t c memo united_states tax_court james g and linda c jaroff petitioners v commissioner of internal revenue respondent docket no filed date steven d morford for petitioners nhi t luu-sanders for respondent memorandum opinion wolfe special_trial_judge this case was assigned pursuant to the provisions of sec_7443a in effect when these proceedings commenced and rule sec_180 sec_181 and sec_183 unless otherwise indicated all section references are to the internal_revenue_code in effect at relevant times and all rule references are to the tax_court rules_of_practice and procedure by notice_of_deficiency respondent determined deficiencies in petitioners’ federal_income_tax additions to tax under sec_6651 and accuracy-related_penalties under sec_6662 as follows additions to tax penalties year deficiency sec_6651 sec_6662 sec_6662 sec sec_6662 c dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure big_number dollar_figure big_number dollar_figure big_number petitioners have conceded that they are liable for deficiencies of dollar_figure for and dollar_figure for the remaining issues for decision are whether petitioners are liable for additions to tax under sec_6651 for filing their income_tax returns after the due dates and whether petitioners are liable for accuracy-related_penalties under sec_6662 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 other facts are established by admission neither petitioners nor any witnesses testified on petitioners’ behalf when they filed their petition petitioners resided in scottsdale arizona petitioner james jaroff was employed as a computer programmer for the software works of l a and allied packaging corp in and for allied packaging corp in petitioner linda jaroff worked as a sales representative for the software works of l a and allied packaging corp in and for allied packaging corp in petitioners filed joint federal_income_tax returns for and and reported combined wages of dollar_figure for and dollar_figure for a petitioners’ and income_tax returns the notice_of_deficiency in this case relates to losses petitioners reported from their investment in the cattle breeding operations of w j hoyt sons ranches mlp an entity operated by walter j hoyt iii mr hoyt collectively referred to as the hoyt cattle operation in date petitioners purportedly purchased cattle from the hoyt cattle operation in exchange for a promissory note while the sales documents and other substantive details of the transaction are not part of the record in this case correspondence between petitioners and members of the hoyt cattle operation indicate that the investment was intended to generate significant operating losses that petitioners would use to reduce or eliminate their income_tax_liability petitioners were required to remit percent of the tax refunds resulting from the transaction to the hoyt cattle operation allegedly in repayment of interest on the promissory note as part of their investment petitioners’ income_tax returns were prepared by laguna tax service an entity operated by mr hoyt although they were not associated with the hoyt cattle operation until date petitioners reported losses from their cattle investment on their income_tax return filed on date petitioners attached to their income_tax return a schedule f profit or loss from farming and reported a net_loss of dollar_figure from the breeding value of registured sic cattle the dollar_figure net_loss reflected gross_income of dollar_figure less total expenses of dollar_figure expenses included dollar_figure in depreciation and sec_179 expenses dollar_figure in interest_paid dollar_figure in sharecrop board expenses and dollar_figure in expense for the cost_basis of purchased cattle that died in the dollar_figure loss offset the dollar_figure in adjusted_gross_income petitioners earned in and resulted in petitioners’ claiming a refund of tax withheld from their earnings from employment in in the amount of dollar_figure the unused net operating losses were carried back to taxable years and mr hoyt was an enrolled_agent registered to practice before the internal_revenue_service after their return was selected for examination petitioners gave a power_of_attorney to mr hoyt to represent them before the internal_revenue_service petitioners’ taxes for and are not at issue in this case petitioners attached to their income_tax return as filed on date a schedule f and reported a net_loss of dollar_figure from the hoyt cattle operation the loss reflected gross_income of dollar_figure less total expenses of dollar_figure expenses included dollar_figure in depreciation and sec_179 expenses and dollar_figure in sharecrop bd expenses in addition petitioners reported a net dollar_figure loss from the sale of breeding cattle on a form_4797 sales of business property reflecting a gross sale price for the cattle of dollar_figure less a cost_basis of dollar_figure less dollar_figure in depreciation petitioners used the dollar_figure in losses to offset in part the dollar_figure in adjusted_gross_income they reported in and therefore they claimed a refund of dollar_figure that was withheld from their earnings from employment during the year petitioners’ and income_tax returns were filed after they received extensions of the filing due dates for petitioners filed a form_4868 application_for automatic_extension of time to file u s individual_income_tax_return and received an automatic 4-month extension from the april filing_date on date petitioners submitted a form_2688 application_for additional extension of time to file u s individual_income_tax_return and received an extended filing_date of date petitioners filed their return on date for petitioners also filed for the automatic 4-month extension on form_4868 and submitted a form_2688 and received an extended filing_date of date petitioners’ return was filed on date b respondent’s request for admissions on date respondent served on petitioners’ counsel steven morford mr morford a copy of respondent’s request for admissions request the request was filed with the court on date neither petitioners nor their counsel responded to the request and pursuant to rule c each matter set forth in the request was automatically deemed admitted days after the date of service see also 81_tc_644 65_tc_333 affd on other grounds 565_f2d_954 5th cir as a result the following items are deemed admitted as material facts petitioners did not receive dollar_figure in schedule f income for tax_year petitioners did not receive dollar_figure in schedule f income for tax_year petitioners did not incur dollar_figure in schedule f depreciation expenses for tax_year petitioners did not incur dollar_figure in schedule f depreciation expenses for tax_year petitioners did not incur dollar_figure in schedule f interest_expenses in petitioners did not incur dollar_figure in schedule f sharecrop board expenses for tax_year petitioners did not incur dollar_figure in schedule f sharecrop board expenses for tax_year petitioners did not incur dollar_figure in schedule f petitioners’ counsel mr morford made an oral motion to modify the deemed admissions under rule f the court denied the motion upon a showing by respondent that the request for admissions was properly served at mr morford’s business address and that the merits of the trial would not be subserved by modification of the deemed admissions respondent’s oral motion that the admissions resulting from petitioners’ failure to respond to the request for admissions dated date be made absolute was granted orally and by written order and those admissions are deemed admitted expense for the cost_basis of purchased cattle that died in for tax_year petitioners did not incur the dollar_figure other loss as claimed on form_4797 for tax_year petitioners did not make a bona_fide and reasonable estimate of their tax_liabilities for inclusion with their application_for extension of time within which to file their form_1040 u s individual_income_tax_return petitioners did not make a bona_fide and reasonable attempt to secure the information necessary to make an estimate of their tax_liabilities for inclusion with their application_for extension of time within which to file their form_1040 petitioners did not remit a proper amount of estimated_tax with their application_for extension of time within which to file their form_1040 petitioners did not make a bona_fide and reasonable estimate of their tax_liabilities for inclusion with their application_for extension of time within which to file their form_1040 petitioners did not make a bona_fide and reasonable attempt to secure the information necessary to make an estimate of their tax_liabilities for inclusion with their application_for extension of time within which to file their form_1040 petitioners did not remit a proper amount of estimated_tax with their application_for extension of time within which to file their form_1040 petitioners did not sign sales documents or otherwise become associated with the hoyt cattle operation until date and petitioners were not associated with nor did they participate in the hoyt cattle operation in any fashion during the tax_year items - and - of the request were also stipulated as facts by the parties as a consequence of the deemed admissions and the stipulation of facts petitioners conceded that they are liable for the deficiencies set forth in their notice_of_determination c petitioners’ failure to appear at trial and concession of their tax_liability for and petitioners chose not to attend their trial and did not provide any testimony petitioners’ counsel mr morford entered an appearance on their behalf mr morford explained that petitioners probably had gone to work instead of appearing for trial mr morford conceded petitioners’ liability for tax deficiencies of dollar_figure for and dollar_figure for but disputed petitioners’ liability for additions to tax and accuracy-related_penalties discussion this case is part of a larger group of cases involving cattle and sheep breeding partnerships organized by mr hoyt for a description of the hoyt organization and its operation see eg barnes v commissioner tcmemo_2004_266 river city ranches ltd v commissioner tcmemo_2003_150 mekulsia v commissioner tcmemo_2003_138 affd __ f 3d __ 6th cir date river city ranches j v v commissioner tcmemo_1999_209 affd 23_fedappx_744 9th cir mitchell v commissioner tcmemo_1995_411 the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer must prove those determinations wrong in order to prevail rule a 290_us_111 in this case in which the correctness of respondent’s determinations of tax has been conceded the burden is on petitioners to show that the additions to tax and accuracy-related_penalties should not apply petitioners did not appear at trial and did not testify as to facts underlying their investment in the hoyt cattle operation sec_7491 which under some circumstances shifts the burden_of_proof or production to the commissioner is inapplicable in this case sec_7491 applies only to court proceedings arising in connection with examinations commencing after date internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 respondent’s examination of petitioners’ return began before date and their return was examined before date and the losses reported on their income_tax returns certain facts and circumstances relevant in determining the applicability of the additions to tax and accuracy-related_penalties were known solely to petitioners petitioners’ failure to introduce evidence solely in their possession or peculiarly within their knowledge creates a negative inference that the evidence if introduced would be unfavorable to them see 138_f3d_216 5th cir revg tcmemo_1995_601 27_tc_561 affd 252_f2d_681 6th cir while we have given careful consideration to the arguments presented by petitioners’ counsel we cannot overlook the evidentiary gaps created by petitioners’ decision not to attend and provide testimony at their trial a addition_to_tax under sec_6651 sec_6651 imposes an addition_to_tax for a taxpayer’s failure_to_file a required return on or before the specified filing_date which is determined with consideration of any extension of time for filing the amount of the liability is based upon a percentage of the tax required to be shown on the return sec_6651 the addition_to_tax is inapplicable however if the taxpayer’s failure_to_file the return was due to reasonable_cause and not due to willful neglect id generally income_tax returns made on the basis of the calendar_year must be filed on or before the 15th day of april following the close of the calendar_year sec_6072 an individual taxpayer may receive an automatic 4-month extension by filing a form_4868 on or before the due_date sec_1 a income_tax regs applicable to taxable_year sec_1_6081-4t a i temporary income_tax regs fed reg date applicable to taxable_year if a taxpayer requires an additional extension of time to file he or she may make such a request by filing a form_2688 sec_1_6081-1 and b a income_tax regs sec_1_6081-4t a temporary income_tax regs supra for the automatic 4-month extension to be effective the application on form_4868 must show the full amount properly estimated as tax for the taxable_year sec_1_6081-4 income_tax regs sec_1_6081-4t a temporary income_tax regs supra in addition for taxable_year the taxpayer is required to remit the estimated_tax when filing the form_4868 sec_1_6081-4 income_tax regs to properly estimate his or her tax_liability a taxpayer must make a bona_fide and reasonable attempt to locate gather and consult information that will enable him or her to make a proper estimate of his or her tax_liability see 92_tc_899 petitioners are deemed to have admitted through items - of the request the following they did not make bona_fide and reasonable estimates of their tax_liabilities for inclusion with their applications for extensions of time to file their and income_tax returns they did not make a bona_fide and reasonable attempt to secure the information necessary to make estimates of their tax_liabilities for inclusion with their applications for extensions of time to file their and income_tax returns and they did not remit the proper amounts of estimated_tax with their applications for extensions of time to file their and income_tax returns the record shows by petitioners’ explicit admissions that petitioners’ forms for and were invalid and consequently we sustain respondent’s determinations that their and returns were untimely filed petitioners are liable for additions to tax under sec_6651 unless they can show that their failure_to_file timely income_tax returns was due to reasonable_cause and not willful neglect petitioners did not appear at trial to testify on the factual question whether their failure_to_file timely income_tax returns was due to reasonable_cause and not willful neglect in reviewing the record we find nothing to indicate that petitioners exercised ordinary business care and prudence in an effort to file their income_tax returns on time because petitioners had the burden to prove that their failure_to_file was due to reasonable_cause and because of the admissions the available evidence and petitioners’ refusal to testify the record in this case clearly shows that petitioners’ failure_to_file their income_tax returns on time was not due to reasonable_cause respondent’s determinations that petitioners are liable for additions to tax for and are sustained b accuracy-related_penalties sec_6662 provides that a taxpayer may be liable for a penalty of percent of the portion of an underpayment_of_tax attributable to a substantial_understatement of tax negligence or disregard of rules or regulations or any substantial_valuation_misstatement sec_6662 and b and the accuracy-related_penalty does not apply to any portion of an underpayment_of_tax if it is shown that there was reasonable_cause for such portion and that the taxpayer acted in good_faith sec_6664 an understatement_of_tax is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 and negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 sec_1_6662-3 income_tax regs generally a taxpayer is negligent if he or she fails to make a reasonable attempt to ascertain the correctness of a deduction credit or exclusion on a tax_return which would seem to a reasonable and prudent person to be too good to be true sec_1_6662-3 income_tax regs disregard includes any careless reckless or intentional disregard sec_6662 a substantial_valuation_misstatement occurs if the value of any property or adjusted_basis of any property claimed on an income_tax return is percent or more of the correct amount sec_6662 sec_1_6662-5 income_tax regs if the valuation misstatement is percent or more of the correct amount the misstatement is considered a gross_valuation_misstatement and the 20-percent penalty is increased to percent sec_6662 only one accuracy-related_penalty may be applied with respect to any given portion of an underpayment even if that portion is subject_to more than one of the types of misconduct described in sec_6662 sec_1_6662-2 income_tax regs in the notice_of_deficiency respondent determined that petitioners are liable for accuracy-related_penalties under sec_6662 for negligence sec_6662 for a substantial_understatement_of_income_tax sec_6662 for a substantial_valuation_misstatement and sec_6662 for a gross_valuation_misstatement sec_1_6662-2 income_tax regs prevents respondent from stacking these types of misconduct to impose a penalty greater than the maximum penalty of percent on any given portion of an underpayment or percent if such portion is attributable to a gross_valuation_misstatement petitioners concede that they were not entitled to claim schedule f losses of dollar_figure for taxable_year and dollar_figure for taxable_year after adjustment of petitioners’ income_tax returns to account for the disallowance of the schedule f losses petitioners’ understatements of income_tax for and exceeded percent of the tax required to be shown on the return and dollar_figure accordingly there was a substantial_understatement_of_income_tax in and for purposes of sec_6662 because the anti-stacking rule_of sec_1_6662-2 income_tax regs limits the accuracy-related_penalty under sec_6662 to percent it is not necessary for us to consider whether petitioners were negligent for purposes of sec_6662 however since the 20-percent penalty may be increased to percent if the portion of the underpayment is attributable to a gross_valuation_misstatement we must consider the applicability of sec_6662 on their return petitioners claimed depreciation and sec_179 expenses of dollar_figure and expense for the cost_basis of purchased cattle that died in of dollar_figure on their return petitioners reported dollar_figure in depreciation and sec_179 expenses and a net dollar_figure loss from the sale of cattle based upon a gross sale price of dollar_figure less a cost_basis of dollar_figure adjusted by dollar_figure for depreciation petitioners stipulated and were deemed to admit that they did not incur these expenses respondent determined that petitioners’ adjusted_basis for the assets giving rise to these expense deductions was zero resulting in a valuation misstatement of percent or more of the correct amount for purposes of sec_6662 see sec_1_6662-5 income_tax regs as stated above petitioners bear the burden of proving that respondent’s determinations under sec_6662 are incorrect petitioners did not appear for their trial and did not introduce any evidence to contest these determinations consequently we sustain the imposition of a 40-percent penalty under sec_6662 for a gross_valuation_misstatement with regard to the portion of the underpayment_of_tax attributable to the items described in this paragraph see 87_tc_970 petitioners contend that an accuracy-related_penalty should not be imposed because they acted with reasonable_cause and in good_faith for purposes of the reasonable_cause exception of sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case- by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess his or her proper tax_liability id under some circumstances reasonable_cause may be established when a taxpayer shows that he or she reasonably relied on the advice of an independent and competent tax professional 469_us_241 94_tc_473 peete v commissioner tcmemo_2004_31 sec_1_6664-4 income_tax regs we do not believe that petitioners have satisfied their burden_of_proof in regard to the reasonable_cause exception as stated earlier while we have given careful consideration to the arguments set forth by petitioners’ counsel mr morford we cannot overlook petitioners’ failure to appear at trial and provide testimony on the facts underlying their participation in the hoyt cattle operation and the reasonableness behind the underpayments of tax on their income_tax returns for and the limited facts that are part of the record do not support a finding that petitioners acted with reasonable_cause and in good_faith petitioners were college-educated professionals who must have realized that the overall benefits they received from their investment in the hoyt cattle operation were simply too good to be true although they were not associated with the hoyt cattle operation until date petitioners claimed dollar_figure in cattle losses on their income_tax return reporting losses from a transaction entered into in taxable_year on their income_tax return simply does not demonstrate that petitioners exercised ordinary care and prudence in determining their tax obligation petitioners argue that they relied in good_faith upon the tax_advice and tax preparation services they received from mr hoyt and laguna tax service an entity operated by mr hoyt although mr hoyt was an enrolled_agent authorized to practice_before_the_irs any_tax advice from either mr hoyt or laguna tax service cannot be characterized as advice from an independent and competent tax professional rather such advice is better classified as sales promotion see vojticek v commissioner tcmemo_1995_444 since petitioners were required to remit to the hoyt cattle operation percent of their tax refunds representations made by mr hoyt or laguna tax service would clearly be self-serving and unreliable petitioners did not consult any competent tax professional from outside the hoyt cattle operation for the foregoing reasons we sustain respondent’s determinations that petitioners are liable for accuracy-related_penalties for and to reflect the amounts of the additions to tax and penalties as discussed above decision will be entered under rule


t c memo united_states tax_court lee anthony baker petitioner v commissioner of internal revenue respondent docket no filed date lee anthony baker pro_se richard j hassebrock for respondent memorandum findings_of_fact and opinion ruwe judge respondent determined a deficiency and additions to tax with respect to petitioner’s federal_income_tax additions to tax_year deficiency sec_6651 sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure dollar_figure the amount of any addition_to_tax pursuant to sec_6651 shall be determined pursuant to sec_6651 b and c the issues for decision are whether petitioner is entitled to a deduction of dollar_figure for expenses relating to his truck operation whether petitioner is liable for self-employment_tax of dollar_figure whether petitioner is entitled to a self-employment_tax deduction of dollar_figure and whether petitioner is liable for additions to tax under sec_6651 and and findings_of_fact 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 at the time the petition was filed petitioner resided in ohio during petitioner worked as a self-employed truck driver petitioner owned a mack truck tractor which he used to haul tank trailers from a pickup site to designated destinations petitioner did not own the trailers unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure petitioner received dollar_figure in self-employment_income primarily from advantage tank lines and dollar_figure of interest_income for the taxable_year on date petitioner requested and was granted an extension of time to file his federal_income_tax return petitioner failed to file a tax_return for in respondent prepared a substitute for return sfr for on the basis of information returns filed by third-party payors with the internal_revenue_service on date respondent issued to petitioner a notice_of_deficiency for petitioner timely filed a petition disputing the determinations in the notice_of_deficiency opinion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that the determinations are in error see rule a 290_us_111 the notice_of_deficiency allowed a standard_deduction and a personal_exemption for petitioner in some cases the burden_of_proof with respect to relevant factual issues may shift to the commissioner under sec_7491 however petitioner has not argued that the burden_of_proof should shift to respondent nor has he produced credible_evidence as required by sec_7491 therefore we hold that the burden_of_proof does not shift to respondent a income the parties stipulated that for petitioner received dollar_figure of income as a self-employed truck driver and dollar_figure of interest_income b deductions deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he is entitled to any deduction claimed rule a 503_us_79 292_us_435 sec_6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction see also sec_1_6001-1 income_tax regs sec_162 allows a deduction for ordinary and necessary expenses that a taxpayer pays in connection with the operation of a trade_or_business 122_tc_305 if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount we may estimate the amount bearing heavily against the taxpayer whose inexactitude is of his own making see 39_f2d_540 2d cir the taxpayer must present sufficient evidence for the court to form an estimate because without such a basis any allowance would amount to unguided largesse 245_f2d_559 5th cir 85_tc_731 sec_274 overrides the cohan_rule with regard to certain expenses see 50_tc_823 aff’d per curiam 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs fed reg date sec_274 requires stricter substantiation for travel meals and certain listed_property sec_274 provides that no deduction shall be allowed unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expense the time and place of the expense and the business_purpose of the expense see oswandel v commissioner tcmemo_2007_183 tax ct memo lexi sec_185 at even if such an expense would otherwise be deductible sec_274 may still preclude a deduction if the taxpayer does not present sufficient substantiation sec_1_274-5t temporary income_tax regs supra however in the alternative each element of an expenditure or use may be established by the taxpayer’s own written or oral statement containing specific information in detail as to such element combined with corroborative evidence sufficient to establish such element sec_1_274-5t and b temporary income_tax regs fed reg date sec_274 provides that no deduction shall be allowed with respect to any listed_property as defined in sec_280f unless the taxpayer meets the heightened substantiation requirements sec_280f defines listed_property to include any other_property used as a means of transportation however sec_280f provides that listed_property under sec_280f does not include property substantially_all of the use of which is in a trade_or_business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire we find that petitioner’s truck is sec_280f property we note that sec_274 states with respect to any listed_property emphasis added therefore an expense satisfies the sec_280f exception if the expense was incurred with respect to the sec_280f property we find that petitioner’s fuel truck maintenance truck insurance truck oil changes truck storage fees truck licenses plates and the heavy highway use taxes were expenses_incurred with respect to the truck see baptiste v commissioner tcmemo_1999_96 tax ct memo lexi sec_114 at n fuel purchases in connection with sec_280f property are not subject_to the heightened substantiation requirements of sec_274 accordingly these expenses are not subject_to the heightened substantiation requirements of sec_274 at trial petitioner claimed that he incurred approximately dollar_figure of expenses related to his truck business for the taxable_year the dollar_figure included amounts allegedly paid for fuel dollar_figure truck maintenance dollar_figure truck insurance dollar_figure truck oil changes dollar_figure truck storage fees dollar_figure truck license plates dollar_figure and heavy highway use taxes dollar_figure he also claimed travel_expenses dollar_figure petitioner provided no documentation to support any of the expenses he claimed to have incurred petitioner credibly testified and respondent does not dispute that he was employed as an independent truck driver delivering fuel for advantage tank lines petitioner testified that he estimated that he drove approximately big_number miles in we believe that petitioner must have incurred some expenses in transporting the fuel at trial respondent we note that petitioner’s travel_expenses do not satisfy the sec_280f exception petitioner filed for bankruptcy in in the process of losing his home in petitioner lost all of his records related to his truck operation petitioner ceased his truck operation after date acknowledged that the tax in the notice_of_deficiency was based on petitioner’s gross_receipts respondent did not allege that advantage tank lines reimbursed petitioner for any of his claimed expenses we found petitioner to be a credible witness however all of his figures were based on rough estimates that were made years after the fact without documentation applying the cohan_rule we bear heavily against the taxpayer whose inexactitude is of his own making cohan v commissioner f 2d pincite petitioner’s estimate that he incurred dollar_figure of fuel expenses was based on his estimate that he drove big_number miles and that his truck got approximately dollar_figure miles per gallon the u s energy information administration reports that the average price per gallon including taxes of on-highway diesel_fuel in was dollar_figure therefore petitioner’s testimony indicates he spent approximately dollar_figure on fuel we believe petitioner drove a substantial number of miles in however without any documentation to support his testimony we find that petitioner is entitled to a deduction of only dollar_figure for fuel expenses petitioner estimated that he incurred truck insurance expenses of dollar_figure we find that petitioner is entitled to a deduction of dollar_figure for insurance petitioner claimed he incurred oil change expenses of dollar_figure we find that petitioner is entitled to a deduction of dollar_figure for oil change expenses petitioner claimed he paid dollar_figure for truck license plates we hold that petitioner is entitled to a deduction of dollar_figure for license expenses we find that petitioner did not present sufficient evidence to substantiate the maintenance storage taxes and travel_expenses that he alleged he incurred accordingly we hold that petitioner is not entitled to a deduction for these expenses c self-employment_tax sec_1401 imposes a tax on self-employment_income of every individual self-employment_income is defined as the net_earnings_from_self-employment derived by an individual during any taxable_year sec_1402 the term net_earnings_from_self-employment is defined as the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions which are attributable to such trade_or_business sec_1402 individuals whose net_earnings_from_self-employment equal or exceed dollar_figure during the taxable_year are required to report such income sec_6017 the notice_of_deficiency determined that petitioner was liable for self- employment_tax of dollar_figure and allowed a self-employment_tax deduction of dollar_figure we have found that petitioner is entitled to additional deductions that respondent had disallowed in the notice_of_deficiency accordingly this will change the amounts of petitioner’s self-employment_tax and the self- employment_tax deduction d additions to tax respondent determined that petitioner is liable for additions to tax pursuant to sec_6651 and and respondent has the burden of production with respect to these additions to tax see sec_7491 to meet this burden respondent must produce evidence showing that the additions to tax are appropriate see id 116_tc_438 once respondent satisfies this burden petitioner has the burden_of_proof with respect to exculpatory factors such as reasonable_cause see higbee v commissioner t c pincite sec_6651 sec_6651 imposes an addition_to_tax when a taxpayer fails to file a timely return unless the taxpayer establishes that the failure was due to reasonable_cause and not willful neglect the addition_to_tax is equal to of the amount_required_to_be_shown_as_tax on the delinquent_return for each month or fraction thereof during which the return remains delinquent up to a maximum addition of for returns more than four months delinquent id petitioner did not file a federal_income_tax return for thus we find that respondent has met his burden of production petitioner has not provided evidence sufficient for us to find that his failure_to_file a return was due to reasonable_cause accordingly we hold that petitioner is liable for the addition_to_tax under sec_6651 sec_6651 sec_6651 imposes an addition_to_tax for failure to timely pay the amount of tax shown on a return unless the taxpayer establishes that the failure was due to reasonable_cause and not willful neglect the addition is calculated as of the amount shown as tax on the return but not paid with an additional for each month or fraction thereof during which the failure to pay continues up to a maximum of id under sec_6020 when a taxpayer fails to file a return required_by_law the commissioner acting for the secretary_of_the_treasury may make a return from such information as he can obtain under sec_6651 any return so made is treated as the taxpayer’s return for purposes of determining the amount of the addition under sec_6651 the amount of the addition_to_tax under sec_6651 reduces the amount of the addition_to_tax under sec_6651 for any month for which an addition_to_tax applies under both paragraphs sec_6651 petitioner failed to file a federal_income_tax return for pursuant to sec_6651 the sfr made by respondent is treated as petitioner’s tax_return petitioner failed to pay the amount of tax shown on his sfr for therefore respondent has met his burden of production petitioner has not provided evidence sufficient for us to find that his failure to pay was due to reasonable_cause accordingly we hold that petitioner is liable for the addition_to_tax under sec_6651 sec_6654 sec_6654 imposes an addition_to_tax when a taxpayer fails to pay a required_installment of estimated income_tax each required_installment is equal to of the required_annual_payment sec_6654 the required_annual_payment is equal to the lesser_of of the tax_shown_on_the_return for the taxable_year or if no return is filed of the tax for that year or of the tax_shown_on_the_return if any for the preceding_taxable_year sec_6654 pursuant to this opinion the amount of tax required to be shown on the return for will be reduced see sec_6651 petitioner’s federal_income_tax return for the taxable_year reported an income_tax_liability of dollar_figure we have held that petitioner is entitled to additional deductions that were not allowed in the notice_of_deficiency however even with the additional deductions petitioner will have a substantial tax_liability for petitioner did not make any estimated payments of tax for the taxable_year accordingly petitioner did not make the required_annual_payment respondent has met his burden of production for the sec_6654 addition_to_tax the sec_6654 addition_to_tax is mandatory unless the taxpayer establishes that one of the exceptions in sec_6654 applies verduzco v commissioner tcmemo_2010_278 tax ct memo lexi sec_318 at citing 91_tc_874 petitioner has not shown that any of the statutory exceptions under sec_6654 applies accordingly we hold that petitioner is liable for the addition_to_tax under sec_6654 in reaching our decision we have considered all arguments made by the parties and to the extent not mentioned or addressed they are irrelevant or without merit petitioner filed a joint federal_income_tax return for the taxable_year to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-112784-99 date date x a d1 d2 year dear this letter responds to your letter dated date and subsequent correspondence requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a x’s president and sole shareholder represents that x was intended to be an s_corporation effective from the date of incorporation a further represents that x’s accountant prepared a form_2553 election by a small_business_corporation for x which a timely filed on d2 of year however x’s internal_revenue_service center has no record of receiving a form_2553 for x sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours h grace kim assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington jul tax_exempt_and_government_entities_division uniform issue list tep raiti legend taxpayer a individual b ira annuity c financial_institution d account e financial_institution f ira g financial_institution h amount amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by correspondence dated december and and date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age at the time of the distribution of amount from ira annuity c asserts that her failure to accomplish a rollover of amount within the 60-day period prescribed by sec_408 was due to her reliance on financial_institution f to help her complete the rollover taxpayer a represents that amount has not been used for any purpose taxpayer a was married to individual b individual b maintained ira annuity c an individual_retirement_arrangement ira under sec_408 of the code with financial_institution d prior to his death on date after a long illness with cancer individual b had handled all financial matters for himself and taxpayer a following her husband's death taxpayer a received a distribution in the form of a check dated date for amount representing a death_benefit of ira annuity c taxpayer a represents that she wanted to transfer amount to her own ira on date taxpayer a took the check for amount to financial_institution f and asked that it be deposited into an ira in her name with both her daughters listed as beneficiaries taxpayer a did not ascertain whether the rollover to an ira had occurred however it appeared to taxpayer a from the monthly bank statements she received that an ira had been opened as instructed because the account was titled in taxpayer a’s name to be held in trust for her two daughters being under great stress in the weeks following her husband’s death and being unfamiliar in such financial matters taxpayer a relied on financial_institution f to assist her in executing a spousal_rollover to an ira taxpayer a represented that an employee of financial_institution f prepared the necessary paperwork for this transaction in april of when taxpayer a met with her tax preparer he informed her that amount had been deposited into account e a non-ira account with financial_institution f instead of into an ira on date taxpayer a transferred amount from account e to ira g with financial_institution h associated earnings_of amount were transferred on date from account e to ira g with financial_institution h based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 of the code sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 and sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount was due to her reliance on financial_institution f to complete the rollover therefore pursuant to sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira annuity c taxpayer a has transferred amount and the earnings thereon amount from non-ira account e to ira g provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to the contribution of amount then amount will be considered a rollover_contribution within the meaning of sec_408 of the code the transfer however of amount representing earnings on amount from non- ira account e into ira g is not considered a rollover_contribution within the meaning of sec_408 of the code but is an ira contribution under sec_408 of the code subject_to the rules and limits that pertain thereto this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling please contact if you wish to inquire about i d at sincerely yours collen weteins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


internal_revenue_service date number release date cc ita tl-n-2486-01 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel phoenix attn john w duncan cc lm nr phx from associate chief_counsel cc ita subject graphic and package design costs disclosure statement this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend a x y product a product b product c product d tax_year dollar_figurea issue whether this case is an appropriate vehicle for establishing that package and graphic design costs are capital expenditures conclusion the service believes that package and graphic design costs are capital expenditures and that this case is an appropriate litigation vehicle facts a manufactures numerous consumer products primarily but not exclusively in the area of x and y some of a’s more recognizable brands include product a product b product c and product d on its tax_year return a deducted dollar_figurea as package design costs a provided a breakdown of this amount for each product for which it incurred package or graphic design costs a described these costs as follows the package design costs represent the non-capital costs incurred during tax_year to create modify or otherwise change the graphic design and or package design of a’s products accordingly the criterion used to determine whether a non-capital expenditure should be categorized as a package design cost is whether such an expenditure creates or modifies the graphic design and or package design of a product examples of package design costs include but are not limited to art costs graphics design costs bottle reformulation costs and label development costs for this purpose the term graphic design refers to the combination of information styles of print pictures drawings shapes patterns colors spacing and the like that make up an overall visual display of a product the term package design refers to the design of the physical construction of the package the service has stated the following about package designs a package design is developed when a product is first introduced and although it may be modified occasionally it is not usually changed on a regularly recurring basis further the package design remains valuable for many years as the producer tries to establish both an enticing and uniquely recognizable package sara lee corporation gcm i-135-85 date law sec_1_162-20 provides that expenditures_for institutional or goodwill_advertising which keeps the taxpayer’s name before the public are generally deductible as ordinary and necessary business_expenses provided the expenditures are related to the patronage the taxpayer might reasonably expect in the future in revrul_89_23 1989_1_cb_85 package design costs defined as the cost of materials labor and overhead associated with the design including all design exploration and study refinement of the basic design selected testing and preparation of the final master comprehensive design must be capitalized capitalization under sec_263 is required because package designs generally have useful lives greater than one year furthermore the revenue_ruling specifically provides that advertising expenditures are distinguishable from package design costs and are currently deductible either because they are of a recurring nature or because their benefit does not extend beyond the tax_year in revrul_92_80 1992_2_cb_57 the service sought to clarify that 503_us_79 does not affect the treatment of advertising costs under sec_162 service position is that advertising costs are generally deductible even though advertising may have some future effect on business activities as in the case of institutional or goodwill_advertising advertising costs would rarely have to be capitalized and then only in the unusual circumstance where advertising is directed specifically towards obtaining future_benefits significantly beyond those traditionally associated with ordinary product advertising revproc_98_39 1998_1_cb_1320 modifying revproc_97_35 1997_2_cb_448 sets forth three alternative methods of capitalizing package design costs the revenue_procedure does not apply to the costs of a package design that is an amortizable intangible under sec_197 discussion further litigation of this issue requires careful consideration of the service’s loss in the only other case litigated rjr nabisco inc v commissioner tcmemo_1998_252 in that case the tax_court noted that the commissioner’s expert witness conceded that cigarette package graphic designs qualify as advertising under the accepted textbook definition of advertising and further that the commissioner did not dispute that graphic designs fit the textbook definition of advertising the court held that the costs were advertising expenditures from there the court concluded that the advertising expenditures were ordinary business_expenses further supporting the court’s conclusion was its assertion that the service had conceded the deductibility of advertising costs in revrul_92_80 supra the rjr nabisco action in decision recommends nonacquiescence and states that revrul_92_80 should not be read as a concession that package design costs are advertising and therefore deductible in revrul_89_23 supra the service concluded that package design costs are capital expenditures and that package designs have an indeterminate useful_life advertising costs are distinguishable from package design costs and are deductible either because they are of a recurring nature or because their benefit does not extend beyond the tax_year case development hazards and other considerations heather maloy by clifford m harbourt senior technician reviewer branch income_tax accounting


cca_2013051512271646 -------------- id office uilc number release date from -------------------- sent wednesday date to ---------------------- cc ----------------------------------------- subject fw deceased taxpayers and the authority of their fiduciaries question ------------- please disregard the information i provided by telephone last month about these issues for your case a we should not rely on a form_870 or signed by the distributee and we should not have her sign delinquent returns for the decedent rather as we discussed because the decedent was a non-filer the aseds remain open and exam should prepare returns and issue stat notices the ra may continue to accept information from the distributee and cpa and may use that information in preparing the 6020s and stat notices allowing itemized_deductions if appropriate we’re going to look into case b a bit further and get back to you thanks -------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- original scenarios case a in the first case the deceased taxpayer is a non-filer the only assets existing at the time of death was a bank account that was held by the taxpayer her daughter and her daughter’s husband the signature cards of the bank account show all three names there was no will based upon these facts it appears that the daughter is a distributee per sec_601_503 a distributee can sign a form_56 please let me know who i can talk to in the national_office to confirm whether the taxpayer’s daughter is a fiduciary that can file a form_56 as a distributee as well as sign a form_2848 statute extensions and any delinquent returns on behalf of the deceased taxpayer case b in the second case the taxpayer created a revocable_trust before he died all his assets were transferred to this trust before his death he also had a will a personal representative was named in the will the personal representative is also one of the trustees of the revocable_trust the will was not probated based upon these facts it appears that the trustees are testamentary trustees per sec_601_503 a testamentary trustee can sign a form_56 please let me know who i can talk to in the national_office to confirm whether the trustees are fiduciaries that can file form sec_56 as testamentary trustees as well as sign a form_2848 statute extensions including fbar penalty statute extensions and any delinquent returns on behalf of the deceased taxpayer


uniform issue list aug slt fp rat legend bank a ira x amount b bank c dear this is in response to correspondence dated date as supplemented by correspondence dated june and date in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code under penalty of perjury you have submitted the following facts and representations in support of the ruling requested you sold your house and intended to move into a new house in another town which was approximately an hour and a half drive from your old house on or about date you received a distribution from your individual_retirement_arrangement ira ira x which was maintained in bank a the amount of the distribution was amount b your intent was to roll over the ira x distribution into another ira maintained at a bank closer to your new house on date you went to bank c with the purpose of establishing an ira and rolling over amount b into that ira on the distribution check which you received from ira x you wrote to retirement account bank c there was no information printed on the check which indicated that the funds were distributed from an ira when you left bank c you thought that you had rolled over your ira x distribution into further action was necessary when your income taxes for a prepared your tax preparer informed you that amount b had not been rolled over into an ira you discovered that amount b was being held in a passbook savings account with bank c during the time that amount b was held in the savings account no amounts were withdrawn or used for any purposes you are years old and were under stress from er ira and that no page your impending move in addition you suffered from knee pain and sciatica and wear a hearing aid based on the facts and representations you request that the service waive the 60-day rollover requirement contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the one-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 of the code where failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred page 2uv944038l you are years old and during the 60-day rollover period were under stress from your impending move in addition you suffered from knee pain and sciatica and wear a hearing aid your intent was to roll over the ira x distribution into another ira maintained at bank c which was closer to your new house to this end you wrote to retirement account bank c on the distribution check from bank a in your meeting with the bank c representative you thought that you had accomplished a rollover to an ira and you believed that the notation on your check was sufficient to convey said intent to the bank c representative when your tax returns were prepared you were informed that amount b was not rolled over into an ira with bank c you discovered that amount b was being held in a passbook savings account with bank c during the time that amount b was held in the savings account no amounts were withdrawn or used for any purposes therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b you are granted a period of days from the issuance of this ruling letter to contribute amount b into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions amount b will be considered a rollover_contribution within the meaning of sec_408 of the code in accordance with sec_408 of the code this ruling does not authorize the rollover of amounts that were required to be distributed by sec_401 of the code made applicable to an ira ‘pursuant to code sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter expresses no opinion as to whether the ira described herein satisfied the requirements of sec_408 of the code this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent at d sincerely yours if you wish to inquire about this ruling please contact not a toll-free number please address all correspondence to deleted copy of ruling letter notice of intention to disclose employee_plans tethnical group enclosures


internal_revenue_service department of the treasury number info release date index no washington dc person to contact telephone number refer reply to cc fip b03 cam-134448-03 date date dear as discussed during a telephone conversation on between you and of this office we will treat form_3115 signed on as a request for general information regarding making an election under sec_475 f of the internal_revenue_code the code to use the mark-to-market method_of_accounting you informed that a statement making an election under sec_475 had been attached to federal_income_tax return and that the return had been filed no later than sec_5 of revproc_99_17 provides general procedures for a taxpayer making an election under sec_475 of the code for a taxable_year beginning on or after date included in this section is the requirement that a statement described in sec_5 must be filed no later than the due_date without regard to extensions of the original federal_income_tax return for the taxable_year immediately preceding the election_year and must be attached either to that return or if applicable to a request for an extension of time to file that return section dollar_figure of revproc_99_17 states that the statement referred to in sec_5 must describe the election being made the first taxable_year for which the election is effective and in the case of an election under sec_475 of the code the trade_or_business for which the election is made moreover of revproc_99_17 superseded in part by revproc_99_49 1999_2_cb_725 superseded by revproc_2002_9 c b states that the original form_3115 must be attached to the taxpayer’s timely filed including any extensions original federal_income_tax return for the year_of_change sec_4 of revproc_99_17 states that if a taxpayer described in sec_3 scope makes an election under sec_5 and the taxpayer’s method_of_accounting for its taxable_year immediately preceding the election_year is inconsistent with sec_475 of the code the taxpayer is required to change its method_of_accounting to comply with its election the filing of the statement required by sec_5 and dollar_figure of revproc_99_17 is the operative procedure for properly making an election under sec_475 of the code the filing of form_3115 is an administrative requirement to implement the election when you attach the form_3115 to your income_tax return please be sure to follow the procedures outlined in revproc_99_17 we have requested that your dollar_figure user_fee be refunded to you user_fee refunds are done under separate cover by the user_fee unit accordingly we will close our case file at this time all correspondence and exhibits will remain the property of the service if you have any questions about this letter please call the undersigned or sincerely yours alice m bennett chief branch office of associate chief_counsel financial institutions and products by_______________________ robert b williams senior counsel enclosures copy of this letter


tcmemo_2012_139 united_states tax_court gabriel s garcia and maria garcia petitioners v commissioner of internal revenue respondent docket no filed date gabriel s garcia and maria garcia pro sese jeffrey d heiderscheit for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies of dollar_figure and dollar_figure and sec_6662 penalties of dollar_figure and dollar_figure in relation to petitioners’ federal income taxes for and respectively after concessions the issue for decision is whether petitioner gabriel s garcia petitioner is entitled to deduct contract labor expenses in amounts not previously allowed by respondent all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in texas at the time their petition was filed during and petitioner operated a business that provided services to s k plumbing of fort worth inc during petitioner also operated a second business that provided services to jtc enterprises llc in relation to both businesses petitioner paid various workers wages or contract labor expenses some of the payments were made by check and some of the payments were in cash petitioner did not maintain complete books_and_records of the wages or contract labor payments he made during or some but not all of the payments were reported to the internal_revenue_service and to the workers as wages and some were reported as nonemployee compensation some but not all of the workers reported the income received from petitioner on their tax returns some of the workers provided to petitioner incorrect or illegible social_security numbers for petitioners reported on their tax_return dollar_figure as wage and contract labor expenses petitioner can substantiate wage and contract labor expenses of only dollar_figure respondent has conceded that petitioner is entitled to deduct dollar_figure for for petitioners reported on their tax_return dollar_figure as wage and contract labor expenses petitioner can substantiate wage and contract labor expenses of only dollar_figure respondent has conceded that petitioner is entitled to deduct dollar_figure for petitioners’ tax returns for and were prepared by petitioner’s brother richard garcia richard garcia is not an accountant or an enrolled return preparer petitioners’ tax returns for and claimed erroneous overstated or unsubstantiated deductions other than for wages or contract labor petitioners have conceded that they are liable for an accuracy-related_penalty under sec_6662 opinion before trial petitioner presented to respondent’s representatives all of the documentation that he had to establish the_amount_of_wages or contract labor expenses that he paid during and the documentation included bank records forms 1099-misc miscellaneous income and affidavits from some of the workers respondent accepted the documentation and made the concessions set forth in our findings unless the affidavits contained erroneous or illegible social_security numbers petitioner testified that he paid all of the workers whose compensation remains in dispute after respondent’s concessions petitioner’s testimony was not corroborated by any witnesses he could not explain how he derived the amounts deducted on his tax returns in the absence of records and his brother who prepared the returns did not testify petitioner did not have any time records or other evidence from which we could estimate the amounts that he paid without substantiating documents he did not identify any sources for cash payments to workers we recognize that this is a case where an allowance based on an estimate could be made bearing heavily against the taxpayer who has failed to maintain records if the existence of the disputed expenses were apparent see 39_f2d_540 2d cir we can estimate the amount of deductible expenses however only when the taxpayer provides evidence sufficient to establish a rational basis upon which the estimate can be made 85_tc_731 see becerra v commissioner tcmemo_1984_134 in the absence of such evidence and the concession of other erroneous deductions claimed on the tax returns we are unable to accept petitioner’s unsupported assertion of payment only the amounts conceded by respondent will be allowed as deductions for payments to workers during and to reflect concessions by the parties decision will be entered under rule


internal_revenue_service p o box cincinnati oh number release date date date legend b number c dollar amount y foundation z corporation dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request you will operate an employer-related scholarship program awarding scholarships to students who are or will be candidates for degrees at educational institutions defined in sec_170 i a ii of the code and are selected based on merit and need as determined by objective criteria y will establish and administer your scholarship fund and have sole decision-making authority as to scholarship recipients you will not direct the use of the scholarship fund for any named individual each year you plan to fund b scholarships of c dollars each although the number and amount of scholarships may vary in any given year depending on the size of your scholarship fund and the number of qualified applicants the number of scholarships letter catalog number 58264e awarded will also be restricted based on the limitations set forth in revproc_76_47 eligible recipients will be high school seniors and graduates and individuals who have obtained - or will have obtained - their high school equivalency and who will enroll or are enrolled as degree candidates in educational institutions meeting the requirements of sec_170 of the code and located in the united_states of america including its territories you will make your scholarships available to support studies at the undergraduate level and you will chose the recipients from among the children and grandchildren of active-status employees with at least one year of active employment with z your scholarships are not renewable but students may reapply for scholarships in subsequent years recipients will remain eligible for subsequent scholarships regardless of employment status with z you will not award scholarships to your officers or directors or their families or to any other disqualified_person with respect to your officers directors staff or their families of y you will also not award scholarships to any member or family_member of a member of the y scholarship ambassador committee or for a purpose that is inconsistent with the purposes set forth in sec_170 of the code children and grandchildren of members of the z board_of directors and z managing committee will also be ineligible to receive scholarships you will not use the scholarships to recruit employees to work for z or to induce existing employees to continue their employment termination of a parent or grandparent's employment with z for any reason will not affect disbursement of a scholarship your scholarship fund will support students with academic promise who demonstrate a need for financial assistance in completing their studies accordingly you base your scholarship selection criteria on academic performance financial need and a personal essay a candidate must have a grade point average of at least or its equivalent to demonstrate the level of academic promise necessary to receive a scholarship you will evaluate a candidate's financial need on information provided in a completed free application_for federal student aid fafsa you will evaluate a candidate's personal essay based on the strong desire to attend college and the potential to succeed compelling personal circumstances community involvement and potential to lead scholarship applicants will complete and submit to y a common online application requesting personal academic and financial information and a personal statement by a predetermined deadline in completing the application applicants will upload an electronic copy of supporting documents including their most recent grade transcript or general equivalency degree scores and a current student aid report generated by a processed fafsa completion of additional questions and essays may be necessary to qualify for certain scholarships including those provided by you your online system will match an applicant to all the scholarship funds for which the applicant is eligible based on the information submitted y will forward the initial pool of applicant names and the parent or grandparent names to the z human resources division for verification of employment after verification y will letter catalog number 58264e determine whether applicants meet the basic eligibility criteria relating to grade point average and financial need y will send the applications of the pool of eligible applicants to external scholarship ambassador committees for review and selection y will select committee members to review applications completely independent of y and z and no member of such committees will be a current or former officer director or employee of you or z members of the committees will be volunteers who are members of the community educators or former scholarship recipients after scholarship committees meet and make decisions on scholarship awards y will confirm such decisions online and notify students by email of scholarship awards within hours of selection students will then accept or decline the scholarship awards and submit confirmation of the school they will be attending y will prepare and mail scholarship award checks which will be made payable to the scholarship recipient's school for the benefit of the student y and the scholarship ambassador committees will not discriminate on the basis of race religion creed color sex age physical or mental disabilities sexual orientation or national origin y will award all scholarships on an objective and nondiscriminatory basis y will award scholarships solely in the order recommended by y scholarship ambassador committees and y will make any public announcement of the awards on behalf of you you will make any subsequent award announcements you may reduce but may not increase the number of scholarships awarded from the number recommended by y and its scholarship ambassador committees only y and its scholarship ambassador committees may vary the amounts of scholarships awarded in accordance with revproc_76_47 y will ensure that the number of scholarships awarded under the program in any year does not exceed percent of the number of children and grandchildren of z employees who were eligible for the scholarships applicants for them and considered by y scholarship ambassador committees in awarding the scholarships in that year alternatively y may with the assistance of z human resources division ensure that the number of scholarships awarded does not exceed percent of children and grandchildren of z employees who can be shown to be eligible for scholarships whether or not they submitted an application in that year only children and grandchildren who meet the eligibility standards described in revproc_85_51 will be included in applying the percent test in making calculations under either the percent or percent test y will make use of the rounding convention provided in revproc_94_78 y will remit scholarship funds when all recipients are enrolled full-time degree candidates at educational institutions meeting the requirements of sec_170 i a ii of the code accordingly such institutions must maintain a regular faculty curriculum and a regularly enrolled body of students in attendance at the facilities where the educational letter catalog number 58264e activities take place y will make scholarship payments directly to recipients' educational institutions to cover tuition fees books supplies room board and travel educational institutions are required to agree that it will use scholarship funds to defray the recipient's expenses or pay the funds or a portion thereof to the recipient only if the recipient is enrolled full time at the educational_institution and in good academic and disciplinary standing consistent with the purposes for which y awarded the scholarship scholarship recipients will not be restricted to a course of study that would be of particular benefit to y or z y will retain complete records with respect to all scholarships awarded as required by the applicable treasury regulations these records shall include all information obtained by y to evaluate applicants the identity of recipients with information sufficient to determine that recipients are not disqualified persons of you or z the completed application of each applicant the amount of each scholarship progress reports from recipients or their teachers and any additional information that y has obtained in the course of the scholarship administration process y will report annually to you on y administration of the scholarship fund if you learn that all or any part of the contributions to the scholarship fund being diverted from the intended purpose of the fund you will require y to take all reasonable and appropriate steps to recover the funds and ensure restoration of the diverted funds to the intended purpose this would include legal action if deemed appropriate under the circumstances basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is for study at an educational_organization described in code sec_170 a ii revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 letter catalog number 58264e you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that the number of grants awarded to employees' children in any year won't exceed percent of the number of employees' children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees' children in any year won't exceed percent of the number of employees' children who were eligible for grants whether or not they submitted an application or the number of grants awarded to employees in any year will not exceed percent of the number of employees who were eligible for grants were applicants for grants and considered by the selection committee for grants you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 c b when applying the percent test applicable to employees' children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written_statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures do not differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you it may not be cited as a precedent letter catalog number 58264e you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we have sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58264e


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 plr-149213-03 date date legend grantor_trust a_trust b date grandchild grandchild wife year partnership husband z y year x plr-149213-03 dear madam this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an allocation of generation-skipping_transfer_tax_exemption the facts and representations submitted are summarized as follows grantor created trust a and trust b on date the trusts are irrevocable trusts created to benefit grantor’s grandchildren trust a and trust b have similar provisions and differ only in the name of the primary beneficiary of each trust the primary beneficiary of trust a is grandchild the primary beneficiary of trust b is grandchild each trust agreement lists wife as trustee item i b of each trust provides that during the primary beneficiary’s lifetime the trustee shall distribute to or for the benefit of the primary beneficiary and or any of the primary beneficiary’s issue as much income and or principal of the trust as the trustee deems necessary or advisable to provide for the health maintenance and support of the primary beneficiary and the primary beneficiary’s issue in accordance with their accustomed standard of living and to provide for the education of the beneficiaries in year husband transferred a z limited_partnership_interest in partnership to each trust husband retained a y general_partnership interest in partnership husband and wife elected under sec_2513 to split_gifts for year wife intended for generation-skipping_transfer_tax_exemption to be allocated to the transfer and relied on her accountant to properly make the allocation wife’s year form_709 united_states gift and generation-skipping_transfer_tax return gift_tax_return was timely filed wife’s accountant made mistakes in valuing the partnership interests and in allocating wife’s generation-skipping_transfer_tax_exemption on wife’s gift_tax_return in year husband transferred dollar_figurex to each trust husband and wife elected under sec_2513 to split_gifts for year wife intended for generation-skipping_transfer_tax_exemption to be allocated to the transfer and relied on her accountant to properly make the allocation wife’s year gift_tax_return was timely filed but wife’s accountant did not list the transfers to trust a and trust b on the return consequently none of wife’s generation-skipping_transfer_tax_exemption was allocated to the transfers made in year wife has requested an extension of time to make allocations of generation- skipping transfer_tax exemption with respect to the assets transferred to trust a and trust b in year and year sec_2513 provides that a gift made by one spouse to any person other than the other spouse shall for the purposes of this chapter be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states plr-149213-03 sec_2513 provides that paragraph shall apply only if both spouses have signified under the regulations provided for in subsection b their consent to the application of paragraph in the case of all such gifts made during the calendar_year by either while married to the other sec_25_2513-2 of the gift_tax regulations provides that consent to the application of the provisions of sec_2513 with respect to a calendar_period shall in order to be effective be signified by both spouses if both spouses file gift_tax returns within the time for signifying consent it is sufficient if the consent of each spouse is signified on his own return sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a generation-skipping_transfer_tax_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her generation-skipping_transfer_tax_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of the generation-skipping_transfer_tax_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of generation-skipping_transfer_tax_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer plr-149213-03 and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the generation-skipping_transfer_tax_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore wife is granted an extension of time of days from the date of this letter to file a supplemental form sec_709 with notices of allocation for year and year each allocation will be effective as of the date of the transfer and the gift_tax value of each transfer will be used in determining the amount of the generation-skipping_transfer_tax_exemption allocated to each trust the inclusion_ratio for the trusts should be determined under sec_2642 plr-149213-03 and b a copy of this letter should be attached to each supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we have not expressed an opinion as to whether the year transfers to trust a and trust b are subject_to an estate_tax_inclusion_period under sec_2642 in addition we have specifically not ruled on the value of the year transfers to trust a and trust b 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 s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter for sec_6110 purposes copy of this letter