t c memo united_states tax_court mary catherine pierce petitioner v commissioner of internal revenue respondent docket no filed date p seeks relief under sec_6015 i r c from income_tax liabilities that were assessed in accord with this court’s holding in an earlier opinion in this proceeding p failed to plead as an affirmative defense collateral_estoppel as to one of the factual issues in controversy as required in rule of this court’s rules_of_practice and procedure p orally raised collateral_estoppel in her opening statement at the beginning of the trial and r did not object or address the question of collateral_estoppel until r did so in his posttrial brief no additional evidence is required to decide whether any holding in our prior opinion would result in an estoppel rule b of this court’s rules_of_practice and procedure provides that an issue may be tried by implied consent where the issue was not specifically pleaded r contends that p’s failure to specifically plead an affirmative defense results in waiver of the defense p contends that collateral_estoppel was placed in controversy with r’s implied consent held the requirement of rule of this court’s rules_of_practice and procedure to plead an affirmative defense is satisfied in this case by the implied consent principles of rule of this court’s rules_of_practice and procedure and it is held further respondent is not collaterally estopped from denying that p did not know or had no reason to know of the understatement and it is held further p had reason to know of the understatement and it would not be inequitable to hold that p is not entitled to relief from joint liabilities under sec_6015 i r c robert j percy for petitioner robert e marum and michael j proto for respondent memorandum findings_of_fact and opinion gerber judge petitioner seeks relief from joint_and_several income_tax_liability under sec_6015 the income_tax_liability derives from income_tax deficiencies that were assessed in accordance with this court’s holding in pierce v commissioner tcmemo_1997_411 pierce i as follows all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated year deficiency dollar_figure big_number big_number big_number big_number respondent determined that petitioner is not entitled to relief from joint_and_several_liability under sec_6015 petitioner timely filed a petition seeking review of respondent’s determination the issues we consider are whether an affirmative defense may be placed in issue under the principle of implied consent whether the holding in an earlier opinion results in respondent’s being collaterally estopped to deny that petitioner did not know or have reason to know of an understatement and whether petitioner is eligible for relief from joint_and_several_liability under sec_6015 findings of fact2 petitioner resided in windsor connecticut at the time her petition was filed she completed high school and attended college for year petitioner married gary pierce on date and they were married at all times pertinent to this case during the years at issue mr pierce was the sole shareholder of mary catherine development corp mary catherine initially mary catherine purchased unimproved land developed the parties’ stipulation of facts is incorporated by this reference and improved it and then sold the improved realty to better track costs the business of mary catherine was divided amongst three separate companies in addition to mary catherine derekseth corp derekseth and deanne lynn realty co deanne lynn realty were incorporated mary catherine bought unimproved land with the intent of making it suitable for housing construction mary catherine would then sell the improved land to derekseth which in turn would construct houses for sale upon completion deanne lynn realty would act as derekseth’s agent and market the finished houses petitioner was the corporate secretary of mary catherine in this role she signed various business documents including but not limited to corporate resolutions and tax returns corporate documents were prepared by mary catherine’s attorneys or controller petitioner relied on explanations provided by mr pierce as to the content of documents instead of reading them herself before signing one such document was a corporate resolution signed by petitioner on date the resolution gave mr pierce the authority to purchase sell assign mortgage lease or convey any and all of the real or personal_property of every kind and description of said corporation on such terms as he may deem advisable and to execute all deeds mortgages releases leases or other instruments necessary to carry into effect said transactions in addition to serving as an officer and signing documents for mary catherine petitioner occasionally acted as a secretary opened mail answered phones and picked out carpet or tile for some model homes petitioner also occasionally worked as a part- time dental assistant during mary catherine owned several unimproved parcels of land including the ridge in east granby connecticut and minnechaug in glastonbury connecticut during the connecticut real_estate market experienced a severe decline resulting in significant reductions in the values of both the ridge and minnechaug because of severe declines in the value of real_estate the federal deposit insurance corporation fdic required the banks holding mortgages on the ridge and minnechaug to obtain new appraisals the new appraisals reflected lower values and the banks were required to reduce the stated values of the properties for regulatory purposes similarly mary catherine was expected to reflect the reduction in the values of real_estate on its financial statements following the advice of its accountants mary catherine reduced the value of the ridge as reflected on its date financial statements and the value of minnechaug as reflected on its date financial statements on its and forms 1120s u s income_tax return for an s_corporation mary catherine claimed corresponding net operating losses nols attributable to the reductions in value as a result of the nols claimed on mary catherine’s returns the pierces claimed flowthrough losses on their and personal federal_income_tax returns they then carried back those losses to obtain refunds of the taxes they had paid for and through respondent determined that the pierces were not entitled to the claimed losses and resulting refunds as a result respondent determined deficiencies of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure in the pierces’ income_tax for the years and respectively the pierces filed a petition with this court docket no on date alleging error with respect to respondent’s determination of income_tax deficiencies the deficiency proceeding was consolidated with another case relating to a tax_year not in issue in the current controversy following the consolidated trial we held that mary catherine was not entitled to the losses from writedowns of the values of the ridge and minnechaug the pierces were liable for the income_tax deficiencies determined by respondent and the pierces were not liable for the accuracy-related for purposes of deciding this case only a general description of these transactions is required for more detailed explanations see pierce v commissioner tcmemo_1997_411 penalties on account of their good_faith reliance on their accountants see pierce v commissioner tcmemo_1997_411 on date the court entered its decision and on date respondent assessed the deficiencies pursuant to this court’s decision on date after the petition had been filed regarding the disallowance of the losses that generated the pierces’ refunds mr pierce transferred to petitioner the title to property located pincite deanne lynn circle for dollar_figure the property was encumbered by a mortgage held by ulster savings bank with a balance of dollar_figure as of date on date after this court’s opinion and days before entry of the decision holding the pierces liable for large income_tax deficiencies mr pierce transferred business property located pincite day hill road in windsor connecticut to petitioner for no consideration the day hill road property was encumbered by a mortgage of dollar_figure held by the savings bank of manchester on date mcu financial corp mcu was incorporated as a c_corporation petitioner has been the sole shareholder and president of mcu from its inception on date ddc limited_partnership ddc was formed the general partners were derek and c david weeks each of whom held a 1-percent interest in the partnership petitioner was the only limited_partner with a 98-percent interest in the partnership the capital contributions of the general partners were dollar_figure each and petitioner’s capital_contribution was dollar_figure petitioner made her dollar_figure capital_contribution after the pierces had received substantial income_tax refunds based on the claimed losses on date seth co inc sethco was incorporated with mr pierce as its president and petitioner’s son derek pierce as its sole shareholder sethco’s place of business wa sec_5 amanda drive in manchester connecticut both petitioner’s son and mr pierce received annual salaries from sethco in exchange for assuming derek seth’s trade debt to subcontractors sethco received derek seth’s heavy equipment some office equipment and the use of derek seth’s business name on date petitioner transferred her interest in properties pincite deanne lynn circle and pincite day hill road to ddc petitioner received dollar_figure in consideration for each transfer the day hill road property was destroyed by fire on date the insurance proceeds were distributed as follows the mortgage holder was paid the balance due on the mortgage dollar_figure was paid to ddc and dollar_figure was paid to sethco for loss of contents on date sethco conveyed property pincite amanda drive manchester connecticut to ddc in exchange for a dollar_figure payment which represented the property’s fair_market_value sethco then remitted the dollar_figure to ddc as partial payment on sethco’s loan from ddc sethco continued to use this property as its place of business between and several loan transactions occurred among petitioner mcu ddc and sethco from through mcu’s yearend financial statements reflected loans from stockholder with balances ranging from dollar_figure to dollar_figure from through mcu’s yearend financial statements reflected notes receivable--ddc with balances ranging from dollar_figure to dollar_figure from through mcu’s yearend financial statements reflected notes receivable--sethco with balances ranging from dollar_figure to dollar_figure ddc’s through annual financial statements reflected notes payable to the limited_partner in the total amount of dollar_figure ddc’s and annual financial statements reflected notes receivable from sethco in the total_amounts of dollar_figure and dollar_figure respectively sethco’ sec_2001 bankruptcy petition reflected an unsecured nonpriority debt to ddc in the amount of dollar_figure in addition the bankruptcy petition reflects that sethco made a dollar_figure payment to ddc on date on date mary catherine mr pierce and petitioner filed a complaint in the connecticut superior court against their accountants alec r bobrow david s bobrow alan j nathan and ronald mamrosh the complaint alleged breach of contract and negligence relating to the accountants’ preparation of the and tax returns of mary catherine and the pierces the suit was settled on date for dollar_figure richard weinstein attorney for the plaintiffs received dollar_figure as his fee and dollar_figure was paid as costs to the arbitrator mediator in a signed agreement sethco was assigned the potential proceeds of litigation in return for paying litigation costs the net_proceeds of dollar_figure were paid to sethco pursuant to the assignment agreement opinion the primary issue we consider is whether petitioner is eligible for relief from joint_and_several_liability sec_6015 provides for spousal relief from joint_and_several_liability if the following requirements are met a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election all of the requirements must be met and failure to meet even one of the requirements is a bar to relief sec_6015 119_tc_306 respondent concedes that petitioner has satisfied the requirements of subparagraphs a b and e of sec_6015 therefore we must decide whether petitioner has met the requirements of subparagraphs c and d to wit whether petitioner when signing the return knew or had reason to know that there was a substantial_understatement and or whether taking into account all of the facts and circumstances it would be inequitable to hold petitioner liable for the understatement petitioner contends in the alternative that respondent on the basis of the holding of a prior case is collaterally estopped from denying that she did not know or have a reason to know of the understatements and or that she is entitled to relief based on the facts presented in this case we begin our consideration here with the question of collateral_estoppel i is respondent collaterally estopped a in general petitioner argues that respondent is collaterally estopped from denying that petitioner did not know or have reason to know that the claimed deductions would give rise to a substantial_understatement specifically petitioner contends that our holding in pierce i that the pierces were not liable for negligence penalties because of their reliance on the advice of their accountants return preparers is tantamount to showing that petitioner was uninformed or had no reason to know about tax matters petitioner however did not plead collateral_estoppel as an affirmative defense in her petition the defense of collateral_estoppel was raised for the first time in petitioner’s opening statement at the beginning of the trial respondent did not object at the time petitioner raised collateral_estoppel however on brief respondent argued that he is not collaterally estopped because petitioner failed to plead collateral_estoppel as an affirmative defense as required by rule respondent argues that petitioner’s failure to plead collateral_estoppel is in effect a waiver of that defense petitioner contends that the issue of collateral_estoppel is in controversy because of respondent’s implied consent in accord with rule b alternatively respondent argues that petitioner failed to meet the procedural or substantive requirements for collateral_estoppel b implied consent rule sec_34 and sec_36 provide for the initial pleadings by which most issues are placed in controversy rule b requires the pleading of concise assignments for each and every error that a petitioner may allege was committed by the commissioner that rule provides further that any issue not raised in the assignments of error shall be deemed to be conceded likewise rule generally provides that the commissioner make specific admissions or denials of a petitioner’s allegations in addition to the basic pleading requirements rule requires that a party must plead any matter constituting an avoidance or affirmative defense including collateral_estoppel see also 50_tc_963 and cases cited thereat with respect to all pleadings and amendments thereto rule b provides that an issue may be tried by implied consent if the issue was not raised in the parties’ pleadings in appropriate circumstances an issue that was not expressly pleaded but was tried by consent of the parties may be treated in all respects as if raised in the pleadings rule b 103_tc_525 affd 100_f3d_778 10th cir this court has held that implied consent can be used to satisfy the pleading requirements of rule sec_34 and sec_36 pertaining to petitions and answers we have permitted the amendment of a pleading under rule a with respect to a matter which we found was tried by consent little has been written however concerning the concept of implied consent in the context of rule b in connection with the rule requirement to plead affirmative defenses where there is a failure to plead an affirmative defense such as collateral_estoppel courts have held that the defense has been waived see eg 649_f2d_530 7th cir standish v polish roman catholic union of am 484_f2d_713 7th cir the waiver of an unpleaded affirmative defense is in some respects parallel to the requirement in rule that any issue not raised in the assignments of error be deemed conceded see eg lilley v commissioner tcmemo_1989_602 the procedural rules require the pleading of affirmative defenses to provide the opposing party notice of the plea of estoppel and a chance to argue if he can why the imposition of an estoppel would be inappropriate 402_us_313 otherwise a party raising an affirmative defense could ‘lie behind a log’ and ambush an opposing party with an unexpected defense causing unfair surprise and prejudice 808_f2d_1075 5th cir the court_of_appeals for the fifth circuit has addressed whether an affirmative defense res_judicata was tried with implied consent of the parties 10_f3d_305 5th cir the court_of_appeals held that the issue of res_judicata may be tried by implied consent in reaching its holding the court_of_appeals considered factors similar to those that this court has considered with respect to the use of implied consent in circumstances where pleading requirements for matters other than affirmative defenses were involved in arriving at its holding the court_of_appeals considered whether the parties recognized that the unpleaded issue entered the case at trial whether the evidence that supports the unpleaded issue was introduced at trial without objection and whether a finding of trial by consent prejudiced the opposing party’s opportunity to respond united_states v shanbaum supra pincite citing 681_f2d_291 5th cir 652_f2d_415 5th cir see also 64_tc_989 and cases cited thereat similarly this court in deciding whether to apply the principle of implied consent has considered whether the consent results in unfair surprise or prejudice toward the consenting party and prevents that party from presenting evidence that might have been introduced if the issue had been timely raised see krist v commissioner tcmemo_2001_140 mcgee v commissioner tcmemo_2000_308 in employing the concept of implied consent in the setting of this case there is no reason to make a distinction between allegations of error and affirmative defenses accordingly the implied consent provisions of rule b can be applied to satisfy the rule requirement to plead or allege avoidances and affirmative defenses next we consider whether the issue of collateral_estoppel was tried with respondent’s implied consent respondent became aware that petitioner was relying on collateral_estoppel when the affirmative defense was raised in petitioner’s opening statement at the beginning of the trial in his responsive opening statement respondent did not address the question of collateral_estoppel respondent objected to collateral_estoppel for the first time in his posttrial brief the question of collateral_estoppel as argued by petitioner is wholly dependent upon this court’s prior opinion concerning the identical parties and taxable_year s as we consider in the current proceeding therefore there was no need for petitioner or respondent to present additional evidence or question witnesses respondent would be estopped only if an issue resolved in our prior opinion met the requirements for collateral_estoppel accordingly respondent was not surprised or prejudiced respondent had every opportunity to fully address the merits of collateral_estoppel on brief and did so we hold that the issue of collateral_estoppel was tried with respondent’s implied consent rule b c collateral_estoppel we now consider whether respondent is collaterally estopped from asserting that petitioner had reason to know of the substantial_understatement petitioner contends that our holding in pierce i that the pierces were not negligent and they reasonably relied upon their accountant return preparer is tantamount to finding or holding that petitioner had no reason to know of the understatement for purposes of sec_6015 the doctrine_of collateral_estoppel is intended to preclude parties from litigating issues that were necessarily decided in a prior suit 119_tc_27 in 90_tc_162 affd 904_f2d_525 9th cir this court implementing the factors established by the supreme court in 440_us_147 established five conditions preliminary to the factual application of collateral_estoppel the issue in the second suit must be identical in all respects with the one decided in the first suit there must be a final judgment rendered by a court of competent jurisdiction collateral_estoppel may be invoked against parties and their privies to the prior judgment the parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation arguably petitioner has satisfied the more procedural of the five conditions in that a final judgment was rendered in pierce i the parties are identical in both cases and the controlling facts and applicable legal rules have not changed further the negligence issue which petitioner asserts is the same as that being decided in the current case was litigated and essential to the pierce i decision however petitioner does not satisfy the one substantive condition that is the core requirement for application of collateral_estoppel collateral_estoppel promotes judicial economy by preventing successive litigation of identical issues the issue in the current case is not in all respects identical with the issue decided in pierce i and therefore does not satisfy this condition for application of collateral_estoppel the issue litigated in pierce i was whether petitioner and mr pierce were liable for negligence penalties provided for in sec_6662 negligence as defined in sec_6662 includes any failure to make a reasonable attempt to comply with the code negligence also includes a lack of due care or failure to do what a reasonable and ordinarily prudent person would do in a similar situation 99_tc_202 more particularly petitioner and her husband claimed that they were not negligent because they relied upon their accountant’s advice and tax_return preparation skills the issue we consider in the current case is whether petitioner did not know or have reason to know that there was an understatement on her joint tax_return this inquiry is distinct from the negligence inquiry in pierce i and involves a different and more complex standard in pierce i we held that petitioner’s and her husband’s reliance on their accountant was reasonable and that therefore the negligence_penalty did not apply to her or her husband petitioner contends that our holding also implicitly includes a finding that petitioner had no reason to know in pierce i however we did not find as a fact or hold that petitioner did not have a reason to know of the understatement the issues in pierce i and the current case are not identical and so do not provide a basis for issue preclusion and cannot be used to assert collateral_estoppel as an affirmative defense in this case although the pierces’ reliance on their accountant was reasonable it proved to be unwarranted as evidenced by the pierces’ receipt of dollar_figure from their accountant in settlement of the pierces’ contract and negligence claims in connection with the professional advice and preparation of their income_tax returns accordingly we proceed to consider whether petitioner knew or had reason to know of the substantial_understatement ii whether petitioner knew or had reason to know of the substantial_understatement a in general in sec_6013 was repealed and sec_6015 replaced it the requirement of sec_6015 is similar to the requirement of former sec_6013 in that both provisions require a spouse who is seeking relief to establish that in signing the return he or she did not know and had no reason to know of the understatement because of the similarities analysis in opinions concerning sec_6013 is instructive for our analysis of sec_6015 see 118_tc_106 114_tc_276 b the reason to know standard to be followed in this case in deciding reason to know cases the court_of_appeals for the ninth circuit has made the distinction that in erroneous deduction cases unlike omission_of_income cases mere knowledge of a transaction underlying a deduction by itself is not enough to deny innocent spouse relief see price v commissioner sec_6015 was added by sec_3201 of the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 sec_6015 is effective with respect to any_tax liability arising after date and any_tax liability arising on or before date that is unpaid on that date f 2d 9th cir the court_of_appeals in price adopted the standard that a spouse has reason to know of a substantial_understatement if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the substantial_understatement id pincite any appeal of our decision by petitioner would normally lie with the court_of_appeals for the second circuit the court_of_appeals for the second circuit has adopted the court_of_appeals for the ninth circuit’s reason to know standard for erroneous deduction cases see 992_f2d_1256 2d cir affg tcmemo_1992_228 because the underlying tax_liability is based on erroneous deductions we apply the standard set forth in price v commissioner supra and adopted in hayman v commissioner supra pincite see 54_tc_742 affd 445_f2d_985 10th cir in omission_of_income cases courts consistently apply a standard denying innocent spouse relief to taxpayers who have reason to know of the transaction underlying the understatement_of_tax see 118_tc_106 several courts of appeals however have adopted the standard of 887_f2d_959 9th cir in erroneous deduction cases see 112_f3d_1258 5th cir affg in part and revg in part tcmemo_1995_572 74_f3d_1528 7th cir revg tcmemo_1994_241 18_f3d_1521 11th cir revg and remanding tcmemo_1991_463 930_f2d_585 8th cir revg and remanding tcmemo_1990_101 but see 94_tc_126 affd 992_f2d_1132 11th cir the following factors have been considered to decide whether a spouse seeking relief had reason to know the spouse’s level of education the involvement of the spouse in the family’s business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income standard of living and spending patterns and whether the culpable spouse was evasive and deceitful concerning the couple’s finances hayman v commissioner supra pincite under the holding in price v commissioner supra a spouse may not rely upon ignorance of the law as the basis for relief concerning that point the court_of_appeals for the ninth circuit explained that if a spouse knows virtually all of the facts pertaining to the transaction which underlies the substantial_understatement her defense in essence is premised solely on ignorance of law in such a scenario regardless of whether the spouse possesses knowledge of the tax consequences of the item at issue she is considered as a matter of law to have reason to know of the substantial_understatement and thereby is effectively precluded from establishing to the contrary citations omitted price v commissioner supra pincite in hayman v commissioner supra pincite the court_of_appeals for the second circuit elaborated on this point as follows in order to qualify for sec_6015 relief the spouse must establish that she is unaware of the circumstances that gave rise to the error on the tax_return not merely of the tax consequences flowing from those circumstances c did petitioner have reason to know of the substantial_understatement after applying the standard followed by the court_of_appeals for the second circuit and considering the relevant factors we hold that petitioner had reason to know of the substantial understatements petitioner was to some extent unsophisticated in business lacked a formal business education and had a relatively insignificant role in the business and financial affairs of mary catherine and the related entities petitioner’s lack of business acumen however was not an impediment to her knowledge and understanding of the facts pertaining to the transaction which underlies the substantial_understatement the deductions petitioner and mr pierce claimed were based on a reduction in value of real_estate holdings those reductions were reflected in financial statements for business purposes but no taxable_event ie sale_or_exchange had occurred as of the time the deductions were claimed on the federal tax returns petitioner did not need business acumen to understand all of the facts pertaining to the transaction the loss deductions the pierces claimed were relatively simple in form and effect and were not the result of some complex series of transactions the pierces were aware of the claimed real_estate losses and they may have been under the mistaken impression that the losses would result in rightful tax refunds petitioner’s mere lack of understanding of the legal or tax consequences pertaining to the claimed losses is insufficient by itself to afford petitioner relief from the resulting liability petitioner made several expenditures that were relatively unusual or lavish when compared to the pierces’ past or normal spending patterns after the receipt of the tax refunds petitioner contributed dollar_figure of capital to ddc in addition loans from shareholder balances on mcu’s yearend financial statements ranged from dollar_figure to dollar_figure during the period to ddc’s financial statements reflected a dollar_figure note payable to the limited_partner petitioner for its yearend financial statements for through petitioner contends that the contributions of capital were from her savings she also contends that the loan balances shown as due her on the books of mcu and ddc could be attributable to accumulated or accrued interest on existing loans and liability transactions other than loans we find curious however petitioner’s contention that she had enough money in personal savings to fund these transactions the only other source of petitioner’s income mentioned in the record outside her involvement with mary catherine was her position as a part-time dental assistant more significantly petitioner did not provide petitioner was the sole shareholder of mcu her personal savings records to document her alleged capability to make capital contributions and or loans in the relatively large amounts reflected in the business records finally the object of the transfer of assets to petitioner and the creation of new entities of which she was reflected as sole shareholder or 98-percent limited_partner admittedly was to shield assets from creditors of the pierces and their business entities lastly mr pierce openly discussed business matters with petitioner and he provided her with an explanation of any document he asked petitioner to sign in addition mr pierce was not found to be a culpable spouse both petitioner and mr pierce relied on their accountants to properly assess the validity of the nol deductions that were ultimately disallowed in such situations where the understatement results from a misapprehension of the income_tax laws by the preparers of the tax returns and the signatory parties both husband and wife are perceived to be innocent and there is no inequity in holding them both to joint and separate liability hayman v commissioner f 2d pincite quoting 57_tc_732 petitioner was fully aware of the facts underlying the transactions in essence her defense is premised solely on ignorance of the law consequently under the governing precedent she is considered to know or have reason to know of the substantial_understatement in that regard petitioner’s knowledge was more than cursory as the events surrounding the value writedowns unfolded mr pierce used petitioner as a sounding board and explained to her the circumstances that precipitated the writedowns he also explained the effects of the writedowns on the business the record reflects that it was mr pierce’s usual and normal practice to provide petitioner with explanations of business documents she signed including the tax returns in particular petitioner was aware that mary catherine was in a precarious financial position because of the severe declines in real_estate values at the time of signing the tax returns she also knew that the net_operating_loss deductions taken in connection with the decline in real_estate values would result in significant refunds in addition the facts surrounding the reasons for the claimed losses were fully divulged and explained on disclosure statements which were made a part of the tax returns the first page of the pierces’ and tax returns listed loss deductions of approximately dollar_figure million and dollar_figure million the disclosure statements were in narrative form and provided complete details of the circumstances surrounding the deductions including information such as a description of mary catherine’s business activity the specifics relating to the decline in real_estate values the revised appraisals of the properties and the details underlying the writedowns a taxpayer who signs a return is deemed to have constructive knowledge of its contents even if the taxpayer did not read the return see id citing schmidt v united_states cl_ct considering the relevant factors a reasonably prudent person in petitioner’s position at the time she signed the return would be expected to know that the return contained the potential for a substantial_understatement in addition because petitioner was fully aware of the facts underlying the transaction which gave rise to the substantial_understatement petitioner’s defense is based exclusively on her ignorance of the law accordingly we hold that petitioner had knowledge or reason to know of the substantial_understatement iii would it be inequitable to hold petitioner liable for the tax_liabilities although our holding that petitioner had reason to know is fatal to her claim for relief we note that it is not inequitable to deny her relief in this case whether it is inequitable to hold a spouse liable for a deficiency is to be determined by taking into account all of the underlying facts and circumstances sec_6015 two material factors most often considered are whether there has been a significant benefit to the spouse claiming relief and whether the failure to report the correct_tax liability on the joint_return results from concealment overreaching or any other wrongdoing on the part of the other spouse jonson v commissioner t c pincite citing hayman v commissioner supra pincite normal support is not considered a significant benefit hayman v commissioner supra pincite citing 93_tc_355 petitioner received significant benefits from the refunds the refunds enabled her to contribute capital and lend funds to the newly created business entities further the pierces’ failure to report the correct_tax liability did not result from any concealing overreaching or wrongful conduct on the part of mr pierce holding the pierces jointly and severally liable for the tax_deficiency is not inequitable lastly the objectives of the innocent spouse provisions would not be well served if petitioner was afforded relief in the circumstances we consider when enacting these relief provisions congress expressed concern about the possibility that taxpayers could hide behind or otherwise abuse these provisions the senate report in connection with the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_734 contained the explanation that the committee is concerned that taxpayers not be allowed to abuse these rules by transferring assets for the purpose of avoiding the payment of tax by the use of this election s rept pincite 1998_3_cb_537 because petitioner relied solely on mr pierce’s explanations she may not have completely understood the legal consequences of her signing documents creating ddc and mcu lending money between these business entities and transferring property between herself and the business entities however the ultimate object of these transactions was to shield assets from creditors which ultimately included the internal_revenue_service the granting of relief to petitioner in these circumstances would permit the pierces to shield themselves from federal tax_liabilities by using sec_6015 accordingly we hold that petitioner has not satisfied the requirements under sec_6015 or d and is not entitled to relief from joint_and_several_liability for the tax years at issue to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington d c person to contact telephone number refer reply to cc te_ge eo2 plr-113662-02 date date legend entity state state statute a state statute b medical university dear this is in reply to a letter dated date requesting a ruling that the entity is a political_subdivision of state facts the entity was created by state statute a to manage the medical university hospital and related medical facilities control and supervision of the entity is vested in a board_of directors that is identical to the board_of the medical university which is an integral part of state the board consists of fourteen members the members of the board include the governor of state one member appointed by the governor and twelve members elected by the state legislature the entity’s revenues consist of state appropriations charitable_contributions and payments for patient medical_care either directly from patients from private insurers medicare or medicaid the state legislature has appropriated funds to entity for its operating and maintenance_expenses the entity is required to submit an annual audit and an annual budget to the state statute a requires that all of the entity’s funds must be used only for public purposes plr-113662-02 the entity represents that under state statute b it is granted powers of eminent_domain subject only to the limitations that the entity may exercise the power only with respect to private lands and the land condemned must be used by the entity in the performance of its functions in the acquisition construction and operation of facilities for the medical university of state political_subdivision law and analysis the internal_revenue_code does not define the term political_subdivision sec_1_103-1 of the income_tax regulations provides that the term political_subdivision denotes any division of any state_or_local_governmental_unit that is a municipal corporation or that has been delegated the right to exercise part of the sovereign power of the unit as thus defined a political_subdivision of any state_or_local_governmental_unit may or may not for purposes of this section include special assessment districts so created such as road water sewer gas light reclamation drainage irrigation levee school harbor port improvement and similar districts and divisions of these units revrul_78_276 1978_2_cb_256 states that the term political_subdivision has been defined consistently for all federal tax purposes as denoting either a division of a state_or_local_government that is a municipal corporation or a division of such state_or_local_government that has been delegated the right to exercise sovereign power accordingly our first inquiry is whether the entity is a division of the state in determining whether an organization is a division of a state_or_local_governmental_unit important considerations are the extent the organization is controlled by the state_or_local_government unit and motivated by a wholly public purpose revrul_83_131 1983_2_cb_184 consideration of these principles as they apply to the facts in this case leads us to conclude that the entity is a division of the state the entity was created pursuant to state legislation and the entity directly reports to the state governor and the state legislature all actions of the entity are subject_to review by the state legislature the state can thus prevent changes in the organization or operation of the entity that would threaten the public purposes for which the entity was created all of the entity’s funds inure to the benefit of the state and may be used only for public purposes the state legislature appropriates funds to entity for its operating and maintenance_expenses the entity is required to submit an annual audit and an annual budget to the state control and supervision of the entity is vested in a board_of directors that consists of the board_of trustees of the medical university of state which is an integral part of state plr-113662-02 the entity’s general purpose of management regulation and operation of the medical university of state and related medical facilities is a wholly public purpose having concluded that the entity is a division of the state our next inquiry is whether the entity has been delegated the right to exercise sovereign power three generally acknowledged sovereign powers of states are the power to tax the power of eminent_domain and the police power 3_tc_131 acq c b aff’d 144_f2d_998 2d cir cert_denied 323_us_792 it is not necessary that all three of these powers be delegated in order to treat an entity as a political_subdivision for purposes of the code however possession of only an insubstantial amount of any or all of the sovereign powers is not sufficient all of the facts and circumstances must be taken into consideration including the public purposes of the entity and its control by a government revrul_77_164 1977_1_cb_20 the entity represents that under state law it is granted powers of eminent_domain subject only to the limitations that the entity may exercise the power only with respect to private lands and the land condemned must be used by the entity in the performance of its functions in the acquisition construction and operation of facilities for the medical university of state these powers of eminent_domain are commensurate with a substantial exercise of that power the entity has been delegated the right to exercise sovereign power and is also a division of the state since it is controlled by the state and is motivated by a wholly public purpose we thus conclude that the entity is a political_subdivision of the state under sec_1_103-1 sec_170 sec_170 of the code provides subject_to certain limitations a deduction for contributions or gifts to or for_the_use_of organizations described in sec_170 payment of which is made within the taxable_year sec_170 states that the term charitable_contribution includes a contribution or gift made to or for_the_use_of a state a possession_of_the_united_states a political_subdivision of a state or any possession_of_the_united_states or the district of columbia but only if the contribution is made for exclusively public purposes because the entity is a political_subdivision of state contributions or gifts to or for_the_use_of the entity are to or for_the_use_of an entity described in sec_170 of the code accordingly contributions or gifts to or for_the_use_of the entity are to or for_the_use_of state and provided they are made for exclusively public purposes are generally deductible under sec_170 to the extent otherwise allowed by sec_170 plr-113662-02 except as specifically provided otherwise no opinion is expressed on the federal tax consequences of any particular transaction this ruling is directed only to the taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with a power_of_attorney on file we are sending a copy of this letter to your representative sincerely elizabeth purcell chief exempt_organizations branch division counsel associate chief_counsel tax exempt and government entities enclosures cc


t c memo united_states tax_court kenton ridgeway fleming petitioner v commissioner of internal revenue respondent docket no 4925-12l filed date kenton ridgeway fleming pro_se christopher d bradley and peter t mccary for respondent memorandum findings_of_fact and opinion pugh judge petitioner while residing in georgia timely filed a petition seeking review of respondent’s notice_of_determination for and we granted respondent’s motion for summary_judgment as to all but the year as material issues of fact were in dispute regarding the mailing of the notice_of_deficiency for the tax_year findings_of_fact i income_tax on or about date petitioner submitted to the internal_revenue_service irs a form_1040 u s individual_income_tax_return for the taxable_year he entered zeros on the lines for wages gross_income taxable_income and tax due and claimed that he was entitled to a refund of dollar_figure the irs did not process the form_1040 but instead prepared a substitute for return pursuant to sec_6020 respondent then prepared a statutory_notice_of_deficiency dated date addressed to petitioner at his correct last_known_address in which respondent determined that petitioner is liable for an income_tax deficiency of dollar_figure and additions to tax under sec_6651 and and a of unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect at all relevant times all monetary amounts are rounded to the nearest dollar the irs considered petitioner’s form_1040 to be a frivolous attempt to file a tax_return and assessed a dollar_figure frivolous_return penalty against petitioner under sec_6702 the court sustained the collection of that penalty fleming v commissioner t c dkt no 14357-10l date dollar_figure dollar_figure and dollar_figure respectively for on the cover page of the notice_of_deficiency is u s postal service usps certified mail no the record also includes a copy of usps form_3877 certified mail list form dated date which indicates that respondent sent an item of certified mail to petitioner on that date bearing an identical certified mail no the address on the form_3877 and on the notice_of_deficiency matches petitioner’s address at that time and at present sharon jones is a supervisory irs agent in the technical services department overseeing issuance of statutory notices of deficiency in examination cases and is familiar with the irs’ procedure for issuing and mailing notices of deficiency and generating forms the irs’ normal practice is to generate a form_3877 only when mailing notices of deficiency it also is the irs’ normal practice to retain a copy of the form_3877 bearing a dated usps postmark in the records but contrary to that normal practice the form_3877 that was retained in this case does not bear a usps postmark the record does not include a copy of usps form_3811 domestic return receipt referred to as a green card by petitioner for the item but petitioner did not always pick up certified mail sent by the irs when he received a green card notification petitioner failed to file a timely petition for redetermination with the court pursuant to sec_6213 in due course respondent assessed the income_tax and additions to tax determined in the notice_of_deficiency along with statutory interest a form_4340 certificate of assessments payments and other specified matters reflects that at the time respondent entered the assessment he also issued petitioner a notice_and_demand for payment ii collection proceedings on date respondent mailed petitioner a notice_of_intent_to_levy and notice of your right to a hearing regarding his unpaid income_tax_liability and additions to tax for the taxable_year and unpaid civil penalties for the taxable years and petitioner responded to this notice by timely submitting to irs’ appeals_office a form request for collection_due_process or equivalent_hearing in which he vaguely asserted that he had not received required notices from respondent the appeals_office assigned petitioner’s case to settlement officer stephan r harding so harding on date so harding sent petitioner a letter scheduling a telephonic administrative hearing for date and inviting him to provide necessary financial information if he wanted to offer an alternative to the proposed levy eg an offer-in-compromise or an installment_agreement petitioner did not contact so harding for the scheduled telephonic conference on date so harding sent a second letter to petitioner offering a two-week extension of time for him to submit information related to the proposed levy action on date so harding received a letter from petitioner stating that he did not understand why respondent had scheduled an administrative hearing and did not intend to participate in a telephonic conference but preferred to have either a face-to-face hearing or a correspondence hearing on date the appeals_office issued petitioner a notice_of_determination sustaining the proposed levy action petitioner responded to this notice by filing a timely petition for review with the court under sec_6330 asserting that t he assessments and penalties regarding the tax years in question were unlawfully assessed in that there is no valid deficiency moreover the returns i sent were correct and true generally the irs failed to follow procedure as set forth by statute by order dated date at respondent’s request the court remanded petitioner’s case to the appeals_office for further proceedings by letter dated date so harding invited petitioner to a face-to-face hearing on date and requested that he bring with him a properly completed form 1040x amended u s individual_income_tax_return if he intended to challenge the assessment entered against him for that year despite a series of letters and voicemail messages the parties did not have a further administrative hearing and petitioner did not produce a properly completed form 1040x on date the appeals_office issued petitioner a supplemental notice_of_determination sustaining the proposed levy action opinion where the validity of the underlying tax_liability is in issue the court reviews the commissioner’s determination de novo 114_tc_176 when as here the irs prepares a substitute for return pursuant to sec_6020 the taxpayer may raise his liability in an administrative hearing if he did not receive a notice_of_deficiency or otherwise have a prior opportunity to contest the liability see sec_6330 see also 114_tc_604 but this court considers a taxpayer’s challenge to his underlying liability in a collection action case only if he properly raised that challenge at the administrative hearing 129_tc_107 see sec_301_6330-1 q a- f3 proced admin regs an issue is not properly raised at the administrative hearing if the taxpayer fails to request consideration of that issue by the settlement officer or if he requests consideration but fails to present any evidence after being given a reasonable opportunity to do so giamelli v commissioner t c pincite see mcrae v commissioner tcmemo_2015_132 at holding that the taxpayer failed to contest his underlying liability explicitly during the administrative hearing and failed to provide any evidence concerning his liability see also zook v commissioner tcmemo_2013_128 at holding that the taxpayer failed to raise her underlying liabilities properly when she failed to provide any documentation of the underlying liabilities and asserted frivolous arguments the settlement officer must verify that the requirements of any applicable law or administrative procedure have been met consider issues properly raised by the taxpayer and consider whether the proposed collection action balances the need for the efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary sec_6330 c where the validity of the underlying tax_liability is not properly at issue the court will review the settlement officer’s administrative determination on the issues above for abuse_of_discretion sego v commissioner t c pincite i mailing of the notice_of_deficiency petitioner argues that the notice_of_deficiency for was not sent to his last_known_address where as here a taxpayer identifies an irregularity in the assessment procedure the settlement officer cannot rely solely on tax transcripts to verify that a notice_of_deficiency has been sent see 131_tc_197 n w here a taxpayer alleges no notice_of_deficiency was mailed he has ‘ identified an irregularity ’ alteration in original instead the settlement officer is directed to examine underlying documents in addition to the tax transcripts such as the taxpayer’s return a copy of the notice_of_deficiency and the certified mailing list see id quoting chief_counsel notice cc-2006-19 date schlegel v commissioner tcmemo_2016_90 at marlow v commissioner tcmemo_2010_113 wl at n casey v commissioner tcmemo_2009_131 petitioner’s sole evidence that the notice_of_deficiency was not properly mailed and therefore is invalid is his testimony that he did not receive the notice_of_deficiency and his testimony that he always picked up certified mail when he received a green card notification we did not find petitioner’s testimony credible petitioner admitted that on more than one occasion he did not pick up certified mail sent by respondent contradicting his prior testimony thus at most petitioner’s testimony establishes that he may not have picked up the notice_of_deficiency but we hold that this is not sufficient to undercut the actual evidence respondent offered at trial that the notice_of_deficiency was properly mailed to petitioner’s last_known_address including the incomplete form_3877 and copy of the notice_of_deficiency each showing petitioner’s last_known_address see snodgrass v commissioner tcmemo_2016_235 at see also 94_tc_82 while the lack of a usps postmark on the form_3877 in respondent’s files means that respondent is not entitled to a presumption of mailing see snodgrass v commissioner at schlegel v commissioner at see also meyer v commissioner tcmemo_2013_ we find that the incomplete form_3877 and the notice_of_deficiency in the record along with the credible testimony of an irs supervisory agent who was familiar with the processing of notices of deficiency that forms are not created except when notices of deficiency are mailed is sufficient to overcome petitioner’s inconsistent testimony that we did not find credible weiss v commissioner 147_tc_179 appeal filed d c cir date see snodgrass v commissioner at woody v commissioner tcmemo_2016_201 at schlegel v commissioner at figler v commissioner tcmemo_2005_230 see also cataldo v commissioner t c w hether a notice was returned is not an essential part of the proof required to show that a notice has been properly mailed aff’d 499_f2d_550 2d cir ii right to challenge underlying liabilities if we accepted petitioner’s testimony that he did not receive the properly mailed notice_of_deficiency he would be entitled to challenge his underlying liabilities the administrative record shows that he was given that opportunity and did not take it petitioner’s failure to present evidence as to his correct_tax liability or to provide requested financial information amounts to a failure properly to raise the issue of his underlying liability at the administrative hearing see mcrae v commissioner at sec_301_6330-1 q a-f3 proced admin regs because petitioner failed to raise his underlying liability properly at his administrative hearing with so harding he is not entitled to do so now because his underlying liability is not properly before us we review so harding’s determination for abuse_of_discretion only see goza v commissioner t c pincite sec_301_6330-1 q a-f3 proced admin regs iii abuse_of_discretion at the administrative hearing a taxpayer is expected to provide relevant information requested by the settlement officer for consideration of the facts and issues involved in the hearing sec_301_6330-1 proced admin regs petitioner refused to participate in the scheduled telephonic administrative hearing and failed to submit the financial information and past-due returns requested by so harding petitioner was not in compliance with his federal_income_tax return filing obligations nor did he present any collection alternatives a settlement officer does not abuse his discretion when he declines to consider a collection alternative under these circumstances see huntress v commissioner tcmemo_2009_161 holding no abuse_of_discretion when the settlement officer rejects collection alternatives where the taxpayer offered none failed to provide financial information and was not current with filing and payment obligations lance v commissioner tcmemo_2009_129 holding no abuse_of_discretion petitioner did not argue in his petition pretrial memorandum or at trial that so harding abused his discretion by denying petitioner’s requests for a face- to-face hearing and to audio record the hearing in any event our review of the administrative record confirms no abuse_of_discretion here 127_tc_219 see eg zastrow v commissioner tcmemo_2010_215 moline v commissioner tcmemo_2009_110 aff’d 363_fedappx_675 10th cir when taxpayer fails to provide financial information sec_301_6330-1 q a-d8 proced admin regs once a taxpayer has been given a reasonable opportunity for a hearing but fails to avail himself of it the commissioner may proceed to make a determination based on the case file as was done here see oropeza v commissioner tcmemo_2008_94 upholding a determination based on the case file where the taxpayer refused to participate in an administrative hearing either in person or by telephone aff’d 402_fedappx_221 9th cir sec_301_6330-1 q a- d7 and q a-d8 f q a-f4 proced admin regs our review of the record reveals no abuse_of_discretion here petitioner in his pretrial memorandum argued assessment of penalties with respect to the tax_year in question have not been made according to the requirements of law and are therefore fraudulent in that no manager approval was ever made the additions to tax in the underlying notice_of_deficiency under sec_6651 and and a however are not subject_to sec_6751 see sec_6751 therefore so harding was not required to verify that the additions to tax assessed against petitioner under sec_6651 and sec_6654 were approved by a supervisor iv sec_6673 penalty finally petitioner has been warned that he appeared to be taking positions that we have deemed frivolous or groundless or intended for delay we advised him that sec_6673 authorizes the court to impose a penalty of up to dollar_figure for frivolous and groundless arguments or whenever it appears to the court that proceedings before us have been instituted or maintained by the taxpayer primarily for delay and he should have been aware of the possible consequences of his positions as we have imposed a sec_6673 penalty on him before fleming v commissioner t c dkt no 14357-10l date imposing dollar_figure penalty his tactics and positions here appear to us to be frivolous or groundless or intended for delay we therefore will impose a penalty of dollar_figure and advise petitioner that greater penalties may follow if he persists in taking frivolous and groundless positions and using court proceedings for delay conclusion on the basis of our review of the evidence offered at trial the court concludes that so harding satisfied the verification requirements of sec_6330 and he did not abuse his discretion in sustaining the notice_of_intent_to_levy any contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing an appropriate order and decision will be entered


t c no united_states tax_court david d smith petitioner v commissioner of internal revenue respondent docket nos 11109-04l 11110-04l filed date on date r issued to p separate final notices of intent to levy and notice of your right to a hearing with regard to his unpaid federal income taxes for the taxable years to and for the taxable years to p submitted to respondent timely requests for a hearing under sec_6330 i r c on date p filed a bankruptcy petition under ch of the bankruptcy code on date while p’s bankruptcy case remained open r issued to p separate notices of determination concerning collection actions for the taxable years to and the taxable years to on date p filed with the court petitions for lien or levy action challenging r’s notices r filed motions to dismiss for lack of jurisdiction on the ground the petitions were filed in violation of the automatic_stay imposed under u s c sec_362 p filed objections to r’s motions held the notices of determination underlying the petitions were issued to petitioner in violation of the automatic_stay imposed under u s c sec_362 and therefore the court lacks jurisdiction held further r’s motions to dismiss for lack of jurisdiction shall be denied and these cases shall be dismissed for lack of jurisdiction on the court’s own motions robert alan jones for petitioner alan j tomsic for respondent opinion gerber chief_judge these collection review cases are before the court on respondent’s motions to dismiss for lack of jurisdiction respondent contends that the court lacks jurisdiction on the ground the petitions for lien or levy action were filed in violation of the automatic_stay imposed under u s c sec_362 the automatic_stay as discussed in detail below we conclude that we lack jurisdiction in these cases on the alternative ground that the notices of determination underlying the petitions were issued to petitioner 1unless otherwise indicated section references are to sections of the internal_revenue_code as amended and rule references are to the tax_court rules_of_practice and procedure in violation of the automatic_stay imposed under u s c sec_362 background2 on date respondent issued to petitioner separate final notices of intent to levy and notice of your right to a hearing with regard to his unpaid federal income taxes for the taxable years to and for the taxable years to petitioner submitted to respondent timely requests for a hearing under sec_6330 on date petitioner filed a bankruptcy petition under chapter of the bankruptcy code with the u s bankruptcy court for the district of nevada by letter dated date christopher gellner mr gellner petitioner’s bankruptcy attorney informed appeals officer anthony aguiar that petitioner had filed the above- referenced bankruptcy petition and that petitioner was not in need of and desired to withdraw his request for a sec_6330 hearing on date appeals officer aguiar sent to mr gellner a form withdrawal of request for collection_due_process_hearing however by letter dated date robert alan jones mr jones petitioner’s tax attorney informed appeals officer 2the record establishes and or the parties do not dispute the following background facts aguiar that mr gellner did not have the authority to represent petitioner with regard to tax matters that mr jones was appointed as petitioner’s attorney-in-fact for the years in issue and that although petitioner did not want to withdraw his rights to a sec_6330 hearing the bankruptcy automatic_stay barred further administrative proceedings at that time on date respondent’s office of appeals issued to petitioner separate notices of determination concerning collection actions for the taxable years to and for the taxable years to the notices stated that respondent determined that it was appropriate to proceed with the proposed levies on date petitioner filed with the court petitions for lien or levy action challenging respondent’s notices at the time the petitions were filed petitioner resided in las vegas nevada on date respondent filed motions to dismiss for lack of jurisdiction on the ground the petitions were filed in violation of the automatic_stay on date petitioner filed objections to respondent’s motions petitioner maintains that the court should conclude that petitioner 3the petitions arrived at the court in an envelope bearing a timely u s postal service postmark dated date see sec_7502 properly invoked the court’s jurisdiction and stay any further proceedings pending the final disposition of petitioner’s bankruptcy case petitioner did not aver that the bankruptcy court had granted relief from the automatic_stay or that the automatic_stay otherwise was no longer in effect on the date the petitions were filed discussion it is well settled that the court’s jurisdiction in a collection review case under sec_6330 depends upon the issuance of a valid notice_of_determination and the filing of a timely petition for review see 117_tc_122 116_tc_263 see also rule b in a recent case 123_tc_326 we granted the commissioner’s motion to dismiss for lack of jurisdiction in a collection review case on the ground the petition for lien or levy action was filed with the court in violation of the automatic_stay imposed under u s c sec_362 in prevo v commissioner supra the sequence of relevant events unfolded as follows the commissioner issued to the taxpayer a notice_of_determination concerning u s c sec_362 expressly bars the commencement or continuation of a proceeding before the united_states tax_court concerning the debtor collection actions the taxpayer filed a bankruptcy petition and the taxpayer filed with the court a petition for lien or levy action in granting the commissioner’s motion to dismiss for lack of jurisdiction we noted that the taxpayer had fallen victim to a trap for the unwary in that the automatic_stay that arose by operation of law upon the filing of her bankruptcy petition barred her from subsequently filing a petition with the court moreover in the absence of a tolling provision in the collection review provisions similar to that contained in sec_6213 the taxpayer lost the opportunity to contest the commissioner’s notice_of_determination in this court the facts in the present cases are materially different from those in prevo v commissioner supra as previously described these cases developed as follows petitioner filed a bankruptcy petition the commissioner issued to petitioner notices of determination concerning collection actions and petitioner filed with the court petitions for lien or levy action 5although u s c sec_362 bars the commencement or continuation of a proceeding before the tax_court by reason of sec_6213 the period for filing a petition for redetermination of a deficiency with the tax_court under sec_6213 is suspended for the period during which the taxpayer is prohibited by reason of the automatic_stay from filing a petition in this court and for days thereafter see 86_tc_1314 and cases cited therein like the taxpayer in prevo v commissioner supra petitioner filed his petitions for lien or levy action with the court after filing his bankruptcy petition and while the automatic_stay imposed under u s c sec_362 remained in effect the fact that respondent issued the notices of determination in question after petitioner filed his bankruptcy petition presents a ground for dismissal that was not available in prevo v commissioner supra specifically the question arises whether respondent was barred by the automatic_stay from issuing the notices of determination to petitioner in the first instance if so it would follow that these cases should be dismissed on the ground that the notices of determination were void or invalid the court can sua sponte question its jurisdiction at any time 119_tc_191 115_tc_287 111_tc_273 where the application of the automatic_stay may act as an impediment to the court’s jurisdiction in a collection review proceeding it is incumbent on the court to determine the proper ground for dismissal cf eg 92_tc_729 holding that where appropriate the court will dismiss on the ground that the commissioner failed to issue a valid notice_of_deficiency rather than for lack of a timely filed petition affd without published opinion 935_f2d_1282 3d cir the pietanza principle is particularly compelling in the present cases inasmuch as the court is confronted with two alternative grounds for dismissal one of which will have the effect of denying petitioner the opportunity to obtain judicial review of respondent’s notices of determination in this court see prevo v commissioner supra before proceeding with our analysis we first review the pertinent portions of the automatic_stay provisions set forth in u s c sec_362 and the collection review procedures established under sec_6320 and sec_6330 the automatic_stay title of the united_states_code provides uniform procedures designed to promote the effective rehabilitation of the bankrupt debtor and when necessary the equitable distribution of his or her assets see h rept pincite one key to achieving these aims is the automatic_stay which generally operates to temporarily bar actions against or concerning the debtor or property of the debtor or the bankruptcy_estate see 97_tc_544 96_tc_895 the automatic_stay provisions are set forth in u s c sec_362 which provides in pertinent part a except as provided in subsection b of this section a petition filed under sec_301 sec_302 or sec_303 of this title operates as a stay applicable to all entities of-- the commencement or continuation including the issuance or employment of process of a judicial administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title or to recover a claim against the debtor that arose before the commencement of the case under this title any act to obtain possession of property of the estate or of property from the estate or to exercise control_over property of the estate any act to create perfect or enforce any lien against property of the estate any act to create perfect or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title any act to collect assess or recover a claim against the debtor that arose before the commencement of the case under this title title u s c sec_362 which establishes exceptions to the automatic_stay described above provides in pertinent part b the filing of a petition under sec_301 sec_302 or sec_303 of this title does not operate as a stay-- under subsection a of-- a an audit by a governmental_unit to determine tax_liability b the issuance to the debtor by a governmental_unit of a notice of tax_deficiency c a demand for tax returns or d the making of an assessment for any_tax and issuance of a notice_and_demand for payment of such an assessment the bankruptcy court may issue an order granting relief from the automatic_stay u s c sec_362 absent such an order the automatic_stay generally remains in effect until the earliest of the closing of the case dismissal of the case or the grant or denial of a discharge u s c sec_362 see allison v commissioner supra pincite 96_tc_10 94_tc_1 collection review procedures sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment then the secretary is authorized to collect such tax by levy upon the person’s property sec_6331 provides that at least days prior to enforcing collection by way of a levy on the person's property the secretary shall provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person sec_6330 provides in pertinent part that the secretary shall notify a person in writing of his or her right to an appeals_office hearing regarding a final notice_of_intent_to_levy by mailing such notice by certified or registered mail to such person at his or her last_known_address sec_6330 provides that the prescribed notice shall be provided not less than days before the day of the first levy with respect to the amount of the unpaid tax for the taxable_period further sec_6330 provides that the prescribed notice shall explain that the person has the right to request an appeals_office hearing during that 30-day period where the taxpayer has timely requested an appeals_office hearing and the appeals_office has issued a notice_of_determination to the taxpayer regarding a proposed levy action sec_6330 provides that the taxpayer will have days following the issuance of such notice to file a petition for review with the tax_court or federal district_court as may be appropriate see 114_tc_492 notably there is no provision analogous to sec_6213 in sec_6330 that tolls the statutory period for filing a timely petition for lien or levy action for the period during which the person is prohibited by reason of the automatic_stay from filing a petition analysis the automatic_stay under u s c sec_362 bars the commencement or continuation including the issuance or employment of process of a judicial administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title in addition u s c sec_362 bars any act to collect assess or recover a claim against the debtor that arose before the commencement of the bankruptcy case we evaluate the applicability of the automatic_stay provisions against the parties’ specific actions in these cases although the record does not include transcripts of petitioner’s account for the years in question we assume that respondent entered assessments against petitioner and issued to petitioner notices and demand for payment of such assessments when no payments were forthcoming respondent issued to petitioner notices of intent to levy and notice of your right to a hearing under sec_6330 such notices prompted petitioner to submit to respondent requests for a sec_6330 hearing several sec_6330 is effective with respect to collection actions initiated more than days after date date see internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_750 months later petitioner filed his bankruptcy petition thereafter respondent issued to petitioner the notices of determination that led petitioner to attempt to invoke the court’s jurisdiction against this backdrop we are satisfied that the issuance of the final notices of intent to levy to petitioner constituted administrative collection actions taken against petitioner before the commencement of the bankruptcy case within the meaning of u s c sec_362 consistent with the foregoing it follows that the issuance to petitioner of the notices of determination constituted the continuation of administrative collection actions against petitioner after the commencement of the bankruptcy case within the meaning of u s c sec_362 our conclusion that the levy notices and notices of determination constituted actions against petitioner as opposed to an action initiated by petitioner is bolstered by the nature and purpose of such notices we observe that if petitioner had failed to request an administrative hearing within days of the issuance of the final notices of intent to levy he would have waived his right to administrative and judicial review of the proposed collection actions under sec_6330 and respondent normally would have been free to proceed with the proposed levies see 116_tc_255 giving due regard to the public policies underlying the automatic_stay provisions we conclude that the issuance of the notices of determination to petitioner violated the automatic_stay our holding on this point is consistent with both bankruptcy caselaw and respondent’s administrative guidance see in re parker bankr bankr s d ala the irs conceded and the bankruptcy court held that the issuance of a final notice_of_intent_to_levy under sec_6330 violated the automatic_stay in re covington bankr bankr d s c the bankruptcy court held that the issuance of a final notice_of_intent_to_levy under sec_6330 violated the automatic_stay see also chief_counsel advisory date a final notice_of_intent_to_levy issued to a debtor who had filed a bankruptcy petition violated the automatic_stay and was void collection activity undertaken in violation of the automatic_stay generally is considered void and without effect see 9b am jur 2d bankruptcy sec pincite accordingly we conclude that the notices of determination issued to petitioner 7despite the express exception permitting the commissioner to issue to a taxpayer a notice_of_deficiency under u s c sec_362 there is no exception in u s c sec_362 for the issuance of a notice_of_determination under sec_6330 in addition a notice_of_determination issued pursuant to sec_6330 does not qualify as an audit a request for a tax_return or an assessment or notice_and_demand for payment within the meaning of the applicable subparagraphs of u s c sec_362 see in re covington bankr bankr d s c are void and of no effect our ruling in lundsford v commissioner 117_tc_159 notice_of_determination issued without proper hearing held to be valid for purposes of tax_court jurisdiction does not preclude that result as it is bankruptcy law which is extrinsic to the procedures specified in sec_6330 that leads to our conclusion given the invalidity of the notices of determination we shall dismiss these cases for lack of jurisdiction on the court’s own motion to reflect the foregoing orders of dismissal shall be entered denying respondent’s motions to dismiss for lack of jurisdiction and these cases shall be dismissed for lack of jurisdiction on the court’s own motion


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi br3-plr-129479-00 date date number release date index number legend company state year date shareholders dear this letter responds to a letter dated date submitted on behalf of company requesting a ruling under sec_1362 facts according to the information submitted company was incorporated in state on date it is represented that company intended to be an s_corporation since its formation company filed a form_1120s u s income_tax return for an s_corporation for year and company’s shareholders reported the information contained in the schedule k-1's shareholder’s share of income credits deductions etc on their individual income_tax returns company later discovered that its form_2553 election by a small_business_corporation had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for year under sec_1362 law and analysis sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made sec_1362 provides that 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 plr-129479-00 corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or 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 the election then the secretary may treat the election as timely made for such taxable_year conclusions after applying the law to the facts submitted and the representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of date with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 filed with the service_center except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether company otherwise qualifies to be an s_corporation for federal tax purposes the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by an appropriate penalty of perjury statement 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 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent 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 donna marie young acting branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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-121351-08 date date internal_revenue_service number release date index number --------------------------------- ---------------------------------- ---------------------- ---------------------------- legend x -------------------------------------------------- --------------------------------- date state ---------------------- ---------------- dear -------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated on date under the laws of state x represents that the shareholders of x intended that x elect to be an s_corporation effective on date but the election to be an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date 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 plr-121351-08 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 made 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 election to be treated as an s_corporation 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 and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective date along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for date 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 specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes plr-121351-08 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely dianna k miosi chief branch office of the 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 psi b1 plr-150281-07 date date legend x -------------------------------------------------- ------------------------------------------------------------ country date --------------------- -------------------- dear -------------- this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as a partnership for federal tax purposes under sec_301_7701-3 facts according to the information submitted x is an entity organized under the laws of country x was eligible to make an election to be treated as a partnership for federal tax purposes effective date however due to inadvertence form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one plr-150281-07 owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a partnership for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-150281-07 in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to your authorized representative sincerely william p o’shea william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes