internal_revenue_service number release date index number ------------------------ ---------------------------- ---------------------------- -------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc ita b07 plr-122198-12 date date re request for extension of time to make the repair_allowance election legend parent taxpayer year1 year2 ------------------------------------------------------ ---------------------------------------------------------------------------- ------- ------- dear ---------------- this letter responds to a letter dated date submitted by parent on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election provided in sec_1 a - d ii and a -11 f of the income_tax regulations to apply the repair_allowance for each of the taxable years year1 through year2 to certain expenditures incurred by taxpayer during such taxable years and associated with certain property placed_in_service by taxpayer before facts parent represents that the facts are as follows parent and taxpayer are members of an affiliated_group_of_corporations that is headed by parent and that files consolidated federal_income_tax returns parent and taxpayer use the accrual_method of accounting and are calendar_year taxpayers taxpayer is a vertically integrated regulated electric company serving retail customers parent timely filed the consolidated federal_income_tax returns for each of the taxable years year1 through year2 on each of these returns taxpayer claimed the plr-122198-12 deduction for a repair_allowance pursuant to sec_1_167_a_-11 for certain expenditures associated with certain property placed_in_service by taxpayer before parent and taxpayer however inadvertently failed to attach a repair_allowance election statement to each of these consolidated federal_income_tax returns ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election provided in sec_1 a - d ii and a -11 f to apply the repair_allowance for each of the taxable years year1 through year2 to certain expenditures incurred by taxpayer during such taxable years and associated with certain property placed_in_service by taxpayer before law and analysis sec_263 of the internal_revenue_code of the code formerly designated as sec_263 when added to the code by sec_109 of the revenue act of the act provides that the secretary may by regulations provide that the taxpayer may make an election of a repair_allowance under which amounts for the taxable_year representing either repair expenses or specified repair rehabilitation or improvement expenditures_for any class of depreciable_property are allowable as a deduction under sec_162 or sec_212 whichever is appropriate to the extent of the repair_allowance for that class and to the extent such amounts exceed for the taxable_year such repair_allowance are chargeable to capital_account sec_1_263_f_-1 implements sec_263 for rules regarding the election of the repair_allowance the definition of repair_allowance property and the conditions under which an election may be made sec_1_263_f_-1 cross-references to sec_1_167_a_-11 and f further sec_1_263_f_-1 provides that the election of the repair_allowance may be made for a taxable_year only if the taxpayer makes an election to claim its depreciation allowance under sec_1_167_a_-11 for such taxable_year sec_1_167_a_-11 provides an asset_depreciation_range and class_life system for determining the reasonable allowance for depreciation of designated classes of assets placed_in_service after date this system is known as the class_life_asset_depreciation_range cladr system sec_1_167_a_-11 provides that the cladr system is optional with the taxpayer and the taxpayer has an annual election sec_1_167_a_-11 provides an elective simplified procedure for determining whether expenditures with respect to certain property are to be treated as deductible expenses or capital expenditures plr-122198-12 sec_1_167_a_-11 provides that in the case of an asset_guideline_class which consists of repair_allowance property as defined in sec_1_167_a_-11 subject_to the provisions of sec_1_167_a_-11 the taxpayer may elect to apply the asset_guideline_class repair_allowance described in sec_1_167_a_-11 for any taxable_year ending after date for which the taxpayer elects to apply sec_1_167_a_-11 the cladr system the economic_recovery_tax_act_of_1981 erta publaw_97_34 enacted the accelerated_cost_recovery_system acrs for tangible depreciable_property placed_in_service after recovery_property section b of erta terminated the cladr system for recovery_property placed_in_service after date in taxable years ending after such date see sec_167 of the code in addition c of erta repealed the repair_allowance authorized by sec_263 effective for property placed_in_service after date in taxable years ending after such date thus for tangible depreciable_property placed_in_service after date the cladr system was superseded by acrs however the repair_allowance continued to be in effect for expenditures which although incurred after date were for the repair maintenance rehabilitation or improvement of property placed_in_service before date for which the taxpayer elected the cladr system sec_1_167_a_-11 provides for the time and manner of making the election to use the cladr system and of also electing the repair_allowance sec_1 a - f i provides that an election to apply sec_1_167_a_-11 to eligible_property is made with the income_tax return filed for the taxable_year in which the property is first placed_in_service by the taxpayer sec_1_167_a_-11 provides that all other elections under sec_1_167_a_-11 may be made only within the time and in the manner prescribed by sec_1_167_a_-11 sec_1_167_a_-11 provides that a taxpayer who elects to apply sec_1 a - must specify in the election ten information items among the items listed are whether the taxpayer elects to apply the asset_guideline_class repair_allowance described in sec_1_167_a_-11 sec_1_167_a_-11 under sec_301_9100-1 the commissioner of internal revenue 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 a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an see footnote of u s v wisconsin power and light company 38_f3d_329 7th cir plr-122198-12 election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion 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 taxpayer is granted calendar days from the date of this letter to make the election provided in sec_1_167_a_-11 and sec_1_167_a_-11 to apply the repair_allowance for each of the taxable years year1 through year2 to expenditures incurred by taxpayer during such taxable years for the repair maintenance rehabilitation or improvement of repair_allowance property placed_in_service by taxpayer before this election must be made by parent filing an amended consolidated federal tax_return for each of the taxable years year1 through year2 with a statement indicating that taxpayer is making the repair_allowance election provided in sec_1_167_a_-11 and sec_1 a - f except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code or the internal_revenue_code_of_1986 specifically no opinion is expressed or implied on the propriety of taxpayer’s computation of the repair_allowance for the taxable years year1 through year2 including whether any expenditures incurred by taxpayer during such taxable years are eligible for the repair_allowance in accordance with the power_of_attorney we are sending a copy of this letter to parent’s authorized representatives we also are sending a copy of this letter to the appropriate operating division director plr-122198-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely kathleen reed kathleen reed branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


tcmemo_2009_20 united_states tax_court winnie l greer petitioner v commissioner of internal revenue respondent docket no filed date kenton l ball for petitioner denise a diloreto for respondent memorandum findings_of_fact and opinion goeke judge the issue for decision is whether to uphold respondent’s determination that petitioner is not entitled to relief under sec_6015 b or f for and for the reasons explained herein we uphold respondent’s determination findings_of_fact at the time the petition was filed petitioner resided in kentucky petitioner graduated from high school in floyd county kentucky in she then attended the university of kentucky for years and transferred to louisiana state university from where she graduated with a bachelor of arts degree in music in petitioner also received a master’s degree in music education from marshall university in petitioner did not pursue studies in economics finance or accounting in her formal education petitioner married daniel c greer in and they remain married petitioner and mr greer have two daughters born in and in mr greer is a licensed chemical engineer and was employed by ashland oil co inc from through date from date through date petitioner was employed as a high school music teacher after that she pursued graduate studies and raised her daughters from to she acted a sec_1unless otherwise indicated all section references are to the internal_revenue_code a part-time choir director at the episcopal church where she and mr greer became members sometime in and in petitioner began a photography business she specialized in wedding and portrait photography she opened her first photography studio in late in the family home improvements were made to the home in and the structure remained petitioner’s photography studio even after petitioner and her family moved their residence in throughout the years of her marriage up to and including the years in issue petitioner relied upon mr greer to manage their financial affairs mr greer did not conceal any financial activities from petitioner or mislead her with respect to those activities however he was the primary decisionmaker and she relied upon him to direct their investments and make decisions regarding their finances and taxes in mr greer and petitioner’s father founded g l communications inc g l a closely held cable television business that operated in boyd and greenup counties of kentucky g l was taxed as an s_corporation until the sale of its assets in date petitioner and mr greer each owned shares of g l stock petitioner was not active in g l’s management nor was she an employee of g l in petitioner and mr greer each continued to own shares they each received a cash distribution of dollar_figure attributable to their respective portions of the proceeds of the sale thus their combined distribution from g l was dollar_figure following the sale of g l’s assets in two identical forms 1099-div statement for receipts of dividends and distributions were issued to petitioner and mr greer each reflecting a dividend distribution of dollar_figure a capital_gain_distribution of dollar_figure and a nontaxable distribution of dollar_figure for a total_distribution to each of dollar_figure motivated by the anticipated income_tax consequences of the g l dividends and distributions mr greer invested in madison recycling associates inc madison the background of this transaction and its consequences are fully described in previous judicial opinions greer v commissioner tcmemo_2007_119 295_f3d_280 2d cir affg tcmemo_2001_85 and madison recycling associates v commissioner tcmemo_1992_605 we simply note here that the result of those opinions is that respondent has assessed joint deficiencies in income_tax and additions to tax against petitioner and mr greer for the years through these deficiencies and additions to tax are the liabilities from which petitioner seeks sec_6015 relief the parties previously agreed that any request by petitioner for relief from joint_and_several_liability under sec_6015 would not be determined in the most recent tax_court litigation reflected in greer v commissioner supra the joint income_tax return for petitioner and mr greer was prepared by john w artis c p a mr artis advised mr greer that because the tax benefits associated with madison significantly exceeded the dollars invested the madison investment was fairly aggressive petitioner was not a party to those discussions and relied totally on mr greer to make the decision to claim the tax benefits associated with madison mr greer chose not to seek an opinion from mr artis regarding the merits of the madison transaction in greer v commissioner supra we found as fact that mr greer expected that madison would provide tax savings of approximately dollar_figure for each dollar invested and the record in this case is consistent with that finding on date mr greer signed a check for dollar_figure payable to madison and drawn on the joint checking account of petitioner and mr greer to purchase a 5-percent limited_partnership_interest in madison this was the only checking account that petitioner and mr greer had at the time at the time of the madison investment petitioner knew mr greer was purchasing an interest in madison and they briefly discussed the madison transaction before the investment in date madison filed a partnership return for the taxable_year ended date which reported a loss of dollar_figure and a tax_credit basis of dollar_figure million petitioner and mr greer filed joint individual income_tax returns for the years and the madison-related pass-through losses and investment credits reported on the joint returns for and were as follows year loss investment_credit -0- dollar_figure big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure of the dollar_figure credit reported on the joint federal_income_tax return the net credit used in from madison totaled dollar_figure because dollar_figure was eliminated in the alternative_minimum_tax computation and only an additional dollar_figure was allowed as a credit against alternative_minimum_tax as a result credits were available to be carried back to and the distributions from g l were reported on the joint_return reflecting the listed ownership of shares by each the dividends and capital_gain distributions reflected on the federal_income_tax return were divided equally between mr greer and petitioner on two separate forms kentucky individual_income_tax_return which were filed using the status married_filing_separately petitioner signed both the federal joint income_tax return and her separate kentucky form_740 for on date petitioner and mr greer signed a form_1045 application_for tentative refund for the years and seeking a refund totaling dollar_figure as a result of carrying back to those years the credits from the madison investment subsequently in date petitioner also signed a declaration relating to the form_1045 which was requested by the internal_revenue_service to confirm the execution of the original form_1045 petitioner discussed the execution of this declaration with mr greer in date three refund checks related to the form_1045 were deposited into the joint account of petitioner and mr greer the total deposit resulting from these checks was dollar_figure there is no explanation in the record for the discrepancy of dollar_figure between this amount and the amount claimed on the form_1045 petitioner did not review the joint federal_income_tax return nor did she review the form_1045 petitioner did not ask mr greer for details about the madison investment and she did not ask mr greer or mr artis any questions about the joint federal_income_tax return or the form_1045 however petitioner was aware of the madison investment petitioner made an election for relief under sec_6015 from liability for the deficiencies additions to tax and interest determined against her for to in a form_8857 request for innocent spouse relief submitted to respondent in date petitioner’s grounds for relief were that the erroneous