t c memo united_states tax_court robert coco and laureen coco petitioners v commissioner of internal revenue respondent docket no filed date ronald j cohen for petitioners robin l peacock for respondent memorandum opinion gerber judge this case was assigned to chief special_trial_judge peter j panuthos pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice continued - - agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge panuthos chief special_trial_judge this case is before the court on respondent’s motion to dismiss for failure to state a claim upon which relief can be granted filed pursuant to rule respondent asserts that petitioners failed to state a claim in their amended petition seeking review of a denial of a request for abatement under sec_6404 the amended petition was filed with this court pursuant to sec_6404 the premise of the motion is that sec_6404 does not provide authority for respondent to abate interest assessed against petitioners for tax_year accordingly respondent asserts that there is no factual or legal basis for the court to grant the requested relief petitioners resided in monroe new york at the time they filed their petition background petitioners filed a petition with this court in to contest deficiencies for tax years and docket no the parties filed a stipulation of settled issues in that case and an agreed decision was entered on date continued and procedure - - the decision reflected that petitioners were liable for a deficiency of dollar_figure for and dollar_figure for petitioners contacted respondent during the latter part of and early part of to obtain a notice of assessment or statement of tax due in date respondent apparently indicated that he would notify petitioners as to the tax_liability due and petitioners should await such notification approximately years later respondent advised petitioners of his intention to levy for the amounts due and owing for and petitioners paid the tax interest and penalty in date petitioners filed a claim_for_refund and request for abatement form on date respondent sent a letter to petitioners in which respondent approved an abatement of interest of dollar_figure for tax_year the letter stated that an abatement for tax_year was justified because respondent delayed in notifying petitioners of the and tax_liabilities between date and date the letter further indicated that interest could not be abated for the tax_year because sec_6064 empowers i r s to abate interest for tax years after therefore tax_year is excluded from any actions on date respondent mailed to petitioners a final_determination disallowing petitioners claim_for_abatement of q4e- interest under sec_6404 for the tax_year respondent noted that sec_6404 authorizes interest abatement only for tax years beginning after petitioners filed a timely petition and amended petition for review of respondent’s denial of their request for abatement of interest in their amended petition petitioners allege that respondent should have abated interest because of respondent’s year delay in providing petitioners with a notice of assessment or statement of tax for respondent filed the instant motion ’ asserting that the abatement of interest for tax_year was properly denied on the ground that respondent lacks the authority to abate interest for the tax_year petitioners filed an opposition to respondent’s motion petitioners contend that this court has absolute authority to consider any refusal of abatement of interest under sec_6404 further petitioners argue that congress did not intend to deny a taxpayer the opportunity for an abatement of interest for taxable years ending before date discussion rule provides that a party may file a motion to dismiss for failure to state a claim upon which relief can be granted the court granted leave to file respondent’s motion to dismiss for failure to state a claim - - generally we may dismiss a petition for failure to state a claim upon respondent’s motion when it appears beyond doubt that petitioners can prove no set of facts in support of their claim which would entitle them to relief see 355_us_41 677_f2d_676 8th cir boyce v commissioner tcmemo_1996_439 affd 122_f3d_1069 9th cir arredondo v commissioner tcmemo_1996_185 sec_6404 redesignated as sub sec_6404 enacted by sec_302 of the taxpayer bill of right sec_2 tbor2 publaw_104_168 110_stat_1457 provides the tax_court with authority to review the commissioner’s denial of a taxpayer’s request for abatement of interest the tax_court has jurisdiction to review whether the commissioner’s refusal to abate interest was an abuse_of_discretion see sec_6404 petitioners’ request for abatement of interest is based upon sec_6404 sec_6404 provides that the commissioner may abate interest attributable to unreasonable error or delay by an officer_or_employee of the internal_revenue_service in performing a ministerial_act sec_6404 wa sec_3 in sec_6404 e was amended under sec_301 of tbor2 publaw_104_168 110_stat_1457 to permit the commissioner to abate interest with respect to an unreasonable error or delay resulting from managerial and ministerial acts this amendment however applies to interest accruing with respect to deficiencies or payments for tax years beginning after continued - - enacted under the tax_reform_act_of_1986 tra publaw_99_ sec_1563 100_stat_2762 and applies to interest accruing with respect to deficiencies or payments for tax years beginning after date see tra sec_1563 100_stat_2762 petitioners argue that congress did not intend to deny abatement of interest applications for taxable years prior to to the contrary the statutory history of sec_6404 e is clear that the commissioner does not have the authority to grant a request for abatement of interest under sec_6404 e for tax years ending prior to this court as well as several other courts has held that sec_6404 applies only to taxable years beginning after date see magqnone v united_states 902_f2d_192 2d cir goettee v commissioner tcmemo_1997_454 mounts v united_states aftr 2d ustc par s d w va mcmullen v united_states cl_ct respondent did not have the authority to grant a request for abatement made pursuant to sec_6404 for the taxable_year and accordingly respondent did not abuse his discretion in denying the request for abatement continued date therefore the amendment is inapplicable to the instant case see 112_tc_19 n conclusion for the reasons set forth above we hold that petitioners have failed to state a claim for which relief can be granted and we shall grant respondent’s motion in so holding we have carefully considered remaining arguments made by petitioners for a result contrary to that expressed herein and to the extent not discussed above we consider those arguments to be without merit to reflect the foregoing an appropriate order and decision will be entered


department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b03 plr-114165-18 date date internal_revenue_service number release date index number ------------------------------ ------------------ ---------------------------------------- ---------------------------- x date date date date state -------------------- ------------------------- ---------------------- ---------------------- ---------------- ------- ------------------------ --------- dear ------ -------------- this letter responds to your letter dated date and subsequent correspondence requesting relief under sec_1362 of the internal_revenue_code facts the information submitted states that x began business on date and is organized under the laws of state between date and date x had two owners and was classified as a partnership for federal_income_tax purposes during this time x’s operating_agreement provided that current distributions were to be made to the two owners in accordance with their ownership ratios while distributions made upon dissolution would be made in accordance with the owners’ positive capital_account balances certain distributions the llc distributions that x made to the owners between date and date caused the owners’ capital accounts to become disproportionate to the owners’ ownership ratios effective date x elected to be classified as an s_corporation and did not make any changes to its operating_agreement as a result of the llc distributions the operating_agreement created a right to nonproportional distributions to x’s owners this caused x to have multiple classes of stock within the meaning of sec_1361 thereby causing x’s s_corporation_election to be ineffective plr-114165-18 on date x amended its operating_agreement to clarify that all liquidating distributions are to be made in accordance with the shareholders’ ownership ratios x represents that between date and date all distributions were made in accordance with its shareholders’ relative stock ownership and that all taxable_income was also allocated in a pro_rata manner x further represents that x and its shareholders intended for x to be an s_corporation at all times from date and onward and that x has filed all returns consistent with x’s treatment as an s_corporation since date x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided in sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate and a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with sec_1362 to be an s_corporation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness the corporation will be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election on date was ineffective as a result of x having more plr-114165-18 than one class of stock we further conclude that this ineffectiveness was inadvertent within the meaning of sec_1362 x has taken corrective action so that it meets the requirements of a small_business_corporation under sec_1361 therefore we determine that pursuant to the provisions of sec_1362 x will be treated an s_corporation effective date and thereafter provided x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request it is subject_to verification on examination this ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely james a quinn senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court j jean moore petitioner v commissioner of internal revenue respondent docket no 11634-05l filed date timothy w tuttle and d anthony gaston for petitioner karen nicholson sommers for respondent memorandum findings_of_fact and opinion swift judge petitioner seeks review of respondent’s notice_of_determination sustaining a notice_of_federal_tax_lien filing relating to petitioner’s outstanding through individual federal income taxes the issue for decision is whether respondent’s appeals_office conducted prohibited ex_parte communications and if so what remedy is appropriate unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact this case was submitted under rule but other than establishing the residence of petitioner in san diego california the stipulation of the parties relates only to exhibits during the 1990s and until at least the end of petitioner solely owned and operated through a limited_liability_company llc an eldercare business in california and in oregon in addition to the income petitioner received relating to the eldercare business petitioner received rental income relating to residential and commercial real_property that petitioner owned in california and in oregon in after an audit and a criminal tax investigation by respondent relating to petitioner’s individual federal income taxes for through petitioner was charged with and was convicted on several counts of tax_evasion as a condition of references in our findings_of_fact to ownership and to transfers of real_property and of other assets are not intended to constitute ultimate findings_of_fact as to the true legal and equitable ownership of the real_property and other assets involved in this case her probation petitioner was ordered to pay dollar_figure toward her outstanding through federal income taxes penalties and interest on her through individual federal_income_tax returns which she late filed on date and on her timely filed individual federal_income_tax return petitioner reported a cumulative total_tax liability of approximately dollar_figure million petitioner made no payments to respondent with her filed tax returns nor had petitioner made any payments via withholding or estimates respondent did not audit and did not otherwise dispute petitioner’s through federal income taxes as reported by petitioner on her tax returns for and petitioner apparently has timely filed her individual federal_income_tax returns and for purposes of this collection action respondent has not questioned the tax_liabilities and tax_payments reported thereon on date respondent filed a federal_tax_lien against petitioner relating to petitioner’s assessed and unpaid through cumulative total_tax liability of approximately dollar_figure million and on date respondent mailed to information relating to petitioner’s individual federal_income_tax return is not in the record petitioner a notice of tax_lien_filing with regard to the tax_lien that respondent had filed on date petitioner timely requested a sec_6320 collection_due_process cdp hearing with respondent’s appeals_office for the purpose of securing the release of respondent’s filed tax_lien against petitioner on date petitioner organized a corporation and transferred her eldercare business to the new corporation ownership of the new corporation was placed percent in the name of petitioner and percent in the name of petitioner’s son and daughter-in-law at some point petitioner transferred some of the real_property she owned to her daughter on date during the cdp hearing petitioner submitted to respondent an offer-in-compromise oic in her oic petitioner offered to make a payment of dollar_figure in full settlement and compromise of her cumulative total then accrued and outstanding approximate dollar_figure million in federal income taxes additions to tax and interest for through and for through with the filing of her oic petitioner did not make any payment to respondent but petitioner did offer to pay the dollar_figure within days of respondent’s acceptance of her oic petitioner planned to sell assets in order to obtain the dollar_figure on date petitioner paid respondent the final dollar_figure she owed relating to her criminal conviction and petitioner asked that the dollar_figure be credited toward the dollar_figure she would owe under the pending oic in connection with the appeals office’s consideration of petitioner’s oic a number of communications about petitioner occurred among respondent’s appeals officer an offer specialist assigned to work on petitioner’s oic and two of respondent’s revenue officers one of whom worked in california and one of whom worked in oregon before petitioner’s cdp hearing with respondent’s appeals officer both of these revenue officers had been involved in attempting to collect petitioner’s outstanding taxes for the years in issue the communications between respondent’s appeals officer and the offer specialist on the one hand and respondent’s two revenue officers on the other by date petitioner had paid respondent dollar_figure due as a result of the criminal conviction relating to her through federal income taxes which amount is separate from the dollar_figure petitioner offered to pay respondent under the offer-in-compromise occurred in person over the telephone and via e-mail and without petitioner’s participation among other communications the revenue officers in california and oregon communicated to the appeals officer concern about assets that petitioner may have transferred to a nominee also the revenue_officer in oregon suggested to the appeals officer and to the offer specialist that they should probe and inquire if there were any links or money stream to petitioner relating to a home in oregon on date the offer specialist recommended that the appeals_office reject petitioner’s oic explaining that petitioner had paid insufficient individual estimated_taxes and that the eldercare business had paid insufficient payroll_taxes the offer specialist also explained that petitioner’s oic should be rejected because the outstanding taxes petitioner owed related to what the offer specialist described as nominee transferee fraud issues -- case is filled with them as it is the basis of the assessments on date the appeals_office issued a notice_of_determination notice sustaining the tax_lien filed against petitioner attached to the notice was the appeals officer’s general statement that petitioner’s oic was not in the best interest of the government because of among other things alleged nominee transfers of petitioner’s real_property and assets petitioner timely petitioned the tax_court for review of the notice opinion when underlying taxes are not in dispute as in the instant case we review respondent’s adverse cdp determinations for abuse_of_discretion 454_f3d_782 8th cir affg 124_tc_165 114_tc_604 114_tc_176 respondent will be regarded as abusing his discretion when he acts without a sound basis in fact or law 125_tc_14 112_tc_19 in prior years and with a great deal of effectiveness and propriety respondent’s appeals officers generally were allowed to communicate with respondent’s revenue agents and officers concerning a taxpayer’s outstanding taxes in however after a series of hearings relating to respondent’s collection practices congress enacted and the for news reporting on the and congressional hearings on tax collection reform see taxes at the top the newshour with jim lehrer pbs television broadcast date transcript available at http www pbs org newshour bb business jan-june04 tax_6-04 html president signed into law the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 rra in rra congress provided among other things in new sec_6320 that respondent’s appeals officers conducting cdp hearings are to be impartial and are not to have had prior involvement in a taxpayer’s outstanding taxes for the years involved in a cdp hearing see sec_6320 the language of sec_6320 provides as follows sec_6320 right to fair hearing -- impartial officer --the hearing under this subsection shall be conducted by an officer_or_employee who has had no prior involvement with respect to the unpaid tax specified in subsection a a before the first hearing under this section or sec_6330 a taxpayer may waive the requirement of this paragraph in rra sec_1001 112_stat_689 congress also directed that respondent’s appeals officers should exercise independent judgment and congress prohibited respondent’s appeals officers from engaging in ex_parte communications with other employees of respondent that would appear to compromise the see generally cong rec appeals officers’ judgment the relevant language of rra sec_1001 provides as follows a in general --the commissioner of internal revenue shall develop and implement a plan to reorganize the internal_revenue_service the plan shall-- ensure an independent appeals function within the internal_revenue_service including the prohibition in the plan of ex_parte communications between appeals officers and other internal_revenue_service employees to the extent that such communications appear to compromise the independence of the appeals officers under authority of the above flush language of rra sec_1001 respondent promulgated revproc_2000_43 2000_2_cb_404 effective for administrative cdp appeals initiated after date id sec_4 c b pincite therein ex_parte communications are defined as written or oral communications that occur between appeals officers and other employees of respondent without the taxpayer or his or her representative being able to participate in the communications id sec_3 q a-1 and c b pincite revproc_2000_43 sec_3 q a-5 c b pincite makes it clear that ex_parte communications about substantive matters such as a taxpayer’s credibility and the accuracy and importance of alleged facts are to be treated as improper ex_parte communications and are prohibited under rra sec_1001 revproc_2000_43 supra specifies that respondent’s appeals officers should not communicate with respondent’s revenue agents and officers if the communications would or would appear to compromise the independent judgment of the appeals_office id sec_3 q a-29 c b pincite an exception is provided to the prohibited ex_parte communications rule_of revproc_2000_43 supra for communications that relate only to administrative ministerial or minor procedural matters communications between an appeals officer and a revenue_officer about the location of missing file documents are listed as an example of ex_parte communications that would be allowed id sec_3 q a-5 in 125_tc_201 we remanded a cdp case to respondent’s appeals_office because of documents that were regarded by the court as ex_parte and prohibited herein the appeals officer and the offer specialist should have carefully restricted the communications they had with the revenue officers relating to the collection of petitioner’s taxes to mere administrative ministerial or minor procedural matters the suggestions by the california and oregon revenue officers to the appeals officer and to the offer specialist to consider a nominee theory and to look at petitioner’s money stream were substantive in nature and clearly constituted prohibited ex_parte communications that were per se prejudicial to petitioner respondent argues that grounds independent of the ex_parte communications would support the appeals office’s adverse determination namely petitioner’s conviction for tax_evasion and noncompliance by petitioner’s eldercare business with certain federal employment_tax laws these alleged grounds do not overcome or render moot the prohibited ex_parte_communication rules as respondent appears to argue respondent also argues that because petitioner eventually learned from the appeals officer the content of the ex_parte communications petitioner was not kept in the dark with regard thereto and was not harmed nothing however in either rra or revproc_2000_43 supra allows respondent’s appeals officer to avoid the rule against prohibited ex_parte communications by later informing the taxpayer about the communications respondent characterizes the ex_parte communications as routine factual investigation we disagree although the ex_parte communications may have been in good_faith and intended to assist in the development of relevant facts they were ex_parte and substantive and they were covered by the prohibition discussed above respondent points out that revproc_2000_43 sec_3 q a-10 c b pincite allows appeals officers to pass on to respondent’s other employees new information received by an appeals officer q a-10 however addresses new information presented by the taxpayer not new information obtained by the appeals officer via ex_parte communications from other of respondent’s employees respondent misreads q a-10 we recognize that under sec_7122 respondent is given broad discretion to consider and to reject offers-in-compromise and we defer to respondent’s discretion when it is properly exercised 91_tc_1079 however the communications before us clearly constituted prohibited ex_parte communications we turn to the appropriate remedy in 364_f3d_988 8th cir affg aftr 2d ustc par big_number e d mo the district_court and the court_of_appeals for the eighth circuit refused to quash administrative third-party summonses that were issued based on information respondent obtained through prohibited ex_parte communications the court_of_appeals for the eighth circuit explained that it affirmed the district court’s order enforcing summonses because the supreme court has stated that courts should be slow to erect barriers to enforcement of respondent’s summonses where the summonses are being used to further respondent’s mission of effectively investigating taxpayer liabilities id pincite quoting united_states v euge u s big_number and because congress did not provide in rra a specific remedy for prohibited ex_parte communications under revproc_2000_43 sec_3 q a-28 and c b pincite the availability of administrative and personnel remedies for violations of ex_parte communications is acknowledged herein in light of the prohibited ex_parte communications that occurred respondent’s appeals_office should have addressed the prejudice caused by these communications by providing some administrative remedy such as reassignment to a new appeals officer respondent’s failure to do so constituted a failure on the part of respondent to give petitioner an impartial hearing and constituted an abuse of respondent’s discretion on the facts before us in this case remand of this case to respondent’s appeals_office is appropriate by remand we allow respondent to cure the defect that occurred in petitioner’s cdp hearing in accordance with respondent’s existing administrative procedures we acknowledge that where ex_parte communications have occurred but where the taxpayer is making frivolous underlying arguments it may not be appropriate to grant any relief to the taxpayer for example in sapp v commissioner tcmemo_2006_104 ex_parte communications allegedly occurred in which the taxpayer was referred to disparagingly as a tax_protester because the taxpayer relied solely on underlying frivolous arguments we refused to remand the case to the appeals_office and we entered a decision for respondent although petitioner was convicted of tax_fraud for earlier years there is no indication that petitioner herein relies on frivolous arguments for the reasons stated we shall remand this case to respondent’s appeals_office respondent’s appeals_office is to identify and apply an appropriate administrative remedy to avoid prejudice attaching to petitioner as a result of the prohibited ex_parte communications that occurred if respondent determines that the appropriate remedy to offer petitioner is a new cdp hearing with respondent’s appeals_office all references to the prohibited ex_parte communications that occurred herein are to be deleted from respondent’s administrative file including any copy of this opinion that itself would inform a new appeals officer of the prohibited ex_parte communications to reflect the foregoing an appropriate order will be issued


internal_revenue_service department of the treasury number info release date index no washington dc person to contact telephone number refer reply to cc fip b03 plr-142941-02 date date dear this letter contains general information regarding making an election under sec_475 f of the internal_revenue_code the code to use the mark-to-market method_of_accounting sec_5 of revproc_99_17 provides general procedures for a taxpayer making an election under sec_475 of the code for a taxable_year beginning on or after date included in this section is the requirement that a statement described in sec_5 must be filed no later than the due_date without regard to extensions of the original federal_income_tax return for the taxable_year immediately preceding the election_year and must be attached either to that return or if applicable to a request for an extension of time to file that return section dollar_figure of revproc_99_17 states that the statement referred to in sec_5 must describe the election being made the first taxable_year for which the election is effective and in the case of an election under sec_475 of the code the trade_or_business for which the election is made moreover of revproc_99_17 superseded by revproc_99_49 1999_2_cb_725 superseded by revproc_2002_9 c b states that the original form_3115 must be attached to the taxpayer’s timely filed including any extensions original federal_income_tax return for the year_of_change sec_4 of revproc_99_17 states that if a taxpayer described in sec_3 scope makes an election under sec_5 and the taxpayer’s method_of_accounting for its taxable_year immediately preceding the election_year is inconsistent with sec_475 of the code the taxpayer is required to change its method_of_accounting to comply with its election the filing of the statement required by sec_5 and dollar_figure of revproc_99_17 is the operative procedure for properly making an election under sec_475 of the code the filing of form_3115 is an administrative requirement to implement the election consequently the fact that a taxpayer’s form_3115 is attached to an untimely filed federal_income_tax return will not negate an otherwise properly made election under sec_475 of the code if you have any questions about this letter please call the undersigned or at sincerely yours alice m bennett chief branch office of associate chief_counsel financial institutions and products by_______________________ robert b williams senior counsel enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- ---------------------------- ------------------------------------------------ ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-164466-05 date date legend legend x ----------------------- country d1 dear ------------ -------------------------- --------- --------------- -- this responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be treated as a partnership under sec_301_7701-3 facts the information submitted states that x was formed under the laws of country on d1 x represents that x is a foreign_entity eligible to elect to be treated as a partnership however x inadvertently failed to file a timely form_8832 entity classification election electing to treat x as a partnership effective d1 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 plr-164466-05 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_7701-3 provides in relevant part that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however an election by a newly formed eligible_entity that is effective on the date of formation is not considered a change for purposes of this paragraph under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be treated as a partnership effective d1 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election plr-164466-05 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this sincerely letter will be sent to x’s authorized representatives heather c maloy enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------------------------- ------------------------------------------------------------ ----------- -------------------------------------------- ------------------------------------- --------------------------- --------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc psi b1 plr-130188-07 date date ------------ ----------------------- -------------------------------------------- legend x -------------------------------------------------- country date dear --------------------------- this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted x is an entity organized under the laws of country x intended to make an election to be treated as a disregarded_entity effective date however due to an oversight form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner plr-130188-07 can elect either to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based solely upon the information submitted we conclude that the requirements conclusion of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a disregarded_entity for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-130188-07 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely william p o’shea associate chief_counsel passthroughs special industries copy of this letter copy for sec_6110 purposes enclosures cc


internal_revenue_service number release date index number ------------------------------------------------------------ ------------------------ --------------------------------- re -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ---------------- telephone number -------------------- refer reply to cc psi b04 plr-111596-16 date july legend decedent spouse date date --------------------------------------------------- ------------------------- -------------------------- -------------------------- dear --------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime plr-111596-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-111596-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-111596-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-111596-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court steven and jennie jacobs petitioners v commissioner of internal revenue respondent docket no filed date steven and jennie jacobs pro sese milton b blouke for respondent memorandum opinion beghe judge respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax in so doing respondent disallowed for lack of substantiation all deductions claimed by petitioners as expenses of the advertising business carried on by petitioner steven jacobs petitioner as sole_proprietor under the name of jacobs creative group those deductions claimed by petitioners in the amount of dollar_figure exceeded the gross_income of dollar_figure reported on schedule c as the income of jacobs creative group which respondent did not dispute and reduced the taxable_income from the salary of petitioner jennie jacobs ms jacobs reported on their joint_return after making some findings_of_fact of general application reciting the procedural history of the case and providing an introductory exposition of applicable law we shall for convenience combine our findings discussion and holding under a separate heading for each type of expense in issue petitioners timely filed an electronic joint_return for at the time petitioners filed their petition they resided in reno nevada petitioners were divorced in the case was continued from the court's date and date reno nevada general trial sessions on petitioners' motions on the ground of petitioner's asserted inability to prepare for trial by reason of chronic fatigue immune dysfunction syndrome cfids and a spinal injury in due course the case was placed on the court's date reno nevada general trial session during the week immediately preceding the session in response to petitioner's telephone message that he wished to request another continuance the court informed petitioner and respondent that no more continuances would be granted petitioner and respondent thereupon entered into a bare bones stipulation of facts agreeing only that petitioners resided in reno with attached hard copy of petitioners' return and copy of the statutory_notice_of_deficiency the only documentation that was presented by petitioner and admitted into evidence at trial were examples of brochures and other printed materials that petitioner produced for clients of his advertising business during the taxable_year petitioner asserted over the years prior to trial and at trial that he had documentary_evidence to support the claimed deductions although a day or two before trial petitioner had finally obtained from storage the boxes in which--he told respondent and the court--his records were located at trial petitioner produced no profit and loss statements no journals or ledgers reflecting income and expenses and no invoices receipts or canceled checks documenting payments to vendors of goods or services received by his business during the taxable_year nor did petitioner produce and submit any such documentary_evidence to respondent for inclusion in a supplemental stipulation of facts during the 30-day period following the trial that the record was held open to allow him to do so the court set a seriatim briefing schedule with respondent to file the first brief on date following enactment of the irs restructuring and reform act of publaw_105_206 112_stat_685 ___ respondent and ms jacobs filed a stipulation of settled issues agreeing that ms jacobs is entitled to relief from liability under the innocent spouse provisions of sec_6015 for the taxable_year on date following the filing of respondent's opening brief petitioner filed a motion to dismiss on the ground that his ailments were preventing him from preparing and filing a reply brief and that if the court would see fit to grant a dismissal it would be an act of mercy for which petitioner would be eternally grateful the court denied petitioner's motion in an order explaining that under the court's rule the granting of petitioner's motion would require entry of a decision in favor of respondent the order informed the parties that the case was fully submitted and excused them from filing any additional briefs petitioner had an advertising business creating story boards for radio and tv advertisements and placing those advertisements and creating layouts for print brochures and folios on schedule c petitioner reported gross_income from the business of dollar_figure which was allocated rounded off as follows unless otherwise stated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the taxable_year in issue radio tv ads dollar_figure brochures folios big_number other print ads big_number total big_number the dollar_figure of expenses claimed by petitioner on schedule c and disallowed by respondent was as follows advertising bad_debt car and truck legal and professional office travel dollar_figure big_number big_number big_number big_number big_number entertainment dollar_figure - dollar_figure percent dollar_figure publications printing total big_number big_number respondent's determination in the notice_of_deficiency is presumed correct and petitioner bears the burden of proving that it is incorrect rule a sec_162 allows a deduction for ordinary and necessary business_expenses whether an expense is deductible under sec_162 is ultimately a question of fact 320_us_467 an expense is ordinary under sec_162 if it bears a reasonably proximate relationship to the operation of the taxpayer's business 308_us_488 gill v commissioner tcmemo_1994_92 affd without published opinion 76_f3d_378 6th cir an expense is necessary if it is helpful and appropriate in promoting and maintaining the taxpayer's business 83_tc_356 affd 777_f2d_662 11th cir taxpayers must substantiate amounts claimed as deductions by maintaining the records necessary to establish their entitlement thereto sec_6001 65_tc_87 affd per curiam 540_f2d_821 5th cir where a taxpayer establishes his entitlement to a deduction but does not establish the amount because of the lack of documentary_evidence the tax_court should estimate the amount allowable 39_f2d_540 2d cir provided there is enough evidence in the record to provide a rational basis for an estimate 245_f2d_559 5th cir 85_tc_731 in cohan v commissioner supra pincite the court_of_appeals for the second circuit recognized that the expenses of an impresario in entertaining actors and crew members were legitimate and deductible the taxpayer however did not produce any of the receipts substantiating such expenses the court_of_appeals directed the board_of_tax_appeals to estimate such expenses bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making id pincite sec_274 overrides the cohan doctrine with respect to expenses of travel away from home including meals_and_lodging and entertainment 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_1 5t a temporary income_tax regs fed reg date under sec_274 a taxpayer must substantiate the amount time place and business_purpose of the expenditures and furnish adequate_records or sufficient evidence corroborating his own statement sec_1_274-5t temporary income_tax regs fed reg date adequate_records are defined as an account book diary log statement of expense trip sheets or similar records plus documentary_evidence sec_1_274-5t temporary income_tax regs fed reg date examples of documentary_evidence include receipts paid bills or similar evidence to support an expenditure except that with respect to any expenditure of less than dollar_figure incurred prior to date or transportation charges documentary_evidence will not be required if not readily available provided however that the commissioner in his discretion may prescribe rules waiving such requirements in circumstances where he determines it is impracticable for such documentary_evidence to be required sec_1_274-5t b temporary income_tax regs fed reg date listed_property the use of which for transportation purposes must meet the substantiation requirements of sec_274 includes passenger automobiles and trucks sec_280f and ii sec_1_280f-6t b i temporary income_tax regs fed reg date however sec_1 d -1 income_tax regs authorizes the commissioner to prescribe rules for mileage allowances for ordinary and necessary expenses for local transportation see dehr v commissioner tcmemo_1998_441 and such rules were prescribed for the year see revproc_91_67 1991_2_cb_887 advertising expense of dollar_figure petitioner claimed and testified that he paid a total of dollar_figure in cash for advertising his advertising business at the rate of dollar_figure per ad in two local publications published monthly by matson publications nevada today and nevada woman petitioner provided no invoices no copies of the ads and no other witness who established that the ads were placed subsequent to trial he failed to produce copies of the ads either from his retained boxes of records or from the reno public library's copies of the publications in which the ads appeared nevertheless the court is satisfied from petitioner's testimony that he incurred advertising expenses of this type applying cohan v commissioner supra and bearing heavily on petitioner we allow an advertising expense deduction of dollar_figure bad_debt of dollar_figure under sec_166 a deduction is allowed for a debt which becomes worthless during the taxable_year petitioner claimed a bad_debt deduction of dollar_figure by reason of the failure of roger wright for whom he prepared brochures detailing mr wright's expertise in tracing horse bloodlines to pay petitioner’s agreed-upon fee of dollar_figure for preparing the brochures the unpaid fee for preparing the brochures like wages or salary would have been ordinary_income to petitioner upon payment petitioner did not report as income for or any prior year any of the fee alleged to be owed under applicable law the unpaid fee is not deductible as a bad_debt sec_1_166-1 income_tax regs provides worthless debts arising from unpaid wages salaries fees rents and similar items of taxable_income shall not be allowed as a deduction under sec_166 unless the income such items represent has been included in the return of income for the year for which the deduction as a bad_debt is claimed or for a prior taxable_year inasmuch as petitioner did not report the fee income he is not entitled to a bad_debt deduction for the unpaid fee for koenig v commissioner tcmemo_1998_215 sec_1_166-1 income_tax regs even if we had determined that petitioner had included the unpaid fee in income he has failed to establish that the debt was worthless at the end of the taxable_year in issue petitioner testified that in he was still attempting to collect the debt car and truck expenses of dollar_figure petitioner claimed car and truck expenses of dollar_figure which respondent disallowed in full in the statutory notice however respondent conceded on brief that petitioner should be allowed a mileage expense deduction for his trips to virginia city petitioner testified that he traveled to meet his production assistant who was located in virginia city about miles away from reno and that he did this on an average of three or four times a week petitioner also testified that he had records of his other expenses that made up the total of dollar_figure but he failed to produce them at trial or subsequently while the record was held open respondent has made no concession with respect to any other claimed expenses in this category relying on respondent's concession as a waiver under sec_1_274-5t temporary income_tax regs fed reg date and revproc_91_67 1991_2_cb_887 we find that petitioner made trips to virginia city on an average of three times per week during weeks during the year for a total of big_number miles at the standard business mileage rate of cents per mile in effect for under revproc_91_67 supra petitioner is entitled to a mileage_allowance deduction for local travel of dollar_figure per day or a total of dollar_figure we sustain the balance of respondent's disallowance of petitioner's claimed car and truck expense deduction legal and professional expenses of dollar_figure petitioner testified that primarily the dollar_figure was paid for production_costs and that a small amount was for legal expenses petitioner testified that the production_costs included both amounts paid to the production assistant in virginia city and amounts paid to sound engineers petitioner testified that he worked with the production assistant to determine a budget and how much of the fee petitioner would keep and how much the production assistant would keep however petitioner presented no invoices or other documentation showing how the services of the production assistant were billed and paid for although petitioner testified that he reported the gross amounts paid under the contracts it is not clear--indeed it seems unlikely--that the production assistant's share was part of the gross_income reported by petitioner we do not believe that petitioner included the amounts paid to the production assistant in the dollar_figure of income reported on schedule c nor are we inclined to give petitioner the benefit of the doubt--much less consider that he has carried his burden of proof--that any part of the amount claimed was paid for services provided by sound engineers petitioner admitted that he usually paid for such services in cash because he was thereby able to obtain discounts from market rates charged by service providers who were moonlighting after hours from their regular jobs we are sufficiently familiar with the operations of the underground economy to say that a taxpayer who makes payments in cash to facilitate income_tax underreporting and unauthorized use of employer facilities by employee service providers does not thereby convince us without documentation that he has incurred and paid deductible expenses with respect to the legal fee portion of petitioners' claim petitioner failed to provide the court with sufficient information to determine if the legal expenses claimed were related to the business or were personal in nature petitioner testified that the legal fees were partly for a bankruptcy that he had filed in the previous year and for the attorney to review contracts respondent's determination on this issue is sustained in full office expenses of dollar_figure the office expenses listed on the schedule c allegedly consisted of payments to washoe association for retarded children for which petitioner had previously worked as an employee of dollar_figure for graphics equipment2 and dollar_figure for office supplies the dollar_figure allegedly consisted of a dollar_figure lump-sum payment in cash that petitioner made to the association and a dollar_figure credit in exchange for his services petitioner testified that he did not include in income the dollar_figure credit for services performed this was a barter_exchange failing to include the dollar_figure credit in income prevents petitioner from obtaining a tax basis in the property received and therefore disentitles him to a deduction for the value of his services or the cost of the property received see barter v commissioner tcmemo_1990_ salon v commissioner tcmemo_1980_77 we find petitioner's testimony to be generally credible with respect to his cash payments for the equipment and supplies we allow a deduction of dollar_figure for the purchase of equipment and supplies travel_expenses of dollar_figure petitioner has completely failed to meet the recordkeeping and substantiation requirements of sec_274 for the claimed respondent did not determine or argue that any payments that petitioner persuaded the court he had made should be capitalized and deducted under sec_167 or sec_168 deduction of dollar_figure for travel_expenses petitioner provided no evidence at the trial he was given additional time after the trial to provide documentary_evidence and he failed to do so respondent's determination on this issue is sustained in full meals and entertainment_expenses of dollar_figure less the percent limitation dollar_figure for a deduction of dollar_figure petitioner has completely failed to meet the recordkeeping and substantiation requirements of sec_274 for meals and entertainment_expenses petitioner presented no evidence at the trial he was given additional time after the trial to provide documentary_evidence and he failed to do so respondent's determination on this issue is sustained in full publications expenses of dollar_figure petitioner purchased nonbusiness publications esquire vanity fair details without providing any persuasive evidence of business use petitioner failed to provide any substantiation of his publications expense in the amount of dollar_figure even though he was given additional time after the trial to provide documentary_evidence respondent's determination on this issue is sustained in full printing expenses of dollar_figure petitioner's total schedule c reported gross_income amounted to dollar_figure of which only dollar_figure was attributable to the creative fees charged for the brochures and folios that he produced for real_estate brokers petitioner testified that the dollar_figure claimed as a deduction for printing expenses was based upon the following costs of producing the brochures and folios for the real_estate brokers petitioners’ creative production total exhibit fees costs cost dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure exhibit totals big_number dollar_figure dollar_figure examples of the brochures and folios with an attached statement of the production cost of each were introduced into evidence attached to exhibit was an invoice to the client for photography and printing costs reciting that a partial payment had already been received petitioner has not persuaded us that he included in his gross_income any amounts corresponding to the dollar_figure or more he allegedly paid to printers and photographers he claimed to have the evidence but failed to provide it to the court we are satisfied that the payments were made directly by the clients to the printers or that if petitioner acted as a conduit for the payments he did not include them in gross_income in either case he is not entitled to a deduction for them it defies credibility that petitioner would enter arrangements that would obligate him to incur and pay production_costs more than four times his dollar_figure in fees without reimbursement by the clients respondent's determination on this issue is sustained in full to give effect to our partial allowance of some deductions claimed by petitioner on his schedule c for jacobs creative group decision will be entered under rule


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si br 1-plr-120035 -98 date date x y z m pr sec_1 pr sec_2 pr sec_3 pr sec_4 pr sec_5 m n o x y legend cc dom p si br 1-plr-120035 -98 buyer parent this responds to your letter dated date in which you requested a supplemental ruling to take into account a change in facts with respect to our letter_ruling issued to y letter dated date the ruling letter except as otherwise noted in the legend above all terms used in this letter have the same meaning as in the previous letter in the ruling letter we issued four rulings based on a series of transactions the ruling letter was based on the facts before us at the time the private_letter_ruling was issued included was the fact that family y and pr sec_2 would enter into the underwriting agreement with underwriter as the lead managing underwriter of spo pursuant to which family y and pr sec_2 would sell a substantial portion of the newco shares they received in sale1 exchange1 and exchange2 in an spo of the shares under the facts submitted you requested rulings concerning the tax treatment of a power purchase agreement held by pr sec_3 your recent submission indicates that the conditions surrounding the proposed transaction necessitate a change in the facts described above you have represented that instead of the above-described transaction the following steps will occur in connection with the sale of the cogeneration business y and pr sec_2 will enter into a separate agreement with buyer to sell slightly less than m of their respective x and y interests in pr sec_1 to buyer a wholly owned subsidiary of parent for cash and shares of parent sale1 x and pr sec_2 will enter into an agreement with buyer to sell n of their respective x and y partnership interests in pr sec_4 to buyer in exchange for cash sale2 y’s and pr sec_2's interests remaining in pr sec_1 following sale1 will be redeemed by pr sec_1 redemption1 in consideration of a distribution to y and pr sec_2 of cash and pr sec_1's note receivable from pr sec_5 the shareholders of z will cause m to be merged with and into z z will then redeem o of each shareholder’s z shares in exchange for a promissory note seller notes cc dom p si br 1-plr-120035 -98 each z shareholder will then sell its remaining z shares to buyer or its designee for cash the seller notes will then be repaid in full on the first business_day after the closing of these transactions as a result of sale1 and redemption1 y will recognize significant gain from the disposition of its partnership_interest in pr sec_1 based solely on the information submitted by the taxpayer with respect to this supplemental ruling_request and the information submitted with respect to the ruling letter we conclude that the change in facts as discussed above will not adversely affect ruling sec_1 and contained in the ruling letter accordingly under the additional facts submitted in your request for a supplemental ruling we rule as follows ppa is not an unrealized_receivable for purposes of sec_751 and ppa is not an inventory_item for purposes of sec_751 except as held immediately above no opinion is rendered regarding the federal_income_tax effects of any of the transactions described above under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings specifically no opinion is rendered regarding the effect of the change_of facts on the other rulings issued in the ruling letter this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent signed dianna k miosi sincerely yours dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court georges z zakhem petitioner v commissioner of internal revenue respondent docket no 10753-04s filed date georges z zakhem pro_se frederick j lockhart jr for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined the following deficiencies in and additions to petitioner’s federal income taxes for and year deficiency dollar_figure big_number big_number additions to tax under sec_6654 a dollar_figure dollar_figure big_number -- dollar_figure big_number a after concessions the issues for decision are whether respondent’s period of limitations within which to assess the and federal income taxes against georges z zakhem petitioner has expired and if not whether petitioner is liable for additions to tax under sec_6651 and sec_6654 background the stipulated facts and exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in boulder colorado during the taxable years at issue petitioner was employed by exabyte corporation exabyte in boulder colorado for the years and exabyte issued forms w-2 wage and tax statement to petitioner which incorrectly reported petitioner’s social_security_number by one digit by letter 1respondent concedes that the addition_to_tax under sec_6654 asserted in the notice_of_deficiency for and the additions to tax under sec_6651 asserted in the notices of deficiency for and do not apply to this case dated date the social_security administration brought the error to exabyte’s attention and petitioner’s social_security_number was corrected respondent determined that petitioner failed to file form_1040 u s individual_income_tax_return for the years and and issued a notice_of_deficiency for each of these years petitioner filed a timely petition for redetermination with the court of the years at issue petitioner alleges in his petition that it is unthinkable for respondent to ‘wake’ up years later and lay this undue burden_of_proof on him to show that the taxes interest and additions to taxes assessed against him are improper petitioner is not contesting the amount of income reported on the forms w-2 2rule b requires that a petition must be signed by either petitioner or petitioner’s counsel in this case petitioner failed to sign his petition which may be a ground for dismissal of the case under rule a the court has been liberal in treating as a petition any document filed by a taxpayer within the 90-day period if it was intended as a petition 66_tc_105 truskowsky v commissioner tcmemo_1988_319 to be deemed a petition the document must contain some objective indication that the petitioner contests the deficiency determined by the commissioner against him o’neil v commissioner supra truskowsky v commissioner supra if such documents do not comply with the form and content requirements for petitions the court is liberal in allowing the taxpayer to file an amended petition to correct the technical defects o’neil v commissioner supra truskowsky v commissioner supra petitioner intended to contest and has actually contested the and deficiencies determined against him therefore the petition conferred jurisdiction upon the court for those taxable years instead petitioner contends that he does not owe any federal tax_liabilities because he timely filed the tax returns at issue sec_6501 discussion sec_6501 sets forth limitations on assessment and provides as a general_rule that federal income taxes must be assessed within years after the filing of the return however if the taxpayer fails to file a return the statute of limitation is never set in operation and the irs may assess the tax at any time sec_6501 sec_301_6501_c_-1 proced admin regs if the court finds that petitioner timely filed the returns for and respondent’s assessments are time- barred under sec_6501 if however the court finds that petitioner did not file the returns the assessments are valid because respondent may assess the tax at any time in the latter case the court will also address whether petitioner is liable for additions to tax under sec_6651 and sec_6654 the commissioner’s determinations are presumed correct and generally taxpayers bear the burden of proving otherwise rule a 290_us_111 3petitioner has not raised the issue of sec_7491 which shifts the burden_of_proof to the commissioner in certain situations this court concludes that sec_7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application petitioner argues that it was exabyte’s failure to correctly report his social_security_number on his forms w-2 rather than his failure_to_file the returns that resulted in respondent’s lack of records of his filing tax returns according to the record in this case exabyte corrected the social_security_number on petitioner’s forms w-2 at the end of petitioner testified that exabyte alerted him to the error in date and that he provided the documentation required to correct the error respondent’s search included not only petitioner’s correct social_security_number but also encompassed the wrong social_security_number reported by exabyte4 as well as the social_security_number for petitioner’s wife respondent did not find any returns filed under any of the social_security numbers in support of its determination that petitioner failed to file returns for the years at issue respondent presented three certificates of lack of record for federal_income_tax one for each of the social_security numbers searched for tax periods date through date in light of respondent’s evidence the court is not convinced that it was exabyte’s error rather than petitioner’s failure_to_file the returns that caused the respondent’s searches to indicate that petitioner’s returns were not filed 4respondent represented that the social_security_number belonged to a different taxpayer who also failed to file returns for and at trial petitioner offered photocopies of what he contends are retained copies of his and tax returns as evidence that he timely filed the returns all of the copies correctly reported petitioner’s social_security_number the court however has reason to doubt whether the retained copies are in fact retained copies of filed and tax returns when petitioner’s forms w-2 are compared to the retained copies several discrepancies stand out the retained and copies show more income than respondent’s records or the forms w-2 for petitioner claimed a federal_income_tax withholding credit of dollar_figure when form_w-2 shows a withholding of only dollar_figure for he claimed a credit of dollar_figure when form_w-2 shows dollar_figure for he claimed a credit of dollar_figure when form_w-2 shows dollar_figure petitioner has failed to establish a reason for claiming almost double and in triple the amount of federal_income_tax withholding credits as shown on the forms w-2 assuming that the retained copies were filed petitioner should have received tax refunds for years and based on the federal_income_tax withholding credits claimed petitioner testified that he never received any of the refunds he testified that he thought it was because the department of education took the refunds and applied them against the outstanding balance of his student loans petitioner failed to contact the department of education for a while with respect to his delinquent student_loan payments and a judgment was entered against him petitioner also has failed to present any documentation to show that the department of education has either collected the refund or credited the amount of the refund against his outstanding student_loan or the judgment petitioner failed to file his state_income_tax returns respondent produced a certificate of failure_to_file individual_income_tax_return s from the colorado department of revenue for the years and as evidence in support as with the federal_income_tax returns petitioner argues that colorado has no record of his filings because exabyte incorrectly reported his social_security_number on the forms w-2 for and petitioner did not present any other evidence to substantiate that the returns were in fact filed petitioner’s testimony that he filed the returns at issue without more is insufficient to sustain a ruling in his favor see schwechter v commissioner tcmemo_2000_36 see also rakosi v commissioner tcmemo_1993_68 taxpayer failed to prove that she filed her return where she did not produce any documentary_evidence of timely mailing and relied solely on self-serving testimony of herself and her husband affd 46_f3d_1144 9th cir accordingly the court finds that petitioner has failed to sustain his burden_of_proof to show that he filed tax returns for and petitioner’s tax_liabilities for and for each of the years at issue petitioner’s income was computed from his exabyte wages income allowing him a standard_deduction and one exemption the resulting tax on his taxable_income was then credited with the amount of federal_income_tax withholding shown on the form_w-2 petitioner alleges that he has medical_expenses that entitle him to a larger itemized_deduction but he has failed to produce any documentation in support of his contention in the absence of any corroborating evidence from the petitioner respondent’s determinations are presumed correct additions to tax under sec_6651 respondent determined an addition_to_tax under sec_6651 for and asserting that petitioner failed to file federal_income_tax returns for those years sec_7491 imposes the burden of production in any court_proceeding on the commissioner with respect to the liability of any individual for penalties and additions to tax 116_tc_438 trowbridge v commissioner tcmemo_2003_164 affd 378_f3d_432 5th cir in order to meet the burden of production under section c the commissioner need only make a prima facie case that imposition of the penalty or addition_to_tax is appropriate higbee v commissioner supra the burden_of_proof remains on the petitioner who must prove that his failure_to_file was due to reasonable_cause and not due to willful neglect sec_6651 469_us_241 higbee v commissioner supra pincite a failure_to_file a federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and nevertheless was unable to file the return within the prescribed time barkley v commissioner tcmemo_2004_287 sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite respondent has carried his burden of production by introducing into evidence certified copies of form_4340 certificate of assessments payments and other specified matters with respect to petitioner’s and taxable years establishing that petitioner did not file timely federal_income_tax returns for those years see 115_tc_35 downey v commissioner tcmemo_2005_215 petitioner introduced no evidence or any legally sufficient reason for his failure_to_file a timely return therefore the court finds that petitioner did not have reasonable_cause for his failure_to_file as required by sec_6651 and he is liable for the additions to tax as respondent determined additions to tax under sec_6654 respondent also contends that petitioner is liable for the additions to tax under sec_6654 for and sec_6654 provides an addition_to_tax for failure to make timely and sufficient payments for estimated_taxes the sec_6654 addition_to_tax is mandatory unless petitioner can place himself within one of the computational exceptions provided by sec_6654 91_tc_874 75_tc_1 since petitioner has failed to do so this court sustains respondent on this issue reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent as to the deficiencies and the additions to tax under sec_6651 for and and as to the additions to tax under sec_6654 for and and decision will be entered for petitioner as to the additions to tax under sec_6651 for and and as to the addition_to_tax under sec_6654 for


- significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec tep ratt ad re dear this letter constitutes notice that a waiver of the minimum_funding_standard has been granted for the pian for the plan_year ending december this waiver of the minimum_funding_standard has been granted in accordance with sec_412 of the internal_revenue_code code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of date the plan was a collectively-bargained multiemployer defined_benefit_plan benefiting employees who were covered by various collective bargaining agreements between the union and approximately contributing employers engaged in the construction industry the funding problems that the plan experienced were the result of a downtum in the construction industry in the area covered by the union which started in the trustees of the plan took a number of steps to manage the plan's financial difficulties by adopting amendments to reduce the value of benefit accruals substantial contribution rate increases were also negotiated with the contributing employers however the trustees determined that in the best interest of the plan’s participants they should pursue a merger with a plan that was financially healthy an agreement was reached and signed with the trustees of the receiving plan on november plan with the receiving plan effective december to merge the has been granted the financial information provided by the trustees shows that at least percent of the contributing employers experienced a substantial business hardship the trustees also took steps to deal with the financial difficulties of the plan and finally merged the plan into a plan that was well funded accordingly the waiver of the minimum_funding_standard for the plan for the plan_year ending december your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the trustees of this plan to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the trustees of this plan covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_61 kx3 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ending december the date of this letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b we have sent a copy of this letter to the co and to your authorized representative pursuant to a power of attomey on file in this office if you require further assistance in this matter please contact ‘ _ at sincerely yours or donna m prestia manager employee_plans actuarial group


tak exumer ang government entities department of the treasury nwashington mar set ep ba az taxpayer dear this letter constitutes notice that approval has been granted for your request for a -year automatic_extension for amortizing the unfunded flabilities as of january __ for the above-named plan which are described in sec_431 b b and b of the intarmal revenue code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 cerisa’ this extension is effective with the plan_year beginning january this extension applies to the amortization charge bases as identified in your apptication submission established as of january outstanding balance of dollar_figure the extension of the amortization periods of the unfunded llebliilies af the plan was granted in accordance with section d of the code sec_431 d 1xa of the code requires the secretary to extend the peried of time required to amortize any unfunded llablity of a plan for a period of time not in excess of years ifthe plan submits an application meeting the eriteria stated in sec_431 b the plan has submitted the required information to meet the criteria in sec_431 dx1 b including a certification from the plan’s actuary that ge of that date with a total 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 i the plan_sponsor has adopted a plan to improve the plarys funding statue ili 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 we have sent a copy of this latter to the manager and to your authorized representative pursuant to a power of atlomey an flle in this office to the manager ‘this ruling is directed only to the taxpayer that requested it sec_6110 k of the internal revenue coda provides that il may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours td hz david m ziegler manager ep actuarlal group