department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c o f f i c e o f o f f i c e o f c h i e f c o u n s e l c h i e f c o u n s e l date number release date cc fip tl-n- uilc internal_revenue_service national_office field_service_advice memorandum for matthew j fritz associate area_counsel heavy manufacturing construction transportation cc lm mct cin from lon b smith acting associate chief_counsel financial institutions and products cc fip subject mark to market issue this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 of the internal_revenue_code this chief_counsel_advice should not be cited as precedent legend parent product taxpayer subsidiary state a corporation trust date dollar tl-n- amount date date date dollar dollar dollar dollar dollar dollar dollar dollar dollar issue whether taxpayer may mark its securities to market pursuant to sec_475 of the internal_revenue_code facts the facts as set forth in your fsa request are as follows parent is a global developer manufacturer and supplier of product parent is the parent company of a consolidated_group that includes taxpayer and subsidiary taxpayer and subsidiary are state a corporations subsidiary is engaged in the sale of product according to parent taxpayer was formed to improve subsidiary’s balance_sheet while delivering operational results acceptable to shareholders on date taxpayer and subsidiary entered into the purchase agreement the stated purpose of the purchase agreement was the sale of subsidiary's receivables from the sale of product subsidiary was designated as the originator and servicer and taxpayer was designated as the buyer pursuant to the tl-n- purchase agreement subsidiary sold its u s receivables derived from product to taxpayer for an amount determined to approximate the fair_market_value of the receivables subsidiary continued to service the receivables and its customers were unaware of the sale of the receivables to taxpayer subsidiary contributed dollar to taxpayer as a contribution_to_capital to finance taxpayer’s purchase of the receivables in exchange for the receivables taxpayer gave subsidiary a subordinated note with an interest rate equal to one- month libor on eurodollar deposits plus amount basis points for the tax years ending date and date the amounts due under the subordinated note were dollar and dollar respectively according to parent taxpayer paid subsidiary dollar and dollar for service fees in the years ending date and date also on date the receivables purchase agreement was entered into between subsidiary as servicer taxpayer as seller corporation as buyer and trust as administrative agent subsidiary was responsible for the administration servicing and collection of the receivables taxpayer was liable for the payment of all taxes or charges payable in connection with the receivables and their creation or satisfaction the obligors on the receivables subsidiary’s customers were unaware of any transfer of the receivables as set forth in the receivables purchase agreement the agreement constituted a security_agreement under the uniform commercial code with taxpayer granting trust a security_interest in the receivables for the benefit of certain banks and financial institutions the receivables purchase agreement gave trust the right to conduct audits and inspections of taxpayer’s and subsidiary’s property records internal controls and procedures the receivables purchase agreement provided subsidiary and taxpayer with a line of credit the net investment from a consortium of banks and financial institutions arranged by trust at its discretion taxpayer selected incremental amounts tranches of at least dollar for certain periods by issuing tranche selection notices to corporation and trust the amount of the tranche discounted by a tranche rate established by trust was transferred from the consortium of banks and financial institutions through corporation to taxpayer ultimately taxpayer transferred the tranche amount to subsidiary as payment on its subordinated note the aggregate amount of all tranches was equal to the outstanding amount of the net investment to taxpayer from the consortium of banks and financial institutions the receivables purchase agreement further provided that in exchange for the line of credit the consortium of banks and financial institutions received a percentage interest buyer’s percentage interest in all outstanding receivables calculated monthly from the net investment a buyer’s discount a tl-n- deferred purchase_price and the net receivables balance to calculate the buyer’s percentage interest the net investment buyer’s discount and deferred purchase_price were added together and divided by the net receivables balance as subsidiary received payments from its customers the buyer’s percentage interest was deposited to a lockbox account for the benefit of corporation trust and the consortium of banks and financial institutions the consolidated_group of which parent subsidiary and taxpayer are members has not made an election under sec_1_475_c_-1 of the income_tax regulations the intragroup-customer election taxpayer does not hold any other_securities other than those related to the purchase agreement and the receivables purchase agreement the receivables on its date tax_return subsidiary made an election under sec_1_475_c_-1 but on its date tax_return subsidiary did not mark to market any of its u s receivables for the tax_year ending date on parent’s consolidated_income_tax_return taxpayer claimed a loss of dollar based on a mark-to-market valuation of dollar of receivables on parent’s consolidated_return for the tax_year ending date taxpayer claimed a dollar loss based on a mark-to-market valuation of dollar of receivables the basis for such treatment was parent’s assertion on form_3115 attached to its consolidated_return for its tax_year ending date that taxpayer meets the definition of a dealer_in_securities under sec_475 thus this entity uses mark-to-market to value its securities at the end of each taxable_year law and analysis sec_475 of the internal_revenue_code provides that any securities that are not inventory and are held at the end of the year by a dealer_in_securities are marked to market at the end of each taxable_year a dealer_in_securities is defined as a taxpayer who regularly purchases securities from or sells securities to customers in the ordinary course of a trade_or_business or regularly offers to enter into assume offset assign or otherwise terminate positions in securities with customers in the ordinary course of a trade_or_business see sec_475 the term security includes a note bond debenture or other evidence_of_indebtedness see sec_475 for years ending after date the term security does not include nonfinancial_customer_paper see sec_475 nonfinancial_customer_paper includes any receivable that is a note bond debenture or other evidence_of_indebtedness arising out of the sale of non- if subsidiary had any receivables at the end of the year ending date it should have marked to market the receivables once the election under sec_1_475_c_-1 is made it applies to all future years unless the election is revoked with the consent of the commissioner see sec_1_475_c_-1 tl-n- financial goods or services by a person the principal activity of which is the selling or providing of nonfinancial goods and services and that is held by such person or a person who bears a relationship to such person described in sec_267 or sec_707 at all times since issue see sec_475 i - iii whether a dealer is transacting business with customers is determined on the basis of all the facts and circumstances see sec_1_475_c_-1 solely for purposes of sec_475 concerning the definition of dealer_in_securities and except as provided in sec_1_475_c_-1 the intragroup-customer election a taxpayer’s transactions with other members of its consolidated_group are not with customers sec_1_475_c_-1 the intragroup-customer election is made by filing a statement that says insert name and employer_identification_number of common parent hereby makes the intragroup-customer election as described in sec_1_475_c_-1 of the income_tax regulations for the taxable_year ending describe the last day of the year and for subsequent taxable years the statement must be signed by the common parent and attached to a timely filed federal_income_tax return for the consolidated_group for that taxable_year see sec_1_475_c_-1 if a consolidated_group makes the intragroup-customer election sec_1_475_c_-1 does not apply to members of the group see sec_1_475_c_-1 sec_1_1502-13 provides rules for taking into account items of income gain deduction and loss of members from intercompany_transactions under sec_1_1502-13 the selling member and the buying member are treated as separate entities for some purposes but as divisions of a single corporation for other purposes the timing and character of the intercompany items and corresponding items although initially determined on a separate_entity basis are redetermined to produce the effect of transactions between divisions of a single corporation see sec_1_1502-13 an intercompany_transaction is a transaction between corporations that are members of the same consolidated_group immediately after the transaction see sec_1_1502-13 sec_1_1502-13 provides a matching_rule for the accounting of the buyer’s corresponding items and the seller’s intercompany items sec_1 c provides examples that illustrate the matching_rule of sec_1_1502-13 example of sec_1_1502-13 involves sec_475 where a dealer_in_securities sells securities to a member of its consolidated_group that is not a dealer_in_securities the example provides that under the matching_rule attributes must be redetermined by treating the seller and the buyer as divisions of a single corporation as a result of the seller’s activities the single corporation is treated as a dealer with respect to the securities and the buyer must continue to mark to market the security acquired from the seller tax_year tl-n- the purchase agreement is an intercompany_transaction because the transaction is between members of the same consolidated_group see sec_1_1502-13 as such the matching_rule of sec_1_1502-13 applies to account for the purchase agreement transactions the matching_rule of sec_1_1502-13 is illustrated in the examples listed in that section example of sec_1_1502-13 describes a situation where a dealer_in_securities sells securities to a member of its consolidated_group that is not a dealer_in_securities in this case subsidiary a dealer in securitie sec_2 sells under the purchase agreement its receivables to taxpayer a member of its consolidated_group under example of sec_1_1502-13 taxpayer as the buyer would have to account for the receivables using the mark-to-market method even if taxpayer is not a dealer in accordance with the example taxpayer and subsidiary would be treated as a single division of a corporation with the single corporation treated as a dealer see example of sec_1_1502-13 therefore whether or not taxpayer meets the definition of dealer_in_securities under sec_475 taxpayer must mark its receivables to market to comply with the requirements of sec_1_1502-13 because taxpayer is required to mark its receivables to market pusuant to sec_1_1502-13 it is not necessary to determine whether taxpayer is a dealer_in_securities under sec_475 however we note that to meet the definition provided in sec_475 taxpayer must either purchase securities from customers or sell securities to customers taxpayer has purchased receivables from subsidiary pursuant to the purchase agreement these are the only securities held by taxpayer however the purchase of the receivables from subsidiary is not a purchase from a customer unless an election is made pursuant to sec_1_475_c_-1 the intragroup- customer election a taxpayer’s transactions with other members of its consolidated_group are not transactions with customers see sec_1_475_c_-1 subsidiary would not be a dealer_in_securities but for its purchases and sales of debt instruments that at the time of purchase or sale are customer paper with respect to subsidiary however subsidiary has elected out of the exception for purchasers or sellers of nonfinancial goods or services see sec_1_475_c_-1 if subsidiary regularly purchases or originates securities from customers in the ordinary course of a trade_or_business including regularly making loans to customers in the ordinary course of a trade_or_business of making loans but engages in no more than negligible sales of the securities so acquired subsidiary would not be a dealer_in_securities for purposes of sec_475 unless subsidiary elected to be so treated see sec_1_475_c_-1 in addition to making the election under sec_1_475_c_-1 if subsidiary’s sales were negligible under sec_1_475_c_-1 subsidiary has elected to be treated as a dealer_in_securities by filing a federal_income_tax return reflecting the application of sec_475 in computing its taxable_income see sec_1 c - c ii tl-n- because the consolidated_group of which parent subsidiary and taxpayer are members has not made the intragroup-customer election and subsidiary is a member of the same consolidated_group as taxpayer taxpayer’s transactions with subsidiary are not purchases from a customer see sec_1_475_c_-1 and iii taxpayer could still be a dealer_in_securities however if it sold the receivables to customers if the receivables purchase agreement constituted a sale of the receivables taxpayer would meet the definition of dealer_in_securities by virtue of its sales of receivables which are securities for the year ending date to customers however your analysis of the facts submitted indicates that the receivables purchase agreement is a financing_transaction rather than a sale of the receivables in general federal_income_tax consequences are governed by the substance of a transaction see 293_us_465 the term sale is given its ordinary meaning and is generally defined as a transfer of the ownership of property for money or for a promise to pay money 380_us_563 whether a transaction is a sale is a question of fact which must be ascertained from the intent of the parties as evidenced by the written agreements read in light of the attending facts and circumstances 24_tc_1124 aff’d 241_f2d_288 9th cir a transaction is a sale if the benefits and burdens of the ownership have passed to the purported purchaser 106_tc_237 77_tc_1221 courts have considered the following factors relevant in determining whether the benefits_and_burdens_of_ownership passed whether the transaction was treated as a sale 54_tc_1215 acq 1971_2_cb_3 whether the obligors on the notes were notified of the transfer of the notes id which party serviced the notes id 51_tc_1049 whether payments to the transferee corresponded to collections on the notes united surgical t c pincite town country food co inc t c pincite whether the transferee imposed restrictions on the operations of the transferor that are consistent with a lender-borrower relationship united surgical t c pincite 319_fsupp_441 n d ga which party had the power of disposition 421_f2d_442 5th cir cert_denied 400_us_819 which party bore the risk of loss union planters nat’l bank of if the receivables purchase agreement constitutes a sale taxpayer would not fall within the exception for purchasers and sellers of nonfinancial goods and services sec_1_475_c_-1 because a member of its consolidated_group uses a method_of_accounting that allows for recognition of unrealized gains and loss see sec_1_475_c_-1 tl-n- memphis v 426_f2d_115 6th cir cert_denied 400_us_827 and which party had the potential for gain united surgical t c pincite town country food co inc t c pincite although the potential for gain and amount of risk have been deemed the pivotal factors the overall concentration should lie on the economic_substance of the transaction 556_f2d_1107 ct_cl applying the factors set forth above it appears reasonably clear that at least three of the factors indicate that the receivables purchase agreement is more properly characterized as a financing first the servicing responsibilities were retained by subsidiary and taxpayer was liable for all taxes or charges payable in connection with the receivables and their creation or satisfaction furthermore the obligors on the receivables were not notified of any transfer of the receivables also consistent with the characterization of the transaction as a financing trust was given the right to audit and inspect taxpayer’s and subsidiary’s property records internal controls and procedures these rights seem more consistent with a borrower-lender relationship on the other hand the treatment of the receivables purchase agreement as a sale is less clear while the parties use terms throughout the agreement that are consistent with a sales contract the agreement also provides that the agreement is a security_agreement under the uniform commercial code furthermore whether the receivables purchase agreement is properly characterized as a sale or financing we believe would be dependant on a more complete development and analysis of the facts and economics pertaining to the transaction for example we believe further factual and economic development and analysis would be needed to analyze the economics of the transaction to determine which party bears the opportunity for gain and risk of loss as stated above it is not necessary to determine whether the receivables purchase agreement constitutes a sale and whether taxpayer meets the definition of a dealer_in_securities under sec_475 to reach the conclusion that taxpayer must mark its receivables to market whether or not taxpayer is a dealer_in_securities sec_1_1502-13 requires that taxpayer mark its receivables to market tax_year sec_475 was added to the code to exclude nonfinancial_customer_paper from the definition of security effective for tax years ending after date nonfinancial_customer_paper includes any receivable that is a note bond debenture or other evidence_of_indebtedness arising out of the sale of non- financial goods or services by a person the principal activity of which is the selling or providing of nonfinancial goods and services and that is held by such person or a person who bears a relationship to such person described in sec_267 or tl-n- b at all times since issue see sec_475 i - iii taxpayer’s receivables fall within the definition of nonfinancial_customer_paper and therefore are not securities the receivables held by taxpayer arose out of the sale of product by subsidiary a person the principal activity of which is the selling or providing of nonfinancial goods and services and the receivables were held at all times since issue by subsidiary and taxpayer a person who bears a relationship to subsidiary that is described in sec_267 therefore taxpayer may not mark its receivables for any year ending after july case development hazards and other considerations alvin j kraft chief branch office of associate chief_counsel financial institutions products


internal_revenue_service number release date index number ---------------------------- ------------------------------------------- --------------------------------------- ----------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number ------- ------------ refer reply to cc psi plr-118957-14 date date ------------------------------------- x ------------------------------------------------- country date -------------- ----------------- dear ----- -------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election to be classified as a corporation for federal tax purposes the information submitted states that x was formed under the laws of country x represents that as of date x was a foreign_entity eligible to elect to be treated as a corporation for federal tax purposes however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a corporation effective date sec_301_7701-3 provides that a business_entity with at least two members can elect to be classified either as an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 further provides that so long as a business_entity is not classified as a corporation under b or - an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal_income_tax purposes generally unless the entity elects plr-118957-14 otherwise a foreign eligible_entity is treated as a partnership if it has two or more members and at least one member does not have limited_liability sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to twelve months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a corporation effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on x having filed all relevant tax and information returns consistent with the granted relief with the appropriate service_center within days of the date of this ruling a copy of this letter should be attached to any such late or amended returns if x fails to comply with this requirement this letter_ruling will be null and void plr-118957-14 except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs and special industries by _______________ bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------------------------------------ ------------------- ------------------------------------- ------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-101293-10 date date legend x --------------------------------------------------------------------------------- --------------------------- d1 -------------------- dear ---------------- this responds to the letter dated -------------------------- submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was inadvertently not filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the 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 under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-101293-10 sec_1362 provides that if no sec_1362 election is made 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 an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely s david r haglund chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------------------------------- -------------------- ---------------------------------- ---------------------------------- ------------------------------------------------------------ - 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 intl b06 plr-117146-13 date date legend taxpayer law firm corporation date date date date shareholder a shareholder b shareholder c ty ------- ---------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------- -------------------- ------------------ ------------------- ---------------------------- ----------------------- --------------------------- ---------------------------- dear ------------------- this responds to a letter dated date submitted by law firm requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and law firm and accompanied by affidavits and penalty of perjury statements executed by appropriate parties 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-117146-13 facts taxpayer is a domestic_corporation with a calendar taxable_year taxpayer was formed to serve as an interest charge domestic_international_sales_corporation ic-disc and has established a commission arrangement with corporation at the time of taxpayer’s formation on date taxpayer and corporation were each owned by three individual shareholders shareholder a shareholder b and shareholder c law firm advised shareholders a b and c of the tax benefits of the ic-disc regime and shortly thereafter taxpayer was incorporated on or about date shareholder b acquired all of the shares of taxpayer and corporation held by shareholders a and c and thus became the sole shareholder of taxpayer and corporation taxpayer filed form 4876-a on date about a month after its incorporation thereafter taxpayer filed its federal_income_tax returns on form 1120-ic-disc interest charge domestic_international_sales_corporation return on date taxpayer received a letter from the service stating that taxpayer was not eligible to file form 1120-ic-disc because the form 4876-a that it had filed on date did not contain all of the required information as of date the period during which taxpayer could file a timely form 4876-a had passed after contacting the service_center that issued the letter on date to discuss possible remedies law firm advised taxpayer to submit a request for relief under sec_301_9100-3 for an extension of time to file the ic- disc election effective date law and analysis sec_992 provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year as used in this letter the terms ic-disc and disc have the same meaning plr-117146-13 sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i treas reg b provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its federal_income_tax return for the taxable years to which this letter applies this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _____________________________________ christopher j bello chief branch office of associate chief_counsel international


internal_revenue_service number release date index numbers --------------------- ------------------------------------------------------- ---------------------- ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b03 plr-109850-18 date date legend x ------------------------- ---------------------------------------------- ------------- state ------------ date1 date2 ------------------ ---------------------- dear ---------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation for federal tax purposes and relief to file a late s_corporation_election under sec_1362 of the internal_revenue_code code facts the information submitted states that x is an eligible_entity that was formed on date1 under the laws of state x intended to be classified as an association_taxable_as_a_corporation and to elect to be an s_corporation for federal tax purposes with both elections effective date2 however x failed to properly and timely file form_8832 entity classification election and form_2553 election by a small_business_corporation plr-109850-18 law sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_7701-3 provides that an eligible_entity that timely elects to be an s_corporation under sec_1362 is treated as having made an election under sec_301_7701-3 to be classified as an association provided that as of the effective date of the election under sec_1362 the entity meets all other requirements to qualify as a small_business_corporation under sec_1361 subject_to sec_301_7701-3 the deemed_election to be classified as an association will apply as of the effective date of the s_corporation_election and will remain in effect until the entity makes a valid election under sec_301_7701-3 to be classified as other than an association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i plr-109850-18 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective date2 a copy of this letter should be attached to the form_8832 filed with the service_center in addition we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date2 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective plr-109850-18 date2 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is 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 the support of the ruling_request it is subject_to verification on examination in accordance with a power_of_attorney on file with this office we are sending a copy of this letter_ruling to your authorized representative sincerely mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes ---------


id office uilc cca_2012092707292125 ------------- number release date from ---------------- sent thursday date am to ----------------- cc ------------------------------------------------------------------- subject re cdp question -------- - after discussing the matter with the revenue_officer we learned the following the dollar_figure---- liability was reported and assessed several years ago and the ased has long since expired dollar_figure-- ----- was paid and dollar_figure---- abated the rsed has also expired on the dollar_figure---- payment the service then reassessed the dollar_figure---- but the authority to reassess was called into question during the cdp hearing at issue the estate and the service now agree that the second assessment was invalid accordingly this second assessment needs to be abated however the notice_of_determination nod erroneously indicates that the initial dollar_figure---- assessment will be abated as opposed to the subsequent dollar_figure---- assessment more than days have passed since the issuance of the nod and the taxpayer never petitioned the tax_court you have asked whether the service may now issue a corrected nod or alternatively whether the service may ignore the erroneous statement in the nod appeals may amend or revise a nod within the 30-day period in which a taxpayer may petition the tax_court if the nod is clearly in error the taxpayer has not petitioned tax_court and the correction can be made within the 30-day period in which the taxpayer may petition the tax_court irm part moreover the nod may not be rescinded id in this case an amended or revised nod is not an option because the 30-day period in which the taxpayer could have petitioned the tax_court based on the original nod has expired moreover despite the issuance of an erroneous nod appeals may not abate the initial dollar_figure---- assessment because it was not properly at issue in the cdp hearing indeed abating the dollar_figure---- would not marginally benefit the taxpayer above and beyond abating the dollar_figure---- that is still on the books because it would not result in the issuance of a dollar_figure---- credit or refund to the taxpayer sec_6511 prohibits the service from crediting or refunding to the taxpayer any payments made before the two-year period immediately preceding the date on which the refund is allowed if no refund claim is filed in this case the nod would be considered the date on which the refund was allowed it is our understanding that the taxpayer has made no payments during the two-year period preceding the nod moreover while appeals is authorized to abate the subsequent dollar_figure---- assessment because it was made after the expiration of the assessment statute_of_limitations see sec_6404 appeals is not authorized to abate the original dollar_figure---- assessment the original assessment was neither excessive in amount nor erroneously or illegally assessed see sec_6404 and appeals may only implement a determination to the extent authorized to do so accordingly appeals should send a letter to the taxpayer describing the error and explaining that appeals will in fact abate the dollar_figure---- assessment as agreed to in the cdp hearing but despite the statement in the nod appeals is prohibited from abating the original dollar_figure---- assessment this does not change the determination in the nod which is that collection will not proceed because we have concluded that in this case appeals may clarify and correct the nod with a letter we do not need to further consider whether appeals may unilaterally ignore an erroneous misstatement in a nod feel free to cal me if you have any questions or further want to discuss regards


t c summary opinion united_states tax_court homayoun samadi and sarabano samadi petitioners v commissioner of internal revenue respondent docket no 722-17s filed date homayoun samadi and sarabano samadi pro sese sharyn m ortega caitlin a downing and brian a pfeifer for respondent summary opinion leyden special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed 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 case in a notice_of_deficiency dated date respondent determined deficiencies in petitioners’ federal_income_tax of dollar_figure and dollar_figure for and respectively respondent also determined accuracy-related_penalties under sec_6662 of dollar_figure and dollar_figure for and respectively after concessions by petitioner sec_2 the issues for decision are whether petitioners are entitled to schedule c deductions for car and truck expenses for and related to petitioner husband’s real_estate activity and liable for accuracy-related_penalties under sec_6662 for and 1unless otherwise indicated all section references are to the internal_revenue_code code as amended in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure 2at trial petitioners conceded the following deductions for expenses reported on schedules c profit or loss from business with respect to petitioner husband’s real_estate salesperson business hereinafter referred to as petitioner husband’s real_estate activity advertising expenses of dollar_figure and dollar_figure for and respectively office expenses of dollar_figure and dollar_figure for and respectively laundry and cleaning expenses of dollar_figure and dollar_figure for and respectively and depreciation of dollar_figure for petitioners also conceded the following deductions for expenses reported on a schedule c for with respect to petitioner husband’s tax preparation services advertising expenses of dollar_figure office expenses of dollar_figure supplies of dollar_figure and other expenses of dollar_figure the court holds that petitioners are not entitled to schedule c deductions for car and truck expenses for or related to petitioner husband’s real_estate activity and liable for accuracy-related_penalties under sec_6662 for and background some of the facts are stipulated and so found petitioners resided in california when they timely filed their petition i petitioners’ tax returns petitioners timely filed and joint federal_income_tax returns petitioner husband prepared these tax returns using online software on both tax returns petitioner husband listed his occupation as tax specialist and petitioner wife listed her occupation as registered nurse petitioners attached schedules c to their tax_return for petitioner husband’s translation services real_estate activity and tax preparation services petitioners also attached schedules c to their tax_return for petitioner husband’s real_estate activity tax preparation services and work as a county election poll worker only the and schedules c for petitioner husband’s real_estate activity are at issue the and schedules c for petitioner husband’s real_estate activity did not report any gross_receipts but reported expenses for each year the schedule c reported a loss of dollar_figure and the schedule c reported a loss of dollar_figure ii petitioner husband’s real_estate activity in petitioner husband decided to invest in homes with his friends and family hereinafter referred to as the group the group consisted of five individuals including petitioner husband’s brother the group intended to buy homes renovate them and sell them for a profit ie to flip houses petitioner husband became a licensed real_estate agent in and continued to be licensed during and he did not earn any commissions from selling real_estate in or petitioner husband researched potential investment properties for the group and because he was a licensed real_estate agent he had access to properties that were for sale the group decided to look for potential investment properties in west sacramento california where petitioner husband lived because the group expected him to manage the investment properties petitioner husband prepared mileage logs for and to document the mileage he drove to see the potential investment properties petitioner husband relied on internal_revenue_service irs publication travel entertainment gift and car expenses in preparing these mileage logs petitioner husband maintained a daily spreadsheet on his computer for each year’s mileage log he input the starting and ending addresses beginning and ending mileage miles traveled and business_purpose of each trip according to the mileage logs petitioner husband drove big_number miles in and big_number miles in the mileage logs reflect that every saturday from january through date and every saturday from january through date petitioner husband drove miles from his home in west sacramento to the same client’s house in marina california drove back about miles to the sacramento area for a house showing with client drove back about miles to return client to his home in marina and then drove miles back home to west sacramento the client’s home in marina was the home of petitioner husband’s brother the house showing consisted of picking up his brother or one of the other individuals in the group ie the client from his brother’s home in marina and driving that individual to the sacramento area to look at a potential investment_property petitioner husband did not show any potential investment_property to the group from late august through december in either or the group did not buy any investment_property in either or its members could not agree on any of the potential investment properties petitioner husband had shown them the irs audited petitioners’ and tax returns and disallowed among other things deductions for the reported schedule c expenses related to petitioner husband’s real_estate activity and determined accuracy-related_penalties under sec_6662 for both years discussion i burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and a taxpayer bears the burden of proving it incorrect see rule a 290_us_111 morever deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction claimed see 503_us_79 292_us_435 under sec_7491 the burden_of_proof may shift to the commissioner if the taxpayer produces credible_evidence with respect to any relevant factual issue and meets other requirements at trial petitioners argued that under sec_7491 the burden_of_proof had shifted to respondent if the taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the proper tax_liability sec_7491 places the burden_of_proof with respect to that issue on the commissioner see rule a credible_evidence is the quality of evidence which after critical analysis the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted 116_tc_438 quoting h conf rept pincite- 1998_3_cb_747 sec_7491 applies only if the taxpayer complies with substantiation requirements maintains all required records and cooperates with reasonable requests by the commissioner for witnesses information documents meetings and interviews sec_7491 and b on the basis of the record the court concludes that petitioners did not introduce credible_evidence with respect to either year at issue and therefore the burden_of_proof has not shifted to respondent ii car and truck expenses petitioners assert that petitioner husband’s real_estate activity during and constituted a trade_or_business and that the mileage logs substantiate the car and truck expenses reported for and with respect to that business respondent contends that petitioner husband’s real_estate activity did not rise to the level of carrying_on_a_trade_or_business during or the court agrees with respondent sec_162 provides that t here shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business however not every income-producing and profit-making endeavor constitutes a trade_or_business 480_us_23 t o be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit id whether petitioner husband’s real_estate activity in or rose to the level of a trade_or_business requires an examination of the facts see 312_us_212 petitioner husband argues that he was a real_estate agent during and that he was acting in that capacity when he showed the group the potential investment properties and that any expenses_incurred in helping the group see the potential investment properties are deductible business_expenses although petitioner husband was a licensed real_estate agent during and he was not in the trade_or_business of being a real_estate agent during the years at issue petitioner husband testified that he did not earn any commissions during or as a real_estate agent there is no other evidence in the record to suggest that he was continuously and regularly buying and selling real_estate as a real_estate agent to clients rather the record shows that during and petitioner husband and the group were attempting to start a business of flipping houses to do this petitioner husband researched potential investment properties ahead of time picked up his brother and or someone else from the group and drove to see a potential investment_property each saturday from january to august in and however petitioner husband’s activity during and with respect to this venture did not rise to the level of carrying_on_a_trade_or_business at best petitioner husband’s activity in and was in the exploratory or formative stages of forming a business of flipping houses carrying_on_a_trade_or_business requires more than initial research into a potential business opportunity it requires that the business have actually commenced 56_tc_895 20_tc_511 see christian v commissioner tcmemo_1995_12 tax ct memo lexi sec_12 at finding that activities relating to only exploratory or formative stages do not rise to the level of a trade_or_business sec_162 does not permit current deductions for startup or preopening expenses_incurred by a taxpayer before beginning business operations see sec_195 petitioner husband had plans for a potential business that had not materialized in or he testified that nothing came of the showings neither he nor anyone in the group purchased any investment_property in or in fact as petitioner husband testified the group could not agree on any investment properties to purchase accordingly petitioners are not entitled to deduct under sec_162 any expenses including car and truck expenses_incurred in connection with petitioner husband’s real_estate activity during or having found that petitioner husband’s real_estate activity did not rise to the level of carrying_on_a_trade_or_business during or the court need not address the veracity of the mileage logs whether the mileage logs satisfy the strict substantiation requirements of sec_274 or whether the car and truck expenses were ordinary and necessary business_expenses iii accuracy-related_penalties respondent determined accuracy-related_penalties for and because petitioners’ underpayments were due to substantial understatements of income_tax or negligence or disregard of rules or regulations see sec_6662 and b and a taxpayer may be liable for a accuracy-related_penalty on the portion of an underpayment of income_tax attributable to a substantial_understatement_of_income_tax or to negligence or disregard of rules or regulations id only one sec_6662 accuracy-related_penalty may be imposed with respect to any given portion of an underpayment even if that portion is attributable to more than one type of conduct listed in sec_6662 see 132_tc_161 aff’d 408_fedappx_908 6th cir sec_1_6662-2 income_tax regs nevertheless the court considers both grounds for imposition of the penalties the commissioner bears the burden of production with respect to the liability of an individual for a sec_6662 penalty sec_7491 sec_6751 provides that subject_to certain exceptions in sec_6751 no penalty shall be assessed unless the initial determination of the assessment is personally approved in writing by the immediate supervisor of the individual making the determination or such higher level official as the commissioner may designate written approval of the initial penalty determination under sec_6751 must be obtained no later than the date the notice_of_deficiency is issued or the date the commissioner files an answer or amended answer asserting the penalty 851_f3d_190 2d cir aff’g in part rev’g in part tcmemo_2015_42 see also graev v commissioner t c ___ date supplementing and overruling in part 147_tc_460 compliance with sec_6751 is part of the commissioner’s burden of production in any deficiency case in which a penalty subject_to sec_6751 is asserted chai v commissioner f 3d pincite the sec_6662 accuracy-related_penalties determined in the notice_of_deficiency were properly approved as required by sec_6751 the record includes a copy of a civil penalty approval form approving imposition of accuracy-related_penalties against petitioners for and and executed by the irs tax examiner’s group manager before the date the notice_of_deficiency was issued respondent has proven sufficient facts to satisfy the burden of production as to that issue once the commissioner meets his burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect rule a see higbee v commissioner t c pincite the taxpayer may meet this burden by proving that he acted with reasonable_cause and in good_faith with respect to the underpayment see sec_6664 higbee v commissioner t c pincite sec_1_6664-4 income_tax regs as explained below petitioners did not provide persuasive evidence that they acted with reasonable_cause and in good_faith with respect to the underpayment_of_tax for or a substantial_understatement given petitioners’ concessions and the court’s decision that petitioners are not entitled to the claimed car and truck expense deductions for either or the result is a substantial_understatement_of_income_tax for each year there is a substantial_understatement_of_income_tax for any taxable_year if the amount of the understatement exceeds the greater of of the tax required to be shown on the tax_return or dollar_figure sec_6662 an understatement means the excess of the amount of the tax required to be shown on the tax_return over the amount of tax that is shown on the tax_return reduced by any rebate sec_6662 sec_6662 reduces the amount of an understatement by the portion of the understatement for which there is substantial_authority for the taxpayer’s tax treatment of any item or an adequate_disclosure of the relevant facts affecting the item’s tax treatment and a reasonable basis for the taxpayer’s treatment of the item petitioners do not argue that they had substantial_authority for any part of the understatement for or or that they made adequate disclosures on their or tax_return with respect to any part of the understatement accordingly the court does not reduce petitioners’ accuracy- related penalties pursuant to sec_6662 petitioners’ tax_return showed a tax of dollar_figure respondent determined the amount of tax required to be shown on petitioners’ tax_return was dollar_figure thus the understatement_of_tax that respondent determined for was dollar_figure that amount exceeds dollar_figure which is greater than dollar_figure of the tax required to be shown on petitioners’ tax_return petitioners’ tax_return showed a tax of dollar_figure respondent determined the amount of tax required to be shown on petitioners’ tax_return was dollar_figure thus the understatement_of_tax that respondent determined for was dollar_figure that amount exceeds dollar_figure which is greater than dollar_figure of the tax required to be shown on petitioners’ tax_return therefore petitioners have substantially understated their income_tax for and and are liable for the accuracy-related_penalties under sec_6662 and b for and b negligence or disregard of rules or regulations the accuracy-related_penalty may also be imposed under sec_6662 because of negligence or disregard of rules or regulations see sec_6662 in the alternative petitioners are liable for the accuracy-related_penalties for and because they were negligent and disregarded rules or regulations negligence includes any failure to make a reasonable attempt to comply with the provisions of the code and any failure to keep adequate books_and_records or to substantiate items properly sec_6662 see higbee v commissioner t c pincite sec_1_6662-3 income_tax regs negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 85_tc_934 disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 see higbee v commissioner t c pincite respondent has met his burden of production with respect to petitioners’ negligence and disregard of rules or regulations petitioners’ tax returns for and were prepared by petitioner husband petitioner husband considered his occupation to be a tax specialist and operated a tax preparation services business as a sole_proprietorship however in preparing their tax returns petitioners failed to exercise due care or to do what a reasonable person would do under the circumstances to determine whether petitioner husband was in a trade_or_business in order to deduct the car and truck and other expenses for and c reasonable_cause for the underpayment_of_tax a penalty will not be imposed under sec_6662 however if a taxpayer establishes that he or she acted with reasonable_cause and in good_faith sec_6664 circumstances that indicate reasonable_cause and good_faith include reliance on the advice of a tax professional or an honest misunderstanding of the law that is reasonable in the light of all the facts and circumstances sec_1 b income_tax regs see higbee v commissioner t c pincite relevant facts and circumstances for the court to consider include the knowledge and experience of the taxpayer sec_1_6664-4 income_tax regs petitioners argued that petitioner husband relied on irs publication to prepare the mileage logs for and informal irs guidance like a publication is not itself law but a reasonable misunderstanding of its discussions of law can be relevant to whether a taxpayer should be excused from a penalty see eg gray v commissioner tcmemo_1982_392 tax ct memo lexis at however petitioners have not explained which irs publications or other authority they consulted to determine whether petitioner husband was carrying_on_a_trade_or_business petitioner husband held himself out to be a tax specialist and prepared tax returns as a business and therefore should have been able to consult the tax law or regulations to determine whether he was carrying_on_a_trade_or_business in fact petitioner husband testified that he did not see a purpose for referring to any regulations in preparing their tax returns the court concludes that petitioners did not act reasonably or in good_faith in taking the position that petitioner husband’s real_estate activity constituted a real_estate trade_or_business in and therefore petitioners are liable for the sec_6662 accuracy-related_penalties for and the court has considered all of the parties’ arguments and to the extent not addressed herein the court concludes they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date legend x program name z location name t number u quantity v dollars amount w quantity dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request letter catalog number 58263t your letter indicates you will operate a scholarship program called x your purpose is to accept contributions and to use the contributions to make grants to other charitable and or educational c organizations such as churches and schools the purpose of x is to establish a scholarship program to assist students who do not qualify for academic or athletic scholarships and who have overcome difficulties to graduate from high school and attend college the scholarship must be used for tuition laboratory fees dorm fees books and similar items at his her educational_institution you intend to award in the range of u scholarships per year in the amount of v dollars to students in z school district depending on funds available the amount of the scholarships or the number of scholarships granted in a year may increase moreover as funds become available you may extend x to neighboring school districts recipients for all scholarships must meet the following qualifications a academic ability the recipient must show sufficient academic ability demonstrated by prior academic performance or performance on tests designated to measure ability and aptitude to enable the recipient to complete courses of study necessary to graduate from the educational_institution selected by the recipient b financial need the recipient must demonstrate financial need for assistance for his her education financial need shall be determined by standards established by the educational_institution and any other factors determined to be relevant c recipient's educational_institution the recipient must attend any post-secondary educational_institution determined to be reputable and in good standing with governmental agencies regulating such institutions this will include a college university and trade_or_business school d high school graduate the recipient must be a graduate of high school or be about to graduate from high school or have received an equivalent education or degree e personal qualities the recipient must have demonstrated such character and motivation to obtain an education that he she may be expected to work hard and seriously to continue and complete his her education initially you will make your program known to students at various schools located in z school district through the principals or other proper representatives at each school you will be identified on the list of potential scholarship donors provided by z school district to its graduating students and shall make available written applications to be completed by eligible students you anticipate up to w applications in your first few years letter catalog number 58263t your directors will be on the scholarship selection committee any individual who is a lineal descendant of any of your officers or directors shall not be eligible for scholarships furthermore individuals who are disqualified persons as described in sec_4946 of the internal_revenue_code_of_1986 or lineal_descendants of disqualified persons shall be ineligible for scholarships the student shall submit his her written request for the scholarship through the school and the selection committee will review the requests and make its determination regarding the granting of the scholarships in accordance with the provisions set forth herein a the selection committee will consider the applicant's gpa sat or act scores in addition an applicant must have a minimum gpa of t b the applicant will be asked to write an essay describing any difficulties the applicant overcame to graduate and how the applicant overcame the difficulties c you define financial need to be the difference between the applicants anticipated educational cost and the applicants expected family contribution as determined by the standards established by the applicant’s educational_institution d because your overarching purpose is to assist students who do not qualify for academic or athletic scholarships and who have overcome difficulties to graduate from high school and attend college you will consider the likelihood whether an applicant would qualify for an academic or athletic scholarship when evaluating an applicant’s financial need in determining whether an applicant would likely qualify for an academic or athletic scholarship you will review the applicant’s transcripts and a resume of the applicant’s athletic achievements applicants with lower gpas will be given preference in this case to the extent reasonable possible you shall pay all scholarships directly to the educational_institution and such educational_institution shall agree to use the funds to defray expenses or to pay the funds or a portion thereof to the recipient only if the recipient is enrolled at such educational_institution and his standing at such educational_institution is consistent with the purposes and conditions of the scholarship in the event the foregoing conditions cannot reasonable be met you shall require the recipient to furnish you with a report of the courses taken and grades received in each academic period the report must be verified by the educational_institution and must be obtained at least once a year upon completion of a recipients study at an educational_institution a final report shall also be obtained in the event the reports submitted including the failure to submit such reports indicates that all or any part of the scholarship is not being used in furtherance of the purposes of such scholarship you shall investigate the facts while conducting your investigation you shall withhold further payments to the extent possible until any delinquent reports are catalog number 58263t letter submitted in the event you determine that any part of the scholarship has been used for improper purposes you shall take all reasonable and appropriate steps to recover the funds and shall withhold any further payments you shall retain records pertaining to all scholarships to individual and these records shall include the following information used to evaluate the qualifications of potential grantees identification of the grantees including any relationship of any grantee to the private_foundation whether the grantee is a disqualified_person etc the amount and purpose of each grant and all grantee reports and other follow-up data obtained in administering the private foundation's grant program basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if the standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh letter catalog number 58263t e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


t c summary opinion united_states tax_court tony carrancho and linda carrancho petitioners v commissioner of internal revenue respondent docket no 27067-13s filed date tony carrancho and linda carrancho pro sese nicholas rosado and michael skeen for respondent summary opinion panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed 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 case all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated in a notice_of_deficiency dated date respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure respondent determined that petitioners failed to report as income dollar_figure in social_security_benefits received in the issue for decision is whether petitioners are required to include certain social_security_benefits in their gross_income background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference petitioners resided in california when their petition was filed tony carrancho petitioner became disabled on date on date petitioner filed for monthly disability benefits with the social_security administration in date the social_security administration determined that petitioner became disabled on date and that he was entitled to social_security_benefits beginning in date petitioner’s social_security_benefits were reduced by or offset by his workers’ compensation payments petitioner received dollar_figure in representing the net social_security_benefit allocable from date through date the internal_revenue_service received a form ssa-1099 social_security_benefit statement reporting that petitioner received dollar_figure in social_security_benefits during the taxable_year the form ssa-1099 reflects a workers’ compensation offset of dollar_figure most of the dollar_figure was a lump-sum payment of social_security_benefits attributable to prior years petitioners reported a payment of dollar_figure on their form_1040 u s individual_income_tax_return for as social_security_benefits received and reported dollar_figure as the taxable_amount respondent determined that the taxable_amount of social_security_benefits received was dollar_figure the dollar_figure adjustment is the difference between the taxable_amount that respondent calculated and the dollar_figure petitioners reported as taxable on their return discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 in cases the record does not reflect the amount of workers’ compensation payments that petitioner received during the period involving unreported income this court has recognized an exception to this rule where the commissioner introduces no substantive evidence and relies solely on the presumption of correctness 73_tc_394 this exception is limited and does not apply where the commissioner has provided a minimal evidentiary foundation 92_tc_661 because we decide the factual issues in the instant case on the preponderance_of_the_evidence the allocation of the burden_of_proof is immaterial see 131_tc_185 workers’ compensation is generally excludable from a taxpayer’s gross_income sec_104 in contrast social_security_benefits including social_security disability benefits may be includable in a taxpayer’s gross_income pursuant to a statutory formula that takes into account a number of factors including the amount of social_security_benefits received the taxpayer’s other income and the taxpayer’s filing_status sec_86 if the amount of social_security_benefits that a taxpayer receives is reduced because of the receipt of workers’ compensation benefits then the amount of the workers’ compensation benefits that causes the reduction is treated as though it were a social_security_benefit sec_86 moore v commissioner tcmemo_2012_249 at the workers’ compensation offset is included in the social_security_benefits that petitioner received in therefore we conclude that petitioner received dollar_figure in taxable social_security_benefits in taxpayers may make an election with respect to the amount of a lump-sum payment of social_security_benefits received during a taxable_year in which the portion of the payment is attributable to previous years sec_86 brady v commissioner tcmemo_2013_1 at this election provides an alternate method for applying the statutory formula to determine the amount of social_security_benefits includable in the taxpayer’s income see sec_86 because petitioner received a lump-sum payment of social_security_benefits during that was in part attributable to and they were eligible to make a sec_86 election on their tax_return petitioners did not make a sec_86 election on their tax_return when petitioner applied for social_security_benefits part of his workers’ compensation benefits which were otherwise excludable from gross_income were treated as social_security_benefits pursuant to the provisions of sec_86 this recharacterization caused petitioners’ tax to increase by more than the amount respondent provided a computation showing that petitioners would not benefit from a sec_86 election petitioners did not provide any such computation we presume that petitioners would not benefit from a sec_86 election of increase in benefits received as a result of petitioner’s qualifying for social_security_benefits while the result appears harsh our role is to enforce the laws as written and interpreted as the supreme court of the united_states has instructed the role of the courts is to apply the statute as written sandifer v u s steel corp u s ___ ___ 134_sct_870 see also mccarthy v commissioner tcmemo_2015_50 at and the cases cited thereat we have considered the parties’ arguments and to the extent not discussed herein we conclude the arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date ---------------------------------- ----------------------------- --------------------------------------------- ------------------------------------ in re --------------------------------------------- ----------------------------- -------------------------- ------------------------ - department of the treasury washington dc person to contact ---------------- id no ------------- cc ita telephone number --------------------- refer reply to plr-120514-05 date date legend a ------------------------------------------------------------------- ------------------------------------------------- dates -------------------------- -------------------------- ------------------------------- groups taxpayers and on attachment taxpayers and on attachment all other taxpayers on attachment dear -------------------- this letter responds to your letter and submissions of date supplementing a previous submission of march in which you requested on behalf of a above and forty other related parties the taxpayers - see attachment certain private letter rulings relating to the late-filing of forms election to have a tax_year other than a required tax_year specifically you requested that the taxpayers’ late-filed forms be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations we are pleased to address your concerns the information submitted indicates that each of the forty-one taxpayers on whose behalf rulings are requested is a partnership employing an overall accrual_method of accounting taxpayers are members of a tiered_structure as defined in sec_1_444-2t of the temporary income_tax regulations under sec_706 of the internal_revenue_code a partnership’s taxable_year must be its required_taxable_year unless among other exceptions not relevant here the partnership elects under sec_444 of the code to use a taxable_year other than its required_taxable_year sec_444 and permit an eligible_partnership to elect or change to a taxable_year only if the deferral_period of the taxable_year elected is not longer than the shorter of three months or the deferral_period of the taxable_year being changed the term deferral_period generally refers to the number of months between the beginning of the entity’s taxable_year and the close of the first required_taxable_year ending within such taxable_year in the instant circumstances taxpayers desired to elect a taxable_year ending november for their initial taxable_year which is a permitted taxable_year under sec_444 sec_444 of the code and sec_1_444-2t of the regulations provide in relevant part that entities that are part of a tiered_structure that consists only of partnerships all of which have the same taxable_year may make or continue an election under sec_444 of the code sec_1_444-3t of the regulations provides among other requirements that form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election sec_301_9100-1 of the regulations set forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under subtitle a provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections including elections to use other than the required tax_year under sec_444 if the provisions of section' do not apply to the taxpayer's situation as in the instant case the provisions of sec_301_9100-3 other extensions may apply sec_301_9100-3 sets forth standards that the commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of sec_301_9100-2 the standards applied are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where for example the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue in the instant circumstances group taxpayers’ forms electing to use a taxable_year ending november were due on or before date group taxpayers’ forms electing to use a taxable_year ending november were due on or before date and group taxpayers’ forms electing to use a taxable_year ending november were due on or before date due to an error or misunderstanding none of the forms was timely filed however the error was not due to any lack of due diligence or prompt action on the part of any taxpayer the information submitted and representations furnished by the taxpayers and their tax professionals establish that taxpayers acted reasonably and in good_faith in respect of this matter furthermore we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of sec_301_9100-3 accordingly the requirements of sec_301_9100-3 for the granting of relief have been satisfied within days of the date of this ruling each taxpayer should file with the irs cincinnati service_center attn entity control a form_8716 electing to use a tax_year ending november effective for its first taxable_year ending either date date or date as appropriate a copy of this letter_ruling should accompany such submission and each taxpayer should type or print at the top of the form filed under sec_301_9100-3 of the regulations this ruling is further conditioned on taxpayers complying with sec_1 1t a which provides in relevant part that for each taxable_year that a partnership has an election under sec_444 in effect the partnership must i file a return as provided in sec_1_7519-2t and ii make any required_payment as provided in sec_1_7519-2t except for the specific ruling above which is restricted to the filing of forms we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code or regulations that may be applicable thereto this letter_ruling is based on facts and representations provided by the taxpayers and their authorized representatives and is limited to the matters specifically addressed no opinion is expressed as to the tax treatment of the transactions considered herein under the provisions of any other sections of the code or regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from such transactions which are not specifically addressed herein because it could help resolve federal tax issues a copy of this letter should be maintained with the taxpayers’ permanent records pursuant to a power_of_attorney currently on file with this office the original of this letter_ruling is being sent to the taxpayers’ authorized representative and copies are being furnished to the taxpayers and their second-designated authorized representatives a copy of this letter is also being sent to the taxpayers’ appropriate irs industry director this ruling is directed only to the taxpayers who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent associate chief_counsel income_tax accounting s william a jackson by _________________________ william a jackson chief branch attachment enclosures copy of this letter copy for sec_6110 purposes attachment plr-119941-05 plr- ------------------------------------------------------------------------ plr-119947-05 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