items at issue are those of mr greer that he handled the family finances and was responsible for having the returns prepared that she did not review the returns before signing them and that she relied upon mr greer to have the returns prepared correctly petitioner provided no information regarding her current income or living_expenses in late respondent issued a preliminary determination denying petitioner’s request for relief on the basis that petitioner was aware of the items on the joint federal_income_tax returns that led to the deficiencies in question petitioner protested this preliminary determination petitioner’s request for relief was then considered by an appeals officer who determined after conducting an investigation that petitioner was not entitled to relief because the factors against relief outweighed the factors for relief the appeals officer found that the factors against relief included that petitioner knew or had reason to know of the understatement_of_tax the appeals officer determined that petitioner should have made a further inquiry concerning the tax_liability which may have been generated by the madison transaction the appeals officer also determined that petitioner received benefit from the tax which was not paid because of the madison transaction inferring that the success of petitioner’s photography business was tied to the building of the photography studio on a tract of land she purchased in and that an increase in net_worth of petitioner and mr greer was caused by not paying the tax_liabilities for the years in question finally the appeals officer determined that there would not be economic hardship to petitioner and mr greer as a result of the payment of the underlying tax_liabilities if mr greer’s assets were considered as a source of payment as well as petitioner’s assets the appeals officer also determined that petitioner was in compliance with the tax laws and that this was a favorable factor for petitioner the appeals officer estimated that petitioner and mr greer owned assets which provided a reasonable collection potential to respondent of dollar_figure the appeals officer estimated the mr greer’s assets totaled approximately dollar_figure and petitioner owned the remainder the parties have stipulated that petitioner’s personal assets at the end of date had a value in excess of dollar_figure petitioner averaged over dollar_figure in annual wages from greer photography during through the deficiencies in tax additions to tax and interest for the years through associated with the joint income_tax liabilities of petitioner and mr greer exceed dollar_figure million at this time largely because of the interest for all years and the 50-percent additional interest under sec_6653 for and after receipt of the notice_of_determination reflecting the appeals officer’s negative conclusions petitioner filed a timely petition opinion in general taxpayers filing joint federal_income_tax returns are each responsible for the accuracy of their returns and are jointly and severally liable for the entire tax_liability for the year of the returns sec_6013 in certain circumstances however a spouse may obtain relief from joint_and_several_liability by satisfying the requirements of sec_6015 sec_6015 provides that a spouse who made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax on a joint_return sec_6015 is not available to petitioner on the facts of this case if relief is not available under sec_6015 b or c an individual may seek equitable relief under sec_6015 i sec_6015 sec_6015 provides that a taxpayer will be relieved of liability for an understatement_of_tax if a joint_return was filed for the taxable_year in question there is an understatement_of_tax attributable to erroneous items of mr greer the taxpayer requesting relief did not know and had no reason to know that there was such understatement when he or she signed the return taking into account all of the facts and circumstances it would be inequitable to hold the taxpayer liable for the deficiency attributable to such understatement and the taxpayer elects to have sec_6015 apply within years of the initial collection action respondent agrees that petitioner meets the first and fifth requirements and thus focuses on the second third and fourth factors as the basis for supporting the determination to deny relief the burden is on petitioner to establish that she is entitled to the relief this case does not involve a deficiency stemming from an omission of an item_of_income on a tax_return rather the deficiency arises from the disallowance of investment credits and a partnership loss in such situations a taxpayer may be aware that a transaction took place but may not know that an understatement will result from the transaction knowledge of the transaction has been held to be sufficient knowledge of the understatement to bar relief under former sec_6013 which had a similar requirement to that of sec_6015 see eg 94_tc_126 affd 992_f2d_1132 11th cir the court_of_appeals for the ninth circuit held that a taxpayer meets the standard for relief if the taxpayer did not know or did not have reason to know that the erroneous deduction or credit would give rise to an understatement despite the presence of the deduction on the return 887_f2d_959 9th cir because of the similarity between the two statutory standards we have held that the cases interpreting former sec_6013 remain instructive in analyzing the issue presented by sec_6015 118_tc_106 citing 114_tc_276 affd 353_f3d_1181 10th cir doyel v commissioner tcmemo_2004_35 the court_of_appeals for the sixth circuit is the likely venue for any appeal of this case in 826_f2d_470 6th cir affg 86_tc_228 that court_of_appeals held that knowledge of the transaction giving rise to omitted income was sufficient to bar relief under former sec_6013 in 509_f3d_736 6th cir affg tcmemo_2006_69 that court_of_appeals followed purcell in a case where the taxpayer sought relief under sec_6015 from a tax_deficiency arising from the use of alleged trusts to shield income the trusts in question were held to be a sham petitioner notes that the court_of_appeals for the sixth circuit has embraced a test requiring the examination of all facts and circumstances citing 780_f2d_561 6th cir affg in part and revg in part tcmemo_1984_310 shea involved omissions of income and an analysis of the facts and circumstances to determine whether a person had reason to know of the omissions we find that under the facts and circumstances of this case petitioner had reason to know of the understatement on the joint income_tax return for ii reason to know in shea the court_of_appeals for the sixth circuit adopted the description of the reason to know test used in 509_f2d_162 5th cir shea v commissioner supra pincite has the following explanation the test adopted by the sanders court is the same test advanced by restatement second of agency comment d which read as follows a person has reason to know of a fact if he had information from which a person of ordinary intelligence which such person may have or of the superior intelligence which such person may have would infer that the fact in question exists or that there is such a substantial chance of its existence that in exercising reasonable care with reference to the matter in question his action would be predicated upon the assumption of its possible existence f 2d pincite by adopting this reasonable person standard the court rejected a more restrictive interpretation which would have required the taxpayer to provide that there was no possibility of discovering the omissions id pincite the primary ingredient of the reason to know tests are the circumstances which face the petitioner and whether a reasonable person in the same position would infer that omissions or erroneous deductions had been made the reason to know test is also explained in price v commissioner supra pincite a spouse has reason to know of the substantial_understatement if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the substantial_understatement factors to consider in analyzing whether the alleged innocent spouse had reason to know of the substantial_understatement include the spouse’s level of education the spouse’s involvement in the family’s business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income standard of living and spending patterns and the culpable spouse’s evasiveness and deceit concerning the couple’s finances citations omitted in reviewing whether petitioner had reason to know of the understatement we will begin with the four factors listed in price i education petitioner is highly educated having received a master’s degree in music education she is not specifically educated in accounting economics or finance but she is an intelligent well-educated person ii involvement in financial affairs petitioner’s ownership of shares of g l stock led to a cash distribution to her of approximately dollar_figure in petitioner argues that she held the shares only as a nominee for mr greer regardless petitioner was aware of the significant cash distributions that both she and mr greer received as a result of the sale of g l’s assets petitioner also signed a kentucky income_tax return which reflected her separate share of the proceeds from the sale of g l’s assets in addition she signed forms seeking significant tax refunds which resulted from the tax reporting of the madison investment finally the investment in the madison transaction was paid from the joint checking account of petitioner and mr greer petitioner does not maintain that she was unaware of the investment only that she did not realize the reporting of the madison transaction would result in an understatement_of_tax regarding the large g l distributions which were the key to the motivation of mr greer in making the madison investment petitioner was likewise not in the dark she maintains that she always relied on mr greer to handle financial affairs but she was at least generally aware of the results of the g l sale such knowledge is not irrelevant price v commissioner supra pincite n doyel v commissioner tcmemo_2004_35 iii changes in standard of living the parties have argued in great detail about whether petitioner directly benefited from the reported tax treatment of the madison investment while a specific dollar benefit to petitioner personally is not clearly established there is no question that petitioner and mr greer maintained a very comfortable lifestyle during and for all the years thereafter and that they provided for the education of their two children cash is fungible and the reporting of the madison transaction generated significant cash savings on the joint tax_liability of petitioner and mr greer for through the record does not establish any extravagant change in petitioner’s lifestyle however iv mr greer’s evasiveness and deceit regarding finance mr greer was not deceitful or evasive with petitioner regarding the madison investment or the g l cash distributions petitioner relied upon mr greer to make the decisions concerning the family financial transactions and their tax consequences but the record does not support the conclusion that she was misled or denied information iii did petitioner have reason to know three of the four price factors would support the conclusion that petitioner should have at least made further inquiry about the extraordinary tax benefits reflected on the joint_return for she knew there was substantial additional income yet she signed forms reflecting tax refunds generated in the years through as a result of the reporting of the madison investment almost dollar_figure in refunds was deposited into the same joint checking account on which the check of dollar_figure for the madison investment was drawn these refunds were in addition_to_tax savings of over dollar_figure sought through the aggressive reporting of the madison transaction on the joint_return for petitioner chose not to know she was not deceived or misled b eing a homemaker and preparing for weddings graduations and reunions certainly cannot relieve a taxpayer of joint_and_several tax_liability the petitioner does not make a showing that mr greer’s financial affairs were unreasonably complex nor does she provide the court with convincing reasons for not reviewing her own bank statements shea v commissioner f 2d pincite citation omitted in conclusion petitioner has failed to establish that she had no reason to know that there was an understatement on the joint federal_income_tax return accordingly she is not entitled to relief under sec_6015 iv sec_6015 sec_6015 provides for relief from joint liability if after taking into account all the facts and circumstances it is inequitable to hold the individual liable under the authority granted by sec_6015 the commissioner has issued revproc_2003_61 sec_4 2003_2_cb_296 which sets forth the factors to be applied when making a determination in a case involving an understatement_of_tax for requests made when petitioner’s was submitted to respondent we will review those factors in the light of the facts and circumstances of this case i marital status because petitioner remained married to mr greer this factor is neutral ii economic hardship petitioner has failed to establish that respondent’s determination regarding a lack of economic hardship was incorrect therefore this factor is negative iii knowledge or reason to know for the reasons discussed previously this factor is negative to petitioner iv legal_obligation of nonrequesting spouse there is no such obligation in this case this factor is neutral v significant benefit as discussed previously in this record an unusual financial benefit is not clearly established this factor is favorable to petitioner vi compliance with tax laws this factor favors granting relief vii other factors revproc_2003_61 supra provides factors which if present will weigh in favor of granting relief but the absence of which will not support the denial of relief these factors are spousal abuse or poor mental or physical health at the time the return was filed neither of these factors is applicable in this case in summary there are two negative and two positive factors given its significance factor iii pushes the scale against granting relief under sec_6015 v prior cases this case is distinguishable from other cases where spouses of individuals who invested in tax_shelters were found eligible for relief see eg korchak v commissioner tcmemo_2006_ requesting spouse established no reason to know where requesting spouse did not know nonrequesting spouse was making investment requesting spouse had no practical business experience and tax_return reported multiple investment losses and credits so that disallowed investment did not stand out campbell v commissioner tcmemo_2006_24 requesting spouse established no reason to know where requesting spouse did not know nonrequesting spouse was making investment there was concealment by nonrequesting spouse and reported items were not noticeable given complexity of return petitioner knew of the madison investment there was no deception or concealment by mr greer petitioner was put on notice by the claimed tax benefits on form_1045 for years prior to that something out of the ordinary was generating large tax benefits she also knew the significant distributions they were receiving as a result of the sale of the g l assets the madison investment was reflected in the joint bank account to which petitioner had access these facts distinguish the present case from korchak and campbell conclusion petitioner is not entitled to relief from joint liability under sec_6015 b or f accordingly decision will be entered for respondent