable you will not advance any further scholarship aid for the recipient unless they are readmitted to their educational_institution in good standing and on a full-time basis the scholarship shall be renewed as long as you have no information indicating that the original scholarship is being used for any purposes other than education at a qualified institution and any reports required by you or the institution which are due have in fact been furnished sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i i1 its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are ‘scholarship or fellowship’ grants within the meaning of sec_4945 and sec_117 of the code and are excludable from the gross_income of the recipients subject_to the limitations provided in sec_117 of the code including to the extent that such grants are used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois g lerner director exempt_organizations enclosure notice redacted letter copy


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 ------------------- telephone number -------------------- refer reply to cc tege eoeg et1 plr-127127-04 date date key firm ----------------------------------------- -------------------------------------------------------- ------------------------------------------------------------------------- ---------------------------------------------- -------------------------------------------- ------------------------------------ worker ------------------------------ --------------------------------------------------- ------------------------------------------------- ------------------------------------------- x dear ------------------ this is in reply to a request for a ruling to determine the federal employment_tax status of the above-named worker with respect to services provided to a federal_agency firm the federal employment_taxes are those imposed by the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and the collection of income_tax at source on wages according to the information submitted the firm is a federal_agency the worker provided services to the firm as a research scientist for the period x under a memorandum of understanding mou under terms in the mou the worker agreed to ------------------------------------ be governed by the rules and regulations of the firm including hours of work conduct dissemination of information and use of facilities terms in the mou also provide that the firm agreed to provide such supervision guidance working facilities and supplies as deemed necessary for the project the information provided by both the firm and the worker is in substantial agreement both state that the worker was given specific training and or instruction practical and theoretical as they related to solving research problems the worker received work assignments directly from the firm’s representative research leader on a weekly or monthly basis both state that the methods by which the worker’s work assignments were performed were determined by the research leader that the worker was required to contact the research leader in case of problems or complaints who was responsible for the resolution of any problems that might arise that the worker’s services were performed on the firm’s premises that the worker’s services were provided on a full- time basis and that the worker was eligible for overtime pay both parties state that the worker was required to attend regularly scheduled staff and laboratory meetings to provide the services personally and if a substitute was needed they were hired and paid_by the firm both parties indicate that the firm provided all supplies equipment materials and property needed by the worker in the performance of services and that it reimbursed the worker for travel_expenses incurred on its behalf both indicate that there was no economic loss or financial risk that could be incurred by the worker in the performance of services that the remuneration for services was a salary and that the worker was eligible for paid vacation time the information provided indicates that the worker was represented to the public by the firm as a member of the staff sec_3121 of the internal_revenue_code the code defines aemployee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee the question of whether an individual is an employee under the common_law rules or an independent_contractor is one of fact to be determined upon consideration of the facts and the application of the law and regulations in a particular case guidance for determining the existence of that status is found in two substantially_similar sections of the applicable employment_tax regulations sec_31_3121_d_-1 relating to the federal_insurance_contributions_act fica and sec_31_3401_c_-1 relating to federal_income_tax withholding sec_31_3121_d_-1 of the regulations provides that generally the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so sec_31_3121_d_-1 of the regulations provides that if the relationship of an employer and employee exists the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial thus if an employer-employee relationship exists it is of no consequence that the employee is designated as partner co-adventurer agent or independent_contractor or the like in determining whether an individual is an employee or an independent_contractor under the common_law all evidence of both control and lack of control or autonomy must be considered in doing so one must examine the relationship of the worker and the business relevant facts generally fall into three categories behavioral control financial control and the relationship of the parties behavioral control is evidenced by facts which illustrate whether the service_recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired facts which illustrate whether there is a right to control how a worker performs a task include the provision of training or instruction financial control is evidenced by facts which illustrate whether the service_recipient has a right to direct or control the financial aspects of the worker s activities these factors include whether a worker has made a significant investment has unreimbursed expenses and makes services available to the relevant market the method of payment and the opportunity for profit or loss the relationship of the parties is generally evidenced by the parties’ agreements and actions with respect to each other including facts which show not only how they perceive their own relationship but also how they represent their relationship to others facts which illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts the provision of or lack of employee_benefits the right of the parties to terminate the relationship the permanency of the relationship and whether the services performed are part of the service_recipient s regular business activities based on the information submitted it is determined that the services performed by the worker were sufficiently subject_to the direction and control by the firm to establish an employer-employee relationship accordingly it is held that the worker was the firm’s employee for the period x and that amounts paid to the worker for services provided were wages subject_to federal employment_taxes and income_tax_withholding sec_3306 of the code pertaining to the futa provides that service performed in the employ of the united_states government are excepted from the definition of employment the conclusions in this letter are applicable to any individuals engaged by the firm under similar circumstances the firm is responsible for advising all of the affected workers of the results of this ruling this ruling is directed only to the taxpayer to whom it is addressed sec_6110 of the code provides that it may not be used or cited as precedent sincerely janine cook chief employment_tax branch division counsel associate chief_counsel tax exempt and government entities enclosure copy of ruling letter for purposes


t c memo united_states tax_court leonard and l melnik grossman petitioners v commissioner of internal revenue respondent docket no filed date on date r issued a notice_of_deficiency to petitioners the envelope containing ps’ petition was postmarked by a private postage meter with a date of date the envelope was properly addressed but it was received by the court after the 90-day period for filing prescribed by sec_6213 i r c r moved to dismiss this case for lack of jurisdiction on the ground that ps’ petition for redetermination was not timely filed sec_6213 sec_7502 and b i r c ps contend that their petition was timely filed because it was mailed in accordance with the timely-mailing timely-filing rule in sec_7502 i r c and the regulations prescribed thereunder ps further contend that because they satisfied the requirements of sec_7491 i r c the burden_of_proof shifts to r on the issue of whether ps’ petition was timely filed r argues that the plain language of sec_7491 i r c indicates it is not applicable to the issue of whether ps’ petition was timely filed r argues in the alternative that sec_7491 i r c precludes the application of sec_7491 i r c to the issue of whether ps’ petition was timely filed because the regulations are legislative regulations that were prescribed by the secretary pursuant to congress’s grant of authority in sec_7502 i r c and because the regulations specifically place the burden_of_proof on ps held r’s motion to dismiss for lack of jurisdiction will be denied because the preponderance_of_the_evidence establishes that ps’ petition was timely filed in accordance with sec_301_7502-1 proced admin regs in addition we need not decide whether sec_7491 i r c is applicable to the jurisdictional issue because we decide that on the preponderance_of_the_evidence melvyn ward for petitioners patricia a riegger for respondent memorandum findings_of_fact and opinion goeke judge this matter is before the court on respondent’s motion to dismiss for lack of jurisdiction findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference petitioners resided in brooklyn new york when their petition was filed on date respondent determined by notice_of_deficiency a deficiency in petitioners’ federal_income_tax of dollar_figure and an accuracy-related_penalty under sec_6662 a of 1unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are continued dollar_figure for their tax_year petitioners’ petition needed to be filed with the court by date which was not a saturday a sunday or a legal_holiday in the district of columbia for it to be timely filed pursuant to sec_6213 it was not received and filed by the court until date thus respondent moved to dismiss this case for lack of jurisdiction pursuant to rule a petitioners’ petition was sent in an envelope properly addressed to this court by certified mail article no petitioners’ counsel received a return receipt confirming that the petition was received by the court on date the envelope containing the petition received by the court collectively termed piece of mail at issue did not bear a u s postal service postmark or any other u s postal service_mark instead the envelope bears a privately metered postmark dated date canceled checks the court received eight canceled checks into evidence at trial melvyn ward p a petitioners’ counsel was the payor of these checks these checks were issued as follows continued to the tax_court rules_of_practice and procedure check no issuance date payee amount brenda bucco lisa m arcate lisa perlman united_states tax_court the bureau of fire prevention hazlet township hazlet township hazlet township dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure u s postal written correspondences on date the consumer affairs claims central new jersey performance cluster of the u s postal service sent a letter to petitioners’ counsel regarding the piece of mail at issue certified mail article no the relevant portion of this letter states our records indicate that item number was delivered on date to the tax_court and signed for by k mitchell the item went to clarksburg new jersey and was scanned incorrectly as delivered there but was then sent on to washington dc for delivery all mail for any government office in washington dc is still being irradiated due to the anthrax ordeal from a few years ago on date the manager of the consumer affairs claims central new jersey performance cluster of the u s postal service sent a letter to chief_counsel of the internal_revenue_service the relevant portions of this letter state on date my office responded to a letter from mr melvin ward regarding the disposition of a certified mailpiece addressed to the tax_court in washington dc i am sorry to learn that the tax_court is not accepting mr ward’s mailpiece because of a missed closing date our records indicated that the certified mailpiece was delivered date to the tax_court and signed for by k mitchell our records also indicated an intermittent scan in clarksburg new jersey on date the clarksburg scan appears to have been in error and should have been scanned missent since our record show no acceptance scan for the mailpiece we can only presume the letter did not enter the mails prior to may if it had been mailed from zip code if the item had been mailed on date according to information supplied by mr ward a postal employee would have date stamped the receipt the verification and date stamp by the postal employee would also have been done on a customer’s firm sheet that lists multiple items mr ward was unable or did not supply a dated receipt or firm sheet that indicated the date the mailpiece was accepted by a postal employee to be deposited into the mails irradiation of mail in the date letter to petitioners’ counsel the u s postal service indicated among other things that all mail addressed to any government office in washington d c continues to be subjected to irradiation to eliminate any anthrax spores opinion this court has limited jurisdiction this court’s jurisdiction to redetermine a deficiency depends on the issuance of a valid notice_of_deficiency and a timely filed petition rule a c 97_tc_437 sec_6213 provides that a petition for redetermination of a deficiency determined by respondent is timely filed if it is filed within days or days if the notice is mailed to a taxpayer outside the united_states after a notice_of_deficiency is mailed here petitioners’ petition was received by the court on date because the notice_of_deficiency was not addressed to persons outside of the united_states petitioners’ petition was filed well after the 90-day period provided in sec_6213 which had expired on date nevertheless a petition received and filed by the court after the expiration of the 90-day period may be deemed timely filed if it was mailed in conformity with the precepts set forth in sec_7502 and the regulations promulgated thereunder sec_7502 and the regulations prescribed thereunder contain the requirements for treating any document as timely filed when it was timely mailed the timely-mailing timely-filing rule the general_rule provides that the date of a u s postal service postmark is deemed to be the delivery date sec_7502 for this general_rule to apply however a taxpayer must have mailed the document at issue in a properly addressed envelope postage prepaid and postmarked by the u s postal service within the prescribed period or on or before the prescribed date for the filing including any extensions granted for filing see id sec_301_7502-1 ii and iii proced admin regs in this case the piece of mail at issue bears a private postage meter stamp thus sec_7502 is not applicable however in a case such as this the timely-mailing timely- filing rule may apply to a postmark not made by the u s postal service to the extent provided by regulation sec_7502 under sec_301_7502-1 proced admin regs the timely-mailing timely-filing rule applies to non-u s postal service postmarks if the following requirements are satisfied i the postmark so made must bear a legible date on or before the last date or the last day of the period prescribed for filing the document or making the payment and ii the document or payment must be received by the agency officer or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed mailed and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the u s postal service on the last date or the last day of the period prescribed for filing the document or making the payment in this case the postmark on the envelope containing petitioners’ petition was within the prescribed filing period and also was mailed in a properly addressed envelope at respondent’s behest stanley wong mr wong a delivery and retail analyst for the new york district of the u s postal service credibly testified that the service standard mailing period from hazlet new jersey to washington d c i sec_2 days the 2-day standard for a piece of first-class mail properly addressed and postmarked by the u s postal service the piece of mail at issue here was not received by the court until date well after the expiration of the 90-day period for filing plus the 2-day standard for it to be considered timely mailed even if we account for the estimated days it takes to irradiate an item of mail addressed to a government office in washington d c petitioners’ petition was still not received in a timely fashion under this rule because petitioners’ petition was received and filed outside the prescribed period including the standard delivery time it will be deemed timely filed only if the following requirements are established by petitioner i that it was actually deposited in the u s mail before the last collection of mail from the place of deposit that was postmarked except for the metered mail by the u s postal service on or before the last date or the last day of the period prescribed for filing the document or making the payment ii that the delay in receiving the document or payment was due to a delay in the transmission of the u s mail and iii the cause of the delay sec_301_7502-1 proced admin regs the validity of this regulation has been upheld 566_f2d_646 9th cir affg t c 2for the petition at issue to be timely filed under sec_6213 it needed to be filed with the court by monday date accounting for the 2-day standard had the piece of mail at issue been mailed on date it would not have reached this court until wednesday date accounting for the day period to irradiate the piece of mail at issue it would not have reached this tax_court until sunday date since there is no mail delivered to the court on weekends the piece of mail at issue would not have been received or filed by the court until monday date memo 51_tc_869 affd per curiam 420_f2d_491 2d cir before we address whether the piece of mail at issue satisfied the requirements of sec_301 c iii b proced admin regs we are asked to decide which party bears the burden_of_proof a burden_of_proof generally a taxpayer bears the burden of proving that this court has jurisdiction see patz trust v commissioner 69_tc_497 65_tc_346 35_tc_177 27_tc_837 sec_7491 shifts the burden_of_proof to the commissioner under certain circumstances the parties dispute whether sec_7491 applies to questions of jurisdiction sec_7491 shifts the burden_of_proof to the commissioner if the taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any_tax imposed by subtitle a and b in any court_proceeding subtitle a contains the federal_income_tax and subtitle b contains the federal gift and estate_tax the burden shifts to the commissioner under sec_7491 with respect to an issue only if the taxpayer has complied with the requirements imposed by the internal_revenue_code the code to substantiate any item has maintained all records as required by the code and cooperated with reasonable requests made by respondent for witnesses information documents meetings and interviews and meets the net_worth limitation set forth in sec_7430 if the taxpayer is a partnership corporation or trust sec_7491 additionally sec_7491 provides that sec_7491 does not apply to any issue with respect to which the code provides for a specific burden_of_proof petitioners’ position is that sec_7491 is applicable in deciding whether their petition was timely filed respondent argues that sec_7491 is not applicable to this issue because whether petitioners’ petition was timely filed is not a factual issue relevant to the ascertainment of petitioners’ tax_liability imposed by subtitle a or b in the alternative respondent argues that because the regulations prescribed by the secretary pursuant to sec_7502 are legislative regulations sec_7491 precludes the application of sec_7491 because we decide the jurisdictional issue by the preponderance_of_the_evidence we need not address the application of sec_7491 to the instant matter 394_f3d_1030 8th cir affg tcmemo_2003_212 b sec_301_7502-1 proced admin regs analysis petitioners must establish that their petition was mailed in compliance with three requirements for it to be deemed timely filed under sec_301_7502-1 proced admin regs these requirements include the piece of mail at issue was actually deposited in the u s mail in a timely fashion the delay in receipt of the piece of mail at issue was due to a delay in transmission and what caused the delay id was petitioners’ petition actually deposited in the u s mail before the expiration of the 90-day period prescribed for filing at trial brenda bucco ms bucco testified on petitioners’ behalf ms bucco is employed by petitioners’ counsel as an office manager a position she has held for years ms bucco testified that on date she prepared petitioners’ petition to be mailed by placing it in a properly addressed envelope affixing the proper postage and completing the certified mail receipt ms bucco maintained a private postal meter mailing log in the ordinary course of business that shows date as the date she prepared petitioners’ petition she further testified that on date she personally handed the piece of mail at issue to a u s postal service employee who collected her employer’s mail from his office in hazlet new jersey respondent argues that ms bucco’s testimony is not credible in support of his argument respondent offered a copy of ms bucco’s affidavit dated date that was received by the court into evidence for impeachment purposes this affidavit indicates that ms bucco mailed the piece of mail at issue on date however ms bucco’s date affidavit submitted to this court which was signed and notarized and her testimony both indicate that she mailed the piece of mail at issue on date ms bucco testified that in originally preparing her affidavit she failed to consider that she would have given the piece of mail at issue to the mailman the day after she prepared the petition for petitioners’ counsel’s signature this failure apparently caused there to be two versions of ms bucco’s affidavit dated date however given ms bucco’s reasonable explanation we do not find this discrepancy significant enough to question ms bucco’s veracity in all other respects we find ms bucco’s testimony to be consistent and credible petitioners’ position that their petition was timely mailed is further supported by canceled check no dated date that named this court as the payee after considering ms bucco’s testimony and canceled check no we hold that the piece of mail at issue was deposited in the u s mail on or before the last day of the period prescribed for filing petitioners’ petition was the delay in receiving petitioners’ petition due to a delay in the transmission of mail the court at trial received into evidence a letter from the u s postal service dated date the letter indicates that from may through date the piece of mail at issue was delayed due to the fault of the u s postal service mr wong an employee of the u s postal service interpreted the terms in this letter to mean that on date the piece of mail at issue was incorrectly scanned as delivered he also testified that a piece of mail sent from hazlet new jersey to washington d c usually does not go through clarksburg new jersey where it was received and incorrectly scanned as delivered according to mr wong the piece of mail at issue should have been scanned as missent a missent piece of mail is one that arrives at the wrong destination when a missent piece of mail is properly scanned as missent the post office that incorrectly received the piece of mail is identified respondent contends that the delay in the court’s receipt of the piece of mail containing petitioners’ petition was not the result of a delay in the transmission of the mail specifically respondent points to the u s postal service letters dated june and date in which the u s postal service accepted responsibility for delaying the transmittal of the piece of mail at issue from date until it was delivered on date since date was after the 90-day filing period had expired respondent reasons that petitioners have failed to show as required by sec_301_7502-1 and iii proced admin regs that the delay from april until date was caused by the u s postal service’s mistake we disagree with respondent’s analysis in the date letter the author stated we can only presume emphasis added that the envelope containing petitioners’ petition could not have entered the u s mail system earlier than date mr wong testified that this presumption was likely made on the basis of the standard delivery time for a piece of mail sent from hazlet new jersey to clarksburg new jersey a presumption is indeed not a fact mr wong testified to the effect that on the basis of the information available to the u s postal service it is impossible to identify the actual mailing date of the piece of mail in question the author of the date letter moreover did not testify at trial and we shall not speculate on the basis of his presumption mr wong’s testimony ms bucco’s testimony and affidavit submitted to the court and the letter issued by the u s postal service taking partial responsibility for missending and incorrect scanning all lead us to conclude that petitioners’ petition was delayed because of errors made by the u s postal service in the transmission of the mail what caused the delay mistakes occur and the delay at issue was the result of such the facts indicate that the u s postal service missent the piece of mail at issue to clarksburg new jersey a location this piece of mail should have never reached had it been handled properly there the u s postal service incorrectly scanned it delivered instead of scanning it missent this may have perpetuated the delay a careful review of the envelope in which petitioners’ petition was mailed supports a finding that it was properly addressed to this court in washington d c given these unique circumstances together with all of the other evidence presented we find that petitioners have provided specific evidence that the delay resulted from errors made by the u s postal service conclusion we hold that the preponderance_of_the_evidence establishes that petitioners have satisfied the timely-mailing timely-filing requirements set forth in sec_301_7502-1 proced admin regs therefore respondent’s motion to dismiss for lack of jurisdiction will be denied an appropriate order will be isued


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-146288-02 date date legend x d1 country dear this letter responds to a letter dated date and supplemental correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_301_9100-3 of the procedure and administration regulations to file a late entity classification election facts x was formed in country on d1 at the time of formation x’s default classification under sec_301_7701-3 was an association_taxable_as_a_corporation x intended to file a form_8832 entity classification election but inadvertently failed to file the election timely law and analysis sec_301_7701-1 provides that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 sec_301_7701-3 and sec_301_7701-4 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in plr-146288-02 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 by filing a form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an eligible_entity required to file a federal_income_tax return for the taxable_year for which the election is made must attach a copy of its form_8832 to its federal tax or information_return for that year sec_301_7701-3 further provides that if the entity is not required to file a return for that year a copy of its form_8832 must be attached to the federal_income_tax or information_return of any direct or indirect owner of that entity for the taxable_year of the owner that includes the date on which the election is effective sec_301_7701-3 provides that an election made under sec_301_7701-3 shall be effective on the date specified or if no date is specified on the date filed sec_301_7701-3 further provides that the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the regulations under sec_301_9100-2 and sec_301_9100-3 provide standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 further provides that sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 provides that a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that subject_to sec_301_9100-3 through iii a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-146288-02 sec_301_9100-3 provides that a taxpayer is deemed not to have acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 of the income_tax regulations ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to submit a form_8832 effective on d1 to the appropriate service_center a copy of this letter should be attached to the election a copy is included for that purpose except as specifically set forth herein we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court eric l and kay k jones petitioners v commissioner of internal revenue respondent docket no filed date eric l jones for petitioners clinton m fried for respondent memorandum findings_of_fact and opinion wells judge respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax and an accuracy-related_penalty pursuant to sec_6662 in the amount of dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure after a concession the issues to be decided involve petitioners' entitlement to business_bad_debt deductions claimed by them for certain payments made by petitioner eric l jones petitioner during the year in issue findings_of_fact some of the facts have been stipulated for trial pursuant to rule the parties' stipulations of fact are incorporated herein by reference and are found as facts in the instant case at the time they filed their petition in the instant case petitioners resided in dublin georgia during the taxable_year in issue petitioner was an attorney licensed to practice law in the state of georgia petitioner invested in real_estate in order to create the opportunity for his law firm to earn income by performing real_estate syndications title searches and loan closings during the taxable_year in issue however petitioner was not involved in the business of lending money or in the business of selling corporations that he had created funded or promoted in the opening brief respondent conceded that there are no additions to the tax applicable in this case and made no argument as to the accuracy-related_penalty pursuant to sec_6662 accordingly we consider the penalty to have been conceded petitioner was a 50-percent_shareholder and secretary and treasurer of d b metalworks inc metalworks a tree cutting and welding business petitioner purchased hi sec_50 percent share in metalworks for dollar_figure on date donald brown president of metalworks executed a note in the name of metalworks the first note which was attested to by petitioner in petitioner's capacity as secretary-treasurer of metalworks the first note provides that in days metalworks will pay dollar_figure plus interest to farmers merchants bank additionally mr brown and petitioner signed a guaranty of payment guaranty in which they agreed inter alia to be jointly and severally liable to pay the first note the page on which the guaranty was printed also contains a transfer by farmers merchants bank dated date of all rights title and interest to the within note to petitioner without_recourse on us additionally petitioner individually signed a note the second note dated date which provides that in days petitioner will pay dollar_figure plus interest to farmers merchants bank as security for the second bank note petitioner granted farmers merchants bank a security_interest in the first note below the language assigning the first note as collateral is the following language petitioner will reduce this loan as soon as d b metalworks comes out from under bankruptcy petitioner has his house on camellia drive sold will be closed out in the next few days will either pay out this loan or greatly reduce additionally on the face of the second note was a handwritten notation paid wmiller attached to the second note was an assignment by petitioner dated date of all rights title and interest to the within note to farmers and merchants bank with recourse on me the text to the asterisk footnote is note from d b metalworks inc to farmers and merchants bank dated date and maturing october the day is blank in the amount of dollar_figure plus interest during either or metalworks ceased business operations during date petitioner paid the balance due on the note schedule c of petitioners' federal_income_tax return for taxable_year listed finance services as petitioner's principal business or profession and claimed bad_debt deductions in the total amount of dollar_figure petitioners deducted dollar_figure for payment on the note dollar_figure for loans that became uncollectible in and dollar_figure for amounts paid to a restaurant referred to as annabelle's for its capital stock respondent determined that the foregoing payments were personal and were not made in connection with petitioner's trade_or_business and therefore disallowed the bad_debt deductions claimed by petitioners in the amount of dollar_figure respondent recharacterized such amount as short-term_capital_loss opinion the issue to be decided in the instant case is whether pursuant to sec_166 petitioners are entitled to three bad_debt deductions claimed by them sec_166 generally provides that debts that become wholly worthless during a taxable_year may be deducted in that year sec_166 however distinguishes between business bad_debts and nonbusiness bad_debts sec_166 sec_1_166-5 income_tax regs business bad_debts may be deducted against ordinary_income if they become wholly or partially worthless during the year in the case of the latter to the extent charged off during the taxable_year as partially worthless debts sec_1_166-3 income_tax regs to qualify for a business_bad_debt deduction the taxpayer must establish that the debt was proximately related to the conduct of the taxpayer's trade_or_business 405_us_93 sec_1_166-5 income_tax regs nonbusiness bad_debts on the other hand may be deducted but only if they become entirely worthless during the year they are claimed they are moreover to be treated as short-term_capital_losses sec_166 generally a nonbusiness_bad_debt is a debt other than a debt created or acquired in the trade_or_business of the taxpayer or the loss from the worthlessness of which is incurred_in_a_trade_or_business of the taxpayer sec_166 the question of whether a debt is a nonbusiness_bad_debt is a question of fact sec_1_166-5 income_tax regs the bad_debt deduction is limited to bona_fide debt that is debts that arise from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money sec_1_166-1 income_tax regs for purposes of sec_166 a contribution_to_capital is not considered a debt 532_f2d_1204 8th cir 91_tc_575 sec_1_166-1 income_tax regs a payment by a taxpayer in discharge of part or all of the taxpayer's agreement to act as a guarantor endorser or indemnitor of a debt obligation is to be treated as a worthless_debt only if the agreement was entered into in the course of the taxpayer's trade_or_business or a transaction for profit there was an enforceable legal duty upon the taxpayer to make the payment and the agreement was entered into before the obligation became worthless or partially worthless in the case of an agreement entered into in the course of the taxpayer's trade_or_business sec_1_166-9 income_tax regs generally if a taxpayer enters into an agreement to act as a guarantor in the course of trade_or_business a payment by the taxpayer in discharge of part or all of the taxpayer's obligation as a guarantor is treated as a business_bad_debt at the time of payment to the extent that any right of subrogation held by the taxpayer against the debtor is then worthless sec_1_166-9 e income_tax regs if however a taxpayer enters into a transaction as a guarantor for profit but not in the course of trade_or_business a payment by the taxpayer in discharge of part or all of the taxpayer's obligation as a guarantor is treated as a worthless nonbusiness_bad_debt at the time of payment if any right of subrogation held by the taxpayer against the debtor is then worthless sec_1_166-9 e income_tax regs a business_bad_debt deduction for a payment by the taxpayer in discharge of part or all of the taxpayer's obligation as a guarantor is only deductible if the taxpayer establishes the taxpayer was engaged in a trade_or_business at the time the guaranty was made and the guaranty was proximately related to the conduct of that trade_or_business weber v commissioner tcmemo_1994_341 smartt v commissioner tcmemo_1993_65 sec_1_166-9 sec_1_166-5 income_tax regs whether the taxpayer is engaged in a trade_or_business is factual 405_us_93 sec_1_166-5 income_tax regs whether a guaranty is proximately related to the taxpayer's trade_or_business rests on the taxpayer's dominant motive at the time of the guaranty for becoming a guarantor united_states v generes supra pincite 590_f2d_884 10th cir the taxpayer's dominant motive must be business related as opposed to investment related for the guaranty to be proximately related to the taxpayer's trade_or_business 66_tc_652 affd 601_f2d_734 5th cir see united_states v generes supra a motive is business related when the taxpayer seeks to increase or protect the taxpayer's salary to be paid from the debtor_corporation putoma corp v commissioner supra pincite a motive is investment related when the taxpayer aims to increase or protect the value of the taxpayer's stock in the debtor_corporation see united_states v generes supra weber v commissioner supra in deciding the taxpayer's motive for purposes of sec_166 however we examine the objective facts surrounding the loans rather than the taxpayer's subjective intent 503_f2d_1291 10th cir citing united_states v generes supra characterization of an advance as either a loan or capital_contribution is a question of fact which must be answered by reference to all of the evidence with the burden on the taxpayer to establish that the alleged loans were bona_fide debt rule a 74_tc_476 58_tc_1062 objective factors are to be considered and the taxpayer's subjective intent alone is not determinative of the issue of characterizing an advance as debt or equity united_states v uneco inc in re uneco inc supra pincite deductions are a matter of legislative grace and petitioners bear the burden of proving that they are entitled to the deductions claimed rule a 503_us_79 292_us_435 taxpayers are required to maintain records that are sufficient to enable the commissioner to determine their correct_tax liability see sec_6001 43_tc_824 sec_1_6001-1 income_tax regs moreover a taxpayer who claims a deduction bears the burden of substantiating the amount and purpose of the item claimed 65_tc_87 affd per curiam 540_f2d_821 5th cir sec_1_6001-1 income_tax regs in the instant case petitioners contend that they are entitled to a bad_debt deduction in the amount of dollar_figure for a payment petitioner made as guarantor for loans made to d b metalworks petitioners argue that the payment was a discharge of petitioner's obligation as a guarantor and is therefore deductible as a business_bad_debt pursuant to sec_1_166-9 income_tax regs respondent contends that petitioners have not established that petitioner's guaranty was proximately related to his trade_or_business we conclude that petitioners have not carried their burden of proving that they are entitled to a bad_debt deduction for the guaranty of d b metalworks' indebtedness as stated supra in deciding the taxpayer's motive for making a guaranty we examine the objective facts surrounding the loans rather than the taxpayer's subjective intent kelson v united_states supra petitioner testified that he made it a practice to participate in various businesses for the purpose of generating fees for his law practice additionally petitioner testified that he anticipated negotiating contracts for d b metalworks and that d b metalworks did some work for georgia power oconee electric membership corporation and okmulgee electric membership corporation he also testified that he sent mr brown president of d b metalworks only one bill for legal services which was for incorporating d b metalworks we conclude that petitioner's statements standing alone do not bear the light of analysis united_states v generes supra pincite although petitioner testified that he anticipated generating fees for his law firm by negotiating contracts for d b metalworks petitioner failed to present any details concerning fees generated from the work performed by that company for georgia power oconee electric membership corporation and okmulgee electric membership corporation indeed petitioner testified that he sent mr brown only one bill for legal services which was for incorporating d b metalworks additionally petitioner's testimony concerning the other companies in which he allegedly participated in order to generate fees for his law practice is only superficial the testimony lacks the details of such alleged participation and the details surrounding the fees allegedly generated from such participation petitioners simply have failed to establish that petitioner's dominant motivation in guaranteeing the d b metalworks indebtedness was related to his trade_or_business as an attorney as opposed to that of a mere investor petitioners bear the burden of establishing their entitlement to the deduction rule a and have not met that burden accordingly we hold that petitioners are not entitled to their claimed bad_debt deduction in the amount of dollar_figure as to the bad_debt deduction claimed by petitioners for the worthlessness of advances in the amount of dollar_figure allegedly made by petitioner to two or three individuals petitioners failed to provide the notes or any other documentary_evidence relating to such advances and sought to substantiate the advances solely through petitioner's testimony we are not required to accept petitioner's self-serving and uncorroborated testimony particularly where other and better evidence to prove the point in question should be available 338_f2d_602 9th cir affg 41_tc_593 99_tc_202 tokarski v the record contains only two canceled checks drawn on petitioner's account that were both written to the same person one in the amount of dollar_figure and a second in the amount of dollar_figure and a canceled check drawn on petitioner's account that was written to morris state bank in the amount of dollar_figure commissioner 87_tc_74 see 19_tc_133 affd 207_f2d_857 10th cir under the circumstances of the instant case we are not required to and we generally do not rely on petitioner's testimony to sustain petitioners' burden of proving error in respondent's determinations see 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 wood v commissioner supra tokarski v commissioner supra consequently we conclude that petitioners have not established that the alleged advances in the amount of dollar_figure to two or three individuals constitute bona_fide debt that is deductible as a business_bad_debt as to the bad_debt deduction claimed by petitioners for the alleged worthlessness of capital stock in annabelle's restaurant petitioners conceded that they paid dollar_figure to annabelle's for its capital stock petitioners however argue that petitioner purchased the stock with the understanding that he would perform the restaurant's legal work petitioners provided two checks drawn on petitioner's account that were written to annabelle's one in the amount of dollar_figure and a second in the amount of dollar_figure a deduction for a bad_debt is limited to a bona_fide debt that is debts that arise from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money sec_1_166-1 income_tax regs petitioners did not argue and have failed to establish that the purchase of capital stock in annabelle's created a debtor- creditor relationship between petitioners and the restaurant consequently we conclude that the payment of dollar_figure to annabelle's was not bona_fide debt petitioners have not advanced or proven any other theory upon which a deduction could be premised accordingly we hold that petitioners are not entitled to a bad_debt deduction in the amount of dollar_figure as noted above the penalty has been conceded we have considered all of petitioners' remaining arguments and find them to be without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc corp 2-plr-106887-00 date date number release date index number parent target acquiring country a business b business c state d state e dear this letter responds to your request for rulings about the federal_income_tax consequences of a proposed transaction the information submitted and considered in your request is summarized below target and acquiring are each domestic state d and state e corporations respectively that are wholly owned subsidiaries of parent a publicly traded country a corporation target is engaged in business b acquiring is engaged in business c and is the common parent of a consolidated_group for valid business reasons the following transaction is proposed acquiring will form a state d limited_liability_company llc by contributing to it the minimum capital required under state d law all of the interests of llc will be issued to acquiring parent will transfer all of the stock of target to acquiring in exchange for acquiring stock the contribution immediately after the contribution target will merge with and into llc pursuant to state d law the merger the taxpayer has made the following representations in connection with the above transactions the fair_market_value of the acquiring stock received by parent will be approximately equal to the fair_market_value of the target stock surrendered in the exchange there is no plan or intention by the shareholders of target owning or more of the stock of target and to the best of the knowledge of the management of target there is no plan or intent on the part of the remaining target shareholders to sell exchange or otherwise dispose_of a number of shares of acquiring stock received in the transaction that would reduce the target shareholders’ ownership of the acquiring stock to a number of shares having a value as of the date of the transaction of less than percent of the value of all of the formerly outstanding_stock of target as of the same date for purposes of this representation shares of target stock exchanged for cash or other_property surrendered by dissenters or exchanged for cash in lieu of fractional shares of acquiring stock will be treated as outstanding target stock on the date of the transaction moreover shares of target stock and shares of acquiring stock held by target shareholders and otherwise sold redeemed or disposed of prior to or subsequent to the transaction will be considered in making this representation acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts paid_by target to dissenters amounts paid_by target to shareholders who receive cash or other_property amounts used by target to pay its reorganization expenses and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer will be included as assets of target held immediately prior to the transaction after the transaction parent will be in control of acquiring within the meaning of sec_368 of the code acquiring has no plan or intention to reacquire any of its stock issued in the transaction acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business the liabilities of target assumed by acquiring plus the liabilities if any to which the transferred assets are subject were incurred by target in the ordinary course of its business and are associated with the assets transferred following the transaction acquiring will continue the historic_business of target or use a significant portion of target‘s historic_business_assets in a business at the time of the transaction acquiring will not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in acquiring that if exercised or converted would affect parent’s acquisition or retention of control of acquiring as defined in sec_368 acquiring target and parent will each pay their respective expenses if any incurred in connection with the transaction there is no intercorporate indebtedness existing between acquiring and target that was issued acquired or will be settled at a discount no two parties to the transaction are investment companies as defined in sec_368 and iv of the code the fair_market_value of the assets of target transferred to acquiring will equal or exceed the sum of the liabilities assumed by acquiring plus the amount of liabilities if any to which the transferred assets are subject the total adjusted_basis of the assets of target transferred to acquiring will equal or exceed the sum of the liabilities to be assumed by acquiring plus the amount of the liabilities if any to which the transferred assets are subject target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code the transaction is being undertaken for valid business purposes based solely on the information submitted and the representations made we hold as follows llc will be disregarded as separate from acquiring pursuant to sec_301_7701-3 the contribution and the merger will be treated as if i target transferred all of its assets directly to acquiring in exchange for acquiring stock and the assumption by acquiring of the target liabilities and then ii target dissolved transferring the acquiring stock it received in step i to parent the transfer by target of all of its assets solely in exchange for acquiring stock and the assumption by acquiring of the target liabilities followed by the distribution to parent in liquidation of target will be a reorganization within the meaning of sec_368 of the code acquiring and target will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by target upon the transfer of all of its assets to acquiring in exchange for acquiring stock and the assumption by acquiring of the target liabilities sec_361 and sec_357 no gain_or_loss will be recognized by target on the deemed transfer of acquiring stock to parent sec_361 no gain_or_loss will be recognized by acquiring upon the receipt of the assets of target in exchange for acquiring stock sec_1032 the basis of the assets of target in the hands of acquiring will be the same as the basis of those assets in the hands of target immediately prior to the transfer sec_362 the holding_period of the assets of target in the hands of acquiring will include the period during which those assets were held by target sec_1223 no gain_or_loss will be recognized by parent upon the receipt of the acquiring stock in exchange for its target stock sec_354 the basis of the shares of acquiring received by parent will be the same as the basis of the target stock surrendered in exchange therefor sec_358 the holding_period of the acquiring stock received by parent will include the period during which parent held the target stock surrendered in the exchange therefor pursuant to sec_1223 provided the target stock is held as a capital_asset on the date of the merger no opinion is expressed about the tax treatment of the transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transaction not specifically covered by the above rulings the rulings in this letter are based on the facts and representations submitted under perjury in support of the request verification of that information may be required as part of the audit process this letter is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in this transaction must attach a copy of this letter to the federal_income_tax return of the taxpayer for the taxable_year in which the transaction is completed pursuant to the power_of_attorney on file in this office a copy of this letter has been sent to the taxpayer sincerely associate chief_counsel corporate by lewis k brickates assistant to branch chief corporate