internal_revenue_service number release date index number --------------------------------------------- ------------------------------------------------- ------------------------------------ -------------------------------------- ------------------------ -------------------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------ telephone number --------------------- refer reply to cc tege eoeg eo1 plr-129397-08 date date trust ------------------------------------------------------------------------- agreement --------------------------------------------------------------------------- program board ------------------------------------------------------- ----------------------------------------------------------------------- administrator ----------------------------------------------------------- city state date ----------------------------- ------------ ------------------- dear ---------------- this letter responds to a letter from your authorized representatives dated date as well as additional correspondence submitted on behalf of the city requesting rulings that the trust’s income is excludable from gross_income under sec_115 of the internal_revenue_code and the trust is not required to file an annual federal_income_tax return the city represents the facts as follows plr-129397-08 ---------------------------------------------------- issue - sec_115 facts the board consisting of designated city officers and employees was established by the city to administer its pension and retirement_system with the assistance of the administrator it manages and invests city funds which provide medical death disability and retirement benefits on behalf of active and former city officers and employees the trust was established by the city on the date with the members of the board serving as trustees the trust will allow for the prefunding of costs for health and welfare benefits under the program the administrator will accept and account for contributions to the trust and forward contributions to the custodian selected by the trustees for holding and administration the trustees will invest and reinvest trust assets and will pay benefits from the trust solely to provide health and welfare benefits to eligible retirees and to the eligible spouses and dependents of retirees the retiree health benefits provided through the program are self-insured both eligibility and cost of benefits vary based on hire date years_of_service upon retirement and whether the retiree or beneficiary is eligible for benefits under the medicare program the city represents that the program does not provide for any cash-out of unused amounts is not funded by any conversion of sick or vacation days and does not permit employee contributions for retiree medical benefits through pre-tax salary reduction elections the agreement provides that in no event will trust assets be distributed to or revert to any entity other than a state a political_subdivision of a state or an entity whose income is excluded from gross_income under sec_115 of the code the agreement states that there is no guaranty that payments or reimbursements to employees former employees or retirees will be tax-free and that the requested ruling concerns only the federal tax treatment of the trust’s income and will have no effect on whether contributions to or payments including medical expense reimbursements from the city’s health_plans are excludable under the code from the gross_income of employees former employees or retirees plr-129397-08 ---------------------------------------------------- law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the internal_revenue_service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization the trust provides health and welfare benefits to retired city employees and their spouses and dependents providing health and welfare benefits to former public employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 the trust performs an essential_governmental_function within the meaning of sec_115 the income of the trust accrues to the city any amounts remaining in the trust after all health and welfare benefits plus reasonable fees and expenses have been paid are to be retained for payment of future health and welfare benefits until all city liabilities for such benefits have been satisfied no private interests participate in or plr-129397-08 ---------------------------------------------------- benefit from the operation of the trust other than as providers of goods or services the benefit to retired city employees is incidental to the public benefit see revrul_90_74 issue - sec_6012 facts the agreement provides that the trustees shall receive and accept all contributions and shall hold invest reinvest manage administer and distribute property and the increments proceeds earnings and income solely to provide health and welfare benefits to retirees and their eligible spouses and dependents the agreement provides that no beneficiary shall have any right to take part in or direct the management or control of the business of the trust or to act for or bind the trust or the trustees or otherwise to transact any business on behalf of the trust the agreement provides in general that no portion of the principal or income of the trust shall revert to the city or shall be used for or diverted to any purpose other than to provide health and welfare benefits to retirees and their eligible spouses and dependents and to pay the reasonable expenses of the trust the agreement provides that contributions to the trust consist solely of funds appropriated by the city pursuant to the city code amounts refunded from vendors and insurers to the city that are earmarked to the trust and other_amounts the city directs to the trust no employee contributions shall be allowed or accepted except as might be permitted under the code the city represents that there are no current or past employee contributions to the trust and that the trust will not accept future employee contributions without a written_determination by the service that the trust will continue to qualify as an ordinary_trust within the meaning of sec_7701 and sec_301_7701-4 of the procedure and administration regulations the agreement provides that disbursements from the trust are to be made for the sole purpose of assisting in the payment of health and welfare benefits for retirees and their eligible spouses and dependents and for reasonable expenses and fees and that any amounts remaining in the trust after such disbursements are made are to be retained in the trust for future payments until all city liabilities for post-retirement health and welfare benefits have been satisfied plr-129397-08 ---------------------------------------------------- law analysis sec_301_7701-1 of the regulations provides in part that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 through -4 unless a provision of the code provides for special treatment of that organization sec_301_7701-4 provides in general that an arrangement will be treated as a_trust under the code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit the city contributes money to the trust to be used to pay health and welfare benefits for certain retirees of the city and their eligible spouses and dependents the trustees are charged with protecting and conserving the trust’s assets for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit assuming that the trust is recognized as a separate_entity under sec_301_7701-1 we conclude that the trust is an ordinary_trust under sec_301_7701-4 sec_6012 provides that every trust having taxable_income for the tax_year or having gross_income of dollar_figure or more for that year regardless of the amount of taxable_income must file a return with respect to income taxes under subtitle a rulings based solely on the facts and representations submitted by the trust we conclude that the income of the trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 consequently we rule that the trust’s income is excludable from gross_income under sec_115 we conclude that the trust is classified as a_trust under sec_301 a sec_6012 does not require a_trust without taxable_income to make a return of income when gross_income is less than dollar_figure because the trust’s income is excludable from gross_income under plr-129397-08 ---------------------------------------------------- sec_115 we rule that the trust is not required by sec_6012 to file an annual income_tax return except for the specific rulings above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding the federal tax consequences of contributions to or payments from the city’s health plan s including but not limited to whether contributions to the plan s are excludable from the gross_income of employees former employees or retirees under sec_106 and whether payments from the plan s including reimbursements of medical_expenses are excludable from the gross_income of employees former employees or retirees under sec_104 or sec_105 section dollar_figure of revproc_2008_3 2008_1_irb_110 provides that the service will not issue a ruling on whether a self-insured_medical_reimbursement_plan satisfies the requirements of sec_105 for the plan_year accordingly we express or imply no opinion regarding whether the program satisfies the nondiscrimination requirements of sec_105 or sec_1_105-1 of the income_tax regulations under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely sylvia hunt assistant chief exempt_organizations branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division aug uniform issue list at er ' ra th legend taxpayer a company b company c amount d date e date f date g ira x dear ira this is in response to your ruling_request dated submitted by your authorized representative in which you request a waiver of the 60-day rollover requirement 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 age represents that on date f she received a distribution from ira x totaling amount d taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to a mistake by company c which led to amount d being placed in a non-ira account with company c taxpayer a further represents that amount d has not been used for any other purpose taxpayer a made a written request on the proper company c form for a direct_rollover from ira x to ira y on date e however this requested transfer of amount d was not completed until approximately three months later on date f this was a transfer of individual retirement_funds between brokers and confusion during the administrative process resulted in the delay between date e and date f in addition since the transferring agent company b understood that the funds would be transferred into another custodial_account a form 1099-r was not issued to taxpayer a on date g taxpayer a discovered that amount d was being held in a non-ira account with company c rather than in ira y as taxpayer a requested an administrative error occurred in the transfer of amount d amount d has remained in the non-ira account with company c from the date of transfer without any further activity except for earnings based on the above facts and representations you request that the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount 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 tc to ira_rollovers sec_408 of the code provides that sec_408 of the code 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 i 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 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and d of the code 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 of the code revproc_2003_16 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 by taxpayer a is consistent with her assertion that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a mistake by company c that resulted in amount d being placed in a non-ira account the documentation presented further demonstrates the intent of taxpayer a to complete a rollover of amount d from ira x directly to ira y therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d you are granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day rollover requirement are met with respect to such contribution amount d 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 that may be applicable hereto this ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions regarding this ruling you may contact sincerely yours e donzell littlejohn manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter


department of the treasury internal_revenue_service washington d c date number release date uilc tl-n-8361-98 cc psi br internal_revenue_service national_office field_service_advice memorandum for area_counsel lmsb area financial services healthcare from associate chief_counsel passthroughs and special industries cc psi subject lease_stripping transaction this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent disclosure statement this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse affect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views legend taxpayer b c d e f g h j k l m promoter a promoter b bank a bank b country country state dollar_figuren1 dollar_figuren2 dollar_figuren3 n4 dollar_figuren5 n6 n7 dollar_figuren8 dollar_figuren9 dollar_figuren10 dollar_figuren11 dollar_figuren12 dollar_figuren13 dollar_figuren14 dollar_figuren15 dollar_figuren16 dollar_figuren17 dollar_figuren18 dollar_figuren19 dollar_figuren20 dollar_figuren21 dollar_figuren22 dollar_figuren23 dollar_figuren24 dollar_figuren25 dollar_figuren26 dollar_figuren27 dollar_figuren28 dollar_figuren29 dollar_figuren30 dollar_figuren31 dollar_figuren32 dollar_figuren33 n34 n35 p1 p2 p3 date date date date year year year issues whether the lease_stripping transactions lack economic_substance whether sec_482 applies to the lease-stripping transactions at issue and if so the consequences of applying sec_482 conclusions the lease_stripping transactions lack economic_substance because the transactions had no objective economic_substance there was no business_purpose for the transactions and the parties entered into the transactions for tax_avoidance purposes sec_482 applies to taxpayer and the other parties to this transaction because the participants acted in concert pursuant to a common plan to shift deductions to taxpayer they are part of the same controlled_group for purposes of applying sec_482 accordingly sec_482 may be applied to reallocate the rental income and deductions among the participants to prevent the evasion of taxes and clearly reflect the income of the participants sec_482 may be applied under three alternative theories a b c disregarding the master lease to d and the sublease to e so that taxpayer never acquires the obligation to pay rent to b which would prevent taxpayer from taking rental deductions allocating the dollar_figuren1 prepayment to taxpayer or allocating taxpayer’s rental deductions to d so that the income and deductions attributable to the payments due under the master lease are not artificially separated or allocating taxpayer’s rental deductions to d on the basis that sec_482 may be applied to allocate deductions attributable to property received in a sec_351 transfer from the transferee corporation back to the contributor to clearly reflect income facts introduction this case involves a lease-stripping transaction with one party realizing rental income from property and another party or parties claiming deductions for rental expenses and or depreciation on the equipment the service has defined and described forms of lease-stripping transactions and the code sections and doctrines that are applicable to such transactions notice_95_53 1995_2_cb_334 depending upon the facts of the case the service may apply the following provisions to the transaction sec_269 sec_382 sec_446 sec_482 sec_701 or sec_704 sec_7701 and the underlying regulations it may also recharacterize certain assignments or accelerations of future payments as financings or apply the assignment-of-income principles the business-purpose doctrine or the substance-over-form doctrines including the step transaction and sham doctrines notice_95_53 purported sale_and_leaseback of computer equipment b a wholly-owned subsidiary of c leases computer equipment to various end users pursuant to existing user leases the user leases on date b leased the computer equipment the master lease to d a limited life company organized in country making d the lessor to the original end users d was owned by three individuals the three individuals were all residents of country and none had any computer leasing experience d had no rights to the computer equipment until the expiration of the user leases on date d subleased the equipment the sublease subject_to the user leases and master lease to e a state limited_partnership the general partners of e are f and g f is a wholly-owned subsidiary of promoter a a promoter of these transactions g is a wholly-owned subsidiary of h e prepaid d p1 of the present_value of the rentals due under the sublease by transferring approximately dollar_figuren1 in cash this payment was partially financed through a loan by bank a of p2 of the present_value of the rentals due under the 1each user lease corresponds to a separate master lease schedule with a term longer than the term of the corresponding user lease the term of the user lease corresponding to the term of its relevant master lease schedule is referred to as the base term the remainder of that master lease schedule term is referred to as the supplemental term 2each user lease corresponds to a separate sublease schedule with a term longer than the term of the corresponding user lease the term extending beyond the term of the corresponding user lease is referred to as the extended sublease term 3in determining the present_value of the rentals due under the sublease payments due under the extended sublease term were excluded from calculations sublease the remaining portion of the rent prepayment dollar_figuren2 came from capital contributed to e by its partners both the loan repayments from e to bank a and the rental payments from the payments from the user leases to e were due semiannually enabling e to make its loan repayments with the user lease proceeds the loan from bank a secured_by the user leases and dollar_figuren3 cash was guaranteed by b the loan guaranty with b’s obligations further guaranteed by its parent c in exchange for the loan guaranty b received a semi-annual fee from e equal to n4 basis points of the outstanding loan principal d and e gave b security interests in the user leases to secure their obligations under the master lease and sublease in addition each general_partner of e agreed to indemnify b against losses that might be caused should e declare bankruptcy moreover b agreed to indemnify d for any u s tax_liability arising from its receipt of the rental income under the terms of the master lease d was required to use the proceeds of the prepayment from e either to prepay rent due under the master lease or to obtain a third party guaranty securing payment of rent under the master lease d’s payment of a portion of the rent owed to b under the master lease was guaranteed by bank b an affiliate of bank a the rent guaranty the rent guaranty was secured_by a u s treasury security maturing date purchased by d for dollar_figuren1 with the prepayment received from e to induce bank b to issue the rent guaranty d agreed to place the proceeds of the treasury security on deposit with a bank b affiliate d and subsequently k were restricted from accessing either the e prepayment or the treasury security proceeds except to pay rent due to b b agreed to provide services to e relating to the leases including the identification of remarketing opportunities b’s fees came from b’s use of the rents that it collected from end users monthly before they were paid to e semi-annually the fee and reimbursement agreement b assigned its rights to receive payments under the rent guaranty and under the fee and reimbursement agreement to j a limited_liability_company of which b is the sole member j also assumed b’s obligations under the loan guaranty in a series of related and prearranged steps taxpayer contributed approximately dollar_figuren5 to k a wholly-owned subsidiary of taxpayer in exchange for n6 shares of class a preferred_stock and additional common_stock in k on date d and k entered an exchange_agreement under the terms of the exchange_agreement d assigned its interest in the master lease the sublease the rent guaranty the u s treasury securities and the prepaid rent to k in return for n7 shares of class b non-voting preferred_stock of k valued at dollar_figuren8 taxpayer k and d treated their transfers as qualifying for nonrecognition under sec_351 of the internal_revenue_code the exchange entitled k to receive rents for the remaining p3 of the sublease rents not prepaid by e for the periods of the user leases the periods of the sublease from the end of the user leases to the end of the sublease and the re-lease of the equipment after the expiration of the sublease pursuant to the exchange_agreement k was assigned the lease interests formerly held by d becoming a sublessor on computer leases between b and end users k assumed ownership of the dollar_figuren1 rent prepayment and dollar_figuren9 accrued interest held in an account with the bank b affiliate but also assumed an obligation to pay dollar_figuren10 in supplemental rents as with d k was permitted to access the prepayment account solely to make rent payments to b under the master lease taxpayer included the dollar_figuren1 prepayment in its income for financial_accounting purposes but not for u s tax purposes taxpayer relied on sec_351 to exclude the prepayment from its gross_income as a tax-free contribution to k’s capital k’s payment of rent under the master lease allowed taxpayer to take rental deductions because the prepaid rent was taxable to d taxpayer only had to include in its income the p3 of the sublease rent not prepaid by e along with any supplemental rent received from the re-leasing of the equipment to new end-users law and analysis issue a lack of economic_substance generally a transaction that is entered into solely for the purpose of tax reduction and that has no economic or commercial objective to support it is a sham and is without effect for federal_income_tax purposes estate of franklin v commissioner t c 752_f2d_89 4th cir 435_us_561 when a transaction is treated as a sham the form of the transaction is disregarded and the proper tax treatment of the parties to the transaction is determined to be respected a transaction must have economic_substance separate and distinct from the economic benefit achieved solely by tax reduction if a taxpayer seeks to claim tax benefits which were not intended by congress by means of transactions that serve no economic purpose other than tax savings the doctrine_of economic_substance is applicable 31_f3d_117 3d cir 861_f2d_494 7th cir aff’g 87_tc_1087 364_f2d_734 2d cir aff’g 44_tc_284 31_tc_33 aff’d 270_f2d_294 3d cir acm partnership v commissioner tcmemo_1997_115 aff’d in part and rev’d in part 157_f3d_231 3d cir whether a transaction has economic_substance is a factual determination 338_us_451 this determination turns on whether the transaction is rationally related to a useful nontax purpose that is plausible in light of the taxpayer’s conduct and useful in light of the taxpayer’s economic situation and intentions the utility of the stated purpose and the rationality of the means chosen to effectuate it must be evaluated in accordance with commercial practices in the relevant industry 89_tc_986 acm partnership supra a rational relationship between purpose and means ordinarily will not be found unless there was a reasonable expectation that the nontax benefits would be at least commensurate with the transaction costs yosha v commissioner 87_tc_1087 acm partnership supra in determining whether a transaction has economic_substance so as to be respected for tax purposes both the objective economic_substance of the transaction and the subjective business motivation must be determined acm partnership f 3d pincite 968_f2d_1229 d c cir 909_f2d_1360 9th cir 81_tc_184 aff'd in part and rev'd in part 752_f2d_89 4th cir the two inquiries are not separate prongs but are interrelated factors used to analyze whether the transaction had sufficient substance apart from its tax consequences to be respected for tax purposes acm partnership f 3d pincite casebeer f 2d pincite see also notice_95_53 1995_2_cb_334 all of the facts and circumstances surrounding the transactions must be considered no single factor will be determinative courts will respect the taxpayer’s characterization of the transactions if there is a bona_fide transaction with economic_substance compelled or encouraged by business or regulatory realities imbued with tax-independent considerations and not shaped solely by tax_avoidance features that have meaningless labels attached see 435_us_561 909_f2d_1360 9th cir recently the service was successful in showing that a series of prearranged transactions involving the purchase and sale of debt instruments in an attempt to shift accelerated installment_sale gain to a tax-neutral partner and manufacture a loss for another partner lacked economic_substance acm partnership v commissioner tcmemo_1997_115 aff’d in relevant part rev’d in part remanded 157_f3d_231 3d cir cert_denied u s lexis u s date in acm partnership the commissioner argued that the purchase and sale of debt instruments were prearranged and predetermined devoid of economic_substance and lacking in economic reality the court found that the taxpayer desired to take advantage of a loss that was not economically inherent in the object of the sale but which the taxpayer created artificially through the manipulation and abuse of the tax laws the court also stated that the tax law requires that the intended transactions have economic_substance separate and distinct from economic benefit achieved solely by tax reduction it held that the transaction lacked economic_substance and therefore that the taxpayer was not entitled to the claimed deductions the opinion demonstrates that the court will disregard a series of otherwise legitimate transactions where the commissioner is able to show that the facts when viewed as a whole have no economic_substance see also rev_rul 1999_13_irb_3 because lease-in lease-out transactions have no economic_substance a u s taxpayer could not take deductions for rent or interest_paid or incurred in connection with the transaction while the profit potential or economic risk relative to the expected tax_benefit necessary to meet the objective economic_substance test has not been quantified a reasonable prospect or possibility for profit is required see horn f 2d pincite n rice's toyota world inc t c pincite nominal or de_minimis profit potential does not imbue a transaction with economic_substance 364_us_361 912_f2d_736 4th cir rev’g ustc cch e d n c 103_tc_29 94_tc_738 84_tc_412 b application to this transaction of lack of economic_substance_doctrine in the lease_stripping transactions described above there was no objective economic_substance or business_purpose for the sale and leasebacks the subsequent sale of the right to receive lease payments or the contribution of leasehold interests to the subsidiary rather the sole purpose of the transactions was the creation of tax benefits the tax opinion provided to taxpayer by promoter a assumes that k reasonably expects to realize an economic profit on the transaction however this assumption rests on an appraisal prepared by l and a letter from m both of which were prepared for the promoter promoter a based solely on an appraisal performed by l promoter a projected that if taxpayer could find new end users for the supplemental leasing period taxpayer would report a book profit of dollar_figuren11 computed as the difference between the dollar_figuren12 in rent payments taxpayer would receive from e under the sublease less the dollar_figuren13 in rent payments taxpayer was obligated to make to b under the master lease along with dollar_figuren14 the cost of investing in the transaction this investment cost was computed as the sum of the following amounts dollar_figuren15 in rent payments to b in excess of the dollar_figuren1 rent prepayment dollar_figuren16 to redeem preferred_stock dollar_figuren17 in dividends on the preferred_stock and dollar_figuren18 in fees to promoters promoter a estimated that taxpayer would obtain tax savings of dollar_figuren19 from the investment derived from an estimated taxable loss of dollar_figuren20 the estimated book profit and tax savings were based on an anticipated value of the supplemental rent of dollar_figuren21 promoter a also provided an alternate estimation of book profit and tax savings which assumed taxpayer’s inability to find new supplemental end users this alternate analysis projected a book loss to taxpayer of dollar_figuren14 and tax savings of dollar_figuren22 derived from an estimated dollar_figuren23 taxable loss using promoter a’s anticipated value of the supplemental rents taxpayer projected that its pre-tax economic profit for financial purposes would equal dollar_figuren24 for tax purposes taxpayer estimated_tax savings of dollar_figuren25 derived from a taxable loss from the transaction of dollar_figuren26 assuming that the equipment could not be leased at the expiration of the end-user leases taxpayer alternatively estimated_tax savings from participating in the transaction equaling dollar_figuren27 thus profitability of the transaction under both promoter a’s and taxpayer’s projections ultimately depended on the value and extent of supplemental leasing that occurred subsequent to the expiration of the original end-user leases participation in the transaction would create net_income for financial statement purposes despite creating a taxable loss for income_tax reporting purposes because of income_tax refunds and because the dollar_figuren1 rent prepayment would be recognized as income over the lease_term in accordance with generally_accepted_accounting_principles thus under either promoter a’s or taxpayer’s projections participating in the transaction would allow taxpayer to report a substantial amount of income for financial reporting purposes while simultaneously realizing significant tax savings the service hired an outside expert to determine whether promoter a’s estimate of the supplemental rent was accurate the service’s expert determined that the value of the supplemental rent would only equal dollar_figuren28 using this discounted value of the supplemental rent participation in the transaction would have resulted in taxpayer’s suffering a net economic loss of dollar_figuren29 meaning that taxpayer had no possibility of realizing an economic profit from this transaction taxpayer was able to claim losses collectively amounting to dollar_figuren30 for the taxable years year through year without having to include the dollar_figuren1 prepayment from e in its gross_income these deductions were acquired at a cost to taxpayer of only dollar_figuren8 worth of preferred_stock plus dividends d received dividends from its k preferred_stock and gains in year upon the transfer of the stock in exchange for a partnership_interest which was subsequently redeemed e retained rental income of approximately dollar_figuren31 bank a received fees for its participation in the transaction b received a semiannual fee of n4 basis points of the outstanding principal_amount of the loan to e as consideration for its guaranty in addition for the lessor services it performed b received retention of the float between the monthly receipt of the end users’ rent and the semiannual payments it was required to remit to e so e could make payments under its sublease promoter a and another firm promoter b received fees totaling dollar_figuren32 for their roles as promoters issue a section 482-generally sec_482 was designed to prevent the artificial shifting milking or distorting of the true net incomes of commonly controlled enterprises 405_us_394 194_f3d_782 7th cir 372_f2d_415 4th cir cert_denied 389_us_841 42_tc_114 aff’d 358_f2d_342 6th cir cert_denied 385_us_899 cf h_r rep no 70th cong 1st sess sec_482 provides in relevant part in any case of two or more organizations trades_or_businesses whether or not incorporated whether or not organized in the united_states and whether or not affiliated owned or controlled directly or indirectly by the same interests the secretary may distribute apportion or allocate gross_income deductions credits or allowances between or among such organizations trades_or_businesses if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or to clearly reflect the income of any of such organizations trades_or_businesses emphasis added for the reallocation rule_of sec_482 to apply to a transaction the transaction must involve at least two entities owned or controlled by the same interests sec_482 imposes two requirements ownership or control must exist in some manner among the participants and the same interests must possess the control regarding the first requirement because none of the participants in the transaction are related to taxpayer the mutual ownership provision of sec_482 will not apply therefore at least two of the participants must be found to be controlled by the same interests if we are to apply sec_482 to the transaction that took place between the four parties b legal standard for determining control under sec_482 definition of control the regulations under sec_482 define control to include any kind of control regardless of whether such control is direct or indirect or legally enforceable sec_1_482-1 case law supports the regulation’s definition of control indicating that it is actual and practical control which counts in the application of sec_482 rather than record ownership or legally enforceable control ach t c pincite 17_tc_231 aff’d 202_f2d_873 5th cir cert_denied 346_us_819 acq in part and nonacq in part 1952_2_cb_2 1972_2_cb_2 see also 1_bta_624 acq 1925_1_cb_2 control not arising or flowing from means legally enforceable may be just as effective in evading taxation as if founded on the most formal and readily enforceable legal instrument dhl corp v commissioner t c memo holding that foreign investors did not have sec_482 control_over a corporation despite their ability to appoint a majority of its board_of directors because domestic shareholders retained the ability to control day-to-day operations and major events charles town f 2d pincite holding that two shareholders were in control of a corporation in which they only owned two percent of the outstanding_stock because of their possession of effective and practical control_over the corporation consequently according to both the sec_482 regulations and case law none of the participants in this transaction is required to have legal control of another participant through majority ownership of that other participant’s voting_stock for control to exist as defined under sec_482 the service has the authority to determine whether control exists by considering the reality of the situation and examining whether the same interests effectively control the participants to the transaction involved rather than basing the control determination solely on the taxpayer’s percentage of ownership of voting_stock or legal right to direct the participant’s actions when control does not exist through majority ownership of voting_stock or a legally enforceable agreement delegating the power to direct an entity’s actions the regulations provide alternatively that control results from the action of two or more taxpayers acting in concert with a common goal or purpose sec_1 i a presumption of control arises under the regulations if income and deductions have been arbitrarily shifted sec_1_482-1 case law is in accord with the regulation’s presumption of control through the arbitrary shifting_of_income or deductions dhl corp t c memo pincite when the interests controlling one entity and those controlling another have a common interest in shifting income from the former to the latter entities may be considered commonly controlled see also 598_f2d_1382 5th cir holding that the government correctly argued that proof of a shifting_of_income between two corporations establishes a presumption of common_control under sec_1_482-1 -predecessor to current sec_482 regulations 294_f2d_82 5th cir finding presumption of control under sec_29 of regulation 111-predecessor to current sec_482 regulations existence of control among b d e and taxpayer under sec_1_482-1 and the relevant case law taxpayer is not required to own an interest in any of the participants majority or otherwise for the requisite control to exist under sec_482 instead the service may consider whether taxpayer effectively controlled any of the participants despite taxpayer’s having no legal or contractual right to direct their actions in making this determination the service may apply the presumption of control provided for in sec_1 i and in the applicable case law for the presumption to apply the service has the burden of establishing that income or deductions have been arbitrarily shifted between taxpayer and either b d or e see dallas ceramic co f 2d pincite from the facts provided to us it appears as though the participants acted pursuant to a common plan to arbitrarily shift substantial rental deductions from e to taxpayer promoter a the promoter of the transaction brought all the parties together to engage in this lease_stripping transaction and each party played an integrated and predefined role pursuant to the preconceived plan developed by promoter a b provided the computer leases entered into with creditworthy lessees that were used for the lease_strip d and e were entities used to strip the rental income from the associated rental expense taxpayer was the recipient of the stripped rental expense and bank a provided the financing for the transaction in its promotional materials promoter a indicated that the transferee who acquired d’s leasehold interest had the possibility of obtaining material tax advantages due to the prepayment by e promoter a also provided economic analyses in its promotional materials indicating that participating in the transaction would generate substantial taxable losses whether or not supplemental leasing took place these facts and those set forth below lead us to conclude that the parties acted in concert with a common goal to separate rental income from rental expenses and to shift the rental expenses to taxpayer d was formed by three individual country residents shortly before the transaction at issue took place the facts presented appear to indicate that d was not adequately capitalized to engage in the leasing business at the level anticipated by the transaction the only business of d was to engage in this transaction and other similar transactions the third-party lessees to whom b originally leased the equipment had excellent credit ratings however by assigning its right to receive rental payments from such parties to d in exchange for the right to receive rental payments from d b substituted a lessee that was a poor credit risk for lessees who were excellent credit risks it is highly unlikely that b would have participated in the lease_strip transaction absent the rent guaranty issued by bank b and the restrictions agreed to by d on the use of funds deposited with bank b the partners of d were three individuals none of whom had any computer leasing experience thus d did not have the ability to perform its duties as lessor to the third party lessees absent its agreement with b a common plan appears to be the only plausible explanation for the agreement by b to guarantee the bank a loan to e a limited_partnership formed only four months after promoter a first approached taxpayer about participating in the transaction e was owned by promoter a and another company and was capitalized with only dollar_figuren33 given e’s debt to equity ratio of approximately n34 to n35 b’s guaranty exposed it to significant risk in the absence of other components of the common plan a common plan appears to be the only plausible explanation for the deposit agreement restrictions between bank b and d which prohibited d from using the deposited funds for any purpose other than to pay rent to b a common plan appears to be the only explanation for multiple roles played by b in the lease_strip transaction b provided the leases guaranteed e’s loan and provided the services of lessor including rent collection maintaining the equipment and other activities in return the deposit agreement between cid cid cid cid cid cid cid d and bank b assured b of a stream of what was economically substitute rental payments and other aspects of the prearranged plan resulted in additional fee income in summary d e and b acted pursuant to a design developed by promoter a that was marketed to taxpayer the only business of d and e was to engage in the transaction or in the case of d other similar transactions b was a willing accommodation party providing leases guarantees and other services d and e acted together to strip the lease income into the hands of d an entity believed to be exempt from u s net_income_tax neither d nor e appear to be adequately capitalized to engage in a bona_fide leasing business when viewed as a whole d and e received income analogous to fee income for their contributions to the plan of promoter a similarly in addition to payments that were economically substitute rental payments b also received income in the form of the float on the rental payments forwarded to d b d and e acted in conjunction with one another to effectuate the plan of promoter a because each of the participants in the transaction acted in concert pursuant to a common plan to arbitrarily shift rental income away from taxpayer to d and rental deductions away from e to taxpayer taxpayer and b are presumed to control e and d for the purposes of sec_482 pursuant to sec_1_482-1 and the applicable case law we fail to see any significant evidence that would rebut this presumption once it has been determined that control exists among the participants sec_482 next requires that the same interests possess the requisite control for the commissioner to make a reallocation c legal standard for determining the same interests under sec_482 the regulations provide no guidance as to what the term the same interests means under sec_482 case law has indicated that in using the term the same interests congress intended to include more than the same persons or the same individuals 598_f2d_1375 5th cir holding that different persons with a common goal or purpose for arbitrarily shifting income can constitute the same interests for purposes of sec_482 see also 453_f2d_1144 2d cir cert_denied 407_us_934 rejecting tax court’s view that two independently owned corporations acting in concert together to make interest-free loans to a jointly owned corporation did not constitute the same interests within the meaning of sec_482 366_f2d_890 5th cir cert_denied 386_us_1016 cf 2_bta_229 but see the 5_tc_558 acq c b acq withdrawn 1965_1_cb_5 case law indicates that the legal standard for determining whether the same interests control an entity is identical to the standard applied to determine whether control of an entity exists therefore if different entities are found to have a common goal to shift income or deductions among each other not only will control of the entities exist but the entities will also constitute the same interests for the purpose of sec_482 as previously discussed there appears to exist a common plan among b d e and taxpayer to shift income to d and deductions to taxpayer consequently b and taxpayer constitute the same interests under sec_482 meaning that the service may reallocate the rental deductions claimed by taxpayer to prevent the evasion of taxes or to clearly reflect income d application of sec_482 to this transaction there are two alternative bases to apply sec_482 to this transaction prevention of the evasion of tax and the clear_reflection_of_income economic_substance tax_evasion standards of sec_482 the application of sec_482 has been upheld where the challenged transaction was arranged without a valid business_purpose and solely in order to avoid taxes 84_tc_996 aff’d in part and rev’d in part 856_f2d_855 7th cir when analyzing potential tax_avoidance aspects of a transaction the commissioner will respect the transaction’s contractual terms if consistent with the true economic_substance of the transaction sec_1_482-1 the economic_substance standard of the regulations overlaps with the economic_substance and sham_transaction doctrines developed in case law which allow the service to disregard transactions lacking a business_purpose and a potential for economic profit however the sec_482 regulations expand upon case law guidance by providing additional guidance specifically the regulations provide the following see 293_us_465 364_us_361 interest deductions disallowed where nothing of substance could be realized from the transaction other than a tax deduction 435_us_561 the simple expedient of drawing up papers is not controlling for tax purposes when the objective economic realities of a situation are to the contrary 752_f2d_89 4th cir transaction is a sham where taxpayer is motivated by no business_purpose other than obtaining tax benefits in entering a transaction and where transaction has no economic_substance because no reasonable possibility of profitability exists 157_f3d_231 3d cir cert_denied 526_us_1017 transaction devoid of economic_substance cannot be the basis for a deductible loss the contractual terms including the consequent allocation of risks that are agreed to in writing before the transactions are entered into will be respected if such terms are consistent with the economic_substance of the underlying transactions in evaluating economic_substance great weight will be given to the actual conduct of the parties and the respective legal rights of the parties if the contractual terms are inconsistent with the economic_substance of the underlying transaction the district_director may disregard such terms and impute terms that are consistent with the economic_substance of the transaction sec_1_482-1 in making allocations under sec_482 the district_director is not restricted to the case of improper accounting to the case of a fraudulent colorable or sham_transaction or to the case of a device designed to reduce or avoid tax by shifting or distorting income deductions credits or allowances sec_1_482-1 thus sec_482 provides an alternative approach to challenging a transaction for lack of economic_substance by providing additional criteria under which to apply the economic_substance and sham inquiries to the parties’ conduct and not restricting the service’s allocation authority to instances of colorable or sham transactions see 88_tc_252 we note that in the context of this transaction this allocation authority would exist only where there is a common tax_avoidance scheme among the participants to shift income and or deductions arbitrarily under sec_482 the economic_substance of a transaction is analyzed by focusing on the parties’ actual conduct the economic risks purportedly transferred and whether from a business perspective the transaction makes objective business sense see sec_1_482-1 and sec_1_482-1 where the economic_substance of a transaction is inconsistent with the parties’ purported characterization the service may disregard the contractual terms underlying the transaction and treat the transaction consistent with its economic_substance this treatment may result in a denial of deductions arising from the transaction at issue see eg b forman f 2d pincite a the actual conduct of the parties is inconsistent with the form of the transaction as more fully discussed elsewhere in this memorandum the conduct of the parties was inconsistent with the form of the transaction as a series of leases taxpayer was not in the leasing business and had no expertise in computer leasing while the tax opinion obtained by taxpayer indicated that the purpose of the transaction was to diversify its business activities this view is not supported by the facts taxpayer was marketed a package by promoter a where the only economic benefits were the tax advantages to be derived from the lease_strip there is no evidence in the facts that a bona_fide business diversification which might include new employees the development of leasing expertise in company employees marketing activities the purchase of supporting equipment such as computers etc ever took place d was a mere accommodation party--it too did not have leasing expertise and was inadequately capitalized to engage in a true leasing business the agreement by b to guarantee the bank a loan to e a recently formed limited_partnership with a debt to equity ratio of approximately n34 to n35 and the deposit agreement restrictions between bank b and d which prohibited d from using the deposited funds for any purpose other than to pay rent to b are inconsistent with an arm’s length series of leases these and other facts clearly indicate that when viewed as a whole the actual conduct of the parties was inconsistent with the form of the transaction as a series of leases b allocation of risks in considering whether the allocation of risks specified or implied by taxpayer’s contractual terms will be respected as consistent with the economic_substance of a transaction sec_1_482-1 describes the following three factors as relevant to this evaluation whether the pattern of the controlled taxpayer’s conduct over time is consistent with the purported allocation of risk between the controlled taxpayers whether a controlled_taxpayer has the financial capacity to fund losses that might be expected to occur as the result of the assumption of a risk and the extent to which each controlled_taxpayer exercises managerial or operational control_over the business activities that directly influence the amount of income or loss realized applying the sec_482 risk analysis standards described above to the facts of this case leads to the conclusion that the transfer of risk associated with the computer leases to d pursuant to the master lease and the loan to e did not satisfy the regulations and cannot be respected the lease_strip transaction purported to allocate the risk of the end users’ default on their rental obligations to d pursuant to the master lease under the master lease d was obligated to pay rent to b from the end users’ rental remittances the subsequent conduct of the participants is not consistent with the allocation of the risk to d d and later k never bore the risk that the ultimate lessees of the equipment would default on their lease obligation the purported transfer of its rights under the master lease to e in exchange for a dollar_figuren1 prepayment of rent insulated d from the risk of default since it had cash in hand representing the present_value of the rental payments the risk of default with respect to the end users remained where it started with b as a result of b’s guarantee of e’s loan from bank a e was thinly capitalized and in the event of a significant rental payment default by the end users e would be unable to meet its obligation under the bank a loan and b would be required to make such payment under the guarantee thus the transaction did not result in a reallocation of lessee default risk from b to any party the initial allocation of risk to d does not comply with the second factor mentioned in the regulations because d did not have the financial capacity to assume the credit risk of the end users as set forth previously d does not appear to have been adequately capitalized to take over the end users’ payment obligations in the event of default by participating in the transaction b was substituting the risk of an undercapitalized company with no financial history for the end users’ credit risk this purported shifting of risk to a company lacking the financial capacity to bear the default risk would likely never have occurred in a transaction imbued with economic_substance finally the risk allocation does not meet the third factor mentioned in the regulations relating to the extent to which each controlled_taxpayer exercises managerial or operational control_over the business activities that directly influence the amount of gain realized neither d nor e were engaged in the leasing business and the facts do not indicate that either had any employees or officers that influenced whether a profit or loss would be made on the leasing of the computers to third parties furthermore d and e relinquished all control_over business relations with the end users by allowing b to perform all services relating to the leases including collecting the rent therefore neither d nor e exercised any managerial control_over the business activities influencing the obtaining of the end user rents the transaction failed to transfer any significant risks to either d or e accordingly the risk allocation standards of sec_1_482-1 have not been met with the result that the transaction should be disregarded as lacking economic_substance the effect of disregarding the master lease and sublease is to break the chain of transactions giving rise to k’s obligation to pay rent to b consequently taxpayer’s deductions for rental expenses should be denied a clear_reflection_of_income standard of section allocation to prevent the artificial separation of income from expenses even in the absence of tax_avoidance motives the commissioner may make a sec_482 allocation if necessary to clearly reflect income the clear_reflection_of_income prong of sec_482 has been applied to transactions where the expenses attributable to property have been artificially separated from the income earned from the property for instance in 198_f2d_214 2d cir cert_denied 344_us_874 the taxpayer transferred planted crops to another corporation in exchange for the corporation’s stock the profit from the harvested crop was included in the income of the transferee corporation while the transferor_corporation deducted the expenses attributable to raising the crop prior to the transfer applying the predecessor statute to sec_482 the commissioner allocated the expenses of raising the crop from the transferor_corporation to the transferee corporation the court upheld the allocation finding it necessary to clearly reflect income by matching the income with the expenses associated with producing it id pincite see also 305_f2d_681 9th cir applying the clear_reflection_of_income standards of sec_482 either the dollar_figuren1 prepayment should be allocated to taxpayer or the rental deductions should be allocated to d one of these alternative allocations must be made to prevent the artificial separation of the end user rental income and the deductions attributable to the payments due under the master lease allocating the prepayment to taxpayer or the rental deductions to d would ensure that the income received from the end users would be matched with the expenses_incurred in producing the income-the corresponding obligation to pay rent under the master lease b allocations involving nonrecognition transactions when a sec_351 transfer is involved the commissioner may disregard the nonrecognition provisions of sec_351 to make a sec_482 allocation if necessary to clearly reflect income among controlled taxpayers sec_1 f iii a to clearly reflect income or prevent the avoidance of taxes the commissioner may make an allocation under sec_482 with respect to transactions that would otherwise qualify for nonrecognition_of_gain_or_loss under sec_351 additional authority exists through case law in support of the service’s position allowing the disregarding of nonrecognition provisions if necessary to clearly reflect income one such case in accord with the service’s position is 137_f2d_600 3d cir cert_denied 320_us_794 in which a parent_corporation transferred stock with a substantial_built-in_loss to a wholly-owned subsidiary in a transaction which qualified as a nonrecognition_transaction under the predecessor to sec_351 the subsidiary sold the stock and claimed a loss deduction id pincite the commissioner disregarded the nonrecognition_transaction and treated the amount of the pre-contribution loss as sustained by the parent instead of the subsidiary under sec_45 of the revenue act of the predecessor to sec_482 id the taxpayer claimed that the subsidiary was entitled under the nonrecognition and basis provisions of the code to claim a loss deduction by virtue of the carryover_basis it received in the stock transfer id pincite the court rejected the taxpayer’s argument stating that in every case in which sec_45 was applied its application would result in a conflict with the literal provisions of some other act id according to the court the section could still be applied to clearly reflect income despite a conflict with the literal provisions of another section of the code id other cases are in accord with national securities corp that sec_482 may be applied to clearly reflect income despite apparent conflict with the provisions of another section of the code see central cuba sugar co f 2d pincite commissioner properly applied sec_482 to reallocate deductions associated with property acquired in a reorganization to transferee to clearly reflect income 811_f2d_543 10th cir commissioner has broad discretion under sec_482 to correct distortion_of_income occurring through the strict application of other provisions of the code and may invoke sec_482 to reallocate income derived from the disposition of property previously acquired in a nonrecognition_transaction 281_f2d_7 4th cir 756_f2d_1430 9th cir cert_denied 474_us_1055 commissioner may invoke sec_482 to reallocate income derived from the disposition of property previously acquired in a nonrecognition_transaction see also rooney v u s f 2d pincite sec_482 will control when it conflicts with sec_351 eli lilly and co v commissioner t c pincite8 sec_482 may be applied in circumstances involving sec_351 transactions if necessary to clearly reflect income or prevent the avoidance of tax 88_tc_252 but see 643_f2d_747 ct_cl aff’d without opinion 732_f2d_168 fed cir in the absence of tax_avoidance motives the commissioner may not disregard sec_351 transactions to apply sec_482 even if doing so would be necessary to clearly reflect income in the instant case d’s transfer of its rights under the master lease to k in the sec_351 transfer resulted in a distortion_of_income the sec_351 transfer allowed taxpayer to acquire free of tax the right to claim rental deductions on the equipment as the new sublessee under the master lease along with the cash to pay such rent because of the obligation to pay rent which d transferred to k under the sec_351 transaction taxpayer was able to claim losses collectively amounting to dollar_figuren30 from year through year taxpayer effectively paid only dollar_figuren8 the cost of the preferred_stock transferred to d in exchange for the right to claim dollar_figuren30 of losses resulting in a significant distortion of the amount of taxable_income taxpayer reported in year through year applying the analysis adopted in the national securities corp line of cases the service may disregard the sec_351 transfer and allocate taxpayer’s rental deductions back to d to clearly reflect income a sec_482 allocation may be made despite the fact that its application would result in a conflict with the provisions of sec_351 which would treat the transferee corporation k as the true owner of the interests and allow taxpayer to claim the losses please call craig gerson at if you have any further questions associate chief_counsel passthroughs and special industries by david r haglund senior technician reviewer branch passthroughs and special industries


cca_2015111709354958 id uilc number release date third party communication date of communication month dd yyyy from sent tuesday date am to cc bcc subject effect of failure to move payment to credit-elect year thanks for bringing this to our attention revrul_85_67 does not apply where a credit elect was not applied to the subsequent year with the unassessed liability until after the ased we plan on clarifying the statute handbook irm in this regard


id office uilc cca-511247-09 ---------- number release date from -------------------- sent to -------------------- cc subject fw work stoppage tulsa ok hi ----- i am also attaching a letter that -------------- in ---- sent to the county recorder in one of the pa counties the centralized lien unit is phasing out the use of so called convenience checks checks that are associated with a micro-purchase credit card account to county recorder offices due to the expense and resource issues about half the counties are already on fms tops all counties eventually will be migrated over to the treasury financial management system tops program the service sends the payment request to treasury and the fms tops program checks for debts owed by the county to the federal government and sets them off the ok version of the uniform federal lien registration act mandates that county clerks record the nftl upon presentation and bill the service monthly keep me posted thanks for your assistance --------------------- --------------------------------------------------------------------------------------------------------------------- ------------------- attachment office_of_chief_counsel department of the treasury internal_revenue_service office of division counsel small businessiself-employed ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- ------------------ ---------------------------- --------------- -------------------------------------- --------------------------------------- ---------------------------- ------------------------------------------------- dear ------------------------- this letter concerns federal tax_liens and releases submitted to washington county for filing and the payment of recording fees i am in receipt of your letter dated april addressed to ----------- irs lien processing program manager according to your letter washington county intends to implement a new procedure and will require payment up front for the filing of liens and releases the present practice in washington county is to accept and record the liens and releases when received and to bill the irs for the filing fees we understand that your office submitted a bill to the irs for the date recording fees in the amount of dollar_figure-------- and the amount deposited into the account for your office was dollar_figure----- however the payment of dollar_figure---------was subject_to an administrative offset to satisfy a delinquent debt owed by an agency of washington county pennsylvania enclosed is information regarding the treasury offset program the treasury offset program is a centralized offset program administered by the financial management service's fms debt management services dms to collect delinquent debts owed to federal agencies and states if a local jurisdiction owes a delinquent debt to a government agency that agency sends information about the debt to the fms database before the county receives a federal payment including payment of recording fees the database is searched to determine if a delinquent debt is registered if so fms will reduce or withhold the federal payment to satisfy the delinquent amount more information regarding the treasury offset program can be found at http www fms treas gov the federal_tax_lien gives the federal government a legal claim to the taxpayer's property for the amount of the tax debt therefore it is extremely important that the liens and releases are timely filed and properly recorded in order to give notice of the federal lien to persons dealing with the taxpayer and once satisfied that the lien is timely released in order to ensure that the taxpayer is not harmed under pennsylvania law if a notice of federal lien a refiling of a notice of federal lien or a notice of revocation of any certificate is presented to the filing officer he shall endorse thereon his identification and the date and time of receipt and forthwith file it alphabetically or enter it in an alphabetical index showing the name and address of the person named in the notice the date and time of receipt the title and address of the official or entity certifying the lien and the total amount appearing on the notice of lien pa st p s with regard to fees the statute provides that the filing officer shall bill the district directors of internal revenue or other appropriate federal officials on a monthly basis for fees for documents filed by them pa st p s thus washington county is not abiding by the statute in requiring the irs to forward the recording fee payment prior to filing or releasing the federal liens i have enclosed a copy of the statute for your reference the government has both a common_law and a statutory right of setoff 803_f2d_140 ' cir the government has the same right which belongs to every creditor to apply the unappropriated moneys of his debtor in his hands in extinguishment of the debts due to him 332_us_234 in the instant matter the recording fees paid to the washington county prothonotary are being offset for obligations of another washington county agency your office must work with the other county agency or agencies to redistribute funds this is not a problem that allows washington county to stop filing federal liens and releases as stated above it is extremely important that federal tax_liens are timely filed and properly recorded and released when satisfied in light of the above information we request that your office comply with the pennsylvania statute referenced herein and continue to accept and record the federal liens and releases upon receipt and bill the irs on a monthly basis please contact me at your earliest convenience with any questions you may have and to relay your position and course of action in this matter i can be reached at ------------------- sincerely ---------------------------- --------------------------------------- enclosures ----------- cc -------------------------------------------------- --------------------------------- ------------------------------------------- --------------------------------------------------------------- ---------------------------------------------------- treasury offset program - the treasury offset program is a centralized offset program administered by the financial management service's fms debt management services dms to collect delinquent debts owed to federal agencies and states including past-due child_support in accordance with sec_6402 collection of debts owed to federal agencies u s c 3720a reduction of tax_refund by amount of the debts and other applicable laws fms disburses federal payments such as federal tax refunds for agencies making federal payments known as payment agencies such as the internal_revenue_service creditor agencies such as the department of education submit delinquent debts to fms for collection and inclusion in top and certify that such debts qualify for collection by offset payment agencies prepare and certify payment vouchers to fms and disbursing officials at other federal agencies that are non-treasury disbursed such as the department of defense who then disburse payments the payment vouchers contain information about the payment including the name and tax identification_number tin of the recipient before an eligible federal payment is disbursed to a payee disbursing officials compare the payment information with debtor information which has been supplied by the creditor agency in fms' delinquent debtor database i f the payee's name and tin match the name and tin of a debtor the clisbursing official offsets the payment in whole or in part to satisfy the debt to the extent legally allowed the disbursing official is required to perform such offset pursuant to u s c c fms transmits amounts collected through offset to the appropriate creditor agencies fms maintains information about the delinquent debt in the top delinquent debtor database and continues to offset eligible federal payments until the creditor agency suspends or terminates debt collection or offset activity for the debt a creditor agency will suspend collection if the debt is subject_to a bankruptcy stay or if other reasons justify suspension a creditor agency will terminate collection of a debt if it is paid in full compromised discharged or if other reasons justify termination i f you have questions regarding the offset of your federal tax_refund or offset of another u s government-issued payment you can call our treasury offset program top call center to obtain agency contact information during our customer service hours toll free tdd number


internal_revenue_service department of the significant index no washington dc person to contact telephone number refer reply to da ‘ t ep ra t a2 e jul inre this letter constitutes notice that a conditional waiver of the minimum_funding_standard has been granted for the above named pension_plan for the plan_year ended date the conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code the code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which the waiver has been granted is the contribution which would otherwise be required to reduce the balance in the funding_standard_account of the plan to zero as of the end of the plan_year for which the waiver has been granted the isa located in which has sponsored a defined_benefit_plan for its employees since date a year after adopting the plan the company began to experience temporary substantial business hardship as evidenced by the loss of several large clients very slow collections and a substantial bad_debt write-off as a result of these problems the company experienced losses in net_income in both fiscal years ended date and date the company has taken several steps to recover from this temporary substantial business hardship in the company made several strategic decisions to restructure the organization including reducing overhead becoming more selective in accepting clients and where appropriate obtaining retainers in an effort to minimize future bad_debts in addition the company has restructured its lease outsourced a number of services at reduced costs and made significant reductions in owner compensation the company’s financial losses for the fiscal_year were much reduced when compared to the fiscal_year further the company is considering a reduction in the rate of future benefit accruals under the plan o l the waiver has been granted subject_to the following condition which you have agreed to qd the minimum_funding requirement for the plan_year ending date which includes the initial amortization payment hereby granted for the plan_year ended date will be paid_by date if the company fails to meet the above condition the waiver is retroactively nuil and void your attention is called to sec_412 of the code and sec_304 of erisa which describes the consequences which result in the event the plan is amended to increase benefits to change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived amount remains unamortized this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as others as precedent when filing form_5500 for the plan_year ending date the date of this letter should be entered on schedule b actuarial information a copy of this letter has been sent to pursuant to a power_of_attorney form on file we have sent a copy of this letter to the area manager in sincerely yours weta’ lape martin l pippins manager employee_plans actuarial group tax_exempt_and_government_entities_division


t c memo united_states tax_court thomas j gaffney and anne f gaffney petitioners v commissioner of internal revenue respondent docket no filed date thomas j and anne f gaffney pro_se gary w bornholdt for respondent memorandum opinion dinan special_trial_judge this case was assigned pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioners' federal_income_tax for in the amount of dollar_figure after a concession by petitioners the issue remaining for decision is whether petitioners must include in gross_income original_issue_discount that accrued during this case was submitted fully stipulated under rule the stipulations of fact and attached exhibits are incorporated herein by this reference petitioners resided in west islip new york on the date the petition was filed in this case petitioners maintained a brokerage account with bear stearns securities corp bear stearns during their brokerage account holdings included original_issue_discount debt instruments and stripped bonds the record does not reveal the issuance date of the debt instruments or the stripped bonds or the date on which they were acquired by petitioners bear stearns issued a consolidated form 1099-int-div-misc- oid-1099b form_1099 that reported dollar_figure of original_issue_discount that had accrued on petitioners' holdings in petitioners failed to report the accrued original_issue_discount on their joint federal_income_tax return respondent issued in their petition to the court petitioners failed to address respondent's determination that they received and failed to report dividend income in the amount of dollar_figure we deem petitioners to have conceded this issue rule b respondent's adjustment to petitioners' miscellaneous_itemized_deductions is computational and will be resolved by the court's holding on the issue in this case a statutory_notice_of_deficiency that increased petitioners' interest_income by dollar_figure to reflect the unreported original_issue_discount respondent's determinations in the statutory_notice_of_deficiency are presumed to be correct and petitioners bear the burden of proving otherwise rule a 290_us_111 sec_61 includes in gross_income all income from whatever source derived the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which it is received by the taxpayer under the taxpayer's method_of_accounting sec_451 petitioners use the cash_receipts_and_disbursements_method to compute their income see sec_446 generally under the cash_receipts_and_disbursements_method all items which constitute gross_income whether in the form of cash property or services are to be included for the taxable_year in which actually or constructively received sec_1_446-1 income_tax regs however special rules exist under sec_1271 through for the ratable inclusion of original_issue_discount in respect of certain corporate obligations sec_1_451-1 income_tax regs the difference between the original_issue_discount amount reported on the form_1099 and the amount determined in the statutory_notice_of_deficiency is due to rounding sec_1272 requires the holder of any debt_instrument having original_issue_discount issued after date to include in gross_income an amount equal to the sum of the daily portions of the original_issue_discount for each day during the taxable_year on which the holder held such debt_instrument original_issue_discount is defined as the excess if any of the stated_redemption_price_at_maturity over the issue_price sec_1273 furthermore sec_1286 provides for a stripped_bond to be treated as a bond originally issued on the purchase date and having an original_issue_discount equal to the excess of the stated_redemption_price_at_maturity over such bond's ratable share of the purchase_price petitioners argue that because they use the cash_receipts_and_disbursements_method of accounting they should not be required to include the disputed amount of original_issue_discount in their gross_income until they actually receive the original_issue_discount we disagree with petitioners sec_1272 clearly requires the holder of a debt_instrument issued at a discount to include in gross_income for the taxable the requirement that debt_instrument holders include original_issue_discount in income ratably over the life of the instrument was first enacted by the tax reform act of publaw_91_172 83_stat_487 as former sec_1232 this requirement was carried forward as former sec_1232a by the tax equity and fiscal responsibility act of publaw_97_248 sec 96_stat_324 the language of sec_1272 enacted by the deficit_reduction_act_of_1984 publaw_98_369 98_stat_494 is substantively identical to former sec_1232a year the amount of the accrued discount allocable to the portion of the taxable_year in which he or she held such debt_instrument see 994_f2d_432 8th cir affg 98_tc_33 the rationale for inclusion is that earned original_issue_discount serves the same function as stated_interest it is simply 'compensation for the use or forbearance of money ' 381_us_54 quoting 308_us_488 we find that petitioners have failed to prove that sec_1271 through do not apply to their debt instruments having original_issue_discount or that the amount of accrued original_issue_discount reported on the form_1099 is erroneous after considering petitioners' other arguments and finding them to be without merit we hold that petitioners must include in gross_income their original_issue_discount that accrued during respondent's determination is sustained to reflect the foregoing decision will be entered for respondent