internal_revenue_service number release date index number ---------------------------- ----------------------------- ------------------------------ ---------------------------------- -------------------------------- in re -------------------------------------------------- ------------------------------------------------------------ --------------------------------- - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-124745-03 date date legend taxpayer member a member b member c date date date company b company c company d a ----------------------------------- ------------------------------------------ --------------------------------------- ------------------------- ------------------ --------------------------- ----------------- ------------------------------------------------ --------------------------------------------- ----------------------------------------- ------------------- dear ------------------ taxpayer and its members member a member b and member c for rulings under sec_29 of the internal_revenue_code ruled on similar issues addressed by this letter taxpayer seeks a confirmation of the rulings in light of the relocation of taxpayer s three synthetic_fuel facilities facilities the purchase of an interest in taxpayer by member c and the election of member a to be classified as an association_taxable_as_a_corporation as described in the ruling_request from taxpayer’s authorized representative on date taxpayer received plr private_letter_ruling which this letter responds to your date request submitted on behalf of each of the facilities has been relocated to the sites identified in the ruling one of the facilities consists of two pellet mills which are fed by its associated taxpayer is a delaware limited_liability_company classified as a partnership for federal_income_tax purposes on date company b and company c contributed the facilities to taxpayer in exchange for interests therein on the same date company b and company c contributed their interests in taxpayer to member b in exchange for interests therein in addition member a contributed cash to taxpayer in exchange for an interest therein since date taxpayer has owned and operated the facilities for producing a solid synthetic_fuel from coal product using the process described below mixing equipment the other two facilities consists of two production lines each of which consists of a pellet mill which is fed by its associated mixing equipment and each of which is capable of being operated independently because each production line is capable of being operated independently and can independently produce synthetic_fuel each independent production line may be treated as a separate facility request in connection with the relocations of the facilities most major components of each facility directly necessary to produce a synthetic_fuel were relocated with each facility taxpayer has represented that following the relocations the fair_market_value of the original property included in each facility is more than twenty percent of each facility s total value the cost of the new equipment included in the facility plus the value of the original property d pursuant to which such companies have agreed to sell coal feedstock to taxpayer necessary to satisfy its requirements to produce synthetic_fuel taxpayer has represented that all sales of synthetic_fuel will be to unrelated persons facilities and the chemical reagents used in the process for the production of product as described the facilities and the process implemented in the facilities including the chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 the coal used at the facilities and the product produced at the facilities and have submitted reports concluding that significant chemical changes take place with the application of the process to the coal pursuant to a purchase agreement together with member a member b and member c have made and are expected to continue to make periodic capital contributions to enable taxpayer to pay its operating costs and other obligations the operating taxpayer has entered into contracts with company b company c and company recognized experts in coal combustion chemistry performed numerous tests on taxpayer has supplied a detailed description of the process employed at the on date member c purchased an interest in taxpayer from member b effective on date member a elected under ' of the treasury the rulings issued in the private_letter_ruling which you wish to be reconfirmed agreement for taxpayer sets forth each member's percentage interest in gross_income from the sale of synthetic_fuel from time to time the operating_agreement establishes a ceiling on the amount of capital contributions that member c is required to make to the taxpayer in addition during periods where overall sales of qualified_fuel from all facilities fall between a percent of then maximum anticipated sales member b may pay to member c under the purchase and sale agreement an amount equal to all or a portion of member c s capital_contribution to the taxpayer neither the ceiling on capital contributions nor any such low production_payment will affect the percentage interests of the members regulation to be classified as an association_taxable_as_a_corporation for federal tax purposes in this private_letter_ruling are as follows taxpayer with the use of the enumerated process will produce a aqualified fuel within the meaning of sec_29 and the production of the qualified_fuel from the facilities will be attributable solely to taxpayer within the meaning of sec_29 entitling taxpayer to the sec_29 credit for the production of the qualified_fuel from the facilities that is sold to an unrelated_person meaning of sec_29 relocation of a facility after date or replacement of parts of a facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of facility s total fair_market_value at the time of the relocation or replacement members of taxpayer in accordance with the members interest in taxpayer when the credit arises for the sec_29 credit a member s interest in taxpayer is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel and the relocation of independent production lines of a facility that were placed_in_service prior to date within the meaning of sec_29 to new locations after date will not result in a new placed_in_service_date for facility for purposes of sec_29 provided the essential components of the independent production lines are retained and the production output at the new location is not significantly increased at the new locations if the facilities were aplaced in service prior to date within the the sec_29 credit attributable to taxpayer may be allocated to the to qualify for the sec_29 credit a facility must be placed_in_service before july the changes in facts since the issuance of the private_letter_ruling are the relocation of the three facilities the purchase of an interest in taxpayer by member c and the election of member a to be classified as an association_taxable_as_a_corporation the above rulings are not affected by these changed facts pursuant to a binding written contract in effect before date while sec_29 does not define aplaced in service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit property is aplaced in service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically assigned function treasury regulation a - e i and d ii aplaced in service has consistently been construed as having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 including one of multiple facilities located at the same site may be relocated without affecting the availability of the credit if all essential components of the facility are retained and the production capacity of the relocated facility is not significantly increased at the new location revproc_2001_30 2001_19_irb_1163 provides that aa facility revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than twenty percent of the facility’s total value the cost of the new property included in the facility plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 the relocation of the facilities to different locations after date or replacement of parts of the facilities after that date will not result in a new placed_in_service_date for each facility for purposes of sec_29 provided the fair_market_value of the property used at the original facility is more than twenty percent of each facility’s total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the property used at the original facility revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy emphasis added the present situation is similar to revproc_94_31 thus for purposes of determining a facility’s total fair_market_value at the time of relocation or replacement a facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the pellet mills or other forming equipment including output hoppers if any hence each facility’s total fair_market_value includes the process equipment such as pugmills or mixers the pellet mills or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above- referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction a facility’s total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork or paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 and other administrative assets sampling and quality control are necessary for operational control of a production facility however a particular type of sampling equipment generally is not necessary for the production of qualified_fuel thus the costs of sampling equipment are excluded from the facility’s total fair_market_value unless the particular sampling equipment is necessary for operational control of the facility we conclude as follows taxpayer with the use of the enumerated process will produce a aqualified fuel within the meaning of sec_29 and the production of the qualified_fuel from the facilities will be attributable solely to taxpayer within the meaning of sec_29 entitling taxpayer to the sec_29 credit for the production of the qualified_fuel from the facilities that is sold to an unrelated_person accordingly based on the information submitted and the representations made if the facilities were aplaced in service prior to date within the meaning of sec_29 relocation of a facility after date or replacement of parts of a facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of facility s total fair_market_value at the time of the relocation or replacement the sec_29 credit attributable to taxpayer may be allocated to the members of taxpayer in accordance with the members interest in taxpayer when the credit arises for the sec_29 credit a member s interest in taxpayer is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel the relocation of independent production lines of a facility that were aplaced in service prior to date within the meaning of sec_29 to new locations after date will not result in a new placed_in_service_date for such facility for purposes of sec_29 provided the essential components of the independent production lines are retained and the production output at the new locations is not significantly increased at the new locations and a termination of taxpayer under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on production and sale of synthetic_fuel to unrelated persons requirements that taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility or facilities that are the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facility or facilities to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see section dollar_figure of revproc_2003_1 2003_1_irb_1 except as specifically ruled upon above we express no opinion concerning the the conclusions drawn and rulings given in this letter are subject_to the sincerely in accordance with the power_of_attorney on file with this office a copy of this however when the criteria of section dollar_figure of revproc_2003_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances letter is being sent to taxpayer and to a second authorized representative cc -------------------------------------------- -------------------------------------- ----------------------------------------- -------------------------- -------------------------------------------------------------------- ------------------------------------------- ---------------------------------------- s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs and special industries ------------------------


number release date id office uilc cca_2009022310093437 -------------- from ------------------- sent monday date am to -------------------- cc ------------------------------------ subject re circular linkage rar i forwarded them to ----- for substantive comment jurisdictionally our primary position should be that the fpaa to the partnership entity that indirectly owns an interest in itself should be sufficient to deal with the issue specifically the fpaa would disregard any income or losses that originate from the entity being included again when it flows to a tier partner and then back to the originating partnership through its small interest in the tier-partner the excluded income or loss that is initially allocated back to the source tefra partnership should instead be reallocated to the remaining members of the tier-partners in accordance with their proportionate profit loss interest we should not have to initiate a second tefra proceeding for the tier-partner since we should be able to treat the reallocation as a purely computational issue resulting from the source tefra partnership proceeding


t c memo united_states tax_court jeffrey k ramsdell petitioner v commissioner of internal revenue respondent docket no 1694-03l filed date jeffrey k ramsdell pro_se paul r zamolo for respondent memorandum opinion kroupa judge this matter is before the court on respondent’s motion for summary_judgment under rule petitioner filed the petition in this case in response to a notice_of_determination concerning collection action s under unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure sec_6330 notice_of_determination the substantive issue to be decided is whether petitioner’s and tax_liabilities were discharged in bankruptcy for the reasons stated below we grant respondent’s motion background the record shows and or the parties do not dispute the following petitioner failed to file timely federal_income_tax returns for and he filed the returns for both years on date on date days before filing the and returns petitioner filed for chapter bankruptcy in the u s bankruptcy court for the northern district of california in his schedule e creditors holding unsecured priority claims petitioner listed his liability to respondent as dollar_figure plus penalties and interest for the taxable years and on date the bankruptcy court issued an order stating that petitioner is are granted a discharge under section of title united_states_code the bankruptcy code at the time he filed the petition petitioner resided in sausalito california all dollar amounts have been rounded to the nearest dollar the taxable_year is not at issue here respondent assessed petitioner’s tax_liabilities for and on november and date respectively the assessments amounted to dollar_figure for and dollar_figure for on date respondent sent petitioner notices of intent to levy for and on date petitioner sent respondent form request for a collection_due_process_hearing in which he contested the collection proceedings with respect to the years at issue and requested a sec_6330 hearing hearing in his statement of reasons for disputing respondent’s actions petitioner asserted that his liabilities were discharged in the bankruptcy proceedings and that t he service has for over years constructive notice of my situation on date respondent held a telephonic hearing with petitioner on date respondent sent petitioner a notice_of_determination stating there was no record that petitioner’s liabilities were discharged in bankruptcy and indicating respondent’s intent to proceed with the levy with respect to the years at issue petitioner filed his amended petition contesting the notice_of_determination with this court on date in the the notice_of_determination stated in the section captioned issues raised by the taxpayer that y ou contend that the liabilities at issue were discharged in bankruptcy but there is no record of that petition petitioner contended that his liabilities for and were discharged in the bankruptcy proceedings on date respondent filed a motion for summary_judgment arguing that petitioner’s tax obligations for and were precluded from discharge under the bankruptcy code discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see eg 116_tc_73 a motion for summary_judgment will be granted if the pleadings answers to interrogatories depositions admissions and other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law see rule b 118_tc_226 while the moving party has the burden of proving that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law see eg 119_tc_157 the opposing party must show specific facts exhibiting a genuine issue for trial see 477_us_317 where the validity of the underlying liability is not at issue the court will review the administrative determination for abuse_of_discretion see 114_tc_604 114_tc_176 in this case respondent’s determination regarding whether petitioner’s unpaid liabilities were discharged in bankruptcy requires the interpretation of bankruptcy law if respondent’s determination was based on erroneous views of the law and petitioner’s unpaid liabilities were discharged in bankruptcy then we must reject respondent’s view and find that there was an abuse_of_discretion see eg 496_us_384 121_tc_111 respondent argues that petitioner’s tax_liabilities were not discharged in the bankruptcy proceedings because they are precluded from discharge under section a b ii of the bankruptcy code petitioner on the other hand contends that the liabilities were discharged as a preliminary matter we note that we have jurisdiction to decide whether a tax_liability for which collection is at issue in a sec_6330 proceeding has been discharged in bankruptcy see swanson v commissioner supra 120_tc_114 section a of the bankruptcy code excludes from a sec a of the bankruptcy code u s c sec a provides in pertinent part as follows sec exceptions to discharge continued discharge under section of the bankruptcy code tax_liabilities with respect to which a return was not filed or a return was filed after its allowed due_date and after the commencement of the 2-year period immediately preceding the filing_date of a bankruptcy petition respondent argues that because petitioner filed his federal tax returns on date which is both after their original due dates and after date the commencement of the years prior to the filing of the bankruptcy petition the discharge of these liabilities is disallowed by section a of the bankruptcy code in his petition petitioner does not dispute that the filing of an overdue return after the commencement of the 2-year period would preclude discharge of his tax_liabilities rather petitioner argues that respondent was aware of his tax continued a a discharge under section of this title does not discharge an individual debtor from any debt-- for a tax or a customs duty-- b with respect to which a return if required-- i was not filed or ii was filed after the date on which such return was last due under applicable law or under any extension and after two years before the date of the filing of the petition liabilities for the years in question and assessed them prior to specifically petitioner seems to claim that respondent had filed substitute-for-returns sfrs on behalf of petitioner for the years and long before the commencement of the 2-year period preceding the filing of the bankruptcy petition the dates on which those sfrs were made according to petitioner are the relevant reference dates in the determination of when the returns were filed for purposes of section of the bankruptcy code to avoid the application of section a b ii of the bankruptcy code a taxpayer must file a return prior to the commencement of the 2-year period preceding the filing of the bankruptcy petition see u s c sec a b ii we have recently held that sfrs do not constitute returns for purposes of section a b of the bankruptcy code unless signed by the taxpayer see swanson v commissioner supra pincite in his motion for summary_judgment respondent fails to respond to petitioner’s argument it appears that respondent is convinced that we may not review these issues since he argues they were not raised in the sec_6330 hearing see eg 118_tc_488 contrary to respondent’s contention however it appears that petitioner did raise the issue of prior notice in the request for a collection_due_process_hearing accordingly we find that this matter is properly before us petitioner states in his amended petition that the irs had in fact knowledge and assessment data for the and tax years as evidenced by a subsequent tax_year ‘notice of levy ’ dated emphasis omitted there is no support in the record for petitioner’s allegations that sfrs were ever filed nor is there support for his allegation that assessments were made for and prior to in any event even if we were to believe petitioner’s contentions that such sfrs were filed petitioner has not alleged nor offered any evidence showing that he ever signed sfrs for the years in question accordingly petitioner has raised no genuine issue of material fact and therefore this case is ripe for summary_judgment 9petitioner’s claim that respondent had assessed his and liabilities prior to seems to be based in its entirety on a form 668-w c notice_of_levy on wages salary and other income notice_of_levy for the tax period ending date that respondent issued petitioner on date the notice_of_levy clearly indicates however that the unpaid tax_liabilities levied upon are those solely attributable to as such the notice_of_levy does not pertain to or and thus does not provide any basis for petitioner’s contention that his tax_liabilities for those years were assessed prior to further the forms certificate of assessments payments and other specified matters submitted by respondent with his motion for summary_judgment reflect that no assessment for and had been made prior to and do not indicate that any collection proceedings have been previously instituted for those years form_4340 identifies relevant assessments payments and other specified matters that appear in the official record of the irs with respect to a taxpayer for purposes of summary_judgment a form_4340 is presumptive proof of the validity of the information contained therein absent contrary evidence see overton v united_states ustc par big_number aftr 2d w d okla affd 48_fedappx_295 10th cir see also 953_f2d_531 9th cir stating that forms are probative evidence in and of themselves and in the absence of contrary evidence are sufficient to establish that notices and assessments were properly made we conclude that because petitioner’s late filings of the and federal tax returns took place after the commencement of the 2-year period preceding the filing of the bankruptcy petition petitioner’s tax_liabilities for those years were not discharged in the bankruptcy proceedings see u s c sec a b ii dollar_figure accordingly the appeals officer correctly determined that respondent could proceed with collection we shall therefore grant respondent’s motion for summary_judgment to reflect the foregoing an appropriate order and decision will be entered none of the cases we have found dealing with u s c sec a b ii has addressed a situation where the return was filed late and after the bankruptcy petition date the plain language of the section however as well as its legislative_history support that sec a b ii is not limited to late returns filed within the 2-year period preceding the petition but also includes late returns filed after the petition date see s rept pincite the late return rule applies to late returns filed after the petition in title was filed


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b02 djtaylor preno-158911-04 uilc date february to constantina crusade appraiser large mid-size business field specialists engineering territory - new haven team - king of prussia joseph a roussos general engineer large mid size business field specialists engineering territory - ft lauderdale team - baileys crossroads from blaise g dusenberry special counsel administrative provisions judicial practice procedure administration subject sec_6701 appraisers this memorandum responds to your request for information concerning the imposition of a penalty under sec_6701 of the internal_revenue_code against appraisers specifically you requested general information regarding the elements of a sec_6701 penalty the administrative procedures for identifying and asserting a sec_6701 penalty the service’s authority to impose an injunction under sec_7408 the procedures challenging a sec_6701 penalty the availability of appeals review of a sec_6701 penalty and the application of circular_230 to appraisers with respect to sec_6701 penalties our responses are set forth below preno-158911-04 background your office is developing guidance to assist internal revenue agents in determining whether to impose a sec_6701 penalty on appraisers whose appraisals result in taxpayers’ understatements of income_tax for purposes of your guidance you define an appraiser as anyone who values or purports to value tangible or intangible_property of any kind to assist in developing this guidance you have requested information regarding the operation of sec_6701 specifically you seek guidance concerning the criteria that service personnel should consider to determine whether to assess a sec_6701 penalty the administrative procedures to impose a sec_6701 penalty and the rights of a person who has been the subject of a sec_6701 penalty assessment discussion a elements of sec_6701 sec_6701 imposes a penalty on any person who aids or assists in procures or advises with respect to the preparation or presentation of any portion of a return affidavit claim or other document who knows or has reason to believe that such portion will be used in connection with any material matter arising under the internal revenue laws and who knows that such portion if so used would result in an understatement of the liability for tax of another person the penalty applies with respect to each such document and is in the amount of dollar_figure if the document relates to the tax_liability of a corporation and dollar_figure if the document relates to the tax_liability of any other person sec_6701 the service may assess only one penalty under sec_6701 per document for a taxpayer for a taxable_period or event there are no temporary proposed or final regulations issued for sec_6701 the first element of sec_6701 requires assistance in return or document preparation although most cases arising under sec_6701 involve penalties imposed on income return preparers congress intended the penalty to apply in numerous situations the senate_finance_committee report senate report refers to a similar criminal_penalty that has been interpreted to apply to a variety of cases s rep no pincite reprinted in u s c c a n specifically the senate report refers to 472_fsupp_440 n d ill cert_denied 445_us_989 in which the defendants who were neither taxpayers nor tax preparers were charged with supplying documents to a taxpayer that they knew contained materially false matters in siegel the defendants were floor brokers in a foreign exchange f_supp pincite the court held that the defendants’ claim that the case was unique because neither the taxpayer nor the tax preparer had been charged or knew of the false statements was simply a distinction without difference id preno-158911-04 the legislative_history of the deficit_reduction_act_of_1984 p l indicates that congress specifically authorized the service to assess sec_6701 penalties for appraisers that engage in conduct that violates sec_6701 see house report no ii date the service has issued guidance indicating that an appraiser may be assed a penalty under sec_6701 sec_1_170a-13 provides that an appraiser’s intentionally false or fraudulent overstatement of the value of the property described in the qualified_appraisal or appraisal_summary may subject the appraiser to a civil penalty under sec_6701 for aiding_and_abetting an understatement_of_tax liability the second element of sec_6701 requires that a person know or have reason to believe that the document will be used in any material matter although material has not been defined under sec_6701 it has been defined under a comparable criminal_penalty sec_7206 see 924_f2d_785 8th cir observing that i n connection with it appears that congress specifically intended to create a provision to penalize aiding_and_abetting conduct similar to that conduct punished under in general any false statements relating to gross_income irrespective of the amount constitute a material misstatement in violation of sec_7206 122_frd_131 w d n y as a result any failure to report income is material see 804_f2d_116 8th cir finding that omission of any information to complete gross_income is material see also 880_f2d_1091 9th cir the third element of sec_6701 requires that a person know that if so used the document will result in an understatement of the tax_liability of another person sec_6701 applies regardless of whether the taxpayer whose tax is understated has knowledge of or consents to the actions which resulted in the understatement sec_6701 in 703_fsupp_1505 n d fla motion denied 707_fsupp_1296 n d fla the service assessed a sec_6701 penalty against an accountant who was an income_tax_return_preparer the issue was whether the preparer knew that his action would result in an understatement_of_tax liability for his client the court noted that to impose a penalty under sec_6701 the burden is on the government to prove that the preparer had knowledge that his conduct would result in an understatement_of_tax liability id pincite the court concluded that actual knowledge is necessary to prove a violation under sec_6701 id pincite see also 924_f2d_785 8th cir w e believe actual knowledge as opposed to the less stringent willful_blindness is required to the extent that courts have examined the issue of the level of proof with respect the sec_6701 penalty courts are divided courts in the first circuit second circuit eighth circuit and ninth circuit have held that the service must prove that the taxpayer is liable for the sec_6701 penalty with a preponderance of evidence see 797_fsupp_122 d r i 67_f3d_469 2nd cir 924_f2d_785 8th cir in re 109_br_434 bankr w d wash rev’d on other grounds 977_f2d_1318 9th cir 269_fsupp2d_1262 d nev one court in the eleventh circuit has concluded that the service must present clear_and_convincing proof see 700_fsupp_532 s d fla courts from the dc circuit third circuit fourth circuit fifth circuit sixth circuit seventh circuit and tenth circuit have not addressed this issue to summarize the service would be required to show by a preponderance_of_the_evidence that an appraiser helped prepare or present a document that led to an understatement_of_tax by a taxpayer for an appraiser to be held liable for a sec_6701 penalty the service would also need to demonstrate that the appraiser had actual knowledge that the taxpayer would rely on the document that would lead to an understatement particular cases should be considered individually until the application of sec_6701 in this context is more established agents should consult local counsel offices for assistance b proof of the actual knowledge requirement of sec_6701 the actual knowledge element of sec_6701 requires that the person against whom the penalty is imposed assist in the creation of a tax document know the use of the tax document and know such document will understate another's tax_liability mattingly supra pincite as the existence of actual knowledge is a question of fact and no bright line rule defines this requirement it is helpful to review cases in which courts analyzed the actual knowledge requirement set out below is a summary of relevant cases in which the actual knowledge requirement of sec_6701 was at issue united_states v fisher wl n d tex the court ruled that for purposes of the sec_6701 penalty when the promoter of an abusive tax scheme assures customers that the purported tax benefits are available despite consistent rejection of similar schemes by the courts the promoter has actual knowledge that his statements will result in an understatement gard v united_states wl n d ga the service imposed sec_6701 penalties on a lawyer based on allegations that the lawyer played a part in the development of an abusive_tax_shelter program the opinion does not provide the specific facts of the case however the opinion notes that the government essentially argued that the lawyer should have known better the court concluded the following at best the government’s evidence suggests that the lawyer should have known that the document at issue would result in an understatement of the liability for the tax of another however what the lawyer should have known is not the appropriate test under sec_6701 the lawyer must possess actual knowledge that an understatement of the tax_liability of another will result before the statutory penalty applies to him 797_fsupp_122 d r i a certified_public_accountant cpa sought refund of sec_6701 penalty assessed by the preno-158911-04 service for allegedly preparing tax returns which knowingly understated tax_liability the service argued that pre-filing notification letters pfn letters were sent to each of the cpa’s client involved stating that losses generated by particular tax_shelters would not be allowable deductions the service further asserted that the cpa claimed the deductions even though his clients had shown him the pfn letter the court ruled that the service did not clearly establish that the cpa had a copy of the pfn letters sent to the two clients whose taxes were prepared in the court noted that even assuming that the service established the cpa's knowledge of the pfn letter the service still did not show that cpa knew that the deductions were not allowed because language of the pfn letters stated that the deductions may be disallowed 924_f2d_785 8th cir a tax preparer sold master recording audiotape and videotape tax_shelters to his clients in a typical transaction an investor leased a tape or tapes from a corporate or partnership lessor and the lessor passed through investment_tax_credit pursuant to a sec_38 election usually in an amount greater than the total lease payments the service determined the tapes in question were greatly overvalued and imposed sec_6701 penalties on the tax preparer the court held that the trial court’s willful_blindness jury instruction regarding the sec_6701 penalty was at worst harmless error the court concluded that while the jury instructions were imperfect in that they could more clearly emphasize the importance of finding specific intent the instructions do not authorize the substitution of willful_blindness for the element of knowledge furthermore the court found that even if the jury was mistaken about the role of willful_blindness the record indicates that the jury was presented with sufficient evidence of actual knowledge to find the tax preparer liable thus making any error harmless this evidence includes the numerous written telephonic and in-person contacts between the preparer and the service which the preparer should have alerted and informed of problems with the tape valuations and tax_credits in the year prior to which the preparer was held liable for the penalty eg the service communicating to the preparer that tapes were not correctly valued and no probative evidence of the tax preparer to have met business and profit_motive requirements in re 109_br_434 bankr w d wash rev’d on other grounds 977_f2d_1318 9th cir the court found that a tax preparer had actual knowledge that two hydroelectric generating plants had not been placed_in_service so as to qualify for tax_credit claimed in tax returns the evidence that the tax preparer knew that the plants were either incomplete or produced insufficient energy to power a hairdryer met the government’s burden 703_fsupp_1505 n d fla the court granted a tax preparer’s motion for attorney's_fees because the service brought action against the tax preparer and had no evidence that the tax preparer had the knowledge required by sec_6701 the service contended that the tax preno-158911-04 preparer failed to investigate the results of the audit for the returns of prior years of the preparer’s clients to determine whether the clients were eligible for income_averaging for the year at issue the court held that the service’s argument failed to meet the requirement of showing that tax preparer knew that his method of preparing the return would result in an underpayment for his clients administrative procedures for identification and assertion of a sec_6701 penalty you inquired about the administrative procedures for asserting penalties the internal_revenue_manual provides guidance regarding the identification and assertion of a sec_6701 penalty as the government has the burden_of_proof with respect to the sec_6701 penalty it can be assessed only by employees who have the requisite knowledge of the facts giving rise to the penalty irm therefore the sec_6701 penalty normally will be assessed by revenue agents and office auditors at a service area office as a result of an examination of a tax_return or document or in connection with a tax_shelter_registration examination id irm provides that persons subject_to penalty under sec_6701 will usually be identified by examiners through the examination process or by service_center correspondence examinations in which a pattern or suspected pattern was evident if a penalty under sec_6701 might be appropriate the examiner should provide relevant information to the area coordinator to determine if a project is warranted when the area coordinator reviews a tax plan or arrangement which if used by a taxpayer could result in the understatement_of_tax liability a sec_6701 lead is established there are two types of investigations a a limited investigation involving a small number of tax returns committee approval not required or b an extensive investigation involving a large number of tax returns under irm a number of factors eg education level expertise in accounting work experience the assistance or advice upon which the penalty is based and how the advice or assistance affected the taxpayer's liability are weighed in connection to an investigation in sec_6701 cases note that there is no statute_of_limitations on a sec_6701 assessment because the penalty does not depend on the filing of a return irm injunctions under sec_7408 you inquired about the service’s injunction authority in cases involving appraisers sec_7408 authorizes the service to bring a civil_action in the name of the united_states to enjoin a person from engaging in specified prohibited_conduct including preno-158911-04 conduct subject_to the penalty under sec_6701 accordingly as a technical matter in a proper case an injunction could be sought against an appraiser to obtain an injunction under sec_7402 the government must show that a person engaged in conduct subject_to penalty under sec_6701 and that injunctive relief is appropriate to prevent the recurrence of such conduct when addressing likelihood of recurrence courts have looked to the following factors the gravity of the harm caused by the offense the extent of the taxpayer's participation and his degree of scienter the isolated or recurrent nature of the infraction and the likelihood that the taxpayer's customary business activities might again involve him in such transactions the taxpayer's recognition of his own culpability and the sincerity of his assurances against future violations 228_f3d_804 7th cir cert_denied 533_us_902 121_sct_2242 150_led_230 827_f2d_1144 7th cir the government does not need to satisfy the traditional requirements for equitable relief because sec_7408 expressly authorizes the issuance of an injunction 697_f2d_860 9th cir cert_denied 464_us_846 761_f2d_1056 5th cir taxpayer challenges to a sec_6701 penalty you inquired about the procedures a taxpayer must follow to challenge a sec_6701 penalty assessment a taxpayer including an appraiser who is assessed a penalty under sec_6701 has several procedural avenues to challenge the penalty first under sec_6703 the appraiser could pay percent of the entire assessed amount of the sec_6701 penalty second the appraiser could follow the general refund procedures of sec_7422 to challenge the imposition of the sec_6701 penalty as courts have held the sec_6701 penalty is divisible the appraiser may pay the entire amount of one dollar_figure penalty assessed to file a claim_for_refund on all of the sec_6701 penalties imposed finally the appraiser could treat the sec_6701 penalty as a divisible_tax for purposes of the sec_6703 procedures thus the appraiser could pay percent of one sec_6701 penalty assessed in order to challenge all of the related sec_6701 penalties assessed a sec_6703 procedures the penalty under sec_6701 is subject_to the special administrative provisions of sec_6703 under sec_6703 if within days after the day on which the notice_and_demand of any penalty under sec_6701 is made a taxpayer may pay percent section of the american_jobs_creation_act_of_2004 pl effective date amended sec_7408 to expand upon the specified_conduct for which a court may issue an injunction even before the amendment of sec_7408 by the american_jobs_creation_act_of_2004 sec_7408 authorized the service to bring an action to enjoin conduct subject_to the sec_6701 penalty preno-158911-04 of the penalty imposed pursuant to and the taxpayer would be entitled to administrative and judicial review if a taxpayer initiates a suit pursuant to the provisions of sec_6703 the service is prohibited from collecting the penalties imposed under sec_6701 until there has been a final resolution of a suit brought to determine the liability of a taxpayer see sec_6703 for example assuming an appraiser is assessed three dollar_figure penalties under sec_6701 the appraiser could pay dollar_figure dollar_figure total penalty multiplied by percent and file a claim_for_refund under the sec_6703 procedures the advantage to the appraiser of paying percent of the entire sec_6701 penalty under sec_6703 is that the service is barred from collecting the penalties imposed under sec_6701 until there has been a final resolution of the sec_6703 proceeding b sec_7422 procedures sec_6703 is not the only statutory basis for bringing a refund action with respect to sec_6701 penalties while sec_6703 creates procedures only available to individuals assessed penalties under sec_6701 it does not preclude the same taxpayers from bringing their refund actions under sec_7422 in re nelson 143_br_93 n d tex the court in nelson noted that congress specifically included actions contesting sec_6701 understatement penalties in sec_7422 id sec_7422 provides a general statutory basis for and procedures applicable to civil actions for refund sec_7422 states no suit or proceeding shall be maintained in any court for the recovery_of any internal revenue tax alleged to have been erroneously or illegally assessed or collected or of any penalty claimed to have been collected without authority or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim_for_refund_or_credit has been duly filed with the secretary to meet the jurisdictional requirements of a refund_suit pursuant to sec_7422 a taxpayer must make full payment of assessed taxes due before the matter may be adjudicated see 362_us_145 in general the partial payment of assessed taxes or a proposed deficiency is insufficient to support district_court jurisdiction of a refund_suit id a limited exception to the full_payment_rule of flora has developed with respect to divisible_tax assessments a divisible_tax is one that may be divided into separate portions or transactions and only a portion of the tax must be paid before a claim is filed see 280_f2d_89 8th cir the taxpayer may then file a claim_for_refund of the amount_paid and for abatement of the balance of the assessment id preno-158911-04 in steele the court held that a taxpayer assessed a penalty under sec_6672 need only pay the divisible amount of the penalty assessment attributable to a single employee's withholding before instituting a refund action id the taxpayer therefore may pay the withholding_tax of one employee for one taxable_period in order to meet the jurisdictional requirement of sec_6532 566_f2d_50 5th cir this relaxed requirement known as the partial payment rule is based on the theory that sec_6672 assessments represent a cumulation of separable assessments for each employee from whom taxes were withheld id the partial payment rule has been applied to other assessments of divisible taxes including employment and social_security_taxes see 548_f2d_295 10th cir in 891_f2d_480 3d cir the court treated sec_6701 penalties as divisible id pincite see also 689_fsupp_1248 e d n y denying the service’s motion for sanctions when the taxpayer obtained jurisdiction in a refund action by paying just dollar_figure for each assessment of multiple dollar_figure sec_6701 penalties as the penalty is treated like a divisible_tax the taxpayer is only required to pay the amount of one penalty assessed to provide a court with jurisdiction for example assuming an appraiser is assessed three dollar_figure penalties under sec_6701 the appraiser could pay one dollar_figure penalty to challenge the total sec_6701 penalty of dollar_figure unlike sec_6703 the sec_7422 procedures do not prohibit the service from continuing to collect the assessed penalty c divisible_tax for purposes of sec_6703 procedures although the partial payment rule generally applies only in refund actions under sec_7422 that involve divisible taxes some authority suggests that a taxpayer may pay only a portion of a sec_6701 penalty to be entitled to bring an action under sec_6703 cases indicate that the service pursuant to penalty policy statement p-5-16 has permitted taxpayers to make partial payment of a sec_6701 penalty under the sec_6703 procedures and has withheld collection efforts with respect to related sec_6701 penalties pending resolution of the single penalty in 891_f2d_480 3d cir the court noted because the sec_6701 and sec_6700 penalties assessed against the taxpayer were divisible into separate portions or transactions an irs policy provides for reasonable forbearance with respect to collection irs policy statement ps p-5- approved date pursuant thereto the irs agreed that if the taxpayer paid one penalty for one transaction for each of the years in question he could follow the procedures outlined in sec_6703 to litigate the merits of the assessment of all the penalties the irs agreed that it would ‘not attempt to preno-158911-04 collect the other penalties not brought into issue by the percent jurisdictional payment absent a jeopardy situation ’ id pincite penalty policy statement p-5-16 requires withholding collection for divisible taxes when the government’s interest is protected specifically p-5-16 provides when a refund_suit is pending on a divisible assessment the service will exercise forbearance with respect to collection provided that the interests of the government are adequately protected and the revenue is not in jeopardy however any refunds due the taxpayer may be credited to the unpaid portion of the liability pending the outcome of the suit irm penalty policy statement p-5-16 is somewhat limited in its application in 920_f2d_1481 9th cir the court upheld the service’s argument that p-5-16 is an administrative policy rather than a taxpayer’s legal right id pincite see also irm moreover p-5-16 requires only the forbearance of collection under p-5-16 the service may assess penalties while a refund_suit is pending on a divisible_tax interest will apply to assessed penalties even the service forbears collection pursuant to p-5-16 furthermore p-5-16 applies only to pending suits and not to administrative claims for refund for example assuming an appraiser is assessed three dollar_figure penalties under sec_6701 the appraiser could pay dollar_figure one dollar_figure penalty multiplied by percent and file a claim_for_refund for the entire amount assessed dollar_figure under the sec_6703 procedures under p-5-16 the service would be barred from collection providing its interests were not in jeopardy appeals review of sec_6701 penaltie sec_5 you asked whether a taxpayer could seek appeals review of a sec_6701 assessment there is no pre-assessment right to appeals review for the penalty imposed under sec_6701 the post-assessment appeals rights set forth in sec_601_106 do not apply to the sec_6701 penalty that regulation states in part this postassessment appeal procedure applies to all but the following penalties a penalties that are not subject_to a reasonable_cause or reasonable basis determination preno-158911-04 sec_601_106 sec_6701 is not subject_to a reasonable_cause determination thus post- assessment appeals procedures under sec_601_106 are not available for the sec_6701 penalty in accordance with sec_6703 however post-assessment post-payment appeals review procedures are provided in the irm for sec_6701 section dollar_figure of the irm addresses the appeals procedures for penalties such as the sec_6701 penalty that are subject_to the procedural rules of sec_6703 specifically section provides for post-assessment appeals rights for the sec_6701 penalty if the person against whom the penalty has been imposed pays at least percent of the assessed amount and files an administrative claim_for_refund whether circular_230 applies circular_230 sets forth the duties of practitioners before the service and the grounds and procedures for disbarment and suspension cfr circular_230 is applicable to all who practice before the service not just attorneys in the service amended circular_230 to conform to legislative changes requiring the disqualification of an appraiser who is assessed a penalty under sec_6701 of the internal_revenue_code for aiding_and_abetting the understatement of a tax_liability fed reg under circular_230 the secretary_of_the_treasury or his or her delegate after due notice and opportunity for hearing may disqualify any appraiser with respect to whom a penalty has been assessed under sec_6701 of the code cfr b if an appraiser is disqualified the appraiser is barred from presenting evidence or testimony in any administrative_proceeding before the department of treasury or the service unless and until authorized to do so by the director of practice id any appraisal made by a disqualified appraiser after the effective date of disqualification will not have any probative effect in any administrative_proceeding before the department of the treasury or the service id we suggest you contact the office of the director of practice to establish procedures for referral to that office of appraisers in appropriate cases conclusion to summarize our conclusions the service may asses a sec_6701 penalty on an appraiser the imposition of a sec_6701 penalty requires the appraiser’s knowledge that false statements would lead to an understatement_of_tax the office of director of practice is established in the office of the secretary_of_the_treasury and is appointed by the secretary_of_the_treasury or his or her designate cfr preno-158911-04 the internal_revenue_manual provides guidance regarding the identification and assertion of sec_6701 penalties generally the sec_6701 penalty will be assessed by revenue agents and office auditors at a service area office as a result of an examination of a tax_return or document or in connection with a tax_shelter_registration examination sec_7408 authorizes the service to bring a civil_action to enjoin a person from engaging in specified prohibited_conduct including conduct subject_to the penalty under sec_6701 to obtain an injunction under sec_7402 the government must show that a person engaged in conduct subject_to penalty under sec_6701 and that injunctive relief is appropriate to prevent the recurrence of such conduct an appraiser assessed a penalty under sec_6701 has several procedural avenues to challenge the penalty first under sec_6703 the appraiser may pay percent of the entire assessed amount of the sec_6701 penalty second the appraiser may use the general refund procedures of sec_7422 to challenge the imposition of the sec_6701 penalty as courts have held that the sec_6701 penalties are a divisible_tax the appraiser may pay the entire amount of one dollar_figure penalty assessed to file a claim_for_refund on all of the sec_6701 penalties imposed third and finally the taxpayer may treat the sec_6701 penalty as a divisible_tax for purposes of the sec_6703 procedures and therefore may pay percent of one dollar_figure penalty there is no pre-assessment right to appeals review for the penalty imposed under sec_6701 in accordance with sec_6703 post-assessment post-payment appeals review procedures are provided in the irm for sec_6701 circular_230 sets forth the duties of practitioners before the service and the grounds and procedures for disbarment and suspension under circular_230 the secretary_of_the_treasury may disqualify any appraiser with respect to whom a penalty has been assessed under sec_6701 of the code this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service number release date index number 468a ----------------------------- --------------------------------------- -------------------------------- ---------------------------- ---------------------------- legend parent 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 b6 plr-129972-06 plr-129965-06 plr-129949-06 plr-129958-06 plr-129962-06 plr-129968-06 date date -------------------------------- --------------------------------- -------------------------------------------------------- taxpayer a ------------------------------------------------------------ taxpayer b ------------------------------------------------------ --------------------------------- --------------------------------------- taxpayer c ------------------------------------------------------------ company state a plant director --------------------------------------------- ------ --------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ------------------------ -------------------------------------------- ----------------------------------------------------- ------------------------------------------- -------------------------------------------- ------------------------ ---------------------------------------- location commission a commission b commission c taxpayer d taxpayer e ------------------------------------------------------------ taxpayer f -------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------------------- -------------------------- ------------------- plr-129972-06 ------------------------------------------------------------------------------------------------------- x y z dear ---------------- the tax consequences of the transaction described below under sec_468a of the internal_revenue_code this letter responds to your request dated date for various rulings on taxpayers represent the following facts and information relating to the ruling_request parent directly owns all of the outstanding common_stock of taxpayer b and taxpayer c taxpayer b is an electric public_utility company engaged in the generation transmission distribution and sale of electric energy in state a taxpayer b is subject_to the jurisdiction of commission a and commission b with respect to the nuclear decommissioning costs included in its cost of service for regulatory purposes taxpayer c is an electric public_utility company engaged in the generation transmission distribution and sale of electric energy in state a taxpayer c is subject_to the jurisdiction of commission a and commission b with respect to the nuclear decommissioning costs included in its cost of service for regulatory purposes taxpayer a is a newly-formed generation company and is a wholly-owned subsidiary of company which is wholly-owned by parent taxpayer b has an ownership_interest of----------- percent in the plant taxpayer c has a --------percent ownership_interest in the plant plant is situated at location taxpayers b and c are severally obligated to pay all expenditures_for the construction operation and maintenance of plant and are entitled to the proportionate share of the electric power produced thereby both taxpayer b and taxpayer c have obligations to decommission the plant and have established several funds for that purpose taxpayer b has established taxpayer d as a fund qualified under sec_468a as well as one or more nonqualified funds taxpayer c has established taxpayer e as a fund qualified under sec_468a as well as one or more nonqualified funds both taxpayer b and taxpayer c have received revised schedules of ruling amounts through ------- on x taxpayer b contributed the entire 12-month ruling_amount specified in its most recent schedule of ruling amounts to taxpayer d on x taxpayer c contributed the entire 12-month ruling_amount specified in its most recent schedule of ruling amounts to taxpayer e plr-129972-06 on y taxpayer b and taxpayer c transferred their interests in plant to taxpayer a taxpayer a assumed certain obligations with respect to plant including the obligation to decommission plant also on y taxpayer b transferred taxpayer d as well as all nonqualified decommissioning funds relating to the plant to taxpayer a and taxpayer c transferred taxpayer e as well as all nonqualified decommissioning funds relating to the plant to taxpayer a the assets in taxpayer d and taxpayer e were transferred to taxpayer f a fund established by taxpayer a and qualified under sec_468a the transfers of the interests in plant were approved by commission b and commission c as a result of the contributions of the entire ------- ruling amounts on x by taxpayer b to taxpayer d and by taxpayer c to taxpayer e excess_contributions were made to those funds on z taxpayer a withdrew from taxpayer f the excess_contributions made by taxpayer b and taxpayer c along with earnings on those excess_contributions from the day after x thru and including the day before z taxpayer has requested the following rulings requested ruling taxpayer b taxpayer c taxpayer a taxpayer d taxpayer e and taxpayer f will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer d and taxpayer e into taxpayer f and taxpayer f will have a basis in the assets received from taxpayer d and taxpayer e equal to the basis of those assets immediately prior to the transfer requested ruling no portion of taxpayer d or taxpayer e is disqualified by receipt of the excess_contributions from taxpayer b and taxpayer c respectively and that no portion of taxpayer f is disqualified by the withdrawal of such excess_contributions and the earnings thereon law and analysis requested ruling sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public plr-129972-06 utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-6 provides rules applicable to the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if-- immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition-- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant iii either a proportionate amount which could include all of the assets of the transferor’s qualified nuclear decommissioning fund is transferred to a qualified nuclear decommissioning fund of the transferee or the transferor’s entire qualified nuclear decommissioning fund is transferred to the transferee provided in the latter case or if the transferee receives all of the assets in the transferor’s qualified nuclear decommissioning fund but not the transferor’s qualified nuclear decommissioning fund that the transferee acquires the transferor’s entire qualifying interest in the plant and iv the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs neither the transferor nor the transferor’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear plr-129972-06 decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor’s qualified nuclear decommissioning fund neither the transferee nor the transferee’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee’s qualified nuclear decommissioning fund will have a basis in the assets received from the transferor’s qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor’s qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a sec_468a and sec_1_468a-2 provide that a taxpayer that elects the requested ruling application of sec_468a may deduct in the taxable_year the election is made any payments made by the taxpayer to a qualified nuclear decommissioning fund in that year of sec_1_468a-2 the amount that a taxpayer may pay into a qualified nuclear decommissioning fund for any taxable_year shall not exceed the lesser_of the amount of nuclear decommissioning costs allocable to the fund which is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to fund for that the taxable_year sec_1_468a-2 provides further that if the amount of cash payments made or deemed made to a qualified nuclear former sec_468a and sec_1 468a- b provide that for purposes plr-129972-06 decommissioning fund during any taxable_year exceeds the limitation of sec_1 468a- b the excess is not deductible by the electing taxpayer sec_1_468a-5 prohibits a nuclear decommissioning fund from accepting sec_1_468a-5 defines an excess_contribution for purposes of section any contribution for which a deduction is not permitted under sec_468a and sec_1_468a-2 sec_1_468a-5 provides that if at any time during a taxable_year of a nuclear decommissioning fund the fund does not satisfy the requirements of sec_1_468a-5 the service may in its discretion disqualify all or any portion of the fund as of the date that the fund does not satisfy the requirements of sec_1_468a-5 sec_1_468a-2 provides that the amount of any cash payment made by an electing taxpayer to a qualified nuclear decommissioning fund on or before the 15th day of the third calendar month after the close any taxable_year shall be deemed made during that taxable_year if the electing taxpayer irrevocably designates the amount as relating to that taxable_year on its timely filed federal_income_tax return for that taxable_year 468a-5 c as the amount by which cash payments made or deemed made to a qualified nuclear decommissioning fund during any taxable_year exceed the payment limitation in former sec_468a and sec_1_468a-2 sec_1_468a-5 provides that a qualified nuclear decommissioning fund will not be disqualified under sec_1_468a-5 by reason of an excess_contribution or the withdrawal of that excess_contribution by an electing taxpayer if the amount of the excess_contribution is withdrawn by the electing taxpayer on or before the date prescribed by law including extensions for filing the return of the fund for the taxable_year for which the excess_contribution relates contribution as defined in sec_1_468a-5 by an electing taxpayer pursuant to the rules of sec_1_468a-5 shall not be included in the gross_income of the electing taxpayer conclusions will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer d and taxpayer e into taxpayer f and taxpayer f will have a basis in the assets received from taxpayer d and taxpayer e equal to the basis of those assets immediately prior to the transfer taxpayer b taxpayer c taxpayer a taxpayer d taxpayer e and taxpayer f sec_1_468a-2 provides that the amount of a withdrawal of an excess plr-129972-06 with respect to the excess_contributions and the subsequent withdrawal of those excess_contributions the service will not disqualify any part of taxpayer d taxpayer e or taxpayer f as a result of these transactions the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above effective date amendments were made to sec_468a by the energy tax incentives act of publaw_109_58 119_stat_594 regulations based on these amendments are being developed but have not yet been proposed the discussion above is based on the law in effect prior to date however this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2007_1 2007_1_irb_1 however when the criteria in section dollar_figure of revproc_2007_1 2007_1_irb_50 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides 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 the taxpayer we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayers' federal_income_tax return for each tax_year if any in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries


internal_revenue_service department of the treasury index number washington dc verson to contact telephone number refer reply to cc dom p si date date plr-111897-98 company properties plr-111897-98 ll corp a corp b corp c state y i o i a i o i o q r f - i b o r p plr-111897-98 s i dear this letter responds to a letter dated date as well as subsequent correspondence submitted on behalf of company by your authorized representative requesting a ruling that company's rental income from the properties is not passive_investment_income within the meaning of sec_1362 internal_revenue_code company represents the following facts c i of the company was incorporated in state on a and intends to elect under sec_1362 on a fiscal_year ending c profits to be an s_corporation effective b company is it has subchapter_c earnings and company acquires develops and leases both residential apartment and commercial office buildings in state some of the properties are wholly owned by company some are partially owned by company and some are owned by a partnership or limited_liability_company in which company owns an interest properties were developed and constructed by company company's development activities are ongoing consisting of the renovation of existing properties or the development of new ones most of the company characterizes its partial_interests in the properties as cotenancies however it appears that one or more of these ventures might be partnership for federal_income_tax purposes requesting a ruling on the classification of these ventures and we are not ruling on this issue on the basis of the facts presented company is not a company uses corps a b and c management companies to and and corp c for property corp a with d manage the daily affairs of the properties employees provides full building operation and maintenance services for propertie sec_1 for propertie sec_5 and duties and perform the same tasks as does corp a closely monitors and reviews the management of the properties by the management companies renovations at times even supplying its own personnel for certain repairs and approves all capital improvements it attends regular meetings with senior management of the management companies and it routinely inspects the properties companies issue detailed monthly management reports to company company and corp a share an employee as well as office company monitors any necessary have the same management company corp b plr-111897-98 facilities board and a single shareholder owns approximately e of both company and corp a company's president serves as a director on corp a's the services provided by the management companies include but are not limited to safety and maintenance inspections cleaning maintenance and repair of common areas including parking lots and garages maintenance and repair of building structural_components and systems landscaping and grounds care pest control inspection and treatment utilities trash and snow removal security and patrol services and space renovation and remodelling as required provide various recreational amenities swimming pools tennis courts exercise rooms party rooms as well as on-site stores and shops services and the services of on-site engineers the services provided to tenants company is responsible for the usual leasing and administrative functions involved in leasing and managing real_estate company has full-time and g part- time or shared employees most of the commercial properties provide char most of the residential properties in addition to company received or accrued approximately h in rents and paid_or_incurred approximately i in relevant expenses on the properties for j company expects its rental income and expenses for p to be approximately the same the comparable figures for k are m and n sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect with the provisions of to be an s_corporation sec_1362 in accordance sec_1362 a i provides that an election under has accumulated a terminates whenever the corporation i earnings_and_profits at the close of each of three consecutive tax years and more than percent of which are passive_investment_income has gross_receipts for each of such tax years ii except as otherwise provided in subparagraph c d c provides that the term passive investment sec_1362 income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 ii b of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 ii b provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation generally significant services are not rendered and the sec_1_1362-2 ii b provides that rents does or any real or tangible_personal_property developed not include compensation however designated for_the_use_of right to use manufactured or produced_by_the_taxpayer if during the tax_year the taxpayer is engaged in substantial development manufacturing or production of real or tangible_personal_property of the same type based solely on the facts presented in this ruling_request and viewed in light of the applicable law and regulations we conclude that the rents company receives from the properties are not passive_investment_income under sec_1362 d c i except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company's eligibility to be an s_corporation or its ability to retain a fiscal_year ending c further the passive_investment_income rules of activity rules of the rental_activity remains passive for purposes of sec_1362 are completely independent of the passive sec_469 unless an exception under sec_469 applies sec_469 in accordance with the power_of_attorney on file with this office we are sending copies of this letter to your authorized representatives t plr-111897-98 this ruling is directed only to the taxpayer who requested according to sec_6110 this ruling may not be used or it cited as precedent sincerely donna mf young donna m young senior technician reviewer - branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court georgia c farber petitioner v commissioner of internal revenue respondent docket no filed date clark garen for petitioner michael s hensley for respondent memorandum opinion foley judge the issues for decision are whether relating to petitioner is entitled to deduct expenses relating to her retail activity entitled to certain itemized_deductions and liable for an accuracy-related_penalty pursuant to sec_6662 the parties submitted this case fully stipulated pursuant to rule background in petitioner was employed as a professor of nursing at santa monica community college and began a retail activity selling candles petitioner did not maintain a general ledger financial statements records of insurance records of appraisal records of advertising or a separate bank account relating to her retail activity further petitioner did not create income and expense worksheets business or marketing plans operating budgets cost-benefit analyses or financial projections relating to the activity nor did she obtain a business license or fictitious business name relating to her retail activity expenses relating to petitioner’s retail activity were billed to her and paid out of her personal accounts on date petitioner filed her federal_income_tax return return which included a schedule c profit or loss from business and a schedule a itemized_deductions on schedule c petitioner reported dollar_figure of gross_receipts and claimed dollar_figure of expense deductions for advertising insurance taxes licenses travel utilities and other expenses relating 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure to her retail activity schedule c expenses on schedule a petitioner deducted charitable_contributions tax preparation fees and unreimbursed employee_expenses in respondent conducted an examination of petitioner’s return in a notice_of_deficiency dated date and relating to petitioner’s return respondent stated it is determined that you realized neither a gain nor loss from the operation of your candle activity for the tax_year ending date since you failed to maintain adequate book sic and records we have determined that you have not established that you were carrying on a business within the provisions of the internal_revenue_code we are eliminating your reported gross_receipts of dollar_figure and disallowing all of your operating_expenses of dollar_figure accordingly your taxable_income is increased dollar_figure for tax_year respondent further disallowed for lack of substantiation deductions relating to charitable_contributions tax preparation fees and unreimbursed employee_expenses determined a dollar_figure deficiency and determined a dollar_figure sec_6662 accuracy-related_penalty on date petitioner while residing in california filed her petition with the court respondent in his answer filed date asserted primary and alternative positions which took into account the dollar_figure of gross_receipts increased the deficiency to dollar_figure and increased the accuracy- related penalty to dollar_figure as his primary position respondent asserted that petitioner’s retail activity was a business as his alternative position respondent asserted that petitioner’s retail activity was an activity_not_engaged_in_for_profit pursuant to section discussion we note at the outset that respondent’s determinations in this matter in both the notice_of_deficiency and the answer are confusing and in certain respects conflicting in the notice_of_deficiency respondent determined that petitioner was not carrying on a business respondent also stated that he was eliminating petitioner’s reported gross_receipts of dollar_figure and disallowing all of petitioner’s operating_expenses of dollar_figure respondent’s determination was in essence a sec_183 adjustment ie tantamount to including the gross_receipts as income but allowing expenses to the extent of that income in the answer however respondent alleged as his primary position that petitioner’s retail activity was a business and asserted as an alternative position a sec_183 adjustment the parties stipulated a number of issues which relate to whether petitioner was engaged in an activity for profit yet respondent’s primary position is that petitioner’s retail activity was a business we must address both respondent’s primary and alternative positions respondent’s primary position ie that petitioner was engaged in a business had gross_receipts and failed to substantiate her schedule c expenses is a new_theory that is inconsistent with the original determination and increases the deficiency therefore respondent’s primary position is a new_matter with respect to which respondent has the burden_of_proof see rule va educ fund v commissioner 85_tc_743 affd per curiam 799_f2d_903 4th cir 50_tc_478 petitioner on her return included gross_receipts relating to her retail activity while respondent met his burden with respect to the gross_receipts he did not establish that petitioner failed to substantiate her schedule c expenses thus we turn to respondent’s alternative position that petitioner was not engaged in an activity for profit various factors may indicate whether a taxpayer had an intent to make a profit see sec_1_183-2 income_tax regs petitioner failed to maintain books_and_records financial statements or other documents relating to her retail activity and did not conduct her activity in a businesslike manner in short petitioner did not have the requisite intent to make a profit as previously stated respondent bears and has met his burden with respect to the inclusion of the gross_receipts see rule a petitioner however substantiated her expenses relating to her retail activity accordingly pursuant to sec_183 she is entitled to deduct these expenses to the extent of the gross_income derived from the activity respondent disallowed for lack of substantiation petitioner’s deductions relating to charitable_contributions tax preparation fees and unreimbursed employee_expenses with respect to petitioner’s claimed charitable_contributions petitioner verified dollar_figure of contributions and is entitled to a deduction of that amount see sec_170 sec_1 170a- a ii income_tax regs with respect to the tax preparation fees and unreimbursed employee_expenses petitioner’s records set forth a number of payments but fail to identify to whom or for what purpose those payments were made because the evidence relating to the payment of these expenses is insufficient petitioner is not entitled to deductions see sec_6001 65_tc_87 affd 540_f2d_821 5th cir sec_1_6001-1 income_tax regs respondent also determined that petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 respondent bears and has met the burden of production relating to this penalty see sec_7491 116_tc_438 petitioner failed to exercise due care in reporting 2pursuant to sec_7491 taxpayers have the burden_of_proof unless they introduce credible_evidence relating to an issue that would shift the burden to the commissioner see rule a her expenses and failed to show that she acted with reasonable_cause and in good_faith see sec_6662 and c c 85_tc_934 sec_1 b b income_tax regs accordingly petitioner is liable for the sec_6662 accuracy-related_penalty contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec uniform issue list set f4 t krerererererrerererererererereree kekerekerererrerererererererereee kekererekrekrererererererererrererker legend taxpayer a kekkeererrerererereeekererekae bank b bank c ira d account e amount dear krhrkrererrrerrere krekerekrererererererererrereerer rereerrererrerereeekrkrererereree krerkekerererererererererererererererereerererere rerkrerererererererererererererererererereerrererere kerkerrekrereeekrereerererererererererererereraeerer rrereeerererererereerrerereereer this is in response to your letter dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ you have submitted the following facts and representations under penalty of perjury in support of the ruling requested taxpayer a age represents that he received a distribution from his individual_retirement_arrangement ira d totaling amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by code sec_408 was due to a miscommunication with bank c which led to amount being placed in a non-ira account taxpayer a further represents that amount has not been used for any other purpose taxpayer a maintained ira d with bank b taxpayer a represents that on ha ee ic withdrew amount the entire balance in ira d with the intention of rolling this amount into an ira at bank c on the same day taxpayer a instructed bank c officials to deposit amount into a traditional_ira certificate of deposit cd however while completing the new account application form taxpayer a did not check the ira box and bank c deposited amount into account e a non-ira cd taxpayer a discovered the mistake when he was preparing to file his return income_tax based on the facts and representations presented above you request that the internal_revenue_service the service waive the 60-day rollover requirement of code sec_408 with respect to the distribution of amount sec_1 from ira d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if-- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 d of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by miscommunications with bank c therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira d taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 if you wish to inquire about this ruling please krereereereerkekeereeerreeeerekrererreraereerer jnn ss de ddddedeiddedebeeiichiinrebeetidebiiiehnnknnik rekkkekk address all correspondence to se t ep ra t1 sincerely in bint wilke carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose