internal_revenue_service number release date index number ---------------------- ------------------------------------------------------- --------------------------------- re ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------ --------- telephone number ---------------------- refer reply to cc psi b04 plr-103859-18 date date legend -------------------- ----------------------------------------------- ------------------------------------------------- ------------------------------- date grantor spouse trust --------------------------------------------------------------------------- son daughter friend friend guardian trustee power_of_appointment committee ---------------------------------------------- ----------------- ------------------------------------ ------------------------------------------------- --------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------ ------------------- -------------- state state dear ------------------- this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 sec_2041 and sec_1014 of the internal_revenue_code plr-103859-18 the facts submitted and representations made are as follows on date grantor and spouse collectively grantors created trust an irrevocable_trust for the benefit of grantors grantors’ issue and friend and friend collectively the beneficiaries a corporate trustee is trustee of trust the situs of trust is state grantors are married and reside in state a community_property_state trust provides that all property transferred to trust is community_property moreover any and all property transferred to trust prior to the death of the first spouse to die predeceased grantor is and shall retain its character as community_property during grantors’ lifetimes trustee must distribute such amounts of net_income and or principal to each grantor and the beneficiaries as directed by the power_of_appointment committee and or grantors as follows trustee pursuant to a writing executed by either of the grantors and by a majority of the other members of the power_of_appointment committee shall distribute to the beneficiaries and or grantors such amounts of income or principal including the whole thereof as the power_of_appointment committee appoints grantor’s consent power trustee pursuant to a writing executed by all then serving members of the power_of_appointment committee other than grantors shall distribute to or for the benefit of the beneficiaries and or grantors such amounts of income or principal including the whole thereof as the power_of_appointment committee appoints unanimous member power and each grantor has the power in a nonfiduciary capacity at any time and from time to time to appoint to any one or more of the beneficiaries such amounts of the principal including the whole thereof as such grantor deems advisable to provide for the health education maintenance or support of the beneficiaries grantor’s sole power the power_of_appointment committee may appoint income or principal equally or unequally and to or for the benefit of either or both of grantors or any one or more of the beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal the power_of_appointment committee is composed of grantors child guardian acting on behalf of child friend and friend daughter while a minor is considered a member of the power_of_appointment committee acting through her guardian if at any time the power_of_appointment committee includes three or more members other than the grantors then all the members of the power_of_appointment committee including the grantors may by unanimous vote at any time and from time to time add one or more members of the power_of_appointment committee provided that plr-103859-18 such members are beneficiaries and provided further that if any one or more of them is a minor the members of the power_of_appointment committee shall by unanimous vote have designated an individual to serve as guardian for such minor the members of the power_of_appointment committee in their capacities as such shall not serve or act in a fiduciary capacity the power_of_appointment committee ceases to exist upon the first to occur of the death of the survivor of the predeceased grantor or the date the power_of_appointment committee is reduced to one member other than grantors if the power_of_appointment committee ceases to exist prior to the distribution date the trustee may pursuant to a written instrument at any time distribute to the beneficiaries and or grantors such amounts of the net_income or principal of trust including the whole thereof as the trustee determines any distribution from trust to either grantor prior to the death of the predeceased grantor will be a distribution of community_property any distribution of income or principal from trust to a beneficiary prior to the death of the predeceased spouse whether made by the power_of_appointment committee the trustee or a grantor’s exercise of the powers retained by grantors will be a distribution of community_property with respect to the lifetime powers of appointment retained by grantors prior to the death of the predeceased grantor any such appointment by grantor of the principal of trust will be funded equally from each grantor’s share of community_property each grantor consents to all distributions by the other grantor with respect to the testamentary_power_of_appointment retained by the predeceased spouse any appointment by the predeceased spouse shall be funded solely from the predeceased spouse’s one-half interest in the property held trust upon the death of the predeceased grantor trustee shall distribute the predeceased grantor’s entire_interest in the trust property to or for the benefit of any person or entity or entities other than the predeceased grantor’s estate the predeceased grantor’s creditors or the creditors of the predeceased grantor’s estate as predeceased grantor appoints by will predeceased grantor’s testamentary power upon the death of the predeceased grantor any remaining property held in trust in the predeceased grantor’s one-half interest that has not been effectively appointed by will shall be distributed five percent to each serving member of the power_of_appointment committee other than the grantor’s issue and any remaining balance shall be distributed per stirpes to the grantor’s issue who are then living and subject_to restrictions in the trust for beneficiaries article if none such remaining balance shall be disposed of under an alternate disposition article which provides for distributions according to applicable state law plr-103859-18 upon the death of the surviving grantor trustee shall distribute the balance of trust to or for the benefit of any person or entity or entities other than the surviving grantor’s estate the surviving grantor’s creditors or the creditors of the surviving grantor’s estate as surviving grantor appoints by will surviving grantor’s testamentary power upon the death of the surviving grantor any remaining property held in trust that has not been effectively appointed by will shall be distributed five percent to each serving member of the power_of_appointment committee other than the grantor’s issue and any remaining balance shall be distributed per stirpes to the grantor’s issue who are then living subject_to restrictions in the trust for beneficiaries article if none such remaining balance shall be disposed of under an alternate disposition article which provides for distributions according to applicable state law no distribution by the trustee to a beneficiary and no distribution to a beneficiary pursuant to the exercise of a power_of_appointment granted hereunder shall discharge any individual’s legal_obligation to support the beneficiary you have requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of grantors or any member of the power_of_appointment committee the contribution of property to trust by grantors will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the power_of_appointment committee from trust to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee any distribution_of_property by the power_of_appointment committee from trust to any beneficiary of trust other than to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee no member of the power_of_appointment committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust the basis of all community_property in trust on the date of the death of the predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor plr-103859-18 ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e that the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard sec_674 provides that sec_674 shall not apply to a power exercisable without the approval or consent of any other person by a trustee or trustees none of whom is the grantor and no more than half of whom are related or subordinate parties who are plr-103859-18 subservient to the wishes of the grantor to distribute apportion or accumulate income to or for a beneficiary or beneficiaries or to for or within a class of beneficiaries or to pay out corpus to or for a beneficiary or beneficiaries or to a class of beneficiaries whether or not income beneficiaries under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of the trust based solely on the facts submitted and representations made we conclude that an examination of trust reveals none of the circumstances that would cause either grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the power_of_appointment committee remains in existence and is serving because none of the power_of_appointment committee members has a power exercisable solely by himself to vest trust income or corpus in himself none shall be treated as the owner of any portion of the trust under sec_678 plr-103859-18 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of either grantor under sec_675 thus the circumstances attendant to the operation of trust will determine whether either grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for his own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom plr-103859-18 a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25 b also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust a taxpayer’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantors each retained the grantor's consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom pursuant to trust upon the predeceased grantor's death the predeceased grantor's remaining interest in trust ie one-half that the predeceased spouse did not effectively appoint pursuant to his or her limited testamentary_power_of_appointment plr-103859-18 predeceased grantor balance shall be distributed out of and shall no longer be subject_to the terms of trust consequently upon the death of the predeceased grantor the power_of_appointment committee will no longer possess any powers over the property transferred to trust by the predeceased grantor under sec_25_2514-3 a coholder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate accordingly upon the predeceased grantor's death the power_of_appointment committee members would not be takers in default and do not have interests adverse to the predeceased grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 they are merely coholders of the power at the time of the predeceased spouse's death therefore the predeceased grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor's consent power the retention of the power with respect to the predeceased grantor causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes likewise after the predeceased grantor's death the surviving grantor continues to retain the grantor's consent power over the balance of trust the committee members are not takers in default for purposes of sec_25_2514-3 they are merely coholders of the power the power_of_appointment committee ceases to exist upon the death of the surviving grantor accordingly upon the surviving grantor's death the power_of_appointment committee members do not have interests adverse to the surviving grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore the surviving grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor's consent power the retention of the power with respect to the surviving grantor causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes if the committee ceases to exist the trustee has the power to distribute net_income to the beneficiaries however the trustee’s power is not a condition_precedent to each grantor’s consent power each grantor’s consent power over income is presently exercisable and not subject_to a condition_precedent thus the trustee’s power to distribute net_income does not cause the transfer of property to be complete with respect to the income_interest in trust for federal gift_tax purposes therefore each grantor is considered as possessing the power to distribute income to any beneficiary himself or herself because he or she retained the grantor’s consent power each grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor’s sole power gives each plr-103859-18 grantor the power to change the interests of the beneficiaries even though each grantor's power is limited by an ascertainable_standard ie health education maintenance and support each grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and grantor’s sole power cause the transfer of property to trust to be incomplete for federal gift_tax purposes if the power_of_appointment committee ceases to exist the trustee in its fiduciary capacity also has the power to distribute principal to one or more beneficiaries the powers of the trustee are not conditions precedent to the grantors’ powers each grantor’s sole power over principal is presently exercisable and not subject_to a condition_precedent accordingly each grantor retains dominion and control_over the principal of trust until the trustee exercises his or her power to appoint principal see 37_tc_897 thus the trustee’s powers to distribute principal do not cause the transfer of property to be complete with respect to the remainder in trust for federal gift_tax purposes accordingly the retention of the grantor’s consent power and the grantor’s sole power causes the transfer of property to trust to be incomplete for federal gift_tax purposes further each grantor retained either a predeceased grantor’s testamentary power or a surviving grantor’s testamentary power depending upon the order of death to appoint the property in trust to any persons other than to the grantor’s estates grantor’s creditors or the creditors of grantor’s estates under sec_25_2514-3 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder for federal tax purposes finally the power_of_appointment committee members possess the unanimous member power over income and principal this power is not a condition_precedent to grantors’ powers each grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent each grantor retains dominion and control_over the income and principal of trust until the power_of_appointment committee members exercise their unanimous member powers accordingly the unanimous member power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantors is not a completed_gift subject_to federal gift_tax any distribution from trust to either grantor prior to the death of the predeceased grantor is a distribution of community_property any distribution from trust to either grantor is merely a return of each grantor’s property therefore we conclude that any distribution_of_property from trust by the power_of_appointment plr-103859-18 committee to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee further upon the predeceased spouse's death the fair_market_value of the predeceased spouse's interest in trust is includible in the predeceased grantor's gross_estate for federal estate_tax purposes moreover upon the surviving grantor's death the fair_market_value of the balance in trust is includible in the surviving grantor's gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of the estate or expressly not exercisable in favor or the possessor or his creditors or the possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a coholder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the plr-103859-18 power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y plr-103859-18 the powers held by the power_of_appointment committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creators either grantor or the survivor thereof accordingly under sec_2514 and sec_2041 the power_of_appointment committee members do not possess general powers of appointment by virtue of possessing these powers further the powers held by the power_of_appointment committee members under the unanimous member power are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the power_of_appointment committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than to either grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member power are not gifts by the power_of_appointment committee members instead such distributions are gifts by the grantors based upon the facts submitted and representations made we conclude that any distribution_of_property by the power_of_appointment committee from trust to any beneficiary of trust other than the grantors will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantors will be a completed_gift by the grantors trust provides that all distributions of the net_income or principal prior to the death of the predeceased spouse whether made by the power_of_appointment committee the disinterested trustee or a grantor's exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property accordingly distributions to beneficiaries other than grantors will be gifts made one-half by each grantor finally we conclude that the powers held by the power_of_appointment committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the power_of_appointment committee members will not cause trust property to be includible in any committee member's gross_estate under sec_2041 ruling sec_1014 provides in part that except as otherwise provided in this section the basis_of_property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent will if not sold exchanged or otherwise_disposed_of before the decedent's death by such person be the fair_market_value of the property at the date of the decedent's death sec_1014 provides that in the case of decedents dying after date property which represents the surviving spouse's one-half share of community_property held by the decedent and the surviving_spouse under the community_property_laws of any state is considered for purposes of sec_1014 to have been acquired from or to have passed_from_the_decedent if at least one-half of the whole of the community plr-103859-18 interest in such property was includible in determining the value of the decedent's gross_estate sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the decedent's gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent's death grantors are married and reside in state a community_property_state trust provides that all transferred property to trust is community_property moreover any and all property transferred to trust prior to the death of the predeceased grantor is and shall retain its character as community_property as concluded above upon the death of each of grantor his or her respective interest in trust as either the predeceased grantor or the surviving grantor will be includible in his or her respective gross_estate for federal estate_tax purposes accordingly based upon the facts submitted and representations made we conclude that the basis of all community_property in trust on the date of death of the predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion the tax consequences of the trust provisions permitting trustee to distribute income or principal to trustees of other trusts decanting plr-103859-18 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 lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes ---------------------------------------


office_of_chief_counsel internal_revenue_service memorandum number release date cc psii cgabrysh postn-134008-12 uilc date october to holly l mccann chief excise_tax program from frank boland chief branch office of associate chief_counsel passthroughs and special industries cc psi subject cca-imported vehicles under temporary importation this responds to your request for non-taxpayer specific legal advice regarding the imposition of the sec_4051 retail_truck_tax on an imported truck that is leased as described below the truck has a chassis and a body that are subject_to the sec_4051 tax you ask four questions regarding two scenarios has the truck been imported into the united_states is there any sec_4051 tax_liability if so who is liable for the tax and what is the tax_base this response does not apply to trucks described in c f_r sec_123 which generally relates to vehicles in international traffic arriving with goods or passengers destined to points in the united_states this document may not be used or cited as precedent scenario facts dom a company located in the united_states enters into a six month agreement to lease from for a foreign_corporation a truck that dom will use to transport equipment and machinery to and from points within the united_states before the truck is brought into the united_states and before dom uses the truck dom must demonstrate that the truck meets all u s federal highway safety standards this truck has never been sold or used in the united_states postn-134008-12 a verified u s customs and border protection cbp form_7501 entry summary that identifies for’s imported truck indicates that for is the importer of record and dom is the ultimate consignee this form also indicates that for posted a temporary importation bond to insure that the truck will be exported from the united_states within a specified period a temporary importation bond is a procedure whereby under certain conditions merchandise may be entered -- for a limited time -- into u s custom's territory free of duty instead of duty the importer posts a bond for twice the amount of duty taxes etc that would otherwise be owed on the importation under this procedure the importer agrees to export or destroy the merchandise within a specified time or pay liquidated_damages which are twice the normal duty under the terms of the lease for retains title to the truck dom must register the truck with the appropriate department of motor vehicles in the united_states and pay the registration fees dom must maintain the truck in good working order and when the lease expires dom must return the truck to for question has the truck been imported into the united_states cbp form_7501 identifies merchandise entering the commerce of the united_states thus the truck that is listed on a properly completed cbp form_7501 has been imported into the united_states the amount of time the truck stays in the united_states is not a consideration in determining whether the truck has been imported for federal excise_tax purposes therefore the truck’s status as imported into the united_states is unaffected by the fact that for posted a temporary importation bond question does the sec_4051 tax apply to the use of the trucks after importation sec_4051 of the internal_revenue_code imposes a percent excise_tax on the first_retail_sale of certain enumerated articles including bodies and chassis of highway trucks sec_4052 defines the term first_retail_sale as the first sale for a purpose other than for resale or leasing in a long-term_lease after production manufacture or importation sec_4052 provides that if any person uses an article taxable under sec_4051 before the first_retail_sale of such article then such person is liable for tax under sec_4051 in the same manner as if such article were sold at retail by him 319_f2d_776 5th cir holds that a used volkswagen automobile that was manufactured in germany was subject_to the excise_tax imposed postn-134008-12 by sec_4061 the predecessor to sec_4051 when imported into the united_states and sold at retail as a used car because the sale was the first sale within the united_states in this scenario dom’s use of the truck is treated as if the truck was sold at retail and therefore is subject_to the sec_4051 tax see sec_4052 whether the truck is new or used is immaterial see smith v united_states therefore sec_4051 applies to dom’s use of the truck question who is liable for the sec_4051 tax sec_4052 provides that if any person uses an article taxable under sec_4051 before the first_retail_sale of such article then such person is liable for tax under sec_4051 in the same manner as if such article were sold at retail by him therefore dom is liable for tax because dom used the trucks before the first_retail_sale of the truck in the united_states question what is the tax_base sec_4052 provides that in the case of any person made liable for tax by sec_4052 relating to the taxable use of the article the tax is computed on the price at which similar articles are sold at retail in the ordinary course of trade as determined by the secretary sec_145_4052-1 of the temporary excise_tax regulations under the highway revenue act of pub l provides that if the taxable sale of an article is a taxable use of such article under sec_145_4052-1 the tax is computed on the price as determined under sec_145_4052-1 sec_145_4052-1 provides that if the seller of an article does not regularly sell such articles at retail in arm's length transactions a constructive price on which the tax shall be computed will be determined by the commissioner this price will be established after considering the selling practices and price structures of sellers of similar articles in this scenario dom’s tax_liability under sec_4051 attributable to dom’s use of the truck is calculated pursuant to sec_145_4052-1 assuming that dom does not regularly sell at retail in arm’s length transactions the type of truck that dom used sec_145_4052-1 requires the commissioner to determine a constructive price on which the tax will be computed after considering the selling practices and price structures of sellers of similar vehicles scenario the facts are the same as those in scenario except that the truck remains registered in for’s name this registration does not change the analysis or the answers in postn-134008-12 scenario the truck retains its status as an imported truck the sec_4051 tax remains applicable to dom’s use of the truck before its first_retail_sale in the united_states dom remains liable for the sec_4051 tax because dom used the truck before its first_retail_sale in the united_states the tax_base determination under sec_145_4052-1 is unaffected by the truck’s registration if you have any questions concerning this memorandum please contact celia gabrysh at if you have any further questions


department of the treasury internal_revenue_service washington d c q tax_exempt_and_government_entities_division uniform issue list nov se tep rat legend ira b bank m bank n amount amount amount account x account y bear this is in response to a ruling_request dated date as supplemented by a letter dated date in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested you maintained ira b an individual_retirement_account ira under code sec_408 with bank m the funds in ira b were invested in a certificate of deposit cd which was to mature orf bank m changed its name to bank n on you approached a teller at bank n and requested a rollover of ira b into another ira the bank teller advised you that because you were over age you could not rollover ira b to another ira you questioned this advice but were told the law had changed based on that advice you cashed in ira b and deposited amount into account x a non-ira savings account with bank n amount to purchase a year cd account y with bank n the difference between amount and amount amount was the result of a rounding of amount prior to the purchase of the cd you withdrew amount from account x and used on when you received a form 1099-r you contacted bank n and were told the information the teller provided in ieeeeeeeeee was incorrect and was advised to apply for a waiver of the day rollover requirement based on the above facts and representations you request that the intemal revenue service waive the 60-day rollover requirement with respect to the distribution of amount because the failure to waive such requirement would be against equity or good conscience code sec_408 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 code sec_408 defines and provides the rules applicable to ira_rollovers code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 code sec_408 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 code sec_408 provides a similar 60-day rollover period for partial rollovers code sec_408 provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 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 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 you attempted to rollover ira b into another ira however due to the erroneous advice by bank n you placed amount into a non-ira account therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount you are granted a period of days from the issuance of this ruling letter to make your rollover provided all other requirements of sec_408 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 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 code sec_6110 provides that it may not be used or cited as precedent if ia have any questions please contact ie badge no ed at sincerely cialis walt carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


t c memo united_states tax_court gary wilson petitioner v commissioner of internal revenue respondent docket no filed date alan d irwin for petitioner angeligue m neal for respondent memorandum findings_of_fact and opinion beghe judge respondent determined the following deficiencies late-filing addition and accuracy-related_penalties with respect to petitioner’s federal_income_tax accuracy-related addition_to_tax penalty year deficiency sec_6651 a sec_6662 a dollar_figure -- dollar_figure big_number dollar_figure big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure respondent’s determination in the notice_of_deficiency is presumed correct and petitioner bears the burden of proving that it is incorrect rule a the issues for decision’ are whether petitioner properly claimed deductions for travel_expenses properly claimed deductions for miscellaneous business_expenses and is liable for accuracy- related penalties and an addition_to_tax under sec_6662 a and 665l a respectively we sustain respondent’s determinations except that we allow some deductions in amounts less than claimed by petitioner for miscellaneous business_expenses resulting in reductions to the deficiencies to be given effect in the rule computation ‘ sec_7491 does not apply because respondent’s examination was commenced before date petitioner presented no evidence to rebut respondent’s determinations that petitioner failed to report unemployment_compensation and interest_income in respondent’s determinations are sustained - - findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated by this reference petitioner resided in cascade idaho at the time of filing the petition petitioner has been employed in the construction industry for years in petitioner began working for kiewit pacific co kiewit kiewit employed petitioner for most of all of all of most of and part of during and the years in issue petitioner was employed by kiewit as a demolition foreman drilling crew foreman part-- time mechanic and master mechanic petitioner’s employment relationship with kiewit has continued off and on through the time of trial in petitioner was employed by kiewit at the following times and construction projects in southern california january to pasadena california january to date el segundo california and march to date ucla westwood california in petitioner filed a state_income_tax return only for the state of california petitioner did not earn any income in the state of idaho or seek employment in idaho in - in petitioner lived in his recreational vehicle which he kept parked in san dimas california petitioner paid a campground operator approximately dollar_figure per month to rent a space for his recreational vehicle in san dimas in petitioner had employers other than kiewit and worked in idaho toward the end of the year petitioner’s employment in california in was as follows for the period january to date petitioner was employed by kiewit in ucla westwood california for the period april to date petitioner was employed by contri construction in perris california for the period may to date petitioner was employed by kiewit in moreno valley california after completing work in moreno valley california on date petitioner worked in idaho for the remainder of the year for the period october to date petitioner was employed by kelly cole in bear idaho for the period november to date petitioner was employed by shorts bar logging in riggins idaho during the part of that petitioner worked in california he continued to live in the recreational vehicle in san dimas until approximately date then he moved to an apartment in hemet california petitioner lived in hemet until at least date petitioner lived with his parents at their home in pollack idaho while he was employed in idaho in petitioner did not have a lease or rental agreement with his parents petitioner usually commuted daily from his respective california living quarters to the various california jobsites he would occasionally stay overnight in a motel near one of the jobsites in california if he was too tired to drive petitioner also commuted from his parents’ home in pollack idaho to the idaho jobsites petitioner held an idaho driver’s licence in both and in petitioner held an idaho resident combination hunting and fishing license an idaho resident regular deer tag and an idaho resident regular elk tag an individual must establish that he has been an idaho resident for months in order to obtain an idaho resident combination hunting and fishing license petitioner presented his idaho driver’s license and was granted a resident hunting and fishing license the state of idaho made no further inguiries to verify that petitioner was a resident of idaho on date petitioner opened two bank accounts with key bank of idaho a savings account with a dollar_figure deposit and a checking account with a dollar_figure deposit thereafter in petitioner made three checks payable to his mother totaling - - dollar_figure petitioner filed state_income_tax returns for california and idaho in petitioner purchased a parcel of vacant land in valley county idaho on date petitioner filed his form_1040 u s individual_income_tax_return on this return petitioner showed his address as w devonshire hemet california the hemet address petitioner designated his filing_status as single and claimed only his personal_exemption petitioner attached to his return a form_2106 employee business_expenses on which he claimed the following deductions for unreimbursed employee business_expenses bxpense amount vehicle dollar_figure parking fee dollar_figure travel dollar_figure business not on lines dollar_figure meals dollar_figure total claimed deductions dollar_figure on date petitioner filed his form_1040 petitioner again showed the hemet address as his address petitioner designated his filing_status as single and claimed only his personal_exemption petitioner attached a form_2106 to his return and claimed the following deductions for unreimbursed employee business_expenses bxpense amount vehicle dollar_figure parking fee sec_855 travel big_number business not on lines big_number meals big_number total claimed deductions big_number the travel_expenses claimed were for the cost of traveling between idaho and california and the cost of occasionally staying in motels near petitioner’s various jobsites because of the nature of his trade petitioner incurred expenses for safety boots coveralls tools and union dues which he claimed as miscellaneous business deductions on his and returns at trial petitioner offered two employee statements showing amounts contributed as supplemental union dues in of dollar_figure opinion petitioner claimed business_expense deductions for travel_expenses incurred for trips between california and idaho and between his living quarters and various places of employment and various miscellaneous_expense_deductions related to his employment in the construction industry respondent disallowed the deductions petitioner claimed for unreimbursed travel_expenses on the grounds that petitioner was not away from home within the meaning of sec_162 when the expenses were paid and for lack of substantiation as required by sec_274 respondent disallowed the miscellaneous business_expense --- - deductions on the grounds that petitioner did not prove that he incurred the expenses pursuant to sec_162 and that he did not maintain adequate_records to establish the specific amounts of the deductions as reguired by sec_6001 travel_expenses sec_162 allows taxpayers to deduct the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business including traveling expenses while away from home sec_162 sec_274 and its implementing regulations impose stringent substantiation requirements for the deduction of travel_expenses under sec_162 a away from home petitioner must meet three requirements in order to deduct travel_expenses under sec_162 the expenses must be reasonable and necessary incurred while away from home and incurred in pursuit of a trade_or_business flowers v 326_us_465 respondent contends that the travel_expenses petitioner claimed do not satisfy the second flowers requirement that petitioner be away from home we agree with respondent sec_162 reflects congressional concern both for the unavoidable duplication of expenses and for the fact that meals_and_lodging are more costly for a person who must travel --- - than they are for a person who can maintain a year-round home 69_tc_920 the purpose of the ‘away from home’ provision is to mitigate the burden of the taxpayer who because of the exigencies of his trade_or_business must maintain two places of abode 49_tc_557 as a general_rule a taxpayer’s home for purposes of sec_162 is the vicinity of his principal place of employment irrespective of where his personal_residence is located 74_tc_578 sanderson v commissioner tcmemo_1998_358 petitioner was employed at construction sites in california for all of and most of thus under the general_rule petitioner’s tax_home was the vicinity of those sites in california however petitioner relies on an exception to the general_rule to argue that his tax_home was idaho where his parents resided and where he lodged when he was physically present in that state under the exception if the principal_place_of_business is temporary and not indefinite the taxpayer’s personal_residence may be considered the tax_home 358_us_59 kroll v commissioner supra pincite if the taxpayer incurs substantial and continuous living_expenses at the personal_residence he or she may deduct the expenses associated with traveling to and living at the jobsite 85_tc_462 affd without published opinion 807_f2d_177 9th cir kroll v commissioner supra pincite a place of business is temporary if the employment is such that termination within a short_period could be reasonably foreseen 13_tc_129 conversely employment is indefinite if termination cannot be foreseen within a reasonably short_period 54_tc_355 affd 438_f2d_1216 6th cir whether employment is temporary or indefinite is a guestion of fact peurifoy v commissioner supra pincite the court_of_appeals for the ninth circuit to which any appeal in this case would ordinarily lie has expressed the temporary versus indefinite distinction as follows an employee might be said to change his tax_home if there is a reasonable probability known to him that he may be employed for a long period of time at his new station what constitutes a ‘long period of time’ varies with circumstances surrounding each case if such be the case it 1s reasonable to expect him to move his permanent abode to his new station and thus avoid the double burden that the congress intended to mitigate 283_f2d_491 9th cir revg 32_tc_1368 subsequent opinions by the court_of_appeals for the ninth circuit reveal that its approach to the exception to the general tax_home rule does not differ materially from the view of this court both courts focus on whether a taxpayer could reasonably expect his employment outside the area of his residence to continue beyond a short_period of time 411_f2d_537 9th cir affg 48_tc_308 see also 608_f2d_1269 9th cir affg in part and revg in part 67_tc_476 petitioner asserts that his employment was temporary because each job he took had a definite end that he could estimate beforehand according to petitioner the ability to predict the duration of a particular job necessarily means that the job cannot be indefinite and therefore must be temporary petitioner’s employment in california was not temporary construction projects are typically if not always of limited duration weichlein v commissioner tcmemo_1995_553 however this does not end the inquiry this court has recognized that when the taxpayer has a series of jobs with one employer the actual duration of the employment relationship between the taxpayer and employer should be considered when determining whether the employment was indefinite 66_tc_467 this is true notwithstanding that the employment relationship consists of a series of shorter assignments id where the employee is highly regarded by the employer as appears to be the case here the relationship between the two parties is a continuing one subject only to the availability of projects requiring the employee’s skills weichlein v commissioner supra when a taxpayer has an ongoing relationship with an employer because he or she works on a succession of shorter projects the taxpayer’s employment status is not characterized as temporary for federal_income_tax purposes see id see also yeates v commissioner tcmemo_1988_259 affd f 2d 8th cir petitioner’s relationship with kiewit began in and continued through the time of trial kiewit employed petitioner for most of all of all of most of and part of all of the construction projects petitioner worked on while employed by kiewit in the years at issue were in southern california the relationship between petitioner and kiewit his primary employer was clearly a continuing one because of the substantial length of petitioner’s continuing employment thus it cannot be said that termination of petitioner’s employment with kiewit could be foreseen within a reasonably short_period of time albert v commissioner supra pincite petitioner has not established that he maintained a personal_residence in idaho and incurred duplicate living_expenses because of the exigencies of his work petitioner lodged at his parents’ house when he worked in idaho but did not have a rental agreement or lease with his parents according to petitioner he sporadically contributed money to his parents’ household for bills and groceries but did not have an arrangement with them to make regular rental payments petitioner offered as evidence of his contributions three checks totaling dollar_figure drawn on his newly created checking account payable to his mother petitioner was physically present in idaho when he delivered the checks to his mother these infrequent and nominal amounts are neither substantial nor continuous they are not strong indications that petitioner was burdened by duplicate living_expenses indeed they indicate to the contrary we accordingly conclude that petitioner is not entitled to relief on the theory that his employment in southern california was temporary kroll v commissioner t c pincite b substantiation for the sake of completeness we summarily address whether petitioner substantiated the expenses he claimed as travel expense deductions even if petitioner had persuaded us that the travel_expenses he claimed as deductions were incurred while he was away from home the deductions would be disallowed because petitioner has failed to meet the substantiation requirements of sec_274 generally when evidence shows that a taxpayer incurred a deductible expense but the exact amount cannot be determined the court may estimate the amount allowable as a deduction 39_f2d_540 2d cir however sec_274 precludes the estimation of travel expense deductions otherwise allowable under sec_162 under sec_274 all travel expense deductions must meet stringent substantiation requirements petitioner did not satisfy the substantiation requirements of sec_274 under sec_274 no deduction is allowed under sec_162 for any travel expense unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement a the amount of such expense or other item b the time and place of the travel entertainment amusement recreation or use of the facility or property or the date and description of the gift c the business_purpose of the expense of other item to substantiate a deduction by adequate_records a taxpayer must maintain an account book diary log statement of expense trip sheets and or other documentary_evidence which in combination are sufficient to establish each element of expenditure or use sec_1_274-5t temporary income_tax regs fed reg date petitioner did not produce any records for travel taken during and he did not maintain a log for mileage deductions claimed nor did he offer any statement of expense or receipts for his trips between california and idaho petitioner offered only his uncorroborated testimony as evidence of the claimed travel_expenses sec_274 expressly requires corroboration of any statement by the taxpayer as to amounts expended for travel petitioner has failed to meet the strict substantiation requirements of sec_274 -- - the regulations provide a limited exception to the substantiation requirements of sec_274 under sec_1_274-5 income_tax regs where the taxpayer establishes that the failure to produce adequate_records is due to the loss of such records through circumstances beyond the taxpayer’s control such as destruction by fire flood earthquake or other_casualty the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures petitioner testified that he kept records of his flights between california and idaho but that those records have been lost petitioner did not present any evidence as to how the loss of the records occurred or that the loss was due to circumstances beyond his control the limited exception does not apply to the loss of petitioner’s records miscellaneous business_expense deductions petitioner also claimed miscellaneous business deductions of dollar_figure and dollar_figure on his and returns respectively according to petitioner’s testimony the business expenditures were for union dues tools work clothing and boots respondent denied the miscellaneous business deductions on the grounds that petitioner failed to establish that he incurred the expenses claimed as deductions and that he failed to maintain adequate_records to establish the specific amounts of the deductions as required by sec_6001 -- - a taxpayer is entitled to deduct the ordinary and necessary expenses he incurs during the taxable_year in carrying_on_a_trade_or_business sec_162 to avail himself of the deduction a taxpayer 1s required to maintain adequate_records sufficient to establish the amounts of the deductions sec_6001 43_tc_824 the burden of substantiation rests with the taxpayer 65_tc_87 affd 540_f2d_821 5th cir beyond two statements reflecting amounts contributed as supplemental union dues petitioner did not proffer any records to substantiate his entitlement to the deductions claimed petitioner did not meet the record-keeping requirements of sec_6001 petitioner did however offer his own testimony regarding the nature and amounts of the expenses when there are no records to substantiate deductions the court can estimate the amounts of allowable deductions if there is evidence that the expenses were in fact incurred and there is a basis upon which an estimate may be made cohan v commissioner supra pincite 85_tc_731 petitioner’s testimony as to the amount of each expense claimed was as follows approximately dollar_figure for work boots at - least twice per year dollar_figure-dollar_figure for coveralls each year dollar_figure per year for tools and dollar_figure per month for union dues with respect to the deductions for work boots and coveralls work clothing may be deductible under sec_162 if the taxpayer can establish that the clothing was required or essential in the taxpayer’s employment the clothing was not suitable for general or personal wear and the clothing was not so worn 30_tc_757 kozera v commissioner tcmemo_1986_604 the court is satisfied that petitioner incurred expenses for work boots and coveralls petitioner’s credible testimony to that effect and the nature of his jobs which included working as a demolition foreman a drilling crew foreman and a master mechanic are satisfactory evidence to support the deductions because petitioner’s trade was labor intensive work boots and coveralls were essential to his employment in the construction industry we also find that the type of boots and coveralls this sort of work requires for safety reasons may not be suitable for general or personal wear accordingly bearing heavily on petitioner whose inexactitude is of his own making we allow a deduction of dollar_figure for each of the tax years for the cost of work boots cohan v commissioner f 2d pincite similarly while petitioner testified that he spent up to s60 per pair of coveralls he had no records to substantiate that -- - amount the court will again bear heavily on petitioner and allow him a dollar_figure deduction for coveralls for each of the and years petitioner also claimed as a deduction amounts contributed as dues to the labor_union of which he is a member at trial petitioner testified that he spent up to dollar_figure per month on union dues this court found petitioner to be a credible witness and we are satisfied that some amount was contributed to petitioner’s labor_union consistent with our treatment of the work boots and coveralls a deduction of dollar_figure per month for union dues is allowed for and petitioner is entitled to an additional deduction for supplemental union dues paid in of dollar_figure which was substantiated by two employee sstatements the foregoing miscellaneous business_expense deductions to which petitioner is entitled are all deductible on petitioner’s schedule a itemized_deductions as itemized_deductions they are subject_to the 2-percent limitation sec_67 petitioner’s outlay for tools poses a more difficult problem petitioner did not make an election under sec_179 that would permit him to deduct currently up to dollar_figure of the cost of depreciable_property in the year it was placed_in_service having made no sec_179 election petitioner is within the general rules regarding depreciation see alisobhani v commissioner tcmemo_1994_629 while small tools with a useful_life of less than year are currently deductible clemons v commissioner tcmemo_1979_273 the cost of tools with a useful_life that exceed sec_1 year are recovered by depreciation sec_167 and sec_168 clemons v commissioner supra at trial petitioner testified that he spent on average dollar_figure per year on tools he failed however to describe the type number expected useful_life and cost of each tool purchased some of the tools he used may have required at least annual replacement which would be a currently deductible expense others could have been expected to survive well beyond the year in which they were purchased and their costs would be recoverable through depreciation_deductions over a number of years without evidence of these matters we have no basis for an appropriate estimate petitioner has specified neither the amount of the deduction that should be allowed for each tool he purchased in and nor the amounts spent for tools in these and prior years for which depreciation should be allowed with no guidance in the record beyond petitioner’s own testimony of the total_amounts spent on tools we will not speculate on the amount that petitioner should be allowed to deduct to allow any deduction would be unguided largesse 245_f2d_559 5th cir we sustain respondent’s position - - disallowing any deduction for the cost of tools accuracy-related_penalties and addition_to_tax respondent also determined accuracy-related_penalties under sec_6662 for and sec_6662 imposes a percent penalty on underpayments attributable to negligence or disregard of rules or regulations sec_6662 negligence is the failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 no accuracy-related_penalty may be imposed on any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion sec_6664 the determination of whether a taxpayer acted in good_faith is made case by case taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s efforts to determine the proper tax_liability id on brief petitioner argues that for and he calculated his business_expense deductions the same way he had done for several prior years and that he did not receive any deficiency notices for those years petitioner argues that his reliance on respondent’s failure to take exception to his --- - deduction claims for prior years amounts to reasonable_cause for his underpayments in the years at issue in support of this assertion petitioner cites estate of phillips v commissioner tcmemo_1955_139 revd on other grounds 246_f2d_209 5th cir in estate of phillips the commissioner had examined the taxpayer’s records in prior years and had not assessed or asserted deficiencies we held that the taxpayer may use the commissioner’s tacit approval to rebut the presumption of correctness of the commissioner’s determination of the negligence penalties for the years at issue petitioner’s reliance on estate of phillips is misplaced in estate of phillips the commissioner had examined prior years and had taken no exception to the prior years’ returns however the commissioner’s approval of a prior year did not purge the negligence of a later year we simply held that the commissioner’s tacit approval of the prior years’ returns shifted to the commissioner the burden of coming forward with evidence of the taxpayer’s negligence a burden he has not sustained petitioner did not offer any evidence to show that respondent examined any_tax year prior to therefore there is no evidence in the record that respondent ever tacitly approved petitioner’s method of calculating his federal_income_tax even if it can be said--and we do not agree--that by failing to audit petitioner’s prior returns respondent somehow -- - tacitly approved petitioner’s methodology respondent has come forward with sufficient evidence to prove petitioner’s negligence petitioner did not maintain a contemporaneous mileage log for the claimed mileage deductions petitioner claimed deductions for the occasional motel he stayed in when he did not feel like driving back to his recreational vehicle or apartment however petitioner failed to offer any receipts or explain how he calculated these expenses petitioner claimed deductions for flights between idaho and california and the associated parking expenses but failed to proffer this court any records receipts or reconstruction for submission into evidence the most important factor in deciding whether a taxpayer was negligent is the extent of the taxpayer’s efforts to determine the proper tax_liability sec_1_6664-4 income_tax regs in light of the many deductions petitioner claimed his failure to maintain adequate_records was not a reasonable attempt to comply with the internal_revenue_code we therefore sustain respondent’s position in addition to the accuracy-related_penalties for and respondent determined an addition_to_tax pursuant to sec_6651l a for late filing for the addition i sec_5 percent of the amount_required_to_be_shown_as_tax on the delinquent_return for each month the return is late not to - - exceed percent sec_6651 a taxpayer is excused from the late-filing addition_to_tax if he shows that the late filing was due to reasonable_cause and not due to willful neglect id however the taxpayer bears the burden_of_proof on this issue rule a petitioner offered no evidence to rebut respondent’s determination we sustain respondent’s determination to give effect to our partial allowance of some deductions petitioner claimed decision will be entered under rule


office_of_chief_counsel internal_revenue_service memorandum number release date cc intl b04 gl-131258-10 third party communication none date of communication not applicable uilc date date to laurie hill lmsb bankruptcy coordinator irs north rulon white blvd m sec_4912 ogden ut from charles besecky branch chief branch office_of_chief_counsel international subject potential sec_7874 issue in bankruptcy plan this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend the plan ----------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------------------------------------- the debtors ----------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ----------------------------------------------------------------------- w x y ----------- ---------- --------- gl-131258-10 z country --------- ----------- this memorandum is issued pursuant to ccdm to inform you of an issue to consider in future audits the plan contains a discussion of the debtors view of the u s federal_income_tax consequences of the transactions described in the plan specifically the debtors claim that none of w x y and z the newly-formed foreign_corporations which are to be formed in country will be treated as a surrogate_foreign_corporation for purposes of sec_7874 of the internal_revenue_code no further details are provided in the plan as to why sec_7874 will not apply to the newly-formed foreign_corporations sec_7874 may apply to the newly-formed foreign_corporations but the plan and related documents do not contain sufficient facts for us to offer a legal conclusion thus we recommend that you consider this issue in future audits of the newly-formed foreign_corporations the taxpayer may claim that the newly-formed foreign_corporations are not expatriated entities because they will have substantial_business_activities in country see sec_7874 we suggest careful consideration if this claim is made this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please contact the office of associate chief_counsel international at if you have any further questions


internal_revenue_service number release date index no --------------------------------- --------------------- ------------------------------------------ -------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-130692-04 date june - - ------------------------ -------------------------------------------------- re -------------------------------------------------- legend settlor trust -------------------------------------------------------------------------------------------- date date child year dollar_figurex dollar_figurey dollar_figurez ----------------------- -------------------------- ------------------------------- ------- ----------------- --------------- --------------- - - - - - - - dear ------------ this is in response to a letter dated date submitted by your authorized representative requesting a ruling under sec_2601 of the internal_revenue_code settlor created and funded an irrevocable_trust on date for the primary benefit of settlor’s child child under the terms of trust after child reaches age income is to be paid to child at the discretion of the trustee and any income not distributed is to be accumulated and added to principal on child’s death the corpus is to be distributed pursuant to child’s limited power to appoint the corpus among child’s issue plr-130692-04 under article third of trust child has the right to withdraw one-sixth of the principal balance determined as of the date child attains age one-fifth at age and one-fourth at age the trust also provides that in calculating the principal subject_to withdrawal there shall be subtracted from the then principal balance on the stated valuation dates any principal already subject_to the right of withdrawal which has not yet been withdrawn the withdrawal right is cumulative and does not lapse child reached age on date at which time the value of the trust was dollar_figurex accordingly the amount that child could withdraw on that date is dollar_figurey to date child has withdrawn dollar_figurez of that amount leaving approximately dollar_figurey-z that child can withdraw at any time when child attains age in year an additional_amount of corpus of the trust corpus less withdrawals not exercised will be subject_to child’s withdrawal power however after that date the maximum amount child can withdraw will be frozen at a specified sum the trustee has asked for a ruling that the failure of child to exercise the withdrawal right does not constitute a constructive_addition to the trust sec_2601 imposes a tax on every generation-skipping_transfer gst a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under ' b a of the tax_reform_act_of_1986 and ' b i of the generation-skipping_transfer_tax regulations the gst tax provisions do not apply to any generation-skipping_transfer under a_trust that was irrevocable on date however this exemption does not apply to gst transfers allocable to additions that are made to the trust after date in addition the exemption does not apply to property transferred from a pre-date trust pursuant to the exercise release or lapse of a general_power_of_appointment created under the terms of the trust that is treated as a taxable transfer for estate or gift_tax purposes sec_2041 provides for the inclusion in the gross_estate of any property over which the decedent possesses at the time of his death a general_power_of_appointment created after date sec_2041 provides that the term general_power_of_appointment means a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate except that a power to consume property for the benefit of the decedent that is limited by an ascertainable_standard relating to health education support or maintenance of the decedent is not deemed a general_power_of_appointment sec_26_2601-1 discusses certain constructive additions that are treated as post-date additions to the trust sec_26 b v a provides that where any portion of trust remains in the trust after the post- date release exercise or lapse of a general_power_of_appointment over plr-130692-04 that portion of the trust that is treated a taxable transfer for estate or gift_tax purposes is treated as an addition to the trust in general the release etc is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse to the extent that the release exercise or lapse of the power is treated as a taxable transfer under chapter or chapter the rules under ' apply for determining the identity of the transferor_of_property for purposes of chapter sec_26_2601-1 provides that except to the extent of paragraphs b iv additions to irrevocable trusts and v constructive additions of this section post-1985 appreciation in the value of a grandfathered trust and post-1985 undistributed_income of a grandfathered trust are not considered additions to the principal of a_trust in this case child as a lifetime power to withdraw an amount from trust and this power constitutes a general_power_of_appointment with respect to trust currently child can withdraw dollar_figurey-z on child’s death child’s lifetime power will lapse and any amount subject_to the child’s withdrawal power at the time of death will be included in child’s gross_estate under ' and child will become the transferor of this amount for gst purposes see ' b v d example accordingly we conclude that child has not made a constructive_addition to trust because child’s failure to exercise the withdrawal right does not constitute a constructive_addition to the trust except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code authorized representative pursuant to a power_of_attorney on file a copy of this letter is being sent to your this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner senior counsel branch passthroughs and special industries enclosures copy for sec_6110 purposes copy of this lette-r