date date uniform issue list ti ep hi t legend taxpayer a taxpayer b company q ira x roth_ira y dear this is in response to a ruling_request dated date in which you request relief under sec_301_9100-3 of the procedure and administration regulations the following facts and representations support your ruling_request taxpayer a maintained ira x a traditional individual_retirement_arrangement described in sec_408 of the internal_revenue_code code with company q ira x was established in august of following taxpayer a’s separation of service with a former employer ira x was funded by a trustee-to-trustee transfer with the proceeds from taxpayer a’s former employer's sec_401 plan in date following the advice of a company q financial advisor taxpayer a converted ira x to company q roth_ira y taxpayer a represents that he either misunderstood or was misadvised by company q such that he would be eligible to convert traditional_ira x to roth_ira y so long as taxpayer a’s adjusted_gross_income did not exceed dollar_figure in taxpayer a’s adjusted_gross_income exceeded the limit allowable under sec_408a of the code thus taxpayer a was not eligible to convert ira x to roth_ira y taxpayer a maintains that he was unaware of this limit at the time of the conversion in date taxpayer a and taxpayer b provided their tax records to their accountant for the purpose of preparing their federal_income_tax return the accountant informed taxpayer a and taxpayer b that the roth conversion failed because taxpayer a and taxpayer b’s adjusted_gross_income exceeded the sec_408a limit the accountant advised taxpayer a to submit a request to company q for recharacterization of his roth_ira y taxpayer a represents that he contacted company q in order to recharacterize his roth_ira y however company q did not permit the recharacterization without permission from the internal_revenue_service service in the form of a private_letter_ruling following the advice of their accountant in date taxpayer a and taxpayer b filed their and joint federal_income_tax returns prior to seeking relief from the service in taxpayer a and taxpayer b’s return their accountant did not include any amount of the roth_ira_conversion as taxable_income and included form_8606 nondeductible iras which erroneously indicated that the taxpayer a had recharacterized roth_ira y back to a traditional_ira taxpayer a and taxpayer b did not pay tax on the roth conversion nor has taxpayer a recharacterized roth_ira y as of the date of this ruling_request the service has not made taxpayer a aware of the improper ira conversion based on the above you request the following letter_ruling that taxpayer a is granted the authority under sec_301_9100-3 of the procedure and administration regulations to recharacterize taxpayer a’s roth_ira y as a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax return for the year of contribution sec_1_408a-5 of the regulations question and answer-6 describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_1_408a-4 q a-2 provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple's combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient - evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayers control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v 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 sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have not acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief election that make the election advantageous to the taxpayer the internal_revenue_service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight if specific facts have changed since the due_date for making the sec_301_9100-3 of the regulations provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money similarly if the tax consequences of more than one taxpayer are affected by the election the government's interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability then if the election had been timely made sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayers receipt of a ruling granting relief under this section announcement 1994_24_irb_50 june provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement 1999_44_irb_555 date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira taxpayer a and taxpayer b did not timely file their federal_income_tax return as a result the taxpayers are not eligible for relief under either announcement or announcement furthermore in this case taxpayer a was ineligible to convert his traditional_ira x into roth_ira y because taxpayer a and taxpayer b ’s combined modified_adjusted_gross_income exceeded dollar_figure for tax_year therefore it is necessary to determine whether taxpayer a and taxpayer b are eligible for relief under the provisions of sec_301_9100-3 of the regulations although taxpayer a and taxpayer b were ineligible to make the roth_ira_conversion they both were unaware of their ineligibility to do so until date when they were so informed by their accountant upon realizing their error taxpayer a and taxpayer b requested relief from the service before the service discovered taxpayer a's ineligibility to convert ira x to roth_ira y with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize roth_ira y back to a traditional_ira specifically the service has concluded that you have met the requirements of clause i iii and v of sec_301_9100-3 of the regulations therefore pursuant to sec_301_9100-3 of the regulations taxpayer a is granted an extension of sixty days from the date of the issuance of this letter_ruling to recharacterize roth_ira y back to a traditional_ira please note that in conjunction with recharacterizing taxpayer a's roth_ira y taxpayer a and taxpayer b must file an amended calendar_year federal_income_tax return consistent with this ruling letter if they have not already done so addition this letter_ruling applies solely to the amount remaining in the roth_ira y as of the date of the recharacterization in 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 that may be applicable thereto this letter is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent this letter_ruling assumes that all of the iras referenced herein will meet the requirements of either code sec_408 or code sec_408a to the extent applicable at all times relevant thereto should you have any concems with this letter please contact sincerely d yabrpeko- foe andréw e zuckerman manager employee_plans technical group


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 plr-121036-18 date february x ------------------------ ------------------------- country ------------ d1 --------------------------- dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 effective d1 facts x is an entity formed under the laws of country x is not classified as a corporation under sec_301_7701-2 or x intended that it be treated as a partnership for u s federal tax purposes effective d1 however due to inadvertence x failed to file a timely form_8832 entity classification election law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does plr-121036-18 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 owner that does not have limited_liability 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 form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form 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 commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 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 subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 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 granting relief will not prejudice the interests of the government 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 file form_8832 with the appropriate service_center to elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on x and its owners filing within days from the date of this letter any required returns including amended returns consistent with the requested plr-121036-18 relief being effective on d1 to the extent appropriate these returns or amended returns must include but are not limited to forms information_return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns or amended returns if this condition is not met then this ruling is null and void a copy of this letter should be attached to any such returns except as expressly set forth above we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representative sincerely by joy spies joy spies senior technical reviewer branch passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service national_office technical_advice_memorandum number release date third party contact none index uil no case mis no tam-125928-02 cc psi b8 director area small_business self employed operating division date n a none held taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend x a b c d issue whether taking into account x’s proposed sales described below x will make more than casual sales of aviation_fuel for purposes of being registered by the irs as a producer of aviation_fuel under b of the internal_revenue_code conclusion taking into account x’s proposed sales x will make more than casual sales of aviation_fuel for purposes of being registered by the irs as a producer of aviation_fuel under b facts x is a domestic commercial airline that buys and uses aviation_fuel to determine whether x is to be registered as an aviation_fuel producer the director tam-125928-02 that submitted this request for technical_advice has analyzed x’s projected fuel activities during a certain future period period during the period x will make a total of approximately a deliveries of aviation_fuel into its aircraft and use a total of approximately b gallons also during the period x proposes to make a total of approximately c sales of aviation_fuel to several commercial airlines and aviation_fuel producers the amount of fuel x will sell will total approximately d gallons x may also make occasional sales to other airlines and producers during the period all of the aviation_fuel that x will sell during the period will be in bulk quantities and will be delivered into the bulk storage tanks of x’s buyers law section a imposes a tax on the sale of aviation_fuel by the producer or importer thereof or by any producer of aviation_fuel section a provides that for purposes of a if any producer uses aviation_fuel other than for a nontaxable_use as defined in sec_6427 on which no tax has been imposed under a or on which tax has been credited or refunded then such use shall be considered a sale section b a provides that producer includes any person described in b b and registered under sec_4101 with respect to the tax imposed by section b b provides that a person is described herein if a person is a refiner blender or wholesale_distributor of aviation_fuel or a dealer selling aviation_fuel exclusively to producers of aviation_fuel section b provides that for purposes of b wholesale_distributor includes any person that sells aviation_fuel to producers retailers or to users that buy in bulk quantities and accept delivery into bulk storage tanks this term does not include any person that excluding wholesale_distributor from b is a producer or importer section v c of notice_88_132 1988_2_cb_552 as modified by notice_89_38 1989_1_cb_679 defines wholesale_distributor for purposes of the term producer section v c provides that a wholesale_distributor includes any person that a holds itself out to the public as being engaged in the trade_or_business of selling aviation_fuel to producers of aviation_fuel to retailers or to users of aviation_fuel that buy in bulk quantities and accept delivery into bulk storage tanks and b actually makes more than casual sales of aviation_fuel to the producers retailers or users described in a for this purpose bulk storage tank means a container that holds at least gallons and is tam-125928-02 not the fuel supply tank of an aircraft highway vehicle or train and bulk quantities mean sec_25 gallons or more section v c c provides that a person will be considered to make more than casual sales of aviation_fuel if i at least percent of its number of sales of aviation_fuel during the preceding month period or some other period as determined by the irs is to the producers retailers or users described in section v c a of notice_88_132 the percent test or ii at least percent of its volume of aviation_fuel during the preceding month period or some other period as determined by the irs is sold to the producers retailers or users described in section v c and at least of its sales or a proportional number if a period other than months is used are made to such buyers the percent test rationale during the period all of x’s proposed sales of aviation_fuel will be to users that will buy in bulk quantities and accept delivery into bulk storage tanks thus x would meet the percent test as a result x would make more than casual sales of aviation_fuel for purposes of qualifying as a wholesale_distributor to be registered as a producer by the irs the director suggests however that x will not be making more than casual sales of aviation_fuel the director believes that each delivery of aviation_fuel into the fuel supply tank of an x aircraft that is each use of aviation_fuel by x should be treated as a sale for purposes of the percent test and that all the fuel that x uses should be treated as sold by x for purposes of the percent test as authority for this approach the director cites a which describes circumstances under which a use of aviation_fuel is treated as a sale of that fuel under the director’s approach x would not meet the percent test because c x’s proposed number of bulk sales would be much less than percent of the sum of a plus c the total number of x’s sales if the number of x’s nonbulk deliveries into its aircraft are treated as sales also x would not meet the percent test because d x’s proposed volume of bulk sales would be much less than percent of the sum of b plus d the total volume of volume of x’s sales if the number of x’s nonbulk deliveries into its aircraft are treated as sales we disagree with the director’s analysis because a use of aviation_fuel is not treated as a sale for purposes of the definition of wholesale_distributor words in statutes and other legal documents are to be given their ordinary meaning in the absence of persuasive reasons to the contrary a sale is the transfer of title in property for a price see black’s law dictionary 7th ed uniform commercial code and sec_48_0-2 of the manufacturers and retailers excise_tax regulations tam-125928-02 section a does not command a contrary result under a if a producer uses previously untaxed aviation_fuel for a taxable use then that use is considered a sale but only for purposes of imposing the tax under a nothing in a or notice_89_38 suggests that a also affects the ordinary meaning of sale in the definition of wholesale_distributor a use of fuel in fact is not a sale of the fuel but is so treated by a only for the limited purpose of imposing tax caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with sec_6110 names addresses and identifying numbers have been deleted temporary or final regulations pertaining to one or more of the issues addressed in this memorandum have not yet been adopted therefore this memorandum will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the memorandum see section dollar_figure of revproc_2002_2 2001_1_irb_82 however a technical_advice_memorandum generally is not modified or revoked retroactively if the taxpayer demonstrates that the criteria in section dollar_figure of revproc_2002_2 are satisfied


internal_revenue_service p o box cincinnati oh number release date date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil v dollars amount w dollars amount x program y company z company dear you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will operate an employer-related scholarship program called x the purpose of x is to establish and operate an educational scholarship program for the employees of and the dependents of the employees of y you initially plan to offer four scholarships in the amount of v dollars to eligible employees of y and two scholarships in the amount of w dollars to dependent_children of eligible employees of y you will determine by the end of each calendar_year the number and letter catalog number 58264e amount of grants to be made available for the following year based on a projected budget awards are not renewable however students may reapply to the program each year they meet eligibility requirements the employees of y will receive notice of x in the form of company press releases posters and company emails the following criteria will be used to determine eligibility for x e e e e applicants must be full-time or part-time active employees of y who have a minimum of six months of service with the company as of the application deadline date or be dependent_children age and under of active y employees full- time who have a minimum of six months employment with the company as of the application deadline date y employee applicants must be enrolled or be planning to be enrolled in at least a part-time undergraduate or graduate course of study with a minimum of six credit hours at an accredited two-year or four-year college or university graduate school or a certificate from a vocational technical school and working towards a post-secondary degree applicants that are dependent_children of employees of y must be high school seniors or current post-secondary undergraduate or graduate students who are enrolled or are planning to enroll in a full-time or part-time undergraduate or graduate course of study with a minimum of six credit hours at an accredited two year or four-year college or university graduate school or a certificate from a vocational technical school dependent_children of employees of y are defined as biological step or legally adopted children living in the employee’s household or primarily supported by the employee and are age or under the x selection criteria will include consideration of academic performance demonstrated leadership and participation in school and community activities work experience a statement of career and educational goals and objectives and unusual personal or family circumstances you have engaged z an unrelated third party to administer x z will evaluate applications select and notify winners confirm school enrollment and provide you with management reports to summarize program activity and results z will have the sole decision-making authority to evaluate scholarship applications and select award recipients based on the above-mentioned criteria provided by you catalog number 58264e letter you plan to conduct your scholarship program in accordance with the guidelines of sections dollar_figure through dollar_figure of revproc_76_47 however you cannot guarantee that your scholarship program will meet the percentage guidelines set out revproc_76_47 each year you reasonably believe that your program will satisfy the percent test of section dollar_figure each year but you have not determined whether the program