internal_revenue_service number release date index number --------------------------- ---------------------------------------- ---------------------------------------------- ----------------------- ------------ ------------------------------------ - department of the treasury washington dc person to contact ---------------------- id no --------------- telephone number --------------------- refer reply to cc intl - plr-137549-05 date date in re --------------------------------------------------- -------------------------------------------------------- - ---------------------------------------- ------------------------------------------------ ------------------------------------------ -------------------------------------------------- -------------------------------------------- taxpayer ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- entity entity entity year year year cpa firm amount aa amount bb amount cc amount dd amount ee ------------------------------------------------ --------------------------------- ------------------- ------------------- ----------------- ----------------- ----------------- ------- ----------------- in re plr-137549-05 amount ff dear ----------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 to file elections under sec_1_1503-2 or sec_1_1503-2t g i as applicable and annual certifications under sec_1_1503-2 or sec_1_1503-2t g vi b as applicable certifications with respect to dual consolidated losses attributable to the interests of entitie sec_1 through the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer is the common parent of an affiliated_group that files a u s consolidated tax_return the interests in entitie sec_1 through are hybrid_entity separate units as described in sec_1_1503-2 owned by domestic corporations that are members of taxpayer’s consolidated_group for year and year losses attributable to the interests in entitie sec_1 through were dual consolidated losses and elections were not filed with taxpayer’s year and year tax returns with respect to these losses additionally certifications with respect to the year losses attributable to the interests in entitie sec_1 through were not filed with taxpayer’s tax_return for year the amount of the dual consolidated losses is as follows entity entity entity taxpayer engaged cpa firm to review its consolidated tax returns for year and year cpa firm was responsible for reviewing taxpayer’s tax returns for accuracy and completeness and to advise taxpayer with respect to the reporting of significant transactions that occurred during the tax_year this included ensuring that all reporting requirements associated with the dual consolidated losses attributable to the interests in entitie sec_1 through were met in a timely fashion in reviewing taxpayer’s tax returns for year and year cpa firm failed to identify that elections and certifications were not filed with respect to the dual consolidated losses attributable to the interests in entitie sec_1 through in early year when the year and year transactions that year amount bb amount dd amount ff year amount aa amount cc amount ee in re plr-137549-05 gave rise to the losses were reviewed by the national_office of cpa firm it was discovered that the elections and certifications needed to be filed sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the filings described in sec_1_1503-2t g are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the elections and certifications for the dual consolidated losses described in this letter attributable to the interests in entitie sec_1 through the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election agreement and annual certification sec_301 a a copy of this ruling letter should be associated with the election agreements and the annual certifications that are the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented sincerely in re plr-137549-05 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representatives enclosure copy for purposes cc _______________ robert w lorence senior counsel office_of_chief_counsel international


t c memo united_states tax_court sharon e backstrom harold j and zelma g barbret virginia boland john a and theresa a cislaghi estate of roger w dornbrock deceased maryn j dornbrock personal representative maryn j dornbrock gary e and beverly g engel hermann k and helen w enzmann don and mary everett kenneth b and mary j faust estate of harold e frazer deceased elizabeth frazer personal representative charlotte v frazer william m and martha j goodman paul w and kathleen m hammer john and rita c harvey william r and ethel kelley edward and arles kogelman terrence l labadie frances eng lee george r martell craig a and cynthia m peltier myra joan rodgers william h and shirley m shaw karl l and sui ti a siebert john m and sandra soper paul j and nancy l spindler gerard w j and madeline tremblay richard r and monica j riddle carol t jakubowski and arthur miller petitioners v commissioner of internal revenue respondent docket no filed date andrew w mychalowych for petitioners maryn j dornbrock and the estate of roger w dornbrock deceased karen j goheen for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge d irvin couvillion pursuant to sec_7443aand rule sec_180 sec_181 and sec_183 the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge couvillion special_trial_judge petitioner maryn j dornbrock mrs dornbrock has before the court a motion for leave to file a motion to vacate or revise the decision that was entered in this case this case is one of a group of cases that constituted a national litigation project identified by respondent as ig-phonomasters and involved investors in a master recording leasing program a joint petition was filed in this case on date on behalf of numerous investors in this program which included roger w dornbrock and his wife unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure as discussed later in greater detail this motion was filed by petitioner maryn j dornbrock individually on her own behalf and on behalf of the estate of roger w dornbrock deceased in her capacity as personal representative of such estate maryn j dornbrock the decision is a stipulated decision signed by counsel for the parties and was entered by the court on date mrs dornbrock's motion for leave to file the motion to vacate or revise the decision was filed on date over years after the decision was entered no other motions such as a motion to vacate or a notice of appeal have ever been filed in this case concurrent with mrs dornbrock's motion for leave to file is a motion to vacate or revise which has been lodged with the court mrs dornbrock's motion for leave to file was calendared for hearing and was heard at this court's detroit michigan trial session at which evidence was adduced this case arises out of roger w dornbrock's mr dornbrock participation in a master recording leasing program known as the pop phonomasters leasing program pop phonomasters program mr dornbrock participated in the leasing program in by signing an offer to participate in the co-tenancy and operating_agreement and phonomasters lease offer mr and mrs under the circumstances herein the motion for leave to file the motion to vacate or revise is a prerequisite to filing the motion to vacate or revise in deciding whether to grant or deny a motion for leave to file a motion to vacate or revise the court may consider the merits of the underlying motion to vacate or revise to determine whether further proceedings are appropriate 69_tc_999 accordingly the court here considers the merits of mrs dornbrock's motion to vacate or revise even though the motion before the court is a motion for leave to file the motion to vacate or revise dornbrock claimed a schedule e partnership loss and an investment_tax_credit on their joint federal_income_tax return from the pop phonomasters program they also filed amended joint federal_income_tax returns for and claiming investment_tax_credit carrybacks for those years arising out of the pop phonomasters program the investment tax_credits resulted in federal_income_tax refunds for each of these years on date a notice_of_deficiency was issued to roger w dornbrock and maryn j dornbrock husband and wife for all years involving the pop phonomasters program in the notice_of_deficiency respondent determined the following deficiencies in federal income taxes and additions to tax additions to tax_year deficiency sec sec_6653 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure these deficiencies arose solely from roger w dornbrock's participation in the pop phonomasters program on date a joint petition was filed on behalf of approximately petitioners who received notices of deficiency as a result of their participation in the pop phonomasters although adjustments were made in the notice_of_deficiency to the dornbrocks' income for no deficiency was determined for that year program including mr and mrs dornbrock the timely petition in this case was filed on behalf of petitioners by hallison h young mr young an attorney who is admitted to practice before this court at the time the petition was filed mr and mrs dornbrock were legal residents of the state of michigan on date mr dornbrock died and mrs dornbrock was subsequently appointed as personal representative of his estate by the probate_court of wayne county michigan at the time the subject motion was filed mrs dornbrock continued to be a legal resident of the state of michigan due to the large number of participants in the pop phonomasters program who had filed the joint petition several petitioners representing various versions of the program were selected as lead cases that were tried first and the remainder of petitioners were severed from the lead cases and assigned a separate docket number ie this case the court then continued this case pending the outcome of the lead cases roger w dornbrock and maryn j dornbrock were among petitioners who for purposes of simplicity in numbers the court count sec_5 husbands and wives who filed joint returns and received joint notices of deficiency as one petitioner the petition was signed by mr young as counsel for petitioners a petition in the tax_court need not be signed by the taxpayers and may be signed by their counsel rule sec_23 sec_24 were severed from the lead cases and assigned to this case in due course a notice was issued calendaring this case for trial the lead cases in the program that were tried were decided by this court in donahue v commissioner tcmemo_1991_181 affd without published opinion 959_f2d_234 6th cir affd sub nom 990_f2d_893 6th cir in donahue v commissioner supra this court found that the pop phonomasters program lacked economic_substance the decision in the donahue case was affirmed in the two cited appeals subsequent to the conclusion of the final appeal in the donahue case and the expiration of time for filing a petition for certiorari with the u s supreme court counsel for the parties in this case which included the dornbrocks entered into a stipulated decision with respect to the pop phonomasters issues based on the decisions in the donahue case in the stipulated decision entered in this case the parties agreed to deficiencies in federal income taxes and additions to tax with regard to mr and mrs dornbrock in the amounts set out in the notice_of_deficiency the stipulated decision document was lodged with the court when the case was called for trial on date and the decision was entered by the court on date concurrent with the filing of the stipulation the parties filed a motion to substitute parties and to change caption with respect to petitioner roger w dornbrock who passed away in date pursuant to rule a this court ordered that estate of roger w dornbrock deceased maryn j dornbrock personal representative be substituted for roger w dornbrock as a petitioner in this case throughout the entire process just described the attorney mr young represented the taxpayers in the lead cases that were tried and he continued as attorney for the taxpayers in this case which had been severed from the lead cases mr young was in direct contact with only one of the program participants frank c pasternak mr pasternak mr pasternak was a certified_public_accountant whose clients included one of the organizers of the pop phonomasters program mr pasternak had accepted the responsibility of acting as co-tenancy operator cto for the pop phonomasters program by signing the aforementioned offer each pop phonomasters participant including mr dornbrock appointed mr pasternak as his or her attorney in fact and authorized him to execute on behalf of each participant the co-tenancy and operating_agreement the phonomasters lease agreement and the phonomasters marketing agency agreement each participant also authorized mr pasternak to execute any documents required under sec_48 and sec_1_48-4 income_tax regs to pass through investment tax_credits from the lessor to the lessees in his capacity as cto mr pasternak was given subject_to the other participants' instructions the exclusive right and duty to conduct the operations of the pop phonomasters program more specifically mr pasternak was authorized to maintain books_and_records and to pay all ordinary and necessary expenditures without consulting other participants as pop phonomasters participants began receiving notices of deficiency regarding their investments some of them contacted mr pasternak about the matter in response to their inquiries and in his capacity as cto mr pasternak mailed a form letter to each of the pop phonomasters participants regarding the notices of deficiency received by them the form letter was drafted by mr young's law firm however the letters were signed by mr pasternak and were printed on phonorecords phonomaster leasing letterhead and stated dear co-tenant as you are aware the internal_revenue_service has been conducting an investigation into the tax_liabilities of certain co-tenants participation in pop phonomaster leasing program we were recently informed that certain co- tenants have received statutory notices of deficiency it appears that certain of these investigations by the irs involve substantial and controlling common questions of law or fact accordingly if you wish to join in a consolidated effort joint tax_court petition return an executed copy of the enclosed consent form by date since your petition will very probably have to be filed with the united_states tax_court washington d c by date to help me and or my representative prepare the petition promptly deliver to me all available information which substantiates all adjustments reflected on irs form_5278 statement of income_tax changes attached to your notice_of_deficiency by date thank you for your cooperation very truly yours frank pasternak co-tenant operator the consent form attached to the letter read as follows the undersigned hereby desire s to contest the attached notice_of_deficiency and authorize frank pasternak or his representative to file a joint consolidated petition with the united_states tax_court for a redetermination of the deficiency the undersigned hereby enclose s a copy of his her statutory_notice_of_deficiency upon receiving signed consent forms from each of the pop phonomasters participants mr pasternak forwarded the consent forms and notices of deficiency to mr young the attorney the participants who responded to the letter also made payments for instituting litigation in this court in the form of checks made payable to mr pasternak mr pasternak in turn deposited the checks into a bank account he held as agent for pop phonomasters and then issued a check from such account to mr young representing total_payment from all petitioners at the hearing on the subject motion mrs dornbrock testified that although she was not aware of the details surrounding the pop phonomasters program her husband had told her about his investment in pop phonomasters and that she had raised no objections further she admitted that her husband had told her prior to his death in that a tax problem had arisen with the investment he directed her to call mr pasternak if she had any questions regarding the investment or the tax problems associated therewith after her husband's death mrs dornbrock called mr pasternak to inform him of her husband's death but she did not discuss the pop phonomasters program with him after the stipulated decision in this case became final the internal_revenue_service irs assessed the various deficiencies and additions to tax in accordance with the decision in date mrs dornbrock received a letter from the irs informing her that she owed dollar_figure for the tax_year believing that this amount represented all of her tax_liabilities she paid this amount in full shortly thereafter she received further correspondence from the irs informing her that she owed dollar_figure for and dollar_figure for upon receipt of the correspondence referencing and mrs dornbrock sought the advice of a certified_public_accountant who referred her to an attorney this series of events gave rise to the motion filed on her behalf and that is presently before the court at this time mr dornbrock had become aware that he was terminally ill and was taking steps to prepare his wife to handle financial matters after he had passed away his efforts included providing his wife with much financial information of which she had previously by her own admission been intentionally unaware in her motion for leave to file in which mrs dornbrock is represented by attorney andrew w mychalowych mr mychalowych she alleges fraud on the court because mr young lacked authority to represent her in this case in further filings mrs dornbrock alleges that this court lacked jurisdiction over both her and the estate of her deceased husband at the hearing mrs dornbrock modified her position to contend that mr young's lack of authority to represent her originated only at the time of her husband's death she further alleges that any authority mr young may have had to represent her husband terminated upon mr dornbrock's death and that mr young had no authority to represent her as personal representative of her husband's estate mrs dornbrock asserts that mr young had no authority to execute the stipulated decision document on her behalf and on behalf of the estate of her deceased husband and therefore the decision should be vacated respondent objects to petitioner's motion with regard to the argument that mr young lacked authority to represent her mrs dornbrock contends that she had no mrs dornbrock's changed position appears to have resulted from the court's observation that if mr young never had authority to represent her this court never had jurisdiction over her and respondent would have been free to assess her for the amounts determined in the notice_of_deficiency this result would complicate the legal process in that presumably mrs dornbrock would be required to continue the action in this court for a determination that there was no jurisdiction and commence a separate legal proceeding in u s district_court for a refund this latter proceeding however would require a prior payment in full of the assessments knowledge of this litigation and she did not personally authorize mr young to represent her in this case mrs dornbrock contends further that if mr young had the authority to represent her in filing the joint petition he was acting as her subagent by and through her agent mr dornbrock rather than as her agent accordingly she argues that under common_law principles of agency mr young's status as subagent for her terminated upon the death of mr dornbrock her agent thus mrs dornbrock contends that mr young's authority to represent her as a subagent terminated upon the death of her husband with regard to her argument that mr young lacked authority to represent her husband's estate mrs dornbrock contends that under michigan law mr young's authority to represent mr dornbrock terminated upon mr dornbrock's death she contends that mr young never obtained her permission as personal representative of her husband's estate to substitute parties as he did in this case she argues further that her husband's estate was closed in yet the estate was not substituted as a party until therefore she contends this court never obtained jurisdiction over the estate of her deceased husband mrs dornbrock's position on this argument is not clear as to whether the court's purported loss of jurisdiction over her husband's estate reverted back to the date of the filing of the petition or the date her husband died in support of her motion mrs dornbrock asserts that she had no specific knowledge of the tax deficiencies at issue herein did not sign the petition did not know mr young did not personally authorize mr young to file a petition on her behalf never received any communication from mr young regarding this case never received a bill from mr young for services rendered in this case and did not personally authorize mr young to enter into a settlement agreement on her behalf or on behalf of her husband's estate rule provides that a motion to vacate shall be filed within days after a decision has been entered unless the court shall otherwise permit sec_7481 and sec_7483 provide generally that a decision of this court becomes final in the absence of a timely filed notice of appeal days from the date the decision is entered as a general_rule this court is without jurisdiction to vacate a decision after the decision becomes final 441_f2d_930 9th cir vacating 52_tc_295 however a decision entered in a case where this court never acquired jurisdiction over a taxpayer is a legal nullity and is therefore not a decision as to that taxpayer 868_f2d_1081 9th cir accordingly a judgment void for lack of jurisdiction may be vacated at any time billingsley v commissioner supra pincite 71_tc_108 the court may also vacate a decision after the decision becomes final if there has been a fraud on the court 859_f2d_115 9th cir affg 86_tc_1319 511_f2d_929 2d cir 464_f2d_368 3d cir mrs dornbrock's motion alleges lack of jurisdiction as well as fraud on the courtdollar_figure the jurisdiction of this court is based on a timely filed petition 97_tc_437 when a taxpayer files a timely petition this court's jurisdiction is invoked and remains unimpaired until the controversy is decided 57_tc_720 17_tc_942 affd 200_f2d_308 6th cir however when an individual fails to sign the petition or to ratify the petition and does not intend to become a party to the litigation this court acquires no jurisdiction over that individual levitt v commissioner supra in 219_f2d_610 6th cir the circuit to which this case would be appealed the court_of_appeals for the sixth circuit indicated that the tax_court also has the power in its discretion in extraordinary circumstances to vacate and revise a final_decision where it is based upon a mutual mistake of fact however in 51_f3d_618 6th cir the sixth circuit held that the case of reo motors inc v commissioner supra is no longer binding in that circuit and the case is considered to have been overruled by 352_us_1027 pincite ratification requires a showing of proper authorization by the signing party to act on behalf of the nonsigning party id when a petition is filed by an attorney on behalf of a taxpayer the question is whether that taxpayer authorized the attorney to act on his or her behalf this is a factual question to be decided based on common_law principles of agency 85_tc_359 casey v commissioner tcmemo_1992_672 under common_law rules of agency authority may be granted by express statements or may be derived by implication from the principal's words or deeds john arnold executrak sys inc v commissioner tcmemo_1990_6 citing restatement agency 2d sec_26 in casey v commissioner supra this court held that the taxpayer's practice of routinely allowing her spouse to handle income_tax matters and to open correspondence received from the commissioner constituted an implied grant of authority to her spouse that allowed him to represent her with respect to their joint income_tax matters that grant of authority was sufficient to allow the taxpayer's spouse to hire an attorney to file a joint petition with this court this court held that it had jurisdiction over the taxpayer even though she never signed the petition because she impliedly authorized it through her spouse the record establishes that mrs dornbrock habitually turned over the responsibility of dealing with the couple's business and financial matters including their federal_income_tax matters to her husband mrs dornbrock trusted her husband completely and signed their joint federal_income_tax returns without even reviewing them furthermore mrs dornbrock never opened any mail that appeared to be financially or tax related even though it may have been addressed jointly to her and her husband mrs dornbrock was aware of correspondence received from the irs however she allowed mr dornbrock to deal with such matters without question this conduct impliedly authorized mr dornbrock to represent mrs dornbrock with respect to their federal_income_tax matters mr dornbrock acted within the scope of this authority when he retained mr young by and through mr pasternak to file a petition with this court mr young acted pursuant to the authority granted to him by mr dornbrock on mr and mrs dornbrock's behalf when he filed the joint petition in this case even if the taxpayer was not aware of the dispute with the irs her own admitted delegation of authority to her husband cannot now be revoked because she is unhappy with the outcome of her case 'deficiencies ex post do not detract from authority ex ante ' disanza v commissioner tcmemo_1993_ affd without published opinion 9_f3d_1538 2d cir mrs dornbrock therefore has not convinced this court that it lacked jurisdiction over her in this case mrs dornbrock further contends that this court lacked jurisdiction over her husband's estate at the time the decision was entered the petition was filed timely on date and mr dornbrock died in while this case was pending prior to entry of the decision the court ordered pursuant to rule a that the estate of her husband through mrs dornbrock as personal representative be substituted as a petitioner in this case it is well settled that a petitioner's death does not divest this court of jurisdiction over the income_tax_liability of such petitioner for years at issue 50_tc_30 25_tc_589 this court's jurisdiction is based on the petition which here was timely filed on mr dornbrock's behalf while he was alive and which he authorized sec_6213 rule once this court has jurisdiction the case does not abate upon petitioner's death 18_bta_608 when a petitioner dies the court generally will order that a representative or successor be substituted as the proper party rule a the legal capacity in this court of a representative is controlled by rule c this court applies local law to determine who may represent the decedent's_estate in this court 65_tc_346 under michigan law an estate is not a proper party to a lawsuit but rather the administrator or executor is the proper party plaintiff or defendant wright v estate of treichel mich app n w 2d see also 215_fsupp_833 e d mich stating that the death of the plaintiff during the pendency of a private antitrust suit in federal court sitting in michigan did not abate the action and the executor of the deceased plaintiff's estate could be substituted as party plaintiff mrs dornbrock was appointed personal representative of her husband's estate by the probate_court of wayne county michigan which clearly qualifies her as the proper party to continue the prosecution of mr dornbrock's action before this court this court ordered that mr dornbrock's estate and mrs dornbrock as personal representative of that estate be substituted for her deceased husband as a petitioner in this case this substitution was in compliance with both the rules of this court and michigan law mrs dornbrock therefore has not convinced this court that we lack jurisdiction over the estate of her deceased husband in this case as was noted in nordstrom v commissioner supra pincite the foregoing makes it clear that the court's jurisdiction over a case continues unimpaired by the death of a petitioner and even in the event that there is no personal representative appointed to act in the place and stead of the decedent and if our jurisdiction continues then there must be a procedural means to bring the case to a close in the event that no representative of a decedent comes forward to prosecute the decedent's case before this court the procedural means for bringing the case to a close is respondent's filing of a motion to dismiss for failure to properly prosecute nordstrom v commissioner supra see also wyler v commissioner tcmemo_1990_285 consequently if this court were to hold that the aforementioned substitution of mr dornbrock's estate and mrs dornbrock as personal representative of that estate was improper respondent would then be in the position to file a motion to dismiss this case as to mr dornbrock for failure to properly prosecute if this court were to grant such a motion mrs dornbrock and the estate of her deceased husband would be in the same position she finds herself in at this time because respondent could assess the taxes based upon an order of dismissal and decision this court does not believe that mrs dornbrock desires such an inevitable result in this case mrs dornbrock contends that the substitution of parties in this matter was improper or invalid because her husband's estate had been closed some years prior to the substitution her argument in this regard is misplaced the supreme court of michigan has held probate and closing of an estate should not bar an action that may yet within the applicable statute of limitation be commenced directly against the personal representative of the decedent just as the failure of heirs to probate a decedent's_estate does not preclude the commencement of an action neither should the closing of an estate preclude the commencement of an action which otherwise is authorized williams v grossman mich n w 2d furthermore although the probate of an estate has been completed and the estate closed where a person has an action which by statute may be commenced directly against the personal representative of the decedent without first filing a claim against his probate_estate the administration of the estate is incomplete within the meaning of the statute and upon petition the estate may be reopened to provide a suable person so that the action can be commenced fn ref omitted id pincite n w 2d pincite the court believes that this rule is particularly applicable to this case since the proceeding in this court commenced prior to mr dornbrock's death and was still pending at the time of his death and throughout the administration of his estate a presentation of a claim is not required in matters claimed in proceedings against the decedent that were pending at the time of death mich comp laws ann sec west moreover a judgment in a proceeding in another court against a personal representative to enforce a claim against a decedent's_estate constitutes an allowance of the claim id sec mrs dornbrock failed to show that the closing of her husband's estate prior to the time of the substitution of parties in this case would have the effect of invalidating the substitution of parties what she has shown instead is that she failed in her duties as personal representative of her husband's estate to fully administer the estate before petitioning the probate_court to close the estate and discharge her as personal representative since the court concludes that the decision entered in this case was not void as to mrs dornbrock and her husband's estate for lack of jurisdiction the court next addresses the contention that there was fraud on the court this court has jurisdiction to set_aside a decision that has become final where there is a fraud on the court 511_f2d_929 2d cir 86_tc_1319 affd 859_f2d_115 9th cir in order to succeed mrs dornbrock must establish that there was fraud on the court in the entry of the decision on date based on mr young's alleged lack of authority to represent mrs dornbrock and her husband's estate following the death of mr dornbrock in date the burden_of_proof is on the party filing the motion to vacate and such burden must be carried by clear_and_convincing evidence 70_tc_623 this court in abatti v commissioner t c pincite has described the term fraud on the court as follows fraud on the court is only that species of fraud which does or attempts to defile the court itself or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjud g ing cases that are presented for adjudication fraud inter partes without more should not be a fraud upon the court toscano v commissioner f 2d pincite quoting j moore federal practice par dollar_figure 2d ed to prove such fraud petitioners must show that an intentional plan of deception designed to improperly influence the court in its decision has had such an effect on the court the court must examine all of the evidence in light of the foregoing definition to determine whether the record establishes fraud on the court the first consideration is mr young's purported representation of all petitioners in the original joint petition the practice of a few attorneys or even one attorney representing a large group of investors who were engaged in a single transaction is commonplace and is not by its nature a cause for suspicion also it is not unusual in such circumstances for such attorney or attorneys to have direct contact with only a few or even one of the investors appointed to represent the others the practice of such attorney or attorneys maintaining continuous and direct contact with each individual investor could prove to be impractical overburdensome and could cause severe delays in the litigation of a case next it is necessary to consider mr dornbrock's authorization of mr young to represent mr and mrs dornbrock in this case mr young testified that he would not have included an individual's name on the original joint petition unless he had received from the individual a consent form and a copy of their notice of deficiencydollar_figure indeed mrs dornbrock failed to show how mr young could have obtained the correct amounts of deficiencies and additions to tax to include in the joint petition unless her husband had indeed forwarded their notice_of_deficiency to mr young through mr pasternak on the entire record this court is convinced that mr young was given the authority by mr dornbrock to represent both mr and mrs dornbrock in the filing of the joint petition in this case on their behalf the joint petition was timely filed and mr young thereby became counsel of record for mr and mrs dornbrock in this case it is notable that the appearance of an attorney on behalf of an individual creates a presumption that the attorney has the authority to represent that individual osborn v bank of united_states u s wheat 73_tc_639 no motion to remove or cause the withdrawal of mr young as counsel for mr dornbrock mrs dornbrock or mr dornbrock's estate was filed until after mrs dornbrock filed the subject motion seeking to vacate or revise the decision nor for that matter have any of the other petitioners in this case filed any motion to remove mr young or to vacate the decision entered against them thus it appears at in fact mr young testified and the record reflects that he represented most but not all of the pop phonomasters investors first blush that on or about date when mr young and counsel for respondent signed the stipulated decision document mr young was duly authorized to represent mrs dornbrock and the estate of her deceased husband moreover the evidence is clear that neither mr young nor counsel for respondent received any notice or had knowledge that mr young no longer had the authority to represent mrs dornbrock or her husband's estate mrs dornbrock contends that mr young represented her as a subagent who had been appointed by and through her agent mr dornbrock she alleges further that under common_law principles of agency a subagency terminates upon the death of the agent therefore she argues mr young's authority to represent her terminated with the death of her husband in support of this proposition mrs dornbrock cites several excerpts from the restatement second of agency and a case decided in the probate_court of cuyahoga county ohio see bowman v bowman ohio misc n e 2d stating that the death of the agent terminates the authority of the subagent to act for the principal the court agrees with the general proposition that in a true subagency relationship the death of the agent terminates the relationship between the principal and the subagent even if there was a subagency relationship that terminated upon the death of mr dornbrock mrs dornbrock failed to show that mr young's continued representation of her subsequent to her husband's death amounted to fraud on the court mr young was never notified that he was representing mrs dornbrock as her subagent rather than as her agent therefore he could not have been expected to assume that the death of mr dornbrock would terminate his authority to represent mrs dornbrock mr young's continued representation of mrs dornbrock was clearly in her best interest since she claims she had no knowledge of the proceedings and therefore would not have had the opportunity to appoint new counsel to represent her in this case mr young had a duty to represent mrs dornbrock to the best of his ability until he was notified otherwise a duty which he aptly fulfilled on this record the court is satisfied that mr young filed the petition as agent for both mr and mrs dornbrock there is no evidence to support the contention that mr dornbrock employed mr young to represent him alone and that mr young represented mrs dornbrock in a subagency capacity there were some husbands and wives who were joint petitioners in this case and to hold that as to this one couple mr and mrs dornbrock there was this special_agent and subagent relationship is simply incredible the court does not buy that argument mrs dornbrock contends that under michigan law an attorney-client relationship terminates upon the death of the client and the authority of the attorney to represent the deceased client is revoked therefore she contends mr young's authority to represent her husband terminated upon mr dornbrock's death mrs dornbrock's aforementioned statement of michigan law is accurate indeed the rule in michigan is that the authority of an attorney is revoked and the attorney-client relationship is terminated when the client dies doty v dexter mich n w courser v jackson mich n w see generally c j s attorney and client sec_113 p wright v estate of treichel mich app pincite n w 2d pincite see also henritzy v general electric co mich app n w 2d for purposes of this discussion this court assumes that mr young's authority to represent mr dornbrock terminated with his death in date nevertheless mrs dornbrock has failed to show that any of mr young's actions subsequent to mr dornbrock's death amounted to fraud on the court mr young is an attorney however he does not possess the ability to read the minds of his clients mr young was notified of mr dornbrock's death however he was not instructed to discontinue his representation of mr dornbrock when mr young was made aware of the death of mr dornbrock he took the appropriate action of moving this court to substitute parties as provided for in 50_tc_30 to protect the interest of mr dornbrock in this case mr young's substitution of parties prior to signing the stipulated decision in this case was in the best interest of mr dornbrock and his estate in the closing of this case if mr young had not pursued this course of action which is explicitly prescribed for such situations by prior decisions of this court respondent would likely have properly filed a motion to dismiss for lack of prosecution as to mr dornbrock mr young had a duty to represent mr dornbrock to the best of his ability until he was notified otherwise mr young's actions in this case reflect a fulfillment of such duty rather than some type of sinister attempt to deceive this court mrs dornbrock's assertions that she could not have contacted mr young regarding these matters because she had no knowledge of the pop phonomasters program or of the handling of any_tax problems associated therewith carry very little weight with the court the evidence shows that mrs dornbrock knew of the pop phonomasters program and was advised by her husband prior to his death of a potential tax problem with the investment she was fully aware that mr pasternak was the contact person for further information regarding such matters and that any_tax problem would be a joint liability of hers and mr dornbrock's mrs dornbrock telephoned mr pasternak to notify him of her husband's death she had no other reason to contact mr pasternak except for her husband's investment in the pop phonomasters program and to afford mr pasternak the opportunity to act accordingly with respect to that program as it was affected by her husband's death under these circumstances mrs dornbrock cannot now claim ignorance and expect this court to vacate a final_decision based on such claims a taxpayer's lack of diligence does not amount to fraud on the court finally mrs dornbrock contends that due to fraud on the court she was denied the right to assert the defense of innocent spouse under sec_6013 the evidence does not show that any person gave mr young any reason to believe that there was an innocent spouse issue in this case further there is no reason to believe that such issue was not raised in the petition because of any collusion or fraud even if this court were to conclude that mrs dornbrock was entitled to innocent spouse relief the decision should not be vacated because of the failure of mr young to raise that issue see 932_f2d_598 7th cir revg on another ground tcmemo_1990_44 involving failure to raise an innocent spouse argument there is no principle of effective assistance of counsel in civil cases shortcomings by counsel may be addressed in malpractice actions they do not authorize the loser to litigate from scratch against the original adversary citations omitted the argument of innocent spouse relief for mrs dornbrock may have been omitted through error or oversight or lack of communication or because counsel considered correctly or incorrectly that the argument was invalid but the record here does not establish that such argument was omitted for reasons amounting to fraud on the courtdollar_figure there is no suggestion of fraud on the court in mr young's actions mr young who testified at the hearing admitted that he had never met mr and mrs dornbrock or had any direct contact with them nor did he have any direct contact with any of the pop phonomasters investors except for mr pasternak and that it was understood that this was the manner in which the pop phonomasters litigation would be handled if mr or mrs dornbrock were not kept sufficiently informed about the progress of this case that was a result of either their own inattentiveness or an inadvertent failure of communication on the part of mr pasternak however as this court stated in disanza v commissioner tcmemo_1993_142 affd without published opinion 9_f3d_1538 2d cir even if we were to conclude that counsel was negligent in this matter his representation of the dornbrocks such conduct would not constitute fraud on the court see 387_f2d_689 7th cir affg an unreported order of this court see also dominquez v united_states 583_f2d_615 2d cir moreover even gross neglect on the part of a taxpayer's counsel does not constitute 'fraud on the court' gazdak v mrs dornbrock's claim of innocent spouse is undermined by the fact that she paid in full without question the first bill she received from respondent after the decision was entered with respect to the tax_year commissioner tcmemo_1993_381 see also 872_f2d_245 8th cir affg an order of the court toscano v commissioner f 2d pincite kenner v commissioner supra pincite disanza v commissioner supra pulitzer v commissioner tcmemo_1987_408 the court is satisfied that neither mr young mr pasternak nor any other party involved in the pop phonomasters litigation made any deliberate attempt to deny mr or mrs dornbrock or the estate of roger w dornbrock deceased maryn j dornbrock personal representative their right to be heard by this court mrs dornbrock has failed to show that any of mr young's actions in this case involved the evil intent deceit or collusion which have marked those cases where final verdicts have been set_aside see senate realty corp v commissioner f 2d pincite mrs dornbrock has not convinced us that a fraud was perpetrated on this court in the entry of the decision of this case on date as to maryn j dornbrock or the estate of roger w dornbrock deceased maryn j dornbrock personal representative therefore mrs dornbrock's motion for leave to file a motion to vacate or revise decision will be denied an appropriate order will be issued


department of the treasury internal_revenue_service washington d c a tax exempt and soe ow sep set pa az re plan no ein plan’ taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning this extension applies to the eligible amortization charge bases as identified in your application submission established as of the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided in granting this ruling it is expected that the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption was applied in accordance with applicable law and regulations and each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan in addition we are not expressing any opinion as to the accuracy of any material submitted with your request we have sent a copy of this letter to the manager ep classification in baltimore maryland to the manager ep compliance unit in chicago illinois and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours cc david m ziegler manager ep actuarial group


t c memo united_states tax_court alfred j olsen and susan k smith petitioners v commissioner of internal revenue respondent docket nos filed date brad s ostroff and martha combellick patrick for petitioners anne w durning for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined a dollar_figure deficiency for and a dollar_figure deficiency for in petitioners’ federal_income_tax the sole issue for decision is whether petitioners are liable for self-employment_tax under sec_1402 we hold that they are liable findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated by this reference petitioners alfred j olsen petitioner husband and susan k smith petitioner wife are both tax and estate_planning attorneys petitioners have been married since and have no children they filed joint federal_income_tax returns for and the years at issue petitioners reside in arizona structure of petitioners’ business petitioners claim to be employees of olsen-smith ltd olsen-smith an arizona general_partnership the partners of which are three pass-through entities known as professional limited_liability companies plcs olsen-smith was a professional_corporation until when it became a general_partnership the three professional corporations were replaced by the plcs in for various reasons including tax considerations olsen-smith’s three equal direct partners during the years at issue were smith olsen plc smith olsen smith associates plc smith associates and rossie associates 1all section references are to the internal_revenue_code for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated plc rossie associates petitioners adopted this structure at some point during the mid-1990s smith olsen was an arizona plc that was managed by petitioner husband and whose members were an irrevocable complex_trust named the who2 trust 1-percent_owner and an irrevocable grantor_trust named the sko-96 trust 99-percent owner petitioners treated petitioner husband as the grantor of all property in the sko-96 trust for federal_income_tax purposes and listed him as the grantor on the form sec_1041 u s income_tax return for estates and trusts for and petitioner husband is the beneficiary of both trusts and petitioner wife is the trustee for both trusts smith associates was an arizona plc that was managed by petitioner wife and whose members were an irrevocable complex_trust named the wlk trust 1-percent_owner and an irrevocable grantor_trust named the mbk-96 trust 99-percent owner petitioners treated petitioner wife as the grantor of all property in the mbk-96 trust for federal_income_tax purposes and listed him as the grantor on the form sec_1041 for and 2the trusts are named for the initials of various family members 3similarly the court found alfred j olsen the grantor of the sko-96 trust in olsen-smith ltd v commissioner tcmemo_2005_174 petitioner wife is the beneficiary of both trusts and petitioner husband is the trustee of both trusts petitioners designed the mbk-96 trust and the sko-96 trust to be megatrusts a trademark held by petitioners and others a megatrust is designed to benefit the beneficiaries while attempting to minimize trust property claims reduce or eliminate all wealth transfer_taxes and help the beneficiaries reduce or eliminate their own income_tax and wealth transfer_taxes petitioners’ income petitioners and james j rossie jr mr rossie worked for and received salaries and fringe benefit compensation from olsen- smith during the years at issue mr rossie was in charge of personnel including hiring and firing petitioner husband was responsible for financials and petitioner wife oversaw document management mr rossie and petitioner wife earned salaries of dollar_figure a year and petitioner husband earned a salary of dollar_figure a year during the years at issue olsen-smith had approximately other employees including several legal assistants but petitioners and mr rossie were the 4similarly the court found susan k smith the grantor of the mbk-96 trust in olsen-smith ltd v commissioner supra 5the other one-third interest in olsen-smith was held by rossie associates an arizona plc with a single member a grantor_trust named jjr-97 trust whose beneficiary was james j rossie jr mr rossie mr rossie practiced law with petitioners and conceded that his third of partnership income is taxable to him as earnings from self-employment only lawyers at the firm the legal assistants earned on average more than dollar_figure a year substantially more than petitioner husband olsen-smith’s business practices olsen-smith generally contracted with clients and provided legal services pursuant to engagement letters executed between the clients and olsen-smith clients generally paid olsen-smith for the services rendered by the firm but occasionally made checks payable to the individual lawyers olsen-smith did not have written employment contracts with any employees including petitioners the plcs practiced law through their ownership of olsen-smith but had no clients or employees of their own distribution of income and payment of tax olsen-smith reported net_income of dollar_figure in and dollar_figure in which was allocated to the plcs in equal shares smith olsen and smith associates separately filed forms u s partnership return of income each reporting approximately dollar_figure of net ordinary_income in and dollar_figure in the sko-96 trust reported taxable_income from 6it appears that the net_income of dollar_figure as reported on the form_1065 was adjusted on audit olsen-smith ltd v commissioner supra 7the form_1065 u s partnership return of income became a form_1065 u s return of partnership income in smith olsen of dollar_figure in and dollar_figure in the who trust reported income from smith olsen of dollar_figure in and dollar_figure in the mbk-96 trust reported taxable_income from smith associates of dollar_figure in and dollar_figure in the wlk trust reported taxable_income from smith associates of dollar_figure in and dollar_figure in the plcs distributed the cash that they received from olsen- smith to the trusts as soon as the money was received by the plcs the trust agreements allowed the independent_trustee to distribute income or principal for the benefit of the beneficiaries including for their benefit care comfort enjoyment or for any other purposes the trusts made immediate distributions of all the money to petitioners as soon as they received it from the plcs respondent issued deficiency notices to petitioners in which respondent adjusted petitioners’ taxable_income to reflect self- employment_tax on the income distributed from the plcs to the trusts petitioners filed petitions for both years 8the trusts held other assets including assets inherited from petitioners’ parents and other partnership interests 9the commissioner also audited olsen-smith the plcs and the trusts for and petitioners are not strangers to this court petitioners as individuals and representatives of these entities have filed petitions in this court at least other times opinion we are asked to decide whether petitioners are liable for self-employment_tax on funds that were distributed from their law firm to their plcs to their trusts and then to them respondent argues that petitioners are liable for self-employment_tax because petitioners’ transactions with the trusts lack economic substancedollar_figure petitioners argue that they are not liable for self-employment_tax because they carefully and meticulously devised their structure for valid business purposes and the non- salary income allocated to them as beneficiaries of the trusts is not taxable under sec_1402 burden_of_proof we first address the burden_of_proof petitioners generally have the burden_of_proof see rule a petitioners do not dispute that they bear the burden_of_proof with respect to respondent’s theory that their trusts lack economic substancedollar_figure 10respondent argues alternatively that petitioners are liable for self-employment_tax on the law firm earnings under the assignment_of_income theory and under sec_671 through we need not address these additional arguments because we have determined that petitioners’ transactions with the trusts lacked economic_substance 11it is unnecessary to determine the burden_of_proof with respect to respondent’s other two theories because we hold that petitioners’ trusts lacked economic_substance economic_substance we now address the economic_substance theory taxpayers have a legal right by whatever means allowable under the law to structure their transactions to minimize their tax obligations see 293_us_465 we will not recognize for federal_income_tax purposes however transactions that have no significant purpose other than to avoid tax and do not reflect economic reality see 79_tc_714 affd 731_f2d_1417 9th cir we look through the form of a transaction when that form has not altered any cognizable economic relationships and we apply tax law according to the substance of the transaction id pincite temple v commissioner tcmemo_2000_337 affd 62_fedappx_605 6th cir this rule applies regardless of whether the transaction creates an entity with a separate existence under state law zmuda v commissioner supra pincite temple v commissioner supra we traditionally consider four factors in deciding whether a_trust lacks economic_substance these four factors include whether the taxpayer’s relationship as grantor to property purportedly transferred into trust differed materially before and after the trust’s formation whether the trust had a bona_fide independent_trustee whether an economic_interest in the trust passed to trust beneficiaries other than the grantor and whether the taxpayer honored restrictions imposed by the trust or by the law of trusts 73_tc_1235 castro v commissioner tcmemo_2001_115 hanson v commissioner tcmemo_1981_675 affd per curiam 696_f2d_1232 9th cir we begin by examining the first factor petitioners’ relationship to the trust property did not change after the trusts were created petitioners apparently transferred their plc interests to the trusts in the mid-1990s petitioners presented no evidence to suggest that this altered their relationship with the plcs or olsen-smith they continued to manage the firm work for the firm and operate their business under the same name in the same location and in the same capacity as before the transfer the trusts engaged in no trade_or_business and petitioners as trustees had complete control_over the income-producing properties of the trusts petitioners’ relationship to the income did not change either petitioners and mr rossie received distributions of all income earned by the law firm each petitioner still took home one-third of the net profits of the firm though petitioners testified that assets did not remain in the partnership but were moved to the trusts to protect them from creditors the record does not support their arguments that the trusts were used to protect the income from creditors petitioners distributed to themselves all the income that their trusts received from olsen- smith this suggests that petitioners were not motivated by a true desire to protect the income from creditors but rather by a desire for tax_avoidance we find that this factor weighs against petitioners as to the second factor petitioners claimed that they had independent trustees even though each was the other’s trustee petitioners distributed all the earnings from the plcs to each other as a matter of course this suggests that they exercised complete control_over the trusts and petitioners presented no evidence to convince us otherwise we find that this factor also weighs against petitioners because their reciprocal arrangements in the two trusts insured that they would act in harmony with one another as to the third factor no economic_interest in the trusts ever passed to any beneficiary other than petitioners they were the only beneficiaries and they had no children or other descendants to name as beneficiaries we find that this factor also weighs against petitioners as to the final factor petitioners argue that they honored all the restrictions imposed by the trusts and by the law of trusts petitioners presented no evidence to corroborate this the evidence does suggest that petitioners used the property as they desired without restriction and that there were no restrictions on what they did their reciprocal arrangements with each other’s trusts further suggest that they would not have faced any such restrictions we find that this factor also weighs against petitioners for these reasons we find that the trusts lacked economic_substance and we conclude that they are not recognizable for federal tax purposes self-employment_tax sec_1401 imposes a tax on the self-employment_income of every individual see baker v commissioner tcmemo_2001_283 self-employment_income is defined as the net_earnings_from_self-employment derived by an individual during any taxable_year sec_1402 n et earnings from self-employment include gross_income derived by an individual from any trade_or_business carried on by that individual minus the deductions that are attributable to the trade_or_business see sec_1402 petitioners have offered no reason other than that their trusts were the owners of their plc interests and proper receptacles for their earnings from the law firm to explain why the net_income from their law firm is not self-employment_income to them we have concluded that petitioners’ transactions resulting in distributions to and from the trusts lacked economic_substance it follows that petitioners’ share of the net_income of the law firm represents petitioners’ net_earnings from self- employment the income represents petitioners’ distributive_share of profits of a business conducted by a partnership of which they are indirectly or directly members petitioners are liable for self-employment_tax on that income for the years at issue accordingly we sustain respondent’s determinations in the deficiency notices to reflect the foregoing decisions will be entered for respondent


t c memo united_states tax_court roger l and geraldine williams petitioners v commissioner of internal revenue respondent docket no filed date roger l and geraldine williams pro_se gregory m hahn for respondent memorandum findings_of_fact and opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in continued respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure after concessions by respondent the issues for decision which essentially involve substantiation are as follows whether petitioners are entitled to a deduction for automobile expense in excess of the amount allowed by respondent whether petitioners are entitled to a deduction for insurance expense in excess of the amount allowed by respondent whether petitioners are entitled to a deduction for legal expense in the amount of dollar_figure whether petitioners are entitled to a deduction for the lease of an automobile in the amount of dollar_figure whether petitioners are entitled to a deduction for rent on business property in excess of the amount allowed by respondent whether petitioners are entitled to a deduction for repairs and maintenance in the amount of dollar_figure and whether petitioners are entitled to a deduction for supplies in excess of the amount allowed by respondent the amount of petitioners' liability for self-employment_tax and the amount of the deduction under sec_164 to which petitioners are entitled are mechanical matters the resolution continued issue and all rule references are to the tax_court rules_of_practice and procedure of which will depend upon our disposition of the issues enumerated above findings_of_fact some of the facts have been stipulated and they are so found petitioners resided in seattle washington at the time that their petition was filed with the court petitioner roger l williams petitioner began operating a shoeshine business in at the holiday inn in renton washington some time thereafter but prior to the year in issue petitioner moved his shoeshine business to the red lion hotel red lion in seatac washington the shoeshine stand at the red lion had two chairs and was owned and maintained by the red lion petitioner paid the red lion dollar_figure per week for use of the stand petitioner paid the rental in cash and the red lion issued a receipt for the amount_paid petitioner gave the receipts to his wife who kept the records of his expenses on or about date petitioner began operating a second shoeshine stand at the south satellite of the seattle- tacoma international airport seatac airport seatac airport is located no more than a half-mile from the red lion petitioner operated his shoeshine business at seatac airport pursuant to a month-to-month lease port lease with the port of seattle port in contrast to red lion the port did not provide petitioner with a shoeshine stand petitioner's lease with the port which was in effect from date through the end of that year required him to pay rent of dollar_figure per month in addition petitioner paid a dollar_figure security deposit to the port upon commencement of the lease the lease provided that petitioner's security deposit would be returned to him upon termination of the lease if all of the terms and conditions thereof were honored the port lease required petitioner to obtain liability insurance in the minimum amount of dollar_figure million petitioner obtained the insurance from state farm fire and casualty co state farm petitioner determined his own work schedule typically petitioner worked from a m to p m on weekdays in addition petitioner often worked a few hours on saturdays petitioner allocated his time between the red lion and seatac airport according to the amount of business at each location on occasion petitioner was called upon by the red lion to perform shoeshine services for special guests during his leisure time seatac is located south of petitioner's home in seattle in petitioner used an automobile to commute to and from work and to purchase supplies petitioner occasionally used the automobile for transportation between the red lion and seatac airport generally however petitioner walked from one shoeshine stand to the other petitioner furnished his own supplies at both the red lion and seatac airport petitioner obtained most of his supplies from macpherson leather co macpherson leather which was located in seattle on occasion petitioner purchased supplies from stores such as k-mart and safeway petitioner did not maintain complete records of all of the supplies that he purchased petitioner did however maintain some records of the supplies that he purchased from macpherson leather petitioner paid business_expenses both in cash and by check petitioner's rent under the port lease was paid_by check so we have a record of what we pay to the port of the eight receipts for supplies from macpherson leather that are included in the trial record three definitively disclose payment by check in the amounts of dollar_figure dollar_figure and dollar_figure during an individual by the name of willie hughes mr hughes performed various services for petitioner these services included accounting and tax preparation services mr hughes also assisted petitioner in obtaining the port lease petitioner paid mr hughes for these services on his schedule c for petitioner claimed a net_loss in the amount of dollar_figure in this regard petitioner reported gross_receipts in the amount of dollar_figure and claimed expenses in the amount of dollar_figure in the notice_of_deficiency respondent disallowed the following expenses claimed by petitioner on his schedule c return car truck dollar_figure insurance legal services big_number rent vehicles big_number rent business big_number repairs maint big_number supplies big_number taxes licenses big_number other error on return total big_number allowed dollar_figure -- -- big_number -- big_number -- big_number disallowed dollar_figure big_number big_number big_number big_number big_number -- -- big_number prior to trial petitioner provided documentation for some of the disallowed deductions based on such documentation respondent allowed additional deductions for business rent in the amount of dollar_figure and supplies in the amount of dollar_figure accordingly the following amounts remain in issue car truck insurance legal services rent vehicles rent business repairs maint supplies taxes licenses other error on return total return dollar_figure big_number big_number big_number big_number big_number big_number big_number allowed dollar_figure -- -- big_number -- big_number -- big_number disallowed dollar_figure big_number big_number big_number big_number big_number -- -- big_number general legal principles opinion we begin by noting that as a general_rule the commissioner's determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 503_us_79 290_us_111 moreover deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed rule a 292_us_435 welch v helvering supra this includes the burden of substantiation 65_tc_87 affd per curiam 540_f2d_821 5th cir see also sec_6001 and sec_1_6001-1 e income_tax regs requiring taxpayers to maintain sufficient records to permit verification of deductible expenses automobile-related expenses petitioners claimed deductions for car truck in the amount of dollar_figure and for rent vehicles in the amount of dollar_figure respondent allowed dollar_figure of the deduction claimed for car truck and disallowed the balance of that deduction respondent disallowed the deduction claimed for rent vehicles in its entirety petitioner contends that he used an automobile to commute to and from work to travel between the red lion and seatac airport and to purchase supplies in this regard petitioner contends that the deduction claimed for car truck represents the cost of operating the automobile and that the deduction claimed for rent vehicles represents the cost of leasing the automobile sec_162 authorizes deductions for ordinary and necessary expenses paid during the taxable_year in carrying_on_a_trade_or_business however sec_262 generally precludes deductions for personal expenses thus expenses_incurred by a taxpayer in commuting between his or her home and place of business are personal and nondeductible 326_us_465 sec_1_162-2 sec_1 b income_tax regs moreover sec_274 provides that no deduction is allowable with respect to listed_property as defined in sec_280f unless the deduction is substantiated in accordance with the strict substantiation requirements of sec_274 and the regulations promulgated thereunder included in the definition of listed_property in sec_280f is any passenger_automobile sec_280f in order to substantiate a deduction attributable to listed_property a taxpayer must maintain adequate_records or present corroborative evidence to show a the amount of the expense or use b the time and place of the expenditure or use of the listed_property and c the business_purpose for the expenditure or use sec_1_274-5t temporary income_tax regs fed reg date in contrast expenses_incurred in traveling between two places of business are deductible 32_tc_947 affd per curiam 283_f2d_865 5th cir in order to substantiate a deduction by means of adequate_records a taxpayer must maintain a diary a log or a similar record and documentary_evidence that in combination are sufficient to establish each element of each expenditure or use sec_1_274-5t temporary income_tax regs fed reg date to be adequate a record must generally be written each element of an expenditure or use that must be substantiated should be recorded at or near the time of that expenditure or use sec_1_274-5t temporary income_tax regs fed reg date according to sec_1_274-5t temporary income_tax regs fed reg date the corroborative evidence required to support a statement not made at or near the time of the expenditure or use must have a high degree of probative value to elevate such statement and evidence to the level of credibility reflected by a record made at or near the time of the expenditure or use supported by sufficient documentary_evidence thus under sec_274 no deduction may be allowed for expenses_incurred for use of a passenger_automobile on the basis of any approximation or the unsupported testimony of the taxpayer e g golden v commissioner tcmemo_1993_602 at trial petitioner testified that he used an automobile principally to commute to and from work however as we have already observed commuting expenses are personal and nondeductible sec_262 commissioner v flowers u s pincite sec_1_162-2 sec_1_262-1 income_tax regs in contrast to commuting automobile expenses_incurred by petitioner in obtaining supplies may be deductible however those expenses would not be deductible if petitioner merely obtained supplies while commuting to work see 57_tc_427 affd per curiam 465_f2d_1399 2d cir affd without published opinion 467_f2d_943 2d cir assuming that petitioner obtained supplies independent of his morning or afternoon commute then in order to be entitled to any deduction petitioner would have to meet the strict substantiation requirements of sec_274 at trial petitioners did not introduce any records pertaining to automobile-related expenses much less the type of records necessary to substantiate the claimed deductions see sec_274 rather petitioners presented only unsupported testimony as evidence of the claimed deductions further petitioners did not introduce documentation demonstrating that an automobile was leased or that payments were made on such a lease see 6_tc_1158 affd 162_f2d_513 10th cir this deficiency in the record for which petitioners must accept responsibility precludes an allowance for any automobile-related expense in excess of the amount allowed by respondent the dollar_figure of the car truck deduction allowed by respondent represents business miles at the standard rate of dollar_figure per mile for trips made to purchase supplies in view of the foregoing respondent's determinations regarding the deductions claimed for car truck and rent vehicles are sustained insurance petitioners claimed a deduction for insurance in the amount of dollar_figure petitioners contend that this deduction represents two premiums_paid to state farm for policies required by the port lease in this regard petitioners claim that a premium of dollar_figure was paid for a dollar_figure million liability policy and another premium of dollar_figure was paid for a dollar_figure million bond respondent allowed a deduction for the dollar_figure premium paid for the liability policy but disallowed the balance of the deduction for lack of substantiation in deciding whether a taxpayer has satisfied his or her burden of substantiating a deduction we are not required to accept the taxpayer's self-serving undocumented testimony 338_f2d_602 9th cir affg 41_tc_593 99_tc_202 87_tc_74 hradesky v commissioner t c pincite petitioners presented no evidence at trial that the port lease required a dollar_figure million bond in addition to liability coverage in the amount of dollar_figure million the copy of the lease introduced into evidence contains no requirement for such a bond moreover the lease recites that it is a complete contract of agreement between the parties thus if petitioner were required to post a dollar_figure bond by the port lease such a requirement would have been included in the lease in addition petitioners claimed at trial that the dollar_figure million bond was obtained from state farm inasmuch as petitioners were able to produce a copy of the liability policy obtained from state farm we fail to understand why petitioners were unable to produce a copy of the alleged bond if it existed from state farm see wichita terminal elevator co v commissioner supra finally petitioners failed to produce documentary_evidence of payment for the premium for the alleged bond in view of the foregoing respondent's determination regarding the deduction for insurance is sustained legal services petitioners claimed a deduction for legal services in the amount of dollar_figure petitioners contend that this deduction represents amounts paid in cash to mr hughes for his services respondent disallowed the deduction in its entirety for lack of substantiation as a general_rule in the case of expenses that are not subject_to the substantiation requirements of sec_274 if the record provides sufficient evidence that a taxpayer has incurred a deductible expense but the taxpayer is unable to adequately substantiate the amount of the deduction to which he or she is otherwise entitled the court may estimate the amount of such expense and allow the deduction to that extent 39_f2d_540 2d cir in making such an estimate however the court may bear heavily against the taxpayer whose inexactitude is of his or her own making id petitioners claim that in mr hughes provided petitioner with a business proposal that petitioner used to obtain the port lease petitioners also claim that mr hughes provided them with various accounting and certification services in return for these services petitioners claim that they paid mr hughes dollar_figure in cash at trial petitioners were unable to recall when they paid mr hughes or whether they paid him in installments moreover petitioners introduced no copy of any invoice s from mr hughes for the services that he performed in petitioners testified that they had a fire in our home in the last or years that did a substantial amount of damage in our basement so some of the stuff got lost mr hughes appeared at trial and corroborated petitioners' testimony however mr hughes was unable to produce any records detailing the services that he provided mr hughes testified petitioners did not present any evidence such as an insurance claim or a fire department report to substantiate this allegation that although such records existed at one time they were lost when he moved his office based on our opportunity to observe mr hughes at trial we are unable to accept his testimony uncritically nevertheless and despite what appears to us to be a convenient lack of records we are satisfied that petitioners incurred some deductible expense for mr hughes' services in thus bearing heavily against petitioners whose inexactitude is of their own making we hold that petitioners are entitled to deduct dollar_figure in legal services in cohan v commissioner supra pincite accordingly respondent's determination on this issue is partially sustained rent petitioner claimed a deduction for rent business in the amount of dollar_figure petitioners contend that this amount represents the sum of rent paid to seatac airport under the port lease and amounts paid to red lion for_the_use_of its shoeshine stand in the notice_of_deficiency respondent allowed dollar_figure of the claimed deduction and disallowed the balance for lack of substantiation however at trial respondent conceded that petitioners are entitled to deduct an additional dollar_figure the sum of these two amounts dollar_figure represents the following rent for months in the monthly amount of dollar_figure paid to the port ie dollar_figure rent in the amount of dollar_figure paid to the port for the month of date and rent for weeks in the weekly amount of dollar_figure paid to red lion ie dollar_figure petitioners presented limited records to substantiate the claimed deduction nevertheless insofar as the port lease is concerned the record establishes that petitioners are entitled to deduct rent for the 7-½ month period that the lease was in effect during ie on or about may through date in contrast respondent has allowed a rent deduction for the period june through date accordingly we hold that petitioners are entitled to deduct an additional dollar_figure for the first one-half month of the lease_term petitioners contend that the dollar_figure security deposit paid to the port upon execution of the lease in is deductible in that year we disagree a security deposit is not deductible if at all until the year actually forfeited accordingly the dollar_figure security deposit is not deductible in because it was not forfeited in that year but remained refundable upon termination of the lease insofar as the red lion is concerned petitioners presented only weekly receipts however petitioners presented at least one receipt for each month of except november and december respondent accepted petitioner's statement that the port rebated a portion of petitioner's rent for the month of date respondent allowed the latter amount based on the weekly rent receipts from the red lion that petitioners produced by way of explanation petitioner testified that some of his records were destroyed in a fire although no explanation was given why some rent receipts escaped the alleged fire while others did not we ascribe some weight to petitioner's testimony that he worked at red lion throughout the year based on the record as a whole we hold that petitioners are entitled to deduct rent paid to the red lion in the total amount of dollar_figure ie weeks times dollar_figure per week cohan v commissioner supra repairs and maintenance petitioners claimed a deduction for repairs maintenance in the amount of dollar_figure in the notice_of_deficiency respondent disallowed the deduction in its entirety for lack of substantiation according to petitioners the deduction in question represents the cost of repairing an existing shoeshine stand and then building a new shoeshine stand in this regard petitioner testified that repairs to his shoeshine stand were necessitated by the port lease however according to petitioner the port was not satisfied with the aesthetic appearance of the stand so to bring me up to standards they got me together with an architect to build one out of formica and stuff basically see supra note at trial petitioners introduced three checks payable to cash totaling dollar_figure to support the claimed deduction two checks are dated date and one check is dated date petitioners contend that these checks are sufficient to substantiate the claimed deduction we disagree a check made payable to cash does not in and of itself prove payment of a deductible expense and other than their own self-serving testimony petitioners offered no evidence in support of the claimed deduction see wood v commissioner f 2d pincite niedringhaus v commissioner t c pincite tokarski v commissioner t c pincite hradesky v commissioner t c pincite thus petitioners did not present a single invoice for either materials or services related to the alleged repair of the existing shoeshine stand or the construction of the new stand although petitioners claim that their records were destroyed by fire petitioners failed to explain why the alleged suppliers or service providers such as the architect were unable to testify on petitioners' behalf or why the records of the alleged suppliers or service providers were unavailable according to petitioners the dollar_figure difference between the amount deducted dollar_figure and the sum of the three checks dollar_figure represents the cost of transporting the new shoeshine stand to seatac airport see supra note moreover the checks that petitioners introduced at trial were dated in february and march well before the port lease was executed we are not convinced that petitioners would have incurred expenses of dollar_figure before entering into the port lease in addition the record demonstrates that petitioners wrote checks for business_expenses unrelated to the deduction for repairs and maintenance particularly when they wanted to have a record of what they had paid that being the case petitioners did not adequately explain why they dealt exclusively in cash regarding the deduction in issue especially in view of its magnitude finally the port lease is silent regarding the aesthetic requirements for a shoeshine stand or the port's right to impose its aesthetic sensibilities on petitioners in any event petitioners failed to call any representative of the port to testify regarding the need for the construction of a new shoeshine stand or the repair of any existing stand in view of the foregoing we hold that petitioners failed to carry their burden_of_proof while under other circumstances we might be inclined to estimate a reasonable allowance see 39_f2d_540 2d cir here however there is no basis upon which an estimate may be made see 85_tc_731 any allowance would amount to unguided largess see 245_f2d_559 5th cir dollar_figure accordingly we sustain respondent's determination on this issue supplies petitioners claimed a deduction for supplies in the amount of dollar_figure in the notice_of_deficiency respondent allowed dollar_figure of the claimed deduction and disallowed the balance for lack of substantiation however at trial respondent conceded that petitioners are entitled to deduct an additional dollar_figure at trial petitioners presented limited records related to the claimed deduction petitioners did produce several invoices from macpherson leather bearing dates throughout the year as well as a canceled check that together total dollar_figure which respondent allowed petitioners allege that additional records substantiating the claimed deduction were destroyed in a firedollar_figure again however no explanation was provided why some of these records escaped destruction while others did not nevertheless we are satisfied that petitioners did in fact incur additional expense for supplies based on the record as a whole we hold that petitioners are entitled to deduct dollar_figure for supplies in addition to the amount allowed by respondent cohan v commissioner supra in addition any amount spent to acquire a new stand might be a capital_expenditure and for that reason not a current_expense sec_263 sec_167 sec_168 sec_179 see supra note conclusion to reflect our disposition of the disputed issues as well as respondent's concessions decision will be entered under rule


sinternal revenue service washington d c tax_exempt_and_government_entities_division dec uniform issue list xxxxxxxxxxkxx xxxxxxxkxxkxkkk xxxxxxxkxxkxkkxx legend taxpayer a ira b xxxxkxkxkxkxkkkkk financial_institution c xxxxxxxxxxxxxk amount xkxkxkkkxkxkkkxkkk dear xxxxxxxxxxxxx this letter is in response to your request dated date supplemented by additional correspondence received date in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution from ira b totaling amount taxpayer a asserts that his failure to accomplish a rollover of amount within the 60-day period prescribed by sec_408 was due to the error committed by financial_institution c taxpayer a represents that he maintains ira b at financial_institution c on september taxpayer a completed a form with financial_institution c which changed his required_minimum_distribution rmd date from december however the change was not completed properly and taxpayer a received distributions of amount on both of the above dates these distributions were transferred directly to taxpayer a’s brokerage account with financial_institution c since taxpayer a receives paperless statements he did not realize the mistake until he received form_1099 after the 60-day period to december 2ookkiioriok taxpayer a has not used amount for any other purpose taxpayer a has submitted documentation from financial_institution c that assumes responsibility for the error that resulted in the duplicate rmd distribution based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount from ira b sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 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 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 pagea 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 received the distribution of amount from ira b because of an error committed by financial_institution c which resulted in a duplicate rmd for therefore pursuant to sec_408 of the code the service hereby waives the day rollover requirement with respect to the distribution of amount from ira b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount to a rollover ira account provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of any amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at xxx xxx-xxxx please address all correspondence to se t ep ra t1 id xxxxxxxxx sincerely cf a ttt carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose