t c memo united_states tax_court lamar d pomeroy petitioner v commissioner of internal revenue respondent dixie l pomeroy petitioner v commissioner of internal revenue respondent docket nos 11640-11l 11641-11l filed date ps filed petitions for review of a notice_of_federal_tax_lien filing pursuant to sec_6320 in response to r’s determinations that the collection actions were appropriate held we exercise our discretion and remand these cases to irs appeals to clarify and supplement the record as the parties deem appropriate to consider p-h’s medical_condition warren neil nemiroff for petitioners nicole c lloyd for respondent memorandum findings_of_fact and opinion wherry judge these consolidated cases are before the court on petitions for review of notices of determination concerning collection action s under sec_6320 and or notices of determination petitioners seek review of respondent’s rejection of their offers-in-compromise and subsequent decision to sustain the collection action the collection action stems from unpaid income_tax for petitioners’ and taxable years the issue for decision is whether respondent’s settlement officer abused her discretion in rejecting petitioners’ offers- in-compromise because she failed to consider petitioner husband’s medical_condition and because she determined the reasonable collection potential using future income projections greater than months 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect at the relevant time findings_of_fact some of the facts have been stipulated the stipulations with accompanying exhibits are incorporated herein by this reference except to the extent discussed below at the time the petition was filed petitioners resided in nevada petitioners lamar and dixie pomeroy are husband and wife and both are retired they have a long history of noncompliance with federal_income_tax responsibilities with unpaid income_tax liabilities for the years through in addition mr pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed under sec_6702 for the tax years and mrs pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed for tax years and for tax years through and petitioners did not file income_tax returns and respondent prepared substitutes for returns under sec_6020 2the parties had until date to submit simultaneous opening briefs and until date to submit simultaneous answering briefs respondent submitted an opening brief but petitioners did not respondent then filed a notice that he was not filing an answering brief petitioners had ample time to file their own brief because they did not we conclude they have no objection to respondent’s findings of facts and we will accept them as correct to the extent consistent with the record see 118_tc_106 n aff’d 353_f3d_1181 10th cir bland v commissioner tcmemo_2012_84 on date respondent mailed petitioners a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 nftl the nftl informed petitioners that respondent filed a notice of tax_lien for the following outstanding federal_income_tax liabilities year liability dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioners timely mailed a form request for a collection_due_process or equivalent_hearing to the internal_revenue_service irs office of appeals appeals which that office received on or before date petitioners’ representative warren nemiroff stated in the request that he objected to the filing of the tax_lien on the grounds that it was excessive mr nemiroff also indicated his intention to file an offer-in-compromise settlement officer alex lau initially was assigned to the case on date respondent received petitioners’ first form_656 offer_in_compromise on this form petitioners sought to settle their income_tax liabilities for tax years through through and and civil penalties for frivolous returns for tax_year sec_2002 through petitioners stated that they sought the offer-in-compromise because of doubt as to collectibility they offered to pay dollar_figure petitioners also submitted a form a collection information statement for wage earners and self-employed individuals on this form along with reporting their assets petitioners reported that mr pomeroy received income of dollar_figure per month from his pension and social_security and that mrs pomeroy received income of dollar_figure per month from social_security their total combined monthly income was dollar_figure the offer-in- compromise was sent to respondent’s centralized offer-in-compromise coic unit for processing but appeals retained jurisdiction over the case in a letter dated date the memphis tennessee coic unit requested additional documentation substantiating the expenses and income petitioners reported on the form 433-a the coic unit also requested that petitioners file separate forms because the original offer included individual liabilities for the frivolous_return civil penalties according to the coic unit mr pomeroy’s outstanding liabilities for frivolous_return penalties were for the 3this form_656 did not include the tax_year one of the years that was the subject of the nftl and tax years while mrs pomeroy’s liabilities for frivolous_return penalties were for and petitioners submitted the requested revised forms mrs pomeroy’s revised form listed other federal tax es for and but did not list income_tax liabilities mr pomeroy’s revised form listed other federal tax es for and and income_tax for through neither form stated the offer amount on date mr nemiroff sent a letter to the coic unit enclosing substantiation requested in the september letter and the revised forms in this letter mr nemiroff also stated mr pomeroy has suffered a stroke and is near death this is a case that needs attention and care please move with alacrity on date mrs f williams the offer examiner at the coic unit sent each petitioner a letter the letters asked each petitioner to submit yet a third form_656 and asked for additional information and substantiation the third forms were to include the offer amount type of offer or offer terms as well as to identify all outstanding tax_liabilities by year that each petitioner was seeking to compromise in addition the letter to mr pomeroy stated if you would like for your medical_condition to be considered while your offer is being reviewed please provide a current medical prognosis and diagnosis from your doctor verifying your medical_condition and explaining how your medical_condition affects you the letter to mrs pomeroy contained similar language in the event that she had a medical_condition she wished to have considered mrs williams also informed petitioners that if they did not provide the requested information by date the offer may be returned or rejected mrs williams did not receive a response and on or about date she decided to return the case to appeals the coic unit’s determination was that petitioners could fully pay the remaining total liability of dollar_figure over the remaining period of collections her determination was based on the amount of petitioners’ income from pension and social_security and petitioners’ expenses both as reported and as determined using a local standard the following table reflects what petitioners reported on their form 433-a and what mrs williams determined monthly income mr pomeroy pension and social_security mrs pomeroy social_security monthly expenses food clothing miscellaneou sec_1 form 433-a per coic dollar_figure dollar_figure dollar_figure dollar_figure 4because mrs williams determined that petitioners could fully pay their liabilities with future income she did not calculate the equity in their assets housing utilities vehicle operating costs health insurance out-of-pocket health care costs life_insurance net total big_number dollar_figure big_number dollar_figure 1petitioners claimed a household size of three because they were supporting their adult daughter mrs williams accepted this claim and calculated the expenses using the national standards for a household of three because mrs williams determined that the remaining statutory periods of collection for mr and mrs pomeroy’s liabilities were months and months respectively she determined that mrs pomeroy could pay a total of dollar_figure and mr pomeroy could pay a total of dollar_figure each of which exceeded the total liability petitioners submitted a third set of forms in mid-december of on her form mrs pomeroy listed income_tax for years through and trust fund recovery penalty for and mr pomeroy’s form listed the same years for income_tax liabilities and listed the and tax years for liabilities due to trust fund recovery penalties each form offered to pay dollar_figure mrs pomeroy also provided a letter stating 5evidently coic prepared the forms for petitioners why the forms list petitioners as having trust fund recovery penalties as opposed to civil penalties for frivolous submissions is unclear we note also that apparently because of a typographical error the form as to the trust fund recovery penalty refers to instead of with the referring to the taxable_year ending in december that mr pomeroy had suffered a serious stroke and was undergoing inpatient therapy mrs pomeroy indicated that she had asked the doctor for a prognosis and diagnosis but was not sure she would get it in time to send this letter along with the third set of forms apparently did not reach the coic unit until after mrs williams decided petitioners could fully pay but the forms and the letter were forwarded to appeals the new settlement officer assigned to the case elizabeth coppola reviewed the coic unit’s determination to reject petitioners’ offers-in- compromise during this review ms coppola approved mrs williams’ calculations with respect to monthly income and expenses and the projection of petitioners’ monthly income over the remaining period of limitations on collection ms coppola also reviewed the additional information forwarded to appeals she decided on the basis of her review of all the information petitioners submitted to reject the offers-in-compromise and sustain the filing of the federal_tax_lien on date ms coppola called mr nemiroff who said that he had just arrived at his office and asked if he could call her back ms coppola agreed but requested that the return call be no later than p m the same day ms coppola sent mr nemiroff a fax confirming this request and stating that she had reviewed all of petitioners’ information and was sustaining the rejection of the offers-in-compromise and the filing of the tax_lien the fax further stated that if mr nemiroff did not contact her by p m she was closing the case mr nemiroff never returned the phone call on date respondent issued the notices of determination memorializing ms coppola’s determinations petitioners timely petitioned this court for review and a trial was held in los angeles california on date at the trial the court granted petitioners’ oral motion to consolidate the cases for trial briefing and opinion opinion i evidentiary issue respondent objects to one of the stipulations and its accompanying exhibit on the grounds of relevancy because it was outside the administrative record this exhibit was a letter from mr pomeroy’s doctor briefly describing his medical_condition the letter was dated date long after the administrative record was closed we follow the law of the court_of_appeals for the ninth circuit to which these cases absent a stipulation to the contrary are appealable see 54_tc_742 aff’d 445_f2d_985 10th cir that court_of_appeals has limited the review of the administrative determinations in collection_due_process hearings to the administrative record see 568_f3d_710 9th cir our review is confined to the record at the time the commissioner’s decision was rendered aff’g in part tcmemo_2006_166 because the letter was not in the administrative record at the time ms coppola made her determination we sustain respondent’s objection ii standard of review sec_6330 permits challenges to the existence or amount of the underlying liability in collection proceedings only where the taxpayer did not receive a notice_of_deficiency or otherwise have an opportunity to challenge the liability if the validity of the underlying tax_liability is not properly at issue we will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_176 however where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo id in their petitions petitioners asserted all taxes penalties and interest resulting from same are in dispute respondent counters on brief petitioners however never raised the issue of the validity of the liabilities in their pre-trial memorandums nor argued the issue at trial we further note that petitioners did not file a posttrial brief as petitioners neither presented evidence as to the issue of the underlying tax_liabilities nor pursued the issue at trial we deem the argument as to the underlying liabilities conceded see 92_tc_661 thus abuse_of_discretion is the appropriate standard of review here iii review for abuse_of_discretion sec_6320 and b requires the commissioner to notify a taxpayer in writing upon the filing of a notice_of_federal_tax_lien and to provide the taxpayer with an opportunity for an administrative hearing an administrative hearing under sec_6320 is conducted in accordance with the procedural requirements of sec_6330 sec_6320 if an administrative hearing is requested the hearing is to be conducted by appeals sec_6320 at the hearing the appeals officer conducting it must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 the taxpayer may raise any relevant issue with regard to the commissioner’s intended collection activities including spousal defenses challenges to the appropriateness of the proposed collection actions and alternative means of collection sec_6330 see also 114_tc_604 goza v commissioner t c pincite taxpayers are expected to provide all relevant information requested by appeals including financial statements for its consideration of the facts and issues involved in the hearing sec_301_6320-1 proced admin regs among the issues that may be raised at appeals are offers of collection alternatives such as offers-in-compromise and installment agreements sec_6330 the court reviews the appeals officer’s rejection of an offer-in-compromise or an installment_agreement to decide whether the rejection was arbitrary capricious or without sound basis in fact or law and therefore an abuse_of_discretion skrizowski v commissioner tcmemo_2004_229 see also keller v commissioner f 3d pincite a decision based on an erroneous view of the law or a clearly erroneous assessment of facts is an abuse_of_discretion sec_7122 establishes the authority of the secretary to compromise tax_liabilities the irs may compromise a taxpayer’s liability on the grounds of doubt as to liability doubt as to collectibility or effective tax_administration sec_301_7122-1 proced admin regs whether an offer is accepted or rejected is left to the discretion of the irs sec_301_7122-1 proced admin regs petitioners sought to compromise their tax_liabilities on the basis of doubt as to collectibility ms coppola determined that petitioners could fully pay their liabilities over the time remaining in the statutory period of collection sec_6502 petitioners claim that the appeals officer abused her discretion by computing their ability to fully pay using projected future income over the remaining statutory period of collection instead of following the guidelines in the internal_revenue_manual irm the irm limits appeals officers to months in computing future income when evaluating offers-in-compromise and the offer is payable in five months or less irm pt a date but in general a settlement officer will not accept an offer-in-compromise where the taxpayer can fully pay the liability id pt date to determine whether a taxpayer can fully pay the appeals officer makes a computation to determine whether the taxpayer can pay under an installment_plan using the entire period afforded by the statute_of_limitations for collections id pt date instructing offer evaluators to first determine whether the taxpayer can full pay through installment_agreement guidelines in making this determination the officer projects future income over the course of the period of limitations not just months id pt thus in these cases ms coppola did not abuse her discretion in projecting future income over the remaining period 6we note that petitioners’ counsel raised this issue during a pretrial hearing we then asked respondent to address the issue which respondent did on brief petitioners also claim that ms coppola abused her discretion by not considering mr pomeroy’s medical_condition this argument appears to be premised on the idea that once appeals had determined petitioners were able to fully pay the liabilities appeals should have considered adjusting income or allowable expenses for life expectancy and or anticipated medical_expenses respectively and also considered the offers-in-compromise under the promotion of effective tax_administration guidelines the regulations discuss two scenarios under which the promotion of effective tax_administration can be grounds for compromise if full collection would cause the taxpayer economic hardship and if there are compelling public policy or equity considerations sec_301_7122-1 and ii proced admin regs economic hardship exists where the taxpayer would be unable to pay his or her reasonable basic living_expenses sec_301_6343-1 proced admin regs to determine basic living_expenses the irs looks pincitepetitioners may also be arguing that they qualify for offers-in-compromise under doubt as to collectibility with special circumstances to qualify for offers on such grounds petitioners must show not only that they are unable to fully pay the liabilities but also that they have special circumstances that justify settling the liabilities for less than the reasonable collection potential internal_revenue_manual pt date the factors establishing special circumstances are the same as those establishing effective tax_administration id pt various factors including age employment status and history dependents reasonably necessary expenses cost of living extraordinary circumstances and other factors raised by the taxpayer sec_301_6343-1 proced admin regs public policy or equity considerations provide a basis for compromise only where due to exceptional circumstances collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner sec_301_7122-1 proced admin regs emphasis added but in both scenarios compromise is not appropriate if it would undermine compliance by taxpayers with the tax law sec_301_7122-1 proced admin regs the regulations also identify several factors helpful but not conclusive or exclusive in determining whether an offer should be accepted under the effective tax_administration grounds and whether acceptance would undermine confidence in the tax laws sec_301_7122-1 proced admin regs such factors include a taxpayer’s long-term illness or medical_condition that prevents the taxpayer from earning a living and the reasonable foreseeability that taxpayer’s financial resources will be exhausted providing for care and support during the course of the condition sec_301_7122-1 proced admin regs at the same time a history of noncompliance with the filing and payment requirements of the internal_revenue_code indicates that acceptance of the offer would tend to undermine compliance with the tax laws sec_301 c ii a proced admin regs the crux of petitioners’ argument appears to be that mr pomeroy’s medical_condition qualified them for offers-in-compromise based on effective tax_administration even though they submitted the offers under doubt as to collectibility grounds indeed irm pt date states that for offers submitted as doubt as to collectibility offers the settlement officer should also consider the offer as an effective tax_administration offer if special circumstances exist even if the collection potential exceeds the liability petitioners point to numerous instances in the record to show that appeals was well aware of mr pomeroy’s stroke and should have considered the offers as effective tax_administration offers once it determined that petitioners could fully pay the liabilities after initially denying that petitioners had informed appeals of mr pomeroy’s stroke respondent now admits that the record does indeed contain several references now respondent contends that appeals did consider to the extent that it could mr pomeroy’s medical_condition in evaluating an offer based on effective tax_administration irm pt a date instructs the settlement officer to r equest supporting documentation of the taxpayer’s situation such as a doctor’s letter or copies of medical_expenses mrs williams’ date letter stated that if petitioners wanted her to consider mr pomeroy’s medical_condition they needed to submit verification in the form of a diagnosis and prognosis from a doctor by date mrs pomeroy wrote a letter in response which unfortunately is not dated and does not have a date-received stamp in this letter she told mrs williams that she was trying to get the letter from the doctor and that her husband was still at an in-patient facility petitioners were in the process of obtaining the requested verification but mrs coppola made her determination and closed the case before they were able to procure the documentation petitioners alerted respondent numerous times that mr pomeroy was gravely ill the administrative record reflects that appeals was not only aware that mr pomeroy had suffered a stroke which could very well have a drastic effect on petitioners’ medical_expenses but it was also aware that mrs pomeroy was in the process of trying to get a letter from a physician mrs williams gave petitioners only business days between the date date of the 8as mrs pomeroy testified at trial w hen you have a family_member that is almost on their death bed it gets kind of hard to do everything letter and the date deadline to obtain a prognosis or diagnosis from a doctor ms coppola appears to have done no more than rely on the record as developed by mrs williams and does not appear to have made an appropriate effort to obtain sufficient information from petitioners in fact ms coppola appears to have made only one effort to contact petitioners or their counsel and that one effort was the same day she closed the case she made no attempt to ascertain the current status of mr pomeroy’s health or mrs pomeroy’s attempt to obtain a diagnosis or prognosisdollar_figure without more information about mr pomeroy’s medical_condition the administrative record is insufficient for the court to properly review it in such cases we can remand collection_due_process cases to appeals to develop the record see 134_tc_280 remanding to clarify and supplement the administrative record when we determined that the administrative record was insufficient to enable us to properly evaluate whether the appeals_office abused its discretion hoyle v 9as a practical matter petitioners would have had less than business days as the letter presumably took some time to travel from tennessee to nevada and any response would take some time to travel back from nevada to tennessee 10we note that at the time of the trial mr pomeroy was still at the rehabilitation facility and had recently broken his hip commissioner 131_tc_197 remanding so that appeals could clarify the record as to why it determined that all requirements of applicable law were met accordingly we remand these cases to the appeals_office to allow the parties to clarify and supplement the record as appropriate we will retain jurisdiction to preserve petitioners’ rights to judicial review of the final administrative determination see wadleigh v commissioner t c pincite the court has considered all of petitioners’ contentions arguments requests and statements to the extent not discussed herein the court concludes that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-117315-98 date date legend company x d1 d2 state dear this responds to a letter dated date submitted by your authorized representative on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated in state on d1 with x as its sole shareholder company subsequently decided to elect to be treated as an s_corporation effective d2 company’s form_2553 election by a small_business_corporation however was not timely filed company requests a ruling under sec_1362 that it will be classified as an s_corporation effective for the taxable_year beginning d2 law sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an election under sec_1362 will be effective if an election is made within the plr-117315-98 first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if an election under sec_1362 is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the election is made sec_1362 provides that if no election is made under sec_1362 for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of the tax_year conclusions after applying the relevant law to the facts submitted and representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 this ruling is contingent on company filing a completed form_2553 containing an effective date of d2 for the election with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the form_2553 a copy is enclosed for that purpose 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 specifically no opinion is expressed concerning whether company is an s_corporation for federal tax purposes plr-117315-98 under a power_of_attorney on file in this office a copy of this letter will be sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeff erickson assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court john haynes jr petitioner v commissioner of internal revenue respondent docket no 20509-05s filed date john haynes jr pro_se dennis r onnen for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time of filing pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other unless otherwise indicated all rule references are to the tax courts rules_of_practice and procedure and all section references are to the internal_revenue_code as amended case this case is before the court on respondent’s motion for summary_judgment pursuant to rule background this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or sustaining the filing of a notice_of_federal_tax_lien in order to collect petitioner’s unpaid federal income taxes for and petitioner filed his income_tax return for and received a refund of dollar_figure for the taxable_year petitioner filed his federal_income_tax return and received refunds of dollar_figure and dollar_figure respectively an audit occurred on date and subsequently respondent mailed a notice_of_deficiency to petitioner in which respondent determined deficiencies in petitioner’s federal income taxes for taxable years and in the amounts of dollar_figure and dollar_figure respectively together with accuracy-related_penalties pursuant to sec_6662 for and in the amounts of dollar_figure and dollar_figure respectively the notice_of_deficiency was mailed to petitioner at the following addresses fishing river road liberty missouri and post office box liberty missouri copies of the notice_of_deficiency were also sent to petitioner’s authorized representative richard t jones at the following address post office box rolla missouri the aforementioned liberty missouri address is the same address stated on petitioner’s federal_income_tax returns for taxable years and petitioner failed to file a petition to this court in response to the notice_of_deficiency accordingly respondent assessed the deficiencies determined for taxable years and together with the penalties and interest applicable thereon on date on date respondent mailed a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 cdp_notice that informed petitioner that a notice_of_federal_tax_lien had been filed because there were unpaid tax_liabilities for taxable years and in the amounts of dollar_figure and dollar_figure respectively the cdp_notice informed petitioner of his right to a hearing to appeal the collection action and to discuss payment method options publication collection appeal rights together with form request for a collection_due_process_hearing form was enclosed with the cdp_notice petitioner timely mailed a form petitioner’s case was then referred to the internal_revenue_service irs appeals_office in kansas city and assigned to james c callanan the appeals officer mr callanan mailed an acknowledgement letter to petitioner’s representative leonard g goldammer mr goldammer on date in the letter mr callanan scheduled a cdp hearing by telephone on date and also offered mr goldammer an opportunity to have either a face- to-face conference or a hearing by correspondence the date hearing was continued until date petitioner requested a face-to-face conference which was held on date with petitioner mr callanan and mr goldammer in attendance a second face-to-face conference occurred between mr callanan and mr goldammer on date at the date conference petitioner acknowledged that he had received the notice_of_deficiency but had relied on his representative at that time to file a petition with the court petitioner acknowledged that it was his responsibility to assure that a petition was filed with this court and that he had failed in this duty after this admission mr callanan explained to petitioner that because he had received a notice_of_deficiency the merits of the underlying deficiencies could not be raised as part of the cdp hearing the parties then discussed the appropriateness of the collection action the filing of the notice_of_federal_tax_lien and possible collection alternatives with respect to the collection alternatives discussed at the date cdp hearing petitioner requested that any collections action be rescinded on the grounds that the outstanding liabilities from taxable years and would ultimately be satisfied by one of two ways through a refund petitioner anticipated as a result of his yet-to-be-filed amended returns for taxable years and or through a refund petitioner anticipated from his yet-to-be-filed federal_income_tax return for taxable_year mr callanan rejected petitioner’s proposal on the basis that petitioner had yet to file any of the returns proposed and because any refund would at that point be purely speculative there would be no way to assure that refunds would repay the liabilities owed in the alternative mr callanan raised the possibility that petitioner might be able to enter into an installment_agreement petitioner however stated that he would not be financially able to accept such an arrangement the cdp hearing concluded without further mention of collection alternatives on date mr callanan met with mr goldammer to review petitioner’s financial statement at this meeting mr goldammer protested that such a review was not necessary as the refunds that petitioner anticipated receiving would cover his outstanding liabilities owed on date mr goldammer left a voicemail message on mr callahan’s voicemail system reiterating petitioner’s position that the collection action should be abandoned in the light of the refunds that petitioner anticipated he was to receive from the filing of amended returns for taxable years and and his federal_income_tax return for mr callanan contacted mr goldammer and reiterated that petitioner’s proposal was still unacceptable in that same conversation mr callanan informed mr goldammer that despite his continuing rejection of petitioner’s proposal he would work on petitioner’s financial statement and get back to him on date mr callanan contacted mr goldammer and informed him that because the outstanding liability owed was below dollar_figure--dollar_figure to be precise--he could accept an installment_agreement mr callanan then proposed that petitioner agree to make monthly payments of dollar_figure petitioner rejected this offer the record in this case includes petitioner’s federal_income_tax return for the taxable_year on that return petitioner reported wages salaries and tips in the amount of dollar_figure petitioner also reported rental income from six residential and commercial properties that he owns including a banquet hall as of the time the present motion was filed petitioner had filed neither his federal_income_tax return for taxable_year nor any amended returns for or discussion with respect to the pending motion petitioner was permitted to file a response but elected not to file one summary_judgment is appropriate if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see fla peach corp v commissioner 90_tc_678 sec_6320 generally provides that the irs cannot proceed with the collection_of_taxes by way of the filing of a notice_of_federal_tax_lien with respect to a taxpayer’s property until the taxpayer has been given notice of and the opportunity for an administrative review of the proposed filing in the form of an irs office of appeals hearing sec_6330 provides that the appeals officer shall obtain verification that the requirements of any applicable law or administrative procedure have been met sec_6330 provides that the taxpayer may raise any relevant issue relating to the unpaid tax including spousal defenses challenges to the appropriateness of collection actions and alternatives to collection the taxpayer may also raise challenges to the existence or amount of the underlying tax_liability if he or she did not receive a statutory_notice_of_deficiency with respect to the underlying tax_liability or did not otherwise have an opportunity to dispute that liability sec_6330 sec_6330 provides that the determination of the appeals officer shall take into consideration the verification under sec_6330 the issues raised by the taxpayer and whether the proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary if the taxpayer is dissatisfied with the determination made after the hearing judicial review of the determination such as that sought in this case is available see generally 114_tc_176 where the validity of the underlying tax_liability is at issue the court will review the matter de novo 115_tc_35 where the taxpayer challenges the assessment procedures of the case the court will review the matter for abuse_of_discretion 114_tc_604 goza v commissioner supra in order to prevail under abuse_of_discretion a taxpayer must prove that the commissioner exercised this discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 petitioner’s position is twofold he challenges both the underlying liability as well as respondent’s assessment procedures with respect to his case with respect to the first prong however because petitioner received a notice_of_deficiency for taxable years and but did not file a petition with this court we cannot consider the underlying liability therefore our inquiry rests solely with the question of whether respondent’s assessment procedures and in particular his rejection of petitioner’s collection alternative were done arbitrarily and without sound basis in fact or law id petitioner’s argument that respondent should rescind or abandon the collection action based on the amount of money he anticipated receiving from refunds claimed on federal_income_tax returns is at best speculatively optimistic mr callanan reasonably explained to petitioner on more than one occasion that it would be impossible for him to rescind the collection action based on petitioner’s proposal especially where petitioner had not yet filed any amended returns for taxable years or and where his return for taxable_year was not even due for another months petitioner presented no additional evidence aside from his assertion that refunds would be due to him from the aforementioned returns in support of his proposal despite his assertion that he was unable to remit the amount of liabilities owed petitioner did not present any evidence that he was financially unable to make payments while the record is silent as to petitioner’s income at the time that the present motion was filed we note that neither petitioner nor his representative offered evidence showing that petitioner did not still possess the assets or maintain the income level as reflected on his federal_income_tax return for mr callanan however gave full consideration to petitioner’s situation repeatedly offering petitioner the alternative of installment payments in fact mr callanan revisited petitioner’s financial statement and determined that because the amount of liabilities owed was dollar_figure petitioner could request an installment_payment option mr callanan then proposed an installment_payment whereby petitioner would pay dollar_figure per month when mr callanan presented this installment payment- option to petitioner it was summarily rejected the record is replete with examples of how mr callanan was more than accommodating to petitioner throughout his dealings with him in sum we are convinced that mr callanan verified that applicable law and administrative procedures had been met and determined that the proposed collection action balanced the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary for his part petitioner has offered no credible_evidence showing that respondent’s determination was arbitrary capricious or without sound basis in law we therefore conclude that these is no genuine issue of material fact and that respondent is entitled to an entry of decision as a matter of law based upon our review of the relevant evidence and law in this case we sustain the determination of respondent to proceed with the proposed collection action to collect petitioner’s unpaid income_tax liabilities for taxable years and to reflect the foregoing an appropriate order and decision will be entered for respondent


internal_revenue_service number release date index number --------------------------------- --------------------------------- --------------------- ----------------------------------------- re ------------------------------------------------ ----------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-131866-11 date date ------------------------ ----------------- ------------------------ ---------------------------- ---------------------- ---------------------------- ------------------------------ ---------------------- ------------------------------------------ legend legend trustor spouse child a grandchild a child b grandchild b-1 grandchild b-2 grandchild b-3 trust --------------------------------------------------------------------------------- marital trust family_trust child b_trust ----------------------------------------------------------------------------- grandchild a_trust ------------------------------------------------------------------------------------- grandchild b-1 trust ----------------------------------------------------------------------------------------------- grandchild b-2 trust ------------------------------------------------------------------------------------ grandchild b-3 trust ----------------------------------------------------------------------------- liquid_assets date date date date date date state ----------------------------------------- ------------------- ---------------------- -------------------------- ----------------------- -------------------------- ------------------ ------ ------------------------------------------------------------------------ --------------------------------------- --------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------- plr-131866-11 --------------------------------------------------------------- ------------------------------------------------ ------------------------------------------------ ------------------------------------------------- --------------------------------------------------------------- state court ----------------------------------------------------------------------------------- state statute state statute state statute cite ---------------------------------------------------------------------------------------- cite cite cite ----------------------------------------------------------------------------------- cite cite cite cite ---------------------------------------------------- --------------------------------------------------- ------------------------------------------------------ ----------------------------------------------- -------------------------------------------------- --------------------------------------------------- -------------------------------------------------- ------------------------------------------ cite ---------------------------------------------------------------------------------------------------- --------------------------------------------------------------- dear ---------------------------------------- this responds to your representative’s letter dated date requesting rulings on the gift and generation-skipping_transfer_tax consequences of a judicial construction of a_trust the facts submitted and the representations made are as follows on date trustor executed a revocable_trust trust that became irrevocable at her death under article iii and article v c and d of trust at trustor’s death a fractional amount of trust property is to be held in trust marital trust for the lifetime benefit of spouse article v c and d provide spouse may exercise a testamentary general power to appoint the marital trust property if spouse fails to exercise the power the marital trust property remaining at his death is to pass to the trust described below family_trust article v d provides that the remaining trust property is to be distributed to the family_trust created under article vi under article vi a the family_trust property is to be divided into six separate trusts of equal value for each child and grandchild of trustor set forth as child a child a’s child grandchild a child b and child b’s three children grandchild b-1 grandchild b-2 and grandchild b-3 child a predeceased trustor under article vi d the income of each separate trust for each child and plr-131866-11 grandchild of trustor is to be distributed to the beneficiary annually or more frequently if in the trustee’s judgment it is convenient and appropriate to do so the corpus of the separate trust may be invaded in the trustee’s discretion to assist the beneficiary in emergencies arising out of or connected with illness accident inflation or other similar events over which the beneficiary has no control article vi distribution at a beneficiary’s death child b_trust under article vi b ii on child b’s death her trust estate is to be distributed equally among the then existing trusts created under and pursuant to article vi a but if there is none the child b_trust estate is to be distributed to spouse’s heirs as determined by state law then in force emphasis added grandchild trusts under article vi b iii on the death of any one of trustor’s grandchildren that deceased grandchild’s trust is to be administered as follows if the deceased grandchild leaves descendants the trust income is to be distributed equally among them until the youngest descendant attains age whereupon the trust estate is to be distributed to the then beneficiaries and their respective children if any under the principle of representation if the deceased grandchild leaves no surviving descendants then the trustee is to distribute the trust estate to the other then existing trusts set up and created under and pursuant to article vi emphasis added trustor died on date a date prior to date survived by spouse child b grandchild a grandchild b-1 grandchild b-2 and grandchild b-3 marital trust was created for spouse the remaining trust property was divided equally among five separate trusts ie child b_trust for child b grandchild a_trust for grandchild a grandchild b-1 trust for grandchild b-1 grandchild b-2 trust for grandchild b-2 and grandchild b-3 trust for grandchild b-3 spouse died on date a date prior to date without exercising his general_power_of_appointment the marital trust property was divided equally among the five separate trusts ie child b_trust grandchild a_trust grandchild b-1 trust grandchild b-2 trust and grandchild b-3 trust grandchild a and grandchild b- are the trustees trust and the separate trusts are governed by state law grandchild b-1 and grandchild b-3 are beneficiaries of his respective grandchild’s trust each of them has descendants grandchild a is the beneficiary of his respective trust however grandchild a has no descendants child b was the beneficiary of her trust until she died on date the child b_trust assets are now distributable to the then existing trusts grandchild b-2 was the beneficiary of her trust until she died on date under article vi b iii the trustees distributed the liquid_assets of grandchild b-2 trust to her children plr-131866-11 on date the trustees filed a petition in state court requesting construction of the then existing trusts language of article vi b ii and iii the trustees asked the court to consider that i trustor and spouse intended an equal division of the trust property among their four grandchildren whose descendants would receive a respective grandchild’s share ii grandchild b-2 trust existed at child b’s death because after the trustees distributed the liquid_assets grandchild b-2 trust continued to hold interests consisting of a vested interest in child b_trust and a defeasible_interest in the other grandchildren’s trusts and iii because each grandchild’s trust exists so long as it holds a defeasible_interest in the other grandchildren’s trusts a_trust for a grandchild leaving no issue is divisible in equal shares among the three other grandchildren’s trusts state court concluded that trustor and spouse intended for the child b_trust assets to be shared by all four grandchildren’s trusts and if a grandchild were to die with no descendants his or her trust was to be divided equally among the three remaining grandchildren’s trusts the court’s order is effective upon the trustees’ receipt of a favorable private_letter_ruling we have been asked to rule that the court’s construction will not cause the trust and the five separate trusts to lose the exemption from the generation-skipping_transfer_tax and the court’s construction will not cause any beneficiary of a separate trust to be deemed to make a gift_for federal gift_tax purposes law in 387_us_456 the court considered whether a state trial court's characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court's determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court plr-131866-11 state law state statute provides in part that a_trust terminates to the extent it expires pursuant to its terms no purpose of the trust remains to be achieved or the purposes of the trust have become unlawful contrary to public policy or impossible to achieve under state law a court may reform the terms of a_trust to conform to the settlor’s intentions state statute the question of whether there is a scrivener’s error or ambiguity is a question of law cite cite cite cite in construing a_trust the court looks to the four corners of the instrument to determine the settlor’s intentions which are controlling the court construes the trust in the light of its language and particular facts cite the courts of state construe the term trust property expansively to include contingent interests and interests subject_to divestiture a valid trust may exist even though its sole asset is a remainder_interest subject_to divestiture see state statute cite cite cite cite issue sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date provided no additions actual or constructive were made to the trust after that date sec_26_2601-1 provides that the gst tax does not apply to any generation-skipping_transfer under a will or other revocable_trust executed before date provided that the document in existence on date is not amended at any time after date in any respect which results in the creation of or an increase in the amount of a generation-skipping_transfer and the decedent dies before date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are plr-131866-11 applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener's error will not cause an exempt trust to be subject_to the gst provisions if the judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust for the benefit of grantor's children a and b and their issue the trust is to terminate on the death of the last to die of a and b at which time the principal is to be distributed to their issue however the provision governing the termination of the trust is ambiguous regarding whether the trust principal is to be distributed per stirpes only to the children of a and b or per capita among the children grandchildren and more remote issue of a and b in the trustee files a construction suit with the appropriate local court to resolve the ambiguity the court issues an order construing the instrument to provide for per capita distributions to the children grandchildren and more remote issue of a and b living at the time the trust terminates the court's construction resolves a bona_fide issue regarding the proper interpretation of the instrument and is consistent with applicable state law as it would be interpreted by the highest court of the state therefore the trust will not be subject_to the gst tax trust was irrevocable on date and the trustees represent that there have been no additions to trust or any of the separate trusts after date in this case an examination of the documents and state law confirms that trustor and spouse intended each grandchild’s separate trust to continue in existence for purposes of acquiring the child b_trust assets and the trust assets of a grandchild dying without descendants accordingly we conclude that state court’s construction of the then existing trust language of article vi b ii and iii resolves a bona_fide issue and is consistent with applicable state law that would be applied by the highest court of state accordingly based on the facts presented and the representations made the construction of the phrase then existing trusts in article vi b ii and iii of trust will not cause trust or a separate trust to lose its exempt status for purposes of the gst tax under sec_2601 plr-131866-11 issue sec_2501 imposes a gift_tax for each calendar_year on the transfer of property by gift during the year by an individual sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed a gift in this case an examination of the relevant documents indicates an ambiguity that is contrary to the intent of trustor and spouse further state court’s construction is consistent with applicable state law that would be applied in the highest court of state accordingly based on the facts presented and the representations made we conclude that state court’s construction of article vi b ii and iii will not cause a beneficiary of trust or the separate trusts to be deemed to have made a gift_for gift_tax purposes in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 plr-131866-11 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number attn in re washington dc person to contact telephone number refer reply to cc psi plr-116443-99 date date legend - decedent - spouse - child a - child b - trust - trustee date - date - date - date - dear this responds to the letter from your authorized representative requesting rulings regarding the effect of the proposed judicial modification of the trust instrument for federal generation-skipping_transfer_tax purposes the submitted information and representations made are as follows decedent established trust a revocable_trust on date and subsequently amended trust on date and date decedent died on date causing trust to become irrevocable decedent was survived by spouse child a and child b spouse is deceased and both child a and child b are living and have children trustee an independent corporate trustee is the current trustee of trust trust is governed by the laws of the state of georgia the corpus of trust consists of marketable_securities under the trust’s terms as amended upon spouse’s death the net_income is to be paid in equal shares to child a and child b during their lives upon the death of the first to die of child a and child b that child’s share of the income will be paid to that child’s descendants per stirpes upon the death of the survivor of spouse child a and child b the corpus plus unexpended income will be paid in equal shares to the descendants of child a and child b per stirpes if either child a or child b die without being survived by descendants the entire corpus will be paid to the descendants of the other child and if both die without surviving descendants the corpus will be paid to plr-116443-99 other more remote family members of decedent article ix of trust in part authorizes the trustee to sell and dispose_of any part of the property held by it at any time and to invest and reinvest all sums of money coming into its possession according to its absolute discretion in loans stocks bonds securities or real_estate notwithstanding any law now or hereafter in force limiting the class of investments for trustees or trust funds article x of trust authorizes the trustee to invest in the common_stock of certain specified companies article x further states if at any time trustee in its discretion shall decide that it would not be to the advantage of the estate to purchase any of the above listed stocks it shall not be required to do so if at any time the trustee in its discretion shall in the event it has already purchased stock of the above- listed companies decide that it would not be to the advantage of the estate to continue to hold said stock it shall have the right to sell the same and invest and reinvest the proceeds in the common stocks of what are in its judgment the strongest corporations in the basic or leading lines of industry in the united_states you represent that there have been no additions actual or constructive to the trust after date transaction trustee proposes to petition the appropriate local court to modify trust the modification will be contingent upon receiving a favorable ruling from the internal_revenue_service concerning the effect of the modification on the trust’s exempt status for gst tax purposes under the modification as proposed trust will be partitioned into two equal separate trusts subtrusts one for the benefit of child a and child a’s descendants and the other for the benefit of child b and child b’s descendants in all other respects the dispositive provisions of each of the subtrusts will be the same as the dispositive provisions of trust the net_income from the subtrust for child a will be paid to child a for life and the net_income from the subtrust for child b will be paid to child b for life upon the death of the first to die of child a or child b the net_income from that child’s trust will be paid to that child’s descendants per stirpes until the death of the surviving child child a or child b at that time the assets of each subtrust will be distributed per stirpes to the living descendants of both child a and child b respectively if either child a or child b is not survived by descendants the assets of that child’s subtrust will be distributed to the descendants of the other child in the event that neither child a nor child b is survived by descendants the assets of both subtrusts will pass to the same remote family members of decedent as provided for in trust plr-116443-99 in addition the investment provisions of trust will be modified to incorporate the fiduciary powers provided for under the laws of the state of georgia as specified in and of the georgia code annotated section of the georgia code provides in part b in acquiring investing reinvesting exchanging retaining selling and managing property for the benefit of another a trustee shall exercise the judgment and care under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use to attain the purposes of the account in making investment decisions a trustee may consider the general economic conditions the anticipated tax consequences of the investments the anticipated duration of the account and the needs of the beneficiaries ga code ann michie in addition of the georgia code provides in part that a_trust may incorporate by reference the power to invest and reinvest as the fiduciary shall deem advisable in common or preferred stocks bonds debentures notes mortgages or other_securities in or outside the united_states in insurance contracts on the life of any beneficiary or of any person in whom a beneficiary has an insurable interest or in annuity_contracts for any beneficiary in any real or personal_property in investment trusts including the securities of or other interests in any open-end or closed-end management investment_company or investment_trust registered under the investment_company act of as from time to time amended in participations in common trust funds and generally in such property as the fiduciary shall deem advisable even though the investment is not of the character approved by applicable law but for this paragraph you request a ruling that the proposed judicial partition and modification of the trust will not constitute a constructive_addition to the trust and not otherwise subject the trust and the subtrusts and the beneficiaries to the generation-skipping_transfer_tax imposed under sec_2601 of the internal_revenue_code sec_2601 imposes a tax on every generation-skipping_transfer made after date a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination plr-116443-99 by death lapse of time release of a power or otherwise of an interest_in_property_held_in_trust where the property passes to a skip_person with respect to the transferor of the property sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax made by a transferor to a skip_person sec_2613 defines a skip_person a sec_1 a natural_person who is assigned to a generation which is two or more generations below that of the transferor a_trust in which all the interests are held by skip persons or a_trust where after that transfer no trust distributions may be made to a non-skip_person under sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer gst tax does not apply to any generation-skipping_transfer under a_trust that was irrevocable on date however this exemption does not apply to additions actual or constructive that are made to the trust after date sec_26_2601-1 states that if an addition is made after date to a_trust which was irrevocable on date a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the gst tax provisions if an addition is made the trust is thereafter deemed to consist of two portions a portion not subject_to the gst tax and a portion subject_to the gst tax sec_26_2601-1 provides that except as provided for in paragraph b of that section where any portion of a_trust remains in trust after the post- date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer for federal estate or gift_tax purposes the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides that the release exercise or lapse of a power_of_appointment other than a general power is not treated as an addition to a_trust if the power was created in an irrevocable_trust that is not subject_to the gst tax because it was irrevocable on date and in the case of an exercise the power was not exercised in such a way that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period beyond the rule_against_perpetuities measured from the creation of the trust section of the georgia code provides in part that b upon petition by a trustee beneficiary or any party in interest for good cause shown the court after conducting a hearing with notice to all plr-116443-99 parties_in_interest in such manner as the court may direct may divide a_trust into two or more single trusts or consolidate two or more trusts into a single trust upon such terms and conditions as it deems appropriate the court shall not approve any such consolidation or division unless such consolidation or division is not inconsistent with the intent of the grantor donor settlor or testator with regard to any trust to be consolidated or divided would facilitate administration of the trust or trusts and would be in the best interest of all beneficiaries and not materially impair their respective interests ga code ann michie a modification of a_trust that is otherwise exempt for gst tax purposes will generally result in a loss of its grandfathered exempt status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust in the present case the trust was irrevocable on date it is represented that no additions have been made to the trust since that time therefore unless the modification of the trust is deemed an addition to the trust or the proposed modification changes the quality value or timing of the interests or powers provided for under the terms of the trust the trust and the subtrusts resulting from the partition will remain exempt from the gst tax after the partition of the trust as proposed the subtrusts will continue to be governed by the same dispositive provisions currently in trust in addition the administrative provisions governing the trustees of the subtrusts will be the same as the provisions set forth in trust subject_to modifications set forth in the petition the terms of the proposed partition ensure that each of the subtrusts will terminate at the same time thus each of the subtrusts will have substantive terms identical to those of the original trust and the parties' beneficial interests will not change we conclude that the partition as proposed will not alter the quality value or timing of any powers or beneficial interests rights or expectancies originally provided for under the terms of the trust therefore the proposed partition will not subject the trust or the subtrusts created under its terms to the generation-skipping_transfer_tax also the modification of articles ix and x of trust by the incorporation of and of the georgia code conforms with the trustee’s authority to sell and dispose_of any part of the property and to invest in loans stocks bonds securities or real_estate already granted to the trustees under article ix the plr-116443-99 modification is administrative in nature and does not confer any additional powers interests rights or expectancies upon the trustees or beneficiaries or change the quality value or timing of any of the existing powers interests rights or expectancies moreover the modification does not constitute an addition to the trust within the meaning of sec_26_2601-1 or b accordingly the terms of the trust as modified pursuant to the terms of the proposed petition will not affect the exempt status of the trust for generation-skipping_transfer_tax purposes and will not result in a transfer of property that will subject the trust to the generation-skipping_transfer_tax imposed under sec_2601 in addition the proposed partition of the trust into subtrusts will not subject the subtrusts to the generation-skipping_transfer_tax a copy of this letter should be attached to any gift estate or generation-skipping_transfer_tax returns that you may file relating to these matters 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 the appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by george masnik branch chief branch enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------- ------------------------------ --------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ----------------- telephone number --------------------- refer reply to cc tege eb hw plr-140954-12 date date taxpayer state statute ----------------------------------------------------------------------------------------------- -------------- ------------ ----------------------------------------------------------------------------------------------- --------------------------------- insurer -------------------------------------------------- dear ------------------- this is in reply to the letter dated date submitted on your behalf requesting a ruling with respect to whether certain no-fault automobile insurance benefits you receive are excludable from gross_income under sec_104 of the internal_revenue_code the code facts taxpayer serves as the court appointed guardian of her adult daughter a legally incapacitated adult taxpayer’s daughter the ward sustained physical injuries in an automobile accident and is unable to care for herself taxpayer coordinates care giving services for ward insurer pays monthly benefits to taxpayer on behalf of ward pursuant to statute under statute every motor_vehicle accident occurring in state creates a claim for no plr-140954-12 fault insurance benefits no fault insurance benefits include all reasonable charges incurred for reasonably necessary products services and accommodations for an injured person’s care recovery or rehabilitation statute contains no further definition of allowable expenses allowable expenses are payable for life and without a dollar limitation benefits are paid_by the victim’s own insurance_company and are always paid regardless of who was at fault for the accident allowable benefits include for example medical and hospital expenses in-home nursing or attendant care physical and vocational rehabilitation and guardianship expenses law and analysis sec_104 of the code provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 of the code for any prior taxable_year gross_income does not include amounts received through accident_or_health_insurance for personal injuries or sickness other than amounts received by an employee to the extent such amounts are attributable to contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_1_104-1 of the income_tax regulations provides that sec_104 excludes from gross_income amounts received through accident_or_health_insurance for personal injuries or sickness other than amounts received by an employee to the extent that such amounts are attributable to contributions of the employer which were not includible in the gross_income of the employee or are paid_by the employer similar treatment is also accorded to amounts received under accident or health_plans and amounts received from sickness or disability funds revrul_73_154 1973_1_cb_50 considered a taxpayer who was injured in an accident and as a result of his injuries received disability payments under the automobile owner’s no fault insurance_policy the state statute required that disability insurance benefits be provided without regard to fault under motor_vehicle policies that provide bodily injury and property damage liability insurance for motor vehicles registered in that state the ruling held that disability benefits received under a no fault insurance_contract are amounts received through accident_or_health_insurance for personal_injury_or_sickness within the meaning of sec_104 of the code and are not includible in the gross_income of the recipients for federal_income_tax purposes based on the information submitted and authorities cited above we conclude that under sec_104 of the code the no fault automobile insurance benefits received pursuant to the statute are not includible in the gross_income of the taxpayer for federal_income_tax purposes no opinion is expressed as to the federal tax consequences of the transaction under any other section of the code or statute other than as specifically stated above plr-140954-12 this ruling letter is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely harry beker chief health welfare branch office of division counsel associate chief_counsel tax exempt government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-140279-01 date date legend x a d1 year dear this responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the president and sole shareholder of x intended x to be an s_corporation effective for the year taxable_year however a form_2553 election by a small_business_corporation was not timely filed for x’s year taxable_year sec_1362 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 plr-140279-01 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 year 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 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representative sincerely yours shannon cohen assistant to the branch chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court joel p arnold petitioner v commissioner of internal revenue respondent docket no filed date herman d baker for petitioner jennifer k martwick for respondent memorandum findings_of_fact and opinion goldberg special_trial_judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the two issues for decision are whether petitioner is entitled to unreimbursed employee_business_expense deductions claimed in for use of his personal vehicle and job search expenses 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 petitioner resided in georgia when he filed his petition in petitioner worked as a senior auditor in the healthcare audits division of the georgia department of audits and accounts the department headquartered in atlanta georgia he had been with the department for years petitioner was divorced by in he owned a home about miles from the department’s atlanta headquarters petitioner’s son lived full time with petitioner during all of according to petitioner his son turned in and was in childcare before and after school however medical records in evidence state that his son was age in petitioner’s son suffered from multiple severe chronic illnesses including renal failure 1petitioner conceded dollar_figure of the dollar_figure in student_loan interest that he had deducted respondent conceded that petitioner is entitled to a dollar_figure deduction for tax_return preparation expenses petitioner’s job required frequent travel throughout georgia he performed and supervised onsite audits of the financial records of nursing homes at either the nursing facilities themselves or at their main offices many of the locations were quite far from the department’s headquarters and the audits often continued for several days depending on petitioner’s schedule either petitioner or petitioner’s sister would pick up petitioner’s son from school and bring him home the department made vehicles available for its employees who were traveling to audit sites however petitioner neither requested nor used a department vehicle during instead petitioner drove his personal vehicle to all of his assignments petitioner never requested and did not receive reimbursement from the department for his work-related driving petitioner recorded mileage on a commonplace commercial spiral-bound by 11-inch monthly calendar showing the days for each month for each day petitioner noted the name of a destination city or town and the mileage from atlanta to and from that destination the log is not clear as to what petitioner meant by atlanta whether he started and ended each trip from the department’s headquarters or calculated the mileage from headquarters or considered his home as part of the atlanta metropolitan area and computed the mileage from his house other elements of the log are also difficult to interpret for instance petitioner crossed out certain dates for which he recorded mileage on other dates he noted a doctor’s visit and or miles for a trip within the atlanta city limits and then on the same dates in a different handwriting style he noted mileage for a long journey petitioner also attached an adding machine tape of mileage that for no apparent reason omitted certain mileage that he had recorded on the calendar nonetheless as best the court can decipher it appears that in aggregate for the year at issue petitioner reported days of intra-atlanta round trips of miles and days of driving to audit sites outside of the atlanta metropolitan area returning home on all but a couple of the nights the out-of- town trips consisted of the following round trip mileage round trip distance number of days percentage of total miles miles miles miles miles or more miles total thus two-thirds of petitioner’s mileage consisted of round trips of at least miles including days of driving miles or more often these trips were nearly daily for example from march to date a span of business days petitioner reported days of 8-mile round trips between atlanta and augusta georgia and days of 4-mile round trips between atlanta and albany georgia petitioner’s longest drive during the year was on date when he traveled miles from atlanta to brunswick to columbus and back to atlanta his second longest drive was on date when he traveled miles from greensboro to hinesville to lafayette to atlanta because of the ambiguity of petitioner’s notation that all the drives originated and ended in atlanta we cannot determine whether the 80-mile round trip from petitioner’s home to the department’s headquarters should be added to these figures to determine petitioner’s actual driving distances petitioner filed his federal_income_tax return reporting dollar_figure of adjusted_gross_income and dollar_figure of itemized_deductions petitioner deducted dollar_figure as an unreimbursed employee_business_expense for use of his personal vehicle on form 2106-ez unreimbursed employee business_expenses attached to his return he reported that he drove his vehicle big_number miles for his job big_number miles for commuting and mile for other personal_use using the driving days as a denominator petitioner therefore claimed that for every day he 2rev proc sec_5 2004_2_cb_898 allowed a 5-cents-per-mile standard mileage rate for business use of a vehicle in announcement 2005_2_cb_714 increased the rate to cents per mile for business miles driven after date drove he did so for his job averaging about miles big_number per day the internal_revenue_service irs selected petitioner’s return for examination in the notice_of_deficiency the irs disallowed as pertinent here all of petitioner’s dollar_figure deduction for business use of his personal vehicle and all of his dollar_figure deduction for job search expenses the notice stated that since you did not establish that the business_expense shown on your tax_return was paid_or_incurred during the taxable_year and that the expense was ordinary and necessary to your employment we have disallowed the amount shown with respect to the dollar_figure in job search expenses that petitioner deducted for petitioner stated that the amount represented postage to mail resumes follow-up letters and credentials to prospective employers the court received into evidence copies of of petitioner’s canceled checks payable to the u s postmaster totaling dollar_figure petitioner petitioned this court contending the employee business_expenses claimed on the return were ordinary and necessary and they were not reimbursed by the employer evidence was submitted to the irs that the employer did not approve reimbursement for those expenses but irs did not find the evidence to be sufficient taxpayer disagrees with that determinaton sic the court received into evidence a letter dated date that meg ramsay the department’s human resources manager prepared in response to a request for information from the irs regarding petitioner ms ramsay wrote in pertinent part in the department of audits and accounts maintained a fleet of vehicles and employees were expected to use these vehicles when they traveled on official state business our department policy only allows employees to be reimbursed for mileage in a personal vehicle if the use of the vehicle was approved in advance since we maintained a fleet of vehicles approval to use a personal vehicle and be reimbursed for such use was not common practice generally employees who have personal reasons for traveling by personal vehicle were not eligible for mileage reimbursement for the year in question we have reviewed the travel expense statements for joel p arnold and found there were no instances in which joel arnold was reimbursed for business miles driven in his personal vehicle during the year ms ramsay enclosed and the court received into evidence a copy of the department’s travel policy that was in effect for the policy states in pertinent part reproduced literally a general provisions employees of the department of audits and accounts will be reimbursed for actual travel_expenses incurred while performing their official duties travel_expenses are incurred for overnight stays and in certain circumstances when overnight travel is not involved all travel must be authorized and approved by division directors or their designees b lodging_expenses for overnight travel within georgia employees are encouraged to commute to audit sites that are within a reasonable driving distance no employee will be reimbursed for overnight lodging at audit sites that are within miles of home or headquarters or within the same county of their home or headquarters if the audit site is between and miles from home or headquarters the employee must receive approval from the division director or his designee in order to be reimbursed for overnight lodging this approval must be obtained in advance of the scheduled trip e travel by state-owned or personal vehicles employees who are on travel status are encouraged to use agency-owned vehicles if available for travel within the state of georgia and when appropriate for travel outside the state however if agency-owned vehicles are not available employees may choose between using doas or personal vehicles employees must receive prior approval from the division director or his designee to use a personal vehicle when an agency-owned vehicle is available f mileage reimbursement for use of personal vehicles employees may be reimbursed for business miles traveled in a personal vehicle provided the use of the personal vehicle was approved employees may be reimbursed for the mileage incurred from the point of departure to the travel destination during the normal week the point of departure will be either the employee’s residence or headquarters whichever is nearer to the destination point during weekends and holidays employees should use the actual point of departure to calculate travel mileage employees are not entitled to mileage reimbursement for - travel between their place of residence and their official headquarters or - personal mileage incurred while on travel status i the parties’ positions opinion during the irs examination petitioner stated in a letter to the examining agent that he used his personal vehicle rather than the department’s fleet of vehicles because it was the most logical choice for two reasons as the custodial_parent of 3department of audits and accounts a sick dependent he wanted to be home every night to care for his son and the department had what he believed was an illegal vehicle insurance_policy according to petitioner’s understanding the policy would not cover instances where employees used department vehicles for nonbusiness or personal purposes such as in his situation if he had to return home on short notice because of a medical problem related to his son petitioner did not offer evidence to support his personal conclusion regarding the department’s vehicle insurance coverage at trial petitioner testified that he did not submit requests for reimbursement because he believed the department would deny his requests on the grounds that the department considered shorter trips as not being in travel status and therefore would not reimburse a mileage expense that is equivalent to a nonreimbursable commute and for longer distances that would qualify as being in travel status petitioner returned home almost every night and therefore he believed that he would not qualify for reimbursement because according to his understanding the department required an overnight stay in support of his understanding of the department’s reimbursement policy petitioner at trial read from portions of the department’s travel policy the policy however does not validate petitioner’s assumptions about reimbursement when in travel status respondent while sympathetic to the medical problems of petitioner’s son contends that those problems do not make petitioner’s mileage deductible because petitioner voluntarily chose to drive his personal vehicle rather than an agency-owned vehicle respondent further contends that even if petitioner had valid business reasons for driving his own vehicle petitioner’s expenses are not deductible because petitioner did not seek department approval to drive his own vehicle as department policy required and petitioner did not seek reimbursement from the department for the mileage expenses he incurred ii burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving that the deficiency is incorrect rule a 290_us_111 under sec_7491 the burden may shift to the commissioner regarding factual matters affecting a taxpayer’s liability for tax if the taxpayer produces credible_evidence and meets other requirements of the section petitioner has neither argued for a burden shift nor established his compliance with the requirements of sec_7491 petitioner therefore bears the burden of proving that respondent’s determination in the notice_of_deficiency is erroneous iii petitioner’s personal vehicle mileage expense taxpayers must maintain records relating to their income and expenses and must prove their entitlement to all claimed deductions credits and expenses in controversy see sec_6001 rule a 503_us_79 welch v helvering supra pincite sec_162 allows a deduction for ordinary and necessary expenses that a taxpayer pays or incurs during the year in carrying_on_a_trade_or_business 79_tc_1 generally the performance of services as an employee constitutes a trade_or_business 54_tc_374 to be ordinary the transaction that gives rise to the expense must be of a common or frequent occurrence in the type of business involved 308_us_488 to be necessary an expense must be appropriate and helpful to the taxpayer’s business welch v helvering supra pincite petitioner claims that he is entitled to a deduction for use of his personal vehicle as an ordinary and necessary business_expense ordinarily when an employee has a right to reimbursement for expenditures related to his status as an employee but fails to claim such reimbursement the expenses are not deductible because they are not necessary in other words it is not necessary for an employee to remain unreimbursed for expenses to the extent he could have been reimbursed 788_f2d_1406 9th cir affg tcmemo_1984_533 lucas v commissioner supra pincite 56_tc_936 affd without published opinion 456_f2d_1335 2d cir petitioner was not entitled to reimbursement because he did not follow the department’s travel policy had he followed the policy he first would have requested use of one of the department’s vehicles if one was available he would have avoided the expense associated with the use of his personal vehicle if on the other hand a department vehicle was not available he then could have requested approval to use his personal vehicle approval by the department would have entitled him to reimbursement for travel other than that between his residence and the department’s headquarters the record is clear that petitioner chose to drive his personal vehicle for reasons unrelated to his employment petitioner stated he wanted to return home almost every night to be with his son we note however petitioner’s testimony regarding his son’s age conflicts with the medical records as we discuss below we also note inaccuracies in petitioner’s mileage log these discrepancies affect our judgment of petitioner’s credibility whatever reasons petitioner had for returning home practically every night they were not job related in addition the department encouraged overnight stays when employees drove to sites miles away or further here again by making a personal choice to return home nightly instead of staying overnight near the audit site in a hotel room the cost of which would have been reimbursable petitioner incurred expenses for many additional miles that were unnecessary for his job accordingly the vehicle expense petitioner incurred was not a necessary expense petitioner incurred the expense not for a reason related to his employment but as the result of his personal choice namely to be home at night with his son under sec_262 a taxpayer may not deduct personal living or family_expenses see 326_us_465 the exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors 72_tc_433 to show that an expense was not personal the taxpayer must prove that the expense was incurred primarily to benefit his business and the continuation of his employment and that there was a proximate relationship between the claimed expense and his business sec_1_162-1 income_tax regs the expenditure must be directly connected with or pertaining to the taxpayer’s trade_or_business in conclusion for the foregoing reasons we sustain respondent’s determination disallowing petitioner’s vehicle mileage expense deduction for iv job search costs petitioner deducted dollar_figure in job search costs for deductible job search costs include expenses_incurred in searching for new employment in the employee’s same trade_or_business primuth v commissioner supra pincite it does not matter whether the search is successful or even whether the taxpayer accepts a new position 58_tc_219 if however the employee is seeking a job in a new trade_or_business then the expenses are not deductible 20_tc_511 we find it credible that petitioner was searching for a new job in one requiring less travel we also find it credible that petitioner was searching for work in the same trade_or_business since he was a senior auditor with a chronically ill son making starting over in a new line of work improbable petitioner substantiated his expenditure by providing copies of canceled checks the checks were payable to the u s postmaster postage is a deductible job search expense cheh v commissioner tcmemo_1992_658 revrul_77_16 1977_1_cb_37 the checks however totaled only dollar_figure accordingly petitioner may deduct dollar_figure as a job search expense this deduction however is subject_to the sec_67 limitation that individuals may deduct miscellaneous_itemized_deductions only to the extent that the aggregate of such deductions exceed sec_2 percent of adjusted_gross_income v conclusion we have considered all of the other arguments made by petitioner and to the extent that we have not specifically addressed them we conclude that they are without merit irrelevant or moot decision will be entered under rule