internal_revenue_service number release date index number 468a ----------------------- ---------------- ----------------------------------------------------- ----------------------------- ------------------------------ 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 b06 plr-133719-18 date may in re transfer of assets of a qualified_fund under sec_468a legend unit owner date seller parent seller seller operator unit purchaser purchaser subsidiary purchaser dre -------------------------- ----------------------------- -------------------------- -------------------------------------------------------- ------------------------- --------------------------------------------------------- ------------------------- --------------------------------------------- ------------------------------------------ ---------------------------------------------------------- -------------------------- ------------------------------------------------------------ ------------------------- ----------------------------------------------------------- purchaser operator joint_venture ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- state state state state state location region date date date -------------- ---------------------- ---------- -------------- ---------------- ----------- ------------------- ------- ------- ------------ -------------------- plr-133719-18 date date date a b c d e f g dear ----------------- ---------------------------- ------------------- ----------------------------------------- -- ------------------ -- ------------------ ---------------- ---------- ------------------- ------------------- ------------------- this letter responds to your request for private_letter_ruling dated date you requested rulings regarding the federal_income_tax consequences under sec_468a of the internal_revenue_code and sec_1_468a-6 of the treasury regulations regarding the transfer of a qualified nuclear decommissioning reserve fund maintained for the decommissioning of the unit the transfer of the qualified nuclear decommissioning reserve fund is in conjunction with the transfer of the entity that owns the unit unit owner from seller to purchaser seller has represented that at the time that the private_letter_ruling was submitted the facts were as follows seller parent is incorporated in state and acts as the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return seller parent and its subsidiaries and affiliates operate on a calendar_year basis and use the accrual_method of accounting seller is a wholly-owned indirect subsidiary of seller parent incorporated in state seller owns all of the equity of unit owner a state corporation which owns the unit the associated nuclear decommissioning trust and the nuclear decommissioning liability for the unit unit owner owns unit which is located in state the unit is a ---------------------- nuclear power plant unit is operated by operator a corporate affiliate of unit owner with offices located in state and state electricity generated by the unit is sold to wholesale customers or into the region power market the operating license for the unit is issued by the united_states nuclear regulatory commission nrc and expires on date unit owner and operator are both named on the license with unit owner obligated to undertake the decommissioning of the unit and operator charged with the safe operation of the unit plr-133719-18 possession and handling of special nuclear material and compliance with the nrc regulations the unit is expected to cease production on date and all nuclear fuel will be transferred from the reactor to wet storage in the spent fuel pool before date once certified to the nrc that the reactor has been defueled the unit will enter the decommissioning phase of its life cycle and the operating license will be amended by the nrc to a status of possession-only license unit owner maintains a master nuclear decommissioning trust that is dedicated to the decommissioning of the unit the trust the agreement between unit owner and the trustee regarding the purposes and operation of the trust authorizes the deposit and holding of assets in two sub-trusts that are trusts under state law one that meets the requirements for a nuclear decommissioning reserve fund within the meaning of sec_468a qualified_fund and one that does not meet those requirements non-qualified fund the assets of the trust had a fair_market_value on date of a net of accrued income_tax on net realized gains the values of the assets of the qualified_fund on date were b and assets valued at c were held in the non-qualified fund purchaser is a----- -----------------with headquarters in state purchaser files its federal_income_tax return on a calendar_year basis using the accrual_method of accounting purchaser is an ---------------------------company that with its affiliates specializes in -------------------------------------------------------------------------------------------------- ------------------ purchaser subsidiary is a ----------------------------------------------of purchaser purchaser dre is a wholly-owned subsidiary of purchaser subsidiary and is a state disregarded limited_liability_company purchaser dre’s sole member is purchaser subsidiary purchaser seeks to acquire the unit and through its indirectly wholly-owned affiliate purchaser operator operate or hold for decommissioning the unit as licensed by the nrc purchaser represents that it expects purchaser operator to engage with joint_venture a u s -based joint_venture of purchaser and a location corporation to perform the decommissioning of the unit seller and purchaser entered into an equity purchase and sale agreement dated date purchase agreement for the purchase by the purchaser of all of the equity of unit owner in a transaction that will be treated as the sale of assets for u s federal_income_tax purposes the transaction the transaction is expected to close in date closing the terms of the purchase agreement require that on the date of closing seller will sell all membership interests in unit owner to purchaser dre in consideration for d plr-133719-18 immediately prior to the closing seller represents that unit owner will effectuate a statutory conversion under state law from its current status as a corporation to a limited_liability_company the conversion for federal_income_tax purposes seller represents that the conversion is treated as unit owner liquidating into its sole parent seller as a result the unit and trust which includes the qualified_fund will be transferred from unit owner to seller for u s federal_income_tax purposes conversion transfer prior to the conversion unit owner is for u s federal_income_tax purposes the owner of both the unit and the qualified_fund immediately after the conversion seller will be for u s federal_income_tax purposes the owner of both the unit and the qualified_fund because of the conversion the assets of unit owner including the unit and the qualified_fund will be deemed distributed to seller in a deemed liquidation for u s federal_income_tax purposes unit owner represents that it will not elect to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 and will not be treated as separate from its owner seller subsequent to the closing unit owner represents it will change its name as of the closing the nuclear decommissioning liability associated with the unit is expected to be approximately e and the trust is expected to hold assets valued at approximately f of which g will reside in the qualified_fund the transfer of the trust to purchaser including the beneficial interests in the trust and the qualified_fund shall be referred to as the fund transfer seller operator on behalf of itself and unit owner purchaser and purchaser subsidiary represent that such entities will submit an application to the nrc for approval of the indirect transfer of control of the license for the unit from seller to purchaser and the transfer of operational authority from seller operator to purchaser operator the nrc application the nrc application will also seek approval of an amendment to the license to reflect the change in from of unit owner from a state corporation to a state limited_liability_company and the post-transfer name change_of the same entity upon the closing of the transaction unit owner will be a disregarded_entity of purchaser and will be a licensee and will have all rights and obligations under the nrc license for the unit and purchaser operator will conduct licensed activities at the unit after closing neither seller nor any of its affiliates will be a licensee or have any authorized rights or obligations under the nrc license for the unit as part of the nrc application seller operator unit owner purchaser and purchaser operator plan to provide information in respect of the purposes for the transaction necessitating the license transfer and the technical financial qualifications of unit owner and purchaser operator for being licensees under the license upon the closing of the transaction seller and purchaser represent that the risk and responsibility for decommissioning the site will be transferred to purchaser unit owner will retain full responsibility for funding purchaser operator’s costs of decommissioning the unit as part of the transaction seller represents that unit plr-133719-18 owner will retain full control and title to the asset of the trust and qualified_fund that are intended to be sufficient to satisfy the expected decommissioning costs unit owner and seller regarding their respective transfers represent that immediately before the relevant transfer each entity will have a qualifying interest in the unit within the meaning of sec_1 468a- will have maintained its qualified_fund as a_trust under applicable state law for the exclusive purpose of providing funds for decommissioning will have maintained the qualified_fund as a separate and the sole qualified b fund for the unit will not have made any contributions to the qualified_fund other than those for which a deduction will be allowed under sec_468a the assets of the qualified_fund will have been used exclusively to a satisfy in whole or in part liability for decommissioning costs of the unit b pay administrative costs and other incidental_expenses of the qualified_fund and c make investments to the extent the assets of the qualified_fund were not needed to satisfy the purposes of a and b above the trust agreement for the qualified_fund provides that the assets in the qualified_fund must be used as authorized in sec_468a and the regulations thereunder including the prohibition against self-dealing and that the agreement cannot be amended to violate such provisions and the qualified_fund did not engage in self-dealing seller and purchaser as transferees in respect of the qualified_fund represent that immediately after each relevant transfer each entity will have a qualifying interest in the unit within the meaning of sec_2 will maintain the qualified_fund as a_trust under applicable state law for the exclusive purpose of providing funds for decommissioning will maintain its qualified_fund as a separate and the sole qualified_fund for 468a-1 b the unit will not make any contributions to the qualified_fund other than those for which a deduction is allowed under sec_468a and the regulations thereunder the assets of the qualified_fund will be used exclusively to a satisfy in whole or in part liability for decommissioning costs of the unit b pay administrative costs and other incidental_expenses of the qualified_fund and c make investments to the extent the assets of the qualified_fund were not needed to satisfy the purposes of a and b above and the trust agreement for the qualified_fund will provide that the assets in the qualified_fund must be used as authorized in sec_468a and the regulations plr-133719-18 thereunder including the prohibition against self-dealing and that the agreement cannot be amended to violate such provisions requested rulings subject_to the approval from the nrc seller and purchaser request the following rulings effective as of the fund transfer the qualified_fund will not be disqualified by reason of the fund transfer seller purchaser and the qualified_fund will not recognize gain_or_loss under sec_3 after the fund transfer the qualified_fund will continue to be treated a sec_468a by reason of the fund transfer satisfying the requirements of sec_468a following the fund transfer the tax basis in the qualified_fund will be the same as the tax basis in those assets immediately before the fund transfer law and analysis sec_468a of the code provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund that meets the requirements of sec_468a ie a fund that is a qualified nuclear decommissioning fund or a qualified_fund sec_468a provides that any amount distributed or deemed distributed from a qualified_fund other than for purposes of paying costs described in sec_468a during any taxable_year is includible in the gross_income of the taxpayer for that year sec_468a authorizes the treasury_department to prescribe regulations regarding the disposition of an interest in a nuclear power plant and the tax treatment of the transfer of the assets of the related qualified_fund sec_468a requires each taxpayer who elects the application of sec_468a to establish a nuclear decommissioning reserve fund for each nuclear power plant to which that election applies sec_468a provides that the rate_of_tax on the income of a qualified_fund is twenty percent sec_468a provides in pertinent part that the assets in a qualified_fund shall be used exclusively for satisfying the liability of any person contributing to the qualified_fund for the decommissioning of a nuclear power plant or unit thereof sec_468a provides that for purposes of sec_4951 a qualified_fund is treated in the same manner as a_trust described in sec_501 plr-133719-18 sec_468a provides that the united_states secretary_of_the_treasury may disqualify a qualified_fund that violates any provision of the sec_468a or sec_4951 sec_468a provides that a taxpayer shall terminate the qualified_fund upon substantial completion of the decommissioning of the related nuclear power plant sec_1_468a-1 defines the term eligible_taxpayer as a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest means a a direct ownership_interest and b a leasehold interest in any portion of a nuclear power plant if the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the power plant and no other person establishes a qualified_fund with respect to such portion of the nuclear power plant sec_1_468a-1 proves that a direct ownership_interest of a nuclear power plant does not include ownership of stock of a corporation that owns a nuclear power plant or ownership of an interest in a partnership that owns a nuclear power plant sec_1_468a-1 defines the terms nuclear decommissioning fund and qualified nuclear decommissioning fund as a fund that satisfies the requirements of sec_1_468a-5 the term nonqualified_fund means a fund that does not satisfy those requirements sec_1_468a-1 provides that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the burnishing or sale of electric energy sec_1 b provides that decommissioning costs mean all otherwise deductible expenses to be incurred in connection with entombment decontamination removal and disposal of the structure systems and components of a nuclear power plant that has permanently cease the production of electric energy decommissioning costs also include costs incurred in connection with the construction operation and ultimate decommissioning of a unit used solely to store spent nuclear fuel generated by the nuclear plant pending acceptance by the government for permanent storage or disposal sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law plr-133719-18 sec_1_468a-5 provides that a qualified nuclear decommissioning fund must be established exclusively for the purpose of funding the costs associated with decommissioning one or more nuclear facilities under this provision a single trust agreement may establish multiple funds for the exclusive purpose of providing funds for the decommissioning of a nuclear power plant thus for example a fund to be used for decommissioning that does not qualify as a nuclear decommissioning fund under sec_1_468a-5 may be established and maintained under a_trust agreement that governs a nuclear decommissioning fund sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-5 provides that except as otherwise provided in sec_1_468a-8 relating to special transfers under sec_468a a qualified nuclear decommissioning fund is not permitted to accept any contributions in cash or property other than cash payments with respect to which a deduction is allowed under sec_468a and sec_1 468a- a sec_1_468a-5 provides that the assets of a qualified nuclear decommissioning fund are to be used exclusively a to satisfy in whole or in part the liability of the electing taxpayer for decommissioning costs of the nuclear plant to which the fund relates b to pay administrative and other incidental costs of the fund and c to the extent not currently required for the purposes described in a and b above to make investments sec_1_468a-5 provides that except as otherwise provided in sec_1_468a-5 the service may in its discretion disqualify all or any portion of a nuclear decommissioning fund if at any time during its tax_year a the fund does not satisfy the requirements of sec_1_468a-5 or b the fund and a disqualified_person engages in an act of self-dealing as defined in sec_1_468a-5 sec_1_468a-6 provides rules applicable to the transfer of all or a portion of a taxpayer’s qualifying interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund including a plant that has permanently ceased to produce electricity where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if - plr-133719-18 immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired and ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant in connection with the disposition either - i the transferee acquires part or all of the transferor's qualifying interest in the nuclear power plant and a proportionate amount of the assets of the transferor's fund all such assets if the transferee acquires the transferor's entire qualifying interest in the plant is transferred to a fund of the transferee or ii the transferee acquires the transferor's entire qualifying interest in the plant and the transferor's entire fund is transferred to the transferee and the transferee continues to satisfy the requirements of sec_1 468a- a iii which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs i neither the transferor nor the transferor's qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor's qualified nuclear decommissioning fund to the transferee's qualified nuclear decommissioning fund or by reason of the transfer of the transferor's entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor's qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor's qualified nuclear decommissioning fund ii notwithstanding sec_1_468a-6 if the transferor has made a special transfer under sec_1_468a-8 prior to the transfer of the fund or fund assets any deduction with respect to that special transfer allowable under sec_468a for a taxable_year ending after the date of the transfer of the fund or fund assets is allowed under plr-133719-18 468a f c for the taxable_year that includes the date of the transfer of the fund or fund assets neither the transferee nor the transferee's qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor's qualified nuclear decommissioning fund to the transferee's qualified nuclear decommissioning fund or by reason of the transfer of the transferor's entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor's qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee's qualified nuclear decommissioning fund will have a basis in the assets received from the transferor's qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor's qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a conclusions based on the information submitted by seller and purchaser we reach the following conclusions the qualified_fund will not be disqualified by reason of the fund transfer seller purchaser and or the qualified_fund will not recognize gain_or_loss under sec_468a by reason of the transfer of the qualified_fund after the fund transfer the qualified_fund will continue to be treated as satisfying the requirements of sec_468a following the fund transfer the tax basis in the qualified_fund will be the same as the tax basis in those assets immediately before the fund transfer except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described plr-133719-18 above the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalties 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 this ruling is specifically conditioned on the approval of the transaction by a regulatory body having jurisdiction over such transaction this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited 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 we are also sending a copy of this letter to the appropriate industry director lb_i a copy of this ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries


internal_revenue_service uniform issue list nov pepmmty legend taxpayer a amount b amount c ira annuity d whole life policy e l o e h insurance_company f bank g dear this is in response to your letter dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a’s spouse established ira annuity d with insurance_company f he designated taxpayer a as his sole beneficiary in the event of his death he was diagnosed with in2000 and - on date after the death of her spouse taxpayer a found whole life policy e issued by insurance_company f on his life and applied for the proceeds of the death_benefit page amount c she was still recovering from shortly afterward she was hospitalized for the effects of the operation when she received a check for amount b dated date from insurance_company f payable to her as beneficiary below the words death_benefit that were centered at the top of the check was the policy number of ira annuity d but no other information to indicate it was an ira distribution confused by the words death_benefit taxpayer a believed amount b was the insurance death_benefit from whole life policy e and deposited amount b into her savings account in bank g intending to use it to pay health insurance premiums when taxpayer a received a check for amount c from insurance_company f she realized amount b was a taxable ira distribution however the 60-day rollover period had expired she requests an extension of the 60-day period so she can establish a spousal_ira and rollover amount b to avoid any adverse tax consequences taxpayer a represents that no other amount was distributed from ira d within the one year period since the original distribution based on the above facts and representations taxpayer a requests that the service waive the 60-day rollover requirement with respect to the distribution of amount b because the failure to waive such requirement would be against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or page distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the facts presented by taxpayer a demonstrate the check in amount b issued by insurance_company f was not clearly identified as an ira distribution taxpayer a was recovering from heart surgery and in this condition mistakenly believed the check represented the proceeds of an insurance_policy that she deposited in a savings account insurance_company f did not provide her any other information on or with the check that amount b was an ira distribution nor did it provide her with information about making a rollover to another ira the situation was beyond the reasonable control of taxpayer a and the failure to waive the 60-day requirement would be against equity or good conscience therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount b _ ce page into an ira account provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions these amounts will be considered rollover_contributions within the meaning of sec_408 of the code ee _no_opinion is expressed_as_to the tax treatment of the transaction described_herein---____-_-- under the provisions of any other section of either the code or regulations which may be applicable thereto - this letter is directed only to the taxpayer who requested it sec_6110 ofthe code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact ld at please address all correspondence to sincerely yours kaw manager technical group employee_plans enclosures deleted copy of ruling letter notice of intention to disclose ce


internal_revenue_service number release date index nos cc ita b9 plr-118140-00 dear date this is in reference to a form_1128 application to adopt change or retain a tax_year submitted by you requesting permission to change your accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective you have requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the form_1128 requesting a change in accounting_period to a tax_year ending was due on or before the form was not filed within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government sec_301_9100-3 states in part that the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the request for relief is filed more than days after the due_date of filing the form_1128 based on the facts and information submitted and the representations made it is held you have not demonstrated unusual and compelling circumstances for filing the application beyond days after its due_date and therefore the granting of relief under sec_301_9100-3 will prejudice the interests of the government your request for an extension of time to file the form_1128 is denied no opinion is expressed as to the tax treatment of the transaction under the provisions of any other sections of the code and regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically set forth by the above ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel income_tax and accounting s heather c maloy


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date uil cc pa apjp postf-110339-02 memorandum for area_counsel heavy manufacturing transportation large mid-size business division cc lm hmt new attn leslie spiegel from john j mcgreevy assistant to the branch chief branch administrative provisions and judicial practice cc pa apjp b01 subject overpayment interest this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer year year year year g h i j k postf-110339-02 issue where the service offsets an overpayment for year against an underpayment for year whether the taxpayer is entitled to overpayment interest under sec_6611 from the return_due_date of the underpayment against which the overpayment is credited to the later date that the underpayment actually arose and the offset was effective conclusion where the service offsets an overpayment for year against an underpayment for year the corporate taxpayer is entitled to overpayment interest under sec_6611 from march year the date the overpayment arose to march year the due_date of the year return to which the overpayment was applied facts the taxpayer filed a return for year on september year it reported an overpayment of dollar_figureg and elected to credit the overpayment to year the dollar_figureg credit elect was not needed to satisfy any estimated_tax payments for year because they were paid in full with other funds the taxpayer was audited for year and year an audit deficiency was determined for year of dollar_figureh an audit overpayment was determined for year of dollar_figurei this audit overpayment was applied to year in the amount of dollar_figurej and to year in the amount of dollar_figurek the service computed interest on the year audit overpayment applied to year from march year to march year law and analysis sec_6611 provides that interest shall be allowed and paid i n the case of a credit from the date of the overpayment to the due_date of the amount against which the credit is taken the due_date is defined in sec_301_6611-1 as the last day fixed by law or regulation for the payment of the tax determined without regard to any extension of time sec_6151 provides that the date prescribed for payment is the date fixed for filing the return determined without regard to any extension of time to file for corporate calendar_year taxpayers under sec_6072 the date prescribed for filing is march 15th following the close of the calendar_year applying these provisions where the service offsets an overpayment for year against an underpayment for year the corporate taxpayer is entitled to overpayment interest under sec_6611 from march year the date the overpayment arose to march postf-110339-02 year the due_date of the year return to which the overpayment was applied see 50_fedclaims_140 the taxpayer contends that 588_f2d_342 2d cir and sequa corp v united_states ustc big_number s d n y support its position these cases however interpret sec_6601 which requires taxpayers to pay interest if any amount of internal revenue tax is not paid on or before the last date prescribed for payment unlike avon products and sequa corp the issue here involves the calculation of overpayment interest under sec_6611 not deficiency_interest under sec_6601 both the courts in marsh mclennan and avon products recognized the distinction between sec_6601 and sec_6611 there has been no change in the national_office position on this issue and the marsh mclennan case further supports this position this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call our office at if you have any further questions


' - significant index number departmentofthetreasury internal_revenue_service washington d c oct lolo tax_exempt_and_government_entities_division re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of may for the above-named plan which are described in sec_431 b b and b ofthe intemal revenue code code and sec_304 and sec_304 ofthe employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases as identified in your application submission established as of may the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 a of the code requires the secretary to extend the period oftime required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 d b including a certification from the plan's actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plants funding status - iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the _ to the - - and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_611 o k of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours ---- d-1 e_ david m ziegler manager ep actuarial group


internal_revenue_service number release date index number ----------------------- attention --------------------------- -------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------ id no ------------------ telephone number fax number ---------------------- --------------------- refer reply to cc ita plr-120468-13 date october in re request for extension of time to file form_970 application to use lifo inventory_method legend parent ----------------------- ein ----------------- taxpayers ----------------------------------------------------------------------------------------------------------------- ------------------------- -------------------------------------------- ein ------------------- ----------------- date date year ---------------------- --------------------------- ------- dear ------------------- this letter is in reply to a private_letter_ruling request filed by parent on behalf of taxpayers parent requests an extension of time under sec_301_9100-1 of the procedure and administration regulations to file form 970s application to use lifo inventory_method on behalf of taxpayers taxpayers elected the last-in_first-out inventory_method described in sec_472 of the internal_revenue_code lifo inventory_method for their inventory and parent was required by sec_1_472-3 of the income_tax regulations to file form 970s on behalf of taxpayers plr-120468-13 on date in a transaction parent states qualifies as a nontaxable sec_351 exchange parent transferred assets and liabilities to taxpayers two newly formed subsidiaries the form 970s were to have been filed by parent on behalf of taxpayers for the taxable_year ending date but parent failed to file either form_3115 upon switching accounting firms to provide audit services parent discovered in year that it had failed to complete the form 970s for the taxable_year ending date parent states that taxpayers were each required to file a form_970 because as held in revrul_70_564 1970_1_cb_109 a corporation that acquires inventories in a transfer under sec_351 must file a form_970 in order to adopt the lifo inventory_method promptly after discovery of this failure to timely file form 970s parent filed this request on behalf of taxpayers for an extension of time to file the form 970s for federal_income_tax purposes taxpayers implemented the lifo inventory_method described in sec_472 in the year ending date and have used the lifo inventory_method for all subsequent taxable years parent also represents that the lifo inventory_method was used by taxpayers in their reports to shareholders partners or other proprietors to beneficiaries and for credit purposes for the taxable_year ending date and for all subsequent taxable years sec_472 provides that a taxpayer may use the lifo_method in inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribe sec_1_472-3 provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the taxable_year as of the close of which the method is first to be used in a statement of its election to use such inventory_method the statement is to be made on form_970 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as 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_9100-2 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 a 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 see sec_301_9100-3 plr-120468-13 under sec_301_9100-3 a taxpayer applying for relief for failure to make an election before the failure is discovered by the internal_revenue_service ordinarily will be deemed to have acted reasonably and in good_faith however pursuant to sec_301 b a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election furthermore a taxpayer ordinarily will not be considered to have acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise if the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made further sec_301_9100-3 provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly we hereby grant an extension of time for parent to file the missing form 970s for taxpayers this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to each form_970 and send it to the service_center in which parent filed its federal consolidated tax_return that included the taxpayers’ returns for the year ended date the ruling contained in this letter is based upon information and representations submitted by parent and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for rulings such material is subject_to verification on examination 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 specifically we express no opinion as to whether each taxpayer has plr-120468-13 correctly used the lifo inventory_method we also have no opinion as to the asset and liability transfer that occurred on date this ruling is directed only to parent who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to parent’s authorized representative we are also sending a copy of this letter to the appropriate operating division director sincerely roy hirschhorn chief branch office of associate chief_counsel income_tax accounting


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 tege eoeg teb plr-125767-06 date date ------------------------ ---------------------------- ------------------------------------------------------------- legend legend university ------------------------------------------------------------ state manager authority ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------ agreement a -------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- agreement b -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ bonds -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------- dormitory college --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------- ------------------------------------------------------- ----------------------- plr-125767-06 date dear ---------------- this responds to the request by authority and university for a ruling that manager’s use of the dormitory does not constitute private_business_use of the dormitory under sec_141 of the internal_revenue_code facts and representations you make the following factual representations university is an exempt_organization under sec_501 that operates as a professional art college in state on date university formed manager as a wholly-owned and wholly-controlled subsidiary of university manager is a taxable corporation that provides management administrative and operational services to university manager is responsible for student recruitment financial management management of information_technology services student housing and health and oversight of third party vendors the relationship between university and manager is defined solely by two agreements agreement a and agreement b neither of which is terminable or amendable except by university university is the sole shareholder of manager and appoints all of the members of manager’s board_of directors university has the power to approve amendments to manager’s certificate of incorporation and bylaws manager’s capital budgets incurrence of long-term debt and operating budgets manager’s strategic plans risk- management policies and human resource and benefit policies and manager’s merger consolidation dissolution or sale or transfer of assets other than in the ordinary course of business university is the lessor of dormitory a student residence hall located on one of university’s campuses dormitory is owned by college also an exempt_organization under sec_501 the cost of constructing and equipping dormitory was financed with a portion of the proceeds of the bonds which were issued by authority dormitory will be used and operated exclusively as a dormitory residence hall for students of university leasing and operation of a dormitory residence hall for students is a related trade_or_business of university university and manager will enter into an agreement the contract for manager to manage dormitory for university the term of the contract i sec_15 years which is less plr-125767-06 than percent of the reasonably expected useful_life of dormitory manager’s sole compensation under the contract is a fixed dollar fee payable annually for each year of the term of the contract the fee will be adjusted each year to reflect changes in the consumer_price_index you represent that the fee will provide reasonable_compensation for services rendered and that no portion of the fee will be based in whole or in part on a share of net profits from the operation of dormitory the contract will also provide that university will reimburse manager for actual and direct expenses paid_by manager to unrelated third parties the contract is terminable by university on days written notice without penalty or cause at the end of each year of the contract term the contract will automatically renew for one year periods absent cancellation by either party upon days written notice manager’s use of dormitory will consist exclusively of managing dormitory as a dormitory residence hall for students of university manager will not conduct any other operations at dormitory law and analysis under sec_103 gross_income does not include interest on any state_or_local_bond sec_103 provides however that sec_103 shall not apply to any private_activity_bond which is not a qualified_bond within the meaning of sec_141 sec_141 provides that the term private_activity_bond means any bond issued as part of an issue which meets the private_business_use_test of sec_141 and the private_security_or_payment_test of sec_141 or meets the private_loan_financing_test of sec_141 sec_141 provides in general that an issue meets the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use sec_141 provides in general that an issue meets the private_security_or_payment_test if the payment of the principal of or the interest on more than percent of the proceeds of the issue is under the terms of the issue or any underlying arrangement directly or indirectly a secured_by any interest in property used or to be used for any private_business_use or payments in respect of such property or b to be derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use sec_141 provides that the term private_business_use for purposes of sec_141 means use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit for this purpose any activity carried on by a person other than a natural_person is treated as a trade_or_business sec_141 provides that the term qualified_bond includes any private_activity_bond if such bond is a qualified_501_c_3_bond and meets other specified requirements plr-125767-06 sec_145 provides that a qualified_501_c_3_bond means any private_activity_bond issued as part of an issue if all property which is to be provided by the net_proceeds of the issue is to be owned by a 501_c_3_organization or a governmental_unit and such bonds would not be a private_activity_bond if - a c organizations were treated as governmental units with respect to their activities which do not constitute unrelated trades_or_businesses determined by applying sec_513 and b paragraphs and of sec_141 were applied by substituting percent for percent each place it appears and by substituting net_proceeds for proceeds each place it appears sec_1_145-2 of the income_tax regulations provides generally that sec_1_141-0 through apply to sec_145 sec_1_145-2 provides in part that in applying sec_1_141-0 through to sec_145 references to governmental persons include c organizations with respect to their activities that do not constitute unrelated trades_or_businesses under sec_513 and references to percent and proceeds in the context of the private_business_use_test and the private_security_or_payment_test mean percent and net_proceeds sec_1_141-3 provides that except as provided in d a management_contract with respect to financed property may result in private_business_use of that property based on all of the facts and circumstances a management_contract generally results in private_business_use of that property if the contract provides for compensation_for services rendered with compensation based in whole or in part on a share of net profits from the operation of the facility sec_1_141-3 defines a management_contract as a management service or incentive payment contract between a governmental person and a service provider under which the service provider provides services involving all a portion of or any function of a facility revproc_97_13 1993_1_cb_507 provides conditions under which a management_contract does not result in private_business_use under sec_141 it also applies to determinations of whether a management_contract causes the test provided in sec_145 to be met for qualified c bonds section dollar_figure of revproc_97_13 provides that a qualified user means any state_or_local_governmental_unit as defined in sec_1_103-1 or any instrumentality thereof and any sec_501 organization if the financed property is not used in an unrelated_trade_or_business under sec_513 under dollar_figure of revproc_97_13 if the requirements of sec_5 are satisfied the management_contract does not itself result in private_business_use under sec_5 of revproc_97_13 the management_contract must provide for reasonable_compensation for services rendered with no compensation based in whole or in part on a share of net profits from the operation of the facility reimbursement of the service provider for actual and direct expenses paid_by the service provider to unrelated parties is not by itself treated as compensation plr-125767-06 section dollar_figure of revproc_97_13 sets forth six specific arrangements that satisfy the requirements of sec_5 under sec_5 at least percent of the compensation_for services for each annual period during the term of the contract must be based on a periodic fixed fee sec_5 further provides that the term of the contract including all renewal options must not exceed the lesser_of percent of the reasonably expected useful_life of the financed property and years section dollar_figure of revproc_97_13 provides that a periodic fixed fee means a stated dollar amount for services rendered for a specified period of time for example a stated dollar amount per month is a periodic fixed fee the stated dollar amount may automatically increase according to a specified objective external standard that is not linked to the output or efficiency of a facility for example the consumer_price_index and similar external indices that track increases in prices in an area or increases in revenues or costs in an industry are objective external standards section dollar_figure of revproc_97_13 provides that a renewal option means a provision under which the service provider has a legally enforceable right to renew the contract thus for example a provision under which a contract is automatically renewed for one- year periods absent cancellation by either party is not a renewal option even if it is expected to be renewed sec_5 of revproc_97_13 generally provides that a service provider must not have any role or relationship with the qualified user that in effect substantially limits the qualified user’s ability to exercise its rights including cancellation rights under the contract based on all the facts and circumstances a safe_harbor for this provision is described in sec_5 however university and manager are related parties and do not meet the safe_harbor we conclude that under revproc_97_13 the contract does not result in private_business_use of dormitory by manager manager’s compensation under the contract is reasonable_compensation for services rendered with no portion of the compensation based in whole or in part on a share of net profits from the operation of the dormitory university will only reimburse manager for actual and direct expenses paid_by manager to unrelated third parties all of the compensation to manager under the contract satisfies the definition of a periodic fixed fee because it is a stated dollar amount and is adjusted only by a specified objective external standard the term of the contract will not exceed the lesser_of percent of the reasonably expected useful_life of dormitory and years although the contract will automatically renew for one year periods it does not contain a renewal option within the meaning of dollar_figure of revproc_97_13 since it is cancellable by either party upon days written notice plr-125767-06 based on the facts and circumstances presented manager does not have any role or relationship with university that substantially limits university’s ability to exercise its rights including cancellation rights under the contract agreement a and agreement b constitute the entire relationship between university and manager and the two agreements cannot be terminated or amended except by university university is the sole shareholder of manager and controls manager through manager’s board_of directors university also has the power to approve amendments to manager’s certificate of incorporation and bylaws manager’s capital budgets incurrence of long-term debt and operating budgets manager’s strategic plans risk-management policies and human resource and benefit policies and manager’s merger consolidation dissolution or sale or transfer of assets other than in the ordinary course of business further university may terminate the contract annually without cause upon days written notice conclusion based on the facts and circumstances represented we conclude that the contract will not result in private_business_use of dormitory under sec_141 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with powers of attorney on file with this office copies of this letter are being sent to the authorized representatives of authority and university the ruling contained in this letter is based upon information and representations submitted by authority and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification upon examination sincerely assistant chief_counsel exempt_organizations employment_taxes government entities by timothy l jones senior counsel tax exempt bond branch


number release date id office uilc cca_2010070913445406 ---------------- from ------------------- sent friday july pm to ----------------------------------- cc subject ------------------------- ------------------------------------ this responds to a date email from ---------------- the email included a letter from congressman --------------and a letter from congressman --------constituent ---------- ----------------------- constituent the letter from constituent indicates that a taxpayer related to constituent made a gift to a_trust and filed a form_709 united_states gift and generation-skipping_transfer_tax return reporting the transfer the taxpayer however is concerned that the gift was not properly reported the taxpayer is also concerned that the period of limitation on assessment and collection under sec_6501 has not commenced because certain information was not attached to the form_709 finally constituent suggests that the internal_revenue_service service enter into a closing_agreement with the taxpayer to resolve the uncertainty over the matter in his email ------------suggests that the taxpayer seek a private_letter_ruling from the service you may include the following in your response to congressman ----- section dollar_figure of revproc_2010_1 2010_1_irb_1 provides that in gift_tax matters the internal_revenue_service generally issues a letter_ruling on a proposed transaction or on a completed transaction if the letter_ruling request is submitted before the return is filed for the year in which the transaction is completed the letter forwarded from constituent indicates that the taxpayer who is related to constituent filed a form_709 and reported the transfer because the taxpayer filed a form_709 reporting the transfer in question the internal_revenue_service cannot entertain a ruling_request on this matter sec_6501 of the internal_revenue_code provides except as otherwise provided in this section the amount of any_tax imposed by this title shall be assessed within years after the return was filed whether or not such return was filed on or after the date prescribed or if the tax is payable by stamp at any time after such tax became due and before the expiration of years after the date on which any part of such tax was paid and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period for purposes of this chapter the term return means the return required to be filed by the taxpayer and does not include a return of any person from whom the taxpayer has received an item_of_income gain loss deduction or credit under sec_6501 if the value of gifted property is required to be shown on a gift_tax_return but is not shown on the return then any gift_tax on the transfer of gifted property may be assessed at any time the unlimited assessment_period does not apply if the gift was disclosed on the return in a manner adequate to apprise the secretary of the nature of such item sec_301_6501_c_-1 of the gift_tax regulations provides that if a gift is not adequately disclosed on a gift_tax_return the tax imposed on that gift may be assessed at any time under sec_301_6501_c_-1 a gift will be adequately disclosed if the gift_tax_return or a statement attached to the return includes the trust’s tax identification_number and brief description of the terms of the trust or in lieu of that description a copy of the trust instrument in this case the taxpayer may file an amended gift_tax_return for the year in question and include the additional information that he believes is necessary to adequately disclose the gift the internal_revenue_service will then decide whether to audit the gift_tax_return ------------------of our office is familiar with this case ---------------can be reached at -------- -------------------------------------------------------------------------------------------------------------------- ------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------


t c memo united_states tax_court robert r plante and mary b plante petitioners v commissioner of internal revenue respondent docket no filed date thomas a lawler for petitioners albert b kerkhove for respondent memorandum opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated section references are to the internal_revenue_code in effect during the relevant year rule references are to the tax_court rules_of_practice and procedure in a notice_of_deficiency issued to petitioners on date respondent determined a deficiency in their federal_income_tax in the amount of dollar_figure the issue for decision is whether petitioners are entitled to a net_operating_loss_carryover deduction for the year the resolution of this issue depends upon whether petitioners suffered a net_operating_loss for the year which in turn depends upon whether petitioners are entitled to a business_bad_debt deduction for that year claim for which was made for the first time in the petition background petitioners filed a joint federal_income_tax return for the year at the time that the petition was filed they resided in cumming georgia references to petitioner are to robert r plante after his graduation from harvard university in petitioner worked for various companies in the packaging industry including boise cascade continental can and maryland cup corp at the time petitioner was employed by maryland cup corp petitioners lived in the baltimore maryland area when maryland cup corp announced plans to relocate to green bay wisconsin petitioner rather than transfer resigned from the company with the intent to invest in and manage a marina business on date petitioner acquired an operating marina business located on the middle river in essex maryland a suburb of baltimore the purchase date and conflicting evidence as to the form of the sale are the only details of this transaction that have been placed in the record at the time of the purchase or shortly thereafter petitioner incorporated boating center of baltimore inc bcbi or the corporation petitioner paid dollar_figure for big_number shares of common_stock of bcbi which represented all of the corporation's issued and outstanding_stock on date petitioner transferred all of the assets of the marina to bcbi from the date of its incorporation through date petitioner was president and sole shareholder of bcbi petitioner entered into an agreement to sell his interest in bcbi as discussed in more detail later in this opinion on date on march and date petitioner advanced dollar_figure and dollar_figure respectively to bcbi each transaction is evidenced by a promissory note the notes and a resolution adopted by bcbi's board_of directors authorizing the corporation to accept the terms and conditions set forth in the relevant promissory note the notes were signed by petitioner a sec_1the parties stipulated that petitioner purchased the assets of an existing marina petitioner's direct testimony suggests that he purchased the stock of the corporation that owned and operated the marina we proceed as though the stipulation accurately describes the transaction president of bcbi and the corporate resolutions were signed by petitioner as the sole member of bcbi's board_of directors the funds advanced by petitioner on both occasions were used for bcbi's current operating_expenses except for the amounts and due dates the terms and conditions of the notes are identical each refers to petitioner as the lender and bcbi as the borrower the advances are characterized as loans from petitioner to bcbi with principal and interest prime rate plu sec_2 percent computed quarterly due in year from the date of the note each note was renewable at the option of petitioner as the lender if bcbi defaulted on any term of the notes became insolvent filed a bankruptcy petition or had a receiver appointed the notes would become immediately due and payable in full neither note was fully paid as of its due_date the notes were not renewed and the repayment periods were not extended petitioners reported interest_income from bcbi on their joint federal_income_tax returns as follows year amount -0- -0- dollar_figure big_number big_number although less than clear from the record it appears that from time to time prior to date petitioner or petitioners advanced other funds considered by them to constitute loans to bcbi some of the interest referred to in the above table may relate to these other unspecified transactions and the balance presumably relates to the notes aside from the two notes previously described petitioners presented no documents evidencing additional loans made by either of them to bcbi uncertified financial statements prepared by bcbi's certified public accountants reflect among other things long- term liabilities to petitioner as follows year references are to fiscal years ended october year liability dollar_figure big_number big_number big_number big_number no explanation of or accounting for the changes in the amount of the liability from year to year has been provided we cannot tell whether the above amounts include principal and interest comparing the amount of liability for each year to the face amounts of the notes makes it obvious that after date the liabilities are not attributable exclusively to the notes a statement included in bcbi's financial statement for its fiscal_year ended date indicates that the liability with respect to that year relates to unsecured notes payable to stockholder due in bearing interest pincite per annum payable monthly but for this reference the record does not contain any evidence of notes fitting that description or loans from petitioners to bcbi under such terms as indicated having resigned his position with maryland cup corp petitioner intended to participate actively in the marina business consistent with this intent petitioners were employed by bcbi from through and received the following compensation year petitioner mary b plante dollar_figure big_number -0- big_number big_number dollar_figure big_number big_number -0- -0- although petitioner intended to make a career out of the marina business his intentions were frustrated by the operating losses suffered by bcbi in order to minimize his loss with respect to his investment in bcbi petitioner decided to sell his interest in the corporation bcbi was listed for sale for dollar_figure million through a broker who in august or date identified douglas and kay hansen as prospective purchasers after preliminary negotiations petitioner indicated that he would be willing to accept dollar_figure from the hansens for his interest in bcbi on date petitioner and his attorney met with the hansens and their attorney after extended discussions petitioner entered into a stock purchase agreement the agreement wherein he agreed to sell his interest in bcbi to the hansens for dollar_figure dollar_figure in cash payable at various dates and a note from the hansens and bcbi in the amount of dollar_figure the purchase_price was allocated as follows dollar_figure for all issued and outstanding_stock of bcbi dollar_figure for petitioner's covenant_not_to_compete dollar_figure for consulting services to be provided by petitioner as described in the agreement and dollar_figure for the assumption of a lease and assignment of petitioner's option to purchase certain land near the marina during the meeting that took place on date mr hansen learned about petitioner's outstanding advances to bcbi which at the time amounted to dollar_figure apparently mr hansen was unaware that bcbi's books reflected a liability to petitioner and he insisted that any debt owed to petitioner be eliminated petitioner and the hansens reached an understanding as to how the outstanding advances were to be treated as reflected in the following paragraphs in the agreement the shareholder as the sole shareholder and as president of the corporation hereby makes the following representations and warranties which shall survive the closing date shareholder has transferred four hundred seventy- five thousand dollar_figure dollars of notes and accrued interest of the corporation due shareholder as of to the equity account of the corporation and has made this an irrevocable capital_contribution to the corporation the notes accrued interest and capital lease due shareholder as of the closing have been tendered to buyer in exchange for buyer notes petitioner wrote paid in full and the date of on each note petitioners' federal_income_tax return the return was prepared by russell marshall a certified_public_accountant mr marshall advised petitioner that the transaction in which petitioner transferred his interest in bcbi to the hansens resulted in a long-term_capital_loss only a portion of which was currently deductible on the schedule d attached to their return petitioners reported a basis of dollar_figure in the bcbi stock and reported a long-term_capital_loss of dollar_figure from its sale petitioners deducted dollar_figure of this loss and treated the remaining portion as a long-term_capital_loss carryover to on date petitioners filed an amended return on the amended_return petitioners treated the bcbi stock as small_business stock defined by sec_1244 and claimed an 2in preparing petitioners' original and amended federal_income_tax returns the allocation schedule in the agreement was obviously ignored and petitioners reported the transaction as though the entire purchase_price was attributable to the sale of bcbi stock see infra note ordinary_loss of dollar_figure from the sale of such stock also on amended returns a net_operating_loss in the amount of dollar_figure was carried back to and then forward into and in the amounts of dollar_figure and dollar_figure respectively on their federal_income_tax return petitioners claimed a net_operating_loss_carryover deduction in the amount of dollar_figure the source of which is not readily identifiable on the return but apparently relates to the sale of petitioner's bcbi stock petitioners' amended returns for the years through all of which claimed refunds and their return were prepared by thomas a lawler esq who is also their counsel of record in this case in the notice_of_deficiency respondent determined that petitioner suffered a loss of dollar_figure dollar_figure basis minus dollar_figure realized on the sale of his bcbi stock and further determined pursuant to sec_1244 that petitioners were limited to an ordinary_loss deduction of dollar_figure in from the transaction respondent treated the balance of the lo sec_3 it would appear that respondent was unaware of or disregarded the allocation schedule in the agreement potentially allowing petitioners at least with respect to the amounts attributed to the covenant_not_to_compete and consulting services to offset ordinary_income by long-term_capital_loss in excess of the amounts otherwise allowable under sec_1211 we cannot tell at this point whether treating the sale of petitioner's option in the real_estate as though it were inherently part of the sale of his bcbi stock worked to petitioners' advantage or disadvantage for federal_income_tax continued dollar_figure as a long-term_capital_loss allowed a dollar_figure capital_loss deduction in and treated dollar_figure as a long-term_capital_loss carryover from to consistent with this treatment of the transaction in respondent determined that petitioners had a net_operating_loss of dollar_figure for that year after carrying the net_operating_loss back to and forward to and respondent determined that the loss had been extinguished prior to as a result of the foregoing respondent disallowed the net_operating_loss_carryover deduction of dollar_figure claimed by petitioners in which disallowance results in the issue here in dispute other adjustments made in the notice_of_deficiency are computational in nature and will be resolved automatically with the resolution of the disputed issue discussion although not specifically addressed by either party there appears to be agreement between them on the following points first the bcbi stock in the hands of petitioner constituted a capital_asset as defined by sec_1221 except as provided by sec_1244 because of the period that petitioner held the continued purposes in this regard it should also be noted that the parties stipulated that in the agreement petitioner agreed to sell all of the issued and outstanding shares of stock of bcbi for dollar_figure which does not accurately describe the transaction but is consistent with the positions taken on petitioners' original and amended returns and in the notice_of_deficiency stock any loss that resulted from its sale or disposition would be treated as a long-term_capital_loss sec_1222 and sec_1223 secondly the parties agree that petitioner suffered a loss on the sale of his bcbi stock the resolution of the issue here under consideration could have an effect on the amount of the loss otherwise there is no dispute between the parties on the point lastly the parties apparently agree that petitioner's bcbi stock constituted small_business stock within the meaning of sec_1244 subject_to the provisions of sec_1244 and b which under the circumstances of this case would allow petitioners to treat dollar_figure of the loss sustained on the sale of the stock as an ordinary_loss in this regard we note that petitioners' treatment of the transaction on their amended_return treating the entire loss as ordinary is patently incorrect and inconsistent with sec_1244 which as indicated allows for only a limited amount of the loss to be treated as ordinary sec_1244 from the allegations in the petition and the arguments in petitioners' brief we assume that petitioners have recognized their error on this point and now support their claim for a net_operating_loss_carryover deduction upon the theory that they were entitled to a previously unclaimed bad_debt deduction in in general sec_166 allows a taxpayer a deduction for any debt that becomes worthless within the taxable_year sec_166 to justify a deduction under sec_166 petitioners must establish that a bona_fide debt existed sec_1_166-1 income_tax regs a bona_fide debt arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money a shareholder's contribution to the capital of a corporation is not considered a debt for purposes of sec_166 sec_1_166-1 income_tax regs see 532_f2d_1204 8th cir 91_tc_575 characterization of an advance by a shareholder to a corporation as either a loan debt or contribution_to_capital equity is a question of fact that can be resolved only by reviewing the circumstances surrounding the transaction 74_tc_476 in reviewing the surrounding circumstances of such transactions the following factors should be considered the name given to the certificate evidencing the indebtedness the presence or absence of a fixed maturity_date the source of payments the right to enforce payment of principal and interest participation in management flowing as a result of the advance the status of the contribution in relation to regular corporate creditors the intent of the parties thin or adequate capitalization identity of interest between creditor and stockholder the source of interest payments the ability of the corporation to obtain loans from outside lending institutions the extent to which the advance was used to acquire capital assets and the failure of the debtor to repay on the due_date or to seek a postponement 464_f2d_394 5th cir see also 742_f2d_1311 11th cir 730_f2d_634 11th cir affg tcmemo_1982_314 a shareholder taxpayer seeking to treat an advance to a corporation as a loan bears the burden_of_proof on the point rule a dixie dairies corp v commissioner supra as do petitioners in this case transactions between a shareholder and a closely_held_corporation require special scrutiny gilboy v commissioner tcmemo_1978_114 taking into account the above factors we first consider whether the dollar_figure or any portion thereof constituted a loan or loans for federal_income_tax purposes petitioners contend that as of date the entire dollar_figure represented a worthless bona_fide debt within the meaning of sec_166 owed to petitioner from bcbi they further argue that no part of the debt constitutes a nonbusiness_debt within the meaning of sec_166 and therefore they are entitled to a business_bad_debt deduction in the amount of dollar_figure for the year that ultimately results in a net_operating_loss_carryover deduction for the year respondent disagrees on virtually every point neither party makes a distinction between the portion of the dollar_figure in unpaid advances represented by notes and the remaining portion but for the advances evidenced by the notes there is little if any evidence in the record regarding the details of any other transaction s that account for the dollar_figure difference between the face value of the notes and the stipulated amount of the unpaid advances as we have often stated deductions are a matter of legislative grace a taxpayer who claims a deduction must identify the specific statute that allows for the deduction and demonstrate that all of the requirements of the statute have been satisfied rule a 503_us_79 292_us_435 having provided the court with virtually no information regarding dollar_figure of the amount here in dispute petitioners have failed to establish that the requirements of sec_166 have been satisfied with respect to that amount on 4the parties stipulated that as of date the petitioner had unpaid advances to the corporation totaling dollar_figure the preamble to the stipulation states that respondent does not stipulate and agree by the use of the terms 'note ' 'loan ' or 'advance' in this stipulation or annexed exhibits that amounts paid to or on behalf of bcbi by petitioner constituted loans for federal_income_tax purposes the basis of the record before us we have no choice but to deny their claim to the deduction at least to the extent of dollar_figure and turn our attention to the portion of the deduction represented by the notes narrowing our focus on the treatment of the notes in connection with disposition of petitioner's bcbi stock leads us to conclude that the balance of petitioners' claim for a bad_debt deduction the amount represented by the notes must also be rejected assuming without finding that the advances evidenced by the notes represent bona_fide loans from petitioner to bcbi it is clear that the underlying debt was satisfied paid canceled or forgiven in connection with petitioner's sale of his stock to the hansens the agreement clearly makes the disposition of the notes part of the sale transaction and characterizes their disposition as a contribution to bcbi's capital petitioners have presented us with nothing that suggests otherwise petitioners' argument that the amount evidenced by the notes should now result in a sec_166 bad_debt deduction is inconsistent with the nature of the underlying transaction respondent's arguments regarding the application of 378_f2d_771 3d cir revg 44_tc_549 notwithstanding petitioners have presented no evidence that attempts to recharacterize the nature of the agreement between petitioner and the hansens the fact is that petitioner canceled or otherwise considered satisfied any debt owed to him by the corporation as part of his agreement with the hansens it was characterized as contribution of capital in the agreement and there is no basis in fact for considering it otherwise for federal_income_tax purposes furthermore a shareholder's cancellation or forgiveness of any debt owed to the shareholder from the shareholder's closely_held_corporation is generally considered a contribution to the corporation's capital which is what occurred in this matter 229_f2d_241 2d cir affg 22_tc_1152 217_f2d_486 6th cir 83_tc_162 affd 784_f2d_119 2d cir sec_1_61-12 income_tax regs but cf 227_f2d_692 5th cir revg tcmemo_1954_186 a creditor's voluntary forgiveness of a debt ordinarily does not provide sufficient grounds for claiming a bad_debt deduction see 165_f2d_588 5th cir 6_tc_285 affd 161_f2d_185 5th cir accordingly petitioners are not entitled to a bad_debt deduction for to the extent of the amount of debt evidenced by the notes or as previously indicated for the unexplained balance of the dollar_figure because petitioners are not entitled to a bad_debt deduction for the year it follows and we hold that petitioners are not entitled to the net_operating_loss_carryover deduction here in dispute to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court sandra l panetta petitioner v commissioner of internal revenue respondent docket no 14533-13s filed date francis x mellon for petitioner shari a salu for respondent summary opinion buch judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect when the petition was filed under sec_7463 the unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax continued decision to be entered in this case is not reviewable by any other court and this opinion may not be treated as precedent for any other case the sole issue before the court is whether ms panetta is entitled to innocent spouse relief under sec_6015 respondent denied ms panetta’s request for relief relating to deficiencies from her and taxable years we find that ms panetta is not entitled to relief under sec_6015 or f for either year background ms panetta was married to david frazier during and the years in issue in ms panetta began the process of preparing to open sweetbites a food truck business specializing in desserts although ms panetta was able to generate some income in the food truck became operational in during the years in issue ms panetta and mr frazier filed jointly on the schedules c profit or loss from business attached to their form sec_1040 u s individual_income_tax_return for and ms panetta and mr frazier reported gross_receipts and deducted expenses relating to sweetbites each year the return reflected a net_loss from sweetbites and ms panetta and mr frazier continued court rules_of_practice and procedure received a refund from the internal_revenue_service irs that was deposited in their joint account this was the only business reported on schedules c by ms panetta and mr frazier after examining the returns the irs issued ms panetta and mr frazier a notice_of_deficiency on date allowing additional itemized_deductions and disallowing various schedule c deductions resulting in deficiencies the irs also determined accuracy-related_penalties under sec_6662 before the irs issued the notice_of_deficiency it received a form_8857 request for innocent spouse relief from ms panetta at the time the irs received the form_8857 ms panetta and mr frazier were no longer married when the irs mailed the notice_of_deficiency it also mailed ms panetta a final notice denying her request for innocent spouse relief ms panetta while residing in virginia timely petitioned the court for review of the irs’ denial of her request for innocent spouse relief although ms panetta asserted in her petition that she was entitled to relief under sec_6015 c and f she later conceded that she is not entitled to relief under subsection b during ms panetta’s marriage mr frazier was responsible for filing the tax returns she would give him information and he would prepare each return and file it electronically he would then save the return on their computer their practice did not change in and although she had access to the return she did not review it in mr frazier moved out of the marital home they nonetheless filed their return jointly mr frazier prepared the return and ms panetta provided him with information relating to sweetbites ms panetta stated that she requested to see a copy of the return at some point she received a draft copy of the return but the copy she received was different from the copy mr frazier submitted to the irs which she did not know until the audit discussion generally married taxpayers may elect to file a joint federal_income_tax return upon electing to file jointly each spouse is jointly and severally liable for the entire tax due for that year in certain circumstances however a spouse who filed a joint_return may seek relief from joint_and_several_liability under the procedures in sec_6015 sec_6015 allows a spouse to seek relief from joint_and_several_liability under subsection b or if eligible to allocate the liability according to provisions set forth in subsection c if a taxpayer does not qualify for relief sec_6013 sec_6013 sec_6015 under either subsection b or c the taxpayer may be eligible for equitable relief under subsection f except as otherwise provided in sec_6015 the taxpayer bears the burden of proving that he or she is entitled to sec_6015 relief accordingly the burden is on ms panetta both the scope and standard of our review in cases requesting relief from joint_and_several income_tax_liability are de novo we hold that ms panetta is not entitled to relief under sec_6015 or f under sec_6015 a divorced or separated spouse may elect to limit liability for a deficiency on a joint_return to the portion of the deficiency that is allocable to her under subsection d the election may be filed at any time after the deficiency is asserted but not later than two years after the secretary has begun collection activities additionally the electing individual must no longer be married to or must be legally_separated from the individual with whom the joint_return was filed or must not have been a member of the same household with rule a 119_tc_306 aff’d 101_fedappx_34 6th cir 132_tc_203 sec_6015 the individual with whom the joint_return was filed during the 12-month_period before the election was filed the parties agree that ms panetta has satisfied these elements however they disagree on the portions of the liabilities allocable to her and whether ms panetta had actual knowledge of the erroneous items on the returns subject_to certain limitations any item giving rise to a deficiency on a joint_return is generally allocated to the individuals filing the return in the same manner as it would have been if the individuals had filed separate returns however sec_6015 provides an exception that allows an item that would ordinarily be allocable to one individual under the general_rule to be allocable to the other individual filing the joint_return to the extent that the other individual received a tax_benefit from the item even if we were to allocate portions of the deficiencies to mr frazier we must determine whether ms panetta had actual knowledge of the erroneous items an election under sec_6015 is invalid with respect to all or part of a deficiency if the secretary demonstrates that the individual making the election sec_6015 sec_6015 sec_6015 121_tc_73 had actual knowledge at the time she signed the joint_return of any item giving rise to the deficiency or portion thereof that is not allocable to that individual under sec_6015 the commissioner must demonstrate actual knowledge by a preponderance_of_the_evidence the actual knowledge standard is narrower than the reason to know standard applied under sec_6015 and f proving actual knowledge requires the commissioner to show that the individual making the election had actual knowledge of the factual circumstances which made the item unallowable as a deduction proving actual knowledge of the tax laws or the legal consequences is not requireddollar_figure although respondent largely focused on the incorrect standard under sec_6015 the record shows that ms panetta had actual knowledge ms panetta is the owner of sweetbites and she knew she was incurring expenses related to her business during the years in issue more importantly she knew that she had not incurred certain expenses that her husband reported on the returns as she sec_6015 116_tc_189 mcdaniel v commissioner tcmemo_2009_137 116_tc_198 hopkins v commissioner t c pincite testified at trial once she reviewed her returns she immediately recognized that some of the deductions were incorrectly reported her return was easily accessible to her and she had access to a draft of the return if she had reviewed the returns earlier we have no doubt that she would have spotted the errors accordingly because ms panetta had actual knowledge of the facts underlying the disallowed deductions we find that she had actual knowledge of the items giving rise to the deficiencies and she is not entitled to relief under sec_6015 a spouse may be entitled to equitable relief under sec_6015 if she is not eligible for relief under subsection b or c under sec_6015 the secretary is directed to prescribe procedures to aid in administering the statute these procedures found in revproc_2013_34 2013_43_irb_397 modifying and superseding revproc_2003_61 2003_2_cb_296 outline seven threshold conditions that must be satisfied in order for a spouse to be eligible for relief under sec_6015 because of the clarity of the record we focus only on the seventh requirement which states that t he income_tax_liability from which the requesting spouse seeks relief is attributable either in full or in part to an item of revproc_2013_34 sec_4 2013_43_irb_397 modifying and superseding revproc_2003_61 2003_2_cb_296 the nonrequesting spouse or an underpayment resulting from the nonrequesting spouse’s income unless a specific exception applies ms panetta does not fulfill this requirement because all of the disallowed deductions relate to sweetbites the business she owns and operates on the basis of our examination of the record before us and the parties’ arguments at trial we find that ms panetta is not entitled to relief under sec_6015 or f for or to reflect the foregoing and the concessions of the parties decision will be entered for respondent revproc_2013_34 sec_4 i r b pincite