t c summary opinion united_states tax_court janet schoene petitioner v commissioner of internal revenue respondent docket no 3109-99s filed date hedy p forspan david herman and peter mendelsohn specially recognized for petitioner lydia a branche and peter j labelle for respondent powell special_trial_judge this case was heard pursuant to the provisions of sec_7463' of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure - - the issue is whether petitioner is time barred from claiming a refund of a dollar_figure overpayment for her tax_year respondent contends that petitioner is time barred from recovery by the operation of sec_6511 and sec_6512 petitioner contends however that she was financially disabled within the meaning of sec_6511 and therefore the period of limitations set forth in sec_6511 was tolled at the time the petition was filed petitioner resided in new york new york the facts are not in dispute and may be summarized as follows from to at least petitioner suffered from depression with respect to her federal_income_tax return petitioner through her accountant requested and received an automatic_extension to file her return prior to the date filing deadline petitioner requested and received an additional extension to file until date petitioner however did not submit her federal_income_tax return until after respondent issued the notice_of_deficiency in based on third party information respondent prepared a substitute return and issued a notice_of_deficiency to petitioner on date respondent determined a deficiency and additions to tax in petitioner’s federal_income_tax as follows additions to tax_deficiency sec_6651 a sec_6651 a dollar_figure dollar_figure dollar_figure petitioner timely filed a petition with this court contesting the deficiency determined in the notice and claiming an overpayment of dollar_figure she also apparently submitted a return to respondent seeking a refund of dollar_figure respondent concedes that the return submitted is correct but contends that petitioner is time barred from recovering the dollar_figure overpayment by operation of sec_6511 and sec_6512 we generally have jurisdiction to determine the existence and amount of any overpayment_of_tax to be credited or refunded for years that are properly before us see sec_6512 for the taxable_year sec_6512 incorporating by reference sec_6511 however provides that a claim for credit or refund of an overpayment_of_tax must be filed by the taxpayer within years from the time the return was filed or within years from the time the tax was paid if no return is filed the claim must be filed within years from the time the tax was paid see 516_us_235 in commissioner v lundy supra the supreme court held that where a taxpayer does not file a return prior to the notice_of_deficiency being mailed the tax_court has jurisdiction to award a refund only as to those taxes paid during the years preceding q4e- the mailing of the notice_of_deficiency petitioner’s overpayment results from withholding credits paid in pursuant to sec_6513 those credits are deemed paid on date respondent mailed the notice_of_deficiency in this case on date none of the taxes withheld for petitioner’s tax_year were paid within the 2-year period ending on date congress amended sec_6512 in the taxpayer_relief_act_of_1997 to provide that where a notice_of_deficiency is issued within the third year after the due_date of the taxpayer’s return as extended and no return was filed then the tax_court has jurisdiction to award a refund as to taxes paid within the years preceding the mailing of the notice_of_deficiency see taxpayer_relief_act_of_1997 publaw_105_34 111_stat_788 however amended sec_6512 is applicable to tax years ending after date furthermore the notice_of_deficiency here was mailed more than years after the due_date of petitioner’s return date and none of the taxes at issue were paid during the 3-year period preceding the mailing of the notice_of_deficiency petitioner argues that she should be given relief under sec_6511 sec_6511 was enacted as part of the internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_685 - - sec_6511 permits the tolling of the period of limitations for taxpayers who are financially disabled petitioner maintains that during this period of time she was financially disabled we are willing to assume but do not decide that petitioner would fall within the meaning of financially disabled sec_6511 however does not apply to any claim for credit or refund which is barred by the operation of any law or rule_of law as of the date of the enactment of this act date rra sec_3202 112_stat_741 as noted petitioner’s withholding credits were deemed paid on date see sec_6513 petitioner did not file her federal_income_tax return before respondent issued a notice_of_deficiency and therefore as stated above under sec_6512 b petitioner’s refund claim was barred by operation of law as of date see commissioner v lundy supra pincite see also hart v commissioner t c memo reviewed and adopted as the report of the small_tax_case division decision will be entered under rule we note that this may be a very tenuous assumption during this period petitioner owned and managed real_estate paid her bills and applied for unemployment_compensation


internal_revenue_service number release date index number ---------------------- -------------------- ------------------------- ---------------------------------------------- ------------------------------ in re ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc intl br6 plr-133268-10 date january ty ------- legend taxpayer accounting firm trust individual attorney date date year dear ------------- -------------------------------------------------- -------------------------------------------- ------------------------- ---------------------- ---------------------- ---------------------- -------------- ------- this responds to a letter dated date submitted on behalf of taxpayer requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings given in this letter are based on facts and representations submitted by taxpayer and accounting firm and accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of the audit process facts plr-133268-10 taxpayer is a domestic_corporation wholly owned by trust accounting firm is an accounting tax planning and compliance and business advisory organization individual is president ceo of taxpayer and grantor of trust taxpayer was incorporated on date and was intended to be treated as an interest charge domestic_international_sales_corporation ic-disc from inception based on earlier discussions in year between individual and accounting firm unfamiliar with ic-disc tax matters individual consulted with attorney and accounting firm regarding the formation of an ic-disc believing all the requirements to conduct business and to be treated as an ic-disc for its first taxable_year were satisfied taxpayer began acting as an ic-disc as of date even though taxpayer had assumed that all the necessary requirements to conduct business as an ic-disc were satisfied it did not qualify as an ic-disc for federal_income_tax purposes because it did not timely file a form 4876-a with the service within days of date accounting firm had neither filed nor advised taxpayer to file form 4876-a within days of date because accounting firm had assumed that attorney would be responsible for timely filing this form accounting firm did not discover until approximately date that form 4876-a had not been filed by attorney upon discovery that the form had not been filed taxpayer instructed accounting firm to submit a ruling_request to the service for an extension of time to file form 4876-a for taxpayer’s first taxable_year law and analysis sec_992 of the internal_revenue_code code provides that an election by a corporation to be treated as a disc shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year as explained below although taxpayer acted as an ic-disc it was not in fact an ic-disc plr-133268-10 sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may 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 under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interest of the government the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer's first taxable_year beginning date the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be filed with the form 4876-a this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that written determinations may not be used or cited as precedent 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 plr-133268-10 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely jason osborn senior technical reviewer branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc


deinrernat revenue service washington d c tax exempt and cero nov uniform issue list set ep pat o legend taxpayer a bank p company m state k plan x plan y dear in aletter dated date which modifies and incorporates by reference a letter dated date your authorized representative requested a private_letter_ruling on your behalf concerning the distribution restrictions under sec_1 a - b of the income_tax regulations regulations the following facts and representations have been asserted in support of your ruling_request company m is incorporated under the laws of state k and maintains plan x a defined benefit pension_plan for the benefit of its employees plan x’s original effective date is company m is plan x’s administrator plan x is intended to qualify under sec_401 of the internal_revenue_code code taxpayer a is a former employee and officer of company m and a participant in plan x the normal form of benefit under plan x is a life_annuity for an unmarried participant and a joint and survivor annuity for a participant who is married plan x provides for optional forms of distribution which include a lump sum payment for participants retiring from active employment company m represents that plan x imposes restrictions on the benefits that are payable to an individual who is a highly_compensated_employee or former highly compensated employee and who is one of the individuals with the largest amount of compensation in the current or any prior year restricted employee company m also represents that these restrictions are intended to comply with the rules set forth in sec_1 a - b of the regulations plan x provides that a restricted employee may receive a distribution in excess of the restricted amount if prior to the receipt of the restricted amount the restricted employee enters into a written_agreement with the plan_administrator to secure repayment to plan x of the restricted amount company m represents that the term restricted amount as used herein is defined in revrul_92_76 1992_2_cb_76 rev_rul revrul_92_76 defines the restricted amount as the excess of the accumulated amount of distributions made to the employee over the accumulated amount of the employee's nonrestricted limit the employee's nonrestricted limit is equal to the payments that could have been distributed to the employee commencing when distribution commenced to the employee had the employee received payments in the form described in sec_1_401_a_4_-5 and b of the regulations an accumulated amount is the amount of a payment increased by a reasonable amount of interest from the date the payment was made or would have been made until the date for the determination of the restricted amount plan x provides that an acceptable method by which an individual may secure repayment of the restricted amount is by entering into an agreement for promptly depositing in escrow with an acceptable depository property having a fair_market_value equal to at least of the restricted amount plan x provides that the escrow arrangement may permit a restricted employee to withdraw from the escrow account amounts in excess of of the restricted amount and may also permit a restricted employee to receive any income from the property placed in escrow however if the fair_market_value of the property in the escrow account falls below of the remaining restricted amount the restricted employee must deposit additional property to bring the value of the property held by the depository up to of the remaining restricted amount the individual's right to receive income from the escrowed property will be subject_to the individual's obligation to deposit additional property as described in the preceding sentence plan x provides that the escrowed property may be released to the restricted employee when the plan_administrator certifies to the depository that the restricted employee is no longer obligated to repay any restricted amount company m also maintains a defined_contribution_plan for the benefit of its employees plan y plan y contains a cash_or_deferred_arrangement as described in sec_401 of the code company m is plan y’s administrator plan y is intended to qualify under sec_401 taxpayer a is also a participant in plan y plan y provides for immediate vesting the normal form of benefit under plan y a life_annuity for an unmarried participant and a joint and survivor annuity for a participant who is married plan y allows lump sum distributions and partial withdrawals as optional forms of distribution is company m represents that taxpayer a is a restricted employee under plan x and therefore is subject_to the restrictions under plan x and sec_1 a - b of the regulations taxpayer a has accrued_benefits under plan x and is eligible for an early_retirement_benefit from plan x effective taxpayer a desires to take a lump sum distribution of his benefit under plan x pursuant to plan x taxpayer a and his spouse will execute the appropriate consent forms waiving a qualified_joint_and_survivor_annuity the lump sum distribution will be rolled over by direct trustee-to-trustee transfer to an individual_retirement_account ira as described in code sec_408 pursuant to the restrictions of plan x and sec_1 a - b of the regulations taxpayer a and company m as plan x’s administrator prior to the distribution of the lump sum benefit will enter into a repayment agreement repayment agreement to secure repayment to plan x of the restricted amount the repayment agreement will provide that the restricted amount will be repaid to the plan x trustee if plan x terminates and repayment is necessary the repayment obligation under the repayment agreement will be secured_by depositing with bank p property having a fair_market_value equal to at least of the restricted amount will roll over the lump sum cash pursuant to the repayment agreement taxpayer a payment from plan x into an ira by direct trustee-to-trustee transfer the ira custodian will be bank p the repayment agreement will provide that bank p will divide the ira into two separate_accounts the first account identified as restricted assets will consist of assets having an initial fair_market_value of at least of the restricted amount the second account identified as unrestricted assets will consist of the assets exceeding of the restricted amount if any the repayment agreement will be secured_by i an assignment by taxpayer a to plan x of his rights in the restricted assets and ii an agreement that bank p will hold the restricted assets of the ira for the benefit of plan x during the period of restriction if the initial assets of the ira do not have an initial fair_market_value of at least of the restricted amount will roll over to the ira with bank p by direct trustee-to-trustee transfer a taxpayer a cash distribution from taxpayer a's vested account balance under plan y the value of the property rolled over from plan y will have a fair_market_value sufficient to bring the fair_market_value of the ira to at least of the restricted amount the repayment agreement will provide that in the event the fair_market_value of the restricted assets in the ira falls below of the restricted amount taxpayer a will either cause the unrestricted assets of the ira to be reclassified as part of the restricted assets in an amount sufficient to bring the fair_market_value of the assets in the restricted assets to at least of the restricted amount or will establish an escrow account of the type described in revrul_92_76 with bank p and deposit into the escrow account sufficient funds so that the aggregate fair_market_value of the assets in the escrow account and the restricted assets of the ira equal at least of the restricted amount the repayment agreement will provide that taxpayer a may withdraw from the ira and or escrow account amounts in excess of of the restricted amount taxpayer a will also have the right to receive the income from the ira property and or escrow account subject_to his obligation to deposit additional property if the fair_market_value of the restricted assets and the escrow account falls below of the restricted amount if distributions are required to be made from the ira to taxpayer a or his beneficiaries pursuant to code sec_408 because of his age or his death while the obligation under the repayment agreement still exists such distributions will first be made from the unrestricted assets of the ira if the unrestricted assets are exhausted then the restricted assets will be used to make the required distributions if the required distributions cause the fair_market_value of the restricted assets and escrow account to fall below of the restricted amount then taxpayer a or his beneficiaries as the case may be will be required to deposit in the escrow account sufficient assets to bring the aggregate fair_market_value of the restricted assets and the escrow account to of the restricted amount the repayment agreement will provide for the termination of taxpayer a's repayment obligation and a release of the security for such obligation at the time that repayment is no longer required by sec_1_401_a_4_-5 of the regulations revrul_92_76 and plan x based on the foregoing facts and representations the following rulings are requested the repayment agreement will satisfy the requirements of revrul_92_76 and will not violate the provisions of sec_1_401_a_4_-5 of the regulations asingle cash payment by plan x to taxpayer a in payment of taxpayer a's entire accrued_benefit will constitute an eligible_rollover_distribution under sec_402 of the code to the extent that it otherwise qualifies under sec_402 of the code and the rollover of the payment into the ira within the day period described in sec_402 of the code will be treated as a transfer of all amounts received in the payment in accordance with sec_402 of the code where the restricted assets of the ira are at least of the restricted amount a single cash payment by plan y to taxpayer a in payment of all or a portion of taxpayer a's entire accrued_benefit will constitute an eligible_rollover_distribution under sec_402 of the code assuming it otherwise qualifies under sec_402 of the code and the rollover of the payment into the ira within the day period described in sec_402 of the code will be treated as a transfer of all amounts received in the payment in accordance with sec_402 of the code where the initial restricted_class of the assets of the ira is at least of the restricted amount the assignment to the trustee of plan x of taxpayer a’s interest in the restricted assets of the ira of an amount sufficient to secure the restricted amount will not prevent qualification of this ira under sec_408 of the internal_revenue_code the assignment referred to in ruling_request above will not result in a deemed_distribution to the ira owner under sec_408 of the code the sixth requested ruling was withdrawn by your authorized representative in the letter dated date sec_401 of the code provides the requirements for the qualification of employees’ retirement plans sec_401 of the code provides that neither the contributions nor the benefits under a plan may discriminate in favor of employees who are highly compensated sec_1_401_a_4_-5 of the regulations provides that a defined_benefit_plan must incorporate certain provisions restricting benefits and distributions so as to prevent the prohibited discrimination that may occur in the event of early termination of the plan sec_1_401_a_4_-5 of the regulations requires a defined_benefit_plan to provide that in the event of plan termination the benefit of any highly_compensated_employee and any highly_compensated_former_employee is limited to a benefit that is nondiscriminatory under sec_401 of the code in any one year the total number of employees whose benefits are subject_to restriction under sec_1_401_a_4_-5 of the regulations may be limited by a plan to a group of not less than highly compensated employees and former employees if this group is so limited under a plan the group must consist of those highly compensated employees and former employees with the greatest compensation in the current or any prior plan_year sec_1_401_a_4_-5 of the regulations further requires a defined_benefit_plan to provide that the annual payments to an employee subject_to restrictions on distributions must be limited to an amount equal in each year to the payments that would be made to zuuuovousl the employee under a straight life_annuity that is the actuarial equivalent of the accrued_benefit and other_benefits to which the employee is entitled under the plan other than a social_security_supplement and the amount of the payments that the employee is entitled to receive under a social_security_supplement sec_1 a -5 b iv of the regulations provides that the above referenced restrictions do not apply if any of the following conditions is satisfied after taking into account payment to or on behalf of the restricted employee of all benefits payable to or on behalf of that restricted employee under the plan the value of plan assets must equal or exceed of the value of current liabilities as defined in sec_412 of the code the value of the benefits payable to or on behalf of the restricted employee must be less than of the value of current liabilities before distribution or the value of the benefits payable to or on behalf of the restricted employee must not exceed the amount described in sec_411 of the code restrictions on certain mandatory distributions sec_1_401_a_4_-5 of the regulations provides that for purposes of paragraph b any reasonable and consistent method may be used for determining the value of current liabilities and the value of plan assets revrul_92_76 holds that a lump sum distribution in an amount in excess of that otherwise permitted under sec_1_401_a_4_-5 of the regulations may be made provided there is adequate provision for repayment of any part of the distribution representing the restricted amount in the event the plan is terminated while the restrictions are still applicable revrul_92_76 states that one permissible method of securing the agreement for repayment of the restricted amount is the deposit with an acceptable depositary of property having a fair_market_value equal to of the amount that would be repayable if the plan terminated on the date of the distribution by the trust also under revrul_92_76 if the market_value of such property falls below of the restricted amount the employee is obligated to deposit whatever additional property is necessary to bring the value up to of the restricted amount with respect to ruling_request taxpayer a will enter into an agreement with the trustee of plan x under which all or a portion of the plan x distribution would be contributed to an ira taxpayer a will enter into a further agreement with the ira yyvovo05l custodian or trustee in order to secure his obligation to repay the restricted amount this depositary arrangement with the ira custodian or trustee is comparable to the arrangement established in revrul_92_76 under the repayment agreement an amount equal to at least of the restricted portion will be placed in the restricted assets adequate provisions are made in the event the value of the restricted assets in the ira fall below of the restricted amount the repayment agreement also provides adequately for repayment in the event that the requirements of sec_408 of the code reduce the value of the restricted assets in the ira to less than the restricted amount accordingly we conclude with respect to your ruling_request that the repayment agreement will satisfy the requirements of revrul_92_76 and will not violate the provisions of sec_1_401_a_4_-5 of the regulations with respect to your second and third ruling requests sec_402 of the code provides generally that if any portion of an eligible_rollover_distribution from a qualified_trust is transferred to an eligible_retirement_plan the portion of the distribution so transferred shall not be includible in gross_income in the taxable_year in which paid sec_402 of the code provides generally that sec_402 of the code shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code defines eligible_rollover_distribution as any distribution to an employee of all or any portion of the balance_to_the_credit of an employee in a qualified_trust except the following distributions a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made i for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and the employee's designated_beneficiary or ii for a period of years or more b any distribution to the extent the distribution is required under sec_401 of the code and c any distribution which is made upon hardship of the employee sec_402 of the code defines eligible_retirement_plan in pertinent part as including an individual_retirement_account described in sec_408 of the code revrul_92_76 holds that an otherwise eligible lump sum distribution consisting in part of benefits restricted under sec_1_401_a_4_-5 of the regulations may be considered a lump sum distribution even though a portion of the distribution may have to be returned to the pian in this regard a lump sum distribution is also an eligible_rollover_distribution to the extent it is otherwise eligible for rollover accordingly with respect to ruling_request we conclude that a single cash payment by plan x to taxpayer a in payment of taxpayer a's entire accrued_benefit will constitute an eligible_rollover_distribution under sec_402 of the code to the extent that it otherwise qualifies under sec_402 of the code and the rollover of the payment into the ira within the day period described in sec_402 of the code will be treated as a transfer of all amounts received in the payment in accordance with sec_402 of the code where the initial restricted assets of the ira are at least of the restricted amount with respect to ruling_request sec_408 of the code requires that in order for an ira to be qualified the written instrument creating the ira must provide that the individual's interest in his or her account must be nonforfeitable under this provision an ira custodian or trustee or an employer would be precluded from asserting any claim to the assets in an ira with respect to ruling_request we conclude that a single cash payment by plan y to taxpayer a in payment of all or a portion of taxpayer a's entire vested account balance will constitute an eligible_rollover_distribution under sec_402 of the code to the extent that it otherwise qualifies under sec_402 of the code and the rollover of the payment into the jra within the day period described in sec_402 of the code will be treated as a transfer of all amounts received in the payment in accordance with sec_402 of the code where the initial restricted assets of the ira are at least of the restricted amount taxpayer a will enter into the repayment agreement which is secured_by the assignment of his rights in the restricted assets of the ira the assignment will be in the amount necessary to satisfy the repayment obligation under sec_1 a - b of the regulations and revrul_92_76 since the potential return of the restricted amount to plan x's trustee would not derive from any claim by the ira custodian or trustee or company m but from plan x's right under certain circumstances to the restricted amount no forfeiture would occur in violation of sec_408 of the code yyouvs05l accordingly with respect to ruling_request we conclude that the assignment to the trustee of plan x of taxpayer a’s interest in the restricted assets of the ira of an amount sufficient to secure the restricted amount will not prevent approval of the ira under sec_408 of the internal_revenue_code with respect to ruling_request sec_408 of the code provides that if an individual for whose benefit an ira is established uses the ira account balance or any portion thereof as security for a loan that portion is treated as a distribution to that individual however in this case since the contingent obligation to return certain restricted amounts to plan x is not a loan sec_408 of the code is not applicable accordingly with respect to ruling_request we conclude that the assignment referred to in ruling_request above will not result in a deemed_distribution to the ira owner under sec_408 of the code this letter_ruling is based on the assumption that plan x and plan y meet the requirements of sec_401 of the code at all times relevant hereto pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t3 sincerely frariey yrar rances v sloan manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


t c summary opinion united_states tax_court lori ann champagne petitioner and darrin w champagne intervenor v commissioner of internal revenue respondent docket no 14313-05s filed date lori ann champagne pro_se darrin w champagne pro_se r scott shieldes for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code as in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent granted in part petitioner’s request for sec_6015 relief with respect to unpaid assessments of dollar_figure in federal_income_tax and a sec_6662 accuracy-related_penalty of dollar_figure assessed against petitioner and darrin w champagne intervenor for the issue for decision is whether petitioner is entitled to relief from joint_and_several_liability under sec_6015 c or f in excess of the amount determined by respondent background the stipulated facts and the exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in magnolia texas at the time the notice of intervention was filed intervenor resided in pineland texas petitioner and intervenor were married in the marriage was dissolved by an agreed final decree of divorce filed in the district_court of texas on date petitioner has a bachelor’s degree in elementary education from january to april of petitioner was employed by the magnolia independent school district as a teacher petitioner stayed home for the remainder of to care for her newborn child and four other minor children petitioner resumed her teaching around december of intervenor has taken a few college courses and has received some technical training during he was employed by southwest computer services on form_1040 u s individual_income_tax_return for petitioner and intervenor reported adjusted_gross_income of dollar_figure and taxable pensions and annuities of dollar_figure using third party information returns respondent determined that taxable interest of dollar_figure and an additional taxable pension distribution of dollar_figure received by intervenor in collectively the omitted income were not reported on the return on date respondent issued to petitioner and intervenor a statutory_notice_of_deficiency for neither petitioner nor intervenor petitioned this court in response to the notice_of_deficiency accordingly a deficiency of dollar_figure and a sec_6662 accuracy-related_penalty of dollar_figure were assessed against petitioner and intervenor on date respondent received a form 1040x amended u s individual_income_tax_return for signed only by intervenor the amended_return included income items that were not accounted for in the notice_of_deficiency resulting in an additional_assessment of dollar_figure on date petitioner filed with respondent a form_8857 request for innocent spouse relief along with a questionnaire in which petitioner detailed her claim for relief from joint_and_several_liability under sec_6015 with respect to the assessments on date respondent issued to petitioner a notice_of_determination respondent determined that since petitioner did not sign the amended_return that resulted in the additional_assessment of dollar_figure she was entitled to relief from the unpaid tax for that amount under sec_6015 respondent however denied relief for the balance of the request ie the deficiency assessment determining that petitioner had knowledge of the omitted income at the time she signed the return according to the notice_of_determination petitioner’s remaining tax_liability is dollar_figure petitioner timely filed a petition with the court seeking a review of respondent’s notice 1on the form_8857 petitioner requested innocent spouse relief from the entire tax_liability for according to the record the unpaid tax for results from two assessments dollar_figure dollar_figure for a total of dollar_figure after partial relief of dollar_figure petitioner’s remaining tax_liability should have been dollar_figure plus penalty and interest there is no explanation why respondent in the notice_of_determination determined that petitioner’s unpaid assessments for totaled dollar_figure instead of dollar_figure a difference of dollar_figure the court assumes that respondent has conceded the difference of determination denying in part her request for sec_6015 relief jurisdiction discussion the tax_court is a court of limited jurisdiction 85_tc_527 under sec_6015 the court has jurisdiction to review an administrative determination regarding relief from joint_and_several_liability or a claim for relief where the commissioner has failed to rule as a stand-alone matter independent of any deficiency proceeding where the commissioner has asserted a deficiency against the taxpayer 127_tc_7 on appeal 10th cir date the court has jurisdiction over this stand-alone matter under sec_6015 because respondent has asserted a deficiency against petitioner for see sec_6015 sec_6015 relief generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 after making the election each spouse is jointly and severally liable for the entire tax due sec_6013 as a threshold matter petitioner argues that she is not liable for the deficiency assessment because she did not sign the joint_return for that was filed with the internal_revenue_service irs petitioner contends that she never saw the return she further contends that intervenor handled the entire tax preparation process including signing her name on the return for her petitioner however testified that she would have signed the return had intervenor presented it to her and that intervenor had her authority to prepare a tax_return for her the fact that one spouse fails to sign the return is not fatal to the finding of a joint_return 27_tc_270 affd 251_f2d_44 8th cir the determinative factor is whether the spouses intended to file a joint_return their signatures being but indicative of such intent 35_tc_747 22_tc_893 regardless of whether intervenor in fact signed the return for petitioner petitioner’s testimony shows that she intended to file a joint_return therefore the court finds that the return for was a joint_return a spouse requesting spouse however may seek relief from joint_and_several_liability under sec_6015 or if eligible may allocate liability according to sec_6015 if relief is not available under sec_6015 or c the requesting spouse may seek equitable relief under sec_6015 sec_6015 114_tc_276 except as otherwise provided in sec_6015 the requesting spouse bears the burden_of_proof rule a 119_tc_306 affd 101_fedappx_34 6th cir upon the satisfaction of certain conditions sec_6015 relieves the requesting spouse of liability for the items making up the deficiency that would have been allocated solely to the nonrequesting spouse if the spouses had filed separate tax returns for the taxable_year sec_6015 a 282_f3d_326 5th cir affg 115_tc_183 117_tc_279 sec_6015 applies only to taxpayers who are no longer married are legally_separated or have been living apart for over a 12-month_period sec_6015 petitioner and intervenor were divorced on date petitioner received a statutory_notice_of_deficiency on date and she subsequently filed a form_8857 therefore petitioner was eligible to elect the application of sec_6015 2under sec_6015 an election for relief from joint_and_several_liability under sec_6015 is to be made at any time after a deficiency is asserted but not later than years after the date on which the commissioner has begun collection activities respondent has not raised any issue as to the timeliness of petitioner’s election under sec_6015 relief under sec_6015 is not available if the commissioner demonstrates that the requesting spouse had actual knowledge at the time the return was signed of any item giving rise to a deficiency or portion thereof that is not allocable to such individual sec_6015 121_tc_73 116_tc_189 petitioner has the burden of proving which items would not have been allocated to her if the spouses had filed separate returns see mora v commissioner supra pincite levy v commissioner tcmemo_2005_92 both this court and the court_of_appeals for the fifth circuit have defined culpable knowledge in an omitted income case for purposes of sec_6015 as the actual and clear awareness of the item as distinguished from mere reason to know of the item cheshire v commissioner supra pincite n cook v commissioner tcmemo_2005_22 while the taxpayer generally has the burden_of_proof in order to preclude relief under sec_6015 the commissioner must carry the burden of demonstrating by a preponderance_of_the_evidence that the requesting spouse had actual knowledge of any item giving rise to a deficiency rule a culver v commissioner supra pincite 114_tc_333 sec_1_6015-3 income_tax regs item means an item_of_income deduction or credit cheshire v commissioner supra pincite in the case of omitted income knowledge of the item includes knowledge of the receipt of the income sec_1 c i a income_tax regs this court has reviewed the record and finds that there is insufficient evidence to establish that petitioner had actual knowledge that intervenor received the omitted income the irs may rely upon all of the facts and circumstances to demonstrate that a requesting spouse had actual knowledge of an erroneous item at the time the spouse signed the return sec_1_6015-3 income_tax regs respondent argues that petitioner had actual knowledge of the omitted income at the time that the return was signed because petitioner had access to a bank account that she held jointly with intervenor during and petitioner picked up and opened mail at the address where the forms for the omitted income were sent petitioner admits that she had access to one of intervenor’s bank accounts petitioner contends however that intervenor maintained bank accounts held solely in his name of which she had no knowledge and to which she had no access to during their marriage according to petitioner the money from these secret accounts was used to finance intervenor’s secret life with other women petitioner suggests that it is possible that intervenor deposited the omitted income into one of these secret accounts without her knowledge to pay for the expenses of his other women one factor that respondent may rely on in demonstrating that petitioner had actual knowledge is whether she made a deliberate effort to avoid learning about the item in order to be shielded from liability see sec_1_6015-3 income_tax regs intervenor did not appear at trial to testify and there is no suggestion that petitioner made a deliberate effort to avoid learning of the omitted income moreover respondent has not presented any evidence to show that the omitted income was deposited into the bank account that petitioner held jointly with intervenor or that petitioner otherwise had an actual and clear awareness of the omitted income petitioner contends that she never saw any forms for the omitted income petitioner testified that there was a sewage leak in her home during and she and her children moved to temporary housing from may to december of petitioner further testified that intervenor was taking care of everything and that she had no access to any mail that was sent to her home address during this period according to petitioner she was unaware of the omitted income and the attendant tax_liability until she called the irs regarding an unrelated tax issue in january of respondent counters that it is irrelevant whether petitioner was absent from her home from may to december of the forms for the omitted income would have been mailed in early after petitioner had moved back into the house both petitioner and intervenor had access to the mail at the address where the forms were sent during early intervenor did not leave petitioner until october of that year nevertheless the court finds that petitioner’s testimony was credible and persuasive that she was unaware of the omitted income until january of see rowe v commissioner tcmemo_2001_325 finding that the taxpayer had no actual knowledge of an ira distribution even though periodic statements from the financial_institution managing the ira were sent to her home address since other family members also picked up the mail petitioner’s testimony that she had no involvement in any aspect of intervenor’s business was also credible petitioner’s training was in elementary education petitioner worked as a teacher for the first months in but was a homemaker for the remainder of the year petitioner stayed home with her five children while she relied on intervenor to provide for the family respondent has failed to meet his burden to prove that at the time petitioner signed the return she had an actual and clear awareness of the omitted income the forms for the omitted income were issued solely to intervenor relating to a pension from his previous employment petitioner has established by a preponderance_of_the_evidence that the deficiency at issue is entirely allocable to intervenor see eg mora v commissioner supra pincite the court holds that respondent erred in denying petitioner relief under sec_6015 accordingly petitioner is entitled to relief from joint_and_several_liability under sec_6015 for the court need not address petitioner’s claims for relief under sec_6015 and f reviewed and adopted as the report of the small_tax_case division decision will be entered for petitioner


number release date id office uilc cca_2009071708502846 -------------- from ------------------ sent friday date am to ------------------ cc subject nod irm hi -------- - in regards to your follow-up question the authority to issue a second nod exists in the sense that there is no restriction in the code prohibiting such an action based on the fact that the taxpayer has neither petitioned the tax_court as stipulated sec_6212 c nor filed a return in which case the sol would no longer be open thus there is nothing barring the service's ability to send a second notice based on these conditions this is also assuming the tax has not been assessed is this more helpful the question under what authority does the service have to issue a second nod may be interpreted as what is stopping the service from issuing a second notice_of_deficiency based on the background information there are no restrictions in the code that would prohibit sending a second nod because a a return has not been filed and b the taxpayer has not petitioned the tax_court please don't hesitate to contact me at --------------------or by email should you have further questions or issues thanks --------------------


department of the treasury internal_revenue_service washington d c date cc dom fs corp tl-n-4589-98 uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel cc from deborah a butler assistant chief_counsel field service cc dom fs subject carryback of specified_liability_loss by a consolidated_group this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend p s year year year year year date date issues whether the p consolidated_group is entitled to carry back specified liability sl losses_incurred by a member of the group if that member had positive separate_taxable_income in that year to what extent may the p group carry back sl losses_incurred by a member of the group if that member had negative separate_taxable_income in that year conclusions the p group is not entitled to carry back sl losses_incurred by a member of the group if that member had positive separate_taxable_income in that year the p group may carry back sl losses_incurred by a member of the group if that member had negative separate_taxable_income in that year only to the extent described herein facts for the tax years year to year p was the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return one of p’s subsidiaries is s you have indicated that s was in existence in year but that some of s’s subsidiaries were not in existence prior to year the p group claimed a consolidated_net_operating_loss cnol for each of year through year however you do not have any information as to the separate_taxable_income or loss of each member of the group for each of these years on date p filed several forms 1120x for year sec_1 through year p claims that it may carry back certain deductions years as sl losses on date p amended these forms 1120x to carry back additional deductions as sl losses we understand that cc dom fs it a has issued a memo addressing whether these deductions qualify as sl losses assuming for this purpose that they do our office addresses in this memo whether and to what extent under the consolidated_return_regulations the p group may carry such items back ten years as explained in more detail below we do not have enough information to answer the question however we will explain what information we need and provide general guidance law and analysis background if a corporation has a net_operating_loss nol then under sec_172 and c and the regulations thereunder that corporation may carry this nol back to its prior tax years a corporation has an nol if the total of all of its deductions exceeds all of its income items in the current_year generally a corporation may carry its nol back three years under sec_172 however if this nol includes sl losses as defined in sec_172 then that corporation may carry that portion of its nol back ten years under sec_172 if a corporation is a member of a consolidated_group then the group determines its cnol under sec_1_1502-21 under that section a consolidated_group determines its cnol through a two-step process first it computes each member's separate_taxable_income or loss under sec_1_1502-12 second it aggregates all the individual members' separately computed incomes or losses along with the consolidated computed items if the net amount of these separately and consolidated computed incomes and losses is negative this net negative_amount constitutes a cnol of the group the group may then carry this cnol back to its prior consolidated_return years under sec_1_1502-21 if the corporation incurring a portion of the cnol was a member of the group immediately after its formation then such losses may be carried back to the equivalent consolidated_return_year of the group under sec_1_1502-79 in other words sec_1_1502-79 treats that corporation as if it were a member of the group in the carryback_year the number of years the group may carry back the cnol is determined by sec_172 thus as noted above the group may generally carry its cnol back sec_172 and sec_172 apply to nol’s described therein for tax years beginning after date for nol’s arising in tax years beginning prior to that date sec_172 and sec_172 applied to product_liability losses and sec_172 j and k applied to deferred statutory or tort liability losses in this case some of the applicable nol’s of the members of the p group are product_liability amounts some are deferred statutory or tort liability amounts and some are specified liability amounts in this memo we will describe all applicable nol’s of the members of the p group as sl amounts three years however if any portion of the group’s cnol includes sl losses then the group may carry such portion back ten years issue one - member has separately_computed_taxable_income if the member has positive separate_taxable_income in the year in which it incurred the sl expense we believe that the service has two arguments for denying a ten- year carryback of such loss as part of the cnol these arguments are presented separately below the separate_taxable_income approach as noted above each member of the group computes its separate_taxable_income or loss in making that computation the member takes into account its sl amount thus if the member has a positive separate_taxable_income then that member’s sl deductions are absorbed in determining the separate_taxable_income of that member consequently there are no sl deductions to be carried back as part of the group’s cnol to any prior consolidated_return years of the group this position was recently adopted by the tax_court in the case of intermet corporation and subsidiaries v commissioner t c in intermet a consolidated_group with a cnol sought to carry back a portion of it ten years as an sl loss however the member incurring the putative sl expense2 had positive separate_taxable_income the court held that such expense had been absorbed by that member in determining its separate_taxable_income consequently such expense could not be carried back by the group in addition as also noted above under sec_1_1502-21 a cnol is composed of the separate taxable incomes or losses of each member sec_1_1502-12 requires each member's separate_taxable_income to be computed in the manner in which a separate corporation ordinarily computes its income or loss under the internal_revenue_code except for certain enumerated items that are calculated on a consolidated basis sl expenses are not one of those enumerated items intermet pincite slip opinion citing 31_fedclaims_598 aff’d without published opinion 59_f3d_181 fed cir discussed below the service also argued that such expense was not an sl expense within the meaning of sec_172 however the court did not address this issue since it held that such expense could not in any event be carried back thus if a member’s separate_taxable_income computed as a separate corporation has more current income items than its current deduction items then that member's deductions including any sl deductions necessarily offset its income items currently therefore this member which has positive taxable_income does not contribute towards the cnol of the group in other words that member does not contribute any sl loss to the cnol of the group after the calculation described above the group may still have a cnol to carry back to prior years if that is the case it is only because other members after netting their deductions against their income items have separately computed net losses if those other members' deductions do not include sl deductions the resulting consolidated loss does not include a sl loss such loss is however not disallowed rather it may only be carried back three years under the normal rule_of sec_172 not ten years under the special provisions of sec_172 the nol limitation approach code sec_172 limits the sl loss to a taxpayer’s nol thus this nol limitation should be applied on a member-by-member basis while an individual member’s nol is not specifically recognized under the consolidated_return_regulations sec_1_1502-12 states that the separate_taxable_income of a member is determined as if it were a stand alone entity moreover each member is a separate taxable entity 78_tc_786 further other code sections such as sec_172 apply separately to each member unless the consolidated_return_regulations provide otherwise sec_1_1502-80 thus each member’s separate nol arguably the portion of the cnol attributable to such member should be used in applying the nol limitation a recently issued tax_court decision supports this argument norwest corporation and subsidiaries v commissioner t c no date in norwest the taxpayers consisted of bank members and nonbank members of a consolidated_group the group had a cnol some of the banks with separately computed losses under sec_1_1502-12 had bad_debt deductions code sec_172 in effect for the years at issue permitted a bank to carry back ten years the portion of its nol that is attributable to its bad_debt deductions in other words that section provides an nol limitation like the nol limitation of sec_172 at issue here the taxpayer in norwest argued that to meet the requirements for a ten-year carryback treatment the group only had to show bad_debt deductions incurred by any member of the group and a cnol the taxpayer argued that the nol limitation applied at the group level norwest pincite slip opinion the service argued and the tax_court agreed that the bad_debt nol limitation was determined on a separate member basis in applying this separate_entity approach the norwest court viewed each member as having some form of a separate nol each such separate nol contributed to the cnol a member having separate_taxable_income presumably without any loss items computed on a consolidated basis effectively had a zero separate nol consequently that member could contribute no amount_of_deductions to the cnol in reaching its conclusion the norwest court cited to an analogous case 31_fedclaims_598 aff'd 59_f3d_181 in amtel the court of federal claims held that a separate_entity approach applied in determining whether the sec_172 product_liability deductions of a member having separate_taxable_income that was not a member of the group in the carryback years a separate_return_limitation_year srly of such member could be carried back as an sl loss in so holding the amtel court reasoned that each member of a consolidated_group had a separate nol with independent significance for tax purposes the norwest court citing to amtel stated that the separately determined losses of each member do not lose their distinct character to the extent that such distinct character is important upon consolidation furthermore the norwest court applied a separate_entity approach for determining each loss carryback at issue even for that portion of the cnol attributable to members of the group in the consolidated_return carryback years ie years to which the srly provisions did not apply in norwest the taxpayer had argued that the sec_172 ten-year carryback rule should have been applied by essentially treating all group members as a single_taxpayer single entity approach under a single entity approach each group member’s deductions would have been treated as contributing to a cnol regardless of the amount of income items incurred by that member the norwest court clearly indicated that the sec_172 ten-year carryback rule under which a single corporation’s use of sl losses is maximized is not to be construed as providing that an entire consolidated_group is treated as a single corporation in order to maximize the composition of the group’s cnol as bank bad_debt losses to the contrary the court applied a separate_entity approach and viewed any application of a single entity approach to determine the group’s bank bad_debt losses as abusive although the norwest decision involved sec_172 bank bad_debt losses the norwest court’s reasoning is equally applicable to sec_172 sl losses both the sec_172 bank bad_debt losses and the sec_172 sl losses are subject_to the same sec_172 ten-year carryback rule which maximizes the carryback of special losses for a single corporation and limits the amount of the loss entitled to the ten-year carryback period to the taxpayer’s nol as noted above the court of federal claims also adopted an nol limitation on a separate member basis for product_liability pl losses which is what such losses were called prior to being redesignated as sl losses 31_fedclaims_598 aff'd 59_f3d_181 the amtel court acknowledged that t he term ‘net operating loss’ in the context of a consolidated_income_tax_return generally means the net_operating_loss of the consolidated_group as a whole and not the separate net_operating_loss of a member id pincite the court went on to say however that contrary to amtel's assertion a member_of_an_affiliated_group may have a separate net_operating_loss with independent significance for income_tax purposes the irs does not apply the single entity approach when a taxpayer seeks to carry back a net_operating_loss from a consolidated_return_year to a separate_return_year id the amtel court concluded that it must apply the allocation formula of sec_1_1502-79 to determine amtel's separate net_operating_loss as that term is used in sec_172 because amtel seeks to offset income from a separate_return_year id pincite the court found that the plaintiff had no separate nol under that formula resulting in a limiting amount of zero similarly to the extent that a member of the ogden group had positive separate_taxable_income in a year in which it incurred sl expenses such member had no separate nol thus limiting that member’s sl losses to a zero amount in addition the amtel court pointed out that the consolidated_return_regulations ie sec_1_1502-11 through a specifically list those items that are treated on a consolidated_return basis the court emphasized that the regulations do not use the term consolidated product_liability_loss or incorporate such a concept id pincite citations omitted but see united dominion industries inc v united_states ustc big_number w d n c appeal docketed no 4th cir date therefore the amtel court rejected amtel’s claim see footnote in this case we would need to know the separate_taxable_income or loss of each member of the group for each year it incurred an sl expense as noted above the group would not be able to carry back the sl expense of any member that had positive separate_taxable_income in such year issue two - member has separately computed loss as noted above if a member after netting current deductions and current income items has negative separate_taxable_income ie a loss that member contributes its loss including its sl loss to the cnol of the group the question then becomes to what extent may the group carry the sl portion of the loss back ten years to prior consolidated_return years of the group in which the member was a member of the group or a member immediately after its formation see sec_1_1502-79a this was also an issue addressed in norwest discussed above the norwest court addressed this issue with a simple example pp of the slip opinion which is explained below assume that a consolidated_group consists of member a member b and member c member a has dollar_figure separate_taxable_income member b has a separate nol of dollar_figure and member c has a separate nol of dollar_figure thus the group has a cnol of dollar_figure dollar_figure - dollar_figure - dollar_figure member c is the only member of the group that is a bank however only dollar_figure of its separate nol of dollar_figure is a bank bad_debt_loss eligible to be carried back ten years thus the question is what portion of the cnol of dollar_figure may be carried back ten years as a bank bad_debt if the entire amount of the separate nol of both b and c had been bank bad_debt it is clear that all dollar_figure of the cnol could have been carried back ten years since it was not the question was whether only a portion of the loss could be so carried norwest essentially argued that since the cnol of dollar_figure was less than the total of all the members bank bad_debt of dollar_figure the entire dollar_figure of cnol should be considered bank bad_debt however the service argued and the court agreed thus it irrelevant that some of s’s subsidiaries were not in existence until year if they were members of the p group immediately after their formation therefore if losses of such subsidiaries qualify as sl losses and may be properly carried back ten years such losses could be carried back to the p group’s year and year tax years even though such members were not members of the group in those carryback years that under these facts only a portion of the cnol could be carried back the portion was determined as follows first the service determined the portion of the cnol allocable to c which was dollar_figure of loss dollar_figure x dollar_figure dollar_figure the sum of the separate member losses second the service determined the portion of this amount allocable to bad_debt as dollar_figure dollar_figure x dollar_figure dollar_figure thus of the total cnol of dollar_figure only dollar_figure could be carried back ten years thus if a member of the p group has a separate nol and a portion of such nol constitutes an sl loss you should use the allocation method described above to determine the portion of such nol that can be carried back ten years in other words you need to determine the portion of such nol that is allocable to sl losses and the portion allocable to other losses which are not subject_to a special ten-year carryback rule and then apply the formula described above case development hazards and other considerations the government has lost this issue in one case united dominion industries inc v united_states ustc big_number w d n c appeal docketed no 4th cir date in that case the court treated an sl expense of a member of the group as a consolidated item thus allowing the group to carry such item back ten years even though that member had positive separate_taxable_income the government continues to adhere to its position that an sl expense of a member of the group is taken into account in determining the separate_taxable_income or loss of that member with respect to the allocation method described in norwest the only unresolved issue in applying this method is that the court did not explain what it meant by separate nol there are three different amounts the court could have meant first the court could have been referring to negative separate_taxable_income after applying sec_1_1502-12 second the court could have been referring to the portion of the cnol allocable to that member under sec_1 79a a finally the court could have been referring to the member’s separate nol determined as if it were a stand alone corporation this method is employed by sec_1_1502-79a in computing an apportionment fraction for use in determining the portion of the cnol attributable to a member which is described in the court’s example it rounded dollar_figure down to dollar_figure however the example cannot be completely explained unless the correct numbers are used another way to arrive at this figure is to multiply dollar_figure x dollar_figure dollar_figure however if the court’s figure of dollar_figure is used the numbers do not match above as the second method it is possible that the separate nol of a member would be different depending on the method used which would effect the amount of sl losses that could be carried back in tam the service took the position that the second method ie the allocation of the cnol to the loss members of the group as determined under sec_1_1502-79a is the proper method in response to the taxpayer’s argument that that regulation is used only for purposes of determining the portion of the cnol to be carried back to a member’s separate_return_year the tam contends that that regulation is not limited by its own terms the regulation specifies that separate net_operating_loss is one variable in determining the portion of a consolidated_net_operating_loss attributable to a member however it does not specify that the portion of a consolidated_net_operating_loss attributable to a member is calculated only for purposes of determining a carryover to a separate_return_year moreover the tam notes that at least one court has utilized that regulation where the loss was carried to a consolidated_return_year as in the instant case allied corp v united_states ct_cl involved the western hemisphere trading corporation whtc deduction which under sec_922 and sec_1 equaled a percentage of the whtc's portion of the consolidated group's consolidated_taxable_income one of the members of the group had losses that were carried over to other years for purposes of determining the whtc's portion of the group's consolidated_taxable_income attributable to the whtc in those other years the court determined that the amount of loss to be carried over for that purpose was not the member's entire separate loss but the whtc's portion of the group's loss and that sec_1_1502-79a provided an appropriate formula for making that computation please call if you have any further questions cc by ___________________ steven j hankin branch chief corporate branch


a significarit index no department of the treasury internal_revenue_service washington d c ite 2' sp it ep fri taa tax_exempt_and_government_entities_division apr in re company a company b this letter constitutes notice that the conditional waiver of the minimum_funding_standard for the above-named plan for the plan_year ending december was granted in our ruling letter dated october remove condition and b change the deadline by which an agreement must be reached with the pension_benefit_guaranty_corporation pbgc on securing repayment of the waived amount from january ___ _ to august waiver of the minimum_funding_standard has been granted for the above-named plan for the plan_year ending december subject_to the following conditions has been modified to a and a which collateral acceptable to the pbgc be provided to the plan for the full amount of the waiver by the later of a days from the date of the ruling letter or b the earlier of i the date the pbgc notifies the service in writing that this condition has not been met or ii days from the date of the ruling letter the company provides to the pbgc a copy of any ruling requests it makes under sec_412 of the code the company makes all required quarterly contributions to the plan in a timely manner while the plan is subject_to a waiver of the minimum_funding_standard beginning with the quarterly contribution due on july the company makes contributions to the plan in amounts sufficient to meet the minimum_funding requirement for the plan for the plan years ending december respectively without applying for a waiver of the minimum_funding_standard by september through through and your authorized representative agreed to these conditions in an e-mail dated april null and void if any one of these conditions is not satisfied the waiver is retroactively _ this conditional waiver of the minimum_funding_standard has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of december company a through its subsidiaries is in the business of manufacturing dry van trailers and distributing after-market replacement parts for trailers company b a subsidiary of company a and its liquidated subsidiary have ceased manufacturing and have been the plan no longer has any active participants the only employees that have participated in the plan are the union employees at one of company b’s former plants which was closed in december and and and an improving dollar are harbingers of a dollar have combined to continue the however company a is convinced increased the elimination of company b as an operating subsidiary the effects of declining sales over the last few years and the declining company's business hardship into that the industry-wide recovery in the trailer industry that began in late sales orders for financial turnaround in order to speed the recovery company a continues to introduce measures to reduce costs cut spending and improve efficiency to improve its cash_flow rising internet sales increased production at its and improving sales volumes representing months of production at maximum rates allowable are all signs that the financial condition of company a has turned around furthermore the company has negotiated credit facilities with a new lender while the facility includes restrictions on payments to company a company a generated cash_flow that will allowed it to resume funding contributions to the plan in the minimum_funding_standard for the plan for the plan_year ending december however the plan is poorly funded on a current_liability basis and the plan has already funding received a funding waiver for a prior year hence the modification of the waiver and a waiver of the minimum_funding_standard for the plan_year ending have been granted subject_to the conditions stated above december manufacturing_facility and to meet your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of section f of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent the date of this when filing form_5500 for the plan_year ending december letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b we have sent a copy of this letter to ihe manager ep classification in and to your authorized representative pursuant to a power_of_attorney on file in this office ' to the manager ep compliance unit in if you require further assistance in this matter please contact sincerely yours ou we donna m prestia manager employee_plans actuarial group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-106165-03 date date legend x y date date dear this letter responds to a letter dated date submitted on behalf of x requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to elect to treat y as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code facts the information submitted states that x is a corporation that elected to be an s_corporation effective date x formed y on date x represents that x intended to treat y as a qsub effective date however x inadvertently failed to timely file the proper election law and analysis plr-106165-03 sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub the election is made by filing form_8869 with the appropriate service_center sec_1_1361-3 of the income_tax regulations provides that the election will be effective on the date specified on the election form or on the date the election is filed if no date is specified the effective date specified on the form cannot be more than two months and days prior to the date of filing and cannot be more than months after the date of filing 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_9100-2 and sec_301_9100-3 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 but does not apply to qsub 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 conclusion based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time for days from the date of this letter to file a form_8869 to elect to treat y as a qsub effective date a copy of this letter should be attached to the election except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is a valid s_corporation or whether y is qualified to elect qsub status plr-106165-03 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc ita plr-115283-01 date date legend taxpayer x date this is in reply to the private_letter_ruling request in which taxpayer requests permission to change an election it made under sec_108 of the internal_revenue_code facts taxpayer an s_corporation realized cancellation_of_indebtedness_income in the amount of dollar_figure 3x1 on date taxpayer’s liabilities exceeded its assets by more than dollar_figure 3x immediately before the discharge therefore taxpayer excluded the entire amount of the cancellation_of_indebtedness_income under sec_108 on form_982 which was filed with its income_tax return for the tax_year that included date taxpayer elected to first reduce the basis of its depreciable_property by dollar_figure 8x as permitted by sec_108 and sec_301 9100-13t of the procedure and administration regulations the remainder of dollar_figure 6x was applied to reduce taxpayer’s net operating losses nol resulting in an nol of dollar_figure 2x the reductions made by taxpayer are commonly referred to as attribute reductions the amount of taxpayer’s nol had been calculated by a partner in a certified public accounting firm employed by taxpayer’s majority shareholder several years after the return for the year that included date had been filed the partner discovered that the 1all dollar amounts are rounded and therefore may not total correctly nol before attribute reduction was dollar_figure 2x less than originally calculated thus after attribute reduction the nol should have been dollar_figurex not dollar_figure 2x this error was immediately brought to taxpayer’s attention several months after the error was discovered the supreme court of the united_states decided 531_us_206 gitlitz holds that an insolvent s corporation’s discharge_of_indebtedness income that is excluded from gross_income under sec_108 is an item_of_income passed through to the shareholders the bases of shareholders’ stock in the corporation are increased by the excluded income followed by a reduction under sec_108 of the corporation’s tax_attributes taxpayer has represented that if it had known the correct nol amount at the time it made the election under sec_108 it would not have made the election and if the law as decided in the gitlitz decision had been clear at the time taxpayer made the election it would not have made the election the request considered in this letter was filed less than months after gitlitz was decided law and analysis sec_108 provides that gross_income does not include any amount that would be includible in gross_income by reason of the discharge_of_indebtedness of the taxpayer if the discharge occurs when the taxpayer is insolvent sec_108 provides that the amount excluded from gross_income shall be applied to reduce certain tax_attributes of the taxpayer sec_108 provides in general that the reduction shall be made to tax_attributes in the following order a net operating losses b general business credits c minimum_tax credits d net capital losses and capital_loss carryovers e basis_of_property f passive_activity_losses and g foreign_tax_credit carryovers sec_108 states that the taxpayer may elect to apply any portion of the amount excluded from income to the reduction under sec_1017 of the basis of the depreciable_property of the taxpayer sec_108 states that for an s_corporation for purposes of sec_108 any loss or deduction disallowed for the taxable_year of the discharge under sec_1366 shall be treated as a net_operating_loss for such taxable_year sec_1017 provides in general that in the event of exclusion from income of discharge_of_indebtedness income by an insolvent taxpayer under sec_108 the reduction in basis_of_property shall not exceed the excess of the total basis_of_property held by the taxpayer over the taxpayer’s total liabilities however this limitation does not apply to any reduction in basis by reason of an election under sec_108 sec_301 9100-13t e provides that an election under sec_108 may be revoked only with the consent of the commissioner sec_301 9100-13t is generally effective for discharges of indebtedness occurring after date and before date taxpayer represents that it made an election under sec_108 because it was unsure of the law in this area and because it was misinformed of the amount of the nol by the accountant employed by its majority shareholder this situation is analogous to situations in which taxpayers seek extensions of time under sec_301_9100-1 in which to make elections after failing to do so because after exercising reasonable diligence the taxpayer is unaware of the necessity for the election or the taxpayer relied on a qualified_tax professional who failed to advise the taxpayer to make the election sec_301_9100-3 provides that requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief the application of factors similar to those above is appropriate to determine whether a taxpayer may revoke an election made under sec_108 see revrul_83_74 1983_1_cb_112 which determined that a homeowner’s association should be permitted to revoke an election made under sec_528 in the revenue_ruling the taxpayer relied on the advice of a professional tax advisor in making the election showed due diligence by selecting the advisor to prepare its returns acted promptly and diligently to retain another professional tax advisor to review the first advisor’s work and promptly filed a request to revoke the election similar to taxpayers seeking relief under sec_301_9100-3 taxpayer has relied on a qualified_tax professional that advised it to make the election also taxpayer made the election because after exercising due diligence it was unaware because of the incorrect nol amount it was provided and the lack of clarity in the law before the gitlitz decision that the election was not advantageous to it factors similar to those described in sec_301_9100-3 and sec_301_9100-3 do not apply here conclusion taxpayer is granted days from the date of this letter in which to revoke the sec_108 election the revocation should be made in a written_statement filed with taxpayer’s amended_return a copy of this letter should be attached caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directly only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax accounting enclosure copy for sec_6110 purposes