internal_revenue_service number release date index numbers department of the treasury washington dc person to contact telephone number refer reply to cc corp b03-plr-161798-02 date date re common parent sub sub 1a holdings sub 1's llc sub sub sub 3a llc plr-161798-02 llc gp lp new llc f sub f sub f sub f sub f sub regional operations center regional operations center regional operations center region region region area product a business e country b country c plr-161798-02 state d f g h dear we respond to your date request for rulings on certain federal_income_tax consequences of a partially consummated and proposed transaction additional information was received in correspondence dated date date date date and date the information submitted for consideration is substantially as set forth below common parent develops and manufactures product a and engages in business e directly and through its subsidiaries common parent’s operations are organized into regions supported by regional operations centers located in regional operations center regional operations center and regional operations center regional operations center supports region regional operations center supports region and regional operations center supports region common parent wholly owns sub a domestic_corporation and a member of the common parent’s consolidated_group sub holds business e rights to distribute product a like common parent’s overall operations sub 1’s operations are divided into region region and region sub has two wholly owned corporate subsidiaries holdings and sub 1a neither of which participates in sub 1’s business e holdings holds investment_assets and sub 1a facilitates certain business e activities in the area market sub also performs certain administrative and management services for affiliates including but not limited to a general_partnership gp described below common parent also wholly owns sub a domestic_corporation and a member of common parent’s consolidated_group common parent and sub are the sole partners f percent and g percent respectively of gp a state d general_partnership common parent wholly owns a country b corporation sub through a disregarded_entity llc common parent is the sole member of llc a single member state d limited_liability_company llc operates as a holding_company disregarded as an entity separate from common parent for federal tax purposes pursuant to sec_301_7701-3 of the procedure and administration regulations sub is a holding_company that owns all the shares of sub 3a a country b corporation disregarded as an entity separate from sub for federal tax purposes sub 3a is in the business of holding business e rights sub also owns all the shares plr-161798-02 of f sub a holding_company that is a country b formed and resident corporation f sub owns all the shares of f sub a country c holding_company f sub owns all the shares of f sub also a country c holding_company f sub owns all the shares of f sub another country c holding_company f sub owns all the shares of f sub a country b corporation f sub is engaged in the manufacture development and distribution of product a throughout the region sales region this chain of foreign entities other than sub are all disregarded for federal tax purposes pursuant to sec_301_7701-3 common parent would like to transfer certain businesses in region to f sub for valid business purposes to accomplish this result common parent has partially completed and proposes the following transaction step i ii sub has contributed certain existing business e rights supporting certain businesses in the region territory the existing business e rights to a newly formed single member limited_liability_company sub 1's llc a disregarded_entity for federal tax purposes that is wholly owned by sub common parent contributed cash equal to the value of sub 2’s g percent general_partnership interest in gp to a newly formed single member limited_liability_company new llc a disregarded_entity for federal tax purposes that is wholly owned by common parent step new llc purchased at fair_market_value sub 2’s g percent general_partnership interest in gp this caused a termination of gp for federal tax purposes because gp has a single owner common parent through new llc a disregarded_entity wholly owned by common parent step sub entered into the following agreements i sub 1's llc entered into a license agreement with sub 3a whereby sub 1's llc granted sub 3a a non-exclusive license for existing business e rights in exchange for which sub 3a will pay a multi-year declining rate royalty to sub 1's llc the royalty rate is based on an economic analysis of the value of the existing business e rights a pre-payment of the entire amount of the royalty may be required upon execution of the license agreement with annual true-up payments to insure the payments are arms-length although the legal contracting parties are sub 3a and sub 1's llc for federal tax purposes sub the sole member-owner of sub 1's llc is viewed as entering into the agreement with sub the sole member-owner of sub 3a for purposes of this request the agreement between sub 1's llc or its single member-owner sub and sub 3a or its single member-owner sub is collectively referred to as the buy-in agreement plr-161798-02 ii iii iv v sub transferred to gp now a disregarded_entity owned by common parent the right to acquire from common parent future improvements to business e supporting certain businesses for the region territory at the then fair_market_value of such improvements the future business e rights immediately thereafter gp contributed the future business e rights to a newly formed single member limited_liability_company llc a disregarded_entity for federal tax purposes that is wholly owned by gp but treated as wholly owned by common parent for federal tax purposes sub 3a entered into a qualified_cost_sharing_arrangement as defined by sec_1_482-7 of the income_tax regulations with llc a disregarded_entity owned by common parent with respect to the future business e rights for purposes of this request the cost-sharing arrangement between llc or its sole member owner taxpayer and sub 3a or its single member owner sub is collectively referred to as the cost_sharing_arrangement sub 3a entered into a non-exclusive license agreement with f sub granting f sub the existing business e rights and future business e rights in order to conduct business e in the region territory in exchange for which f sub will pay a royalty based upon business e revenues because sub is the single member owner of both sub 3a and f sub the agreement has no significance for federal tax purposes and for a limited period of time sub will license back from f sub or its single member-owner sub the existing business e rights and the future business e rights on a non-exclusive basis in exchange for a royalty no valuation of sub was done however taxpayer can conservatively estimate that the existing business e rights and future business e rights transferred in step i constitute no more than h percent of the pre-liquidation value of sub step for valid business purposes in the subsequent taxable_year of common parent’s consolidated_group following the expiration of certain sub arrangements with third parties and as soon as administratively feasible sub will enter into a merger agreement the plan of merger with taxpayer providing for the following steps collectively referred to as the merger i ii common parent will contribute a new llc which continues to hold the g percent interest in gp and b its direct f percent interest in gp to the capital of sub in exchange for additional sub common_stock sub will then contribute all of its assets other than stock of holdings stock of sub 1a and sub 1’s membership interest in new llc to gp and plr-161798-02 iii sub will merge upstream with and into common parent with common parent surviving the following representations have been made in connection with the proposed transaction sec_332 representations a b c d e f g h common parent on the date of the adoption of the plan of merger and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of sub stock no shares of sub stock will have been redeemed during the years preceding the adoption of the plan of merger of sub all distributions from sub to common parent pursuant to the plan of merger will be made within a single taxable_year of sub as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders sub will retain no assets following the final liquidating_distribution except for a contribution from common parent of distribution rights for a particular product stock of sub 1a and periodic improvements to future business e rights supporting certain businesses in exchange for sub stock sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than years prior to the date of adoption of the plan of merger except as discussed above in the proposed transaction the liquidation of sub will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 of the code as modified by sec_304 prior to adoption of the plan of merger and step ii no assets of sub will have been distributed in_kind transferred or sold to common parent except for i transactions occurring in the normal course of business and ii transactions occurring more than years prior to adoption of the plr-161798-02 merger plan i j k l sub will report all earned_income represented by assets that will be distributed to its shareholders such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of merger and immediately prior to the time the first liquidating_distribution is made there is no intercorporate debt existing between common parent and sub and none has been cancelled forgiven or discounted except for transactions that occurred more than years prior to the date of the adoption of the merger plan all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the proposed merger of sub have been fully disclosed taxpayer also represents the following m the royalty payments received by sub 1's llc for its transfer of existing business e rights to sub 3a will be commensurate with income n with respect to gp all items of income and loss and distributions are shared in the same ratio as the percentage ownership each partner’s tax basis in its partnership_interest is equal to its allocable share of the partnership’s basis in its assets o p gp’s assets consist of current_assets eg cash accounts receivables prepaid expenses and inventory additionally it owns a limited_partnership_interest in lp sub will not receive cash from gp in excess of its basis in its gp partnership_interest in the deemed liquidating_distribution from gp based solely on the information submitted and on the representations set forth above we hold as follows the merger of sub into common parent will qualify as a tax-free_liquidation under sec_332 sec_1_332-2 the transfer of assets by sub to gp in step ii of the proposed transaction will not be treated as a transfer to a non-member of the common parent consolidated_group which would result in an acceleration of sub 1's intercompany_item under sec_1_1502-13 plr-161798-02 under revrul_99_6 1999_1_cb_432 gp terminates under sec_708 when common parent through new llc purchases sub 2's entire partnership_interest in gp because gp will have a single owner common parent and new llc a disregarded_entity wholly-owned by common parent accordingly sub will treat the transaction as a sale of its partnership_interest and determine its income gain and or loss under sec_741 and sec_751 in addition under revrul_99_6 gp is deemed to make a liquidating_distribution of all of its assets to sub and common parent and following this distribution common parent is treated as acquiring the assets deemed to have been distributed to sub in liquidation of sub 2's partnership_interest common parent’s basis in the assets attributable to sub 2's partnership_interest equals the purchase_price of sub 2's partnership_interest under sec_1012 this basis is allocated among the assets under sec_1_1016-1 sec_735 does not apply with respect to the assets common parent is deemed to purchase from sub the sale by sub of its g percent interest in gp to common parent will be an intercompany_transaction as described in sec_1_1502-13 sub 2's intercompany items are the income gain and or loss realized from the sale of its g percent partnership_interest in gp sec_1 b the income gain and or loss from the sale of sub 2's partnership_interest the intercompany_item can be accounted for under the matching_rule common parent’s corresponding items will be common parent’s items with respect to the assets that common parent is described as acquiring in ruling common parent’s recomputed corresponding items will be based on the bases that sub would have had in the assets had those assets been received in a liquidating_distribution except as specifically set forth above we express no opinion concerning the tax consequences of the proposed transaction under any other provision of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction specifically no opinion is expressed concerning i the federal_income_tax treatment of the transactions between llc and sub 3a pursuant to the cost_sharing_arrangement ii the application of sec_482 to the transactions between llc and sub 3a pursuant to the cost_sharing_arrangement iii the application of sec_367 to any of the steps in the transaction described in this letter_ruling in particular no opinion is expressed as to the application of sec_367 to the intangible transfers that occur in certain steps of the transaction the rulings contained in this letter are predicated upon the facts and plr-161798-02 representations submitted by the taxpayers and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process see sections dollar_figure and dollar_figure of revproc_2003_1 2003_1_irb_1 which discuss in greater detail the revocation or modification of ruling letters however when the criteria in section dollar_figure of revproc_2003_1 2003_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your representatives sincerely filiz a serbes chief branch office of associate chief_counsel corporate cc


t c memo united_states tax_court mahamud abdi petitioner v commissioner of internal revenue respondent docket no filed date mahamud abdi for himself melissa jane hedtke for respondent memorandum findings_of_fact and opinion morrison judge the respondent the irs issued a notice_of_deficiency to the petitioner mahamud abdi for the tax_year disallowing an earned-income tax_credit eitc of dollar_figure and determining a corresponding income-tax deficiency of dollar_figure this case arises from abdi’s timely petition we have jurisdiction pursuant to sec_6214 the sole issue for decision is whether abdi is entitled to an eitc for the tax_year we hold that he is not findings_of_fact some facts have been stipulated and they are so found abdi resided in minnesota when he filed the petition therefore an appeal of our decision in this case would go to the u s court_of_appeals for the eighth circuit unless the parties stipulate venue in another circuit see sec_7482 and during abdi turned years old was unmarried and resided in apartment pincite londin lane st paul minnesota all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated the parties executed a pre-trial stipulation that d uring abdi resided in apartment pincite cedar ave s minneapolis minnesota the irs contends that abdi should not be permitted to take the position that he resided anywhere else we have broad discretion to determine when it is appropriate to set_aside a stipulation 994_f2d_1542 11th cir aff’g tcmemo_1991_636 62_tcm_1586 115_tc_135 n we may relieve a party of a stipulation where justice requires rule e a common situation is one where the stipulation is contrary to facts brought out at trial see blohm v commissioner f 2d pincite 66_tc_312 continued abdi timely filed his federal-income-tax return for on this return abdi reported wages of dollar_figure reported gross_income of dollar_figure and claimed an eitc of dollar_figure his filing_status was s ingle abdi claimed both his brother abdikafi ali and his niece i a a sec_3 qualifying children for purposes of the eitc on hi sec_2011 federal-income-tax return during abdi’s brother turned years old and resided in apartment pincite londin lane st paul minnesota with among others abdi during abdi’s niece turned four years old and resided in apartment pincite londin lane st paul minnesota abdi did not reside with his niece at any point during on date the irs issued the notice_of_deficiency to abdi for the tax_year disallowing the eitc and determining a corresponding income- tax_deficiency of dollar_figure continued abdi is a somali refugee with limited english skills who required a translator’s assistance during the trial and he credibly testified that he did not understand the relevant stipulation ie that in stipulating his place of residence the address that he gave was in fact a post office box that he had used as his mailing address for years and that during he lived in apartment pincite londin lane st paul minnesota under the circumstances we relieve abdi of the stipulation in question the court refers to minor children by only their initials see rule a the case was tried in st paul minnesota opinion generally the taxpayer bears the burden of proving by a preponderance_of_the_evidence that the determinations in the notice_of_deficiency are erroneous rule a 290_us_111 in some cases the burden_of_proof with respect to relevant factual issues is imposed on the irs under sec_7491 abdi has not claimed and the record does not suggest that sec_7491 imposes the burden_of_proof on the irs with regard to any factual issue accordingly abdi bears the burden of proving by a preponderance_of_the_evidence that he is entitled to an eitc for the tax_year generally sec_32 allows an eligible_individual an eitc against that individual’s income-tax liability an individual taxpayer who does not file jointly and has earned_income of more than dollar_figure is not entitled to any amount of eitc unless the taxpayer has at least two qualifying children sec_32 j revproc_2011_12 sec_2 2011_2_irb_297 the term earned_income includes wages salaries and other employee compensation to the extent such amounts are includible in gross_income for the taxable_year sec_32 abdi reported that he earned wages of dollar_figure and that these wages are includible in gross_income neither party suggests that the return was wrong in this respect nor does either party suggest that abdi had earned_income from a source other than wages accordingly abdi’s earned_income for purposes of the eitc for was dollar_figure see id his filing_status was s ingle therefore abdi is not entitled to any amount of eitc unless he has at least two qualifying children see sec_32 j revproc_2011_12 sec_2 a taxpayer’s qualifying_child for purposes of the eitc means an individual who is related to the taxpayer including brothers and nieces see sec_152 has the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year meets certain age requirements and who has not filed a joint_return other than only for a claim of refund with the individual’s spouse under sec_6013 for the taxable_year beginning in the calendar_year in which the taxable_year of the taxpayer begins see sec_32 sec_152 abdi claimed his niece and his brother as his two qualifying children for purposes of the eitc for the tax_year abdi testified that at all times during his niece resided in apartment pincite londin lane st paul minnesota abdi also testified that at all times during he resided in apartment pincite londin lane st paul minnesota according to abdi’s uncontradicted testimony abdi did not share the same principal_place_of_abode with his niece for any part of consequently abdi’s niece is not abdi’s qualifying_child for see sec_152 accordingly abdi has at most one qualifying_child for therefore it is unnecessary for this court to determine whether abdi’s brother was abdi’s qualifying_child for the tax_year abdi did not file jointly his earned_income was dollar_figure and he had less than two qualifying children accordingly abdi is not entitled to an eitc for see sec_32 j revproc_2011_12 sec_2 in reaching our holdings we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number info release date index number ------------------------- ---------------------- ------------------------------------------ ------------------------ department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 - genin-151257-04 date nov taxpayer ------------------------- this responds to a letter dated date submitted by your representative in which it was requested that we recognize taxpayer’s election to be an s_corporation effective for the tax_year a corporation which meets the definition of a small_business_corporation under sec_1362 of the internal_revenue_code may elect to be treated as an s_corporation in order for an s_corporation_election to be effective for the taxable_year in which it is made it must be made within the first two and one-half months of the corporation’s taxable_year sec_1362 if an s election is made after that time then the corporation will not be treated as an s_corporation until the taxable_year following the one in which the s election was filed sec_1362 an election made after the first two and one-half months of the taxable_year in which it is intended to be effective may be treated as effective if the secretary determines that there was reasonable_cause for the corporation’s failure to make a timely election sec_1362 unfortunately we cannot grant relief under revproc_2003_43 because our records indicate that the taxpayer failed to file a tax_return for the first year in which the election was intended within months of the due_date of the return excluding extensions in addition relief cannot be granted under revproc_97_48 because our records indicate that the return for the first taxable_year in which it was intended that taxpayer be an s_corporation was not timely filed relief for your late s_corporation may be obtained through a letter_ruling announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2004_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2004_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room please contact -------------- at -------------------- not a toll-free call we hope that this information is helpful to you if you have additional questions s dianna k miosi sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures announcement revproc_2004_1


t c memo united_states tax_court neil feinberg and andrea e feinberg petitioners v commissioner of internal revenue respondent kellie mcdonald petitioner v commissioner of internal revenue respondent docket nos filed date james d thorburn and richard a walker for petitioners luke d ortner matthew a houtsma and michael w lloyd for respondent memorandum findings_of_fact and opinion kerrigan judge petitioners in these consolidated cases are neil feinberg n feinberg and andrea e feinberg together feinbergs and kellie mcdonald k mcdonald for k mcdonald respondent determined deficiencies of dollar_figure dollar_figure and dollar_figure for tax years respectively for the feinbergs respondent determined deficiencies of dollar_figure and dollar_figure for and respectively most of the deficiencies are attributable to income adjustments for total health concepts llc thc after concessions the issues for consideration are whether petitioners have substantiated that they should be allowed costs of goods sold cogs greater than those allowed in respondent’s examination_report for thc and whether respondent properly disallowed business_expense deductions pursuant to sec_280e unless otherwise indicated all section references are to the internal_revenue_code in effect for the tax years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in colorado when they timely filed their petitions thc’s business activity thc was a limited_liability_company organized under the laws of the state of colorado articles of organization for thc were filed with the colorado secretary of state on date k mcdonald was a shareholder of thc for tax years n feinberg was a shareholder for tax years the state of colorado licensed thc to grow and sell medical marijuana and thc’s operating_agreement stated that its purpose was to promote the cultivation and sale of medical marijuana products its business operations began in date during the tax years in issue it held licenses to operate at least two medical marijuana dispensaries thc leased a separate warehouse facility for which it held a license to operate a cultivation premises tax reporting for the tax years in issue thc elected to be treated as an s_corporation for federal_income_tax purposes and filed forms 1120s u s income_tax return for an s_corporation it reported ordinary business_losses of dollar_figure dollar_figure and dollar_figure for tax years respectively each year thc calculated its total income by subtracting cogs from gross_receipts thc claimed deductions from total income for ordinary and necessary business_expenses below-the-line deductions it claimed below-the-line deductions for salaries and wages repairs and maintenance rents depreciation advertising and other deductions which it detailed on attached statements it claimed total below-the-line deductions for business_expenses of dollar_figure dollar_figure and dollar_figure for the tax years in issue respectively petitioners did not receive any compensation from thc they reported passthrough losses from thc on schedules e part ii income or loss from partnerships_and_s_corporations attached to their respective income_tax returns the feinbergs filed joint income_tax returns for respondent’s determination on date respondent issued thc an examination_report for its tax returns for the tax years in issue the examination_report proposed adjustments to taxable_income based on respondent’s determination that sec_280e applied to thc the report also made adjustments to cogs respondent reclassified as cogs a number of thc’s expenses that were claimed originally as below-the-line deductions for both and respondent’s net adjustments allowed greater cogs than thc had actually claimed on its original returns however respondent disallowed deductions for all other business_expenses not reclassified as cogs the adjustments increased thc’s taxable_income for the tax years in issue by dollar_figure dollar_figure and dollar_figure respectively on date respondent issued k mcdonald and the feinbergs notices of deficiency that reflected the adjustments determined for thc the notices of deficiency reflected k mcdonald’s shares from thc as dollar_figure dollar_figure and dollar_figure for tax years respectively and n feinberg’s shares as dollar_figure and dollar_figure for and respectively i burden_of_proof opinion generally the taxpayer bears the burden of proving that the commissioner’s determinations set forth in the notice_of_deficiency are erroneous rule a 290_us_111 the taxpayer likewise bears the burden of proving his or her entitlement to deductions and of substantiating the amounts of items underlying claimed deductions 503_us_79 sec_1_6001-1 income_tax regs at a minimum petitioners must produce business records or other evidence substantiating the amounts and the purpose of the deductions that they assert respondent improperly disallowed 116_tc_438 under sec_7491 in certain circumstances the burden_of_proof may shift from the taxpayer to the commissioner petitioners have not claimed or shown that they meet the requirements of sec_7491 to shift the burden_of_proof to respondent as to any relevant factual issue ii evidentiary issues during the trial petitioners produced no contemporaneous_records or any other business records pertaining to thc’s operations instead they rely exclusively on an expert report in accordance with the court’s standing_pretrial_order and rule g petitioners exchanged and submitted the expert report of jim marty c p a whom they contend is an expert in cost accounting with an emphasis in the marijuana industry in his report marty opines on cogs for medical marijuana businesses in colorado during the tax years in issue petitioners contend that the report establishes that the cogs respondent allowed thc for the tax years in issue were incorrect before trial respondent filed a motion in limine asserting that the marty report should be excluded on the following grounds admitting the report is improper where petitioners have refused to comply with any discovery requests the report is an attempt to usurp the court’s own role insofar as it attempts to substitute mr marty’s legal conclusions and unsupported factual assertions for the court’s role in applying the law to the facts of this case and the report’s factual conclusions are not reliable at the trial the court deferred ruling on respondent’s motion in limine because of the substantial effect on the case of eliminating petitioners’ primary evidence the marty report was marked and the related testimony of petitioners’ expert was heard solely as an offer of proof whether the report and testimony will be received in evidence and considered in determining thc’s cogs for tax years depends on application of principles expressed in 509_us_579 and rule of the federal rules of evidence respondent contends the marty report reaches a number of speculative conclusions regarding the amount of allowable cogs based wholly on his unscientific unprincipled opinion respondent further contends that there is no analysis or reliable data for figures in the report petitioners contend that daubert does not apply to a bench trial rule of the federal rules of evidence provides a witness who is qualified as an expert by knowledge skill experience training or education may testify in the form of an opinion or otherwise if a the expert’s scientific technical or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue b the testimony is based on sufficient facts or data c the testimony is the product of reliable principles and methods and d the expert has reliably applied the principles and methods to the facts of the case in daubert u s pincite the supreme court stressed the trial court’s role as a gatekeeper in excluding at the outset evidence that is unreliable or irrelevant the trial judge must make a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue id pincite the reliability and relevancy standards are embodied in rule of the federal rules of evidence and they apply equally to expert testimony that is not scientific 526_us_137 although special considerations apply to jury trials the daubert analysis applies to bench trials as well as jury trials 136_tc_326 citing 565_f3d_769 10th cir the marty report is brief and summary and its content is unreliable multiple statements in the report refer to no underlying source of information for other statements that do cite an underlying source marty has failed to include the information or data on which he relied in many instances the report does not reference or provide sufficient information or data for us to conclude that the opinions expressed are based on anything other than his own conjecture the report states that during the tax years in issue the average wholesale purchase_price for medical marijuana remained between dollar_figure and dollar_figure per pound the report later posits an average purchase_price of dollar_figure per pound and reconstructs an income and expense schedule for thc assuming that cogs equaled of gross_sales the report does not explain how or on what basis marty determined these sales figures and the exhibits do not include any sales records or other documents that would support them the report asserts that tax returns marty’s firm prepared show that actual cogs for medical marijuana businesses during the tax years in issue was between and or more of gross_sales the conclusions in the marty report are an attempt to present reconstructed income_tax returns as evidence of petitioners’ correct_tax liabilities the report is not based on personal knowledge of thc’s business to determine the correct cogs for thc substantiation of thc’s expenses is necessary a reconstructed income_tax return based on industry averages does not take the place of substantiation and does not help determine a fact in issue by relying on returns that marty and his firm prepared for other businesses the marty report provides the court with legal conclusions as to which types of expenses may be treated as cogs expert testimony about what the law is or that directs the finder of fact on how to apply the law does not assist the trier of fact 81_fedclaims_358 expert opinions on law are inadmissable fed r evid a see 109_tc_21 for the reasons stated above we conclude that the marty report is not admissible under rule of the federal rules of evidence because is it is not helpful in understanding evidence or in determining a fact and it includes legal conclusions during the trial respondent offered exhibits 32-r and 34-r through 39-r all were offered in relation to the marty report and the ruling on these exhibits was reserved these exhibits are not admitted because the marty report was excluded iii cost_of_goods_sold a taxpayer engaged in manufacturing or merchandising can subtract cogs from gross_receipts to arrive at gross_income see sec_1_61-3 sec_1 a income_tax regs see also rodriguez v commissioner t c memo slip op pincite cogs is not a deduction but an offset to income for the purpose of calculating gross_income and is subtracted from gross_income to arrive at taxable_income see kazhukauskas v commissioner tcmemo_2012_191 slip op pincite rodriguez v commissioner slip op pincite petitioners must show that they are entitled to cogs for thc above and beyond those respondent allowed see kazhukauskas v commissioner slip op pincite the substantiation rules require a taxpayer to maintain sufficient reliable records to allow the commissioner to verify the taxpayer’s income and expenditures see sec_6001 sec_1_6001-1 income_tax regs see also 139_tc_19 aff’d 792_f3d_1146 9th cir cogs is determined under sec_471 and the accompanying regulations see sec_1_471-3 sec_1_471-11 income_tax regs petitioners contend we should allow the cogs in thc’s income_tax returns under the cohan_rule see 39_f2d_540 2d cir petitioners further contend that they should be able to subtract an amount for cogs based on industry standards for the medical marijuana industry during the tax years in issue respondent allowed cogs that were substantiated and also recharacterized below-the-line expenses as cogs to the extent allowable under sec_471 petitioners produced no evidence to substantiate cogs higher than those which respondent allowed the court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount see cohan v commissioner f 2d pincite 85_tc_731 this principle is often referred to as the cohan_rule see eg 136_tc_515 ndollar_figure the cohan_rule also applies to cogs see 31_tc_56 in cohan v commissioner f 2d pincite the court_of_appeals for the second circuit held that this court should in some cases make as close an approximation as it can with respect to a taxpayer’s deductible expenses bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making the court_of_appeals for the second circuit stated that to allow nothing at all appears to us inconsistent with saying that something was spent id during the tax years in issue thc held licenses for selling medical marijuana in colorado we will proceed as if thc was in the business of selling medical marijuana however there is not enough evidence in the record to make a finding of fact that thc sold medical marijuana respondent did allow for some cogs under the cohan_rule there must be sufficient evidence in the record to provide a basis upon which an estimate can be made vanicek v commissioner t c pincite there is no evidence to support higher cogs for thc we sustain respondent’s allowances for cogs iv business_expenses deductions are a matter of legislative grace and a taxpayer must prove his or her entitlement to deductions indopco inc v commissioner u s pincite 292_us_435 sec_162 permits a taxpayer to deduct ordinary and necessary expenses_incurred during the taxable_year in carrying_on_a_trade_or_business sec_261 provides that no deduction shall in any case be allowed in respect of items specified in this part i tems in this part refers to part ix of subchapter_b of chapter entitled items not deductible and this includes sec_280e expenditures in connection with the illegal sale of drugs see 128_tc_173 sec_280e provides no deduction or credit shall be allowed for any amount_paid or incurred during the taxable_year in carrying on any trade_or_business if such trade_or_business or the activities which comprise such trade_or_business consists of trafficking in controlled substances within the meaning of schedule i and ii of the controlled substance act which is prohibited by federal_law or the law of any state in which such trade_or_business is conducted we do not need to address whether sec_280e applies because petitioners have failed to substantiate any expenses for which respondent disallowed deductions petitioners did not produce any business records or any other supporting documents they have not met their burden of proving respondent’s determinations in the notices of deficiency are incorrect respondent’s determinations will be sustained to reflect the foregoing decisions will be entered for respondent


department of the treasury internal_revenue_service washington d c apr tax_exempt_and_government_entities_division uniform issue list tv ep ra tz legend taxpayera financial_institution b ira x amount amount amount amount amount dear this is in response to your request dated date as supplemented by correspondence dated february and date in which you request 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 age represents that he received a distribution from ira x totaling amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to a misunderstanding regarding online transactions with financial_institution b which led to amount being placed in represents that amount has not been used for any other purpose non-ira accounts taxpayer a further a page on date taxpayer a transferred amount from hi sec_401 plan to a money market fund in ira x with financial_institution b taxpayer a intended that after the transfer he would reinvest the assets in bond funds within ira x on date taxpayer a mistakenly transferred amount to two different non-ira bond funds in amount and amount in an online transaction documentation submitted indicates the confusing nature of financial_institution b’s online transfer screens taxpayer a represents that he was out of the country from september through date on date while investigating an unrelated direct_rollover with financial_institution b taxpayer a discovered that the account number for ira x had changed financial_institution a informed him that his online transfer of date had transferred the assets to non-ira accounts anticipation of a favorable ruling financial_institution b transferred amount and amount from the non-ira accounts to ira x on date in based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 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 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 page 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 may waive the 60-day requirement under sec_408 and sec_408 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 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that he intended to change investments within ira x and due to the confusing nature of financial_institution b’s transfer screens mistakenly transferred amount out of ira x and into non-ira accounts therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira x provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount and amount will be considered rollover_contributions within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t sincerely yours willer carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend x foundation’s foci dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates that you will operate an educational grant program your purpose is to support innovative ideas with lasting impact in the areas of x the purpose of the educational grant program is to foster ideas that will have lasting impact by supporting individual scholars and practitioners through grants for travel study or similar purposes which will enable individuals of extraordinary accomplishment or potential to carry out specific projects in support of your charitable purposes all grants will enable the grantees to achieve a specific objective produce a report or other similar product or improve or enhance the grantee’s scientific teaching or other similar capacity skill or talent in accordance with sec_4945 of the internal_revenue_code the number and amount of individual grants in a given year will depend on certain factors including the following a the opportunities your staff sees for projects that will have significant benefits for the public and the grantee’s professional development b the nature of the work to be supported and c the availability of funds you will publicize grant opportunities through the following methods a you will post grant opportunities and application information directly on your website b you will advertise broadly within each respective highly specialized field as many grants will be to individuals in such fields c you will make announcements through relevant academic field channels about any competition for individual grants and d your program administrators may directly contact individuals and institutions in the relevant specialized fields to raise awareness of grant competitions the criteria you will use to select potential grantees will be directly related to the purposes of the grants being awarded specifically your criteria will include as appropriate any relevant educational background and professional experience prior achievements demonstrated motivation character ability and potential your staff members who have expertise in the subject area of the potential grantees’ projects and experience to properly apply your award criteria to the pool of potential grantees will select potential grantees on an objective and nondiscriminatory basis and then recommend to you for approval staff may in some cases seek advice from outside advisors on the design of grant projects or the merit of specific proposals where necessary to achieve the goals of a grant you may impose reasonable restrictions on the group of potential grantees to ensure that potential grantees are sufficiently qualified to carry out the purposes of your grant you will only impose restrictions on the group of potential grantees that are calculated to effectuate the charitable purposes of your grants no restriction imposed by you will have the purpose of benefiting particular individuals or groups of individuals none of the individuals who select potential grantees of your grants will be in a position to derive a private benefit directly or indirectly if certain grantees are awarded grants over others no family members of individuals who select grantees of your grants will be eligible to receive grants no grants will be awarded to your founder creator officers board members or staff or their families or to any disqualified_person with respect to you or for a purpose that is inconsistent with the purposes set forth in sec_170 of the internal_revenue_code letter catalog number 58222y your staff will identify potential grantees and submit those recommendations for approval through the same procedures used for organizational grants such procedures require sign-off by your board_of directors the board chair and president or the president depending on the amount of the grant grants will be approved pursuant to your standard grant approval policy approved by your board_of trustees you will retain complete records of all grants awarded these records will include the following a all information you obtain to evaluate applicants each applicant’s completed application o the identification of grantees the amount of each grant progress reports from grantees and any additional relevant information that you have obtained in the course of the grant administration process you will require each grantee to report in writing on his or her accomplishments the impact of the funded project on his or her professional development and the use of the funds received any funds not needed and therefore not used to complete the funded project must be transferred back to you if you suspect that any part of a grant may have been used for improper purposes you will take all reasonable and appropriate steps to investigate the diversion investigations of diversions are performed by your program officers under the supervision of an attorney in your legal department as needed you will also involve finance professionals from your finance department to review the grantee’s financial reports you will conduct investigations through written requests for information from the grantee in-person meetings with the grantee and telephonic interviews with the grantee the legal department will hold additional payments through your online grants management system no future payments will be released until the legal department authorizes the release of the hold you will withhold further payments on any grant to that grantee until the following conditions are satisfied a such funds are recovered or restored b the grantee assures you that future diversions will not occur and c the grantee takes extraordinary precautions to prevent further diversions from occurring if you determine that any part of a grant has been diverted for improper purposes you will take all reasonable and appropriate steps to either recover the grant funds or ensure letter catalog number 58222y the restoration of the diverted funds and the dedication of other grant funds held by the grantee to the purposes of the grant if a diversion has occurred your legal department will notify the grantee in writing of the grantee’s obligation to return the diverted funds or if you reasonably believe that the diversion was inadvertent your legal department will notify the grantee in writing of the obligation to restore the grant funds and provide you with assurances that all grant funds held by the grantee will be used for the grant purpose only your legal department will monitor the recovery or restoration of funds and will send additional written notices and follow-up communications as needed should you determine that restoration rather than return of diverted funds is appropriate you will obtain written assurances from the grantee that future diversions will not occur and will work with the grantee to establish strong controls over the funds such as establishing a segregated bank account and requiring monthly or quarterly financial reports be provided to you basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance letter catalog number 58222y other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58222y


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-115288-01 cc intl b3 district_director lmsb-heavy manufacturing group taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend taxpayer product a product b business c issue whether non-interest bearing trade accounts_receivable resulting from united_states sales of goods and services are properly characterized as single category assets within temp sec_1_861-9t tam-115288-01 conclusion non-interest bearing trade accounts_receivable resulting from united_states sales of goods and services are properly characterized as single category assets within temp sec_1_861-9t facts taxpayer is a domestic_corporation that conducts its foreign business operations through a number of foreign subsidiaries taxpayer is a leading supplier of product a and a leading manufacturer of product b taxpayer is also engaged in business c during the tax years in question taxpayer made sales of goods and services that generally gave rise to u s source income under sec_861 of the internal_revenue_code consistent with generally accepted business practice in the industry taxpayer permitted its customers to defer making cash payment for such purchases for or days following the sales date at no additional_charge although customers were sometimes delinquent in making full payment within the designated time period taxpayer has not identified any instance in which it charged a customer interest on any trade account receivable for the tax years in issue taxpayer claimed foreign tax_credits under sec_901 in computing its foreign source taxable_income for purposes of determining its foreign_tax_credit_limitation under sec_904 taxpayer allocated and apportioned its interest_expense using the asset method as required by sec_864 of the code for purposes of applying this method taxpayer valued its assets using the tax_book_value_method of asset valuation described in temp sec_1_861-9t taxpayer characterized its trade accounts_receivable as single category assets under temp sec_1_861-9t generating exclusively u s source income law and analysis sec_901 of the internal_revenue_code allows a credit against u s income_tax_liability for the amount of certain income taxes paid to a foreign_country or possession_of_the_united_states sec_904 of the code imposes a limit on the amount of foreign_income_taxes that may be credited under sec_901 sec_904 limits the amount of foreign_income_taxes that may be credited in any one taxable_year to the amount of a taxpayer’s pre- credit u s income_tax on its foreign source taxable_income the sec_904 limitation the sec_904 limitation is calculated separately for different categories of foreign source taxable_income sec_904 sec_861 sec_862 and sec_863 of the code provide that taxable_income attributable to gross_income from domestic or foreign sources shall be determined by deducting the tam-115288-01 expenses losses and other deductions properly apportioned or allocated thereto and a ratable part of any expenses losses and other deductions that cannot definitely be allocated to some item or class_of_gross_income sec_1_861-8 through provide specific guidance regarding the allocation and apportionment of deductions in general_deductions are allocated to classes of gross_income and as required by the operative sections of the code apportioned between statutory and residual groupings of gross_income in the case of interest_expense sec_864 of the code provides that all allocations and apportionments of such deductions shall be made on the basis of assets under the asset method interest_expense is apportioned between statutory and residual groupings of gross_income or among statutory groupings in proportion to the average total values of the assets within each such grouping for the taxable_year temp sec_1_861-9t temp sec_1_861-9t provides that the method of allocation and apportionment for interest_expense is based on the approach that in general money is fungible all of a taxpayer’s activities and property require funds and a business has a great deal of flexibility in determining the source and use of funds thus interest deductions are considered related to all income-producing activities and assets of a taxpayer regardless of whether a particular interest-bearing obligation was entered into for a specific purpose temp sec_1_861-9t provides rules for characterizing assets for purposes of apportioning interest assets are characterized for purposes of this section according to the source and type of the income they generate have generated or may reasonably be expected to generate the physical location of the assets is not relevant to this determination subject_to the special rules of paragraph h concerning the application of the fair_market_value_method of apportionment the value of assets within each statutory_grouping and the residual_grouping at the beginning and end of each year shall be determined by dividing the taxpayer’s assets into three types- i single category assets assets that generate income that is exclusively within a single category grouping or the residual_grouping ii multiple category assets assets that generate income within more than one grouping of income statutory or residual and iii assets without directly identifiable yield assets that produce no directly identifiable yield or that contribute equally to the generation of all income of the taxpayer such as assets used in general and administrative functions tam-115288-01 sec_1_861-9t of the temporary treasury regulations also provides that single category assets are directly attributable to the relevant statutory or residual_grouping of income in order to attribute multiple category assets to the relevant grouping of income the income yield of each asset for the taxable_year must be analyzed to determine the proportion of gross_income generated by it within each relevant grouping the value of each asset is then prorated among the relevant groupings of income according to their respective proportions of gross_income the value of each asset without directly identifiable income yield must be identified however because prorating the value of such assets cannot alter the ratio of assets within the various groupings of income they are not taken into account in determining that ratio for purposes of determining its foreign_tax_credit_limitation for the years in issue taxpayer characterized its non-interest bearing trade accounts_receivable as single category assets that produce u s source income under sec_1_861-9t the irs examination team asserted that non-interest bearing trade accounts_receivable are more properly characterized as assets without directly identifiable yield under sec_1 9t g iii we conclude that non-interest bearing trade accounts_receivable are more appropriately characterized in a manner consistent with the characterization of the sales or services income that gave rise to them in this case single-category assets within the meaning of temp sec_1_861-9t while non-interest bearing trade accounts_receivable do not generate income directly they are closely associated with the production_of_income created by the sale_of_goods and services and so should be considered to generate such income within the meaning of temp sec_1 9t g i taxpayer’s non-interest bearing trade accounts_receivable generate income in the sense that they enable taxpayer to sell goods and services consistent with the industry standard that does not require customers to pay cash at the time of the sale put another way taxpayer’s trade accounts_receivable represent accrued income from sales of goods and services until a customer eliminates the account receivable with a cash payment to the extent the non-interest bearing trade accounts_receivable reflect sales of goods and services that generated u s -source income in this case the accounts_receivable should be characterized in the same manner this analysis is consistent with the characterization of accounts_receivable for other tax purposes eg in allocating a portion of the loss on the sale of certain accounts_receivable to the gross_income generated by the receivable temp sec_1_861-9t in calculating income effectively connected with the conduct of a u s trade_or_business sec_1_882-5 and sec_1_884-1 and in determining the percentage of assets that produce passive_income for purposes of the passive_foreign_investment_company pfic rules sec_1297 and notice_88_22 c b in contrast cash received in connection with income from sales of goods or services or the payment of a receivable is fungible in nature and therefore cannot be directly identified with income from the sales tam-115288-01 accordingly taxpayer’s non-interest bearing accounts_receivable are properly characterized within the first category of temp sec_1_861-9t that is as single category assets caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ----------------------------------- ------------------------------------ ------------------------ ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number ---------------------- refer reply to cc psi b2 plr-103989-14 date date legend x a --------------------------------------- ------------------------ ------------------- ---------------------------------- trust --------------------------------------------------- ---------------------------- state -------------- date date date ------------------ ---------------------- ---------------------- dear -------------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date and elected to be treated as an s_corporation effective date trust a_trust that was treated under subpart e of part i of subchapter_j of chapter of the code as entirely owned by a became a shareholder of x on date on date trust’s grantor_trust status terminated trust qualified under sec_1361 as an eligible x shareholder after date x represents that trust was eligible to be an electing_small_business_trust esbt plr-103989-14 within the meaning of sec_1361 effective date however the trustee of trust failed to properly file the esbt election as a result trust was not a permissible shareholder and x’s s_corporation_election terminated on date x represents that the failure_to_file the esbt election for trust and the resulting termination of x’s s_corporation_election was not motivated by tax_avoidance or retroactive tax planning x represents that after it discovered the possible terminating event x initiated corrective action x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on date was inadvertent within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 this ruling is contingent on the trustee of trust filing an electing_small_business_trust esbt election pursuant to the procedures in sec_1 m with an effective date of date with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the esbt election if x or its shareholders fail to treat themselves as described above this letter shall be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code specifically we express no opinion as to whether x is otherwise eligible to be treated as an s_corporation or trust is eligible to be treated as an esbt plr-103989-14 this ruling is directed only to the taxpayer that 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 your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely bradford r poston senior counsel branch passthroughs special industries


t c memo united_states tax_court margie e robertson petitioner v commissioner of internal revenue respondent docket no filed date margie e robertson pro_se beth a nunnink for respondent memorandum findings_of_fact and opinion foley judge the issues for decision are whether petitioner is liable for deficiencies relating to and findings_of_fact on date petitioner lent mary moore ms moore dollar_figure the parties executed a deed_of_trust and note the note secured_by a home in carbondale illinois the property principal and accrued interest were payable upon the transfer of the property or death of ms moore whichever came first in ms moore died petitioner on her federal_income_tax return reported a dollar_figure loss from to petitioner was employed by the city of seattle the city as a license and standards inspector during this period she had a digestive disorder although petitioner could not eat during work hours her digestive disorder imposed no other physical limitations on her ability to work in petitioner requested to have her schedule modified from a hour workday ie with a 2-hour lunch break to a 10-hour workday without a lunch break the city denied petitioner’s request in response on date petitioner resigned after petitioner resigned the city granted her request but she did not accept their accommodation in petitioner received a dollar_figure individual_retirement_account ira distribution petitioner reported the distribution on her federal_income_tax return and paid income_tax relating to the gross amount but did not pay the 10-percent additional tax pursuant to sec_72 by notice_of_deficiency dated date respondent determined deficiencies of dollar_figure and dollar_figure relating to and respectively on date petitioner while residing in memphis tennessee filed her petition with this court opinion at the outset we note that petitioner failed to cooperate with respondent and as a result has the burden_of_proof sec_7491 rule a petitioner contends that she is entitled to a sec_166 bad_debt deduction relating to the note she also contends that in the first lien holder attempted to foreclose on the property and that she attempted to collect on the note in that year the note is a bona_fide debt and became due in when ms moore died petitioner however claimed a deduction for the unpaid debt on her tax_return even though the note was due in petitioner failed to establish when the debt became worthless 109_tc_400 sec_1_166-5 income_tax regs accordingly she is not entitled to a deduction petitioner contends that the 10-percent additional tax pursuant to sec_72 is inapplicable because she qualifies for the disability exception pursuant to sec_72 she however failed to establish that she was unable to engage in any substantial_gainful_activity by reason of any medically determinable physical or mental impairment sec_72 although petitioner had a digestive disorder and wa sec_1 unless otherwise indicated all 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 required to refrain from eating during work hours she was able to engage in substantial_gainful_activity sec_72 106_tc_337 accordingly we sustain respondent’s determinations contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number -------------------------------------- ----------------------------------- --------------------------------------- re --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-130540-15 date december legend decedent date spouse date ---------------------------------------------------- ---------------------- --------------------------------------------------- ---------------------- dear ------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-130540-15 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-130540-15 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means 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_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a plr-130540-15 see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-130540-15 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by leslie h finlow leslie h finlow senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc