internal_revenue_service number release date index number ------------------------ ----------------------------------- ------------------------------------------------ ------------------------------------------ --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ---------------- telephone number -------------------- refer reply to cc ita b05 plr-130280-15 date date ty ------------------- ----------------------------------------------------------------------------- legend taxpayer ----------------------------------------------------------------------------------------------------------------- state_agency state a state b de ----------------------------------------------- ------------ -------- ----------------------------------------------------------------------------- ---------------- ----------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------- ---------------- ------------------- ----------------- ---------------- -------------------------- ---------------- -------------- -------------- -------------- ---------------- ------------ ------------ ------------ -------------- business_premises new location highway date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurei plr-130280-15 dollar_figurei tax_year tax_year tax_year dear ------------- -------------- ------------------------- ------------------------- ------------------------- this letter is in response to a request for a private_letter_ruling dated date submitted on behalf of taxpayer by your authorized representative specifically you are requesting that the service rule that i payments received by taxpayer from state_agency under title ii of the uniform relocation assistance and real_property acquisitions policies act pub_l_no as amended by the uniform relocation act amendments of title iv of pub_l_no relocation act u s c sec_4601 et seq are not includible in taxpayer’s gross_income under sec_61 of the internal_revenue_code code ii taxpayer’s relocation and related expenses will not be deducted under sec_162 to the extent those expenses do not exceed relocation payments and additional payments as discussed below received and iii taxpayer will not take a depreciable basis under sec_1012 in any new equipment acquired to replace certain non-movable equipment or improvements as discussed below with the relocation assistance payments received under the relocation act to the extent those costs do not exceed relocation payments and additional payments received statement of facts taxpayer is a state a limited_liability_company that is classified as a partnership for federal_income_tax purposes under sec_301_7701-3 taxpayer owns all of the membership interests in de a state a limited_liability_company that is disregarded as an entity separate from its owner under sec_301 b ii taxpayer uses the accrual_method of accounting for federal_income_tax purposes and reports on a calendar year-end accounting_period taxpayer conducts certain business through de in state b during the time in issue taxpayer held title to business_premises taxpayer owned all operating_assets and property plant and equipment located at the business_premises including machinery furniture fixtures information_technology equipment buildings and other improvements as state b grew state_agency determined that the main lanes of highway had to be expanded consequently business_premises became subject_to an asserted right of eminent_domain undertaken by state_agency related to the acquisition of a right of way for construction of improvements to highway taxpayer represents that the expansion of highway is a federally-assisted project funding for the expansion of highway is provided by a combination of sources including state_agency funds and earmarked federal assistance thereby characterizing payments from state_agency to taxpayer as eligible payments for moving_expenses pursuant to title ii of the relocation act plr-130280-15 on date taxpayer received a notice of intention from state_agency as part of the expansion of highway pursuant to state agency’s authority to acquire real_property for controlled-access highways on date taxpayer and state_agency executed the memorandum of agreement of date the moa for the compensation payable to taxpayer for the partial taking of the business_premises including a taking of the main office building and a warehouse the moa also required taxpayer to remove its business operations from the condemned portion of the business_premises no later than date taxpayer was required to i relocate its business operations - including inventory machinery and equipment -- from the condemned portion of business_premises to a new site or to a portion of business_premises that was not condemned ii sell any heavy operating equipment not readily movable and iii abandon certain improvements to accomplish the relocation taxpayer will acquire land and construct improvements at a new location which will ultimately hold part of the relocated business operations at new location as part of the relocation taxpayer may relocate some operations or equipment to a warehouse located on that part of the business_premises that was not condemned whereas other operations and equipment will be relocated to more distant pre-existing locations owned by taxpayer inside and outside state b in addition certain equipment that cannot be moved economically or efficiently will be replaced with substitute equipment to be installed at new location or other locations pre-existing locations before taxpayer relocates from business_premises any equipment replaced with substitute equipment will be dismantled and moved at a later date or sold by taxpayer to third parties taxpayer ultimately entered into several agreements with state_agency for the reimbursement of taxpayer’s anticipated costs to relocate from business_premises under these agreements taxpayer will receive agreed-upon relocation act compensation payments from state_agency for the costs of moving and reinstalling specific pieces of machinery and equipment relocation payments taxpayer and state_agency have agreed to relocation payments in the total amount of dollar_figurea under the agreement with state_agency taxpayer will also receive compensation payments from state_agency for all other business relocation-related costs not included in relocation payments additional payments taxpayer estimates that additional payments_to_be_received from state_agency will approximate dollar_figureb taxpayer expects to acquire substitute equipment for the assets which require replacement and incur moving and installation expenses and other related expenses taxpayer expects to receive relocation payments and additional payments from state_agency during tax_year tax_year and tax_year taxpayer has already incurred dollar_figurec in relocation costs during tax_year sec_1 and in connection with replacement site plr-130280-15 location selection business property appraisal equipment purchases and relocation- related professional fees taxpayer received relocation payments in the amounts of dollar_figured in tax_year dollar_figuree in tax_year and dollar_figuree in tax_year taxpayer received additional payments of dollar_figuref in tax_year dollar_figureg in tax_year and dollar_figureh in tax_year taxpayer incurred relocation costs in tax_year of dollar_figurei and in tax_year of dollar_figurej taxpayer has already taken a position on its federal_income_tax return for tax_year with respect to the relocation payments and the additional payments therefore taxpayer is not requesting a private_letter_ruling with respect to relocation payments and additional payments received in tax_year instead this ruling_request is limited to relocation payments and additional payments received in tax_year and tax_year taxpayer represents that all payments received under the relocation act from state_agency will be expended on moving existing equipment buying substitute equipment installation of existing equipment or substitute equipment relocation expenses_incurred at new location or pre-existing locations and professional and service fees related to the relocation including negotiating the moa with state_agency law and analysis income ruling sec_61 provides generally that except as otherwise provided gross_income means all income from whatever source derived the supreme court has long recognized that the definition of gross_income sweeps broadly and reflects congress' intent to bring within its purview all accessions to wealth unless excluded by another section of the code 348_us_426 515_us_323 title ii of the relocation act was enacted to establish a uniform policy for the fair and equitable treatment of all affected persons displaced as a result of federal and federally- assisted programs and projects in order that such persons shall not suffer disproportionate injuries as a result of programs designed for the benefit of the public as a whole and to minimize the hardship of displacement of such persons u s c under u s c a whenever a program or project undertaken by a displacing agency will result in displacing any person the head of such agency shall provide for the payment to the displaced person of actual reasonable expenses in moving himself his business or other personal_property actual direct losses of tangible_personal_property as a result of moving or discontinuing a business but not to exceed an amount equal to the reasonable expenses that would have been required to relocate such property as determined by the head of the agency and actual reasonable expenses in searching for a replacement business plr-130280-15 under u s c sec_4601 a displaced person includes any person who moves from real_property or moves his personal_property from real_property as a direct result of a written notice of intent to acquire or the acquisition of such real_property in whole or in part for a federal and federally-assisted program or project under u s c sec_4601 the term displacing agency includes any state_agency carrying out a program or project with federal_financial_assistance which causes a person to be a displaced person under u s c no payment received under u s c shall be considered as income for purposes of title_26 pursuant to u s c taxpayer does not include in gross_income under sec_61 of the code the relocation payments and additional payments received by it from state_agency pursuant to u s c deduction ruling sec_162 of the code generally allows a deduction for the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business see also sec_1_162-1 of the income_tax regulations moving_expenses incurred to relocate a business are generally ordinary and necessary business_expenses deductible under sec_162 provided that they are not subject_to capitalization under another section of the code 37_tc_158 acq 1962_2_cb_4 expenses to move machinery or equipment from one location to another in contrast to improvements added or new installations made at the time of the move are ordinary and necessary business_expenses however taxpayers are not allowed deductions under sec_162 for expenditures_for which they have a right or expectation of reimbursement 356_f2d_755 5th cir revrul_80_348 1980_2_cb_31 in 68_tc_620 nonacq on other grounds 1978_2_cb_3 the tax_court held that moving_expenses were nondeductible to the extent they were reimbursed by a government agency because the taxpayer's right to reimbursement was fixed and matured without substantial contingency prior to the move when the agency issued a written authorization to incur moving_expenses in a specified amount in revrul_78_388 1978_2_cb_110 an accrual_method taxpayer incurred expenses to move its business as a result of its property being taken by the state under its eminent_domain power the taxpayer’s request for a relocation payment under the uniform relocation assistance and real_property acquisition policies act of was approved plr-130280-15 by the responsible government agency during the taxable_year the move occurred and the relocation costs were incurred the taxpayer received the payment in a subsequent year the service held that the moving_expenses were not deductible to the extent that they were reimbursable see also revrul_79_263 1979_2_cb_82 farmer denied sec_162 deduction for portion of replacement feed expenditures_for which farmer received prior approval by government agency for partial reimbursement since farmer suffered no economic detriment with respect to these expenditures if on the other hand there is a possibility or a contingency that at some future date the taxpayer might receive reimbursement in whole or part the taxpayer is entitled to deduct its expenditure electric tachometer corporation t c pincite see also 31_f3d_651 8th cir in electric tachometer corporation the taxpayer was allowed to deduct moving_expenses in the year paid for moving machinery as the result of a condemnation action since there was no fixed_right of reimbursement but only an indefinite and general right to recover its expenses electric tachometer corporation t c pincite in varied investments the taxpayer was entitled to a sec_162 deduction in the taxable_year it transferred money to a_trust to provide for the satisfaction of a judgment as it had no fixed_right to reimbursement after three insurers denied coverage even though the taxpayer later recovered some insurance proceeds varied investments f 3d pincite in this case taxpayer has represented that i state_agency has agreed to pay taxpayer a specified amount of relocation payments and additional payments for other business relocation-related costs pursuant to the relocation act ii taxpayer will use the relocation payments and additional payments received under the relocation act for moving existing equipment purchasing substitute equipment installing existing equipment or substitute equipment relocation expenses_incurred at the new location or pre-existing locations and professional and service fees related to the relocation iii taxpayer has not deducted the relocation expenses it incurred in tax_year on its tax_year federal_income_tax return and iv taxpayer will not deduct under sec_162 its relocation and related expenses to the extent the relocation payments and additional payments under the relocation act are sufficient to cover those expenses therefore taxpayer is not entitled to deduct under sec_162 the relocation expenses that are otherwise deductible under that section to the extent those expenses do not exceed the relocation payments and additional payments made to it by state_agency under the relocation act as these payments are directly connected to the relocation expenses taxpayer represents it has incurred and will incur in tax_year sec_2 and basis taxpayer is requesting a ruling that it will not take a depreciable basis under sec_1012 in any new equipment acquired with the relocation assistance payments received by it from state_agency under the relocation act to the extent of the net plr-130280-15 amount of reimbursements received and amounts spent on relocation and related expenses sec_1012 provides that the basis_of_property shall be the cost of such property except as otherwise provided in subchapters o c k and p cost in turn is defined by regulation as the amount_paid for the property in cash or other_property sec_1_1012-1 of the income_tax regulations taxpayer may not allocate any relocation payment or additional payment to the basis in property it purchases with such payments because these payments reimburse taxpayer for the cost of such property taxpayer did not incur a cost to acquire said property therefore taxpayer cannot assign a basis under sec_1012 to any property acquired with such payments 69_tc_975 accordingly taxpayer cannot not take a depreciable basis under sec_1012 in any new equipment acquired with the relocation payment or additional payment received by it from state_agency under the relocation act to the extent those costs do not exceed relocation payments and additional payments received conclusions based solely on the facts as represented and the applicable law we conclude as follows pursuant to u s c taxpayer does not include in gross_income under sec_61 of the code the relocation payments and additional payments described in sec_42 u s c it receives from state_agency taxpayer cannot deduct under sec_162 moving_expenses for existing equipment purchasing substitute equipment the installation of existing and substitute equipment relocation expenses_incurred at the new location and pre-existing locations and professional and service fees related to the relocation including negotiation of the moa with state_agency to the extent such costs are reimbursed with relocation payments or additional payments from state_agency taxpayer cannot assign any basis under sec_1012 to substitute equipment acquired to replace non-movable equipment and leasehold improvements at the new location to the extent such costs are reimbursed with relocation payments or additional payments from state_agency except as expressly stated in conclusion sec_1 and in the preceding paragraphs we do not express or imply an opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-130280-15 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to the taxpayer's authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely william a jackson branch chief branch income_tax accounting enclosure copy of letter for sec_6110 purposes


internal_revenue_service department of the treas uniform issue list aoy co-co washington dc ein oicininnni teinoicitok eon ik itt ik kerrkermeeeerererkee contact person telephone number in reference to date sep i999 legend individual a individual b custodian c ri bi toi ir ir iir i tia iir ik fir iti nii iai fire oeic i io io toi tok tte te ite ooo too oie ira x feit iii isie a iii i io ioi ii ii kit ik facie ioi i iri toi ii state s i ee dear this ts in response to a request for letter rulings submitted on date as supplemented by letters dated date date and date concerning a rollover of funds from one individual_retirement_account into another individual_retirement_account under sec_408 of the internal_revenue_code code the facts and representations on which the request is based are as follows individual a was born on date and died on date at her death individual a had not attained age is her surviving_spouse at her death individual a maintained ira x with custodian c individual a designated her estate as the beneficiary of ira x in an ira beneficiary designation form dated date no distributions have been made from or individual b who was born on december aig iti init bitkiinkik contributions made to ira x after the date of individual a's death it is represented that ira x meets the requirements of sec_408 of the code prior to her death individual a executed a last will and testament will dated date which appointed individual b as sole executor of individual a's estate item vi of individual a’s will provides an outright marital bequest to individual b of the smallest amount necessary to reduce the federal estate_tax payable by reason of individual a's death to the lowest possible figure after first taking into account all other_property passing to individual a's surviving_spouse and after also taking into account all credits available to individual a's estate for federal estate_tax purposes as long as the use of any such credit will not increase the death taxes payable on account of individual a's death in addition item vi of individual a’s will grants her executor the widest discretion in selecting the property to be allocated to this bequest no death taxes shall be paid from this bequest on date the will was admitted to probate in state s and letters testamentary appointed individual b as the sole executor of individual a's estate item xhik of individual a's will authorizes individual b as sole executor of individual a's estate to make distributions in cash or in_kind or partly in each form_706 united_states estate and generation-skipping_transfer_tax return filed with respect to individual a shows the value of the total gross_estate at the date of death at approximately dollar_figure million item sec_3 through of schedule show the value of securities in ira x as approximately dollar_figure schedule m of the form_706 applicable to individual a's estate indicates that the value of the marital bequest computed pursuant to item vi of individual a's will is dollar_figure individual b as sole executor of individual a's estate proposes to fund the marital bequest under item vi of individual a's will with among other assets the entire ira x in particular all the assets in ira x would be distributed to individual a's estate and those same assets would then be distributed under item vi of individual a's will to individual b as the surviving_spouse of individual a within sixty days after the distribution of ira x to individual a's estate individual b would contribute those same assets to an ira established in his own name which will meet the requirements of sec_408 of the code as revised by a letter dated date your authorized representative requests the following rulings that the distribution of assets comprised of ira x to individual a's estate followed by the distribution of those same assets by individual a's estate to individual b as individual a's surviving_spouse in partial satisfaction of the outright marital bequest under rerrkkkke err ck ck aa item vi of the will and the contribution by individual b of those same assets to an ira established in his own name within sixty days after the distribution of the ira x to individual a's estate as proposed will qualify as a rollover_contribution by individual b within the meaning of sec_408 of the code that ira x is not an inherited ira within the meaning of sec_408 of the code with respect to individual b that the distribution of ira x will not be includable in the gross_income of individual b under sec_408 of the code with respect to your ruling requests sec_408 of the code provides that except as otherwise provided any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he or she receives the payment or distribution cade sec_408 of the code provides that sec_408 does not apply to any transfer described in sec_408 if at any time during the one-year period ending on the day of such receipt such individual received any other amount described in such subparagraph from an ira which was not includible in his gross_income because of the application of sec_408 sec_408 of the code provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution sec_408 ii of the code provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual sec_1_408-8 question and answer a-4 b of the proposed income_tax regulations provides in part that in the case of an individual dying after december wr rink tick eich kik the only beneficiary of the individual who may elect to treat the beneficiary's entire_interest in the trust or the remaining part of such interest if distribution thereof has commenced to the beneficiary as the beneficiary's own account is the individual's surviving_spouse if the surviving_spouse makes such an election the spouse's interest in the account would then be subject_to the distribution_requirements of sec_401 rather than those of sec_401 sec_1_408-8 q8 a-6 of the proposed_regulations provides in pertinent part that if the surviving_spouse of an employee rolls over a distribution from a qualified_plan into an ira such surviving_spouse may elect to treat the ira as the spouse's own ira in accordance with the provisions in a-4 generally if a decedent's ira proceeds pass through a third party eg an estate and then are distributed to the decedent's surviving_spouse said spouse will be treated as acquiring them from a third party and not from the decedent thus generally said surviving_spouse will not be eligible to roll over the ira proceeds into his or her own ira however in a situation where an estate is the beneficiary of the ira the surviving_spouse is the sole executor of the estate with sole discretion to allocate and pay estate assets the surviving_spouse as sole executor allocates ira assets to a marital bequest under decedent’s will and the surviving_spouse is the sole beneficiary of the marital bequest then for purposes of sec_408 of the code the service will treat the surviving_spouse as having acquired the ira proceeds from the decedent and not from the estate here individual b is the surviving_spouse of individual a and the sole executor of individual a's estate individual a's estate is the beneficiary of ira x which will be distributed to her estate individual b who as sole executor of individual a's estate has the authority and discretion to allocate assets to individual a's marital bequest will allocate ira x to individual a's marital bequest under item vi of individual a's will all of the assets in ira x will then be distributed to individual a's estate and those same assets will be distributed to individual b the beneficiary of said marital bequest individual b will then take said ira x proceeds and contribute them to an ira described in code sec_408 to be set up and maintained in his name under these circumstances the service does not believe the general_rule should apply accordingly we conclude as follows that the distribution of assets comprised of ira x to individual a's estate followed by the distribution of those same assets by individual a's estate to individual b as individual a's surviving_spouse in partial satisfaction of the outright marital bequest under item vi of the will and the contribution by individual b of those same assets to an ira established in his own name within sixty days after the distribution of the ira x to ink ic ike tiki individual a's estate as proposed will qualify as a rollover_contribution by individual b within the meaning of sec_408 of the code that ira x is not an inherited ira within the meaning of sec_408 of the code with respect to individual b that the distribution of ira x will not be includable in the gross_income of individual b under sec_408 of the code this ruling is based on the assumption that ira x established by individual a and the ira to be established by individual b either meet or will meet the requirements of sec_408 of the code at all times relevant to the transaction described herein additionally it is based upon the assumption that the rollover will meet all the applicable_requirements of sec_408 of the code this ruling is also based on the assumption that custodian c is authorized to hold ira assets this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent the original and a deleted copy of this letter have been sent to the first authorized representative listed in a power_of_attorney on file in this office sincerely ae kiaale rg g riddle jr j chief employee_plans technical branch - enclosures deleted copy of this letter notice of intention to disclose notice ree


department of the treasury internal_revenue_service washington d c date cc dom fs number release date tl-n-3709-98 uilc internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel field service cc dom fs subject ten-year carryback under sec_172 this field_service_advice responds to your request of date it is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend year year year year year year date amount amount amount amount amount amount taxpayer issue whether a payment to settle various lawsuits constitutes a specified_liability_loss within the meaning of sec_172 and is therefore eligible for a ten-year carryback conclusion taxpayer’s payment in settlement of various lawsuits fails to meet the three- year rule under sec_172 and is therefore not a specified_liability_loss eligible for a ten-year carryback facts taxpayer owns a professional sports team the league in which taxpayer’s team competes has been involved in extensive labor disputes with its players these disputes have lead to numerous lawsuits certain of which underlie taxpayer’s claim for a ten-year carryback one action against the league sought injunctive relief for alleged antitrust violations and damages stemming from the operation of certain contracts the suit also alleged the league illegally fixed players’ medical insurance benefits and tortiously interfered with contracts the lawsuit eventually settled the settlement consisted of both structural and monetary relief the structural relief involved the reduction or elimination of contract restrictions the monetary relief consisted of damages and reimbursement of costs totaling amount to be paid_by the league of the amount settlement amount was to be distributed as damages resulting from the contract restrictions pursuant to an agreed upon formula the balance of the monetary relief or amount was to be paid as reimbursement of attorneys fees and other costs and in settlement of related litigation amount of the amount settlement was to be paid in year and the balance of the settlement or amount was to be paid in annual installments through year according to taxpayer’s representative the league established a contingency fund or strike fund to provide loans to its member clubs in the event of a player strike each member club contributed amount to the strike fund also according to taxpayer’s representative the league later passed a resolution authorizing the use of the strike fund assets to satisfy a portion of its settlement payment obligations taxpayer claimed a deduction for these payments in year taxpayer filed claims in year carrying back to year sec_1 and the portion of the year net_operating_loss attributable to the settlement payments deducted in that year law and analysis in prior field_service_advice concerning this issue dated date we addressed whether taxpayer’s contributions to a strike fund were qualifying tort liabilities under sec_172 for purposes of the ten-year carryback provision in your current request for advice you inquired whether taxpayer’s payments to settle various lawsuits brought against the league1 were qualifying liabilities under the arising under federal or state law test of sec_172 it is service position that sec_172 is a narrow exception to the general three-year carryback rule the reasoning underlying this position is set forth in respondent’s opening brief copy attached filed in the case of intermet corporation and subsidiaries v commissioner docket no a case involving application of sec_172 to state tax_liabilities and interest on state and federal tax_liabilities the arguments set forth in the intermet brief expand upon the framework for analysis adopted by the tax_court in 107_tc_177 aff’d 171_f3d_655 9th cir in sealy the tax_court applied the ejusdem_generis_rule of statutory construction and concluded that congress intended the ten-year carryback rule to apply to a narrow class of liabilities t c pincite under the doctrine_of ejusdem generis general words that follow the enumeration of specific classes are construed as applying only to things of the same general class as those enumerated in the intermet brief the government expanded upon the tax court’s sealy analysis by identifying the distinguishing trait of liabilities that qualify for the ten- as noted above taxpayer’s representative has informed you that the amounts contributed to the strike fund were ultimately used to pay in part the settlement amount sec_172 was amended in to provide two-year carryback and twenty-year carryforward periods effective for net operating losses for taxable years beginning after date publaw_105_34 111_stat_788 the tax_court rendered an opinion in intermet late last year t c appeal docketed no 6th cir date however the court did not reach the government’s narrow class of liabilities argument instead the court disallowed the claimed ten-year carryback based on its finding that the expenses at issue were not specified liability losses because they were not taken into account in computing the consolidated group’s nol for the year as required by sec_172 year carryback namely liabilities that inherently involve an element of substantial delay between the time the act giving rise to the liability occurs and the time a deduction may be claimed for the liability an example of a qualifying inherent delay type of liability is the cost of land reclamation associated with mining activities a taxpayer’s deduction for these costs is inherently delayed in that a substantial number of years necessarily will expire between the act giving rise to the liability the mining activity and the time when the taxpayer will be entitled to a deduction for its costs to reclaim the land because generally land used for mining purposes cannot be reclaimed environmentally during the time which it is actually being mined in tam the inherent delay standard was relied upon to disallow a ten-year carryback for interest on a federal tax_liability and legal fees incurred to contest a federal tax_liability and a related state tax_liability it is also service position that liabilities for which deductions are delayed by a contest are not inherent delay liabilities that qualify for a ten-year carryback as discussed in the intermet brief the statutory context in which sec_172 was enacted and its legislative_history establishes that congress intended the ten-year carryback provision to apply to certain liabilities delayed by the economic_performance rules deductions for contested_liabilities are delayed under tax accrual principles that predate the enactment of the economic_performance rules 320_us_516 accrual basis taxpayer cannot deduct state taxes for which he denies liability and which he has not paid pending the outcome of proceedings to adjudicate the liability 82_tc_477 aff’d f 2d 2d cir sec_172 does not explicitly refer to deductions inherently or substantially delayed by the operation of the economic_performance rules instead the provision accomplishes congressional intent in this regard by permitting a ten- year carryback only for liabilities arising out of a federal or state law or out of certain torts where the act or failure to act giving rise to such liability4 occurs at least three years before the beginning of the taxable_year sec_172 in other words a ten-year carryback is permitted where the timing of the act giving rise to liability vis a’ vis the timing of the allowable deduction for that liability is such that the taxpayer will be barred by the operation of the normal carryback rules from offsetting substantial costs associated with a particular activity against the income generated by that activity we refer to this aspect of the provision as the three- year rule in the case of a qualifying tort the liability must arise out of a series of actions or failures to act over an extended period of time a substantial portion of which occurs at least three years before the beginning of the taxable_year sec_172 application of the three-year_rule requires a determination of what is the act or failure to act with respect to a given type of liability by using the phrase the act or failure to act sec_172 requires identification of a particular act or failure to act giving rise to the liability the creation of a liability however generally results from an infinite series of necessary preceding causes because a number of acts or failures to act may satisfy a but for test with regard to causation of a given liability the phrase act or failure to act cannot be said to be free from ambiguity in general taxpayers have taken a broad view of this term in some cases arguing that the act giving rise to liability was the incorporation of the business or the original hiring of employees consistent with our overall narrow interpretation of this provision however we believe the final act or failure to act in the chain of causation leading to the creation of a given liability from which it can be determined that the taxpayer has a legal_obligation qualifies as the act or failure to act within the meaning of sec_172 treating an act or failure to act occurring any earlier than this as the relevant act or failure to act for sec_172 purposes could frustrate congressional intent by allowing an extended carryback period for deductions for liabilities involving little or no deferral between the actual creation of the liability and the allowance of a deduction for amounts paid with respect to the liability applying these principles to the facts of this case we have substantial doubt as to taxpayer’s entitlement to a ten-year carryback for the settlement payments to date the service has not specifically considered whether an antitrust violation under any circumstances falls within the narrow class of liabilities entitled to a ten- year carryback regardless of the answer to that question however we do not believe that taxpayer is entitled to a ten-year carryback under the service’s interpretation of the three-year_rule we emphasize that our views in this regard are only advisory based on the aspects of this issue that the service has considered and taken a position on to date in order to obtain a determination of the application of sec_172 to taxpayer’s specific facts it will be necessary for you to seek formal technical_advice taxpayer asserts the act or failure to act giving rise to liability for purposes of applying the three-year_rule was the league’s failure to act in securing a new collective bargaining agreement in year we disagree we do not believe that the league’s failure to act in this regard was the final act or failure to act in the chain of causation leading to the creation of the league’s liability for alleged antitrust violations and damages the structure of the damages portion of the settlement provides a reasonable basis for asserting that the act giving rise to liability for this purpose was application of the contract restrictions to given players as their individual contracts expired according to the terms of the settlement it was the timing of the expiration of individual player contracts and the time frame during which such players were restricted subsequent to their contracts being renegotiated that determined the allocation of the settlement fund amount among the fund recipients to a large extent the stipulated damage amounts relate to a time frame subsequent to date the date three years prior to the beginning of the taxable_year in which taxpayer’s claimed ten-year carryback arose based on this analysis it appears that most of taxpayer’s claimed deductions for settlement payments fail to qualify for a ten-year carryback under the three-year_rule regardless of whether an antitrust violation would otherwise qualify as an inherent delay liability it is not clear from your memorandum whether taxpayer is claiming a ten- year carryback for settlement amounts attributable to the related litigation and reimbursement of litigation costs amount we note that at least some of the claims involved in the related litigation involve contractual liabilities it is service position that contractual liabilities do not qualify for a ten-year carryback it also service position that attorneys fees and other incidental costs paid in connection with otherwise qualifying specified liability losses are not themselves entitled to ten-year carryback treatment case development hazards and other considerations additional factual development in this case would be desirable exam should request taxpayer to to pursue 5norwest involved sec_172 bank bad_debt losses whereas intermet involved sec_172 sl losses however both types of losses are subject_to special 10-year carryback rules involving similar stacking and nol limitation rules we must advise you however that the service may submit a request for technical_advice in order to receive definitive service position on the issue in this case it may be advisable to no code or consolidated_return provision addresses this matter however the norwest court in treating only a pro_rata share of a member’s sl deduction portion of its separate nol as contributing to the cnol implicitly adopted an approach in which the net losses of members having net losses should be considered as proportionately offsetting the net_income of the members having net_income in determining the pro_rata share of a member under this approach the court used an apportionment formula similar to that under sec_1 if you have any questions please call deborah a butler by s teri a culbertson teri a culbertson technical assistant to the assistant chief_counsel field service attachment


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-119317-99 date date number release date index number re tax_year a country b year c date d year e date f date g dear this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s surrender of her u s alien registration card green card did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born on date g in country b and has been a citizen of country b by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it it subject_to verification on examination plr-119317-99 a was born on date g in country b and has been a citizen of country b since birth a’s parents were also born in country b a moved to the united_states in year c in order to marry her second husband who was a citizen and resident_of_the_united_states a became a permanent resident_of_the_united_states on date d approximately one month after a’s marriage to her second husband in year e a’s second husband passed away and shortly thereafter a moved back to country b intending to reside there permanently on date f a voluntarily rescinded her green card expatriated a is domiciled in country b and is subject_to country b income_tax on her worldwide income at a rate comparable to the applicable u s income_tax base and rate on the date of her expatriation a’s net_worth exceeded the amount prescribed in sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 a provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 a if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a b a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of it principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 a c under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes plr-119317-99 a is eligible to request a ruling pursuant to notice_98_34 because she became fully liable to tax on her worldwide income in country b the country in which she was born a submitted all of the information required to be submitted by notice_98_ accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of fax avoidance however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 a a based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for the taxable years prior to expatriation or her united_states tax_liability for periods after her loss of permanent resident status under sections of the code other than sec_877 sec_2107 and sec_2501 a a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s representative sincerely yours allen goldstein reviewer office of the associate chief_counsel international cc


department of the treasury internal_revenue_service washington d c office_of_chief_counsel number release date cc ita uilc date memorandum for associate area_counsel from associate chief_counsel cc ita by george baker chief branch subject this chief_counsel_advice responds to your e-mail requesting background advice in accordance with sec_6110 of the internal_revenue_code this chief_counsel_advice should not be cited as precedent legend taxpayer year at issue employer dollar_figurex dollar_figurey dollar_figurez issues does notice_95_50 1995_2_cb_333 affect the requirement of sec_1_274-5 that a taxpayer maintain adequate_records in order to claim a deduction for travel_expenses under sec_274 what amount may a taxpayer claim for incidental_expenses incurred while traveling on a ship in the middle of the ocean conclusions notice_95_50 does not affect the requirement of sec_1_274-5 that a taxpayer maintain adequate_records in order to claim a deduction for travel_expenses under sec_274 a taxpayer traveling on a ship in international waters may claim dollar_figure per day for incidental_expenses facts taxpayer lived with his wife in a residence they owned in during the year at issue taxpayer husband worked aboard a cargo vessel as a merchant seaman although it is not clear from the file it is understood that merchant seamen are provided room and board on the vessel a letter from the employer attached to the return merely states the employer does not reimburse employees for incidental_expenses incurred while on the ships for the year at issue taxpayers claimed unreimbursed employee_expenses of dollar_figurex in addition to various itemized_deductions for a total amount of job expenses and miscellaneous deductions of dollar_figurey the dollar_figurex the bulk of the deductible expenses was for expenses_incurred while aboard ship the amount of the deductible traveling expenses was determined according to the per_diem allowances for meals and incidental_expenses for whichever port was the ship’s destination on the date the expenses were incurred other claimed expenses included expenses for union dues license requirements and other miscellaneous business_expenses taxpayer’s return was filed prior to the tax court’s decision in 115_tc_210 the per_diem_amounts claimed are the full amount lodging meals and incidentals for each location as stated above taxpayer considers himself at a location immediately upon the ship leaving a port for such location even though the ship might not arrive there for several days upon examination the agent received from the representative a revised schedule of amounts to be allowed in two broad categories a day-by-day incidental per_diem only rate request and additional miscellaneous taxi and food expenses the total amount of the incidental per_diem for the year per the revised schedule was dollar_figurez which is less than of the amount originally claimed as unreimbursed employee business_expenses dollar_figurex a comparison of the locations per the original statement attached to the return and the revised schedule makes it clear that although the rate for each location was reduced per johnson the locations are the same for each date the additional miscellaneous taxi and sailor required food expenses claimed on the revised schedule are based on the representative's reading of johnson to allow such items in accordance with notice_95_50 a log was also provided on which notations were made with regard to such expenses but it is not known whether such log was made at or near the time of the expenses the notice_of_deficiency in essence indicates examiner's acceptance of the revised schedule of amounts deemed substantiated as incidental per_diem_amounts for the specified days of travel as such examiner did not challenge taxpayers' claimed location for the calculation of such amount nor did the examiner question whether taxpayer was traveling away from home in his trade_or_business in lieu of the dollar_figurex claimed by taxpayers on the original return the examiner allowed the dollar_figurez amount the examiner did not allow the other items per the revised schedule law sec_162 allows a deduction for the ordinary and necessary expenses paid_or_incurred in carrying on any trade_or_business including the expenses of traveling away from home an amount otherwise deductible under sec_162 may be subject_to disallowance or limitation by sec_274 sec_274 provides that no deduction shall be allowed for any traveling expense unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount time place and business_purpose of the traveling expense for such expenses this limitation supersedes the doctrine founded in 39_f2d_540 2d cir sec_1_274-5t flush language the regulations reiterate at sec_1_274-5t that the elements of a traveling expense that are to be proved are amount time place and business_purpose and specify that all of these elements are to be proved reg sec_1_274-5t further provides that a taxpayer to meet the adequate_records requirement of sec_274 must maintain an account book diary log statement of expense trip sheets or similar record as provided in paragraph c ii of this section and documentary_evidence as provided in paragraph c iii of this section which in combination are sufficient to establish each element of an expenditure or use specified in paragraph b of this section the regulation further states that the account book or similar record and the taxpayer’s documentary_evidence will complement each other in an orderly manner although information included on a receipt need not be duplicated in an account book under sec_1 2745t c ii an account book or similar record must be prepared or maintained in such a manner that each recording of an element of an expenditure or use is made at or near the time of the expenditure or use notice_95_50 1995_2_cb_333 provided information on a change that the service would make to the substantiation rules in regulations under sec_274 it stated that the service intended to amend sec_1_274-5t to increase from dollar_figure to dollar_figure the dollar amount at which a receipt for expenditures other than lodging is required effective on or after october the commissioner may provide that some or all of these requirements do not apply to an expense that does not exceed an amount prescribed sec_274 next to last sentence for taxpayers other than employers reimbursing their employees sec_1_274-5 authorizes the commissioner to specify an amount a taxpayer may use for meals while traveling away from home in lieu of substantiating the actual cost of each meal provided the taxpayer substantiates the time place and business_purpose of the expense revproc_98_64 1998_2_cb_825 is an example of guidance specifying those amounts sec_3 provides that incidental_expenses includes but is not limited to expenses for laundry cleaning and pressing of clothing and fees and tips for services such as for porters and baggage carriers the term does not include taxicab fares lodging taxes or the costs of telegrams or telephone calls analysis i effect of notice_95_50 reg sec_1_274-5 provides that documentary_evidence such as receipts paid bills or similar evidence to support an expenditure is required for any expenditure for lodging while traveling away from home and for any other expenditure of dollar_figure or more except for transportation_expenses this regulation effective for expenses paid_or_incurred after date effected in the regulations the threshold change announced in notice_95_50 for expenditures incurred on or after date neither notice_95_50 nor the amendment to the regulation affected the requirement of sec_1_274-5t that a taxpayer maintain adequate_records substantiating each element amount time place and business_purpose of an expense in order to claim a deduction for a travel expense under sec_274 notice_95_50 merely announced the service’s intention to increase the threshold_amount for which documentary_evidence such as receipts for some expenses were necessary under reg sec_1_274-5t as noted above this increase was effected by sec_1_274-5 nonetheless documentary_evidence is only one factor in meeting the adequate_records standards as noted above reg sec_1_274-5t provides that a taxpayer must maintain an account book or similar record prepared at or near the time of an expenditure in conjunction with maintaining documentary_evidence and that the account book and documentary_evidence should complement each other in an orderly manner thus even though notice_95_50 provides that a taxpayer does not need a receipt to establish the amount of certain expenditures of less than dollar_figure the taxpayer must maintain adequate_records to substantiate the amount time place and business_purpose of an expenditure such as through an account book or similar record prepared at or near the time of expenditure we also note that in 115_tc_210 which petitioner cites as support for his position the taxpayer introduced into evidence records that met the time place and business_purpose requirement of sec_1 5t b although the taxpayer in johnson did not have receipts or other documentary to establish the amounts of certain claimed expenditures our understanding is that the court treated the amount of all the claimed expenditures as incidental_expenses substantiated in accordance with a predecessor of revproc_98_64 which applies to the tax_year in issue here under sec_3 of revproc_98_64 the term incidental_expenses includes but is not limited to expenses for laundry cleaning and pressing clothing and fees and tips for services such as porters and baggage carriers the term incidental_expenses does not include taxicab fares lodging taxes or the costs of telegrams or telephone calls c b pincite the facts as presented are not adequate to determine if the expenses claimed by taxpayer are incidental_expenses we note however that the taxpayer in johnson was allowed to claim incidental_expenses because according to the tax_court his records show ed clearly the time place and business_purpose of the expenditures t c pincite however if taxpayer’s traveling expenses are not incidental expenditures he must prove every element amount time place and business_purpose of the expenses by adequate_records as required by sec_1 274t b i through iv further to meet the adequate_records requirement as described in sec_1_274-5t a taxpayer must maintain an account book or similar statement of expense prepared at or near the time of the expense and documentary_evidence such as receipts which in combination are sufficient to establish each element of the expense ii per_diem incidental_expenses amount on his original return taxpayer deducted the full amount of the m ie rates for each of the days he was away from home this is contrary to the court’s ruling in 115_tc_210 which states we do not read the revenue procedures to allow a taxpayer to use the full m ie rates when he or she only incurs incidental_expenses the m ie rates represent the amount that the government pays daily to its traveling employees to compensate them for four items of traveling expense namely breakfast lunch dinner and incidental_expenses see c f_r sec a specific amounts are apportioned under the travel regulations to each of these four items depending on the point of travel we believe that petitioner’s deductions for his incidental_expenses are limited under the travel regulations which are incorporated by reference into the revenue procedures to the incidental expense portion of the applicable m ie rate see c f_r sec a t c pincite our understanding of the facts is that taxpayer does not pay for meals or lodging while working aboard ship thus his only traveling expenses covered by the per_diem revenue_procedure are incidental_expenses under johnson taxpayer’s deduction for incidental_expenses is limited under the travel regulations to the incidental expense portion of the applicable m ie rate the question then is what is the allowable_amount of incidental_expenses for a taxpayer on a ship at sea in international waters as noted above the court in johnson stated the taxpayer’s deductions for incidental_expenses were limited under the travel regulations which are incorporated by reference into the revenue procedures to the incidental expense portion of the applicable m ie rate see c f_r sec a id for c f_r b states if you travel by ship either commercial or government your agency will determine an appropriate m ie rate within the applicable maximum rate allowable this is an exception to the rule_of which provides that for travel time of more than hours the m ie rate is that of the destination sec_3 b of revproc_98_64 and appendix b to chapter of the federal travel regulations note that m ie rates for localities in foreign areas are established by the secretary of state in sec_925 a per_diem supplement to the standardized regulations government civilians foreign areas the appendix provides a table for allocating m ie rates in foreign areas for civilian travel in nonforeign and foreign areas sec_925 the supplement to the standardized regulations referenced in appendix b provides per_diem allowances for travel in foreign areas it lists per_diem rates for civilians traveling in foreign countries there is no listing for a civilian aboard a ship in international waters however it does list a per_diem rate for other foreign localities this rate is dollar_figure this rate is allocated at dollar_figure for lodging and dollar_figure for meals and incidental_expenses since food and lodging is provided to taxpayer aboard ship he is entitled under johnson only to incidental_expenses under the aforementioned appendix b to chapter the incidental expense portion of a dollar_figure m ie rate is dollar_figure accordingly we conclude that taxpayer is entitled to dollar_figure in incidental_expenses each day his ship was sailing in international waters not the incidental expense rate of his destination of course as discussed above taxpayer is still responsible for proving the time place and business_purpose of the expenditure through an account book or similar record we also note that section dollar_figure of revproc_2002_63 2002_41_irb_691 which was not in effect for the year at issue in this case provides an optional method for incidental expense only deduction it generally allows for a dollar_figure per day deduction for incidental_expenses as long as the time place and business_purpose of the expense is substantiated case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions