internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 3-plr-103212-99 date date parent_corporation m corporation n sec_1 sec_2 t1 new t1 t2 plr-103212-99 new t2 zco zco state x state y state z date a date b date c date d this letter responds to your date request for rulings on certain federal_income_tax consequences of four proposed mergers additional information was submitted in letters dated date and date related rulings concerning exempt_organization issues appear in separate letters issued by the internal_revenue_service on date d parent is a state x nonstock nonprofit corporation and the parent of a corporate group that provides health care services to the general_public parent is the sole shareholder of t1 a state y for-profit stock corporation and the managing member of both sec_1 and sec_2 both of which are state y nonstock nonprofit_corporations parent’s two members corporation m and corporation n are a state y non-stock nonprofit corporation and a state x non-stock nonprofit corporation respectively corporation m and corporation n serve as the corporate member of sec_2 and sec_1 plr-103212-99 respectively t1 and sec_1 each hold percent of the outstanding_stock of t2 a state y for-profit stock corporation corporation m corporation n parent sec_1 and sec_2 are exempt from federal taxation under sec_501 of the internal_revenue_code it is proposed that both t1 and t2 convert from taxable stock corporations to nonstock nonprofit tax-exempt membership corporations new t1 was incorporated on date a as a membership corporation having parent as its sole corporate member new t2 was incorporated on date b as a membership corporation having sec_1 and t1 as its corporate members moreover corporation m corporation n parent t1 and new t1 have entered into a conversion agreement the t1 conversion agreement dated date c a date before the effective date of sec_1_337_d_-4 of the income_tax regulations pursuant to which the parties are obligated to effect the t1 conversion described in steps and below subject only to the receipt from the internal_revenue_service of a determination_letter for new t1 and this private_letter_ruling likewise corporation m corporation n parent sec_1 t1 new t1 t2 and new t2 have entered into a conversion agreement the t2 conversion agreement dated date c a date before the effective date of sec_1_337_d_-4 pursuant to which the parties are obligated to effect the t2 conversion described in steps and below subject only to the receipt from the internal_revenue_service of a determination_letter for new t2 and this private_letter_ruling both new t1 and new t2 have received favorable determination letters regarding their tax-exempt status dated date d for what are represented to be good business purposes parent proposes the following transactions t1 will merge the first merger into a newly established state z stock corporation wholly-owned by parent zco with zco as the surviving corporation as a consequence of the first merger under state y law zco will acquire all the assets and assume all the liabilities of t1 each outstanding share of t1 stock will be converted into an equal number of shares of zco stock the shares of t1 stock held by parent will be canceled immediately following the first merger zco will merge the second merger into new t1 in accordance with state z and state y law with new t1 as the surviving corporation the outstanding shares of zco stock held by parent will be canceled and effectively converted into a single voting membership interest in new t1 which membership interest will be held solely by parent this voting membership interest will entitle parent to substantially the same rights as parent had in the t1 stock as a consequence of the second merger new t1 will acquire all the assets and liabilities of zco steps and are hereinafter referred to as the t1 conversion plr-103212-99 t2 will merge the third merger into a newly established state z stock corporation wholly-owned in equal parts by new t1 and sec_1 zco with zco as the surviving corporation as a consequence of the third merger under state y law zco will acquire all the assets and assume all the liabilities of t2 each outstanding share of t2 stock will be converted into an equal number of shares of zco stock the shares of t2 stock held by new t1 and sec_1 will be canceled immediately following the third merger zco will merge the fourth merger into new t2 in accordance with state z and state y law with new t2 as the surviving corporation the outstanding shares of zco stock held by new t1 and sec_1 will be canceled and effectively converted into two equal voting membership interests in new t2 to be held by new t1 and sec_1 these voting membership interests will entitle each member to substantially the same rights as the member had in the t2 stock as a consequence of the fourth merger new t2 will acquire all the assets and liabilities of zco steps and are hereinafter referred to as the t2 conversion following the t1 conversion new t1 will continue the historic activities and operations of t1 new t1 will be a membership corporation with the sole membership interest therein held by parent following the t2 conversion new t2 will continue the historic activities and operations of t2 new t2 will be a membership corporation with the membership interests therein held by new t1 and sec_1 it has been represented that to the best of the taxpayers’ representatives’ knowledge and belief each of the first merger the second merger the third merger and the fourth merger will qualify as a reorganization under sec_368 if the service rules as proposed moreover it has been represented that both the t1 conversion agreement and the t2 conversion agreement are binding under state y law based solely on the information submitted and the representations made we rule as follows the t1 conversion and the t2 conversion will not result in gain_or_loss under sec_336 and sec_337 nor will there be recapture_of_depreciation under sec_1245 or sec_1250 the continuity_of_interest requirement set forth in sec_1_368-1 is satisfied in each of the first merger the second merger the third merger and the fourth merger no opinion is expressed about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time or or effects resulting from the transactions that are not specifically plr-103212-99 covered by the above rulings in particular no opinion is expressed about the tax treatment of the first merger the second merger the third merger and the fourth merger except to the extent indicated in ruling this ruling has no effect on any earlier documents and is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction must attach a copy of this ruling letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer’s representative sincerely yours assistant chief_counsel corporate by ken cohen senior technician reviewer branch


internal_revenue_service number release date index number ---------------------------------- ----------------------------------------------- --------------------------------------- --------------------------------------------- ---------------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-141751-06 date date re request for extension of time to make the election to recognize gain pursuant to re request for extension of time to make the election to recognize gain pursuant to sec_197 taxpayer a b c date1 date2 tax professional company official company official lmsb official ----------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------ ------------------------------------------------------------ ------------------- ------------------ ------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------------------------ ------------------ ------------------------------------------------ dear ------------------------ this letter is in response to your letter dated date submitted on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for taxpayer to make an election under sec_197 of the internal_revenue_code and sec_1_197-2 of the income_tax regulations for certain sec_197 intangibles acquired in the taxable_year ended date1 taxpayer represents that the facts are as follows on date company a purchased all of the stock of company b from company plr-141751-06 facts c company c is a wholly owned subsidiary of taxpayer the sole shareholder of taxpayer also owned of company a as of date the stock purchase agreement provided that taxpayer would make a sec_338 election the agreement further provided that taxpayer would make a gain-recognition election under sec_1 h iii on its timely filed federal_income_tax return for the year ending on date taxpayer made a timely election under sec_338 however taxpayer did not make a valid election under sec_1_197-2 for its taxable_year ending on date the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year information affidavits and representations submitted by taxpayer tax professional company official and company official explain the circumstances that resulted in the failure to timely file a valid election under sec_197 the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election under sec_197 and sec_1_197-2 to recognize gain on the applicable transaction on its federal_income_tax return for the year ending on date law sec_197 provides that a taxpayer shall be entitled to an amortization deduction with respect to any amortizable sec_197 intangible sec_197 provides that in general the term amortizable sec_197 intangible means any sec_197 intangible which is acquired after date and which is held in connection with the conduct_of_a_trade_or_business sec_197 provides in part that the term sec_197 intangible means goodwill going_concern_value and other identified intangible assets sec_197 provides in part that the term amortizable sec_197 intangible shall not include any sec_197 intangible which is goodwill going_concern_value or for which depreciation or amortization would not have been allowable but for sec_197 and which is acquired after date if the intangible was held or used at plr-141751-06 any time on or after date and on or before date by the taxpayer or a related_person sec_197 provides in part that a person is related to any person if the related_person bears a relationship to such person specified in sec_267 or sec_707 in applying sec_267 or sec_707 percent shall be substituted for percent however sec_197 provides that sec_197 would not apply to an intangible acquired by the taxpayer but for the percent substitution rule_of sec_197 and the person from whom the taxpayer acquired the intangible elects to recognize gain on the disposition of the intangible and pay a tax on such gain which when added to any other income_tax on such gain equals such gain multiplied by the highest_rate of income_tax applicable to such person sec_1_197-2 provides that a sec_197 intangible qualifies for the gain-recognition exception if a the taxpayer acquires the intangible from a person that would not be related to the taxpayer but for the substitution of percent for percent under sec_1_197-2 and b that person whether or not otherwise subject_to federal_income_tax elects to recognize gain on the disposition of the intangible and agrees notwithstanding any other provision of law or treaty to pay for the taxable_year in which the disposition occurs an amount of tax on the gain that when added to any other federal_income_tax on such gain equals the gain on the disposition multiplied by the highest marginal_rate of tax for that taxable_year sec_1_197-2 provides that the anti-churning_rules of sec_1_197-2 apply to a sec_197 intangible that qualifies for the gain-recognition exception only to the extent the acquiring taxpayer's basis in the intangible exceeds the gain recognized by the transferor sec_1_197-2 provides that the election described in sec_1_197-2 must be made by the due_date including extensions of time of the electing taxpayer's federal_income_tax return for the taxable_year in which the disposition occurs the election is made by attaching an election statement satisfying the requirements of sec_1_197-2 to the electing taxpayer's original or amended income_tax return for that taxable_year or by filing the statement as a return for the taxable_year under sec_1_197-2 in addition the taxpayer must satisfy the notification requirements of sec_1_197-2 the election is binding on the taxpayer and all parties whose federal tax_liability is affected by the election sec_1_197-2 provides that a taxpayer making an election under sec_1_197-2 with respect to the disposition of a sec_197 intangible must provide written notification of the election on or before the due_date of the return on which the election is made to the person acquiring the sec_197 intangible in addition a partnership or s_corporation making an election under sec_1_197-2 must attach to the schedule_k-1 furnished to each partner or shareholder a written_statement containing all information necessary to determine the recipient's additional tax_liability under sec_1_197-2 plr-141751-06 sec_1_197-2 provides that an election statement satisfies the requirements of sec_1_197-2 if it is in writing and contains the information listed below the required information should be arranged and identified in accordance with the following order and numbering system a the name and address of the electing taxpayer b except in the case of a taxpayer that is not otherwise subject_to federal_income_tax the taxpayer_identification_number tin of the electing taxpayer c a statement that the taxpayer is making the election under sec_197 d identification of the transaction and each person that is a party to the transaction or whose tax_return is affected by the election including except in the case of persons not otherwise subject_to federal_income_tax the tin of each such person e the calculation of the gain realized the applicable_rate of tax and the amount of the taxpayer's additional tax_liability under h f the signature of the taxpayer or an individual authorized to sign the taxpayer's federal_income_tax return under sec_301_9100-1 the commissioner has discretion upon a showing of good cause to grant a reasonable extension of time for making the election under the rules set forth in and to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' sec_301_9100-3 provides that requests for relief under ' will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of and have been satisfied accordingly taxpayer is granted an extension for making the election under sec_197 until calendar days from the date of this letter taxpayer must file the election with its amended federal_income_tax return for its taxable_year ending on date and must comply with all the requirements of sec_1_197-2 and viii except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code plr-141751-06 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the lmsb official this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely william p o’shea william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------- -------------------------------- ----------------------- -------------------------------------- legend legend 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 plr-117916-10 date date prs --------------------------------------------------- ---------------------------------- a ----------------------------------------------------- ------------------- state date date year year year year dear -------------- ------------------ -------------------------- ------------------------- ------- ------- ------- ------- this responds to a letter dated date submitted on behalf of prs requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts prs was formed under the laws of state on d1 a was a partner in prs until date when a died prs’s accountant who was responsible for filing the sec_754 plr-117916-10 election inadvertently failed to file the election prs’s partnership returns or amended returns for year year year and year were timely filed and reflected adjustments to the basis of partnership property as if a sec_754 election were in effect law and analysis sec_754 provides that if a partnership files and election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner of a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election 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 that granting relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result prs is granted an extension of time for days from the date of this letter plr-117916-10 to make an election under sec_754 effective year with the appropriate service_center a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose the rulings contained in this letter are based upon information and 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 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 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 associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number 468b ---------------------------------------------------------- ----------------------------- ------------------------------------ ---------------------------- - 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 b06 plr-149064-05 date date legend date date date date date date date date date date date dollar_figurex dollar_figurey confirmation order corporation debtor committee jurisdiction payments plan state trust ------------------------- ------------------------- ------- --------------------- -------------- ---------------------- -------------------------- ----------------------- ---------------------- ---------------- ------------------ ----------------- ------------- -------------------------------------------------------------------------------------- ----------- --------------------------------------------------------- -------- --------------------------------------------------------------------------------- --------------------------------------- -------------------------------------------------------------------------------------- ----------------------------------- -------------------------------------------------------------------------------------- ------------ ------------- -------------------------------------------------- plr-149064-05 dear -------------- this ruling is in response to a request by the settlement severance litigation trust the trust for a determination that the trust is a qualified_settlement_fund under sec_1_468b-1 and that certain proceeds received by the trust are excludable from the trust’s gross_income under sec_1_468b-2 facts on various dates on and after date corporation collectively the debtor filed petitions under chapter of the bankruptcy code in the united_states bankruptcy court for the jurisdiction on date a group of the debtor’s former employees who had been discharged in date filed a motion in the debtor’s bankruptcy case alleging among other theories wrongful discharge and seeking an order directing the debtor to make severance payments to them and all others similarly situated the severance claims on date the united_states bankruptcy trustee appointed the committee to investigate among other issues employees’ claims against the debtor and possible violations of law by the debtor in discharging employees in date the debtor the committee and other parties to the proceeding reached agreement regarding the severance claims the agreement provided that eligible former debtor employees who did not opt_out of the settlement the settling employees would receive an immediate cash payment totaling approximately dollar_figurex additionally each settling employee would be eligible to receive a pro_rata share of any net_proceeds recovered in avoidance actions against certain other former debtor employees who shortly before the debtor filed its chapter action had received payments on date the bankruptcy court entered an order of final approval the final order among other provisions the final order authorized the committee to commence certain avoidance actions on behalf of the debtor to recover the payments and approved the date settlement agreement concerning the severance claims on date the committee created the trust under the provisions of state law to receive and subsequently distribute to the settling employees the proceeds of the avoidance actions pursuant to the final order on date the bankruptcy court approved the committee’s retaining two law firms to investigate and if appropriate to prosecute the avoidance actions from shortly thereafter until date one of the two law firms collected funds in connection with the avoidance actions and held those funds in a non-interest-bearing attorneys’ account on date this law firm transferred to the trustee gross_proceeds in the amount of dollar_figurey plr-149064-05 and since that date has forwarded to the trustee from time to time additional proceeds as they are collected on date the debtor filed in the bankruptcy court its plan under chapter included in the plan were provisions regarding the avoidance actions the trust and its trustee on date the bankruptcy court issued an order the confirmation order confirming the debtor’s plan the confirmation order provides in pertinent part that the bankruptcy court retains jurisdiction over any matter arising under the bankruptcy code or arising in or related to the chapter cases or the plan law and analysis sec_468b states nothing in any provision of law shall be construed as providing that an escrow account settlement fund or similar fund is not subject_to current income_tax the statute further provides that the secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor_trust or otherwise the secretary has exercised this authority by publishing sec_1_468b and sec_1_468b-1 through 468b-5 regarding qualified settlement funds sec_1_468b provides that a designated_settlement_fund as defined in sec_468b is taxed in the manner described in sec_1_468b-2 the regulation provides further that a fund account or trust that does not qualify as a designated settlement is nonetheless a qualified_settlement_fund if it meets the requirements of a qualified_settlement_fund described in sec_1_468b-1 sec_1_468b-1 provides that a fund account or trust is a qualified_settlement_fund if it meets all of the following three requirements it is established pursuant to an order of or is approved by the united_states any state including the district of columbia territory possession or political_subdivision thereof or any agency_or_instrumentality including a court of law of any of the foregoing and is subject_to the continuing jurisdiction of that governmental authority it is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event or related series of events that has occurred and that has given rise to at least one claim asserting liability- i under the comprehensive environmental response compensation and liability act of hereinafter referred to as cercla as amended u s c et seq or plr-149064-05 ii arising out of a tort breach of contract or violation of law or iii designated by the commissioner in a revenue_ruling or revenue_procedure and the fund account or trust is a_trust under applicable state law or its assets are otherwise segregated from other assets of the transferor and related_persons sec_1_468b-1 defines a transferor as a person that transfers or on whose behalf an insurer or other person transfers money or property to a qualified_settlement_fund to resolve or satisfy claims described in sec_1_468b-1 against that person sec_1_468b-2 provides that in general amounts transferred to a qualified_settlement_fund by or on behalf of a transferor to resolve or satisfy a liability for which the fund is established are excluded from gross_income the regulation expressly excepts three sources of funds from this general income exclusion dividends on stock of a transferor or a related_person interest on debt of a transferor or a related_person and payments in compensation_for late or delayed transfers sec_1_468b-1 excludes certain specified classes of liabilities from those described in sec_1_468b-1 a liability is excluded if it is an obligation to refund the purchase_price of or to repair or arises under a workers compensation act or a self-insured health plan replace products regularly sold in the ordinary course of the transferor’s trade_or_business trade creditors or debtholders relating to a title_11_or_similar_case as defined in sec_368 or a workout or revenue_procedure is an obligation of the transferor to make payments to its general is designated by the commissioner in a revenue_ruling or a in the current case the trust was approved by the confirmation order issued by a united_states bankruptcy court which has continuing jurisdiction over the trust the trust was established under the laws of state to resolve employees’ wrongful discharge claims filed under potential theories of tort breach of contract or violation of law further the discharged employees are not general trade creditors of the debtor nor do their claims belong to any other class excluded by the regulation accordingly the trust is a qualified_settlement_fund plr-149064-05 in this case the debtor is the transferor in its final order the bankruptcy court authorized the committee to prosecute the avoidance actions on behalf of the debtor to recover the payments the bankruptcy court subsequently approved the committee’s retaining two law firms to assist in this recovery the law firms represented the committee which in turn acted on the debtor’s behalf the amounts recovered do not fall within the three specific exceptions to the general provision that excludes transfers into the trust from the trust’s gross_income accordingly the funds acquired by the law firm and turned over to the trust are qualified transfers on behalf of the debtor and are excluded from the trust’s gross_income rulings the trust is a qualified_settlement_fund under sec_1_468b-1 the proceeds received by the trust and described in this request for a ruling are excludable from the trust’s gross_income under sec_1_468b-2 the rulings contained in this letter are based upon information and 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 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 copies of this letter are being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant jeffery g mitchell branch chief branch income_tax and accounting sincerely


number release date id office uilc cca_2009042309522945 ---------- from -------------------- sent thursday date am to ----------------------- cc ------------------------------------------------ subject re e-counsel newsletter attached is an article about bankruptcy discharges for the next e-news our apologies for the delay in completing this article -- it had to undergo some revisions please let me know if you have any questions about the article or if you need anything further for this edition -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ---------------------- attachment bankruptcy not always the end for tax collection for the individual taxpayer the purpose of bankruptcy is to allow a person to reduce reorganize or eliminate his debts and have a fresh financial start - but this does not always mean that the person’s tax debts go away most individual debtors who file for bankruptcy do so under either chapter or of the bankruptcy code each chapter has different treatments of the person’s debts but when it comes to the treatment of an individual’s taxes they are mostly the same neither chapter nor chapter allows an individual debtor to get rid of three types of tax obligations priority taxes taxes from non-filed or delinquent returns and taxes from fraudulent_returns or willful tax_evasion attempts for taxes incurred pre-bankruptcy their dischargeability depends upon the type of tax and when the tax was assessed or the return was filed priority status is given to any income_tax_liability for which a return was due including extensions within three years before the bankruptcy filing income taxes are also not dischargeable in bankruptcy if the assessment was made within days before the bankruptcy petition was filed with additional time provided for any periods when an oic was pending or during which the debtor was previously in bankruptcy trust_fund_taxes are considered priority in bankruptcy regardless of the timing of the assessment priority taxes also include income taxes that were not assessed but were assessable after the start of the bankruptcy so long as the taxes do not fall within one of the other categories described below the second category of taxes that are not discharged in bankruptcy are those stemming from tax periods in which a return was due but not filed changes made to the bankruptcy code in make it so a substitute for return sfr prepared by irs under sec_6020 is a return for purposes of discharge so if the irs created an sfr for the tax period the debt can only be exempt from discharge if it falls within one of the other exceptions this category of non-dischargeable taxes also includes those reported on late-filed returns if the returns were filed within two years of the bankruptcy petition date finally the bankruptcy code punishes tax_fraud by preventing discharge of any taxes that the debtor makes a fraudulent return or willfully attempts to evade taxes while willful tax_evasion is not defined by bankruptcy law it is similar to the standard the irs uses to define civil_fraud failure to pay taxes is generally not enough a debtor’s voluntary conscious and intentional failure_to_file returns for an extended period of time and a failure to pay taxes when the debtor has the ability to do so may qualify as a willful evasion some courts require the irs prove some affirmative misconduct to support a claim of will evasion such as concealed or fraudulently transferred assets a debtor may also still have to pay penalties and interest on tax_liabilities after going through bankruptcy if a tax period is given priority status in bankruptcy then the pre- petition interest on the liability is also nondischargeable postpetition interest on nondischargeable debts is also nondischargeable the treatment of penalties is more complicated unlike interest penalties do not follow the priority determination of the related tax penalties are only excepted from discharge if they relate to a transaction or event that occurs within two years before the bankruptcy petition date according to the american bankruptcy institute the number of consumer bankruptcy filings increased over between date and date this increase has likewise increased the work for sb_se insolvency sb_se counsel is available to work with insolvency and other affected divisions of the irs to help represent the irs’s interests in bankruptcy proceedings and maximize the collection potential on non- dischargeable taxes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-116558-00 date date legend x a b d1 d2 dear this responds to your letter dated date and prior correspondence submitted on behalf of x requesting that we render several rulings with respect to the incentive stock compensation arrangement proposed by x and its two shareholders facts x is a corporation which has a valid subchapter_s_election in effect x has two shareholders a and b collectively the founders the founders are unrelated to each other and unrelated to any of the key employees discussed below the founders have different retirement goals however they both intend to ultimately transfer all of their stock in x to certain key employees as part of their long-range plan to transfer ownership of x the founders have agreed to transfer equal amounts of incentive stock to key employees in addition each founder intends to transfer the balance of their respective stock to the key employees over time on each’s own terms and to such transferees as each founder deems appropriate subject only to the provisions of a buy-sell_agreement dated d1 the founders have agreed that they would like to put in a place a structure whereby each is able to effectively transfer ownership of incentive stock of x to certain key employees the founders and x propose the following transactions to accomplish their objective of creating a structure whereby the founders can transfer ownership of x to key employees plr-116558-00 first the founders will cause x to amend its articles of incorporation to authorize the issuance of nonvoting common_stock that differs from the other outstanding_stock of x only with respect to voting rights second x will issue equal quantities of the nonvoting_stock to a and b part of the nonvoting shares received by the founders will be used by the founders as incentive stock to encourage the continued employment of certain key employees the remaining nonvoting_stock non-incentive stock and the founders voting shares will be used by the founders to transfer ownership of x to certain key employees and other transferees at the same time as the issuance of the nonvoting common_stock the founders and x intend to amend the current buy-sell_agreement that is in place to exempt the founders transfer of incentive stock from the buy-sell_agreement dated d1 the founders will then grant to the key employees the conditional unsecured right to receive incentive stock the incentive stock will consist of a portion of x’s nonvoting_stock each key employee’s right to receive his specified incentive stock vests in the event certain conditions are met on d2 the period of time from the grant of the stock to d2 is referred to as the vesting period at the time the grants of the incentive stock are given by the founders several agreements will be entered into between the founders x and the key employees these agreements are summarized below at will employment agreement x and the key employees will enter into an at will employment agreement which provides that x will pay the key employees annually and in arrears bonuses equal in amount to a percentage of the distributions paid to the founders with respect to their stock the percentage is determined by reference to the number of shares of incentive stock that the key_employee will receive at the close of the vesting period x intends to treat the bonuses as wages subject_to_withholding x’s promise to pay the bonuses will be unfunded and unsecured if a key employee’s employment ends for any reason during the vesting period the key_employee will be entitled to receive a payment equal to certain book appreciation in their respective incentive stock during the vesting period however the key employee’s right to receive unpaid bonuses ends with the employment relationship stock transfer agreement under the stock transfer agreement entered into between the founders and the key employees the founders’ transfer of incentive stock to a key_employee on d2 occurs without payment of any consideration by the key_employee but is subject_to the key employee’s fulfillment of certain conditions first the key_employee must be employed by the taxpayer on d2 second the key_employee must agree to execute an agreement among the shareholders regarding the book_value of stock agreement regarding book_value the agreement regarding book_value the agreement regarding book_value is to be executed by a b x and the key plr-116558-00 employees upon the transfer of the incentive stock this agreement provides that upon the transfer of the incentive stock to the key employees the fair_market_value of the stock is agreed to be its book_value the agreement further requires that a key_employee offer his incentive stock to x and the other shareholders when for any reason including death the key employee’s employment with x ends or there is an attempted voluntary or involuntary transfer of the incentive stock the book_value of the stock is to be determined by reference to the audited financial statements for the fiscal_year concluded immediately prior to the transfer with one exception in the case of an attempted voluntary sale of the incentive stock the key_employee is deemed to offer such stock at the proposed sale price if that is lower than book_value law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any_tax year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 of the code provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and meets the requirements specified in sec_1361 through d sec_1361 provides that s_corporations may not possess more than one class of stock sec_1361 provides that for purposes of sec_1361 a corporation will not be treated as having more than one class of stock solely because there are differences in voting rights among the shares of common_stock sec_1_1361-1 provides that except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the agreement is to circumvent the one class of stock requirement although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and plr-116558-00 circumstances sec_1_1361-1 provides that buy-sell agreements among shareholders agreements restricting the transferability of stock and redemption agreements are disregarded in determining whether a corporation’s outstanding shares of stock confer identical distribution and liquidation rights unless a principal purpose of the agreement is to circumvent the one class of stock requirement of sec_1361 and sec_1_1361-1 and the agreement establishes a purchase_price that at the time the agreement is entered into is significantly in excess of or below the fair_market_value of the stock agreements that provide for the purchase or redemption of stock at book_value or at a price between fair_market_value and book_value are not considered to establish a price that is significantly in excess or below the fair_market_value of the stock and thus are disregarded in determining whether the outstanding shares of stock confer identical rights sec_1_1361-1 provides that bona_fide agreements to redeem or purchase stock at the time of death divorce disability or termination of employment are disregarded in determining whether a corporation’s shares of stock confer identical rights sec_1_1361-1 provides that a determination of book_value will be respected if the book_value is determined in accordance with generally_accepted_accounting_principles including permitted adjustments or if the book_value is used for a substantial nontax purpose sec_1_1361-1 provides that for purposes of subchapter_s stock that is issued in_connection_with_the_performance_of_services within the meaning of sec_1_83-3 and that is substantially nonvested within the meaning of sec_1_83-3 is not treated as outstanding_stock of the corporation and the holder of that stock is not treated as a shareholder solely by reason of holding the stock unless the holder makes an election with respect to the stock under sec_83 of the code sec_1_1361-1 provides that an instrument obligation or arrangement is not treated as outstanding_stock if it i does not convey the right to vote ii is an unfunded and unsecured promise to pay compensation iii is issued to an employee in_connection_with_the_performance_of_services for the corporation or to an individual who is an independent_contractor in_connection_with_the_performance_of_services for the corporation and is not excessive by reference to the services performed and iv is issued under a plan with respect to which the employee or independent_contractor is not taxed currently on income a deferred_compensation plan that has a current payment feature eg payment of a dividend_equivalent amounts that are taxed currently as compensation is not for that reason excluded under sec_1_1361-1 under sec_83 of the code if in_connection_with_the_performance_of_services property is transferred to any person other than the person for whom such services are performed the excess of the fair_market_value of the property determined without regard to any restriction other than a restriction which by its terms will never lapse over the plr-116558-00 amount if any paid for the property is included in the gross_income of the person who performed such services in the first taxable_year in which the rights of the person having the beneficial_interest in such property are either transferable or not subject_to a substantial_risk_of_forfeiture revrul_80_196 1980_2_cb_32 held that the transfer of a corporation’s stock by the corporation’s two shareholders to three employees to retain their valuable services was compensation made for adequate_and_full_consideration and was not subject_to gift_tax sec_1_83-5 of the income_tax regulations provides that in the case of property subject_to a nonlapse_restriction the price determined under the formula will be considered to be the fair_market_value of the property unless established to the contrary by the commissioner if stock in a corporation is subject_to a nonlapse_restriction which requires the transferee to sell such stock only at a formula price based on book_value then the price so determined will ordinarily be regarded as determinative of the fair_market_value of such property for purposes of sec_83 sec_1_83-6 provides that in the case of a transfer of property to which sec_83 applies a deduction is allowable under sec_162 to the person for whom the services were performed but only to the extent the amount meets the requirements of sec_162 and the regulations thereunder the deduction is allowed only for the taxable_year of that person in which or with which ends the taxable_year of the service provider in which the amount is included as compensation sec_1_83-6 provides that if a shareholder of a corporation transfers property to an employee of such corporation in consideration of services performed by the corporation the transaction will be considered to be a contribution of such property to the capital of such corporation by the shareholder and immediately thereafter a transfer of such property to the employee sec_451 of the code and sec_1_451-1 provide that an item_of_gross_income is includible in gross_income in the taxable_year in which it is actually or constructively received by the taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 income is constructively received in the taxable_year during which it is credited to a taxpayer’s account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions in revrul_80_300 1980_2_cb_165 a corporation granted to its key employees stock appreciation rights that entitled them to a cash payment for each right exercised equal to the excess of the fair_market_value of a share of a corporation’s common_stock on the date of exercise over the fair_market_value of a share on the date the right was granted the revenue_ruling held that an employee possessing stock appreciation rights is not in constructive receipt of income by virtue of the appreciation of the employer’s stock because plr-116558-00 the employee’s right to benefit further from appreciation of stock without risking any capital is a valuable right the forfeiture or surrender of which is a sufficient restriction precluding the application of the doctrine_of constructive receipt conclusion based solely on the facts and representations made by x we conclude x’s issuance of nonvoting common_stock will not cause it to have more than class of stock for purposes of sec_1361 the arrangement for payment of bonuses will not cause x to have more than one class of stock for purposes of sec_1361 a key_employee is not a shareholder during the vesting period for any purpose of subchapter_s of the code by virtue of the at will employment agreement and or the stock transfer agreement the amount allowable as a deduction by x and includable in a key employee’s gross_income with respect to the incentive stock is the book_value of such stock at the time the incentive stock is transferred a key_employee becomes a shareholder for all purposes of subchapter_s of the code upon receiving the incentive stock at the conclusion of the vesting period a founder’s transfer of incentive stock to a key_employee is treated under sec_83 as a contribution of such stock by the founder to the capital of x and an immediate transfer by x to the key_employee the stock transfer agreement the agreement regarding book_value the agreement regarding stock and the buy-sell_agreement dated d1 are disregarded in determining whether or not x has more than class of stock for purposes of sec_1361 and the mere contractual right of a key_employee to a severance payment equal to the book appreciation of the incentive stock upon termination without cause will not result in taxable_income to the employee prior to his or her termination without cause 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 plr-116558-00 in accordance with the power_of_attorney on file with this office the original of this letter is being sent to the taxpayer’s representative and a copy is being sent to the taxpayer s david r haglund sincerely senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index numbers ------------------------------------- ---------------------------- -------------------------- --------------------------------- 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 plr-127406-09 date date legend x -------------------------------------------------------- ------------------------------------- y ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ z date date date country -------------------------------- ------------------------- ---------------------- ------------------- ------------ dear --------------------- this responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts the information submitted states that x was formed on date under the laws of country on date y acquired a percent interest in x on date y transferred its plr-127406-09 entire_interest in x to z x represents that x is a foreign_entity eligible to elect to be treated as a partnership x intended to be treated as a partnership effective date due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as a partnership effective date law and analysis 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 a business_entity is any entity 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_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability or b an association if all members have limited_liability or c 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 to elect to be classified other than as provided in sec_301_7701-3 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 under sec_301_9100-1 the commissioner may grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-127406-09 requests for relief under 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 granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we 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 make an election to be treated as a partnership for federal tax purposes effective date x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form 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 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 curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court robert k lahodny petitioner v commissioner of internal revenue respondent docket no filed date robert k lahodny pro_se christine v olsen for respondent memorandum opinion laro judge respondent moves for partial summary_judgment arguing that petitioner's plea of guilty to criminal_fraud under sec_7201 collaterally estops him from rebutting her determination that he is liable for civil_fraud under sec_6653 for the same years respondent supports her motion with two exhibits namely a grand jury indictment indictment of petitioner and andrew winslow willis and petitioner's plea agreement plea agreement to the charges contained in the indictment the court ordered petitioner to respond to respondent's motion on or before date petitioner failed to do so the court must decide whether petitioner is collaterally estopped from contesting that deficiencies in his income taxes for the years at issue were due to fraud within the meaning of sec_6653 on account of his plea of guilty to a violation of sec_7201 we hold he is unless otherwise stated section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure dollar amounts have been rounded to the nearest dollar background petitioner petitioned the court to redetermine respondent's determination of deficiencies of dollar_figure and dollar_figure in his and federal income taxes respectively and dollar_figure and dollar_figure additions to those respective taxes under sec_6653 petitioner resided in texarkana texas when he petitioned the court petitioner was a defendant in the criminal case united_states v lahodny which was docketed in the u s district_court for the southern district of california in connection with this case petitioner pleaded guilty on date to tax_evasion for and in violation of sec_7201 petitioner was represented by counsel when he pleaded guilty petitioner had been indicted in or about date with respect to the criminal matter the indictment charged that petitioner was a partner in a major marijuana importation and distribution network during the subject years and that petitioner used offshore entities and foreign bank accounts to launder profits from that activity the indictment charged that petitioner knowingly and willfully attempted to evade federal_income_tax for and by filing false and fraudulent federal_income_tax returns for those years in violation of sec_7201 the indictment charged that petitioner's taxable_income was approximately dollar_figure and that his taxable_income was approximately dollar_figure respondent determined that petitioner received unreported drug proceeds of dollar_figure and dollar_figure in and respectively and that these proceeds were includable in petitioner's gross_income for those years petitioner's and tax returns reported that his and gross_income was dollar_figure and dollar_figure respectively discussion rule a provides that either party may move for summary_judgment upon any or all parts of the legal issues in controversy when either party makes such a motion the opposing party must file an opposing written response with or without supporting affidavits within such period as the court may direct rule b a decision on the merits of a party's claim will be rendered by way of summary_judgment if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law id the moving party must prove that there is no genuine issue of material fact and factual inferences are viewed in the light most favorable to the nonmoving party 369_us_654 95_tc_594 the instant case is ripe for summary_judgment it is well established that petitioner's conviction of criminal_tax_evasion for and under sec_7201 collaterally estops him from denying that deficiencies in his income taxes for those years were due to fraud for purposes of sec_6653 the elements of criminal_tax_evasion under sec_7201 are not dissimilar to the elements of civil tax_fraud under sec_6653 and a guilty plea is equivalent to a conviction after trial for the purpose of collateral_estoppel see eg 47_f3d_716 5th cir 708_f2d_243 6th cir affg tcmemo_1981_1 334_f2d_262 5th cir 84_tc_405 82_tc_413 affd without published opinion 772_f2d_910 9th cir 43_tc_50 affd 360_f2d_358 4th cir respondent's motion for partial summary_judgment will be granted to reflect the foregoing an appropriate order will be issued


internal_revenue_service national_office technical_advice_memorandum date number release date third party communication none date of communication not applicable index uil no case-mis no tam-121139-16 director employee_plans examinations -------------------------------- taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference --------------------------------- -------------------------------- --------------------------------- ------------------ --------------------------- -------------------------- legend taxpayer --------------------------------- entity ---------------------------------------------------- entity ----------------------------------------- entity ------------------------------------------------- entity --------------------------------- entity --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- plan a ------------------------------------------------------------------------ plan b ---------------------------------------------------------------------------------------------------------- tam-121139-16 ---------------------------------------- issue are the annual_additions credited to the account of the taxpayer in plan a and the annual_additions credited to the account of the taxpayer in plan b required to be aggregated for purposes of sec_415 of the internal_revenue_code due to the application of the controlled_group rules under sec_414 conclusion the annual_additions credited to the accounts of the taxpayer in plan a and plan b are required to be aggregated for purposes of sec_415 due to the application of the controlled_group rules under sec_414 facts the taxpayer is the sole owner and employee of entity and entity entity and entity are in a sec_414 brother-sister_controlled_group entity is also a partner in entity along with ---- other partners all of the partners are professional corporations except for two individual doctors each partner holds a ------ interest in entity the taxpayer is also a partner as an individual in a related_organization entity with the same ---- other partners as individuals entity is a ------------- group providing medical imaging services the taxpayer also services patients at a hospital and receives separate self-employment_income through entity entity entity entity and the other professional corporations that are partners in entity constitute an affiliated_service_group entity under sec_414 both entity and entity have staff employees in entity had approximately employees and entity had approximately ---- employees the other professional corporations that are partners in entity are identical in structure to entity each such professional_corporation is also owned by a doctor who is the sole employee of his or her professional_corporation entity maintains plan a in which the taxpayer is the sole participant entity sponsors plan b a volume submitter profit-sharing_plan with a cash_or_deferred_arrangement entity is one of the participating employers in plan b the taxpayer is participating in plan b as the sole employee of entity pursuant to -----of plan b the term employer means entity and any participating employer including entity section ---------- of plan b provides that unless the context of the plan clearly indicates otherwise the word employer shall be deemed to include tam-121139-16 each participating employer as related to its adoption of the plan section ---------- of plan b provides that contributions made by participating employers may be commingled into one trust fund but any contributions shall be held for the exclusive benefit of the employees of each participating employer and the trustee must keep separate books_and_records regarding each employer participating employers also pay their proportional share of expenses of the trust the majority of partners of entity participate in plan b through their professional corporations the employees of the partners of entity make pre-tax contributions to plan b from the pay received through their professional corporations and the professional corporations make matching and profit-sharing contributions on their employees’ behalf the staff employees of entity and entity also participate in plan b entity and entity make employer contributions on behalf of their own employees the taxpayer contributed dollar_figure---------- to plan a in the taxpayer also made elective contributions to plan b of dollar_figure---------- dollar_figure---------- in elective_deferrals and dollar_figure-------- in catch-up_contributions in in addition entity made dollar_figure---------- in matching_contributions and dollar_figure---------- in profit sharing contributions to plan b on the taxpayer’s behalf thus in the taxpayer contributed a total of dollar_figure---------- to plan a and plan b the sec_415 limit was dollar_figure excluding catch-up_contributions entity filed a form_1120 u s_corporation income_tax return reporting deductions for plan contributions and other deductions entity received a schedule_k-1 form_1065 partner’s share of income deductions and credits etc from entity for its distributive_share of entity 3’s income for in the amount of dollar_figure------------ entity reported this amount in income on its form_1120 entity deducted compensation of officers taxes and licenses interest depreciation pension and profit-sharing_plan contributions employee_benefits costs and other items after taking deductions entity had a net_income of zero the taxpayer received a gross salary from entity of dollar_figure------------ law and analysis sec_414 generally provides that all employees of trades_or_businesses whether or not incorporated which are under common_control shall be treated as employed by a single employer for purposes of sec_401 sec_408 sec_408 sec_410 sec_411 sec_415 and sec_416 sec_1_414_c_-2 of the income_tax regulations provides that two_or_more_trades_or_businesses_under_common_control includes a brother-sister_controlled_group a brother- sister controlled_group is two or more organizations conducting trades_or_businesses if i the same five or fewer persons own a controlling_interest in each organization at least and ii taking into account these interests only to the extent they are identical have effective_control more than tam-121139-16 congress enacted sec_414 in to aggregate certain entities that did not have sufficient common ownership to form a controlled_group sec_414 provides that all members of an affiliated_service_group must be aggregated for purposes of the employee benefit requirements under sec_401 and and sec_408 sec_408 sec_410 sec_411 sec_415 and sec_416 under sec_414 an affiliated_service_group is a group consisting of a first service_organization fso whose principal business is providing services and at least one other related_organization a related_organization can be either an a organization - a service_organization that is a shareholder or partner in the fso and regularly performs services for it or is regularly associated with it in performing services for others or a b organization - any other organization a significant portion of whose business is performing services for the fso the a organization or both if those services are of the type historically performed by employees and if at least of its interests is held by highly compensated employees of the fso or an a-organization proposed_regulations were issued in under sec_414 sec_1 m -1 a of the proposed_regulations provides a in general sec_414 provides rules that require in some circumstances employees of separate organizations to be treated as if they were employed by a single employer for purposes of certain employee benefit requirements for other rules requiring aggregation of employees of different organizations see sec_414 relating to controlled_group_of_corporations and sec_414 relating to trades or business under common_control if aggregation is required under either of the requirements with respect to all of the applicable provisions must be satisfied the preceding provisions and also under sec_414 sec_415 provides in part that contributions and other additions with respect to a participant exceed the limitations under that section when such annual_additions are greater than the lesser_of a stated dollar amount dollar_figure in or of the participant’s_compensation sec_1_415_a_-1 provides that all employees of controlled groups under sec_414 or c are treated as employed by a single employer so that a plan maintained by any member is deemed maintained by all of the members sec_1_415_a_-1 states that any plan maintained by a member of an affiliated_service_group is deemed maintained by all members of that affiliated_service_group entity and entity are in a controlled_group and are treated as a single employer under sec_414 the application of sec_414 requires that plan a and plan b contributions be combined under one sec_415 limit when the contributions are combined the taxpayer has exceeded the limit by dollar_figure---------- for the result does tam-121139-16 not change simply because entity is also in an affiliated_service_group under sec_414 as part of entity although another provision of the code sec_414 allows disaggregation for certain purposes when an employer is operating separate lines of business for bona_fide business reasons sec_414 is inapplicable in this case no other statutory provisions would allow trades_or_businesses under common_control under sec_414 to be disaggregated the conclusion that both sets of rules must be met separately and in their entirety is consistent with sec_1 m - a of the proposed_regulations as noted above that proposed regulation provides that if aggregation is required under either sec_414 or sec_414 and also under sec_414 the requirements with respect to all of the applicable provisions must be satisfied thus the proposed_regulations are consistent with and support the conclusion that entity as a member of both groups must take into account its relationship with each group to separately satisfy all of the requirements of sec_414 as well as all of the requirements of sec_414 in addition legislative_history supports the position that the application of the sec_414 provisions cannot be avoided by application of the provisions under sec_414 legislative_history related to amendments made by the technical_and_miscellaneous_revenue_act_of_1988 p l to sec_414 suggests that the controlled_group rules should be considered first stating that an affiliated_service_group may not be treated as consisting of separate lines of business or operating units under sec_414 and that because generally sec_414 and c applies before sec_414 a group that is treated as aggregated under sec_414 and c is not treated as an affiliated_service_group even if such group could also have been aggregated under sec_414 if both sets of rules must be separately met and further the controlled_group rules apply before the affiliated_service_group rules the applicable tax qualification requirements must first be separately met by the controlled_group which consists of entity and entity the result is that the contributions to plan b in which entity is a participating employer would be combined with the contributions to plan a for sec_415 purposes the taxpayer argues that entity and entity are not in a controlled_group for purposes of determining the sec_415 limits for plan a and plan b according to the taxpayer because entity is a part of entity an affiliated_service_group under sec_414 entity is not the employer maintaining plan b on behalf of the taxpayer for purposes of sec_415 but rather based on sec_414 entity is treated as the single employer maintaining plan b the taxpayer then argues that if entity is treated as the single employer maintaining plan b entity does not have a sufficient relationship with entity to be treated as a single employer in a controlled_group with entity under h_r rep no 100th cong 2d sess tam-121139-16 sec_414 for sec_415 purposes and accordingly the taxpayer may have a separate sec_415 limit apply for purposes of participating in any plans sponsored by entity from the sec_415 limit that would apply for purposes of participation in any plans sponsored by entity however the code and legislative_history indicate that the aggregation of sec_414 and sec_414 must be separately met in their entirety which is also consistent with sec_1 m - a of the proposed_regulations while pursuant to sec_414 all the employers in entity including entity are treated as a single employer for sec_415 in addition pursuant to sec_414 entity and entity are treated as a single employer for purposes of sec_415 it is with respect to the controlled_group under sec_414 between entity and entity that the taxpayer exceeded the limitations under sec_415 the taxpayer also argues that he could have had two separate sec_415 limits if he owned the partnership interests of entity as an individual rather than through entity the taxpayer argues that the irs is elevating form over substance to come to a different result just because entity is the partner in entity rather than the taxpayer however entity is an entity in its own right entity is described as a participating employer along with the other professional corporations and is also defined as an employer under the terms of plan b entity performs functions that an employer would perform such as making matching_contributions to the sec_401 plan and profit- sharing contributions taking deductions under sec_404 for employer contributions and filing its own form_1120 the taxpayer chose to have entity participate as a partner in entity not the taxpayer and to treat entity as the employer of the taxpayer we conclude that the controlled_group rules under sec_414 require that entity and entity be treated as a single employer for purposes of sec_414 and that the conclusion that entity and entity are a single employer with respect to the taxpayer is not affected by any application of sec_414 as a result the annual_additions credited to the accounts of the taxpayer in plan a and plan b are required to be aggregated for purposes of sec_415 caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent because this conclusion is not affected by any application of sec_414 this technical_advice_memorandum does not address any other possible implications resulting from entity 2’s overlapping membership in both the sec_414 affiliated_service_group and the sec_414 controlled_group


t c summary opinion united_states tax_court harald berrey petitioner v commissioner of internal revenue respondent docket no 18849-03s filed date harald berrey pro_se kathleen c schlenzig for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of 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 unless otherwise indicated subsequent 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 respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure an addition_to_tax of dollar_figure pursuant to sec_6651 an addition_to_tax of dollar_figure pursuant to sec_6651 and an addition_to_tax of dollar_figure pursuant to sec_6654 for the taxable_year the petition placed in dispute respondent’s determination as to filing_status allowance of standard_deduction and all additions to tax after respondent’s concessions the issues still in contention are whether petitioner is entitled to claim an itemized_deduction for medical_expenses in excess of those conceded by respondent and whether petitioner is liable for the additions to tax under sec_6651 a and a the amount of the additional 10-percent tax pursuant to sec_72 is a computational matter and will be resolved by our decision on the medical_expenses issue 1petitioner in his petition did not dispute respondent’s determination as to the inclusion of certain items in gross_income as a result the amount of deficiency placed in controversy is less than dollar_figure see rule 89_tc_676 2respondent concedes medical_expenses in the amount of dollar_figure leaving at issue expenses in the amount of dollar_figure dollar_figure-dollar_figure respondent also concedes that any medical_expenses allowed as a deduction under sec_213 shall be deemed paid for by a portion of petitioner’s withdrawal from his thrift_savings_plan and are therefore excepted from the additional tax under sec_72 respondent further concedes that petitioner’s filing_status is married_filing_jointly background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in hoffman estates illinois on the date the petition was filed in this case during petitioner was a project manager for the federal aviation administration faa branch of the united_states department of transportation as of petitioner had been a full-time_employee with the faa for almost years in august of petitioner voluntarily resigned from his employment at the faa the u s department of transportation prepared a form_w-2 wage and tax statement for petitioner showing wage income of dollar_figure and federal_income_tax withheld of dollar_figure also in petitioner withdrew all of his contributions from his thrift_savings_plan through the national finance center as a result of this withdrawal the national finance center sent to petitioner a form 1099-r distributions from pensions annuities retirement or profit sharing plans iras insurance contracts etc for the year reflecting a withdrawal in the amount of dollar_figure and federal_income_tax withheld of dollar_figure petitioner did not make any payments to the internal_revenue_service for the taxable_year other than the withholdings during the tax_year at issue petitioner was married to cynthia k berrey ms berrey ms berrey was a customer service supervisor for warner-lambert company during taxable_year as a result of her employment warner-lambert company prepared a form_w-2 for ms berrey showing wage income of dollar_figure and federal_income_tax withheld of dollar_figure petitioner did not file his federal_income_tax return by the date due_date additionally petitioner did not request an extension of time to file the tax_return in a notice_of_deficiency respondent determined that petitioner’s filing_status was married_filing_separately and that petitioner received total income wages interest dividends pensions misc of dollar_figure respondent also determined that petitioner was liable under sec_72 for the 10-percent additional tax on that portion of a distribution from a qualified_retirement_plan that is includable in petitioner’s gross_income and additions to tax for failure_to_file a federal_income_tax return for the taxable_year failure to pay federal_income_tax for the taxable_year and an underpayment of estimated_tax on date after the notice_of_deficiency was issued petitioner submitted to respondent’s appeals officer a form_1040 u s individual_income_tax_return for the taxable_year with a filing_status of married_filing_jointly the federal_income_tax return for the taxable_year was signed by petitioner and petitioner’s wife cynthia k berrey on or about date on his form_1040 petitioner reported the following relevant items line amount 8a 16a 16b dollar_figure wage sec_71 taxable interest ordinary dividends capital_gain total pensions and annuities big_number big_number taxable_amount big_number adjusted_gross_income big_number itemized_deductions tax on iras big_number on schedule a itemized_deductions petitioner reported the following relevant deductions and expenses line amount dollar_figure medical and dental expenses adjusted gross income1 big_number multiply line above by big_number medical_expense_deduction dollar_figure 1amount from form_1040 line 5-percent limitation under sec_213 as of the time of trial petitioner’s form_1040 which was submitted to respondent’s appeals officer had not been accepted by respondent also as of the time of trial respondent had not assessed the tax due from ms berrey because as respondent explained petitioner and ms berrey filed jointly that sic respondent is waiting until the issue as to the medical_expense_deduction is resolved before respondent will assess the tax because otherwise ms berrey’s going to end up with a much larger liability than petitioner would discussion as a general_rule the determinations of the commissioner in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving the commissioner’s determinations in the notice_of_deficiency to be in error rule a 290_us_111 as one exception to this rule sec_7491 places upon the commissioner the burden_of_proof with respect to any factual issue relating to liability for tax if the taxpayer maintained adequate_records satisfied the substantiation requirements cooperated with the commissioner and introduced during the court_proceeding credible_evidence with respect to the factual issue although neither party alleges the applicability of sec_7491 we conclude that the burden_of_proof has not shifted to respondent with respect to the medical_expenses still in dispute respondent has the burden of production with respect to the additions to tax however sec_7491 116_tc_438 medical_expenses deductions are a matter of legislative grace are allowed only as specifically provided by statute and the taxpayer bears the burden of proving that he or she is entitled to the claimed deductions 503_us_79 292_us_435 with these well-established propositions in mind we must determine whether petitioner has satisfied his burden of proving that he is entitled to deductions for medical_expenses allegedly incurred during taxable_year as previously noted respondent concedes medical_expenses in the amount of dollar_figure however respondent argues that petitioner’s claimed medical_expenses in excess of that amount have not been substantiated specifically respondent claims that petitioner has not shown that payments for such expenses were made in taxable_year a taxpayer may deduct expenses_incurred for medical_care and dental expenses to the extent that the expenses exceed percent of the taxpayer’s adjusted_gross_income see sec_213 medical_care expenses include amounts paid for insurance premiums see sec_213 to substantiate medical and dental expenses under sec_213 a taxpayer must provide the name and address of each person to whom payment was made and the amount and date of each payment see sec_1_213-1 income_tax regs at trial respondent and petitioner entered into evidence stipulated joint exhibits which consisted of various documents reflecting medical treatment received by petitioner and or petitioner’s family members during the taxable_year exhibits 3-j 4-j and 5-j consisted of documents reflecting the medical_expenses which respondent conceded along with the health insurance premiums in the aggregate amount of dollar_figure paid_by petitioner during taxable_year exhibit 6-j consisted of various documents reflecting medical_expenses as follows type of service date amount for eyes--optical room substance abuse hosp misc inpatient substance abuse doctor visits inpatient room substance abuse hosp misc inpatient substance abuse behavioral health doctor visit inpatient room substance abuse hosp misc inpatient diagnostic x-ray dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure for all of the above expenses in exhibit 6-j except for the for eyes--optical expense petitioner introduced into evidence copies of the canceled checks used to pay such expenses and a copy of his personal bank account summary showing debits for such expenses therefore we hold that petitioner has substantiated payment of the above listed medical_expenses except for the for eyes--optical expense in taxable_year in the amount of dollar_figure which amount is in addition to the amount respondent conceded of dollar_figure the rest of petitioner’s claimed medical_expenses were reflected by various documents in exhibit 7-j however while these documents provided the name and address of each person to whom payment was due and the amount due for such payment these documents did not substantiate that petitioner made the required_payment or that such payment was made in the taxable_year petitioner did not introduce into evidence any further documentation which would substantiate the date of such payment or if payment of such expenses was actually made therefore we hold that no further medical_expenses have been substantiated by petitioner additions to tax a sec_6651 respondent determined that petitioner is liable for additions to tax for failure_to_file a timely return for taxable_year pursuant to sec_6651 and failure to make timely payment of tax pursuant to sec_6651 3monetary amount is rounded to the nearest dollar sec_6651 imposes an addition_to_tax for failure to timely file a tax_return the addition_to_tax is equal to percent of the amount of the tax required to be shown on the return if the failure_to_file is not for more than month see sec_6651 an additional percent is imposed for each month or fraction thereof in which the failure_to_file continues to a maximum of percent of the tax see id sec_6651 provides for an addition_to_tax of percent per month up to percent for failure to pay the amount shown or required to be shown on a return a taxpayer may be subject_to both paragraphs and in which case the amount of the addition_to_tax under sec_6651 is reduced by the amount of the addition_to_tax under sec_6651 for any month to which an addition_to_tax applies under both paragraphs and the combined amounts under paragraph and paragraph cannot exceed percent per month sec_6651 the additions to tax under sec_6651 and are applicable unless the taxpayer establishes the failure_to_file and or pay did not result from willful neglect and the failure_to_file and or pay was due to reasonable_cause 469_us_241 32_tc_479 affd 283_f2d_227 8th cir if petitioner exercised ordinary business care and prudence and was nonetheless unable to file his return or pay the tax due within the date prescribed by law then reasonable_cause exists see sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite petitioner’s federal_income_tax return was due on date as previously stated on date after the notice_of_deficiency was issued petitioner submitted a form_1040 for the taxable_year to respondent’s appeals officer petitioner testified that he had no real explanation for not filing his return on time petitioner did not pay the balance shown on his return when he submitted it to respondent’s appeals officer respondent has carried his burden of producing evidence to show the additions to tax are appropriate petitioner has failed to show that he exercised ordinary business care and prudence in this case respondent’s determinations are sustained b sec_6654 respondent also determined that petitioner is liable for an addition_to_tax for the underpayment of estimated_tax pursuant to sec_6654 sec_6654 provides that in the case of an underpayment of estimated_tax by an individual there shall be added to the tax an amount determined by applying the underpayment rate established under sec_6621 to the amount of the underpayment for the period of the underpayment unless the taxpayer demonstrates that one of the statutory exceptions applies imposition of the sec_6654 addition_to_tax is mandatory where prepayments of tax either through withholding or by making estimated quarterly tax_payments during the course of the taxable_year do not equal the percentage of total liability required under the statute see sec_6654 99_tc_202 the amount of the addition_to_tax under sec_6654 stated in the notice_of_deficiency is based on the return prepared for petitioner by respondent prior to the filing of the notice_of_deficiency nothing in the record indicates petitioner made the required amount of estimated_tax payment for taxable_year and petitioner does not argue and the record does not indicate that any of the statutory exceptions apply accordingly we conclude petitioner is liable for the addition_to_tax reviewed and adopted as the report of the small_tax_case division to reflect the parties’ concessions and our resolution of the disputed matters decision will be entered under rule


t c memo united_states tax_court alvin sheldon kanofsky petitioner v commissioner of internal revenue respondent docket no 22008-13l filed date alvin sheldon kanofsky pro_se bradley c plovan for respondent memorandum opinion ruwe judge petitioner seeks review pursuant to sec_6320 and c and d of the determination of the internal_revenue_service to uphold unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure the filing of a notice_of_federal_tax_lien for unpaid income_tax for and respondent has moved for summary_judgment motion under rule petitioner objects the matter is ripe for summary_judgment at the time the petition was filed petitioner resided in pennsylvania the unpaid tax for and was the subject of a recently decided case involving a proposed levy kanofsky v commissioner tcmemo_2015_34 in that case this court upheld the determination to proceed with the levy the court rejected petitioner’s position in that case and imposed a dollar_figure sec_6673 penalty because petitioner’s position was frivolous and his case had been instituted for the sole purpose of delay in the instant case petitioner raises the same frivolous arguments we perceive no need to once again refute those arguments with somber reasoning and copious citation of precedent to do so might suggest that those arguments have some merit 737_f2d_1417 5th cir see also 424_fedappx_189 3d cir per curiam aff’g tcmemo_2010_46 kanofsky v commissioner tcmemo_2014_153 to the extent petitioner’s response and attachments thereto to respondent’s motion might be construed as raising any other arguments we find them to be equally frivolous or irrelevant for the reasons stated in kanofsky v commissioner tcmemo_2015_34 we uphold respondent’s determination regarding the lien and will require that petitioner pay a penalty under sec_6673 in the amount of dollar_figure to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number info release date date cc psi 1-cor-109503-00 uilc we are responding to correspondence submitted on your behalf by requesting relief in order to establish as the effective year for your s_corporation_election the information submitted explains that a form_2553 was signed and mailed at inception of organization apparently the internal_revenue_service never received this election although we are unable to respond to to your request as submitted this letter provides useful information relating to your request the instructions to form_2553 indicate that taxpayers are generally notified of acceptance or nonacceptance of their election within three months of date of filing_date mailed and that if the irs questions whether the election was filed acceptable proofs of filing are a certified or registered mail receipt b form_2553 with an accepted stamp c form_2553 with stamped irs received date or e an irs letter stating the election has been accepted 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_2000_1 copy enclosed in addition revproc_2000_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 note section a a of appendix a indicates that in situations where a taxpayer requests substantially identical letter rulings for multiple entities with a common member eg shareholder or sponsor for each additional letter_ruling request after the initial dollar_figure or dollar_figure as applicable may pay an identical letter_ruling request reduced fee of dollar_figure each entity must send an individual ruling_request if you decide to submit a formal request for a private_letter_ruling please review appendix b for a sample format for requesting a private_letter_ruling and include the proper user_fee including reduced user_fee eligibility statement if applicable please refer your request to our office by adding the following to the address attn cc corp p o box ben franklin station washington dc direct to cc psi room please keep this letter with your tax records and 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_2000_1