department of the treasury internal_revenue_service washington d c number release date cc pa apjp tl-n-7237-99 uil date memorandum for district_counsel new england district cc ner ned bos attn from curtis g wilson assistant chief_counsel administrative provisions judicial practice subject significant service_center advice legend state service_center this responds to your subsequent request for significant service_center advice dated date referencing our advice to you concerning a question posed by the service_center regarding the issuance of employer identification numbers eins issue whether the internal_revenue_code code or regulations for information reporting purposes restricts state from requesting an ein from an individual until state makes a reportable_payment to such individual conclusion neither the code nor the regulations prohibits state from requesting an ein from an individual prior to state making a reportable_payment to such individual facts in accordance with the holder of property deemed to be abandoned under state law must turn the property over to the treasurer of state state pays interest on funds that have been surrendered to it as abandoned property when such funds are distributed to a successful claimant the executor or administrator of an estate who files a claim with state for the abandoned property of a decedent is required by state to provide the original or attested copy of appointment as executor rix or administrator rix state also requests the ein of the decedent’s estate at the time the claim is filed discussion sec_6041 of the code and the treasury regulations promulgated thereunder require every person engaged in a trade_or_business including a state that makes payment of dollar_figure or more of fixed or determinable income in the course of such trade_or_business to another person during a calendar_year to file an information_return form_1099 with the service sec_1_6041-1 of the income_tax regulations provides that income is fixed when it is to be paid in amounts definitely predetermined and that it is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_6041 of the code and the regulations require recipients of payments reportable under that section to furnish their names addresses and taxpayer identification numbers tin to the payor sec_301_6109-1 of the regulations on procedure and administration provides that any person other than an individual such as corporations partnerships nonprofit associations trusts estates and similar nonindividual persons that is required to furnish a taxpayer identifying number must use an ein according to the facts you have provided when a claimant files a claim with state for abandoned property on behalf of an estate state requests the ein from such individual in order to begin processing the claim at that time state does not make any payments to the claimant we have reviewed the relevant code provisions regulations and other guidance and have found nothing that prohibits state from requesting the claimant’s ein for information reporting purposes prior to making the reportable_payment to claimant accordingly state’s actions do not appear to be improper please call if you have any further questions regarding this matter curtis g wilson by ________________________ pamela w fuller acting assistant to the branch chief branch


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division map lo terra ar re taxpayer dear this letter constitutes notice that approval has been granted for your raquest for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning january this extension applies to the amortization charge bases as identified in your application submission established as of date with a total outstanding balance of dollar_figure asofthatdate - the extension of the amortization periods of the unfunded ilabilities of the plan was granted in accordance with sec_431 d1 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 b including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated funding deficlency in the current plan_year or any of the succeeding plan years il the plan_sponsor has adopted a plan to improve the plan's funding status iil the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that raquested it sec_61 k of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours david m ziegler manager ep actuarial group


internal_revenue_service number release date index number ------------------------------------------- ----------------------------------------------- ------------------------------------ attn ---------------------------- --------------------------------------- ein ----------------- 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 b01 plr-102932-18 date may legend parent taxpayer date date date corporation amount cpa ------------------------------------------- ---------------------------------------------- --------------------------- --------------------------- ------------------- -------------------- -------------------------------------- ---------------- ----------------------------- dear ---------------------- this is in response to a letter dated date filed by parent requesting a ruling on behalf of taxpayer pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations granting an extension of time to file an election statement required by sec_4 of revproc_2011_29 2011_18_irb_746 with respect to the taxable_year ending date plr-102932-18 facts on date taxpayer acquired the stock of corporation per its agreement dated date taxpayer incurred investment banking fees which included success-based fees of amount paid upon closing the transaction during the taxable_year taxpayer has represented that the transaction qualified as a covered transaction pursuant to sec_1_263_a_-5 of the income_tax regulations consistent with the safe_harbor election provided in revproc_2011_29 i r b pincite taxpayer capitalized of the success-based fees and deducted the remaining on its tax_return for the taxable_year taxpayer inadvertently failed to attach the statement required by sec_4 of revproc_2011_29 i r b pincite to elect to use the safe_harbor method of allocating success-based fees to its original federal tax_return for the taxable_year taxpayer retained cpa to prepare and file taxpayer’s date federal tax_return taxpayer represents that it believed cpa was competent to render advice on the election statement and information that should be included on its federal tax_return taxpayer relied on cpa as a qualified_tax professional to prepare and file taxpayer’s federal tax_return cpa inadvertently failed to attach the election statement to taxpayer’s federal tax_return cpa discovered that it failed to attach the election statement to taxpayer’s tax_return when cpa reviewed materials provided by an international cpa firm that provided detailed guidance on the safe_harbor election cpa informed taxpayer of the inadvertent failure taxpayer has prepared and submitted an affidavit regarding its failure to attach the required election statement to its return cpa has prepared and submitted an affidavit regarding its failure to attach the required election statement to taxpayer’s return law sec_263 of the internal_revenue_code provides generally that no deduction shall be allowed for any amount_paid in exchange for property having a useful_life extending beyond the end of the taxable_year see also sec_1_263_a_-2 no deduction is allowed for an amount_paid to acquire or create an intangible which includes an ownership_interest in a corporation or other entity sec_1_263_a_-1 see also sec_1_263_a_-4 a -4 d i a costs incurred in the process of acquisition or reorganization of a business_entity that produce significant long-term benefits must be capitalized 503_us_79 sec_1_263_a_-5 providing that taxpayers must capitalize amounts paid to facilitate certain transactions set forth in that section plr-102932-18 sec_1_263_a_-5 provides that an amount is paid to facilitate a transaction if the amount is paid in investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances sec_1_263_a_-5 sets forth the rule governing success-based fees it provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 is treated as an amount_paid to facilitate the transaction except to the extent the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction this documentation must be completed on or before the due_date of the taxpayer’s timely filed original federal_income_tax return including extensions for the taxable_year during which the transaction closes a taxpayer’s method for determining the portion of a success-based_fee that facilitates a transaction and the portion that does not facilitate the transaction is a method_of_accounting under sec_446 revproc_2011_29 2011_18_irb_746 provides a safe_harbor election for allocating success-based fees paid in business_acquisitions or reorganizations described in sec_1_263_a_-5 pursuant to section dollar_figure of revproc_2011_29 i r b pincite the service will not challenge a taxpayer’s allocation of a success-based_fee between activities that facilitate a transaction described in sec_1_263_a_-5 and activities that do not facilitate the transaction if the taxpayer treats of the amount of the success-based_fee as an amount that does not facilitate the transaction capitalizes the remaining as an amount that does facilitate the transaction and attaches a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized sec_301_9100-1 sets forth the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin pursuant to sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-2 sets forth the rules applicable to automatic 12-month extensions of time to make certain regulatory elections sec_301_9100-3 sets forth the rules applicable to requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief pursuant to plr-102932-18 sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 that establishes that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the service failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides that an extension of time to make a regulatory election will be granted only when the interests of the government are not prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section sec_301_9100-3 plr-102932-18 sec_301_9100-3 provides special rules for accounting_method regulatory elections the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested i ii iii iv is subject_to the procedure set forth in sec_1_446-1 of this chapter requiring advance written consent of the commissioner requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year in which the election should have been made would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals_office or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year analysis taxpayer’s election is a regulatory election as defined in sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_263_a_-5 the commissioner has the authority under sec_301_9100-1 and sec_301_9100-3 to grant an extension of time to file a late regulatory election the information provided and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith taxpayer requested relief before the failure to make the regulatory election was discovered by the service taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time relief is requested taxpayer did not affirmatively choose not to make the election after having been informed in all material respects of the required election and related tax consequences rather taxpayer relied on cpa to advise it as to any relevant elections which cpa failed to do with respect to this election taxpayer is not using hindsight in requesting relief further based on the information provided and representations made by taxpayer granting an extension will not prejudice the interests of the government taxpayer will not have a lower tax_liability in the aggregate for all taxable years to which the election applies at this time than taxpayer would have had if the election had been timely made in addition the taxable_year in which the regulatory elections should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under plr-102932-18 sec_6501 before taxpayer’s receipt of the ruling granting an extension of time to make a late election conclusion based solely on the information provided and representations made we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statement as required by section dollar_figure of revproc_2011_29 i r b pincite stating that it is electing the safe_harbor for allocating success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether taxpayer properly included the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer’s transactions were within the scope of revproc_2011_29 2011_18_irb_746 this ruling is directed only to the taxpayer requesting it pursuant to sec_6110 this ruling may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to its return that provides the date and control number of the letter_ruling the rulings contained in this letter are based on information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely ronald j goldstein assistant to the branch chief branch income_tax accounting


internal_revenue_service number release date index number -------------------------- ---------------------------------------- ------------------------------------- ---------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-155713-06 date date legend adjustment ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- -- --------------------------------------------------------------------------------------------------------------------- --------- ----------------------------------------------------------- buyer --------------------------------------------- company ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ ------------------------------------------ guarantor --------------------------------------- purchase_price ----------------------------------------------- date --- -------------------- q r ------------------- ------------------- plr-155713-06 s -------------- ------------------ t dear ------------------ --------------------------- this is in response to your request for a private_letter_ruling under sec_453 of the internal_revenue_code and sec_15a_453-1 of the temporary income_tax regulations sec_15a_453-1 provides for use of an alternative method of basis recovery in circumstances involving contingent payment installment_sales of property where use of the general rules provided in the code and regulations would inappropriately defer recovery_of a taxpayer's basis in the property sold facts on date the company an s_corporation entered into an asset purchase agreement with the buyer a directly or indirectly wholly-owned subsidiary of the guarantor pursuant to which the company agreed to sell to the buyer substantially_all of the assets used in the company's business the purchase agreement under the terms of the purchase agreement the buyer agreed to pay the company i the purchase_price ii the adjustment and iii two contingent earn out payments to be determined as a multiple of the amount by which annualized ebitda exceeded a threshold_amount throughout specified periods subsequent to the sale for purposes of the purchase agreement ebitda is defined as the net_income of the buyer and all of its subsidiaries plus depreciation amortization the excess of interest_expense over interest_income and income taxes the buyer also agreed to assume certain liabilities of the company at the closing the buyer paid q percent of the sum of the purchase_price and the adjustment to the company the remaining r percent of the purchase_price and the adjustment was deposited in an escrow account to secure the company's obligations under the purchase agreement to indemnify the buyer against certain liabilities that might arise in connection with the purchase agreement the escrow account will terminate two years after the date of the escrow agreement on termination the remaining balance in the escrow account after payment of any fees then owing to the escrow agent less the aggregate amount of any indemnification claims that have not been either i paid in accordance with the terms of the escrow agreement or ii rejected denied or withdrawn in accordance with the terms of the plr-155713-06 escrow agreement shall be paid to the company any funds that continue to be held by the escrow agent after the termination_date for the escrow account with respect to an indemnification claim shall be paid to buyer or the company when and as the indemnification claim is resolved in accordance with the terms of the escrow agreement in a manner consistent with such resolution based on the information provided the average ebitda of the company for the five years preceding the sale was dollar_figuret it would be necessary for ebitda to increase by approximately percent before the company would incur a liability for a contingent earnout payment based on the information provided if the circumstances existing from the closing through the end of the year_of_sale were annualized to the end of the period to be used for determining the first contingent payment the buyer would not incur a liability for a contingent payment it has been represented that the increase in ebitda for the period from the date of closing through the end of the year_of_sale was attributable to a number of factors including price increases for the company’s products and one-time cost and expense reductions including the elimination of certain officer salaries the reduction of bonuses for officers and the elimination of auto expenses of officers it has also been represented that the company will not be able to implement price increases similar in magnitude to those implemented after the closing in the foreseeable future the utilization rate of the company’s facilities and the size of the company’s workforce have remained essentially unchanged and are not expected to change the expense reductions implemented between the closing and date are not expected to yield subsequent year savings in excess of the annualized savings realized during the taxable_year that ended date under the company's proposed alternative method of basis recovery the amount of basis allocated to an installment_payment would bear the same ratio to the company's total basis in the property sold that the installment_payment bears to the estimated amount of the aggregate payments_to_be_received by the company during the term of the installment_obligation the estimated amount of the aggregate payments_to_be_received would by the sum of q percent of the purchase_price and the adjustment received in the year_of_sale and the balance in the escrow account which is to be paid to the company two years after the creation of the escrow account the estimated amount of the payments_to_be_received includes no amount for either of the two contingent earnout payments as the company does not expect to receive any earnout payments law and analysis sec_453 of the code provides as a general_rule that except as otherwise provided in that section income from an installment_sale shall be taken into account under the installment_method for federal_income_tax purposes plr-155713-06 sec_453 of the code defines the term installment_sale as a disposition of property where at least one payment is to be received after the close of the taxable_year in which the disposition occurs sec_453 of the code defines installment_method as a method under which the income recognized for any taxable_year from a disposition is that proportion of the payments received in that year which the gross_profit realized or to be realized when payment is completed bears to the total_contract_price sec_453 of the code provides that the secretary_of_the_treasury shall sec_15a_453-1 provides rules for allocating a taxpayer’s basis to payments prescribe regulations providing for ratable basis recovery in transactions where the gross_profit or the total_contract_price or both cannot readily be ascertained sec_15a_453-1 of the income_tax regulations defines the term contingent_payment_sale as a sale_or_other_disposition of property in which the aggregate selling_price cannot be determined by the close of the taxable_year in which the sale_or_other_disposition occurs the term contingent_payment_sale does not include transactions with respect to which the installment_obligation represents under applicable principles of tax law a retained_interest in the property which is the subject of the transaction an interest in a joint_venture or a partnership an equity_interest in a corporation or similar transaction regardless of the existence of a stated maximum selling_price or fixed payment terms received and to be received in a contingent_payment_sale the rules distinguish between contingent_payment_sales for which a maximum selling_price is determinable sales for which a maximum selling_price is not determinable but the time over which payments will be received is determinable and sales for which neither a maximum selling_price nor a definite payment term is determinable cannot be determined as of the close of the taxable_year in which a sale_or_other_disposition occurs but the maximum period over which payments may be received under the contingent sales_price agreement is fixed the taxpayers basis inclusive of selling_expenses shall be allocated to the taxable years in which payment may be received under the agreement in equal annual increments method of basis recovery if the taxpayer is able to demonstrate prior to the due_date of the return including extensions for the taxable_year in which the first payment is received that application of the normal basis recovery rules will substantially and inappropriately defer recovery_of basis to demonstrate that application of the normal basis recovery rules will substantially and inappropriately defer recovery_of basis the taxpayer must show sec_15a_453-1 provides that when a stated maximum selling_price sec_15a_453-1 provides that a taxpayer may use an alternative plr-155713-06 that the alternative method is a reasonable method of ratably recovering basis and that under that method it is reasonable to conclude that over time the taxpayer likely will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule based on the information submitted and the representations made we conclude in addition sec_15a_453-1 provides guidelines as to what type of data is acceptable in demonstrating that application of the normal basis recovery rules would substantially and inappropriately defer recovery_of the taxpayer's basis the section provides that the taxpayer in appropriate circumstances may rely upon contemporaneous or immediate past relevant sales profits or other factual data that are subject_to verification the section further provides that the taxpayer ordinarily is not permitted to rely upon projections of future productivity receipts profits or the like however in special circumstances a reasonable projection may be acceptable if the projection is based upon a specific event that already has occurred conclusion that application of the normal basis recovery rule_of sec_15a_453-1 would substantially and inappropriately defer recovery_of the company's basis in the property sold and that the use of the proposed alternative method of basis recovery will result in basis recovery at a rate at least twice as fast as the rate at which basis would be recovered under the normal basis recovery rules the proposed alternative method of basis recovery represents a reasonable method of basis recovery accordingly the company's use of the proposed alternative method of basis recovery is approved of the installment_method if at the close of the taxable_year the taxpayer holds installment_obligations which arose during the year and are outstanding as of the close of the year with a face_amount that exceeds dollar_figure in circumstances involving an s_corporation sec_453a is applied at the shareholder level for purposes of determining whether and to what extent any of the shareholders of the company will incur a liability for the interest charge imposed by sec_453a the amount of any earnout payments the company receives shall be taken into account by the company's shareholders in their taxable_year with or within which the company's tax_year ends amount of an earnout payment shall be treated as the face_amount of a fixed amount installment_obligation outstanding as of the end of the shareholders' taxable_year with sec_453a imposes an interest charge on tax that is deferred through the use for purposes of determining a shareholder's liability for sec_453a interest the plr-155713-06 which or within which the company's taxable_year in which the sale took place ends if a shareholder is liable for sec_453a interest the amount of sec_453a interest shall be determined for each year during the period beginning with the shareholder's return for the year with which or within which the company's year in which the sale took place ends and ending with the shareholder's return for the year prior to the year with which or within which the company's year in which the earnout payment is received ends the amounts so determined plus interest thereon at the underpayment rate in effect under sec_6621 for the respective periods described above shall be reported and paid with the shareholder's return for the respective period caveats representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the rulings contained in this letter are based upon information and a copy of this letter must be attached to any income_tax return to which it is relevant a copy of the letter is enclosed also enclosed is a copy of the ruling letter with the deletions proposed to be made when the letter is subject_to disclosure under sec_6110 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely william a jackson branch chief branch office of associate chief_counsel income_tax accounting enclosure copy of this letter copy of letter with proposed deletions cc


internal_revenue_service department of the treasury index no washington dc number info release date dear person to contact victoria j driscoll id no telephone number refer reply to cc ita - cor-141961-01 ir number 0108-4zcgndgs date date this letter provides general information in response to your letter of date concerning whether your father could have claimed an exemption for you on his tax_return filed this year you state that you live with your father that your only income is ssi and that you are on medicaid sec_151 of the internal_revenue_code allows a taxpayer an exemption for a dependent as defined in sec_152 sec_152 defines the term dependent to include a taxpayer’s son if the taxpayer provided over half of the son’s support for the calendar_year sec_1_152-1 of the income_tax regulations provides that in determining whether a taxpayer provided over half of an individual’s support the amount of support received from the taxpayer must be compared to the entire amount of support that the individual received from all sources the regulation states that the term support includes food shelter clothing medical and dental care education and similar items if an item of support furnished an individual is in the form of property or lodging the amount of the item must be measured in terms of its fair_market_value social_security act benefits received by an individual and expended for his support are included in the total support received from all sources thus in summary for the support_test to be met your father must establish the total amount of support you received from all sources and that he provided over half of that support included in the total amount of support you received is the amount of the ssi payments that were expended for your support and the fair_market_value of the lodging your father provided for you assuming the support_test is met along with the other tests for claiming a dependency_exemption your father may claim an exemption for you we have enclosed an extract from publication your federal_income_tax which explains this subject in greater detail including an example on page i hope this information is helpful to you if you have any questions please call victoria driscoll at cor-141961-01 sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch enclosure


number release date id office uilc cca_2010031208464137 ---------- from ------------------- sent friday date am to --------------------- cc ----------- subject re ------------- we would have to issue a notice_of_deficiency to assess the cod income because the insolvency_exception of sec_108 is a required partner level determination statute the taxpayer can go to appeals first before we issue the notice the notice has to be issued within the partner's sec_6501 period as may be extended by section if there is enough time left on the


t c memo united_states tax_court william g halby petitioner v commissioner of internal revenue respondent docket no filed date william g halby pro_se donald a glasel and james p a caligure for respondent memorandum findings_of_fact and opinion goeke judge respondent determined the following income_tax deficiencies and penalties year penalty deficiency sec_6662 dollar_figure big_number dollar_figure big_number the issues for decision are whether petitioner is entitled to claimed medical expense deductions in and in amounts greater than those allowed by respondent and whether petitioner is liable for the section accuracy- related penalty for and for the reasons stated herein we find that petitioner is not entitled to deductions in amounts greater than that allowed by respondent and is liable for the accuracy-related_penalties findings_of_fact petitioner is a lawyer admitted to practice in new york state petitioner resided in new york at the time he filed his petition during and petitioner frequented prostitutes in new york petitioner did not visit these prostitutes as part of a course of therapy prescribed by his doctor nor did petitioner ask his doctor to prescribe any sort of sex therapy petitioner kept track of these visits in a journal the journal included the date the name of the service provider and the amount petitioner did not discuss these visits with his doctors afterwards to determine their impact on his health 1unless 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 during and petitioner purchased pornography and books and magazines on sex therapy petitioner also recorded the dates and amounts of the purchases in his journal petitioner timely filed his form sec_1040 u s individual_income_tax_return for and for petitioner claimed medical expense deductions of dollar_figure on his schedule a itemized_deductions for petitioner claimed medical expense deductions on his schedule a of dollar_figure both the and returns included attachments to the respective schedules a the attachments provided further detail on the costs that went into petitioner’s claimed medical expense deductions however the descriptions were not specific but provided only vague descriptions of the types of costs petitioner was claiming as deductions respondent issued a notice_of_deficiency to petitioner on date the notice disallowed dollar_figure of petitioner’s dollar_figure claimed medical expense deductions for and dollar_figure of petitioner’s dollar_figure claimed medical expense deductions for the dollar_figure disallowed by respondent for included dollar_figure for medical books magazines videos and pornographic material dollar_figure for prostitutes and dollar_figure in bank and finance_charges incurred in connection with loans used to pay for the claimed medical_expenses petitioner and respondent stipulated that petitioner provided receipts totaling dollar_figure of the dollar_figure for books magazines videos and pornographic materials however the actual receipts were not entered into evidence petitioner concedes that he is not entitled to deduct the dollar_figure in bank and finance_charges the dollar_figure disallowed for included dollar_figure for books magazines videos and pornographic materials and dollar_figure for prostitutes petitioner and respondent stipulated that petitioner provided receipts for dollar_figure of the claimed dollar_figure for medical books magazines videos and pornographic materials however the actual receipts were not entered into evidence on date petitioner filed a petition with this court challenging respondent’s determinations a trial was held on date i medical expense deductions opinion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving by a preponderance_of_the_evidence that these determinations are incorrect rule a 290_us_111 tax deductions are a matter of legislative grace and a taxpayer has the burden of proving that he is entitled to the deductions claimed rule a 503_us_79 292_us_435 the burden_of_proof on factual issues that affect a taxpayer’s liability for tax may be shifted to the commissioner where the taxpayer introduces credible_evidence with respect to such issue sec_7491 petitioner does not claim that the burden shifts to respondent under sec_7491 in any event petitioner has failed to establish that he has satisfied the requirements of sec_7491 on the record before us we find that the burden_of_proof does not shift to respondent under sec_7491 sec_213 permits a deduction for a taxpayer’s medical and dental expenses that were paid and not compensated for by insurance to the extent the expenses exceed percent of the taxpayer’s adjusted_gross_income sec_213 provides in pertinent part that the term medical_care means amounts paid for the diagnosis cure mitigation treatment or prevention of disease or for the purpose of affecting any structure or function of the body sec_1_213-1 income_tax regs provides that amounts expended for illegal operations or treatments are not deductible and that deductions allowed under sec_213 will be confined strictly to expenses_incurred primarily for the prevention or alleviation of a physical or mental defect or illness to substantiate these expenses the taxpayer must furnish the name and address of each payee and the date and amount of each payment sec_1_213-1 income_tax regs if requested by the commissioner the taxpayer must also furnish a statement or itemized invoice identifying the patient the type of service rendered and the specific purpose of the expense id the issue for decision is whether petitioner is entitled to deduct amounts paid to prostitutes and for medical texts and pornographic materials respondent argues that petitioner is not entitled to deduct amounts paid to prostitutes because such payments were illegal and petitioner has not provided substantiation as required by sec_1_213-1 income_tax regs respondent argues that petitioner is not entitled to a deduction for amounts paid for books on sex therapy and pornographic material because those amounts were incurred for petitioner’s general welfare not pursuant to a doctor’s prescription or for a specific medical_condition petitioner does not argue that sec_213 and the regulations thereunder allow a deduction for these costs rather petitioner points to book and magazine articles about the positive health effects of sex therapy and argues that we should allow him a deduction despite the illegality of his conduct or the fact that petitioner’s doctor did not prescribe this treatment we agree with respondent that petitioner is not entitled to deduct the amounts at issue patronizing a prostitute is illegal in the state of new york see n y penal law sec dollar_figure mckinney n y penal law sec dollar_figure mckinney provides that a person is patronizing a prostitute when he pursuant to a prior agreement pays a fee for another person’s having engaged in sexual conduct with him agrees to pay a fee pursuant to an understanding that in return such person or a third person will engage in sexual conduct with him or solicits or requests another person to engage in sexual conduct in return for a fee sec_1_213-1 income_tax regs provides that a taxpayer is not entitled to a deduction for any illegal operation or treatment petitioner’s payments to various prostitutes were personal expenses not prescribed by a doctor and not intended to treat a medical_condition petitioner is not entitled to deductions for these amounts petitioner is likewise not entitled to deductions for amounts paid for books and magazines on sex therapy and pornography the purchases were not for the treatment of a medical_condition but were instead personal items sec_1 e ii income_tax regs ii accuracy-related_penalty we next determine whether petitioner is liable for an accuracy-related_penalty sec_6662 and b provides that taxpayers will be liable for a penalty equal to percent of the portion of the underpayment_of_tax attributable to a substantial_understatement_of_income_tax sec_6662 provides that a substantial_understatement_of_income_tax exists if the amount of the understatement exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_7491 provides that the commissioner bears the burden of production respecting an individual’s liability for the penalty as discussed above we have upheld respondent’s determinations of deficiencies in petitioner’s income_tax respondent has thus met his burden of showing a substantial_understatement sec_6662 provides that the amount of the understatement is to be reduced by that portion of the understatement which is attributable to any item if the relevant facts affecting the item’s tax treatment are adequately disclosed on the return or in a statement attached to the return and there is a reasonable basis for the tax treatment of such item by the taxpayer if an item is adequately disclosed and there is a reasonable basis for its tax treatment that item is treated as having been reported properly on the return and the understatement_of_tax is computed without regard to that item see sec_1_6662-4 income_tax regs sec_1 e income_tax regs provides that an item will not be treated as adequately disclosed if a taxpayer does not have a reasonable basis for the position as defined in sec_1 b income_tax regs sec_1_6662-3 income_tax regs provides that reasonable basis is a relatively high standard that is significantly higher than not frivolous a return position that is merely arguable does not satisfy the reasonable basis standard id a taxpayer can have a reasonable basis if the position is reasonably based on one or more authorities listed in sec_1_6662-4 income_tax regs which includes the internal_revenue_code temporary and final regulations revenue procedures and revenue rulings and court decisions the sec_6662 penalty is inapplicable to the extent the taxpayer had reasonable_cause for the understatement and acted in good_faith sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the relevant facts and circumstances sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer id generally the most important factor is the extent of the taxpayer’s efforts to assess the proper tax_liability id an honest misunderstanding of fact or law that is reasonable in the light of the experience knowledge and education of the taxpayer may indicate reasonable_cause and good_faith remy v commissioner tcmemo_1997_72 petitioner did not have reasonable_cause or a reasonable basis for claiming the deductions at issue petitioner has been an attorney for years and specialized in tax law petitioner should have known that his visits to prostitutes in new york were illegal and that sec_213 the regulations thereunder and caselaw do not support his claimed deductions accordingly petitioner is liable for the sec_6662 penalty to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index nos cc it a b9 plr-128156-00 dear date this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the information furnished indicates that due to an error or misunderstanding the form_1128 was not timely filed however the taxpayer filed the form within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period section of revproc_2000_11 2000_3_irb_312 states in part that a form_1128 filed pursuant to this revenue_procedure will be considered timely filed for purposes of sec_1_442-1 b if and only if it is filed on or before the time including extensions for filing the return for the short_period required by such change sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending effective is considered timely filed the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 a copy of this letter_ruling and taxpayer's form_1128 are being forwarded to the service_center where the taxpayer files its federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under revproc_2000_11 this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours associate chief_counsel income_tax and accounting heather maloy enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------- ------------------------------------------------- ---------------------------------------- --------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-141507-05 date december ---------- ---------------------- ----------------------------------------------------- legend x ----------------------------- ---------------- state date dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 facts is a domestic entity eligible to elect to be treated as an association_taxable_as_a_corporation due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as an association_taxable_as_a_corporation effective date law and analysis corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity the information submitted states that x was formed in state x represents that x sec_301_7701-3 provides that a business_entity that is not classified as a sec_301_9100-1 provides that the commissioner may grant a reasonable plr-141507-05 recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is- i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government conclusion conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as an association_taxable_as_a_corporation effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose based solely on the information submitted and the representations made we sec_301_9100-1 through provide the standards the except as specifically set forth above no opinion is expressed concerning the plr-141507-05 federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent being sent to x’s authorized representative pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 sincerely enclosures cc copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court john and kristine wolfgram petitioners v commissioner of internal revenue respondent docket no 7152-04s filed date john and kristine wolfgram pro_se thomas d greenaway for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority 1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue respondent determined a deficiency of dollar_figure in federal_income_tax for petitioners’ tax_year at trial respondent conceded the deficiency the issue for decision is whether the court has jurisdiction to consider petitioners’ arguments that respondent under sec_6402 incorrectly applied an overpayment of petitioners’ federal income taxes toward payment of an indebtedness owing by petitioner john wolfgram mr wolfgram to a federal_agency and that petitioner kristine wolfgram mrs wolfgram is entitled to a refund as an injured_spouse under sec_301_6402-6 proced admin regs some of the facts were stipulated those facts with the exhibits annexed thereto are so found and are made part hereof petitioners’ legal residence at the time the petition was filed was fair oaks california at the time of trial petitioners were residing at foresthill california petitioners filed a joint federal_income_tax return for on that return petitioners reported dollar_figure in wage and salary income dollar_figure in taxable refunds of state_and_local_income_taxes and dollar_figure in schedule c-ez net profit from business income the return showed a tax of dollar_figure federal_income_tax withholdings of dollar_figure and an overpayment of dollar_figure petitioners elected that the entire overpayment be applied to their estimated_tax respondent did not do that respondent instead issued a notice_of_deficiency determining a deficiency of dollar_figure based on the failure of petitioners to include as gross_income on their return dollar_figure in wage and salary income the dollar_figure determined deficiency reduced petitioners’ overpayment from dollar_figure to dollar_figure although the sequence of events is not entirely clear from the record petitioners were advised at some point that respondent proposed to transfer transmit or pay the overpayment under sec_6402 to a federal_agency which was not named at trial as a setoff or payment of an indebtedness owing solely by mr wolfgram mr wolfgram has not denied owing the indebtedness on or about this time mrs wolfgram filed with the irs form_8379 injured_spouse claim and allocation for a refund of all or a portion of the overpaid taxes based on the fact that approximately percent of the income reported on the income_tax return represented her earnings and under appropriate provisions of the internal_revenue_code she would be injured if the overpayment of taxes attributable to her income was used to pay the separate indebtedness of her spouse irs agreed with that position and according to counsel for respondent at trial one-half of the acknowledged overpayment of dollar_figure was paid to her when the case was called for trial counsel for respondent orally conceded the dollar_figure deficiency after petitioners satisfied counsel that the omitted wage and salary income had been included as gross_receipts on schedule c-ez of their return the case was tried solely on petitioners’ contention that percent of the remaining overpayment dollar_figure less the prior refund of approximately dollar_figure should be paid to mrs wolfgram since percent of the income reported on the return was income earned by her and additionally petitioners claimed that even though they resided in california which is a community_property_state petitioners had a separation of property agreement under which all of mrs wolfgram’s income constituted her separate_property and all of mr wolfgram’s earnings were community_property this case calls for the review of a reduction of an overpayment under sec_6402 sec_6402 provides that no court of the united_states shall have jurisdiction to hear any_action whether legal or equitable brought to restrain or review a reduction under sec_6402 d or e which applies to the facts of this case the court notes that the flush language of sec_6402 states that the prohibition of a court review does not preclude any legal equitable or administrative action against the federal_agency to which the overpaid taxes were paid this court therefore has no jurisdiction to consider the merits of petitioners’ arguments see wooten v commissioner tcmemo_2003_113 reviewed and adopted as the report of the small_tax_case division an appropriate order and decision will be entered 2in 856_f2d_1165 8th cir the court held that the purpose of the jurisdictional limitation is to relieve the secretary_of_the_treasury from the burden of handling challenges to the substantive merits of debts underlying requested refund setoffs and that congress determined that the appropriate place for litigation of such claims is with the agency to which the obligation is owed recognizing that the irs does not have the information and resources needed to adjudicate the validity of the underlying obligation


internal_revenue_service number info release date index number ------------------------------------------------------ ------------------------ ------------------- ------------------------------- - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-115641-04 date march ------------------------------------------------------ taxpayer dear -------------- we are responding to a letter dated date submitted on behalf the taxpayer requesting a late s_corporation_election although we are unable to respond to the request as submitted this letter provides useful information relating to the request according to the information provided the taxpayer filed a form_2553 on date requesting an s_corporation_election effective date however the service_center informed the taxpayer that the form_2553 was not timely filed for the election effective to date to obtain relief the taxpayer may request a private_letter_ruling announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2004_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in ' b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room by way of introduction the irs has a small_business website which provides information and various useful links visit this special site at www irs gov smallbiz additionally you can order a single free copy of the small_business resource guide cd-rom by calling the cd-rom provides critical tax information including forms instructions and publications as well as valuable information from a variety of government agencies non-profit organizations and educational institutions we hope that the above information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2004_1 cc


t c memo united_states tax_court bank of new york mellon corporation as successor_in_interest to the bank of new york company inc petitioner v commissioner of internal revenue respondent docket no filed date b john williams jr alan j j swirski julia m kazaks cary d pugh andrew j mclean daniel c davis melissa r middleton brendan t o’dell bryon christensen shira m helstrom john marston manoj viswanathan ilana yergin daniel davis and kristin r keeling for petitioner jill a frisch curt m rubin anne o’brien hintermeister matthew j avon justin l campolieta and michael a sienkiewicz for respondent this opinion supplements our prior opinion 140_tc_15 bryon christensen john marston manoj viswanathan ilana yergin daniel davis and kristin r keeling all withdrew as counsel after trial supplemental memorandum opinion kroupa judge this case is before the court on petitioner’s rule motion motion regarding this court’s opinion 140_tc_15 bny i petitioner does not challenge the primary holdings in bny i that the stars structure lacks economic_substance and that respondent properly disallowed the foreign tax_credits and the foreign tax expense deductions generated from the stars structure petitioner instead asks this court to further consider certain corollary aspects of bny i that flow from our adopting a bifurcation approach in reaching the primary holdings of bny i we will grant the motion to the extent it allows us to more fully consider those corollary aspects of bny i unless otherwise indicated rule references are to the tax_court rules_of_practice and procedure and section references are to the internal_revenue_code code in effect for the years at issue in granting the motion we note that the motion as titled is misleading because petitioner merely asks us to address certain corollary aspects of bny i rather than to reconsider the primary holdings of bny i background we incorporate the findings_of_fact we made in bny i for convenience and clarity we briefly summarize and repeat some of the bny i findings petitioner engaged in the stars_transaction with the help of barclays as part of the stars_transaction petitioner created the stars structure which included several special-purpose entities one of these special-purpose entities was a common_law trust trust petitioner transferred through several related steps approximately dollar_figure billion in net income-producing assets to the trust the trust had a trustee that was a resident of the united kingdom for u k tax purposes accordingly the trust was subject_to u k tax on its income the trust was authorized to issue class a units a class b unit a class c unit and a class d unit barclays entered a subscription agreement to purchase the trust’s class c unit for dollar_figure9 billion and the trust’s class d unit for dollar_figure million barclays was entitled to distributions on the class d unit equal to dollar_figure million 1-month libor plu sec_415 basis points barclays was also entitled to certain distributions on the class c unit the subscription agreement required barclays to unless otherwise indicated defined terms continue to have the meaning ascribed to them in bny i pay further subscription amounts to the trust equal to the amount of any distributions it was entitled to receive on the class c unit petitioner established a blocked_account in barclays’ name barclays blocked_account to ensure payment of these further subscription amounts barclays could not access or control the barclays blocked_account petitioner and barclays agreed that all class c unit distributions were to be paid to the barclays blocked_account and all further subscription amounts barclays owed under the subscription agreement were to be paid from the barclays blocked_account investco was another special-purpose entity petitioner used in the stars structure investco and barclays entered into forward sale agreements and a zero coupon swap agreement in connection with the stars_transaction the forward sale agreements required investco to purchase the class c unit and class d unit from barclays for a pre-determined price on a certain date the zero coupon swap agreement required investco to make monthly payments to barclays the monthly payments to barclays were equal to the 1-month libor plu sec_30 basis points on a notional_principal_amount of dollar_figure5 billion less the spread in return the spread was a fixed amount equal to one-half the present_value of the u k taxes barclays was expected to pay on anticipated class c unit income each month the zero coupon swap agreement required barclays to make a fixed payment to investco after a certain number of years barclays also entered into a credit default swap agreement with petitioner in connection with the stars_transaction petitioner guaranteed under the credit default swap agreement all of investco’s obligations under the forward sale agreements and the zero coupon swap agreement in case of investco’s bankruptcy or default in return barclays paid petitioner a fixed rate of basis points on the dollar_figure5 billion notional_principal_amount we found in bny i that the net effect of the forward sale agreements the zero coupon swap agreement and the credit default swap agreement was to convert barclays’ initial subscriptions for the class c unit and the class d unit into a dollar_figure billion loan from barclays to petitioner loan we further found that the interest on the loan was equal to 1-month libor plus basis points petitioner treated the spread as a component of the interest accruing on the loan the spread payable to petitioner under the loan was greater than the amount expressing the interest as 1-month libor plus basis points is for purposes of simplicity in bny i we found that three elements made up the interest on the loan the monthly distribution on the class d unit the monthly floating payment owed under the swap agreement excluding the spread ie 1-month libor plu sec_30 basis points on a notional amount of dollar_figure5 billion and the monthly payment owed on the credit default swap agreement payable to barclays under the loan for each year at issue barclays therefore made net payments to petitioner under the loan for each year at issue petitioner reduced the spread it recognized as income by offsetting the spread by the amount payable to barclays under the loan in bny i we found that the spread was not a component of interest on the loan accordingly we found that petitioner effectively deducted the amount payable to barclays under the loan we held in bny i that the stars_transaction should be bifurcated into the stars structure and the loan for purposes of determining whether the economic_substance_doctrine barred petitioner from claiming the foreign tax_credits and the foreign tax expense deductions for the years at issue accordingly we analyzed the economic_substance of the stars structure separately from the loan we held that the stars structure lacks economic_substance and that petitioner was not entitled to the interest deductions it had effectively taken on the loan because the interest_expense was incurred in furtherance of a transaction lacking economic_substance by way of example assume that barclays owed petitioner dollar_figure of spread in year further assume that petitioner owed barclays dollar_figure of interest on the zero coupon swap agreement in year bny would report only dollar_figure of spread in its income in year in bny i we found that petitioner effectively deducted the dollar_figure of interest it owed to barclays by reducing the amount of spread it reported as income discussion petitioner asks that we further consider certain corollary aspects of bny i as we previously noted petitioner does not challenge the primary holdings in bny i that the stars structure lacks economic_substance and that the foreign tax_credits and foreign tax expense deductions claimed in connection with the stars structure are disallowed we first address the standard this court uses to decide whether to grant a rule motion we then address petitioner’s contentions in turn a rule motion we begin with the standard this court uses to decide whether to grant a rule motion the decision as to whether to grant a rule motion rests within the court’s discretion 79_tc_1054 aff’d 755_f2d_790 11th cir petitioner relies on newly minted arguments in asking the court to further consider certain corollary aspects of bny i further considering any aspect of bny i based on new arguments at this point in the proceedings gives the court great pause because a rule motion is generally not the appropriate forum to tender new theories compare 69_tc_473 rejecting the commissioner’s offer of a new_theory on which to base an increased deficiency after the court entered its decision with gilman v commissioner tcmemo_1990_205 vacating in part a prior decision and holding instead that the interest_paid on a note was deductible based on the commissioner’s concession respondent correctly notes that petitioner could have raised these arguments in at least one of the several opportunities it was given in the bny i proceedings we will nevertheless grant petitioner’s motion to allow the court to more fully consider certain corollary aspects of bny i and to bring those corollary aspects into harmony with the primary holdings of bny i b deductibility of interest on the loan we now more fully consider whether the interest on the loan is deductible petitioner maintained throughout the entirety of the bny i proceedings that it did not deduct interest on the loan rather petitioner argued that the loan interest and the spread should be treated as though they were paid under an integrated contract we bifurcated the stars_transaction into the loan and the stars structure we found that the loan proceeds were available for use in petitioner’s see infra note petitioner maintained this position in the petition it filed with the court in the pre-trial memorandum it filed with the court in the post-trial memorandum it filed with the court and in the reply memorandum it filed with the court petitioner continues to maintain this position in the third argument it makes in the motion as previously noted we addressed and rejected this argument in bny i banking business throughout the stars_transaction petitioner uses this finding to now argue that a deduction for interest on the loan should be allowed petitioner argues that the logical extension of this finding is that the loan was not necessary for the stars structure to produce the disallowed foreign tax_credits as such petitioner continues the loan served a purpose beyond the creation of tax benefits a deduction is generally allowed for all interest_paid or accrued within the taxable_year on indebtedness sec_163 an appeal in this case would lie to the u s court_of_appeals for the second circuit second circuit absent a stipulation to the contrary where the court_of_appeals to which appeal lies has decided an issue that is presently before us we will follow the decision of that court 54_tc_742 aff’d 445_f2d_985 10th cir petitioner also argues that where a routine business transaction is coupled with a sham_transaction the tax consequences of the routine business transaction must be respected petitioner contends this position is supported by 88_tc_386 following 752_f2d_89 4th cir aff’d 868_f2d_851 6th cir in rose we held that a genuine debt undertaken to finance a transaction lacking economic_substance will support an interest_deduction id the court_of_appeals for the second circuit has explicitly rejected such a rule 155_f3d_584 2d cir aff’g in part remanding in part tcmemo_1997_172 the second circuit has held that an interest_deduction is not allowed if the interest payment arises from a transaction that is economically empty 155_f3d_584 2d cir citing 364_us_361 aff’g in part remanding in part on another ground tcmemo_1997_172 a transaction is economically empty if it cannot with reason be said to have purpose substance or utility apart from its anticipated tax consequences id citing 364_f2d_734 2d cir aff’g 44_tc_284 petitioner maintains the loan interest is deductible under lee and goldstein because as we found in bny i the loan proceeds were not used to finance the stars structure respondent contends that the holdings in lee and goldstein bar petitioner’s deduction of the loan interest respondent acknowledges that the tax_shelters at issue in goldstein and lee produced one tax_benefit while the stars_transaction produced two tax benefits respondent argues however that the presence of the second tax_benefit does not distinguish the stars_transaction from the tax_shelters in lee and goldstein on further consideration we agree with petitioner the disallowed interest deductions in lee and goldstein arose from loans that were integral or intertwined with a transaction lacking economic_substance in this regard the loans in lee and goldstein generating the disallowed interest deductions financed an investment or transaction lacking economic_substance the sole benefit and purpose of the transactions and related loans in lee and goldstein were to generate interest deductions as well as deductions for other expenses in lee to offset income from other sources the loan here differs from the loans in lee and goldstein petitioner did not use the loan proceeds to finance secure or carry out the stars structure the loan was not necessary for the stars structure to produce the disallowed foreign tax_credits rather the loan proceeds were available for petitioner to use in its banking business throughout the stars_transaction accordingly the loan served a purpose beyond the creation of tax benefits unlike the loans in goldstein and lee respondent also argues that because petitioner could have obtained a loan at a lower cost in the market place the loan interest deductions must be denied we disagree we have held that a grossly mispriced asset or negative cashflow can contribute to the overall picture of an economic sham blum v commissioner tcmemo_2012_16 citing country pine fin llc v commissioner t c memo see also crispin v commissioner tcmemo_2012_70 aff’d 708_f3d_507 3d cir nevertheless interest accruing on a real loan that is used for economically substantive activity is deductible under sec_163 even if the borrower is also motivated by favorable tax consequences see lee v commissioner f 3d pincite despite being overpriced the loan proceeds were available for use in petitioner’s banking business accordingly we hold that petitioner is entitled to deduct the interest that accrued on the loan for the years at issue c treatment of the spread we now address the federal_income_tax consequences of the spread petitioner reported a portion of the spread as income on the tax returns it filed for the years at issue petitioner now argues that the spread is not includible in its income for the years at issue respondent issued a statutory notice to petitioner disallowing certain interest deductions respondent attributed to the stars_transaction the disallowed interest deductions were approximately equal to the 1-month libor plu sec_30 basis points on the dollar_figure5 billion notional_principal_amount the amount petitioner owed to barclays under the zero coupon swap agreement zero coupon interest we sustained respondent’s determination disallowing the zero coupon interest deductions we found in bny i that petitioner effectively deducted the zero coupon interest by reducing the amount of spread it included in its income by an amount equal to the zero coupon interest our finding in bny i that petitioner effectively deducted the zero coupon interest was predicated on the spread’s being includible in petitioner’s income petitioner’s spread argument would affect our finding in bny i that petitioner effectively deducted the zero coupon interest accordingly we now focus on the spread and how it should be treated for federal_income_tax purposes petitioner raises two arguments regarding the spread petitioner contends that because we found the stars structure to lack economic_substance we must also disregard the spread petitioner also argues that we must disregard the spread under the tax_benefit_rule we agree with petitioner that the spread is not includible in its income we so hold because the spread arose from the stars structure a transaction we found in bny i to lack economic_substance a transaction that lacks economic_substance is disregarded for federal tax purposes 157_f3d_231 aff’g in part rev’g in part tcmemo_1997_115 gerdau macsteel inc v commissioner the tax_benefit_rule generally excludes from gross_income the recovery_of an expense that did not result in a prior tax_benefit 460_us_370 we therefore need not address petitioner’s tax_benefit argument for excluding the spread from income t c 113_tc_254 aff’d 254_f3d_1313 11th cir we have held that the economic_substance_doctrine cannot be applied selectively to certain consequences of a transaction 94_tc_738 instead we have given effect either to both the cost and income functions of a transaction or to neither when applying the economic_substance_doctrine see id saba p’ship v commissioner tcmemo_1999_359 vacated and remanded 273_f3d_1135 d c cir arrowhead mountain getaway ltd v commissioner tcmemo_1995_54 aff’d without published opinion 119_f3d_5 9th cir seykota v commissioner tcmemo_1991_541 barclays paid petitioner the spread in connection with the stars structure we analyzed the economics of the spread in bny i we held that the spread arose from the anticipated tax benefits of the stars structure we further held that the stars structure lacks economic_substance it follows that the spread arose from a transaction lacking economic_substance consequently we do not give effect to the spread and it is not includible in petitioner’s income for the years at issue we now further consider whether respondent properly disallowed certain interest_expense deductions he attributed to the stars_transaction we found in bny i that petitioner effectively deducted the zero coupon interest by reducing the amount of spread it included in its income by an amount equal to the zero coupon interest as a result we sustained respondent’s determination reducing petitioner’s interest_expense by an amount equal to the zero coupon interest our finding that petitioner effectively deducted the zero coupon interest rested on our unchallenged assumption that the spread was includible in petitioner’s income stated differently petitioner could not have effectively deducted the zero coupon interest if petitioner could not have reduced the amount of the spread that was includible in its income we found upon further consideration that the spread was not includible in petitioner’s income for the years at issue it follows then that petitioner could not have reduced the amount of the spread that was includible in its income because none of the spread was includible in its income consequently petitioner could not have effectively deducted the zero coupon interest accordingly respondent disallowed petitioner’s interest_expense that was unrelated to the stars_transaction we therefore do not sustain respondent’s determination in the statutory notice disallowing the unrelated interest_expense we have considered all remaining arguments the parties made and to the extent not addressed we find them to be irrelevant moot or meritless to reflect the foregoing an appropriate order will be issued granting petitioner’s motion and decision will be entered under rule


internal_revenue_service number release date index number ---------------------------------- --------------------------------- ----------------------------------------- ------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-121286-04 date date ------------------------------------- --------------------------- x ------------------------------------------------- country a -------------------------------------------------- d1 dear ----------------- -------------------------- ------------------------------------ this letter responds to your letter dated date requesting a ruling under ' and of the procedure and administration regulations that x be granted an extension of time to make an election to be treated as a disregarded_entity under ' facts according to the information submitted x was formed as a public limited_liability_company under the laws of country x’s sole shareholder a acquired all outstanding shares of x on d1 and intended x to be treated as a disregarded_entity for federal_income_tax purposes effective no later than d1 however a inadvertently failed to timely file a form_8832 entity classification election law and analysis sec_301_7701-1 provides that the classification of organizations that are recognized as separate entities is determined under and sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes as provided in ' plr-121286-04 sec_301_7701-3 provides that except as provided in ' b unless the entity elects otherwise a foreign eligible_entity is a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in ' b by filing a form_8832 with the service_center designated on the form_8832 sec_301_7701-3 provides that an election made under ' c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the regulations under sec_301_9100-2 and sec_301_9100-3 provide standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election under this section sec_301_9100-1 further provides that sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 provides that a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-3 provides that subject_to sec_301_9100-3 sec_301_9100-3 provides that requests for relief subject_to ' will be granted when the taxpayer provides evidence including affidavits described in ' e to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government through iii a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not i competent to render advice on the regulatory election or ii aware of all relevant facts reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within sec_301_9100-3 provides that a taxpayer will not be considered to have sec_301_9100-3 provides that a taxpayer is deemed not to have acted plr-121286-04 the meaning of c of the income_tax regulations ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief conclusion based solely on the facts submitted and the representations made we conclude that the requirements of and have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under ' to be treated as disregarded_entity for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 and attaching a copy of this letter to the election a copy is enclosed for that purpose this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely s heather c maloy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc