t c memo united_states tax_court charles and beatrice m reynolds petitioners v commissioner of internal revenue respondent docket no filed date thomas f howard for petitioners michael f o’donnell for respondent memorandum findings_of_fact and opinion dean special_trial_judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioners’ federal income taxes for taxable years and respectively respondent also determined accuracy-related_penalties under sec_6662 of dollar_figure and dollar_figure for and respectively respondent concedes that petitioners are entitled to deduct a dependency_exemption amount for mrs reynolds’ mother for tax_year and that petitioners expended at least dollar_figure for her medical_expenses in respondent also concedes that charles reynolds petitioner was engaged in the practice of law with a profit_motive and for had dollar_figure of deductible expenses for bar membership fees after concessions by respondent the issues for decision’ are whether respondent is estopped from asserting deficiencies against petitioners whether respondent has offered evidence of petitioners’ tax returns for either year at issue whether petitioners are entitled to deductions for medical_expenses whether legal expenses_incurred by petitioners are itemized_deductions or trade_or_business_expenses whether petitioners are entitled to deduct various schedule c expenses whether petitioners are entitled to unless otherwise indicated 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 the amount of petitioners’ self-employment_tax if any and their deduction for self-employment_tax if any will be determined by our resolution of the issues to be decided in this case automobile and travel and meals and entertainment expense deductions whether petitioners are entitled to claim for an additional expense under sec_179 for a depreciable asset and whether there is underpayment of petitioners’ tax due to negligence some of the facts have been stipulated stipulated facts and accompanying exhibits are incorporated herein by reference findings_of_fact petitioners resided in lisle illinois at the time the petition was filed in this case during the years at issue and at the time of trial mrs reynolds was a manager for service america corp and petitioner was a supervisory internal revenue_agent petitioner has been an employee of the internal_revenue_service irs since before his employment with the irs petitioner was an electronics engineer with the department of defense petitioner also holds a certified public accountant’s license from the state of south carolina is a graduate of the indiana university law school and was licensed as an attorney by the state of illinois in petitioner prepared the joint individual federal_income_tax returns for himself and his wife for and in april of a year after respondent issued the statutory_notice_of_deficiency in this case respondent replied by letters to petitioners’ date correspondence to the problem resolution office respondent’s reply advised of changes to petitioners’ statements of account for both and and indicated for each year that the amount you now owe is none the parties have stipulated that exhibit 1-j is a copy of petitioners’ joint federal_income_tax return for the year respondent has produced and the court has admitted into evidence a certified copy of petitioners’ joint individual federal_income_tax return for a medical_expenses mrs reynolds’ mother mrs maxey lived in a nursing home in salem virginia in she wa sec_84 years old suffering from parkinson’s disease bedridden and unable to feed or to care for herself there were two other residents of the home where mrs maxey resided mrs maxey was provided with around- the-clock care the proprietor of the home was a registered nurse mrs reynolds’ sister judy maxey held power_of_attorney for their mother’s bank accounts mrs reynolds had an agreement with her sister and their five brothers that they would share the expense of maintaining their mother in the virginia nursing home the family members agreed to make their monetary contributions for their mother’s support to their sister judy maxey judy maxey would then make the required_payments to the nursing home or other payee with one exception petitioners wrote a check to judy or mrs maxey for dollar_figure monthly in until mrs maxey’s death in december of the year it was mrs reynolds’ understanding that the money was to be used for my mother’s room and board at the nursing home which was dollar_figure per month petitioners also paid for health insurance to supplement medicare and medicaid for mrs reynolds’ mother as well as additional_amounts for miscellaneous small items in connection with her employment with the service america corporation most of mrs reynolds’ personal medical_expenses were reimbursed by the travelers managed care system the travelers mrs reynolds incurred dollar_figure of dental optical and prescription expenses that were not covered by the travelers in petitioner received medical insurance under a plan subsidized by the federal government for which he paid dollar_figure in petitioners claimed medical_expenses of dollar_figure for respondent disallowed any deduction for medical_expenses for the year petitioners did not claim any medical_expense_deduction for b legal expenses in or about petitioner obtained permission from the irs to engage in the limited practice of law petitioner’s law practice was limited by standard employee rules of conduct promulgated by the irs petitioner’s law practice generated receipts from real_estate closings and related activities during petitioner performed approximately four real_estate closings and reported gross_receipts of dollar_figure petitioner conducted two real_estate closings in and reported gross_receipts of dollar_figure sometime in petitioner was invited to a meeting with the inspection division of the irs inspection at the meeting inspection told petitioner that he was under investigation for practicing law during the official hours of his employment with the irs finding himself under investigation by his employer petitioner obtained legal counsel legal counsel represented petitioner throughout the investigation the investigation did not end until petitioner claimed attorney’s fees on schedule c of his joint individual federal_income_tax returns of dollar_figure in and dollar_figure in in connection with the investigation in petitioners were considering suing mrs reynolds’ employer for sex discrimination lori d ecker of chicago was retained to perform legal services on litigation and technical matters preliminary to filing a law suit the law offices of lori d ecker submitted an invoice dated date for dollar_figure to mrs reynolds for initial consultation on date petitioner wrote a check for dollar_figure to trent butcher that was paid_by his bank on date on schedule c petitioners deducted legal expenses related to mrs reynolds’ sex discrimination claim respondent determined that to the extent substantiated petitioners’ legal expenses are deductible as itemized_deductions on schedule a rather than business_expenses on schedule c cc various schedule c expenses respondent disallowed petitioners’ claimed schedule c expenses for and at trial petitioners provided copies of miscellaneous checks receipts and invoices from as substantiation for schedule c expenses for office expense repairs and maintenance and supplies respondent concedes that petitioners expended dollar_figure for professional licenses for petitioners offered no evidence to substantiate expenditures_for business_interest commissions and fees telephone expenses and expenses for professional journals for either year d car and truck expenses petitioners owned three automobiles in including a lexus a chevrolet and a toyota camry the lexus was used exclusively or nearly so by mrs reynolds the chevrolet was used exclusively for personal transportation in october of petitioners traded the chevrolet along with cash for a ford van petitioner testified that he used the toyota camry in his law practice and to travel to and from his farm and his various rental properties petitioner did not maintain a log for his business automobile mileage during his testimony petitioner presented documents that were reconstructions of his business mileage the reconstructions were created as a result of the examination of his federal_income_tax returns as a preliminary step in his reconstructions petitioner determined the ratio of business mileage to nonbusiness mileage for computing depreciation deducted on schedule c included in total reconstructed business miles is employee business mileage for which he was compensated by the irs also included in total business mileage is mileage accumulated commuting to and from his home and the cook county courthouse to do research and back and forth to the title company for real_estate closings respondent determined that petitioner has not substantiated his business use of the toyota camry eb travel and meals and entertainment_expenses petitioners owned rental properties in indiana kentucky and virginia and farmland in kentucky the farmland was inherited from petitioner’s father in there are no structures on the farmland except for fences many of petitioner’s family members live near his kentucky farmland his brothers own farmland on either side of his land there was no crop grown on or harvested from the farmland in his farm equipment was stored in his brother’s barn in petitioner’s brother raised the tobacco crop grown on the land and petitioner and his brother split the expenses and proceeds from the sale of the crop on schedules c and e petitioners claimed travel and meals and entertainment_expenses related to visiting their various properties respondent denied petitioners’ deductions on both schedules for lack of substantiation petitioners now claim additional travel_expenses related to schedule e opinion issue estoppel as a preliminary matter petitioners argue that letters sent to them by respondent after the issuance of the notice_of_deficiency indicating that the amount you now owe is none are binding admissions such binding admissions petitioners believe are determinative of their case and according to them -- - the government is estopped from challenging its own correspondence which claims no deficiency for and petitioners cite no legal authority for their assertions and we are unable to find any their primary position is contrary to well-established law congress has provided that closing agreements under sec_7121 and compromise agreements under sec_7122 are the exclusive means for the irs to settle civil tax disputes with finality see 278_us_282 58_tc_69 see also 444_f2d_530 6th cir affg tcmemo_1970_212 the record is devoid of any evidence that petitioners and respondent entered into a valid closing_agreement or compromise_agreement petitioners further argue that respondent is estopped from challenging the letters which they inaccurately characterize as stating that they owe no deficiency for and what the letters actually purport to address is petitioners’ account for each of the years at issue the numbers by which peti- tioners’ account was adjusted bear no relationship to those contained in the statutory_notice_of_deficiency we would not expect the account to reflect the amounts that are the subject of this litigation because the proposed deficiencies and penalties may not properly be assessed until our decision in this case has become final see sec_6211 sec_6212 and sec_6213 in a tax case the doctrine_of estoppel is not applicable unless the party relying on it establishes all of the following elements at a minimum there must be a false representation or wrongful misleading silence the error must be in a statement of fact and not in an opinion or a statement of law the person claiming the benefits of estoppel must be ignorant of the true facts and he must be adversely affected by the acts or statements of the person against whom an estoppel is claimed 67_tc_612 see also 439_f2d_1365 2d cir petitioners have not established the required elements to claim estoppel successfully among other things they have not presented any evidence that they were adversely affected by their reliance on the letters cf 64_tc_781 accordingly the doctrine_of estoppel does not apply in the instant case issue evidence of petitioners’ tax returns petitioners also argue that this case should be dismissed because respondent did not produce the original tax returns they filed for and or copies or reasonable versions of them petitioners cite no authority for this position and it is without merit see fed r kvid and 54_tc_1149 furthermore the parties have stipulated an exhibit that they have represented to be a copy of petitioners’ joint federal_income_tax return for the year as part of the stipulation the parties agree that all exhibits referred to herein and attached hereto may be accepted as authentic in addition the court has admitted into evidence upon motion after trial a certified copy of petitioners’ joint federal_income_tax return for issue medical_expenses under sec_213 individuals are allowed to deduct the expenses paid for the medical_care of the taxpayer the taxpayer’s spouse or a dependent to the extent the expenses exceed percent of adjusted_gross_income and are not_compensated_for_by_insurance_or_otherwise the term medical_care includes amounts paid for the diagnosis cure mitigation treatment or prevention of disease or for insurance covering the diagnosis cure mitigation treatment or prevention of disease petitioners claimed medical and dental expenses totaling dollar_figure for they did not deduct any medical_expenses for respondent denied the deductions determining that mrs maxey was not petitioners’ dependent and that medical_expenses had under our rules a stipulation shall be treated as a conclusive admission by the parties to the stipulation rule e see eg noneman v commissioner tcmemo_1978_283 not been substantiated respondent has conceded the dependency issue a mrs maxey’s medical_expenses mrs reynolds testified that her mother’s nursing home was state certified and that the proprietor was a registered nurse she further testified that she had an agreement with her family that she would pay to her sister dollar_figure per month to help with her mother’s nursing home expenses she also testified that she paid twice a year for her mother’s blue cross blue shield supplemental health insurance premiums and in addition for miscellaneous items such as depends and bed pads according to mrs reynolds her sister held power_of_attorney for their mother’s bank accounts as substantiation of the amounts paid for mrs reynolds’ mother’s care petitioners introduced copies of the front sides of checks drawn on three different checking accounts bearing dates in the copies indicate that the checks were drawn in favor of either mrs reynolds’ sister or her mother included in the copies are images of the front sides of checks for dollar_figure including for the month of may and for each of the other months except october and december on the march check the magnetic numbers at the bottom right do not match the amount for which the check was written there is a copy of the front side of a check dated october of for dollar_figure bearing a notation that dollar_figure is for support and dollar_figure is for home health care there is no evidence of a payment in december of the month mrs reynolds’ mother died there are copies of two checks drawn to mrs reynolds’ sister judy maxey with notations that the check is for blue cross health insurance one for dollar_figure in march and for dollar_figure in august there are two checks one drawn to mrs maxey the other to judy maxey that bear notations that they are for the home health care of mrs maxey for dollar_figure and dollar_figure respectively there are three checks drawn to mrs reynolds’ sister in the respective amounts of dollar_figure dollar_figure and dollar_figure that bear no notation or no notation that they are for the health care of mrs maxey petitioners also produced copies of both sides of a check dated date drawn on mrs reynolds’ account to the order of judy maxey for dollar_figure the front side bears the notation remaining medical bills for mrs maxey at trial petitioners argued that the expense represented by this check may be deducted petitioners submitted a reconstruction of medical_expenses indicating among other items a check-paid but reimbursed in the amount of dollar_figure -- - on their tax_return because there’s an exception in the code x for this type of a situation we are unaware of the exception to which petitioners refer as a general_rule cash_method taxpayers deduct expenses in the year actual payment takes place see sec_1_461-1 income_tax regs petitioners have failed to point out any exception in the code that would exclude them from the general_rule to the extent they may be relying on sec_213 they are in error that provision allows an income_tax deduction to a deceased taxpayer for medical_expenses paid out of his estate within a year of his death as though they were paid at the time incurred even if the dollar_figure of expenses had been paid out of the estate of mrs maxey petitioners would not be entitled to claim them as deductions on their joint income_tax return we find that petitioners paid in deductible expenses for medical_care for mrs maxey totaling dollar_figure the total consists of monthly payments of dollar_figure an october payment of dollar_figure insurance payments of dollar_figure and dollar_figure and general home health care payments of dollar_figure and dollar_figure for miscellaneous items b petitioners’ personal medical_expenses petitioners assert that they are entitled to deduct as medical_expenses payments of medical insurance premiums for made under their respective health_plans as well as the payments of medical_expenses not covered by their health_plans -- - petitioners’ explanation of their entitlement to deductions for medical insurance premiums they claimed to have paid for is both unsubstantiated and abstruse during his testimony petitioner produced copies of irs statements of earnings for that substantiate payroll deductions for health plan payments of dollar_figure during that year petitioner offered no evidence showing payroll deductions for health insurance payments for petitioner testified however that to the best of his knowledge his treatment of his health insurance premiums on his tax_return for was consistent with his return his treatment of the years’ returns was consistent according to petitioner in that he included only a fraction of his insurance payments in his medical_expense_deduction on schedule a for both years’ returns he testified that he did not fully deduct the expense as an itemized_deduction on his tax returns because i’m a self-employed_person and a self-employed_person is allowed to --- was allowed to deduct a portion of their medical insurance premiums okay at that point as we were going through this i realized well i’m also a full-time_employee of the service and obviously paid these expenses so if an employee’s entitled to the deduction then i’m entitled to the full thing and therefore i changed my posture on that we find petitioner’s position difficult to understand from both a factual and a legal standpoint since petitioner did not claim any amount on schedule a of his federal_income_tax return we fail to see how this is for as a medical expense consistent with his claim of medical_expenses for the term medical_care as used in sec_213 allowing the deduction includes amounts paid for insurance covering medical_care petitioners were entitled to claim as a deduction on schedule a the full amount of medical insurance payments made during the tax_year subject_to the 5-percent limitation if petitioners are arguing that a portion of mr reynolds’ payments for his government--sponsored medical plan is deductible on schedule c because of his self-employment we decline to accept their argument self-employed individuals may deduct as a business_expense the applicable_percentage of amounts paid for medical insurance sec_162 a but no deduction is allowed in excess of the taxpayer’s earned_income from self-employment derived from the trade_or_business with respect to which the plan providing the medical coverage is established see sec_162 a king v commissioner tcmemo_1996_231 petitioner’s government-- sponsored health plan was not established with respect to his schedule c business furthermore allowance of the deduction does petitioners reported adjusted_gross_income of dollar_figure for in order to obtain the benefit of deducting medical_expenses for the year total medical_expenses would have to exceed dollar_figure x dollar_figure -- - not apply to any taxpayer for any month for which the taxpayer is eligible to participate in a subsidized health plan maintained by his employer see sec_162 b petitioner was eligible to participate in such a plan throughout and see u s c secs and b and petitioners may not deduct on schedule c any amount_paid for employer-sponsored medical insurance on the basis of the record petitioners are not entitled to claim on schedule c any medical_expense_deduction for or petitioner testified that the amount deducted on schedule a as medical_expenses for included dollar_figure for his wife’s health insurance payments petitioners produced copies of explanation of benefits eob’s that are evidence that mrs reynolds was covered during by a health insurance plan sponsored by her employer the eob’s are not however evidence of the amount if any that mrs reynolds paid for her health plan coverage mrs reynolds who testified on other matters gave no testimony on the subject of health insurance payments petitioners have failed to substantiate that they made any expenditure in for medical insurance copies of the eob’s in evidence along with other receipts supplied by petitioners show that mrs reynolds incurred dollar_figure of dental optical and prescription expenses that were not covered by her employer sponsored health plan in we hold that petitioners have substantiated medical_expenses in deductible on schedule a of dollar_figure paid for their dependent mrs maxey and dollar_figure of their personal medical_expenses that were not covered by medical insurance in petitioners had medical_expenses of dollar_figure for health insurance petitioners’ medical expense deductions are allowable to the extent they exceed percent of their adjusted_gross_income for each year see sec_213 issue legal expenses petitioner claimed on his schedules c for and expenses for legal and professional services of dollar_figure and dollar_figure respectively all of the expenses for and dollar_figure of the expenses claimed for relate to legal counsel petitioner engaged to represent him while he was being investigated by inspection a origin and character of the claim the investigation concerned allegations that petitioner was engaged in the private practice of law during government working hours according to petitioners the claimed legal expenses are correctly claimed on schedule c because the expenses are directly related to petitioner’s practice of law the expenses are directly related to the law practice petitioners argue on brief because such conduct if proved could result in sanctions against the law license of petitioner charles reynolds in - - tllinois petitioner explained during his testimony that inspection was investigating his schedule c gross_receipts related directly to my practice of law and to his alleged practice on government time respondent contends that petitioner’s motivation in making payments for legal representation is irrelevant it is the origin of the claim that is important the origin of the claim in respondent’s view 1s in connection with defending petitioner’s employment with the irs respondent points out that such expenses are deductible on schedule a as employee business_expenses subject_to the 2-percent floor of sec_67 we agree with respondent the supreme court in 372_us_39 held that the characterization of legal expenses depends on the activities from which the claim arises for which the expenses were incurred the court said that the origin and character of the claim with respect to which an expense was incurred rather than its potential consequences upon the fortunes of the taxpayer is the controlling basic test id pincite the origin-of-the-claim rule is not a mechanical search for the first in the chain of events which led to the litigation but rather requires an examination of all the facts boagqni v commissioner 59_tc_708 the question to be answered is out of what kind of transaction did the claim arise see id when determining the origin of the claim the court must consider the issues the nature and objectives of the potential action the defenses asserted the purpose for the legal fees the background of the claim out of which the dispute arose and all facts pertaining to the controversy id citing morgan’s 332_f2d_144 5th cir see barr v commissioner tcmemo_1989_420 according to administration internal_revenue_manual cch sec_331 at big_number inspection’s purpose in conducting investigations of allegations against employees of the internal_revenue_service is to determine facts and to report them to management for a decision as to whether the employee is suitable for retention in the service and for other necessary action inspection does not examine tax returns see id sec_331 petitioners argue that as a consequence of the investigation charles reynolds may have lost his law license or might have suffered a negative impact on his law practice or professional reputation the relevant question however asks what the expense arose in connection with not what consequences might have resulted from the taxpayer’s failure to defeat the claim see united_states v gilmore supra pincite patch v commissioner tcmemo_1980_11 the purpose of the legal fees incurred by petitioner in this case was for petitioner to obtain representation during the investigation by inspection the origin of the claim here had to do with petitioner’s conduct as an employee of the internal_revenue_service not with his trade_or_business as an attorney petitioner was attempting to protect his employment not his part-time activity as an attorney petitioner’s legal expenses_incurred for representation in connection with the inspection inquiry are therefore deductible as employee business_expenses on schedule a b time of payment of the legal expenses claimed for that relate to the inspection inquiry the parties disagree over the deductibility of a payment of dollar_figure respondent takes the position that the amount was not paid until while petitioners argue that it was paid in december of petitioners introduced into evidence a computer printout of the attorney’s ledger card indicating that dollar_figure in fees and dollar_figure in costs were billed to petitioner on date but the ledger card also indicates that the payment of dollar_figure by check no was not posted to petitioner’s account until date petitioner testified that he remembered writing the check for dollar_figure in december of so that i got the tax deduction in that year petitioners offered however no canceled check bank statement or other documentary_evidence of the date of the - - contested payment although they produced a bank statement for the same general time period reflecting other_payments at issue once again we cite the general_rule that cash_method taxpayers may deduct expenses in the year actual payment takes place see sec_1_461-1 income_tax regs generally delivery of a check will constitute payment see 12_tc_524 if a check is dated in one year but cashed in the next year the deduction will not be allowed absent proof of delivery in the year of the deduction see odom v commissioner tcmemo_1982_531 affd 707_f2d_508 4th cir mccoy v commissioner tcmemo_1971_34 petitioners have not offered any evidence that check no for dollar_figure was delivered to the payee in and the amount is therefore not deductible for that year on schedule c for petitioners also seek to deduct legal expenses_incurred for mrs reynolds’ representation in a sex discrimination action they produced a copy of a date petitioners had more than one checking account checks written on account no bore three-digit numbers in the two hundreds at the end of petitioners introduced as evidence for other items checks written on account nos and checks written on the latter accounts in bore four digits in the high two thousands and low three thousands and three-digit numbers respectively check no is either out of order by months or was written on a fourth account petitioners offered no explanation for their inability to produce canceled check no a copy of it or a statement showing it invoice for legal services submitted to mrs reynolds requesting payment of dollar_figure and a copy of a bank statement on account no that shows that check no for dollar_figure was presented to the bank for payment on date a copy of petitioners’ check register indicates that check no was written on date petitioners did not produce the original or a copy of check no the evidence does not show that the invoice for dollar_figure was paid in or that check no for dollar_figure was delivered in the amounts are therefore not deductible for that year ’ see odom v commissioner supra mccoy v commissioner supra issue various schedule c expenses sec_162 generally allows a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business generally no deduction is allowed for personal living or family_expenses see sec_262 the taxpayer must show that any claimed business_expenses were incurred primarily for business rather than social reasons see rule a to show that an expense was not personal the taxpayer must show that the expense was incurred primarily to benefit his business and there must have been a proximate because petitioners have not shown that the payments were made in we need not address respondent’s arguments that mrs reynolds’ legal expenses are not otherwise deductible or if deductible must be claimed on schedule a - - relationship between the claimed expense and the business see 72_tc_433 where a taxpayer has established that he has incurred a trade_or_business expense failure to prove the exact amount of the otherwise deductible item may not always be fatal generally unless prevented by sec_274 we may estimate the amount of such an expense and allow the deduction to that extent see 255_f2d_128 10th cir affg 27_tc_413 39_f2d_540 2d cir in order for the court to estimate the amount of an expense however we must have some bassis upon which an estimate may be made see 85_tc_731 without such a basis an allowance would amount to unguided largesse see 245_f2d_559 5th cir petitioner provided at trial copies of miscellaneous checks receipts and invoices as substantiation for schedule c expenses for office expense repairs and maintenance and supplies for respondent concedes that petitioner has shown his expenditure in of dollar_figure for professional licenses in his testimony petitioner pointed out copies of checks and receipts substantiating the expenditure of dollar_figure for repair and maintenance of a business computer in - - petitioners offered no coherent substantiation for office and supplies expenses for petitioners offered no evidence to substantiate expenditures_for business_interest commissions and fees telephone expenses and expenses for professional journals in and no substantiation for various schedule c deductions for petitioners are entitled to deduct various schedule c expenses of dollar_figure for but may deduct no amount for issue sec_274 expenses certain business deductions described in sec_274 are subject_to rules of substantiation that supersede the doctrine in cohan v commissioner supra see sec_1_274-5t temporary income_tax regs fed reg date sec_274 provides that no deduction shall be allowed with respect to a any traveling expense including meals_and_lodging away from home b any item related to an activity of a type considered to be entertainment amusement or recreation or c the use of any listed_property as defined in sec_280f d unless the taxpayer substantiates certain elements for an expense described in one of the above categories the taxpayer must substantiate by adequate_records or sufficient evidence to corroborate the taxpayer’s own testimony the listed_property includes any passenger_automobile sec_280f d a amount of the expenditure or use based on the appropriate measure mileage may be used in the case of automobiles the time and place of the expenditure or use the business_purpose of the expenditure or use and in the case of entertainment the business relationship to the taxpayer of each expenditure or use see sec_274 to meet the adequate_records regquirements of sec_274 a taxpayer must maintain some form of records and documentary_evidence that in combination are sufficient to establish each element of an expenditure or use see sec_1_274-5t temporary income_tax regs supra a contemporaneous log is not required but corroborative evidence to support a taxpayer’s reconstruction of the elements of expenditure or use must have a high degree of probative value to elevate such statement to the level of credibility of a contemporaneous record sec_1 5t c temporary income_tax regs fed reg date a automobile expenses petitioners owned three automobiles in including a toyota camry petitioners claimed as deductions in and miscellaneous and depreciation expenses for use of the toyota in petitioner’s law practice and to travel to and from his farm and the various rental properties petitioners claimed all of the - - depreciation on schedule c and miscellaneous automobile expenses on schedules c and e respondent disallowed petitioners’ deductions for automobile expenses on schedules c and e for and on schedule c for respondent’s position is that petitioners have failed to substantiate their deductions as reguired by sec_274 petitioner did not maintain a log for his business automobile mileage he testified that he thought that maintaining a log was unnecessary on the basis of his reading of the master tax guide an unofficial publication of cch corporation all he had to do was be able to substantiate the elements of the expense at trial petitioner attempted to substantiate his expenses by presenting reconstructions of his business mileage he provided the court with three documents for and one for one of the documents is titled reconstruction of miles driven it has seven columns one each for month activity destination r t mile tolls gas oilmaint rep and hotel under the activity column for each month are listed four items law r e mgmt farm and official although petitioner testified that he was unable to allocate mileage between his various business activities his reconstruction of miles driven purports to list the monthly mileage and expenses for each category of activity and to determine the totals for each category of activity for - - petitioner also provided documents reconstructing automobile expenses for and for that are called schedule c car expenses they show beginning ending and total mileage driven and total personal and business miles driven the reconstructions state that the car was used for petitioner’s legal practice real_estate rental and farm management travel petitioner computed depreciation in the documents and listed expenses for gas oil insurance title repair-tire and tolls parking the third document for is schedule e automobile expenses it purports to allocate miscellaneous automobile expenses to the rental real_estate management maintenance of three properties one each located in kentucky virginia and tllinois law practice use petitioner takes the position that he is entitled to schedule c deductions for use of the toyota automobile in his legal practice he used his car in his legal practice petitioner testified commuting to and from his home for the practice of law he said he had several real_estate closings and commuted to and from the title company generally expenses that a taxpayer incurs in commuting between his home and place of business are personal and nondeductible see 326_us_465 32_tc_947 affd per -- - curiam 283_f2d_865 5th cir sec_1_162-2 sec_1 b income_tax regs expenses_incurred however in going between two or more places of business may be deductible as ordinary and necessary business_expenses under sec_162 if incurred for business reasons see 335_f2d_496 5th cir affg tcmemo_1962_233 heuer v commissioner supra pincite where a taxpayer attempts to deduct the expenses of traveling between two places of business one of which is an office in his home that office must be the taxpayer’s principal_place_of_business for the trade_or_business conducted by the taxpayer at those other work locations see 113_tc_106 73_tc_766 on his schedules c for and line expenses for business use of your home petitioner listed zero petitioner offered no evidence and made no argument that his principal_place_of_business was at his home 506_us_168 farm use at the very bottom of the second page of his reconstruction of miles driven for there is a notation that petitioner drove a total of big_number miles to and from farm on april june july and date for crops in view of other --- - evidence in the record we are not sure what to make of this rather terse explanation petitioners’ schedule f profit or loss from farming reports no income from crops for but states on line note crop sold 94-not included in income-cash basis tp at trial petitioner’s testimony about his farm activities was vague confusing and evasive petitioner did testify eventually that t did not raise a crop in on that land property management use the schedule e reconstruction includes as real_estate property management expenses of petitioner’s kentucky property travel_expenses including airfare for a trip to florida in for both petitioners the stated purpose of the trip was for them to bid for vacant property suitable for residential real_estate development petitioners submitted copies of credit card receipts and airline ticket receipts as substantiation for their expenses although the trip took place between february and the copy of the airline ticket receipt that petitioner entered into evidence shows that it was not issued until date mrs reynolds’ ticket was issued for travel on january and petitioner’s residential real_estate development activity generated at best startup or preopening expenses see sec_195 startup or preopening expenses are not deductible continued - - petitioner testified that he reconstructed his business records from memory aided by review of his retained receipts petitioner provided the court with copies of what he characterizes as receipts representative of those upon which he relied for his and reconstructions we are however unable to determine from the copies of receipts the purpose of any of his automobile trips the most detailed description that the reconstructions give to explain his trips for real_estate management is cleaning leasing with reference to big_number miles driven in the most detailed of the three reconstructions for states mileage by month rather than by trip the reconstruction for gives only schedule c totals for the year many of the representative receipts are for automobile repairs having no apparent relationship to any particular trip or business_purpose some of the gasoline receipt copies show that purchases were made in states in which petitioners maintained property adjacent states or states through which one might travel to reach such states but petitioners have failed to show that personal reasons continued under either sec_162 or sec_212 see 93_tc_684 75_tc_424 affd without published opinion 691_f2d_490 3d cir 56_tc_895 22_tc_858 even if substantiated deduction of such expenses is specifically denied by sec_195 - - were not the primary reasons for the trips see 784_f2d_573 5th cir affg on this issue tcmemo_1984_313 the mere fact that petitioners own business or investment_property in a certain location does not mean that any expense incurred in traveling to that location is automatically deductible see lawler v commissioner tcmemo_1995_26 employee_use petitioner’s computations of business use of the toyota automobile in order to allocate depreciation among his activities include mileage from using his car in his capacity as an employee of the irs for which he was reimbursed petitioner’s reconstruction for shows big_number official miles driven but he provided substantiation for only miles driven he offered no evidence of his official miles driven if any in under sec_280f employee_use of listed_property shall not be treated as use in a trade_or_business for determining the amount of depreciation allowable to the employee unless the use is for the convenience_of_the_employer and is required as a condition_of_employment see also sec_1_280f-6t a temporary income_tax regs fed reg date no evidence was offered on this point and we therefore cannot find that petitioner was required to use his car as a condition of his - -- employment see bryant v commissioner tcmemo_1993_597 affd 39_f3d_1168 3d cir petitioners have not substantiated the business nexus for any of the claimed automobile expenses for driving to or from petitioner’s law practice farm or rental property or that he incurred auto expenses as a condition of his employment with the irs see 522_f2d_708 5th cir each and every element of each and every expenditure must be substantiated we find therefore that petitioner’s testimony and the monthly and yearly mileage reconstructions do not meet the requirements of sec_274 b travel and meals and entertainment expense sec_1 law practice petitioners claimed meals and entertainment_expenses on schedule c for of dollar_figure and travel and meals and entertainment_expenses of dollar_figure for petitioners provided no acceptable substantiation for entertainment_expenses for either year of the dollar_figure claimed for meals and entertainment_expenses for dollar_figure was expended for a family get-together in on the occasion of the death of mrs reynolds’ mother in virginia petitioner testified that i went as an individual who was there as a mourner but a legal matter arose as to how to handle the estate which petitioner described as indigent petitioner -- - testified that at the family dinner he was acting as an attorney not as a family_member for purposes of sec_274 entertainment includes an activity that satisfies personal living or family needs such as providing food and beverages see sec_1_274-2 income_tax regs generally no deduction for entertainment_expenses is allowable unless the taxpayer establishes that the expenditure was directly related to the active_conduct of the taxpayer’s trade_or_business or in the case of an expenditure directly preceding or following a substantial_and_bona_fide_business_discussion that the expenditure was associated with the active_conduct of the taxpayer’s trade_or_business see sec_274 a sec_1 a income_tax regs the requirements for deductibility are in addition to the substantiation requirements of sec_274 petitioner has not shown that he is authorized to practice law in the commonwealth of virginia nor has petitioner shown how his payment for a family meal in virginia is directly related to or associated with the conduct of his law practice in illinois which consisted primarily of real_estate closings not matters related to decedents’ estates on the basis of the record we find that petitioner’s family meal expenditure was primarily a personal rather than a business_expense and that petitioner has not met the sec_274 substantiation requirements for the balance of his meals and - - entertainment expense deductions for or for any such expense for real_estate management in their amended petition and at trial petitioners argue that they are entitled to additional deductions for the standard per_diem_allowance for meals when traveling with respect to their schedule e activity in both and petitioner testified that based on his review of his receipts he is entitled to claim a per_diem_allowance for days in and days in petitioner did not share with the court any business_purpose specific location or dates making up the days in each year for which he seeks deductions nor did he advise the court of the legal authority on which he based his position the commissioner’s revproc_90_15 1990_1_cb_476 provides that in lieu of actual expenses self-employed individuals may in computing a deduction for ordinary and necessary meals and incidental_expenses m ie paid_or_incurred for travel away from home use the federal m ie rate for the locality of travel for the period away from home the per_diem rate will be deemed substantiation of the amount for purposes of sec_1_274-5t and c temporary income_tax regs fed reg date provided that the self-employed_individual substantiates the elements of time place and business -- - purpose of the travel_expenses in accordance with those regulations revproc_90_15 c b pincite petitioners have provided no substantiation for the time place and business_purpose for any of the claimed per_diem expenses we hold therefore that petitioners are not entitled to any deduction for per_diem away-from-home expenses for or issue sec_179 deduction petitioners owned a chevrolet that was used exclusively for personal transportation in october of petitioners traded the chevrolet along with cash for a ford van petitioner explained in his testimony that he purchased the ford van to use as sleeping quarters when he visited his kentucky farm rather than pay dollar_figure-dollar_figure a night for a motel he also used it to haul a tiller plows farm implements this sort of thing to the farm in petitioner testified that he drove the van a total of big_number miles of which big_number miles were accumulated from the trip to virginia to pick up the farm stuff take it to kentucky and return to illinois in their amended petition petitioners claimed that respondent had improperly failed to consider their claim for dollar_figure in farm equipment expenses not properly claimed on petitioners’ returns as filed during the trial before respondent had located petitioners’ -- - federal_income_tax return for petitioner testified on direct examination that he attempted to take a sec_179 deduction for the van on his tax_return for petitioner testified that he took the deduction on form_4562 he also explained that he had trouble getting turbotax to show the same vehicle twice once for the expense and once for the depreciation deduction i’m not sure that it came through using a figure of percent for farm use and a purchase_price of over dollar_figure petitioner testified that there should be allowed for a sec_179 deduction for the van of about dollar_figure for schedule f use instead of reported schedule f income of dollar_figure petitioner testified that the farm activity should show a substantial loss sec_179 allows a taxpayer to treat the cost of certain tangible_property as an expense for the taxable_year it is placed_in_service petitioner however as with some of the other issues in his case has failed to take into consideration all of the statutory requirements to be entitled to the deduction he now claims under sec_179 the sec_179 deduction is available only for sec_179 property see sec_179 sec_179 property is property purchased for use in the active_conduct_of_a_trade_or_business sec_179 as used in sec_179 the term trade_or_business has the same meaning as in sec_162 and the -- -- regulations thereunder and therefore property held merely for the production_of_income does not qualify as sec_179 property sec_1_179-2 income_tax regs active_conduct as used in sec_179 means that the taxpayer actively participates in the management or operations of the trade_or_business sec_1_179-2 income_tax regs a passive investor does not actively conduct a trade_or_business see id according to petitioner’s testimony his farm has no structures other than fences and there were no crops raised on the farm in petitioner further explained that because the acreage is small--it’ sec_22 and some few tenths acres---it is not sufficiently large and we don’t have an allocated poundage allotment authorized by the government to produce a lot of tobacco on it to pay expenses we shall nevertheless assume for the sake of argument that in the farm activity was conducted at the level of a trade_or_business as that term is used in sec_162 to be entitled to the deduction petitioner must show in addition that he meaningfully participated in the management or operations of the trade_or_business see sec_1_179-2 income_tax regs petitioner testified that he took farm equipment from virginia to the farm in and cleaned fence rows but he also testified -- - --the--my brother raised the crop okay he ---having the adjacent acreage there he raised the crop and we effectively sharecropped that okay in other words he’s raising the tobacco and we’re going to split the proceeds i’m going to bear half the expense and that’s what you see on the expense schedule sir from petitioner’s testimony it would appear that he did not meaningfully participate in the operations of the farming activity and he offered no evidence bearing on his participation in the management of the farming activity in ' if we nevertheless assume arguendo that petitioners’ van is sec_179 property and that petitioner actively conducted the farming activity as a trade_or_business in petitioners are still not entitled to the deduction they are still not entitled to the deduction because in their own words it was not properly claimed on petitioners’ returns as filed the election under sec_179 shall be made on the taxpayer’s first income_tax return for the taxable_year to which the election applies or on an amended_return filed within the time prescribed including extensions for filing the return for the taxable_year sec_1_179-5 income_tax regs see sec_179 b in addition the election must list the total sec_179 expenses claimed for all sec_179 property selected petitioner testified that his farm management activity for consisted of leasing a portion of the allotted tobacco poundage to another farmer and must state that portion of the deduction allocable to each item see sec_179 a sec_1_179-5 and income_tax regs attached to petitioners’ return for are three form sec_4562 depreciation and amortization two for law practice and one for real_estate mgmt there is no form_4562 for petitioners’ farm activity on the form_4562 for real_estate mgmt petitioners list as 5-year_property under part v section a listed_property depreciation a ford truck acquired in october of with a cost_basis of dollar_figure for its use in real_estate mgmt activity dollar_figure of the total cost_basis of the van is allocated to depreciation petitioners claimed a depreciation deduction of dollar_figure petitioners therefore allocated percent dollar_figure big_number of the cost_basis of the ford van to depreciation for its use in real_estate management activities the dollar_figure of depreciation for the van is part of a total of dollar_figure of depreciation claimed on line of petitioners’ schedule e on petitioners’ federal_income_tax return there is no sec_179 election for the ford van for use in farming or in any other activity petitioners explicitly depreciated the van for its use ina different activity petitioners are not entitled to claim any amount under sec_179 with respect to the purchase in of the ford van see 66_tc_515 affd 591_f2d_1273 9th cir 42_tc_953 starr v commissioner tcmemo_1995_190 affd without published opinion 99_f3d_1146 9th cir issue accuracy-related_penalty respondent determined that for both and petitioners underpaid a portion of their income taxes because of negligence or intentional disregard of rules or regulations sec_6662 imposes a penalty equal to percent of the portion of the underpayment attributable to negligence or disregard of rules or regulations sec_6662 and b negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and the term disregard includes any careless reckless or intentional disregard sec_6662 the accuracy-related_penalty will apply unless petitioners demonstrate that there was reasonable_cause for the underpayment and that they acted in good_faith with respect to the underpayment see sec_6664 sec_1_6664-4 income_tax regs specifically provides circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of the experience knowledge and education of the taxpayer one of petitioners is a supervisory revenue_agent with the -- - irs an attorney and a certified_public_accountant with his background he has a wider range of technical expertise in tax matters than do members of the general_public see lagoy v commissioner tcmemo_1992_213 jenkins v commissioner tcmemo_1988_292 affd without published opinion 880_f2d_414 6th cir he is or certainly should be familiar with the substantiation requirements of sec_274 and he had access to a wide range of tax resources relating to his claimed deductions under sec_162 and sec_274 petitioners knew or should have known that they had to substantiate the deductions they claimed and had to establish both the amount and business as opposed to personal nature of the expenditures accordingly respondent’s determination is sustained we have considered the other arguments of the parties and they are either without merit or not necessary in view of our resolution of the issues in this case to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi - plr-146004-02 date date number release date index number legend x a d1 this letter responds to a letter date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a the president of x represents that x was intended to be an s_corporation effective d1 however no form_2553 election by a small_business_corporation was timely filed for x sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d1 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d1 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code plr-146004-02 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court philip jensen petitioner v commissioner of internal revenue respondent docket no filed date philip jensen pro_se david m mccallum for respondent memorandum opinion cohen judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for and additions to tax of dollar_figure under sec_6651 for failure_to_file a return dollar_figure under sec_6651 for failure_to_pay_tax and dollar_figure under sec_6654 for failure to make estimated_tax payments the issues for decision are whether petitioner has shown any errors in the notice_of_deficiency or that he is entitled to any deductions related to his body shop business as discussed below none of the facts have been stipulated and the evidence is too sparse for meaningful findings_of_fact unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure background petitioner resided in alabama at the time that he filed his petition during petitioner operated a body shop he received nonemployee compensation of dollar_figure from awc carriers inc during petitioner started his body shop business in he purchased equipment and supplies and made payments for services he did not however maintain records of his purchases of equipment or other expenses and he did not report to the internal_revenue_service irs any commissions or other_payments to persons providing services to the body shop petitioner failed to file a federal_income_tax return for the irs prepared a substitute for return under sec_6020 based on information reported by the payor of income to petitioner the petition in this case had attached a form containing a hodgepodge of frivolous irrelevant and spurious arguments common to petitions following a program of tax defiance see sullivan v commissioner tcmemo_2010_138 cook v commissioner tcmemo_2010_137 the form sets out a general denial of tax_liability a claim of various deductions and exemptions and filing_status other than allowed in the statutory notice an assertion that the figures used stem from illegal immigrants using the taxpayer’s social_security_number an allegation that penalties should be waived because the internal_revenue_code is so complex and confusing a claim for credit for the illegal telephone_excise_tax for each year a claim of deductible expenses of tax preparation and advice on filing even though no return was filed and a claimed lack of records justifying reconstruction and estimates with a citation of and quotation from 266_f2d_5 9th cir remanding tcmemo_1957_172 petitioner requested columbia south carolina as the place of trial by notice served date this case was set for trial in columbia on date attached to the notice setting case for trial was the court’s standing_pretrial_order which advises the parties of the requirements for preparation of cases for trial in this court specifically the exchange of documents and stipulations in accordance with rule petitioner refused to stipulate facts that should not have been disputed instead he filed a motion to shift the burden_of_proof reciting the requirements of sec_7491 although he had not complied with those requirements he also filed a meritless motion for summary_judgment seeking summary adjudication based on his affidavit of expense and deductions he served on respondent’s counsel requests for admissions and otherwise demanded concessions of his claimed deductions and agreement with the allegations in the form attached to his petition including those that clearly have no applicability to his factual circumstances his claimed deductions totaling over dollar_figure were based entirely on estimates and were unsupported by any reliable substantiation at the time of trial petitioner continued to pursue his frivolous contentions even though he had been warned that respondent’s counsel intended to seek a penalty under sec_6673 his pretrial memorandum repeated the allegations of the petition and identified one witness other than petitioner but that witness was not present the proposed witness was petitioner’s brother apparently the brother was not a person that petitioner paid to perform services during and he was offered only as a person who observed petitioner’s body shop operation and assisted petitioner in compiling materials and photographs in petitioner sought a continuance but the record made over the months during which the case was set for trial showed that a continuance was not justified and would not be productive thus it was denied in accordance with the standing_pretrial_order and rule petitioner testified that he purchased equipment and supplies and incurred costs for commissions and outside services when he started his body shop business in but his testimony was based solely on estimates and percentages of the income received he did not produce any payment records or receipts or other reliable evidence of the purchase_price paid or the useful_life of any equipment for depreciation purposes or supplies purchased and consumed during the year he tendered some computer printouts of equipment and supplies available for purchase in and photographs of his body shop operations taken in the tendered materials were not admitted in evidence but were considered as petitioner’s offer of proof petitioner did not testify as to the amount of any personal itemized_deductions that would exceed the standard_deduction although he referred to his wife he did not provide any testimony sufficient to determine his correct filing_status or personal exemptions for the notice_of_deficiency applied rates applicable to single taxpayers in the absence of a joint_return petitioner’s married status would have resulted in a higher tax_liability at the conclusion of the trial petitioner was told that he might produce more persuasive evidence to respondent’s counsel and seek to reopen the record but he has not done so discussion this case presents another unfortunate situation where a taxpayer has pursued arguments and programs provided by an unreliable source rather than obtaining competent tax_advice and substantiating his deductions he has thus forgone otherwise available tax benefits and appropriate deductions for example if petitioner had filed a return for he might have elected under sec_179 to deduct rather than depreciate the cost of equipment purchased and placed_in_service that year his failure_to_file a timely return or to meet the other applicable_requirements now precludes that opportunity see visin v commissioner tcmemo_2003_246 affd 122_fedappx_363 9th cir verma v commissioner tcmemo_2001_132 fors v commissioner tcmemo_1998_158 starr v commissioner tcmemo_1995_190 affd without published opinion 99_f3d_1146 9th cir his failure to show the cost and useful_life of any equipment purchased and placed_in_service in has precluded an allowance for depreciation respondent presented evidence of petitioner’s receipt of nonemployee compensation from awc carriers inc that evidence was admitted under rule sec_803 and sec_902 of the federal rules of evidence petitioner has not raised a reasonable dispute with respect to the income included in the notice_of_deficiency for and he has implicitly admitted receipt of that income by claiming expenses in a specific amount as a percentage of the income determined see sec_6201 117_f3d_785 5th cir he did not satisfy any of the criteria under sec_7491 for shifting the burden_of_proof to respondent as to any item_of_income or deduction the burden of proving error in the notice_of_deficiency thus remains his see rule a 292_us_435 512_f2d_882 9th cir affg tcmemo_1972_133 petitioner claims that he is entitled to deductions based on his estimates he has not provided any explanation or excuse for his failure to maintain and produce records of actual expenditures his estimates are not permissible reconstructions and are not based on any other evidence the items identified by petitioner are not uncommon and he may well have incurred expenses in the categories that he identifies he has not however provided anything more than speculation as to the actual amounts spent during when a taxpayer establishes that he has incurred a deductible expense but is unable to substantiate the exact amount we are in some circumstances permitted to estimate the deductible amount see 39_f2d_540 2d cir we can estimate the amount of the deductible expense however only when the taxpayer provides evidence sufficient to establish a rational basis upon which the estimate can be made see 85_tc_731 petitioner’s pursuit of frivolous arguments undermines his credibility and the reliability of generalized claims we are confident that if he had cooperated with the irs some deductions would have been conceded on the likelihood that expenses had been incurred cf eg sullivan v commissioner tcmemo_2010_138 when a case is tried however we apply the rules regarding maintenance of records substantiation of deductions and burden and adequacy of proof we also determine admissibility of proof under the federal rules of evidence see sec_7453 petitioner’s photographs of items in his shop in do not explain equipment purchased and placed_in_service in and his testimony does not cure that defect he did not even recall when in he commenced his business although for example we do not doubt that petitioner purchased and consumed paint in operating a body shop we have no way of determining the number of gallons purchased and consumed or the prices paid in if as he claims petitioner incurred office expenses those expenses should have been reflected in records of his income and expenditures he might have secured bank records or copies of utility bills and other receipts from the providers of services but he failed to do so he has not suggested any tenable explanation for the absence of reliable evidence we have considered the entire record and petitioner’s offer of proof and we see no rational basis for estimating his deductible expenses under sec_7491 respondent has the burden of production with respect to the additions to tax respondent produced official records reflecting petitioner’s failure_to_file a return for and the preparation of a substitute for return under sec_6020 these records were received in evidence pursuant to rule sec_803 and and and of the federal rules of evidence respondent has satisfied the burden of production with respect to the additions to tax under sec_6651 and see eg 116_tc_438 petitioner has not shown reasonable_cause for his failure_to_file the return when asked for his reason he declined to answer citing the fifth_amendment those additions to tax will be sustained respondent did not however present adequate information concerning petitioner’s liability for or otherwise satisfy the burden of showing petitioner’s obligation to make estimated_tax payments during see 127_tc_200 affd 521_f3d_1289 10th cir the addition_to_tax under sec_6654 therefore will not be sustained respondent has moved for a penalty under sec_6673 on the grounds that petitioner instituted these proceedings primarily for delay and or because petitioner’s position is frivolous or groundless petitioner chose an erroneous course of action rather than competent tax_advice and he ignored the warnings of respondent and the rulings of the court as a result he has been a victim of his own folly he asserts that he has not failed to file returns before or after the single year in issue we have decided not to impose a penalty but we caution petitioner that a penalty in an amount not in excess of dollar_figure may be awarded if he pursues such a misguided course in the future for the reasons explained above decision will be entered for respondent except for the addition_to_tax under sec_6654


number release date internal_revenue_service index numbers - ---------------------------------------- ------------------------------------------------ ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100349-06 date date legend x ------------------------------------------------ --------- -------------- ------------------ ---------- d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to based on the facts submitted and representations made we conclude that the 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 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 form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code except as specifically set forth above no opinion is expressed or implied as to sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes- heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service number info release date dec cc psi 1-genin-161942-02 dear uilc we are responding to correspondence submitted on your behalf by requesting relief in order to establish s_corporation status effective as of the taxable_year although we are unable to respond to your request as submitted this letter provides useful information announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late 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_2002_1 copy enclosed in addition revproc_2002_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 tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2002_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please 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 in addition the irs has developed two new cd-roms to help educate small_business owners on their tax responsibilities introduction to federal taxes for small_business self-employed and a virtual small_business workshop these two cd- roms are free and can be ordered by calling the irs also provides a special website www irs gov smallbiz which is dedicated to providing information to small_business taxpayers please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2002_1 copy of submission


internal_revenue_service number release date index number ------------------ ------------------------------ --------------- -------------------- ------------- ----------------------------------------- corporation organization bonds organization bonds 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 fip b05 plr-144749-07 date date --------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------------------------- dear --------------- letter_ruling issued to corporation on date granted the corporation the ability under sec_1_148-4 of the income_tax regulations to compute single yields on the organization bonds and the organization bonds respectively for purposes of sec_148 of the internal_revenue_code since issuing that letter the treasury and the internal_revenue_service have determined that the provision in sec_1_148-4 granting the secretary authority to permit single yield computations should plr-144749-07 be eliminated because in its current form it does not have sufficient safeguards against transactions that are inconsistent with sec_148 see notice of proposed rulemaking and notice of public hearing fr date consistent with that decision we have determined that ltr should be retroactively revoked as of date and after that date may not be relied on by corporation unless corporation obtains relief as described below ordinarily the revocation of a letter_ruling is effective as the date of its issuance however section dollar_figure of revproc_2007_1 provides that under certain circumstances this retroactive effect may be limited if you wish to limit the retroactive effect of this revocation please follow the procedures described in section dollar_figure to request relief under sec_7805 of the code this letter does not constitute an adverse letter_ruling with respect to the above issues nevertheless you may request a conference to discuss this matter further in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representatives sincerely financial institutions products by________________________ timothy l jones senior counsel