will in fact meet that test you will undertake reasonable efforts to secure sufficient applications to satisfy the percent test of the section dollar_figure but you also anticipate that in some years the number of eligible applications will be insufficient to satisfy the test due to the small number and size of the scholarship program relative to the number of employees of y you have determined that the expense that would needed to be incurred to determine whether you met the percentage tests each year would be greatly out of proportion to the amount and size of the scholarship program however you firmly believe your scholarship program meets the facts_and_circumstances_test under revproc_76_47 and is analogous to revrul_86_90 where the irs ruled that that taxpayer’s grant program satisfied the facts_and_circumstances_test the primary purpose of your scholarship program x is to educate recipients in their individual capacities and not to provide extra compensation or other employment incentives to employees of y the following facts support you meeting the facts and circumstances’ test i il independence of the selection committee you have retained the services of z an entirely independent party from y to serve as the selection committee for the scholarship recipients unrestricted course of study the recipients of the scholarships are not limited in any manner in the course of study they seek to pursue or the institution they desire to pursue their course of study the only requirements are that recipients are enrolled or are planning to enroll in a full-time or part-time undergraduate or graduate course of study with a minimum of six credit hours at an accredited two-year or four-year college or university graduate school or a certificate from a vocational technical school iii objective selection criteria through z recipients for scholarships will be selected based on objective criteria such as consideration of academic performance demonstrated leadership participation in school and community activities work experience a statement of career and educational goals and objectives unusual and interesting family circumstances and outside appraisals and recommendations iv eligible employees dependents there are no specific groups of eligible employees and there are no specific groups of employees that are disqualified from receiving a scholarship further continued employment is letter catalog number 58264e not a pre-requisite for continued eligibility provided that the recipient received his or her award while he she or his or her parent was employed by y v size and number of scholarships you plan to offer a small number of scholarships and the amount of each grant is relatively small this small amount is unlikely to be seen as incentive compensation_for the employees of y you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by the grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you represent that you will maintain all records related to the following individual grants including information to evaluate grantees grantees which are identified as a disqualified_person how the amount and purpose of each grant was established and how you established supervision and investigation of the grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets either the applicable_percentage tests described in section dollar_figure of revproc_76_47 or relevant facts and circumstances we will assume the grants are subject_to the provisions of code sec_117 letter catalog number 58264e these tests require that the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or the relevant facts and circumstances to ensure the primary purpose of the program is not to provide extra compensation or other employment incentive and the primary purpose is to educate recipients in their individual capacities you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer your selection criteria are based upon objective standards that are completely unrelated to employment with y you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and either the applicable_percentage tests described in section dollar_figure of revproc_76_47 or relevant facts and circumstances if you establish another program covering the same individuals that program must also meet the percentage_test or relevant facts and circumstances this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at letter catalog number 58264e internal_revenue_service exempt_organizations determinations p o box cincinnati oh e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58264e


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 b1 plr-130182-07 date date ------------ ------------------- ------------------------------------------------- legend x -------------------------------------------------- country date dear -------------------------- this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted x is an entity organized under the laws of country x intended to make an election to be treated as a disregarded_entity effective date however due to an oversight form_8832 entity classification 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 sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner plr-130182-07 can elect either to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the 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_9100-3 based solely upon the information submitted we conclude that the requirements conclusion of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a disregarded_entity for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-130182-07 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the 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 william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court robert s mcdaniel jr and w jane mcdaniel petitioners v commissioner of internal revenue respondent docket no filed date george browning iii for petitioners william r mccants for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following de- ficiencies in and accuracy-related_penalties under sec_6662 on petitioners' federal_income_tax tax unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and continued year deficiency accuracy-related_penalty dollar_figure dollar_figure big_number big_number the issues remaining for decision are must petitioners recognize long-term_capital_gain in the amount of dollar_figure in or we hold that petitioners must recognize that gain in are petitioners liable for for the accuracy-related_penalty under sec_6662 with respect to the two matters that they have not conceded we hold that they are findings_of_fact many of the facts have been stipulated and are so found at the time the petition was filed robert s mcdaniel jr mr mcdaniel and w jane mcdaniel ms mcdaniel lived in sarasota florida mr mcdaniel is a practicing attorney who has been spe- cializing in real_estate matters since in he and seven other individuals including george palermo mr palermo and brent parker mr parker formed the second street part-- nership second street or partnership and became general part- ners thereof in order to inter alia purchase develop and hold for rental income a specified real_property located in sarasota continued procedure florida second street real_property the second street part- nership agreement provided that each of its eight partners was to contribute capital own partnership assets and share in part-- nership profits and losses in equal proportions on date second street borrowed dollar_figure from the national bank of sarasota which was evidenced by a note note as security for that note on the same date second street mortgaged the second street real_property second street mort- gage to the national bank of sarasota the second street mortgage which mr mcdaniel signed provided in pertinent part that the said lender may from time to time extend the time of payment of said note to subsequent owners of said lands and premises without notice to or request from the makers of said note and any such extension of time of payment shall not release the makers from liability on said note that any indulgence or departure at any time by the borrower its successors or assigns from any of the provisions hereof or of any obligation hereby secured shall not modify the same or relate to the future or waive future compliance therewith by the borrower no act of omission or commission of lender including without limitation any failure to exercise any right remedy or recourse shall be deemed to be a waiver release or modification of the same such waiver release or modification to be effected only through a written document executed by lender and then only to the extent specifically recited therein except for any notice required under applicable law to be given in another manner any notice report demand or other instrument required or permitted to be given by this mortgage shall be given or made in writing xk kek in the case of the borrower second street addressed to second street partnership with a copy to robert s mcdaniel jr esq on date the note was refinanced in the principal_amount of dollar_figure note with citizens and southern bank of florida c s bank the successor to national bank of sarasota the note was secured_by the second street mortgage which was modified where necessary to reflect the terms of that note on date the note in the original principal_amount of dollar_figure and a future advance note dated date in the original principal_amount of dollar_figure were replaced consolidated and renewed in the principal_amount of dollar_figure note with c s bank the note was secured_by the second street mortgage which was modified where necessary to reflect the terms of the note according to the note which mr mcdaniel inter alia signed as a general_partner on date the maturity_date of this note the remaining unpaid principal balance and accrued interest shall be due and payable in full balloon payment the note further provided in pertinent part all persons or entities now or at any time liable whether primarily or secondarily for the payment of the indebtedness hereby evidenced for themselves their heirs legal representatives successors and assigns respectively hereby expressly waive presentment demand for payment notice of dishonor protest notice of nonpayment or protest and diligence in collection consent that the time of all pay- ments or any part thereof may be extended rearranged renewed or postponed by the holder hereof and further consent that any real or personal_property securing this note or any part of such security may be released exchanged added to or substituted by the holder of this note without in anywise modifying altering releasing affecting or limiting their respective liability or the lien of any instrument securing this indebtedness agree that the holder of this note shall not be required first to institute any suit or to exhaust any of its remedies against the maker of this note or any other person or party to become liable hereunder in order to force payment of this note agree that the maker of this note may be released by the holder hereof from any or all liability under this instrument and such release shall not in any way affect or modify the liabilities of the remaining parties hereto we shall sometimes refer to the indebtedness of second street as evidenced by the note as the second street loan or the second street debt as a condition to making the second street loan c s bank the lender required mr mcdaniel and ms mcdaniel to and each did execute a guaranty agreement guaranty under which each of them guaranteed c s bank inter alia to make prompt payment of all sums payable under the note each guaranty provided in pertinent part guarantor does hereby irrevocably and uncondi- tionally guarantee to the lender the prompt payment of the principal interest and other sums payable under the note including any extensions modifications or renewals of the note the lender may enforce the provisions hereof from time to time as often as occasion therefor may arise and the lender shall not be required to first exercise any rights against any other person or party primarily or secondarily liable in respect to the loan or the obligations of guarantor hereunder and shall not be reguired first to initiate pursue or exhaust any remedies available to it against any other person or party or to resort to or enforce any security in its possession or under its control no course of dealing or delay or omission on the part of the lender in exercising or enforcing any of its rights or remedies under the note instruments of security or hereunder shall impair or be prejudi- cial to the rights and remedies of the lender hereunder and the enforcement hereof the lender may extend modify or postpone the time and manner of payment and performance of the note instruments of security and this agreement make advances and disbursements under the note and instruments of security all without notice to or consent by the guarantor and without thereby releasing discharging or diminishing its rights and remedies against the guarantor hereunder guarantor waives notice of acceptance of this agree- ment notice of the occurrence of any default under the note instruments of security or hereunder and pre- sentments demands protests and notices of any and all action at any time taken or omitted by the lender in connection with the loan or this agreement guarantor further consents to the lender exchanging surrendering repledging or otherwise dealing with the aforesaid items without impairing this guarantee and hereby waive s notice thereof to or obtaining the consent therefor of the guarantor guarantor hereby consents to the partial or total release of borrower or other persons primarily or secondarily liable to lender for borrower's indebted- ness no act of omission of any kind by the lender shall affect or impair this guarantee and the lender shall have no duties to the guarantor during the mid-to-late 1980's the partnership_interest of each of five of the general partners of second street excluding mr palermo mr mcdaniel and mr parker was purchased by the then remaining general partners and either c s bank or its successor nationsbank of florida n a nationsbank expressly released each of those five partners from any liability with respect to the second street loan by the end of mr mcdaniel mr parker and mr palermo were the only general partners of second street since at least some time in second street was ex- periencing negative cash-flows which required its three general partners to make monthly contributions to it in date mr mcdaniel was unable to continue making his share of those con- tributions he approached mr palermo informed him that he was unable to continue making monthly contributions to second street and offered to deed mr palermo his partnership_interest by guitclaim deed dated date mr mcdaniel transferred his interest in the second street real_property to george palermo architect inc on date mr mcdaniel assigned his interest in second street to george palermo architect inc at the time of that assignment mr mcdaniel's capital_account balance in second street was a negative balance in the amount of dollar_figure negative capital_account balance by corrective guitclaim deed dated date mr mcdaniel transferred his interest in the second street real_property to the part-- nership although mr mcdaniel had transferred his interest in the second street real_property and assigned his partnership_interest mr mcdaniel continued to see mr palermo on a daily basis throughout the years at issue mr mcdaniel did not receive an oral release or a written release in date with respect to any of second street's obligations including the second street loan when he quit-- claimed his interest in the second street real_property and assigned his partnership_interest to george palermo architect inc nor did he receive any such release at any other time during mr parker one of second street's general partners commenced a bankruptcy proceeding under chapter in the bankruptcy court for the middle district of florida tampa division on date that court granted mr palermo relief from the automatic_stay provisions of u s c sec_362 a in mr palermo brought an action against mr parker to dissolve second street the balloon payment required by the terms of the note came due on date that payment was not made and mr palermo met during with personnel of nationsbank about possible refinancing of the second street debt he also met with joseph m martens mr martens who was employed by amresco institutional inc amresco nationsbank's agent and who became responsible for the management of the second street loan sometime during the first six months of hereinafter we shall refer collectively to nationsbank and amresco as nations-- bank amresco or the bank the topic of mr mcdaniel's liability with respect to the second street loan did not arise in mr palermo's discussions during with personnel of nations-- bank amresco even though the note had matured on date mr martens recommended in date that the bank not take any_action with respect to it until completion of mr parker's bankruptcy proceeding that was because under the proposed bankruptcy plan relating to mr parker mr parker's interest in the second street real_property was to be transferred to mr palermo and the bank considered mr palermo to be a valued customer who had sufficient liquidity and personal income to support the debt service on the second street loan nationsbank amresco adopted mr marten's recommendation and decided to bill second street for interest only monthly pay- ments of interest only continued to be made by mr palermo the bank did not notify mr mcdaniel or ms mcdaniel of the failure -- - by second street to make the balloon payment due on date or the arrangement to make monthly payments of interest only throughout inter alia the period personnel of the bank prepared various internal documents written internal reports which were to be used inter alia to keep senior management of the bank informed and in which they described the status of any activity with respect to the note and inter alia the respective guaranties of that note by mr mcdaniel and by ms mcdaniel written internal reports dated date and date that were prepared by bob thomas of nations-- bank amresco listed mr mcdaniel and ms mcdaniel as guarantors of the second street loan indicated that mr mcdaniel was no longer a partner in second street contained financial analyses of mr mcdaniel and ms mcdaniel based on the most recent f1i- nancial statements that they provided to the bank and stated that the bank will not release mcdantel's and parker's guarantees even though they provide no fallback however parker could be discharged in bankruptcy based on palermo's liquidity and net_worth he is capable of servicing the debt irrespective of the occupancy of the buildings a written internal report dated date that was prepared by mr martens listed mr mcdaniel and ms mcdaniel as guarantors of the second street loan indicated that mr mcdaniel was no longer a partner in second street contained financial analyses of mr mcdaniel and ms mcdaniel based on the most recent f1i- nancial statements that they provided to the bank and stated that the bank will not release mcdaniel's and parker's guar- antees in a written internal report dated date mr martens recommended that the second street loan remain in so-called accrual status pending completion of mr parker's bankruptcy proceeding that report stated in pertinent part the loan has matured guarantor parker has filed a personal chapter bankruptcy the reorganization plan has not yet been confirmed the plan proposes to give parker's interest in the subject property to the other remaining guarantor palermo palermo intends to dissolve partnership and refinance loan upon final approval of the bankruptcy court the general bank has indicated a desire to retain the loan and they consider palermo to be a desirable banking customer however the general bank will not take the loan until parker's bankruptcy has been resolved and parker removed from the debt the loan will remain past due pending com-- pletion of parker's bankruptcy the guarantor palermo has significant liquidity and personal income to support any operating deficiency the other guarantor parker provides no support to the loan because of his impending bankruptcy following the final resolution of parker's bankruptcy palermo will receive sole ownership of the subject property this action is expected to be completed palermo has strong financial capacity to per- sonally support the loan the general bank has in- dicated a desire to retain palermo individually and will likely refinance the loan and take it back into their portfolio once parker has been removed from the relationship written internal reports dated date and date that were prepared by mr martens continued to list mr mcdaniel and ms mcdaniel as guarantors of the second street loan indicated that mr mcdaniel was no longer a partner in second street and contained financial analyses of mr mcdaniel and ms mcdaniel based on the most recent statements that they provided to the bank in the written internal report dated date mr martens stated that mr palermo continues to pay interest on the matured note and has agreed to pay all delinquent real_estate_taxes upon renewal of the loan as was true of the written internal reports dated date date date and date the written internal report dated date discloses that the bank was eval- uating petitioners' assets as a possible collection source throughout the duration of the second street loan nations- bank amresco affirmatively decided not to and did not discharge mr mcdaniel from his liability to the bank as a guarantor of that loan after having waited for about a year in order to permit mr parker's bankruptcy matter to be resolved and it having been resolved in early the bank finally lost patience with respect to the second street loan on date mr martens on behalf of nationsbank amresco sent a letter to mr palermo date letter demanding payment of the second street loan the date letter notified mr palermo that the note was in immediate default that the bank was giving second street days within which to cure the default and that if the obligations under that note were not fully satisfied by date the bank intended to accelerate all sums due there- under and to commence collection activity after having received the date letter mr palermo gave it to mr mcdaniel and asked him to respond to it by letter dated date mr mcdaniel informed mr martens that mr palermo had arranged for alternative financing that was expected to close no later than date and requested that no action be taken by nationsbank amresco until that date in order to refinance the second street debt to the bank around date mr palermo asked northern trust bank of florida n a northern trust to approve a dollar_figure loan to second street whose general partners since date were mr palermo and george palermo architect inc during the negotiations in with northern trust northern trust did not solicit any financial information or personal guaranties or other agreements from mr mcdaniel or from mr parker the collateral for the loan by northern trust to the partnership was to be the second street real_property mr palermo's unconditional guaranty of that loan and mr palermo's pledge of certificates of deposit in the amount of dollar_figure northern trust decided to structure the loan from it to second street as a purchase by it from nationsbank amresco of the note on date northern trust acquired the note from nationsbank amresco for dollar_figure which amount was the sum of the outstanding principal balance of dollar_figure and the accrued unpaid interest of dollar_figure which were due under that note on the same date a replacement promissory note replacement note in the amount of dollar_figure payable to northern trust was executed on behalf of second street by mr palermo as a general_partner and by mr palermo as president of george palermo architects inc the other general_partner of second street the replacement note replaced the note of second street to the bank the first page of the replacement note stated that it had an effective date of date and an execution date of date all of the other documents relating to the replacement note issued by second street to northern trust contained the date of date or a later date and none of them contained the date of date at a time not disclosed by the record an account of a type not disclosed by the record account was established for pe- titioners' daughter holly mcdaniel to be used for her college education the sources of the funds in that account were mr -- - mcdaniel ms mcdaniel and mr mcdaniel's father another source for the funds in that account was a mutual_fund that mr mcdaniel established for holly mcdaniel shortly after she was born mr mcdaniel and ms mcdaniel managed the account that was established for holly mcdaniel during whenever holly mcdaniel needed funds an amount of money would be transferred from the account to her checking account petitioners filed a joint tax_return return for sometime after date second street filed and issued to mr mcdaniel a schedule_k-1 partner's share of income credits deductions etc for which reported that mr mcdaniel had a separately_stated long-term_capital_gain of dollar_figure petition- ers did not report that gain in their return instead petitioners included form_8082 notice of inconsistent treatment or amended_return form with their return in that form petitioners reported that second street had incorrectly reported mr mcdaniel's negative capital_account balance as a long-term_capital_gain petitioners attached the following explanation to the form_8082 that they filed with their return during robert s mcdaniel jr and second street partnership agreed that mr mcdaniel would no longer be required to make additional capital contribu- tions to the partnership in exchange for mr mcdaniel giving up hi sec_25 interest in the partnership mr mcdaniel remains contingently liable for partnership liabilities his share of which is reported on the -- - schedule_k-1 as dollar_figure most of this liability bal- ance is represented by a first mortgage loan held by a bank for which partnership real_property is pledged the partners including mr mcdaniel personally signed the loan agreement for which they have joint and sev- eral liability the bank has not released mr mcdaniel from his obligation under the loan agreement at the time of mr mcdaniel's agreement with the partnership as described above he had a negative capital_account balance of dollar_figure his negative capital_account balance was incorrectly reported by the partnership on his schedule_k-1 as a long-term_capital_gain mr mcdaniel believes that the correct treatment of his negative capital_account balance on his schedule_k-1 is to report the dollar_figure on line j box d with- drawals and distributions the partnership's incorrect assumption that his negative capital_account balance results in long-term_capital_gain is inappropriate inasmuch as mr mcdaniel continues to be contingently liable for dollar_figure in partnership liabilities at such time that mr mcdaniel's share of partnership liabilities are repaid by the partnership or otherwise settled the appropri- ate tax treatment of mr mcdaniel's negative capital_account balance on withdrawal from the partnership can be determined petitioners filed their return sometime after date petitioners filed their return sometime after date in their return petitioners erroneously claimed a dependency_exemption for their daughter holly mcdaniel petitioners did not report any income attributable to mr mcdaniel's negative capital_account balance in their return their return or any other return that they filed respondent issued a notice_of_deficiency notice to pe- titioners for their taxable years and in that notice respondent determined inter alia that petitioners realized long-term_capital_gain in the amount of dollar_figure for which resulted from the reduction in petitioners' share of the second street loan and that petitioners are liable for and for the accuracy-related_penalty under sec_6662 a opinion petitioners bear the burden of proving that respondent's determinations in the notice are erroneous see rule a 290_us_111 the parties agree that petitioners must recognize dollar_figure of long-term_capital_gain pursuant to sec_752 sec_731 and sec_741 for the year in which mr mcdaniel was relieved of his liability as a guarantor of the second street loan the parties disagree as to the year in which mr mcdaniel was relieved of that liability petitioners contend that mr mcdaniel was discharged in from his liability as a guarantor of the second street loan respondent contends that he was discharged from that liability in in support of their position petitioners rely on fla stat ann sec and west repealed effective jan -- - section of the florida statutes annotated section provides in pertinent part ehffect of dissolution on partner's existing liability -- the dissolution of the partnership of itself does not discharge the existing liability of any part- ner a partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself the part- nership creditor and the person or partnership con- tinuing the business the agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or part-- nership continuing the business when a person agrees to assume the existing obligations of a dissolved partnership the partners whose obligations have been assumed shall be discharged from any liability to any creditor of the partnership who knowing of the agreement consents to a material alteration in the nature or time of payment of the obligations petitioners maintain that this is a situation in which the application of florida statute and are necessary to allow some fairness to petitioners who seek to offset income from the relief of liabilities with losses_incurred in tax_year while the fact that petitioners incurred losses in explains why they are taking the position that they must recognize the gain in question for that year that fact is irrelevant to our resolving the issue presented see fla stat ann sec west we turn initially to petitioners' position under section because they address that position first on brief there are three requirements prescribed by that provision in order to come within its terms a person must agree to assume the existing obligations of a dissolved partnership the creditor of that partnership must know of the agreement by a person to assume the existing obligations of a dissolved partnership and such creditor must consent to a material alteration in the nature or time of payment of those obligations with respect to the first requirement petitioners contend that in mr palermo agreed to assume mr mcdaniel's share of the partnership obligations in support of that contention petitioners rely on mr mcdaniel's testimony mr mcdaniel testified on the one hand that he could not remember the discussion that he had had with mr palermo regarding the part- nership's liabilities and on the other hand that mr palermo was to assume my share of the partnership obligations we found mr mcdaniel's testimony regarding mr palermo's alleged assumption of mr mcdaniel's share of the liabilities of second street to be inconsistent and not helpful we also found mr palermo's testimony on this matter to be inconsistent and not helpful mr palermo testified that he believed that what he and mr mcdaniel agreed to in was that mr palermo was to assume mr mcdaniel's interest in second street and the responsibilities - - of the partnership which mr palermo defined as the management of the partnership the financial obligations the management of the partnership basically taking over his partnership_interest mr palermo admitted during his testimony that there was never any written release and he did not recall any oral release of mr mcdaniel from the obligations of second street consis-- tently mr palermo gave the following testimony about the second street loan it don't think that ever came up as a specific topic our relationship was very informal and i looked at this as an opportunity to obtain a larger interest in the partnership which would allow me to manage it better inconsistently mr palermo further testified that he did not expect mr mcdaniel to pay any obligations concerning the part- nership we are not persuaded from the testimony of mr mcdaniel and mr palermo that during mr palermo agreed either orally or in writing to assume mr mcdaniel's liability as a guarantor of the second street loan and that either mr mcdaniel or mr palermo believed that mr mcdaniel was in fact discharged from that liability in this regard it is signifi- cant that other general partners of second street who terminated their respective interests in that partnership during the mid-to- late 1980's received express releases by the partnership's creditors from any liability for the obligations of the part-- nership in addition as respondent points out mr mcdaniel has been specializing in real_estate law since and must have known that in order to be relieved of his share of the part- nership's liabilities he had to obtain from the bank a formal release of his liability as a guarantor of the second street loan the most favorable interpretation of the testimony of mr mcdaniel and mr palermo would be that they merely assumed that if mr palermo were to receive mr mcdaniel's share of the partnership assets mr palermo should pay the partnership obligations such an assumption does not satisfy the requirement of section that a person agrees to assume the ex- isting obligations of a dissolved partnership on the instant record we find that petitioners have failed to meet their burden of showing that mr palermo agreed to assume mr mcdaniel's share of the obligations of second street we further find on that record that petitioners have failed to establish that the first requirement of section ie that a person agrees to assume the existing obligations of a dissolved partnership is satisfied assuming arguendo that we had found that mr palermo agreed to assume mr mcdaniel's share of the obligations of second street petitioners also must show under section that nationsbank amresco knew of that agreement in petitioners admit that there was no testimony that nationsbank was told that palermo was assuming the existing obligations of the partner- ship however petitioners assert that the bank knew palermo was shouldering the obligation to pay the partnership obligations after mcdaniels sic removed himself from the partnership in support of their position petitioners point inter alia to several of the written internal reports including those dated date date date and date respondent contends that there is no evidence that the bank was aware on sic any discharge of petitioners' liability in we agree with respondent although petitioners are correct that the bank knew in that mr palermo was sshouldering the obligation to pay the note that fact does not establish knowledge on the part of nationsbank amresco that mr palermo assumed mr mcdaniel's partnership obligations nor do the written internal reports show that the bank was aware of any agreement by mr palermo to assume mr mcdaniel's partnership obligations to the contrary those reports and the testimony of mr martens who was responsible for the management of the second street loan during most of and during until it was paid off in date establish that nationsbank amresco did not release mr mcdaniel from his guaranty of that loan in addition when questioned about whether the bank officials were aware of his agreement with mr mcdaniel mr palermo testified t believe that through the process of the parker bankruptcy and our negotiations they were aware that i was the chief partner and i had purchased mr mcdaniel's interest such testimony does not establish that nationsbank amresco was aware of any assumption by mr palermo of mr mcdaniel's partnership obliga- tions on the present record we find that petitioners have failed to meet their burden of showing that nationsbank amresco knew of any assumption by mr palermo of mr mcdaniel's partnership obligations we further find on that record that petitioners have failed to satisfy their burden of showing that they comply with the requirement of section that a creditor of a partnership which is dissolved know of any agreement by a person to assume that partnership's existing obligations petitioners have also failed to persuade us on the instant record that the third and last requirement under section is satisfied that is because they have failed to show that nationsbank amresco consented during to a material alteration in the nature or time of payment of the note on the record before us we reject petitioners' contention that nationsbank made a material alteration in the time of payment of the partnership loan by not insisting on a lump sum payment of principal on date but allowing the payment of interest only the express terms of the note the second street mortgage relating thereto and mr mcdaniel's guaranty the first two of which were signed by mr mcdaniel as a general_partner of second street and the last of which was signed by him individu- ally permitted the bank to extend the time of payment under that note the express terms of mr mcdaniel's guaranty provide that his obligations as a guarantor of the note are to be unaf- fected by inter alia the bank's extension of the time of payment of that note moreover under florida law the extension of the time for payment of a loan is not a material alteration of the terms of the loan in anderson v trade winds enters corp so 2d fla dist ct app the district_court of appeal for the fourth district of florida stated the individual appellees answers plead that their liability as guarantors was discharged by extensions of time for payment which the holder of the note accorded the maker the evidence indicates that the note went into default when the first installment was due thereafter instead of bringing immediate suit on the note partial payments were accepted the evidence does not indicate however that the holder and maker of the note legally modified the latter's obligation under the note the extensions of time were gratuitous indulgences to avoid litigation such extensions therefore did not affect the guarantors' rights against the maker of the note and therefore did not discharge their liability as guarantors in the instant case the decision by nationsbank amresco not to notify second street in writing that the note was in default until about a year after second street failed to make the balloon payment that was due on date did not constitute a material alteration of the obligations under that note nor did that decision have any effect on the obligations of mr mcdaniel as a guarantor of the note on the instant record we find that there was no ma- terial alteration in the nature or the time of payment of the note and that the bank did not consent to any such alteration we further find on that record that petitioners have failed to establish that mr mcdaniel was discharged in from his guaranty of the second street loan under section we turn next to petitioners' position that mr mcdaniel was discharged in from his guaranty under section under that provision petitioners must show that mr mcdaniel was discharged from his guaranty to the bank by an agreement to that effect among himself the bank and mr palermo we have found that petitioners have not met their burden of establishing that mr palermo agreed to assume mr mcdaniel's share of the part- the bank made that decision because of the pending bankruptcy proceeding of mr parker a general_partner of second street and another guarantor of the second street loan and the desire of nationsbank amresco to give mr palermo a valued customer the opportunity to come into compliance with the loan terms as soon as mr parker's bankruptcy proceeding was resolved even if the terms of the loan had been altered as noted above under the terms of his guaranty mr mcdaniel's obligation as a guarantor of the second street loan would not have been affected by any such alteration - - nership obligations petitioners contend however that an agreement in among mr mcdaniel the bank and mr palermo to release mr mcdaniel from his guaranty can be inferred from the course of dealing between the bank and palermo having knowl- edge that mcdaniels sic was no longer a partner petitioners point to inter alia the following in an effort to support that contention the bank did not notify mr mcdaniel that the partnership had not timely made the balloon payment that was due on date under the note the bank did not notify mr mcdaniel or second street that the note was in default during the bank materially changed the terms of the note and relinquished its right to receive the balloon payment the topic of mr mcdaniel's liability with respect to the note did not arise in discussions during between mr palermo and personnel of the bank and the written internal reports of the bank that were prepared during show that the bank understood that mr mcdaniel was discharged from his liability as a guarantor of the second street loan on the record before us we reject petitioners' position that an agreement in among mr mcdaniel the bank and mr palermo to release mr mcdaniel from his liability as a guarantor of the note may be inferred within the meaning of section from the course of dealing during that year between mr palermo and the bank the foregoing points on which pe- titioners rely are not established by the record and or are irrelevant to a determination of whether such an agreement may be so inferred we note initially that the bank had no duty to notify mr mcdaniel as a guarantor of the note that the partnership had not timely made the balloon payment under that note nor was the bank required to notify mr mcdaniel as a guarantor of any default under the note furthermore contrary to petition- ers' contention the bank exercised its right under the note to delay collection of the balloon payment and did not materially change the terms of or forgo its right to receive the balloon payment under that note indeed after the bank notified second street in date that the second street loan was in default the partnership obtained financing from northern trust which it used in date to pay off that loan in addition mr palermo's testimony that the topic of mr mcdaniel's liability did not arise in his discussions during with personnel of it is noteworthy that mr palermo did inform mr mcdaniel that the balloon payment had not been timely made at least some time shortly before mr mcdaniel wrote mr martens on date with respect to the date letter that mr martens had sent to mr palermo informing him that nationsbank amresco considered the note to be in default since mr mcdaniel continued to see mr palermo on a daily basis throughout the years at issue after he assigned his partnership_interest to mr palermo in date we believe that it is likely that mr mcdaniel was aware well before date that second street had not made the balloon payment - - nationsbank amresco does not establish as petitioners assert that there was a clear inconsistency between mr mcdaniel's guaranty and later conduct by nationsbank amresco moreover petitioners concede that unlike the other partners who withdrew from second street during the mid-to-late 1980's and each of whom received from the creditor bank of second street an express release from his her liability for the partnership obligations to such bank mr mcdaniel did not obtain an express release by nationsbank amresco from his guaranty of the second street loan finally contrary to petitioners’ contention the written inter- nal reports of the bank that were prepared during and were consistent with the written internal reports prepared during those reports show that throughout nations- bank amresco considered mr mcdaniel to be a guarantor of the note indeed as late as date the bank was evaluating the assets of inter alia mr mcdaniel as a guarantor of the second street loan and mr martens testified that the bank affirmatively decided not to discharge him from that guar- anty significantly the u s court_of_appeals for the eleventh circuit to which an appeal in this case normally would lie has considered whether pursuant to section a guarantor of a loan was discharged from his guaranty see 956_f2d_242 11th cir vacating and remanding - - tcmemo_1990_492 in weiss the taxpayer robert b weiss mr weiss entered into a partnership_agreement in date with three other individuals hillman group partners for the purpose of purchasing and operating a motel see id pincite in feb- ruary in connection with the financing of that partnership hillman group weiss partnership mr weiss personally guar- anteed the participation of flagship bank of tampa flagship in dollar_figure of a dollar_figure loan to the partnership from another bank see id on date because the hillman group weiss partnership needed an infusion of capital one of the hillman group partners requested mr weiss and the other partners to contribute additional capital to the partnership capital call all of the hillman group partners satisfied their share of that capital call but mr weiss did not see id asa result on date one of the hillman group partners notified mr weiss that the hillman group weiss partnership had acquired his partnership_interest on date pursuant to a provision in the hillman group weiss partnership_agreement that permitted such an acquisition if a partner failed to satisfy a capital call within days the commissioner of internal revenue had determined inter alia that because mr weiss was relieved of his partnership_liability on or before date he realized a short-term_capital_gain on his share of the hillman group weiss partnership liabilities for which he was no -- - longer responsible see id pincite after examining section the court_of_appeals stated no express or inferred agreement existed here there was no express agreement between weiss and the hillman group partners relieving weiss of liability flagship did not expressly release weiss from his personal guarantee and nothing in the course of dealings be- tween the hillman group and flagship permits the in- ference that flagship released weiss from his personal guarantee because the tax_court did not indicate what course of dealings showed that weiss was relieved of liabil- ity we suppose that flagship's extension of a dollar_figure line of credit to the hillman group somehow influenced the tax_court but this credit extension is in no way inconsistent with the fact that flagship still consid- ered weiss personally liable on his guarantee of the loan participation without a clear inconsistency between the written guarantee and later conduct by flagship we see no reason to infer that weiss had been discharged from his obligation pursuant to the guaran- tee for example we might decide that weiss was relieved from his liability by the course of dealings if without expressly releasing weiss flagship had substituted a new written guarantee from the hillman group or one of its members after weiss' partnership_interest was terminated or for another example we might also have decided that weiss was released if in the course of dealings flagship had been forced to recover on their loan participation and sought recovery only from the hillman group and not from weiss but here nothing in the record shows that flagship had released weiss from his personal guarantee id pincite petitioners attempt to distinguish weiss they contend that weiss did not present a situation such as the instant case where the loan became due and the payment was changed from a balloon payment to payment of interest only as discussed above we reject petitioners' position that the terms of the note were materially altered and the payment under that note was changed from a balloon payment to a payment of interest only we conclude that petitioners have failed in their attempt to distinguish weiss v commissioner supra from the present case on the record before us we find that petitioners have failed to carry their burden of showing that mr mcdaniel was discharged in from his guaranty of the second street loan under section in contrast to the course of dealings between mr palermo and nationsbank amresco during their course of dealings during supports respondent's position that mr mcdaniel was released in from his guaranty of the second street loan the bank notified mr palermo in the date letter that the note was in default mr mcdaniel wrote to nationsbank on date in order to request on behalf of second street that the bank forbear from taking any_action with respect to that default until date mr palermo was able to obtain even if petitioners had established the distinction that they allege between the instant case and 956_f2d_242 11th cir vacating and remanding tcmemo_1990_492 we would find any such distinction to be irrelevant to our determination of whether it could be inferred from the course of dealings during between mr palermo and nationsbank amresco that mr mcdaniel was discharged in that year from his guaranty of the note alternative financing for second street from northern trust on date northern trust acquired the note from nationsbank amresco for dollar_figure which amount was the sum of the outstanding principal balance of dollar_figure and the accrued unpaid interest of dollar_figure which were due under that note on the same date a replacement note payable to northern trust in the amount of dollar_figure was executed on behalf of second street by mr palermo as a general_partner and by mr palermo as president of george palermo architects inc the other general_partner of second street the replacement note replaced the note of second street to the bank the collateral for the replacement note was the second street real_property mr palermo's unconditional guaranty and mr palermo's pledge of certificates of deposit in the amount of dollar_figure northern trust did not solicit or obtain from mr mcdaniel any guaranty or other agreement by him to be liable contingently or otherwise with respect to the replacement note issued by second street to northern trust based on our examination of the entire record in this case we find that petitioners have failed to show that mr mcdaniel was discharged in from his guaranty of the second street loan we further find on that record that petitioners have - - failed to show that mr mcdaniel was not discharged in from that guaranty ’ sec_6662 imposes an addition_to_tax egqual to percent of the underpayment_of_tax attributable to inter alia negligence or disregard of rules or regulations under sec_6662 b for purposes of sec_6662 the term neg- ligence includes any failure to make a reasonable attempt to comply with the code and disregard includes any careless reckless or intentional disregard see sec_6662 neg- ligence has also been defined as a lack of due care or a failure to do what a reasonable person would do under the circumstances see 963_f2d_907 6th cir affg tcmemo_1991_179 91_tc_686 affd 893_f2d_656 4th cir 85_tc_934 the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to such portion see sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends upon the pertinent facts and circum-- ’ we have considered all of the contentions of petitioners that are not discussed herein and we find them to be without merit and or irrelevant stances including the taxpayer's efforts to assess his or her proper tax_liability and the knowledge and experience of the taxpayer see sec_1_6664-4 income_tax regs as we understand petitioners' position they contend that they are not liable for for the accuracy-related_penalty under sec_6662 with respect to petitioners' underpayment_of_tax for that year that is attributable to their failure to report in their return long-term_capital_gain of dollar_figure and their erroneously claiming in that return a dependency_exemption for their daughter holly mcdaniel petitioners make no argument with respect to that position in their opening brief in their reply brief they assert the respondent has taken the position that all the adjustments made by the agent are the result of neg- ligence of the petitioners specific acts of negli- gence have not been shown negligence penalties should not be assessed against the petitioners petitioners not respondent have the burden of proving that respondent's determinations in the notice including the de- terminations under sec_6662 are erroneous see rule a on the record before us we find that petitioners have failed to satisfy that burden accordingly we sustain respondent's determinations under sec_6662 for with respect to petitioners concede respondent's determinations under sec_6662 with respect to the other items that result in petitioners' underpayment for each of the years at issue petitioners' underpayment_of_tax for that year that is attribut-- able to their failure to report in their return long-term_capital_gain of dollar_figure and their erroneously claiming in that return a dependency_exemption for their daughter holly mcdaniel to reflect the foregoing and the concessions of petitioners decision will be entered for respondent


internal_revenue_service department of the treasury washington dc number release date index number person to contact telephone number refer reply to cc psi - plr-113439-00 date date trust trust a_trust b a b charity d1 d2 dear this letter responds to a letter dated date and subsequent correspondence that you submitted on behalf of trust as trust’s authorized representative the trustees of trust requested a ruling that the proposed division of trust a charitable_remainder_unitrust into two separate trusts each of which also will comply the requirements under sec_664 of the internal_revenue_code will not cause either trust or the resultant trusts trust a and trust b to fail to qualify under sec_664 according to the information submitted on d1 a and b who mr peter laboskey were then husband and wife established trust trust provides for quarterly unitrust payments to be made to a and b in equal proportions during their joint lifetimes and after the death of either of them wholly to the survivor during his or her lifetime the unitrust payments are to be equal to eight percent of the net fair_market_value of the trust estate valued annually a and b each have the right upon his or her death pursuant to his or her last will and testament to terminate the rights of the surviving trustor as to any interest in property the deceased trustor transferred to trust in addition trust provides that each trustor has a testamentary power to name any one or more organizations described in sec_170 sec_2055 and sec_2522 of the code to receive the portion of the charitable_remainder attributable to his her contribution to trust it is represented that trust satisfies all applicable_requirements of sec_664 of the code a and b’s marriage was dissolved effective d2 a and b now propose to divide trust into separate charitable_remainder unitrusts trust a will be for the benefit of a and trust b will be for the benefit of b the terms of each trust a and trust b are identical to the terms of trust except that the trust property of trust a will be percent of the trust principal and any undistributed_income of trust and the trust property of trust b will be percent of the trust principal and any undistributed_income of trust trust a will terminate upon a’s death at which time the remainder of the trust estate will be paid to charity subject only to a’s testamentary power to name one or more additional or other qualified charitable organizations as the charitable_remainder beneficiary trust b will terminate upon b’s death at which time the remainder of the trust estate will be paid to charity subject only to b’s testamentary power to name one or more additional or other qualified charitable organizations as the charitable_remainder beneficiary a will receive during his lifetime an amount equal to eight percent of the net fair_market_value of the trust estate of trust a valued annually a will be the sole trustee of trust a b will receive during her lifetime an amount equal to eight percent of the net fair_market_value of the trust estate of trust b valued annually b will be the sole trustee of trust b after applying the relevant law to the information provided and the representations made we conclude that the division of trust into trust a and trust b will not cause either trust trust a or trust b to fail to qualify as charitable_remainder trusts under sec_664 except as specifically set forth above no opinion is mr peter laboskey expressed concerning the federal tax consequences of the facts of the transaction described above under any other provision of the code in particular sec_61 sec_170 sec_1001 sec_1041 and sec_2522 we express no opinion on whether trust qualifies as a charitable_remainder_trust under sec_664 or whether the separate trusts each will qualify as charitable_remainder trusts under sec_664 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust and to trust’s other authorized representative sincerely yours branch jeanne m sullivan assistant to the chief office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes