renee vento et al petitioners v commissioner of internal revenue respondent docket nos filed date ps did not file u s federal_income_tax returns for but instead filed individual territorial income_tax returns with the virgin islands bureau of internal revenue for that year ps now concede that they were not bona_fide residents of the virgin islands for they seek to credit against their u s tax_liabilities for that year under sec_901 payments made with their virgin islands returns and estimated pay- ments they made to the u s treasury for that were later covered into the virgin islands treasury under sec_7654 held ps are not allowed to credit against their u s income_tax liabilities under sec_901 the amounts paid as tax to the virgin islands for their taxable years first ps failed to establish that their determination that they were subject_to virgin islands tax rather than u s tax for was based on a reasonable interpretation of applicable law and that they had exhausted all effective and practical means of securing a refund of the amounts paid to the virgin islands consequently ps did not meet their burden of proving that the amounts in issue were taxes paid within the meaning of sec_1_901-2 income_tax regs second the limitation on foreign tax_credits imposed by sec_904 applies to taxes paid to the virgin islands and ps failed to establish that the amounts in issue did not exceed the applicable limitations finally allowance of the claimed credits would be inconsistent with congress’ intent that pay- ments of virgin islands tax by u s citizens or residents not be creditable under sec_901 joseph m erwin marjorie rawls roberts and erika a kellerhals for petitioners john aletta and james c fee jr for respondent opinion halpern judge respondent determined deficiencies in petitioners’ federal_income_tax for along with additions to tax under sec_6651 and penalties under sec_6662 cases of the following petitioners are consolidated herewith gail c vento docket no and nicole mollison docket no unless otherwise indicated all section references are to the internal_revenue_code code in effect for and all rule references are to the tax_court rules_of_practice and procedure vento v commissioner items within some of the adjustments in the notices of deficiency involved partnership the meaning of sec_6231 upon respondent’s motion we struck the adjust- ments and pleadings involving partnership items and dis- missed those portions of the cases the parties have agreed to resolve other issues raised by the notices leaving as the sole issue remaining for decision whether petitioners are entitled to credits under sec_901 against their u s tax_liabilities for for estimated payments they made to the u s treasury for that year that were subsequently cov- ered into the treasury of the u s virgin islands virgin islands under sec_7654 after petitioners filed returns with the virgin islands bureau of internal revenue bir and payments made by petitioners with their virgin islands returns background the case was submitted fully stipulated under rule when petitioners renee vento gail vento and nicole mollison filed their petitions in these cases they resided in california the virgin islands and nevada respectively peti- tioners are sisters-the daughters of richard g and lana j vento-and are and always have been citizens of the united_states throughout petitioners lived in the united_states where they either worked attended school or cared for school-age children petitioner renee vento received a bach- elor’s degree from san diego state university in date after her graduation until the spring of renee lived in nevada where she worked in her family’s home_office from until date petitioner gail vento lived in boulder colorado where she was a full-time_student at the although petitioners in response to respondent’s request made admis- sions regarding their specific circumstances during they also objected that most of the admitted facts were irrelevant and immaterial in the light of their more general admissions that they were not bona_fide residents of the virgin islands for we will take into account the specific facts that petitioners admitted regarding their circumstances during over their objections because we find those facts relevant to the question of the reasonableness of the interpretation of applicable law on the basis of which petitioners filed returns with and paid tax to the virgin islands for that year united_states tax_court reports university of colorado from until petitioner nicole mollison lived with her husband and their children in nevada during nicole served as a volunteer and sub- stitute teacher at a school attended by two of her children although petitioners had previously made estimated_tax payments to the u s treasury for they did not file u s federal_income_tax returns for that year but instead filed individual territorial income_tax returns with the bir in date each of those returns included a payment of tax because petitioners filed their returns with the bir rather than the internal_revenue_service irs in the u s treasury transferred to the bir under sec_7654 the estimated payments petitioners made for along with credits to their accounts from prior years the notices of deficiency respondent issued on date reflect his determination that none of petitioners was a bona_fide_resident of the virgin islands for each peti- tioner now concedes that point and also concedes that none of her income for was sourced in the virgin islands and that she did not work in the virgin islands or conduct any trade_or_business there on date petitioner renee vento filed an amended_return with the bir for requesting a refund of the tax reported on her virgin islands return records of the bir designate renee’ sec_2001 form 1040x as having a status of closed as of date without the issuance of a refund check the parties’ stipulations that petitioners were not bona_fide residents of the virgin islands for are consistent with the conclusions reached by the u s district_court for the district of the virgin islands and the u s court_of_appeals for the third circuit in vi derivatives llc v united_states no wl d v i date aff ’d in part rev’d in part sub nom 715_f3d_455 3d cir in litigation concerning notices of deficiency and fpaas issued by the bir and the irs to petitioners and their par- ents for in vi derivatives wl at the district_court concluded that neither petitioners nor their parents were bona_fide residents of the virgin islands for on appeal the court_of_appeals determined in vento vento v commissioner f 3d pincite that the district_court erred in holding that richard and lana vento were not bona_fide residents of the virgin islands as of date but the court_of_appeals readily agree d with the district_court that none of the vento daughters was a bona_fide_resident at that time i background discussion a the taxation of virgin islands income of u s citizens or residents although the virgin islands is an unincorporated territory of the united_states u s c sec a it is gen- erally not part of the united_states for tax purposes see sec_7701 under the mirror_tax system established by congress in the virgin islands uses the code as its tax law with references to united_states treated as references to the virgin islands and vice versa act of date ch sec_1 stat pincite codified as amended pincite u s c sec_1397 in congress modified the mirror_tax system and established the inhabitant rule under which corporations and individuals whose permanent residence was in the virgin islands satisfied their u s income_tax obligations by paying tax on their worldwide income to the virgin islands revised organic act of the virgin islands roa ch sec_28 sec_68 stat pincite the roa also provided that any_tax levied by congress on the inhabitants of the virgin islands would be covered into ie paid to the virgin islands id see also sec_7654 providing that income_tax collections with respect to bona_fide possessions residents shall be covered into the treasury of the possession as part of the tax_reform_act_of_1986 tra pub_l_no sec_1274 stat pincite congress repealed the inhabitant rule and enacted sec_932 which coordi- nates the u s and virgin islands income_tax systems sec- tion provides separate rules for u s citizens or residents who are bona_fide residents of the virgin islands at the close of a taxable_year sec_932 taxpayers and those who while not bona_fide virgin islands residents have income united_states tax_court reports from sources within the virgin islands or effectively con- nected with the conduct of a virgin islands business sec_932 taxpayers sec_932 taxpayers are generally exempt from u s tax see sec_932 to qualify for the exemption however a sec_932 taxpayer must file a return with the virgin islands reporting all of his income and fully pay the tax due to the virgin islands id a sec_932 taxpayer by contrast must compute a single u s tax and allocate part of that tax to the virgin islands see sec_932 and b the required allocation applies the ratio of the taxpayer’s virgin_islands_adjusted_gross_income to total adjusted_gross_income sec_932 and taxes paid to the virgin islands under sec_932 by a sec_932 taxpayer are creditable against the taxpayer’s u s tax_liability sec_932 in computing the income_tax_liability of a sec_932 taxpayer the provisions of the code other than sec_932 and sec_7654 apply treating the virgin islands as part of the united_states see sec_932 before the enactment of the american_jobs_creation_act_of_2004 jobs_act pub_l_no 118_stat_1418 a subjective facts-and-circumstances test governed whether an individual qualified as a bona_fide_resident of the virgin islands under those rules an individual was generally considered a bona_fide_resident if actually present in the virgin islands and not a mere transient_or_sojourner see sec_1_871-2 sec_1_934-1 income_tax regs the indefiniteness of the governing standard encouraged some u s citizens to claim bona_fide residence in the virgin islands and thereby avoid u s taxation without making major lifestyle changes and spending only a few weeks or less out of the year in the virgin islands see notice_2004_45 2004_2_cb_33 in notice_2004_45 c b pincite the irs announced its intent to challenge these positions in appropriate cases similar concerns prompted congress to enact sec_937 which tightened the standards for bona_fide residence the tax paid to the virgin islands on non-virgin islands income must be computed under the mirror code with no reduction or remittance under any other provision of virgin islands law see sec_932 sec_934 and b vento v commissioner in a possession jobs_act sec_908 sec_118 stat pincite con- gress understood that certain u s citizens and residents were claiming that they were exempt from u s income_tax on their worldwide income based on a posi- tion that they were bona_fide residents of the virgin islands or another possession even though they often did not spend a significant amount of time in the particular possession during a taxable_year and in some cases continue d to live and work in the united_states h_r conf rept no pincite u s c c a n in adopting a more specific stricter rule for determining bona_fide residence congress intended no inference regarding the interpretation of the prior standards id pincite u s c c a n pincite applying the virgin islands mirror code in varying con- texts raised questions about the need for adjustments to the code’s terms beyond simply substituting virgin islands for united_states in addressing those questions the court_of_appeals for the third circuit the federal appellate court with jurisdiction over the virgin islands u s c sec_1294 developed what has come to be known as the equality principle the court first articulated this principle in 430_f2d_973 3d cir in chi bridge the court held that in computing its virgin islands tax_liability a u s_corporation was entitled to claim the deduction then allowed by sec_922 to western hemisphere trade corporations in support of its conclusion the court reasoned the scheme of the statute is to impose a tax obligation to the virgin islands equivalent to what the united_states would collect on the same income but for the mirror system id pincite see also 821_f2d_212 3d cir holding that under the equality principle adopted in chi bridge tax paid to california by virgin islands residents is deductible under sec_164 but not creditable under sec_901 b the foreign_tax_credit by imposing tax on the worldwide income of u s citizens residents and domestic corporations the u s tax regime cre- ates a potential for foreign_source_income of u s taxpayers to be taxed by both the united_states and the jurisdiction in which it is earned to ameliorate that double tax burden united_states tax_court reports sec_901 allows u s citizens resident aliens and domestic corporations to credit foreign_income_tax paid against their u s income_tax liabilities see 285_us_1 t he primary design of the foreign_tax_credit provision was to mitigate the evil of double tax- ation see also notice_98_5 1998_1_cb_334 the for- eign tax_credit provisions of the code effectuate congress’s intent to provide relief from double_taxation in particular sec_901 allows a u s citizen or cor- poration to credit the amount of any income taxes paid_or_accrued during the taxable_year to any foreign_country or to any possession_of_the_united_states income taxes paid to foreign jurisdictions or u s posses- sions are creditable only to the extent that they are compul- sory amounts paid in satisfaction of a legal_obligation sec_1_901-2 income_tax regs a foreign levy is a tax if it requires a compulsory payment pursuant to the authority of a foreign_country to levy taxes in addition sec_901 allows a credit only for taxes paid sec_1_901-2 income_tax regs an amount that is reasonably certain to be refunded is not treated as a tax paid id subpara i however an amount that does not exceed a reasonable approximation of a taxpayer’s final tax_liability is not reasonably certain to be refunded id similarly sec_1_901-2 income_tax regs provides an amount_paid is not a compulsory payment and thus is not an amount of tax paid to the extent that the amount_paid exceeds the amount of liability under foreign law for tax an amount_paid does not exceed the amount of such liability if the amount_paid is determined by the taxpayer in a manner that is consistent with a reasonable interpretation and application of the substantive and procedural provi- sions of foreign law in such a way as to reduce over time the tax- payer’s reasonably expected liability under foreign law for tax and if the taxpayer exhausts all effective and practical remedies to reduce over time the taxpayer’s liability for foreign tax an interpretation or application of foreign law is not reasonable if there is actual notice or constructive notice eg a published court decision to the taxpayer that the interpretation or application is likely to be erroneous in inter- preting foreign tax law a taxpayer may generally rely on advice obtained in good_faith from competent foreign tax advisors to whom the taxpayer has disclosed the relevant facts sec_904 limits the amount of creditable_foreign_tax to prevent the allowance of credits beyond the extent necessary vento v commissioner to achieve their underlying purpose a taxpayer’s overall sec_904 limitation for a given year equals the portion of the taxpayer’s precredit u s tax_liability attributable to foreign_source_income the limitation prevents taxpayers from using foreign tax_credits to reduce their u s tax on u s source income see eg h_r conf rept no supra pincite u s c c a n pincite the foreign_tax_credit generally is limited to the u s tax_liability on a taxpayer’s foreign- source income in order to ensure that the credit serves the purpose of mitigating double_taxation of foreign-source income without offsetting the u s tax on u s -source income ii the parties’ arguments a whether the amounts in issue qualify as taxes paid respondent alleges that because petitioners were not legally liable for the virgin islands tax in issue those amounts were not compulsory and thus were not taxes paid see sec_1_901-2 income_tax regs because petitioners were not bona_fide residents of the virgin islands as of date they were subject_to virgin islands tax for only to the extent that they had income for that year from sources within the virgin islands or effectively connected with a virgin islands business see sec_871 b b and because petitioners have stipulated that none of their income was sourced in the virgin islands and that during that year they did not work in the virgin islands or conduct any trade_or_business there respondent argues that petitioners were not obligated to pay tax to the virgin islands for and that the amounts for which they claim credits were not taxes paid respondent further argues that because the payments in issue exceeded petitioners’ liabilities for virgin islands tax they should ultimately be refunded see sec_1 e i income_tax regs because taxpayers are required to exhaust all effective and practical remedies to reduce their foreign tax_liabilities respondent claims petitioners remedy for any double_taxation that may result from paying tax due to the united_states is to seek a refund from the virgin islands cf id subpara i united_states tax_court reports petitioners argue that under sec_1_901-2 income_tax regs the amounts for which they claim credits under sec_901 did not exceed their tax_liabilities under the mirror code because their position that they were bona_fide residents of the virgin islands as of date and thus liable for virgin islands income_tax for the year then ended was based on a reasonable interpretation of the rules then in effect that determined residence in the virgin islands b whether the amounts in issue were paid in respondent argues that p etitioners have failed to show that any purported tax_payments were made to the virgin islands during other than certain estimated_tax payments paid to the united_states that were subsequently transferred by respondent to the bir through the cover over procedure in respondent acknowledges that sec_905 allows taxpayers who use the cash_method_of_accounting to claim foreign tax_credits for the year in which the tax accrues but he asserts that there is no evidence that petitioners made a valid election under that section peti- tioners in turn argue that r espondent’s position ignores the authority of sec_301_6402-4 which considers taxes paid with a return to be timely paid c the applicability of the sec_904 limitation respondent further argues that even if the amounts in issue satisfied income_tax obligations imposed on petitioners by the virgin islands the amounts could not be credited under sec_901 because none of petitioners established that she had any foreign source taxable_income for thus respondent suggests we should treat each petitioner as having a sec_904 limitation for that year of zero while petitioners apparently do not dispute that the credits they claim exceed any sec_904 limitation they might have for they argue that sec_904 does not limit their credits because that section does not apply to taxes paid to the virgin islands petitioners claim support for their argument from the conference_report on the tra which states the conferees’ intent that in specified cir- cumstances taxes paid to the virgin islands would be cred- itable against u s tax notwithstanding the general limita- vento v commissioner tions on the foreign_tax_credit h_r conf rept no vol ii at ii-682 1986_3_cb_1 d the equality principle more generally petitioners argue that the court_of_appeals for the third circuit’s equality principle requires that u s and virgin islands tax law be construed harmoniously to produce one tax on citizens and avoid double_taxation respondent observes that that court_of_appeals developed the equality principle as an aid to interpreting the mirror code applicable in the virgin islands because the present case involves the interpretation of u s tax law respondent claims the equality principle has no application iii analysis a introduction on the basis of the arguments presented by the parties we would be inclined to hold for respondent but our conviction in that regard is strengthened by a more fundamental point that the parties’ technical arguments miss in regard to those arguments first petitioners have not met their burden of proving that the amounts in issue were taxes paid second we agree with respondent that taxes paid to the virgin islands are not exempt from the foreign_tax_credit_limitation of sec_904 third while petitioners are undoubtedly cor- rect that congress did not intend that the same income be subject_to both u s and virgin islands tax they are mis- although respondent claims that petitioners did not validly elect to credit foreign taxes as they accrue he points to no authority that specifies the requirements of a valid election at most the authorities respondent cites establish that a taxpayer who files a return for a taxable_year using the cash_method_of_accounting to determine creditable_foreign_tax cannot elect to use the accrual_method for that year by filing an amended_return see strong v willcuts u s tax cas cch para d minn revrul_59_101 1959_1_cb_189 none of petitioners filed a u s income_tax return for the record does not indicate whether any of petitioners made an election under sec_905 in a prior year nonetheless because petitioners have failed to establish that the amounts in issue were taxes paid within the meaning of sec_1_901-2 income_tax regs or do not exceed the limitations imposed by sec_904 we need not de- cide whether petitioners’ claims of the credits in issue in response to the notices of deficiency constitute valid elections to determine their foreign tax_credits on the accrual_method united_states tax_court reports taken about the means congress chose to prevent the double_taxation of virgin islands income earned by u s individuals as respondent observes the court_of_appeals for the third circuit’s equality principle is a tool for interpreting the mirror code applicable in the virgin islands and thus has no bearing on the present case turning to the more funda- mental point however petitioners are also mistaken in looking to the foreign_tax_credit as the means to ameliorate double_taxation in their situation because sec_932 pro- vides its own rules to prevent virgin islands income earned by u s citizens or residents from being subject_to both virgin islands and u s tax amounts paid as tax by u s citi- zens or residents to the virgin islands are outside the foreign_tax_credit regime of sections b petitioners have not met their burden of establishing that the amounts in issue qualify as taxes paid petitioners claim that because there was no clear authority on determining residency in the virgin islands for the position that they were bona_fide residents of the virgin islands and thus required to pay virgin islands income_tax for that year was a reasonable interpretation of applicable law the absence of clear authority in regard to an issue however does not establish the reasonableness of all possible means of resolving it the record includes no evi- dence that petitioners relied on the advice of competent advisers in taking the position that they were bona_fide resi- dents of the virgin islands as of date neither the u s district_court for the district of the virgin islands nor the court_of_appeals for the third circuit had any apparent difficulty concluding that petitioners were not bona_fide residents of the virgin islands for of course the courts’ decisions against petitioners do not by themselves establish that petitioners’ claims to bona_fide virgin islands residence for were not based on reasonable interpreta- tions of the applicable law but as we read their opinions the courts did not seem to find the decision a close one see vento f 3d pincite w e readily agree with the district_court that none of the vento daughters was a bona_fide_resident vi derivatives wl at vento v commissioner characterizing the vento daughters’ claims as more easily resolved than those of their parents moreover the concerns expressed by the irs and congress in about perceived abuses of the standards for deter- mining bona_fide residence then in effect gave petitioners reason to know before the expiration of the period of limita- tions for claiming a refund of the virgin islands tax they paid for that their claims of bona_fide virgin islands residence might be erroneous the concerns that prompted the irs to issue notice_2004_45 supra and congress to enact sec_937 were particularly acute in regard to u s citizens such as petitioners who claimed bona_fide residence in the virgin islands while spending only minimal time there and continuing to live and work in the united_states even though by the fall of petitioners had reason to know of the possible error in their claims of bona_fide virgin islands residence for only petitioner renee vento requested a refund of the tax she had paid to the virgin islands for that year the record gives no indication of the extent to which she pursued her refund claim or the ultimate disposition of her request by the bir in sum petitioners have not demonstrated on the basis of advice obtained in good_faith from competent advisers or otherwise that they paid virgin islands tax for in reli- ance on a reasonable interpretation of the relevant law fur- petitioners argue that the court of appeals’ determination that their parents were bona_fide virgin islands residents for reinforces the reasonableness of their own interpretation of the relevant rules they claim that they and their parents paid virgin islands tax for relying on the same interpretation of the residency rules as noted in the text however while the district_court and the court_of_appeals reached dif- ferent conclusions regarding the bona_fide residency of petitioners’ parents both courts agreed that the parents had a stronger claim to residency than their daughters thus the court of appeals’ acceptance of the parents’ po- sition provides little if any support for the reasonableness of petitioners’ claims to bona_fide virgin islands residence for although the bir’s records give a filing_date for renee vento’s amend- ed return as date we assume the amended_return was timely filed because date fell on a saturday see sec_6511 sec_7503 that renee vento’ sec_2001 form 1040x had the status closed as of date in the records of the bir might indicate a denial of her request for a refund if so the record does not explain why the bir denied her claim while litigation over her tax_liability to the virgin islands remained ongoing united_states tax_court reports ther the record does not detail the efforts petitioner renee vento made in pursuing her refund claim and it provides no evidence at all of any attempt by petitioner nicole mollison or petitioner gail vento to pursue claims for a refund of the tax they paid to the virgin islands despite being on notice of the possible error in the legal interpretation on the basis of which they paid the tax therefore petitioners have also failed to demonstrate that they exhausted all effective and practical remedies to reduce their liabilities for virgin islands tax cf sec_1_901-2 income_tax regs con- sequently we conclude that even if virgin islands tax paid_by u s individuals is otherwise creditable under sec_901 none of petitioners has met her burden of proving that the amounts in issue were taxes paid within the meaning of sec_1_901-2 income_tax regs c sec_904 limits the creditability of taxes paid to the virgin islands in even if the amounts in issue were otherwise creditable under sec_901 we reject petitioners’ argument that the sec_904 limitation does not apply to taxes paid to the virgin islands and agree with respondent that each peti- tioner has failed to demonstrate that she had a sec_904 limitation for sufficient to allow her to credit the amount issue petitioners’ argument that congress intended to allow foreign tax_credits for taxes paid to the virgin islands on u s source income without regard to the sec_904 limitation rests on a single sentence pulled out of context from the legislative_history of the tra the state- ment on which petitioners rely describes a transition rule regarding the repeal of the inhabitant rule that applied to tax collected by the virgin islands before that rule obviously has no application to the present case the inhabitant rule in effect before raised the possibility that cor- porations with relatively minimal contact with the virgin islands could avoid tax altogether on u s source income see eg 627_fsupp_513 d v i referring to that possibility as the ultimate tax_shelter rev’d 820_f2d_618 3d cir although the repeal of that rule generally applied prospectively to taxable years begin- ning after it applied retroactively to income other than virgin is- lands income_tax reform act of pub_l_no sec_1277 stat pincite congress ceded jurisdiction to tax that income to the virgin islands however if the virgin islands collected the tax by a speci- vento v commissioner d the more fundamental point congress did not intend that virgin islands taxes paid_by u s individuals be creditable under sec_901 although our evaluation of the parties’ arguments leads us to conclude that petitioners are not entitled to credit the amounts in issue under sec_901 our conclusion in that regard is reinforced by a more fundamental point that those arguments miss congress did not intend that taxes paid_by u s citizens or residents to the virgin islands be eligible for the foreign_tax_credit the imposition of virgin islands tax on the income of u s individuals need not result in the type of double_taxation that the foreign_tax_credit is designed to prevent the coordination rules of sec_932 allow taxpayers to avoid that possibility and thus supplant the foreign_tax_credit regime a sec_932 taxpayer bona_fide virgin islands resi- dent has no need to credit virgin islands taxes paid under sec_901 to reduce u s tax_liability if the taxpayer com- plies with the conditions of sec_932 the taxpayer will have no gross_income for u s tax purposes and thus no u s tax_liability but see sec_1_901-1 income_tax regs as amended by t d c b denying foreign_tax_credit for virgin islands tax paid on income excluded under sec_932 a sec_932 taxpayer fied date as the conference_report explains to the extent that the virgin islands either collects tax by the date of enactment or pursuant to an assessment issued by date col- lects tax by date on non-v i source non-v i effectively con- nected income of a v i inhabitant that is subject_to u s tax for pre-1987 taxable years that v i tax is to be creditable against the u s tax liabil- ity on that income to the extent that that v i tax is imposed on u s income it is to be creditable against u s tax on that particular income notwithstanding the general limitations on the foreign_tax_credit h_r conf rept no vol ii at ii-682 1986_3_cb_1 as applied to a virgin islands resident sec_1_901-1 income_tax regs has no apparent effect a sec_932 taxpayer who complies with the sec_932 conditions will have no u s tax_liability against which to credit virgin islands taxes paid sec_1_901-1 income_tax regs also applies however to residents of other u s possessions who under the rules applicable to those possessions can exclude only their possessions in- continued united_states tax_court reports who does not meet the conditions of sec_932 will owe tax to both the virgin islands and the united_states but will be able to credit the tax he pays to the virgin islands against his u s tax_liability under a provision in regulations adopted in see sec_1_932-1 income_tax regs as revised by t d supra the regulations provide that taxes paid_by the sec_932 taxpayer to the virgin islands shall be considered creditable in the same manner as taxes paid to the united_states for example under sec_31 and not as taxes paid to a foreign government for example under sec_27 and sec_901 id a sec_932 taxpayer non-virgin islands resident similarly has no need to credit virgin islands taxes paid under sec_901 to reduce her u s tax_liability sec_932 taxpayers again compute a single u s tax and allo- cate part of that tax to the virgin islands sec_932 and b as a result of the required allocation a sec_932 taxpayer effectively pays tax to the virgin islands on her virgin islands income and pays tax to the united_states on her remaining income in short the coordination scheme implemented by sec_932 provides sufficient means to pre- vent the same income from being subject_to both u s and virgin islands tax the claim of a credit under sec_901 by a sec_932 taxpayer is not only unnecessary-it is not allowed see sec_932 sec_932 again provides that in com- puting the u s tax_liability of a sec_932 taxpayer the income_tax provisions of the code other than sec_932 and sec_7654 apply treating the virgin islands as though it were part of the united_states the regulations spell out some of the consequences of that treatment sec_1 g ii income_tax regs as revised by t d supra for example for foreign_tax_credit purposes the virgin islands income of a sec_932 taxpayer is treated as income_from_sources_within_the_united_states sec_1 come from their u s gross_income to the extent that the virgin islands imposes tax on the sec_932 taxpayer’s virgin islands income at a rate below the applicable u s rate the noncompliant sec_932 taxpayer will owe a residual tax_liability to the united_states the taxpayer’s failure to comply with sec_932 will thus deny him the benefit of any reduction or remission of tax on vir- gin islands income allowed by virgin islands law pursuant to sec_934 vento v commissioner g ii b income_tax regs as revised by t d supra thus any income earned by a sec_932 tax- payer from sources in the virgin islands does not increase that taxpayer’s sec_904 limitation and thereby allow the taxpayer to claim additional credits under sec_901 for taxes paid to jurisdictions other than the united_states or the virgin islands moreover just as sec_932 in treating the virgin islands as part of the united_states requires virgin islands source income to be treated as u s source income it also requires that taxes paid to the virgin islands be treated as paid to the united_states the drafters of the regula- tions presumably saw no need to draw out that particular implication of sec_932 because they could not imagine a circumstance in which a sec_932 taxpayer would have reason to claim a credit under sec_901 for virgin islands tax again virgin islands taxes paid_by a sec- sec_1_932-1 income_tax regs applies for taxable years ending after date sec_1_932-1 income_tax regs as amended by t d c b a provision to the same effect in tem- porary regulations issued in applied for taxable years ending after date sec_1_932-1t g ii b j temporary income_tax regs fed reg date because those provisions simply draw out a straightforward consequence of sec_932 their in- applicability for the year in issue is of little consequence virgin islands income earned by a sec_932 taxpayer in a taxable_year ended before date can readily be treated as u s source income on the basis of the terms of sec_932 the treatment of virgin islands income earned by a sec_932 tax- payer as u s source income also means that if the taxpayer’s only income were from sources within either the united_states or the virgin islands her sec_904 limitation would be zero consequently even if virgin islands taxes paid_by such a taxpayer were otherwise creditable sec_904 would prevent the taxpayer from crediting those taxes virgin islands tax could be creditable by a sec_932 taxpayer only if that taxpayer had income from sources outside the united_states or the virgin islands even then the taxpayer would have sufficient sec_904 limitation to credit some or all of her virgin islands tax only if the jurisdiction outside the united_states and the virgin islands imposed tax at a rate below the applicable u s rate so as to not fully absorb the limitation we cannot believe that congress intended the creditability under sec_901 of virgin islands taxes paid_by a sec_932 taxpayer to turn on such a fortuity united_states tax_court reports tion a taxpayer are separately creditable against the taxpayer’s u s tax_liability under sec_932 a noncodified provision of the tra namely sec_1274 stat pincite confirms our conclusion that even though taxes paid to u s possessions are generally creditable under sec_901 a sec_932 taxpayer cannot claim a foreign_tax_credit for taxes paid to the virgin islands in excess of the amount creditable under sec_932 under tra sec_1274 any taxes imposed by the virgin islands beyond its allocable share of a sec_932 taxpayer’s u s tax are deductible under sec_164 but shall not be treated as taxes to which sec_901 applies id see also staff of j comm on taxation general explanation of the tax_reform_act_of_1986 pincite j comm print taxes paid to the virgin islands by a sec_932 tax- payer other than the virgin islands portion of his u s tax_liability will be treated for u s tax purposes in the same manner as state and local_taxes petitioners’ rather unusual situation might have given them an opportunity to slip through a crack in the statutory framework the literal terms of sec_932 do not deny petitioners the credits in issue because no petitioner earned as much as a dollar of virgin islands income we cannot imagine however that while congress did not intend to allow a foreign_tax_credit for virgin islands taxes paid_by bona_fide residents of the virgin islands or by non-virgin petitioners mistakenly interpret a reference to the credit allowed by sec_932 in the preamble to temporary regulations under sec_932 issued in as a reference to the foreign_tax_credit after describing the required allocation of a sec_932 taxpayer’s u s tax_liability the pre- amble states on the individual’s u s federal_income_tax return he or she may claim a credit for the tax required to be paid to the usvi so that only the remainder is due to the united_states fed reg date interpreting the preamble as referring to the foreign_tax_credit petitioners ask why respondent takes a different position for taxpayers under the new regulations than for former years petitioners again seize on a single sentence and reading it in isolation attempt to give it a mean- ing different from what was intended read in context the quoted state- ment refers to the credit allowed by sec_932 petitioners are not enti- tled to that credit because none of their income for was from sources within the virgin islands or effectively connected with the conduct of a virgin islands business consequently no portions of their u s tax liabil- ities for that year are properly allocable to the virgin islands vento v commissioner islands residents with virgin islands income it nonetheless intended to allow a credit under sec_901 for amounts paid as tax to the virgin islands by a taxpayer who is not a bona_fide_resident of the virgin islands has no virgin islands income for the year in question and thus did not actually owe tax to the virgin islands for that year in any event we need not decide the case before us solely on the basis of congress’ intent to allow credits under sec_901 for taxes paid_by u s individuals to the virgin islands as explained above petitioners have failed to establish that the amounts in issue were taxes paid within the meaning of sec_1_901-2 income_tax regs or the claimed credits do not exceed their applicable sec_904 limitations those failures give us adequate grounds to deny petitioners credits under sec_901 for the amounts in issue we leave for another day the question of whether a u s citizen with no virgin islands income who nonetheless pays tax to the virgin islands on the basis of a reasonable interpretation of applicable law cf sec_1_901-2 income_tax regs that she was a bona_fide_resident of the virgin islands and who fortuitously has available sec_904 limitation can credit that virgin islands tax under sec_901 because the taxpayer falls outside the literal terms of sec_932 our conviction that leaving aside any possible loophole in the statute congress did not intend that virgin islands taxes paid_by u s citizens or residents be creditable under sec_901 simply reinforces our conclusion that petitioners in the present cases are not entitled to the claimed tax_credits we recognize of course that petitioners having already paid tax to the virgin islands on their income will as a result of our decision end up paying a second tax on the same income to the united_states we take respondent’s efforts to collect tax from petitioners on their income to mean that he has been unsuccessful in any attempts to secure from the virgin islands the tax petitioners have already paid for because vento established that peti- tioners did not owe tax to the virgin islands for no apparent legal grounds would justify the bir’s failure to either refund to petitioners or remit to the u s treasury the united_states tax_court reports amounts it collected from petitioners for whatever sympathy we might have for petitioners however does not compel us to allow them a credit against their u s tax liabil- ities to which they are not legally entitled to the extent that petitioners pay tax on the same income to both the united_states and the virgin islands they must seek a remedy elsewhere they cannot find it in sec_901 decisions will be entered under rule f media reports to which petitioners refer us suggest that the bir’s re- tention of the tax it collected from them for may be attributable to fiscal constraints faced by the virgin islands government our sympathy for petitioners would be tempered to the extent that tax_avoidance motives prompted their claims to virgin islands residence while the limited record before us is silent regarding petitioners’ motiva- tions our agreement to base our decision on the parties’ stipulations and admissions under rule does not require us to ignore the district court’s observation in vi derivatives llc v united_states no wl at d v i date aff ’d in part rev’d in part sub nom 715_f3d_455 3d cir that the timing of the vento family’s decision to ‘move’ to the virgin islands is suspicious according to that court vento family members realized a significant gain as a result of a transaction that oc- curred at the beginning of becoming virgin islands residents for that year held out the prospect of more than dollar_figure million in tax savings to the family id in support of their claim of unfair treatment at respondent’s hands petitioners observe that he promised to allow the foreign_tax_credit to similarly situated taxpayers in 743_f3d_790 11th cir rev’g and remanding 138_tc_258 in that case the commissioner sought to assure the u s court_of_appeals for the eleventh circuit that his attempt to collect tax from u s citizens who claimed bona_fide virgin islands residence would not result in double_taxation toward that end the commissioner referred to the possibility that he might grant the taxpayers a credit against their u s tax_liability for the taxes they had paid to the virgin islands although the court was willing to take the com- missioner at his word it noted that n o existing treasury regulations or published irs guidance would require the irs to grant a tax_credit id pincite n thus the court recognized that any credit that the commis- sioner might gratuitously allow the taxpayers for taxes paid to the virgin islands on the basis of an erroneous claim to virgin islands residence would not be required by sec_901 or any other applicable authority


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-100990-09 date july legend x ------------------------------------------ ----------------------------- country ---------------------------------- date ----------------------- date ----------------------- dear -------------- this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an entity classification election under sec_301_7701-3 the information submitted states that x was formed on date under the laws of country x intended to be treated as a disregarded_entity effective date however x failed to file a timely form_8832 entity classification election electing to treat x as a disregarded_entity effective date 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code plr-100990-09 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability or 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 to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides 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 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence 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 based solely on the information submitted and the representations made we conclude that the requirements of 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 a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the plr-100990-09 federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 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 x's authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------- ----------------------------- ------------------------------------- ---------------------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- ---------------- telephone number -------------------- refer reply to cc ita b07 plr-106528-14 date date re request_for_ruling under sec_168 and sec_446 legend taxpayer -------------------------------------------------------------- date ----------------- date -------------------------- a ------------------------- b ------------ c ------ d ------ dear ----------- this letter responds to a letter dated date submitted by taxpayer’s authorized representative requesting certain letter rulings under sec_168 and sec_446 of the internal_revenue_code relating to the depreciation of taxpayer’s outdoor digital led advertising displays following an intended election under sec_1033 to treat such displays as real_property for purposes of chapter of the code facts taxpayer represents that the facts are as follows plr-106528-14 taxpayer is the common parent of a group of affiliated corporations that files a consolidated federal_income_tax return on a calendar_year basis taxpayer operates through its wholly-owned subsidiary a taxpayer was incorporated in the state of b on or about date and became the parent of the current holding_company structure taxpayer’s overall_method_of_accounting is the accrual_method taxpayer is in the business of building and maintaining outdoor advertising displays and making available space on such displays to advertisers the advertising displays include billboards interstate logo signs and various types of transit advertising displays for example bus shelters benches and buses with its federal_income_tax return for the taxable_year ending date the c taxable_year taxpayer intends to file an election under sec_1033 to treat its permanently affixed outdoor advertising displays as real_property for purposes of chapter of the code effective for the c taxable_year and subsequent taxable years the assets that will be subject_to this election include its billboards highway logo signs bus shelters and other qualifying outdoor advertising displays that taxpayer holds at any time during the c taxable_year and acquires or constructs in subsequent taxable years taxpayer’s billboard signs include static billboard displays trivision displays and digital led displays historically taxpayer has classified all of its billboard signs for federal_income_tax depreciation purposes under sec_168 as 15-year_property with the exception of the led displays taxpayer has classified its led displays placed_in_service in d or later under sec_168 as 5-year_property and depreciated such displays under sec_168 using a 5-year recovery_period and the 200-percent declining balance method_of_depreciation switching to the straight-line method_of_depreciation only the led displays that are placed_in_service in d or later held at any time during the c taxable_year and classified by taxpayer under sec_168 as 5-year_property are subject_to this letter_ruling following taxpayer’s election under sec_1033 all of taxpayer’s permanently affixed outdoor advertising displays including the permanently affixed digital led displays will be deemed to be real_property for purposes of chapter of the code taxpayer has determined that following the election under sec_1033 all of these outdoor advertising displays including the outdoor digital led displays will be classified as 15-year_property under sec_168 and will be depreciated under sec_168 using a 15-year recovery_period and the 150-percent declining balance method_of_depreciation switching to the straight-line method_of_depreciation taxpayer has not claimed an investment_credit under former sec_38 on any of its outdoor advertising displays taxpayer has not made an election to expense the basis of any of its outdoor advertising displays under sec_179 none of the outdoor advertising displays are required to be depreciated under the alternative depreciation plr-106528-14 system of sec_168 ads and taxpayer has not made an election to depreciate them using ads rulings requested taxpayer requests the following rulings the depreciation allowance under sec_168 for any of taxpayer’s outdoor digital led advertising displays whose applicable_recovery_period or applicable_depreciation_method changes as a result of taxpayer making an election under sec_1033 shall be determined under sec_1_168_i_-4 of the income_tax regulations for the taxable_year in which the election is effective and any subsequent taxable_year the required changes in the determination of the depreciation allowance under sec_168 for any of taxpayer’s outdoor digital led advertising displays as a result of the election under sec_1033 are not a change in method_of_accounting that requires the consent of the commissioner of internal revenue law and analysis sec_167 allows as a depreciation deduction a reasonable allowance for the exhaustion wear_and_tear and obsolescence of property used in a trade_or_business or of property_held_for_the_production_of_income the depreciation deduction provided by sec_167 for tangible_property placed_in_service after generally is determined under sec_168 this section prescribes two methods for determining depreciation allowances the general depreciation system in sec_168 gds and the ads under either depreciation system a taxpayer computes the depreciation deduction by using a prescribed depreciation method recovery_period and convention the applicable_recovery_period for purposes of either sec_168 or sec_168 is determined by reference to class_life or by statute sec_168 defines the term class_life as meaning the class_life if any that would be applicable with respect to any property as of date under sec_167 determined without regard to sec_167 and as if the taxpayer had made an election under sec_167 as in effect on the day before the date of enactment of the revenue reconciliation act of former sec_167 provided that in the case of a taxpayer who elected the asset_depreciation_range adr system of depreciation the depreciation allowance was based on the class_life prescribed by the secretary that reasonably reflected the anticipated useful_life of that class of property to the industry or other group sec_1_167_a_-11 provides rules for classifying property under former sec_167 property is included in the asset class for the activity in which the plr-106528-14 property is primarily used further property is classified according to its primary use even though the activity in which such property is primarily used is insubstantial in relation to all the taxpayer’s activities sec_1 b -11 e iii further provides that in the case of a lessor of property unless there is an asset class in effect for lessors of such property the asset class for the property is determined as if the property were owned by the lessee however in the case of an asset class based upon the type of property for example trucks or railroad cars as distinguished from the activity in which used the property is classified without regard to the activity of the lessee revproc_87_56 1987_2_cb_674 sets forth the class lives of property that are necessary to compute the depreciation allowances under sec_168 the revenue_procedure establishes two broad categories of depreciable assets asset classes dollar_figure through that consist of specific assets used in all business activities and asset classes through that consist of assets used in specific business activities the same item of depreciable_property can be described in both an asset category asset classes dollar_figure through and an activity class asset classes through in which case the item is classified in the asset category see 111_tc_105 item described in both an asset and an activity category should be placed in the asset category asset class of revproc_87_56 captioned land improvements includes improvements directly to or added to land whether such improvements are sec_1245 property or sec_1250 property provided such improvements are depreciable it does not include land improvements that are explicitly included in any other asset class of revproc_87_56 asset cla sec_57_1 of revproc_87_56 captioned distributive trades and services-billboard service station buildings and petroleum marketing land improvements includes among other things billboards whether such assets are sec_1245 property or sec_1250 property assets in asset class or asset cla sec_57_1 have a class_life of years and thus are classified under sec_168 as 15-year_property as such under the gds their applicable_recovery_period under sec_168 i sec_15 years and their applicable_depreciation_method under sec_168 is the 150-percent declining balance method_of_depreciation switching to the straight-line method_of_depreciation in the taxable_year in which that method provides a larger deduction sec_168 provides that the secretary shall by regulations provide for the method of determining the deduction allowable under sec_167 with respect to any tangible_property for any taxable_year and the succeeding taxable years during which such property changes status under sec_168 but continues to be held by the same person plr-106528-14 sec_1_168_i_-4 provides the rules under sec_168 for purposes of sec_1_168_i_-4 sec_1_168_i_-4 provides that the year_of_change is the taxable_year in which a change in the use occurs sec_1_168_i_-4 provides that sec_1_168_i_-4 applies to a change in the use of macrs_property as defined in sec_1_168_b_-1 during a taxable_year subsequent to the placed-in-service year if the property continues to be macrs_property owned by the same taxpayer and as a result of the change in the use has a different recovery_period a different depreciation method or both for example sec_1_168_i_-4 applies to macrs_property that i begins or ceases to be used predominantly outside the united_states ii results in a reclassification of the property under sec_168 due to a change in the use of the property or iii begins or ceases to be tax-exempt_use_property as defined in sec_168 sec_1_168_i_-4 provides that a change in the use of macrs_property occurs when the primary use of the macrs_property in the taxable_year is different from its primary use in the immediately preceding_taxable_year the primary use of macrs_property may be determined in any reasonable manner that is consistently applied to the taxpayer’s macrs_property sec_1_168_i_-4 provides that if a change in the use of macrs_property occurs under sec_1_168_i_-4 the depreciation allowance for that macrs_property for the year_of_change is determined as though the use of the macrs_property changed on the first day of the year_of_change sec_1_168_i_-4 provides that if a change in the use results in a longer recovery_period and or a depreciation method for the macrs_property that is less accelerated than the method used before the change in the use the depreciation allowances beginning with the year_of_change are determined as though the macrs_property had been originally placed_in_service by the taxpayer with the longer recovery_period and or the slower depreciation method macrs_property affected by sec_1 i - d is not eligible in the year_of_change for the election provided under sec_168 sec_179 or sec_1400l or for the additional first year depreciation deduction provided in sec_168 or sec_1400l see sec_1_168_i_-4 or sec_1_168_i_-4 as applicable for determining depreciation for this property beginning with the year_of_change sec_1_168_i_-4 provides that a change in computing the depreciation allowance in the year_of_change for property subject_to sec_1_168_i_-4 is not a change in method_of_accounting under sec_446 see sec_1_446-1 sec_1_446-1 provides in pertinent part that except as otherwise expressly provided a taxpayer who changes the method_of_accounting employed in keeping the taxpayer’s books shall before computing the taxpayer’s income upon such plr-106528-14 new method for purposes of taxation secure the consent of the commissioner sec_1_446-1 specifies that a change in the depreciation or amortization_method period of recovery or convention of a depreciable or amortizable asset is a change in method_of_accounting however sec_1_446-1 provides that a change in computing depreciation or amortization allowances in the taxable_year in which the use of an asset changes in the hands of the same taxpayer is not a change in method_of_accounting sec_1033 provides that a taxpayer may elect at such time and in such manner as the secretary may prescribe to treat property that constitutes an outdoor_advertising_display as real_property for purposes of chapter of the code sec_1033 further provides that the sec_1033 election may not be made for property for which the taxpayer has made an election under sec_179 in addition sec_1_1033_g_-1 provides that the sec_1033 election may not be made for property for which the taxpayer has claimed the investment_credit under sec_38 for purposes of sec_1033 sec_1033 defines an outdoor_advertising_display as a rigidly assembled sign display or device permanently affixed to the ground or permanently attached to a building or other inherently_permanent_structure constituting or used for the display of a commercial or other advertisement to the public sec_1_1033_g_-1 defines an outdoor_advertising_display as a rigidly assembled sign display or device that constitutes or is used to display a commercial or other advertisement to the public and is permanently affixed to the ground or permanently attached to a building or other inherently_permanent_structure these regulations further provide that the term includes highway billboards affixed to the ground with wooden or metal poles pipes or beams with or without concrete footings in this case taxpayer intends to make an election under sec_1033 for its permanently affixed outdoor advertising displays effective for the c taxable_year and subsequent taxable years taxpayer will continue to use its outdoor digital led advertising displays in the same trade_or_business and in the same manner as before such election however beginning with the c taxable_year taxpayer’s outdoor digital led advertising displays held at any time during the c taxable_year or acquired or constructed in subsequent taxable years will be treated as real_property for purposes of chapter of the code as a result of the election under sec_1033 the sec_1033 election will not change taxpayer’s characterization of its outdoor advertising displays in any taxable_year before the c taxable_year prior to the sec_1033 election taxpayer classified its outdoor digital led advertising displays placed_in_service in d or later as 5-year_property taxpayer did not identify the asset class of revproc_87_56 or the asset under sec_168 under which taxpayer included the outdoor digital led advertising displays however based on taxpayer’s classification of these advertising displays as 5-year_property taxpayer plr-106528-14 presumably determined that the outdoor digital led advertising displays are tangible_personal_property for depreciation purposes as a result of its election under sec_1033 taxpayer’s outdoor digital led advertising displays will cease to be tangible_personal_property and will begin to be real_property for purposes of chapter of the code effective for the c taxable_year and subsequent taxable years taxpayer represents that this change from tangible_personal_property to real_property beginning with the c taxable_year will result in its outdoor digital led advertising displays being reclassified from 5-year_property to 15-year_property under sec_168 beginning with the c taxable_year the sec_1033 election will not change taxpayer’s classification of its outdoor digital led advertising displays as 5-year_property in any taxable_year before the c taxable_year accordingly the change_of taxpayer’s outdoor digital led advertising displays to real_property effective for the c taxable_year and subsequent taxable years as a result of the sec_1033 election constitutes a change in the use of such property conclusions based solely on the facts and representations submitted we conclude that the depreciation allowance under sec_168 for any of taxpayer’s outdoor digital led advertising displays whose applicable_recovery_period or applicable_depreciation_method changes as a result of taxpayer making an election under sec_1033 shall be determined under sec_1_168_i_-4 for the taxable_year in which the election is effective and any subsequent taxable_year the required changes in the determination of the depreciation allowance under sec_168 for any of taxpayer’s outdoor digital led advertising displays as a result of the election under sec_1033 are not a change in method_of_accounting that requires the consent of the commissioner except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code including other subsections of sec_168 specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by taxpayer qualifies for the sec_1033 election whether taxpayer’s classification of its outdoor digital led advertising displays as 5-year_property is proper under sec_168 or whether taxpayer’s outdoor digital led advertising displays are land improvements for depreciation purposes that is whether the outdoor digital led advertising displays are inherently permanent structures as determined under the factors set forth in 65_tc_664 plr-106528-14 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the appropriate operating division director this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours kathleen reed kathleen reed branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court austin eugene chandler jr petitioner v commissioner of internal revenue respondent docket no 13390-o00s filed date austin bugene chandler jr pro_se lindsey d stellwagen for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule - - references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the taxable_year ’ after concessions by respondent the issue for decision is whether petitioner is entitled to an earned_income_credit eic petitioner resided in alexandria virginia at the time he filed his petition background during the tax_year at issue petitioner lived and worked in new jersey petitioner’s 9-year-old daughter kenesha dudley kenesha lived with her mother yonetta dudley ms dudley in washington d c until date in date kenesha moved to alexandria virginia to live with her grandmother clarice chandler mrs chandler on weekends petitioner would travel from new jersey to virginia to visit kenesha petitioner paid mrs chandler dollar_figure per week for room and board for kenesha and for himself kenesha lived with petitioner in new jersey when she was on vacation from school petitioner was entitled to a refund of dollar_figure in however the deficiency resulting from respondent’s denial of the claimed eic reduced the refund to dollar_figure respondent conceded that petitioner is entitled to the claimed dependency_exemption deduction the resolution of petitioner’s proper filing_status has no income_tax consequences and therefore 1s moot and petitioner may be entitled to an eic based upon a modified_adjusted_gross_income of dollar_figure as an individual with no qualifying children - - respondent asserts that petitioner is not entitled to the claimed eic with respect to a qualifying_child because during the tax_year kenesha was living in the same household as mrs chandler whose modified_adjusted_gross_income was greater than petitioner’s a transcript of account for the tax_year reflects mrs chandler’s modified gross_income of dollar_figure discussion the burden_of_proof is on petitioner rule a sec_32 provides that an eligible_individual may be allowed an eic equal to the credit percentage as provided in sec_32 the term eligible_individual includes a taxpayer who has a qualifying_child for the taxable_year sec_32 a a gualifying child includes a child who satisfies a relationship_test to the taxpayer has the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year and has not attained age sec_32 a b and c the relationship_test is satisfied if the qualifying_child is a daughter of the taxpayer or a descendant of the taxpayer sec_32 b i sec_7491 does not apply to shift the burden_of_proof to respondent because petitioner has neither alleged that sec_7491 is applicable nor established that he complied with the requirements of sec_7491 a and b to substantiate items maintain required records and fully cooperate with respondent’s reasonable requests q4e- the taxpayer must have identified the child on his return under the identification rule_of sec_32 d but need not have so identified the child to be an eligible_individual with respect to that qualifying_child sutherland v commissioner tcmemo_2001_8 under sec_32 the so-called tie-breaker rule if there are two or more eligible individuals who could receive the eic with respect to the same gualifying child only the individual with the highest modified_adjusted_gross_income as defined under sec_32 for such taxable_year shall be treated as the eligible_individual with respect to the qualifying_child sutherland v commissioner supra jackson v commissioner tcmemo_1996_54 the term eligible_individual also includes an individual without a qualifying_child if the individual’s principal_place_of_abode is in the united_states for more than one-half of the taxable_year the individual has attained age but not age and the individual is not a dependent of another for whom a deduction is allowable under sec_151 sec_32 a an eligible_individual without a qualifying_child may be eligible for an bic if the individual earned_income or modified_adjusted_gross_income does not exceed the completed phaseout amount which was dollar_figure for the taxable_year sec_32 b and c a revproc_98_61 1998_2_cb_811 - except for temporary absences during vacation from school kenesha lived in her grandmother’s house in virginia as of date and for the remainder of we find that kenesha’s principal_place_of_abode was mrs chandler’s house in virginia although petitioner visited kenesha in virginia on weekends we find that his principal_place_of_abode was in new jersey therefore petitioner did not have the same principal_place_of_abode as kenesha for more than one-half of sec_32 a kenesha therefore is not a qualifying_child with respect to petitioner under sec_32 a and petitioner is not an eligible_individual who has a qualifying_child under sec_32 a since petitioner does not meet some of the aforementioned requirements we need not address the applicability of the tie-breaker rule under sec_32 c however petitioner satisfies the residency age and dependency requirements of an eligible_individual under sec_32 a petitioner’s modified_adjusted_gross_income and earned_income were dollar_figure which is less than the completed phaseout amount for of dollar_figure sec_32 revproc_98_61 c b pincite therefore we conclude that petitioner is entitled to an eic in an amount determined by using the applicable credit percentage for an individual with no gualifying children under sec_32 -- - reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to plr-114285-00 cc intl b1 date date legend a date b date c year d country e this is in response to a’s letter dated requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s anticipated loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a is a long-term permanent resident_of_the_united_states within the meaning of sec_877 who will relinquish his u s lawful permanent resident status on date b expatriate a has been a citizen of country e for all his life by reason of his birth on date c in country e a became a permanent resident_of_the_united_states and obtained his green card in year d a will expatriate to country e the country of his birth on date b on the date of a’s expatriation his net_worth will exceed the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s plr-114285-00 long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former citizen or former long-term_resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that person is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 a c under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because a will become not later than the close of a reasonable period after his expatriation a resident fully liable to income_tax in country e the country where a was born a submitted all the information required by notice_98_34 including additional information requested by the service after review of the submission accordingly based on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 we further conclude that a will not be treated under sec_877 as having as one of his principal purposes of expatriating the avoidance of u s taxes because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle a or b of the code plr-114285-00 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent resident status or for taxable periods after his loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely w edward williams senior technical reviewer office of the associate chief_counsel international cc


c h i e f c o u n se l department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date uil number release date conex-128926-10 the honorable paul ryan member u s house of representatives south main street suite janesville wi attention ---------------- dear congressman ryan i am responding to your inquiry of date on behalf of your constituent ------------ -------------------- ------------ asked about the payroll tax exemption provision in the hiring incentives to restore employment hire_act of specifically he asked whether a short term or temporary interruption of an employee’s employment would affect his or her eligibility for the exemption so that the employee would have to be off for days to requalify for application of the exemption under the hire_act ------------ also included a detailed example in his letter i cannot address his specific example but i am happy to provide information about the payroll tax exemption the hire_act enacted on date provides a payroll tax exemption and a related tax_credit for qualified employers hiring workers who were previously unemployed or only working part time referred to as qualified employees the payroll tax exemption applies to the employer’s 2-percent share of social_security_tax on wages paid to a qualified_employee from date through date a qualified_employee is an individual who begins employment after date and before date and who certifies by signed affidavit under penalties of perjury that he or she has been employed for hours or less during the 60-day period ending on the date such employment begins the employee cannot be a family_member of or related in certain other ways to the employer the employer also cannot have hired the employee to replace another employee unless the other employee left voluntarily or the employer terminated him or her for cause conex-128926-10 an employer that hires and retains a qualified_employee is also eligible for a general_business_credit if the qualified_employee is employed for at least consecutive weeks and the employee’s wages as defined for income_tax_withholding purposes during the last weeks of the 52-week period equal at least percent of the wages for the first weeks the credit is the lesser_of dollar_figure or percent of the wages as defined for income_tax_withholding purposes paid to the retained_worker during the consecutive week period an individual who is already a qualified_employee and who experiences a short term or temporary interruption in his or her performance of services continues to be a qualified_employee unless the interruption constitutes a termination of employment whether a short term or temporary interruption of an employee’s performance of services constitutes a termination of employment depends on the facts and circumstances in the case of an individual who was previously employed as a qualified_employee and whose employment is terminated the employee will have to again meet the requirements for qualified_employee status at the time the employment relationship is reestablished ------------ can find more information on both the payroll tax exemption and the related credit provisions of the hire_act on our website at www irs gov i hope this information is helpful if you have any questions please contact me or ------------------of my staff at -- -------------------- sincerely nancy j marks division counsel associate chief_counsel tax exempt government entities


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-132026-01 cc psi b5 date industry director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend taxpayer project city state_agency a b c d e f issue whether taxpayer’s requested relief under sec_7805 of the internal_revenue_code should be granted and tam date tam be applied without retroactive effect conclusion tam-132026-01 taxpayer’s requested sec_7805 relief for land preparation and construction loan costs in the tam is denied advice in the tam as it relates to local impact fees is suspended pending consideration of the local impact fee issue in two internal_revenue_service initiatives consequently we decline to rule on taxpayer’s sec_7805 request as it relates to local impact fees facts taxpayer is a state limited_partnership that was formed for the sole purpose of constructing owning and operating the project a low-income_housing project in city consisting of a buildings with a total of b units in c taxpayer received a carryover allocation from the agency in the amount of dollar_figured in low-income_housing credits under sec_42 in e taxpayer received a second carryover allocation in the amount of dollar_figuref taxpayer included local impact fees and certain land preparation and construction loan costs in the buildings’ eligible bases under sec_42 technical_advice was requested on whether these costs were includable in eligible_basis for the low-income_housing_credit the tam concludes that- a cost incurred in the construction of a low-income_housing building is includable in eligible_basis under sec_42 if the cost is included in the adjusted_basis of depreciable_property subject_to sec_168 and the property qualifies as residential_rental_property under sec_103 or included in the adjusted_basis of depreciable_property subject_to sec_168 that is used in a common area or provided as a comparable amenity to all residential rental units in the building with respect to specific local impact fees and land preparation construction loan costs considered the tam concludes that- local impact fees incurred by the taxpayer to develop the project constitute intangible_property to the taxpayer the local impact fees incurred by the taxpayer to develop the property do not constitute depreciable_property to the taxpayer because the fees are intangible_property that do not have determinable useful lives accordingly the fees are not includable in the project’s eligible_basis under sec_42 for the cost of a land preparation to be includable in the project’s eligible_basis under sec_42 the cost must be for property of a character subject_to the allowance for depreciation under sec_168 the cost of a land preparation is a depreciable_property if the land preparation is so closely associated with a particular depreciable asset that the land preparation will be retired abandoned or replaced contemporaneously with that tam-132026-01 depreciable asset whether the land preparation will be retired abandoned or replaced contemporaneously with the depreciable asset is a question of fact if it is determined upon further factual development that a land preparation cost is depreciable such cost may be included in eligible_basis if it is also determined as part of the adjusted_basis of sec_168 property that qualifies as residential_rental_property under sec_103 or sec_168 property used in a common area or provided as a comparable amenity to all residential rental units in the building and taxpayer’s third-party costs and fees incurred in obtaining a construction loan are capitalized and amortized over the life of the loan the taxpayer’s construction loan intangible is not subject_to sec_168 and therefore not includable in the project’s eligible_basis sec_263a requires the amortization deductions relating to the construction loan intangible be capitalized to the produced property during the construction_period the deductions must be reasonably allocated to all property produced to the extent the amortization deductions are allocable under sec_263a to the adjusted bases of sec_168 property that qualifies as residential_rental_property under sec_103 or sec_168 property used in a common area or provided as a comparable amenity to all residential units in the building the amortization deductions are includable in the project’s eligible_basis under sec_42 taxpayer has requested that relief under sec_7805 be extended to it and that the tam be applied without retroactive effect taxpayer asserts that it should be granted sec_7805 relief because it relied upon agency’s award of credits pursuant to sec_42 that included the costs at issue taxpayer states that it and its partners relied on the agency’s credit allocation based upon an analysis of the financial feasibility of the project to proceed with development and investment in the project taxpayer states that it followed the past practices of the developer and others in the industry in treating the costs which treatment was certified by an international accounting firm retroactive application the tam would cause irreparable damage and jeopardize the viability of the project in addition taxpayer alleges that the conclusions in the tam are the equivalent of regulatory rules and because rules issued under the rule-making procedures normally apply prospectively the tam should also be prospective law and analysis sec_7805 provides an administrative procedure for prescribing the extent to which any ruling or regulation relating to the internal revenue laws shall be applied without retroactive effect tam-132026-01 section dollar_figure of revproc_2001_2 2001_1_irb_79 permits a sec_7805 request on a technical_advice_memorandum subsequent to its issuance a request to limit the retroactive effect of a technical_advice_memorandum must explain the reasons and arguments in support of the relief sought and include a discussion of the five items enumerated in dollar_figure of revproc_2001_2 as they relate to the taxpayer’s situation section of revproc_2001_2 pincite these five items are the conditions for nonretroactive application of a technical_advice_memorandum that modifies or revokes a letter_ruling or another technical_advice_memorandum taxpayer contends that each state housing_credit_agency determines what costs are includable in eligible_basis when determining the financial feasibility of a project under sec_42 consequently taxpayer concludes that once the agency has verified and accepted taxpayer’s costs the service is bound by the agency’s determination sec_42 provides in part that the housing_credit_dollar_amount allocated to a project shall not exceed the amount the housing_credit_agency determines is necessary for the financial feasibility of the project and its viability as a qualified_low-income_housing_project through the credit_period a state housing_credit agency’s responsibility under sec_42 to determine the financial feasibility and viability of a project in no way abrogates the service’s authority and responsibility to administer the low-income_housing tax_credit and its various provisions taxpayer asserts that the conclusions in the tam are equivalent to interpretative rules and in keeping with the procedures on rule-making the tam should be applied prospectively technical_advice is advice or guidance furnished upon request in response to any technical or procedural question that develops during any proceeding such as the examination of a taxpayer’s return on the interpretation and proper application of the tax law tax_treaties or regulations revenue rulings notices or other precedents published by the national_office to a specific set of facts technical_advice helps service personnel close cases and also helps establish and maintain consistent holdings throughout the service sec_2 of revproc_2001_2 i r b pincite the tam is not to be used for precedential purposes in other cases under sec_6110 the position of the service is not established by a technical_advice_memorandum rather it is restricted to those interpretations that have been adopted as position of the service by publication in the internal_revenue_bulletin chief counsel’s directive manual also see i r b introduction in the present case taxpayer did not rely on any income_tax regulation revenue_ruling notice or revenue_procedure explicitly addressing whether the costs under the facts presented in the tam are includable in eligible_basis under sec_42 taxpayer did not rely on a previously issued private_letter_ruling or technical_advice_memorandum covering the issues which might form a basis for sec_7805 relief see of revproc_2001_2 2001_1_irb_79 taxpayer relied on its own interpretation of the law in determining its eligible_basis a taxpayer’s erroneous interpretation of the law is not a basis for relief under sec_7805 tam-132026-01 accordingly taxpayer’s arguments do not support nonretroactive application of the tam under sec_7805 for land preparation and construction loan costs whether local impact fees are includable in the eligible_basis of a low-income_housing project under sec_42 is an issue under consideration in two service initiatives a business plan guidance project and an industry_issue_resolution_program accordingly we are suspending the conclusion in the tam and decline to consider sec_7805 relief on this issue at this time 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


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 1-plr-117557-98 date date x date legend this responds to a letter dated date submitted on behalf of x and requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders desired s_corporation treatment for x effective on date but an election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an s_corporation_election under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date please submit an original form_2553 along with a copy of this letter to the relevant service_center within days of receipt of this letter temporary or final regulations pertaining to the issue addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see section dollar_figure of revproc_98_1 1998_1_irb_7 however when the criteria in section dollar_figure of revproc_98_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent sincerely daniel j coburn assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries