internal_revenue_service number release date index number ----------------------------------------------------- ------------------------------------ --------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc ita b01 plr-125036-09 date date do ------------------------------------------------------------------ ty do ------------------------------------------------------------------ ty legend state a taxpayer n partnership q corporation r corporation u fund v corporation state board w f taxes --------------------------------------------------------------------------------------------------------------- ------ ------------------------------------------------- ----------------------------------------------------- ------------------------------------------------- ---------------------------------------- ---------------------------- ----------------------------------------- ----------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ ------------------ ----- ------------------- -------- --------------- ----------------- a b c d e dear --------------- this ruling responds to a letter dated date submitted by your authorized representative requesting a ruling regarding the tax basis of venture capital_tax credit certificates issued by state board w and purchased by taxpayer and the deductibility of state income taxes paid with the purchased credits pursuant to sec_164 of the internal_revenue_code facts plr-125036-09 for federal_income_tax purposes taxpayer is a corporation that uses the calendar taxable_year and whose overall_method_of_accounting is an accrual_method taxpayer is a regulated_public_utility under the laws of state a and is engaged principally in the generation and distribution of electric energy and the distribution and transportation of natural_gas n partnership is a private for-profit limited_partnership authorized to make investments in private venture capital funds the purpose of n partnership is to make investments in private seed and venture capital partnerships or entities in a manner that will enhance venture capital_investment within state a in order to receive an investment from n partnership a venture fund must commit to consider equity investments in businesses in state a and to maintain physical presence in state a n partnership was organized by q corporation pursuant to the provisions of state a code a q corporation was authorized under the provisions of state a code a and has been organized as a private not-for-profit corporation under state a code b q corporation was granted tax-exempt status under sec_501 of the internal_revenue_code n partnership currently has four partners q corporation the general_partner r corporation a preferred limited_partner u fund a special limited_partner and v corporation a limited_partner and the manager of n partnership n partnership is financed through an arrangement in which q corporation and v corporation have organized a special purpose entity r corporation to serve as a limited_partner and investor in n partnership r corporation receives contingent tax_credit certificates when it makes a capital commitment to the n partnership the tax_credit certificates are issued to r corporation by state board w an agency of state a r corporation uses the certificates as collateral to secure loans the proceeds of which are used to invest in n partnership and to pay expenses n partnership in turn invests in individual venture funds as capital is returned by the venture funds from their investment programs that capital is used to repay the loans the state a venture capital_tax credits are allowed for investments in u fund that do not meet a specified rate of return the credit certificates which are transferable are issued in contingent form when the investment is made at a specified future maturity_date or dates the credits are verified by state board w and allowed to the investor or a transferee to the extent that the actual return on the u fund investment did not meet the rate of return guaranteed to the investor a credit cannot be claimed for a tax_year that begins before the maturity_date or dates the credits are allowable against certain personal net_income taxes corporate taxes taxes on financial institutions and insurance_companies and the monies and credit tax any excess_credit may be carried forward for up to c years plr-125036-09 taxpayer has entered into a tax_credit purchase agreement with r corporation to purchase state a venture capital_tax credits that have been earned by r corporation and verified by state board w under the agreement taxpayer will purchase verified credits in the amounts and at the times specified by r corporation limited in any calendar_year to d percent of taxpayer’s total_tax liabilities or dollar_figuree whichever is less taxpayer is not required to purchase credits on any date other than a tax due_date as specified in the agreement taxpayer has entered into a tax_credit purchase agreement with r corporation to purchase certain tax_credit certificates issued by state board w a condition_precedent to taxpayer’s obligation to purchase the tax_credits is to affirm that the tax_credit certificates used by it to reduce or extinguish a state tax will result in a deduction on its federal_income_tax return for state taxes paid in the year applied as such taxpayer requests this ruling law and analysis sec_164 of the internal_revenue_code generally allows as a deduction certain types of taxes listed in sec_164 - that are paid_or_accrued within the tax_year specifically sec_164 provides for the deduction of state_and_local_income_taxes paid_or_accrued within the tax_year additionally sec_164 provides for the deduction of state and local_taxes not described in sec_164 - that are paid_or_accrued within the tax_year in carrying_on_a_trade_or_business or an activity described in sec_212 see also revrul_70_561 1970_2_cb_40 pennsylvania excise_tax imposed on corporate net_income is deductible under sec_164 sec_1012 provides that generally the basis_of_property is the cost of such property generally a state tax_credit to the extent that it can only be applied against the original recipient's current or future state tax_liability is treated for federal_income_tax purposes as a reduction or potential reduction in the taxpayer's state tax_liability not as a payment of cash or property to the taxpayer that is includible in gross_income under sec_61 see revrul_79_315 1979_2_cb_27 consequently the federal tax effect of such a state credit is normally to reduce any deduction for payment of state tax the taxpayer may otherwise have had under sec_164 by itself the fact that a state tax_credit is transferable does not cause it to lose its character as a reduction or potential reduction in liability in the hands of the taxpayer who originally qualified for the credit however if and when a transferable credit is in fact transferred to another taxpayer for value the transaction is a sale and purchase of property for purposes of sec_1001 and sec_1012 with respect to the transferee of the credit a payment for the purchase of a transferable plr-125036-09 tax_credit is not a payment of tax or a payment in lieu of tax for purposes of sec_164 see revrul_61_152 1961_2_cb_42 revrul_71_49 1971_1_cb_103 revrul_81_ 1981_2_cb_50 rather the transferee has purchased a valuable right the basis of which is the cost incurred the use of the credit to satisfy the transferee's state tax_liability is a transfer of property to the state in satisfaction of the liability generally therefore when the transferee uses the credit to satisfy a state tax_liability the transferee will have gain_or_loss under sec_1001 on the use of the credit and will be treated as having made a payment of state tax for purposes of sec_164 see revrul_86_117 1986_2_cb_157 ruling taxpayer’s basis in the purchased state tax_credit will be the cost of the credit in the year or years taxpayer applies the credit to satisfy the taxpayer’s state tax_liability taxpayer will realize gain_or_loss equal to the difference if any between the basis of the credit and the amount of liability satisfied by the application of the credit taxpayer will have made a payment for purposes of sec_164 when it uses the purchased credit to satisfy its state tax_liability in the amount of the liability that was satisfied caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement plr-125036-09 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 sincerely andrew irving senior counsel branch income_tax accounting cc


internal_revenue_service number release date index number -------------------------------- --------------------------------------------------- ------------------------------------------------------------ --------------- ------------------------------ ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ ------------ telephone number -------------------- refer reply to cc psi b01 plr-108281-15 date date legend x a b ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------- --------------------------- ----------------------------------------------------------------------------------------------------- ----------------------- trust ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------- state ------------- date ---------------- date --------------------- date ------------------------ date ----------------------------------------------------------------------------------------------------- ------------------------ dear----------------- plr-108281-15 this responds to a letter dated date submitted on behalf of x requesting inadvertent termination relief pursuant to sec_1362 of the internal_revenue_code the code facts the information submitted states that x was incorporated on date under the laws of state effective date x elected to be taxed as an s_corporation during a’s life a owned shares in x through trust a grantor_trust on date a died after a’s death trust continued to hold the x shares for the benefit of b causing x’s s_corporation_election to terminate on date x represents that trust was eligible to elect to be a qualified_subchapter_s_trust qsst from date onward and continues to be eligible however a qsst election was not timely made for trust x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning additionally x represents that x and its shareholders have filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect for x x and its shareholders have agreed to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for the purposes of sec_1362 a_trust all of which is treated under title_26 subtitle a chapter subchapter_j part i subpart e of the united_states_code as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder of an s_corporation sec_1361 provides that for purposes of sec_1361 a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death is a permitted shareholder but only for the 2-year period beginning on the day of the deemed owner’s death plr-108281-15 sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 the trust is treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 is terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representation made we conclude x’s s election terminated on date upon the failure to timely file a qsst election for trust we also conclude that the termination of x’s s_corporation_election was inadvertent within the meaning of sec_1362 accordingly under sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s s election is valid and not otherwise terminated under sec_1362 plr-108281-15 this relief is contingent upon b filing a qsst election for trust effective date within days from the date of this letter a copy of this letter should be attached to the election except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically we express or imply no opinion regarding whether x is otherwise eligible to be an s_corporation or trust’s eligibility to be a qsst this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c contact person telephone number identification_number employer_identification_number date date number release date index number dear sir or madam this is in response to your letters of august and october you asked whether you could campaign in favor of a ballot measure to tax property in the fire protection district to pass a bond measure for a new fire station without jeopardizing your tax exempt status you have also asked whether newspaper ads with volunteers’ names supporting the ballot measure would be permitted and whether your organization would be permitted to pay for the advertisement sec_501 of the internal_revenue_code grants exemption to organizations not organized for profit but operated exclusively for the promotion of social welfare the regulations describe the promotion of social welfare as promoting in some way the common good and general welfare of the people of the community such as bringing about civic betterment and social improvements an organization is considered to be operated for the promotion of social welfare if it primarily engages in social welfare activities social welfare activities do not include participating in political campaigns on behalf of or in opposition to any candidate for public_office the operation of a social_club for the benefit of its members or carrying on business with the general_public in a manner similar to organizations operated for profit in considering whether an organization is primarily engaged in social welfare activities it is important to consider the extent to which it participates in political campaign activities social_club activities and business activities legislative activities such as ballot measures are not considered political intervention an organization exempt under sec_501 may engage in legislative activities without limit so long as the legislation it attempts to influence is germane to its social welfare purposes the ballot measure you describe appears to be germane to a volunteer firefighters’ association and would probably not affect its exempt status under sec_501 sec_501 of the code grants exemption to organizations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office sec_501 limits exemption to organizations that do not engage in substantial legislative activities both direct and indirect lobbying are strictly limited attempts to influence legislation that are less than a substantial part of the organization’s activities will not ordinarily jeopardize exemption whether a specific activity constitutes a substantial portion of the total activities of an organization is a factual one and there is no simple rule as to what amount of activities is substantial all the facts and circumstances must be considered to establish more precise standards for determining whether a sec_501 organization’s legislative activities are substantial congress enacted sec_501 eligible public_charities may elect to adopt the substantiality test set forth in that section your participation in campaigning for the ballot measure would be considered an attempt to influence legislation whether it would affect exemption under sec_501 could only be determined after considering all the facts and circumstances funding a newspaper ad standing alone is unlikely to be considered substantial in this regard our records indicate that you have never applied for tax exemption and are not currently recognized as tax exempt although we do not have sufficient information to rule definitively you appear to be the type of organization that might qualify under sec_501 or sec_501 of the internal_revenue_code we are enclosing publication tax exempt status for your organization to assist you in completing the proper application once you decide which section of the code you are described in you may obtain the appropriate application form or form on line at the exempt_organizations web site www irs gov bus_info eo please be advised that this letter is advisory only and has no binding effect on the service the information provided here cannot be relied upon as a ruling on the matters discussed if you have any further questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure pub sincerely gerald v sack manager exempt_organizations technical group


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc ebeo - plr-118904-98 date date index number number release date key worker firm dear this is in response to your request of date for reconsideration of our ruling cc ebeo - plr-117686-97 which concluded that the above-named worker was the firm’s employee for purposes of federal employment_taxes in support of the request for reconsideration you have submitted a detailed statement of reasons you believe the worker was an independent_contractor in your request you state that the contract specifically provides that the worker’s services were unsupervised in nature a written_agreement describing a worker as an independent_contractor is viewed as evidence of the parties’ intent to create a nonemployee relationship however a contractual designation in and of itself is not sufficient evidence to base a determination of worker status it is the substance of the relationship rather than the label that governs this determination moreover in this case the contractual provisions themselves are inconsistent the contractual provision providing that the worker’s services are unsupervised is contradicted by other provisions of the contract a review of the work statement portion of the contract indicates the following plr-118904-98 section e of the work statement states that the services will be monitored by the supervisor of education it also states that services will be unsupervised in nature however due to the nature of the services provided some direction will be provided by the supervisor of education the performance of these services will also be verified by the contract specialist or the designated contracting officer’s technical representative section f of the work statement provides that the incumbent worker will monitor the progress through official periodic review which will be monitored by the literacy coordinator the incumbent worker will submit lesson plans to the literacy coordinator each week individual student flow charts progress charts will be maintained on each and monthly evaluations will be submitted to the literacy coordinator the incumbent worker will use a curriculum provided by the or other pre-approved curriculum to ensure that course objectives are met after a careful review of the information originally submitted in this case the information provided in the conference-of-right and the statement submitted in the request for reconsideration there is sufficient evidence that the firm exercised the degree of direction and control_over the services performed by the worker sufficient to establish an employer-employee relationship accordingly we affirm the decision reached in the original ruling issued to the firm on date that the worker was an employee for federal employment_tax purposes this letter does not constitute a notice_of_determination concerning worker classification under sec_7436 of the internal_revenue_code sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely harry beker chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosure


internal_revenue_service department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-112591-98 date february index no number release date re legend dear tin decedent year year date son son’s wife daughter date court in a letter dated and subsequent submissions you requested a ruling concerning the generation-skipping_transfer gst tax consequences of the proposed division of a grandfathered trust this letter responds to your request decedent created a revocable_trust in year on decedent’s death in year the trust became irrevocable and was divided into two trusts a marital trust and a family_trust this ruling_request concerns the family_trust trust decedent’s spouse died testate on date decedent’s spouse appointed the marital trust to her estate and her estate has been distributed under her will article ii d d of the trust provides that upon the first date that the decedent and the decedent’s spouse are both deceased if son shall then be living then commencing on such date and during son’s lifetime the trustee may distribute or apply any part of the net_income of the trust up to a maximum of fifty percent of such net_income to or for the benefit of son at such times and in such manner as the trustee shall in its sole discretion deem advisable for the health and support in reasonable comfort of son article ii d e of the trust provides that upon the first date that the decedent the decedent’s spouse and son are all deceased if son’s wife shall then be living then commencing on such date and during son’s wife’s lifetime the trustee may distribute or apply any part of the net_income of the trust up to a maximum of fifty percent of such net_income to or for the benefit of son’s wife at such times and in such manner as the trustee shall in its sole discretion deem advisable for the health and support in reasonable comfort of son’s wife in making this determination the trustee shall take into consideration all other income available to the son’s wife article ii d f of the trust provides that upon the first date that the decedent and the decedent’s spouse are both deceased then commencing on such date and until the first date that son son’s wife and daughter are all deceased to the extent that less than fifty percent of the net_income of the trust is distributed or applied for the benefit of son and son’s wife pursuant to the provisions of subparagraph d d and d e the trustee may distribute any part of the net_income of the trust up to a maximum of i the excess of fifty percent of the net_income of such trust over ii the amount of the net_income of such trust actually distributed to or applied for the benefit of son or son’s wife to or for the benefit of son’s children and the lineal_descendants of any deceased child of son at such times in such manner and in such proportions as to each such child of son and the lineal_descendants of any deceased child of son without any necessity to maintain equality of distribution as the trustee shall in its sole discretion deem advisable for the health education including college and professional education and support in reasonable comfort of the children of son and the lineal_descendants of any deceased child of son article ii d g of the trust provides that upon the first date that the decedent and the decedent’s spouse are both deceased then commencing on such date and until the first date that son son’s wife and daughter are all deceased in addition to the income payments the trustee may distribute any part of the principal of the trust up to a maximum of fifty percent of the said principal to or for the benefit of son if he survives the decedent and the decedent’s spouse and for so long as he shall live the children of son and the lineal_descendants of any deceased child of son at such times in such manner and in such proportions as to the son each child of the son and the lineal_descendants of any deceased child of the son without any necessity to maintain equality of distribution as the trustee shall in its sole discretion deem advisable for the health education including college and professional education and support in reasonable comfort of son son’s children and the lineal_descendants of any deceased child of son article ii d h provides that upon the first date that the decedent and decedent’s spouse are both deceased if daughter is still living then commencing on such date and during daughter’s lifetime the trustee may distribute or apply any part of the net_income of the trust up to a maximum of fifty percent of such net_income to or for the benefit of daughter at such times and in such manner as the trustee shall in its sole discretion deem advisable for the health and support in reasonable comfort of daughter article ii d i of the trust provides that upon the first date that decedent and decedent’s spouse are both deceased then commencing on such date and until the first date that daughter son and son’s wife are all deceased to the extent that less than fifty percent of the net_income of the trust is distributed to or applied for the benefit of daughter pursuant to the provisions of article ii d h the trustee may distribute any part of the net_income of such trust up to a maximum of i the excess of fifty percent of the net_income of such trust over ii the amount of the net_income of such trust actually distributed to or applied for the benefit of daughter to or for the benefit of daughter’s children and the lineal_descendants of any deceased child of daughter at such times in such manner and in such proportions as to each such child of daughter and the lineal_descendants of any deceased child of daughter without any necessity to maintain equality of distribution as the trustee shall in its sole discretion deem advisable for the health education including college and professional education and support in reasonable comfort of the daughter’s children and the lineal_descendants of any deceased child of daughter article ii d j of the trust provides that upon the first date that the decedent and the decedent’s spouse are both deceased then commencing on such date and until the first date that daughter son and son’s wife are all deceased in addition to the income payments the trustee may distribute any part of the principal of the trust up to a maximum of fifty percent of the said principal to or for the benefit of daughter if she survives the decedent and the decedent’s spouse and for so long as she shall live the children of daughter and the lineal_descendants of any deceased child of the decedent’s daughter at such times in such manner and in such proportions as to the daughter each child of the daughter and the lineal_descendants of any deceased child of daughter without any necessity to maintain equality of distribution as the trustee shall in its sole discretion deem advisable for the health education including college and professional education and support in reasonable comfort of daughter daughter’s children and the lineal_descendants of any deceased child of daughter article ii d l of the trust provides that upon the first date that the decedent the decedent’s spouse son son’s wife and daughter are all deceased the trust will terminate and the principal and accumulated income if any of trust will be distributed in equal shares to the decedent’s then living grandchildren if any grandchild of the decedent shall not be then living but shall have one or more lineal_descendants then living then the share which would otherwise have been distributed to such grandchild shall be distributed to his or her then living lineal_descendants per stirpes on date the court entered a summary final judgment in which it construed the trust in the summary final judgment the court determined that decedent’s testamentary intentions would be best effectuated by construing the administrative terms of the trust as severing the trust into two separate trusts the court ordered that the trustee shall sever the trust into two separate trusts one for the benefit of son and his family and the other for the benefit of daughter and her family the court further ordered that the trustee fund each such trust with a interest in each and every significant asset interest and right held under the trust in addition the court held that the trustee shall administer each of the severed trusts as separate and independent trusts pursuant to the original terms of trust which will remain in effect until the last to die of son son’s wife and daughter at which time the separate trusts will terminate and all of the remaining assets will be distributed to decedent’s grandchildren per stirpes as provided in paragraph d l of article ii of trust taxpayers represent that on the last to die of son son’s wife and daughter the separate trusts will terminate and be recombined into one trust the remaining trust assets then will be distributed to decedent’s grandchildren per capita as provided in paragraph d l of article ii of trust if a grandchild is then deceased that grandchild’s share will then be distributed per stirpes to the then living descendants of that grandchild as provided in paragraph d l of trust you have requested the ruling that the division of trust into two separate trusts for son and son's family and for daughter and daughter’s family will not cause trust to lose its exempt status for generation-skipping_transfer_tax gst purposes sec_2601 of the code imposes a tax on every generation- skipping transfer sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that the tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2601-1 provides that except as provided in sec_26_2601-1 or c any trust in existence on date is considered an irrevocable_trust sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip sec_26_2611-1 provides that a generation-skipping_transfer is an event that is either a direct_skip a taxable_distribution or a taxable_termination the determination as to whether an event is a generation-skipping_transfer is made by reference to the most recent transfer subject_to the estate and gift_tax sec_2612 defines the term direct_skip to mean a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 defines the term skip_person to mean -- a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor or a if all interests in the trust are held by a trust-- skip persons or b if-- in the trust and i there is no person holding an interest distribution including distributions on termination be made from the trust to a non-skip_person ii at no time after the transfer may a an amendment to an exempt trust that modifies or otherwise changes the quality value or timing of any of the powers or beneficial interests rights or expectancies originally provided under the terms of the trust will cause the trust to lose its exemption from the gst tax the trust for the benefit of son and son’s family and daughter and daughter’s family is a generation-skipping_trust because it provides for distributions to more than one generation of beneficiaries below decedent’s generation because however the trust was irrevocable on date and there have been no additions to the trust since that date it is exempt from the gst tax pursuant to sec_26_2601-1 under the court-ordered division of the trust the interests of son and daughter's children and their descendants will remain the same and the timing of the termination of the resulting trusts will remain the same consequently the value of the income or corpus interest of each beneficiary will not change materially as a result of the division of the trust corpus into two separately administered trusts accordingly the proposed division of the trust into two trusts will not change the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the original terms of the trust based on the information submitted and the representations made we conclude that the division of the trust into two equal trusts will not cause the two separate trusts or any distributions from any of the two separate trusts to be subject_to the gst tax except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours christine e ellison christine e ellison chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes


t c memo united_states tax_court toni lynette knight petitioner and robert knight intervenor v commissioner of internal revenue respondent docket no filed date toni lynette knight pro_se peter c pappas for intervenor jeffrey s luechtefeld for respondent memorandum findings_of_fact and opinion halpern judge this case is before us to review the denial by respondent’s appeals_office appeals of petitioner’s request for relief from joint_and_several_liability for and petitioner requested relief under subsections b c and f of sec_6015 respondent now concedes that petitioner is entitled to relief for those years under sec_6015 intervenor petitioner’s husband during the years in issue objects that petitioner does not qualify for relief under subsection c because when she signed the returns petitioner had actual knowledge of the items giving rise to the deficiencies see sec_6015 findings_of_fact introduction the stipulation of facts consists of three paragraphs the first states that when she filed the petition petitioner resided in florida the second states that exhibit is a copy of the notice_of_determination that in date appeals mailed petitioner denying her relief under sec_6015 c and f the third states that exhibit is a copy of the administrative record that the appeals officer used to make the determination the stipulation of facts with accompanying exhibits is incorporated herein by this reference 1unless otherwise stated section references are to the internal_revenue_code and rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dollar 2respondent however continues to deny that petitioner is entitled to relief under sec_6015 and f because we find that petitioner is entitled to complete relief under sec_6015 we need not discuss sec_6015 and f only respondent filed a brief in this case both petitioner and intervenor expressly decided not to do so accordingly we must conclude that petitioner and intervenor concede that respondent’s proposed findings_of_fact are correct except to the extent that those findings are clearly inconsistent with the evidence in the record see eg estate of freeman v commissioner tcmemo_1996_372 business_expenses petitioner and intervenor married in separated in and divorced in in and intervenor operated a bar and grill owned by his grandmother sports inn both petitioner and intervenor had full-time jobs they worked at sports inn at night and on weekends intervenor ran the business petitioner assisted him by ordering beer and wine from distributors and waiting on patrons only intervenor however had signatory authority over the business bank account in and sports inn was losing money as a result intervenor sometimes needed to pay business_expenses from the couple’s joint personal checking account petitioner knew that sports inn was losing money and that intervenor sometimes paid its expenses from their joint personal checking account intervenor maintained all the records for sports inn before filing the and joint returns intervenor summarized the records that is listed the totals of all revenues and expenses in a spreadsheet on a single piece of paper petitioner did not assist intervenor in preparing the spreadsheet once intervenor had completed the spreadsheet and collected other necessary tax documents eg the couple’s forms w-2 wage and tax statement he placed that information in a folder he showed petitioner the folder and gave her a chance to review it intervenor did not discuss the business items with petitioner in detail indeed he did not tell her that he had no receipts for some of the expenses in the spreadsheet he then took the folder to h_r block to have their joint_return prepared intervenor remained at h_r block while the return was completed later petitioner went to h_r block to sign it the and joint federal_income_tax returns in and petitioner and intervenor filed joint federal_income_tax returns claiming refunds petitioner and intervenor deposited those refunds into their joint personal checking account in a subsequent examination of those returns respondent disallowed unsubstantiated business_expenses related to sports inn including rent expenses and entertainment_expenses for and respondent disallowed total expenses of dollar_figure and dollar_figure respectively respondent made certain other adjustments including automatic adjustments taking account of all of the adjustments respondent determined deficiencies in tax of dollar_figure and dollar_figure for and respectively in date petitioner and intervenor signed a form_870 waiver_of_restrictions_on_assessment_and_collection of deficiency in tax and acceptance of overassessment and agreed to the proposed adjustments and additional assessments of federal_income_tax for and opinion i introduction spouses who file joint returns are jointly and severally liable for the tax owed see sec_6013 sec_6015 provides three ways out of that liability see sec_6015 c and f to qualify for relief under sec_6015 the requesting spouse must satisfy various requirements none of which is in issue if however the commissioner convinces us that the requesting spouse had actual knowledge at the time she signed the return of the items giving rise to the deficiencies then we will deny relief see sec_6015 the sec_6015 allocates the items giving rise to the deficiency as if the spouses had filed separate returns if pursuant to sec_6015 the requesting spouse shows that the spouses made a joint_return when the requesting spouse elected to seek relief the spouses were legally_separated divorced or had not been members of the same household at any time during the previou sec_12 months the requesting spouse elected to seek relief after the commissioner asserted a deficiency but no later than years after the start of collection activities and the deficiency remains unpaid nonrequesting spouse may become a party to the action for redetermination of relief from joint_and_several_liability see sec_6015 rule respondent however concedes that petitioner is entitled to relief under sec_6015 intervenor relying on the actual knowledge exception in sec_6015 objects because respondent who otherwise would bear the burden of proving that exception applies concedes he cannot do so there is the question of whether that burden shifts to intervenor see stergios v commissioner tcmemo_2009_15 as in stergios however we need not answer that question today because the parties introduced sufficient evidence so that we can decide the issue by a preponderance_of_the_evidence ii analysis the only question is whether when she signed the and joint returns petitioner knew of any items giving rise to the deficiencies under sec_6015 we look for an actual and clear awareness as opposed to reason to know of the existence of an item which gives rise to the deficiency 115_tc_183 affd 282_f3d_326 5th cir sec_1_6015-3 income_tax regs describes given a specific class of item what the commissioner must show that the requesting spouse knew all of the items giving rise to the deficiencies here were deductions disallowed for lack of substantiation for fictitious or inflated deductions the commissioner must show that the requesting spouse knew that the expenditure was not incurred or not incurred to that extent sec_1_6015-3 income_tax regs because no party alleges that the relevant facts are different for the years in issue we shall consider and together we find that petitioner did not know that any items giving rise to the deficiencies were not incurred or if incurred could not be substantiated our reasons are as follows intervenor kept the records for sports inn he summarized the information from those records on a spreadsheet and he presented petitioner with only his summary of those records he did not review his summary with petitioner in any detail and he did not tell petitioner that with respect to certain expenses he had no receipts petitioner had no role in the management of sports inn she did not have signatory authority over the business bank account and she was not involved in maintaining the business records she gave the returns in question only a cursory review with respect to rent intervenor testified that he paid his grandmother pursuant to a family agreement given that intervenor had no canceled checks to substantiate the rent expenses we presume he paid his grandmother in cash petitioner testified credibly that she believed that he was paying rent with respect to entertainment_expenses intervenor testified that he paid the live musical bands in cash but lacked substantiation we are convinced that whatever review petitioner gave to the and joint income_tax returns she had no knowledge of the lack of substantiation for band or any other expenses iii conclusion we shall grant petitioner relief from joint_and_several_liability for and under sec_6015 decision will be entered for petitioner


department of the treasury internal_revenue_service washington d c jul tax_exempt_and_government_entities_division uniform issue list se-ter ka ty ira b company c amount amount amount amount dear this is in response to your request dated date as supplemented by correspondence dated date in which you request through your authorized representative a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received distributions equal to amount amount and amount from ira b which was maintained by company c taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed ‘by d a of the code was because her spouse had withdrawn amount sec_2 and from ira b without her knowledge or consent taxpayer a owned ira b taxpayer a represents that her husband repeatedly withdrew amounts from ira b without taxpayer’s a knowledge or consent amount sec_2 and were distributions made from ira b on january january amount total amount respectively amount amount and and january when taxpayer a discovered the unauthorized withdrawals from ira b she contacted a criminal attorney regarding pursuing charges of theft taxpayer a also submitted a request to the service asking that it waive the 60-day rollover requirement under sec_408 of the code as to the distributions of amount sec_2 and from ira b taxpayer a represents that amount sec_2 and have not been used for any other purpose based on the above facts and representations you request a ruling that the service waive the 60-day rollover requirement under sec_408 of the code as to the distributions of amount sec_2 and from ira b 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 sec_408 of the code 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 or any other_property is paid into an ira for the benefit of such individual not later than the 60th 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 60th 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 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury 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 revproc_2003_16 2003_4_irb_359 provides that the service will issue a ruling waiving the 60-day rollover requirement in cases 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 taxpayer in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code 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 and documentation submitted are consistent with taxpayer a’s assertion that the failure to accomplish a rollover within the 60-day period prescribed by d a of the code was because her spouse had withdrawn amount sec_2 and from ira b without her knowledge or consent therefore pursuant to sec_408 of the code the service waives the day rollover requirement with respect to the distributions equal to amount sec_2 and provided all other requirements of sec_408 except the 60-day requirement will be met with respect to the contribution of an amount not in excess of amount such contribution will be considered a rollover_contribution within the meaning of sec_408 taxpayer a has days from the issuance of this letter_ruling to complete a rollover of amount into an ira this ruling does not authorize the rollover of amounts that are required to be distributed by 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t1 carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter ce


t c memo united_states tax_court george j smith and sheila ann smith petitioners v commissioner of internal revenue respondent docket no filed date ps omitted from their income_tax returns amounts they received as interest and for work performed ps claim that because r assessed sec_6702 frivolous_return penalties he must make sec_6020 substitute returns for ps before he can claim the returns they filed are incorrect ps also argue that they were not employees within the meaning of i r c ch federal_insurance_contributions_act and that moneys they received in exchange for their labor were not wages as defined in i r c ch collection of income_tax at source on wages moreover they argue that the income_tax is an excise_tax and they did not engage in activities subject_to excise_tax during the years in question held sec_6020 does not require r to make a substitute return for ps even if the returns they filed are subject_to frivolous_return penalties held further ps' compensation_for services and interest were items of gross_income held further ps' excise_tax argument is meritless held further ps are subject_to an sec_6651 addition_to_tax for failure_to_file a timely return held further ps are subject_to sec_6673 sanctions for maintaining frivolous and baseless positions george j smith and sheila ann smith pro sese william d richard lisa m oshiro and alicia h eyler for respondent memorandum findings_of_fact and opinion halpern judge respondent determined deficiencies in additions to and penalties with respect to petitioners' and federal_income_tax as follows year deficiency dollar_figure big_number additions to tax sec_6651 sec_6651 penalty sec_6662 dollar_figure --- dollar_figure dollar_figure big_number unless otherwise noted all section references are to the internal_revenue_code code of as amended and in effect for and and all rule references are to the tax_court rules_of_practice and procedure dollar amounts have been rounded to the nearest dollar respondent has conceded both the sec_6651 additions to tax and the sec_6662 penalties and we will not further discuss them findings_of_fact the parties have stipulated certain facts and the authenticity of certain documents the facts stipulated are so found and documents stipulated are accepted as authentic when they filed the petition petitioners resided in the state of washington during the years at issue petitioner george j smith worked for staples contract commercial inc staples in consideration for his labor staples paid him dollar_figure in and dollar_figure in during those years petitioner sheila ann smith worked for fife maritime inc fife in consideration for her labor fife paid her dollar_figure in and dollar_figure in during she also was paid dollar_figure by microsoft corp for products or services rendered to it during she worked for met homes and in consideration for her labor it paid her dollar_figure in during a portion of mrs smith was unemployed and on account thereof she received in that year an unemployment insurance payment of dollar_figure from the washington state employment security department during and petitioners maintained an account at harborstone credit_union harborstone which paid them interest of dollar_figure in and dollar_figure in petitioners made joint returns of income for and on form sec_1040 u s individual_income_tax_return on their return they reported no items of income claimed no deductions other than a deduction for personal exemptions of dollar_figure showed federal_income_tax withheld of dollar_figure and claimed an overpayment_of_tax in that amount in total they did not report as income on their return dollar_figure they received in as interest and for work performed their return was similar except that they reported as an item_of_gross_income dollar_figure of unemployment_compensation claimed a standard_deduction of dollar_figure and a deduction for personal exemptions of dollar_figure reported no tax withheld and claimed an overpayment in tax of dollar_figure in total they did not report as income on their return dollar_figure received by them in as interest and for work performed respondent received petitioners' form_1040 on date in date respondent assessed sec_6702 penalties for filing frivolous returns which he had imposed on petitioners on account of their and returns i introduction opinion petitioners assign error to respondent's determination of deficiencies additions to tax and penalties the narrative portion of the petition is some pages long and initially it explains why they are not liable for the sec_6702 penalties respondent assessed at the start of the trial we explained to petitioners that they could not challenge the sec_6702 penalties in this proceeding because those penalties did not form any part of respondent's determination of the deficiencies additions to tax and penalties at issue in this proceeding and the deficiency procedures which allow preassessment review of certain penalties do not apply to the civil penalties provided for in sec_6702 see sec_6703 buckardt v commissioner tcmemo_2012_170 wl at stating that the deficiency procedures of sec_6211 through do not apply to frivolous_return penalties under sec_6702 aff'd 584_fedappx_612 9th cir nevertheless petitioners argued at trial and continue to do so on brief that because respondent determined that they were deserving of civil penalties for filing frivolous tax returns respondent was also required by sec_6020 and the regulations thereunder to make a return for them before he could claim that the returns they filed were incorrect beyond that as best we understand petitioners' arguments as to why their returns were correct as filed such that there are no deficiencies in tax those arguments are as follows first petitioners argue that neither were the moneys they received in exchange for their labor wages as defined in sec_3401 nor were they employees within the meaning of sec_3121 the former provision defines the term wages for purposes of chapter of the code dealing with the withholding of income_tax from wages paid while the latter provision defines the term employment for purposes of chapter of the code imposing the federal_insurance_contributions_act social_security_tax second they argue sec_6020 provides authority of secretary to execute return --if any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor or makes willfully or otherwise a false_or_fraudulent_return the secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise sec_301_6020-1 proced admin regs adds frivolous to the adjectives describing the disfavored class of return that the income_tax is an excise_tax that does not apply to the income they received and failed to report except for petitioners' receipt of the harborstone interest payments petitioners bear the burden_of_proof see rule a ii deficiencies in income_tax we need not spill much ink in addressing petitioners' various arguments petitioners elaborate their sec_6020 argument as follows respondent i sec_2sec a provides that if a taxpayer offers credible_evidence with respect to any issue relevant to determining his tax_liability the burden_of_proof with respect to the issue is on the commissioner see also rule a sec_7491 applies only if the taxpayer complies with the relevant substantiation requirements in the code maintains all required records and cooperates with the commissioner with respect to witnesses information documents meetings and interviews sec_7491 and b the taxpayer bears the burden of proving compliance with the conditions of sec_7491 and b see eg mileham v commissioner tcmemo_2017_168 at petitioners neither propose facts to support their compliance with the conditions of sec_7491 and b nor persuasively argue that respondent bears the burden_of_proof on any issues because of sec_7491 we therefore conclude that sec_7491 does not apply in this case nevertheless rule a places on respondent the burden_of_proof with respect to any new_matter petitioners' receipt of interest payments from harborstone during the years at issue is not included among the items giving rise to the deficiencies in income_tax shown on the table at the beginning of this report the fact that petitioners received those payments however was stipulated by the parties and was tried with their implicit consent see rule b see also hughes v commissioner tcmemo_1994_139 t c m ria para big_number pincite ndollar_figure the parties' stipulation satisfies respondent's burden to prove receipt of the interest payments required by statute to create and subscribe its sic own contrary returns when alleging that those previously filed are required and are false whether willfully or otherwise however petitioners recognize that there are numerous cases holding that sec_6020 does not give rise to a mandatory duty to prepare a substitute return e g 919_f2d_830 2d cir citing 847_f2d_1379 9th cir 65_tc_542 although petitioners seek to overcome the uniform weight of authority by noting that those and similar cases involve a failure_to_file a return rather than the filing of a false or frivolous_return they fail to suggest why that factual distinction should affect our interpretation of a statute that is equally triggered by either a 'fail ure to make any return required by any internal revenue law or regulation' or the 'mak ing willfully or otherwise of a false_or_fraudulent_return ' united_states v hendrickson no wl at e d mich date quoting sec_6020 in either case the secretary is granted precisely the same authority to create a substitute return and any statutory duty to do so surely would arise under either circumstance id we agree the fact that respondent believes that petitioners took positions that are frivolous on their and returns and for that reason are deserving of sec_6702 penalties has no bearing on whether respondent must make substitute returns for petitioners before he can determine deficiencies in their and federal_income_tax he need not we may be even briefer in disposing of petitioners' other two arguments subtitle a of the code sets forth the provisions governing the federal_income_tax see generally secs in relevant part sec_1 provides for the imposition of an income_tax on all taxable_income which is defined as gross_income minus the deductions that the chapter allows sec_63 in turn gross_income is defined in sec_61 as all income from whatever source derived including but not limited to compensation_for services and interest petitioners concede that during the years at issue they received for their labor and as interest the amounts by which respondent adjusted increased their gross_income for those years nevertheless petitioners argue that the compensation payments received from their employers during and were not wages as defined in sec_3401 and that they were not employees as defined in sec_3121 at trial we pointed out to petitioners that the definitions they referred to were by their terms relevant to provisions of subtitle c of the code addressing employment_taxes and the collection of the income_tax and not to the definition of gross_income in subtitle a see sec_61 petitioners' legal arguments that on account of sec_3401 and sec_3121 the amounts they concede that they received in exchange for their labor compensation_for their services are not items of gross_income are meritless indeed the court_of_appeals for the ninth circuit the venue for appeal of this case should the parties not by written stipulation agree otherwise see sec_7482 has held taxpayers' claim that their wages are not income is frivolous 733_f2d_709 9th cir petitioners' final argument is that the income_tax is an excise_tax and that but for mrs smith's receipt of unemployment_compensation in they did not engage in activities subject_to excise_tax during the years in question numerous courts including this court have rejected that argument as meritless and we see no need to entertain it any further see eg 756_f2d_38 6th cir describing a taxpayer's similar argument as baseless aff'g tcmemo_1983_473 724_f2d_469 5th cir stating that the taxpayer's appeal has an absence of a semblance of merit aff'g tcmemo_1983_75 705_f2d_1017 8th cir determining that the taxpayer's arguments are wholly without merit aff'g per curiam tcmemo_1982_590 hill v commissioner tcmemo_2013_264 at concluding that the taxpayer's arguments are frivolous and groundless heisey v commissioner tcmemo_2002_41 wl at the contentions made by the taxpayer in his petition and on brief are appropriately termed 'tax protester rhetoric and legalistic gibberish' and we shall not dignify such arguments with any further discussion aff'd 59_fedappx_233 9th cir we hold that the dollar_figure and dollar_figure petitioners received in and from staples fife microsoft corp and met homes are amounts includible in their gross_income for those years respectively similarly the dollar_figure and dollar_figure interest payments petitioners received in and from harborstone are amounts includible in their gross_income for those years respectively iii additions to tax and penalties a introduction sec_7491 requires that respondent bear the burden of production regarding additions to tax and penalties to meet that burden respondent must present evidence indicating that it is appropriate to impose additions to tax or penalties see 116_tc_438 with certain exceptions he also must produce evidence that he complied with the supervisory approval requirements of sec_6751 graev v commissioner 149_tc_485 supplementing and overruling in part 147_tc_460 among the exceptions is any addition under sec_6651 see sec_6751 also sec_6751 does not apply to the tax_court when it imposes a penalty under sec_6673 williams v commissioner 151_tc_1 if respondent carries his burden petitioners have the burden of proving any defense to the addition or penalty such as reasonable_cause substantial_authority or other exculpatory factors see higbee v commissioner t c pincite b sec_6651 addition_to_tax for failure_to_file return sec_6651 provides for an addition_to_tax in the case of a failure_to_file a return on or before the specified filing_date sec_6651 does not apply if the failure_to_file is due to reasonable_cause and not to willful neglect petitioners' income_tax return was due on or before date sec_6072 respondent received petitioners' form_1040 on date which is more than a year after it was due respondent has carried his burden of showing that a sec_6651 addition_to_tax is appropriate and petitioners have not shown that their failure to timely file was due to reasonable_cause we sustain the sec_6651 addition_to_tax for c sec_6673 sanction in pertinent part sec_6673 provides a penalty of up to dollar_figure if the taxpayer has instituted or maintained proceedings before the tax_court primarily for delay or the taxpayer's position in the proceeding is frivolous or groundless a taxpayer's position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 143_tc_376 quoting 135_tc_231 aff'd in part appeal dismissed in part 616_fedappx_391 10th cir furthermore t he purpose of sec_6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate 119_tc_285 given the public policy interest in deterring the abuse and waste of judicial resources the authority of the court to impose this penalty and in what amount is broad see leyshon v commissioner tcmemo_2015_104 at aff'd 649_fedappx_299 4th cir at the beginning of the trial we informed petitioners that on the basis of our reading of the petition and their pretrial memorandum they appeared to be proceeding with only frivolous or groundless claims we warned them that we could impose a penalty of up to dollar_figure for such conduct after reading petitioners' 36-page posttrial brief which repeats the arguments they made in the 40-page petition and in their pretrial memorandum and with which we have dealt supra we believe that petitioners are deserving of a penalty because they lack grounds for their claim and their arguments are frivolous we will impose on them a sec_6673 penalty of dollar_figure decision will be entered under rule


internal_revenue_service number release date index number -------------------------------------------------------- ----------------------------- ------------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------ telephone number -------------------- refer reply to cc ita b03 plr-123927-14 date date ty ------ legend taxpayer ------------------------------------------------------ date -------------------------- date ------------- date --------------------------- date ------------- taxable_year ------ dollar_figurea -------------- dollar_figureb ---------------- corporation ----------------------------------------------- investment_company affiliate --------------------------------------------- investment_company ------------------------------ investment bank ------------------------------------ plr-123927-14 tax_return_preparer ---------------------- dear ----------- this responds to a letter_ruling request dated date submitted on behalf of taxpayer taxpayer requests an extension of time under sec_301_9100-1 and sec_301 of the procedure and administration regulations to make a late election concerning the treatment of success-based fees in accordance with revproc_2011_29 2011_1_cb_746 which requires that a statement be attached to taxpayer’s original federal_income_tax return for taxable_year facts on date taxpayer was acquired by corporation along with preexisting management owners in a transaction qualifying as a reorganization under sec_368 of the internal_revenue_code taxpayer engaged investment_company affiliate an affiliate of investment_company and investment bank an investment banking firm in anticipation of the merger transaction to provide financial advisory services including analyzing the financial effects of the proposed transaction acting as advisor regarding the financial terms of the transaction and coordinating with legal counsel regarding matters related to the closing of the transaction taxpayer paid success-based fees and expenses to investment_company affiliate in the amount of dollar_figurea and investment bank in the amount of dollar_figureb taxpayer engaged tax_return_preparer to prepare and provide tax_advice with respect to its consolidated federal_income_tax return for the short taxable_year ended date on date taxpayer and tax_return_preparer discussed the tax treatment of the success-based_fee paid in connection with the transaction tax_return_preparer advised taxpayer that it could make the safe_harbor election for allocating success- based fees provided in revproc_2011_29 and treat percent of the success-based fees as an amount that does not facilitate the transaction and capitalize the remaining percent of the success-based_fee as an amount that does facilitate the transaction taxpayer would currently deduct the non-facilitative portion of the fee under sec_162 as ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business taxpayer communicated its intent to make the safe_harbor election to tax_return_preparer however tax_return_preparer inadvertently failed to attach or advise taxpayer to attach an election statement to its timely filed consolidated_return for taxable_year as required by sec_4 of revproc_2011_29 taxpayer timely filed its consolidated_return for the short taxable_year ending date on date taxpayer treated percent of the success-based fees as a currently plr-123927-14 deductible ordinary and necessary business_expense under sec_162 taxpayer capitalized the remaining percent of the success-based_fee under sec_263 tax_return_preparer discovered the omission of the election statement from taxpayer’s tax_return for the short taxable_year ending date in date and tax_return_preparer advised taxpayer to file a request for extension of time to make the safe_harbor election to allocate success-based fees law sec_263 provides generally that no deduction is allowed for any amount_paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate or any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made sec_1_263_a_-1 of the income_tax regulations provides that no deduction is allowed for an amount_paid to acquire or create an intangible which under sec_1 a - c i and a -4 d i a includes an ownership_interest in a corporation or other entity see also sec_1_263_a_-4 in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized see 503_us_79 397_us_572 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 ie a success-based_fee is an amount_paid to facilitate the transaction except to the extent the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction this documentation must be completed on or before the due_date of the taxpayer’s timely filed original federal_income_tax return including extensions for the taxable_year during which the transaction closes section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to allocate a success-based_fee between activities that facilitate the transaction and plr-123927-14 activities that do not facilitate the transaction by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer - i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election plr-123927-14 sec_301_9100-3 provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer - i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section analysis taxpayer’s election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_263_a_-5 the commissioner has the authority under sec_301_9100-1 and sec_301 to grant an extension of time to file a late regulatory election the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith taxpayer reasonably relied on tax_return_preparer a qualified_tax professional to prepare its federal_income_tax return for taxable_year taxpayer is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time relief is requested taxpayer did not affirmatively choose not to make the election after having been informed in all material respects of the required election and related tax consequences rather taxpayer intended to take advantage of the safe_harbor provisions in revproc_2011_29 and filed its return for taxable_year reflecting those provisions but failed to include the required election statement taxpayer is not using hindsight in requesting relief further based on the facts of the case provided granting an extension will not plr-123927-14 prejudice the interests of the government taxpayer will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the election at this time than taxpayer would have had if the election had been timely made in addition the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under sec_6501 before taxpayer’s receipt of the ruling granting an extension of time to make a late election ruling based upon our analysis of the facts as represented we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file the statement required by sec_4 of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by appropriate parties 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 expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including whether taxpayer properly included the correct costs as its success-based fees subject_to the election or whether taxpayer’s transaction was within the scope of revproc_2011_29 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling should be attached to taxpayer’s federal_income_tax returns for the tax years affected alternatively taxpayers filing returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling plr-123927-14 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter to the appropriate operating division director enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 sincerely sean m dwyer assistant to the branch chief branch income_tax accounting cc


t c memo united_states tax_court richard j and anna j sinsigalli petitioners v commissioner of internal revenue respondent docket nos filed date richard j and anna j sinsigalli pro_se richard a stone for respondent memorandum opinion powell special_trial_judge these consolidated cases were heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioners' and federal income taxes in the amounts of dollar_figure and dollar_figure respectively respondent also determined an accuracy-related_penalty under sec_6662 for in the amount of dollar_figure at the time the petitions were filed petitioners resided in forest hill maryland the issues are whether petitioners are entitled to miscellaneous deductions in excess of those allowed by respondent for whether wages received by petitioner s in and are taxable and whether petitioners are liable for an accuracy-related_penalty pursuant to sec_6662 for the facts may be summarized as follows during the years in issue petitioner richard j sinsigalli was employed by frederick ward associates as a design engineer for the taxable_year petitioners filed a joint federal_income_tax return in which they claimed itemized_deductions in the amount of dollar_figure upon examination respondent disallowed dollar_figure claimed as miscellaneous deductions for the taxable_year petitioners submitted a form_1040 with shown for their income and deductions petitioner sec_2 the first page of the notice_of_deficiency for reflects a deficiency in the amount of dollar_figure this apparently was due to a transposition error the computation page of the notice shows a deficiency amount of dollar_figure and at trial respondent verified that the lower amount was correct figures are rounded to the nearest dollar claimed an overpayment in the amount of dollar_figure for withholding payments respondent issued a notice_of_deficiency based on a taxable_income in the amount of dollar_figure and deductions for personal exemptions and a standard_deduction in the respective amounts of dollar_figure and dollar_figure on petitioners' motion these cases were consolidated for trial briefing and opinion and calendared for trial at the court's trial session commencing date in baltimore maryland at trial a stipulation of facts was submitted in each case signed by respondent and both petitioners petitioner richard j sinsigalli petitioner argued petitioners' position petitioners do not dispute that the wages were received nor do petitioners dispute respondent's disallowance of the miscellaneous deductions rather they argue that wages are not taxable_income discussion sec_61 defines gross_income to mean all income from whatever source derived including but not limited to c ompensation for services wages are income to the recipients sec_1_61-2 income_tax regs moreover this court and all others have consistently rejected the argument in various forms that wages are not taxable see eg 80_tc_1111 with respect to the disallowance of miscellaneous deductions pertaining to petitioners have the burden of establishing that they are entitled to the deductions claimed rule 503_us_79 after this court rejected the argument that wages were not income petitioner was given ample opportunity to present argument and evidence disputing respondent's determinations petitioner refused we therefore sustain respondent's determinations respondent determined that petitioners are liable for an accuracy-related_penalty under sec_6662 for for negligence sec_6662 provides that there shall be added to the tax an amount equal to percent of the portion of the underpayment to which this section applies sec_6662 applies to the portion of any underpayment which is attributable to inter alia negligence or disregard of the rules or regulations sec_6662 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and the term 'disregard' includes any careless reckless or intentional disregard sec_6662 petitioners again have the burden of establishing that the determination of the penalty was erroneous 92_tc_501 petitioners presented no evidence or argument concerning respondent's determination respondent's determination of the accuracy-related_penalty under sec_6662 for is sustained sec_6673 provides that if the court determines that the position of the taxpayer is frivolous or groundless or that the taxpayer instituted or maintained the proceeding primarily for delay the court can award a penalty in an amount not in excess of dollar_figure while we eschew awarding a penalty in these cases if petitioner persists in his argument that wages are not income or other similarly frivolous arguments we shall not be so constrained the next time decisions will be entered for respondent