t c summary opinion united_states tax_court wendy l chadwick petitioner v commissioner of internal revenue respondent docket no 4991-04s filed date john w hart for petitioner timothy b heavner for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years in issue this case arises from a request for relief under sec_6015 with respect to unpaid taxes reported on joint returns filed by petitioner and her former spouse for tax years and respondent determined that petitioner was not entitled to any relief under sec_6015 petitioner timely filed a petition seeking review of respondent’s determination the issue for decision is whether petitioner is entitled to relief from joint_and_several_liability for the taxable years and pursuant to sec_6015 background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in ahoskie north carolina on the date the petition was filed in this case petitioner and her former spouse david a tillotson mr tillotson were married on date during and the years in issue petitioner was married to mr tillotson during petitioner was employed by jcpenney life_insurance and graphic products inc during mr tillotson was employed by draperies and more inc jcpenney life_insurance prepared a form_w-2 wage and tax statement for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure graphic products inc prepared a form_w-2 for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure draperies and more inc prepared a form_w-2 for mr tillotson indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure petitioner and mr tillotson timely filed with the internal_revenue_service a joint form_1040 u s individual_income_tax_return for taxable_year on their jointly filed form_1040 petitioner and mr tillotson reported wage income of dollar_figure taxable interest_income of dollar_figure taxable_income of dollar_figure federal_income_tax withheld of dollar_figure and an amount owed of dollar_figure petitioner and mr tillotson did not satisfy the underpayment when they filed their joint federal_income_tax return during petitioner was employed by jcpenney life_insurance and odesco during mr tillotson was employed by intellect network technologies for part of the year mr tillotson was also self-employed during jcpenney life_insurance prepared a form_w-2 for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure odesco prepared a form_w-2 for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure intellect network technologies prepared a form_w-2 for mr tillotson indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure petitioner and mr tillotson timely filed with the internal_revenue_service a joint form_1040 for taxable_year on their jointly filed form_1040 petitioner and mr tillotson reported wage income of dollar_figure business income of dollar_figure pension and annuity income of dollar_figure taxable_income of dollar_figure self-employment_tax of dollar_figure federal_income_tax withheld of dollar_figure and an amount owed of dollar_figure petitioner and mr tillotson attached a schedule c profit or loss from business to their jointly filed federal_income_tax return on the schedule c mr tillotson was identified as the proprietor of a business named contract installations petitioner and mr tillotson did not satisfy the underpayment when they filed their joint federal_income_tax return during petitioner was employed by odesco blair graphics inc and wyatt associates during mr tillotson was self-employed odesco prepared a form_w-2 for petitioner indicating wage income of dollar_figure and no federal_income_tax withheld blair graphics inc prepared a form_w-2 for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure wyatt associates prepared a form_w-2 for petitioner indicating wage income of dollar_figure and federal_income_tax withheld of dollar_figure petitioner and mr tillotson timely filed with the internal_revenue_service a joint form_1040 for taxable_year on their jointly filed form_1040 petitioner and mr tillotson reported wage income of dollar_figure business income of dollar_figure taxable_income of dollar_figure self-employment_tax of dollar_figure federal_income_tax withheld of dollar_figure and an amount owed of dollar_figure petitioner and mr tillotson attached a schedule c to their jointly filed federal_income_tax return on the schedule c mr tillotson was identified as the proprietor of the business contract installations petitioner and mr tillotson did not satisfy the underpayment when they filed their joint federal_income_tax return petitioner and mr tillotson were divorced on date by a divorce decree entered by the district_court of hunt county texas the divorce decree states in pertinent part it is ordered and decreed that david allen tillotson and wendy lanette tillotson shall be equally responsible for all federal_income_tax liabilities of the parties from the date of marriage through date and each party shall timely pay percent of any deficiencies assessments penalties or interest due thereon and shall indemnify and hold the other party and his or her property harmless from percent of such liabilities unless such additional tax penalty and or interest resulted from a party’s omission of taxable_income or claim of erroneous deductions in such case the portion of the tax penalty and or interest relating to the omitted income of claims of erroneous deductions shall be paid_by the party who earned the omitted income or proffered the claim for an erroneous deduction the parties agree that nothing contained herein shall be construed as or is intended as a waiver of any rights that a party has under the innocent spouse provisions of the internal_revenue_code on date petitioner submitted to respondent a form_8857 request for innocent spouse relief attached to the form_8857 was a letter dated date in the letter petitioner states i was not aware of the outstanding monies owing until after my separation and right before my divorce from david a tillotson which was final on date after reviewing my records i believe the monies owed for the years and were due to my ex- husband’s david a tillotson unemployment and or self- employment i maintained a full-time job in which taxes were taken out through my employer therefore i do not feel i am responsible for the taxes owed david a tillotson was solely responsible for the paying of these taxes as he was responsible for all of the household bills i was not aware that he had not been paying them due to the fact that he was home more than i he would always retrieve the mail before i had the opportunity to do so therefore if there was correspondence between you and my household i had no knowledge of it by letter dated date respondent’s examiner requested that petitioner complete and submit a statement explaining why she believed she qualified for relief and form 886-a innocent spouse questionnaire by letter dated date petitioner submitted a statement explaining why she believed that she qualified for relief and she attached to the letter a completed form 886-a petitioner stated in her letter in pertinent part i believe i would qualify for relief for the following reasons i was unaware that they the and reported tax_liabilities had not been paid i was not responsible for any of the bill paying during my entire marriage to david tillotson i did not get or open any of the mail therefore i was not aware if sic any correspondence between the irs and my household the only thing i have to show me why there are taxes due are printouts that the irs sent me and by looking at them it shows that david tillotson had unemployment and self employment i paid my taxes through my employer and feel that david should be responsible for the taxes that are due for this year sic to give you a background of my situation i was married to david tillotson in and divorced in i do not have any records in my possession they are all in the possession of david at the time i left i was only able to take my clothes and a few personal items as stated above he was responsible for paying any and all of the bills i was not included or involved in paying any of the bills at all i supplied him with my paycheck and put my trust in him as my husband to take care sic them if i knew what i know now i would have never filed a joint_return by letter dated date respondent denied petitioner’s request for relief on date petitioner submitted a form statement of disagreement to respondent appealing respondent’s denial of relief under sec_6015 petitioner stated on form i wendy chadwick disagree with the internal_revenue_service determination because i feel i am not responsible for the taxes owed at this time please review the attached letters with attached documents which were sent to the irs previously as you see i was not aware that payments were not being made until after the separation i had no knowledge that the monies owed at the time of filing were not being paid as david kept this information from me david was solely responsible for paying all household bills as most people that are married you trust that the other is taking care of things when they say they are i promise you i would have made sure the taxes were paid if i knew they were there in response the sic the denial letter i received i did not feel i needed to adjust my withholdings because i was not aware that david wasn’t paying the taxes due after filing the return by letter dated date respondent acknowledged receipt of petitioner’s request for an appeal by letter dated date respondent’s appeals_office acknowledged receipt of petitioner’s case for consideration in a letter dated date respondent’s appeals officer assigned to consider petitioner’s request acknowledged assignment of the case and her intent to schedule a conference with petitioner respondent’s appeals officer by letter dated date attempted to contact petitioner’s former spouse mr tillotson to inform him of respondent’s initial determination and to determine whether he had additional information to provide for consideration in his former spouse’s case in a letter dated date respondent’s appeals officer requested additional information from petitioner regarding her claim for relief on date respondent received from petitioner a copy of the letter previously sent to her on date with her responses to the request for additional information attached petitioner’s responses in pertinent part are as follows list your current monthly income response - dollar_figure monthly list your monthly expenses response - mortgage none rent dollar_figure utilities dollar_figure average food dollar_figure clothing dollar_figure vehicle expense dollar_figure all other expenses dollar_figure irs total expenses dollar_figure per month list all people currently residing in your household response - mark burge roommate are you currently renting or buying your residence response - renting roommates explain why you feel paying these taxes would cause you an economic hardship response - i am having a hard time making ends meet now by letter dated date respondent’s appeals officer scheduled an appeals_conference with petitioner to be held by telephone on date respondent’s appeals officer made unsuccessful attempts to contact petitioner by telephone on date by facsimile dated date petitioner submitted a letter and additional information to respondent’s appeals officer for consideration petitioner’s letter stated following is some information to consider for my innocent spouse claim i have created a breakdown showing earnings and deductions for my ex-husband david tillotson and myself by using information i have in my files also attached for your review is a copy of the collection information statement that i completed for the offer_in_compromise request i am sending in today i hope that you will review this information and see that i have paid my share of taxes through my employer the taxes owning sic for the above-referenced years and were due to david’s unemployment and or self-employment therefore i do not feel it is fair and just for me to pay them as you can see it would cause me great hardship to pay all of this amount owing but that is why i am sending in the offer_in_compromise i would also like to point out that i have been making payments of dollar_figure per month since i believe july of without any tardiness if i would have known that mr tillotson was not paying the debt i would have made sure it was paid when it was due instead of waiting until now to clear this up he had a tendency to hide things from me and spend money on other things instead of bills by letter dated date respondent’s appeals officer sent to petitioner a notice of her determination that petitioner was not entitled to relief under sec_6015 for the following amounts of unpaid tax_liabilities including interest for taxable years and dollar_figure dollar_figure and dollar_figure respectively respondent’s appeals officer issued to petitioner a notice_of_determination concerning your request for relief under the equitable relief provision of sec_6015 on date denying relief under sec_6015 for the taxable years and on date petitioner filed a petition with this court for review of respondent’s determination denying her request for relief from joint_and_several_liability with respect to the and tax years discussion in general taxpayers filing a joint federal_income_tax return are each responsible for the accuracy of their return and are jointly and severally liable for the entire tax_liability due for that year sec_6013 114_tc_276 in certain circumstances however a spouse may obtain relief from joint_and_several_liability by satisfying the requirements of sec_6015 sec_6015 applies to tax_liabilities arising after date and to tax_liabilities arising on or before date that remain unpaid as of such date internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_740 in the present case petitioner and mr tillotson’s tax_liabilities arose during taxable years and however these liabilities remained unpaid as of date therefore sec_6015 applies to the case at bar see 120_tc_137 sec_6015 provides that a spouse who has made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax on a joint_return sec_6015 provides that a spouse who is eligible to do so may elect to limit that spouse’s liability for any deficiency with respect to a joint_return under sec_6015 relief from joint_and_several_liability under sec_6015 or c is available only with respect to a deficiency for the year for which relief is sought sec_6015 and c see h conf rept pincite 1998_3_cb_747 if relief is not available under either sec_6015 or c an individual may seek equitable relief under sec_6015 which may be granted by the commissioner in his discretion in this case petitioner contends that she is entitled to full relief from liability under sec_6015 our jurisdiction to review petitioner’s request for relief is conferred by sec_6015 which allows a spouse who has requested relief from joint_and_several_liability to contest the commissioner’s denial of relief by filing a timely petition in this court we address petitioner’s request for relief under subsections b c and f of sec_6015 in turn a sec_6015 sec_6015 provides a spouse relief from joint liability for an understatement as defined in sec_6662 of tax attributable to erroneous items of the other spouse with regard to the present case petitioner does not seek relief from an understatement_of_tax but rather from the tax_liabilities reported as due on the and returns that were not paid when the returns were filed because there is no understatement_of_tax for and relief is not available to petitioner under sec_6015 see sec_6662 defines an understatement as the excess of the amount of tax required to be shown on the return over the tax imposed which is shown on the return reduced by any rebate washington v commissioner supra pincite see also 121_tc_73 b sec_6015 sec_6015 provides relief from joint liability for spouses who filed a joint_return if they are no longer married are legally_separated or have lived apart for a 12-month_period such spouses may elect to be treated for purposes of determining tax_liability as if separate returns had been filed sec_6015 provides proportionate relief for any deficiency which is assessed with respect to the return relief is not available under sec_6015 with respect to an unpaid liability for tax reported on the return as noted in the present case petitioner is seeking relief of the unpaid tax_liabilities reported as due on the and joint returns because there is no deficiency for and relief is not available to petitioner under sec_6015 see washington v commissioner supra see also hopkins v commissioner supra c sec_6015 therefore the only remaining opportunity for relief available to petitioner is sec_6015 sec_6015 provides as follows sec_6015 equitable relief --under procedures prescribed by the secretary if-- taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either and relief is not available to such individual under subsection b or c the secretary may relieve such individual of such liability as directed by sec_6015 the commissioner has prescribed guidelines in revproc_2000_15 2000_1_cb_447 to be considered in determining whether an individual qualifies for relief under sec_6015 revproc_2000_15 sec_4 c b pincite lists threshold conditions which must be satisfied before the commissioner will consider a request for relief under sec_6015 respondent concedes that petitioner meets these threshold conditions for equitable innocent spouse relief revproc_2000_15 sec_4 c b pincite lists nonexclusive factors that the commissioner will consider in determining whether taking into account all the facts and circumstances it is inequitable to hold the requesting spouse liable for all or part of the unpaid income_tax_liability 2this revenue_procedure was superseded by revproc_2003_61 2003_2_cb_296 revproc_2003_61 supra is effective either for requests for relief filed on or after date or for requests for which no preliminary determination_letter was issued as of date in the present case the request for relief was filed on date and the preliminary determination_letter was issued on date therefore revproc_2000_15 2000_1_cb_447 is applicable in the present situation or deficiency and full or partial equitable relief under sec_6015 should be granted revproc_2000_15 sec_4 c b pincite provides that the following factors weigh in favor of the commissioner’s granting equitable relief marital status economic hardship abuse no knowledge or reason to know nonrequesting spouse’s legal_obligation and attributable to nonrequesting spouse revproc_2000_15 sec_4 c b pincite provides that the following factors weigh against the commissioner’s granting equitable relief attributable to requesting spouse knowledge or reason to know significant benefit lack of economic hardship noncompliance with federal_income_tax laws and requesting spouse’s legal_obligation further revproc_2000_15 supra provides that no single factor will be determinative but that all relevant factors regardless of whether the factor is listed in revproc_2000_15 sec_4 will be considered and weighed to prevail under sec_6015 petitioner must show that respondent’s denial of equitable relief from joint liability under sec_6015 was an abuse_of_discretion see washington v commissioner t c pincite 118_tc_106 citing 114_tc_276 affd 353_f3d_1181 10th cir action constitutes an abuse_of_discretion under this standard where it is arbitrary capricious or without sound basis in fact or law 112_tc_19 the question of whether respondent’s determination was arbitrary capricious or without sound basis in fact is a question of fact 115_tc_183 affd 282_f3d_326 5th cir in deciding whether respondent’s determination that petitioner is not entitled to relief under sec_6015 was an abuse_of_discretion we consider evidence relating to all the facts and circumstances respondent contends that his denial of petitioner’s request for equitable relief from joint liability under sec_6015 was not an abuse_of_discretion we now address each of the factors of revproc_2000_15 sec_4 separately marital status during and petitioner and mr tillotson were married and resided in the same household petitioner and mr tillotson were divorced on date this factor weighs in favor of granting relief to petitioner economic hardship respondent contends that petitioner offered no evidence that she would suffer economic hardship if relief were denied pursuant to sec_301_6343-1 proced admin regs economic hardship exists if a levy will cause a taxpayer to be unable to pay his her reasonable basic living_expenses respondent maintains that respondent’s collection activity would not leave petitioner unable to pay her basic living_expenses in addition respondent asserts that petitioner provided no documentation to contradict these contentions or to demonstrate an economic hardship sec_301_6343-1 proced admin regs provides ii information from taxpayer in determining a reasonable amount for basic living_expenses the director will consider any information provided by the taxpayer including-- a the taxpayer’s age employment status and history ability to earn number of dependents and status as a dependent of someone else b the amount reasonably necessary for food clothing housing including utilities home-owner insurance home-owner dues and the like medical_expenses including health insurance transportation current tax_payments including federal state and local alimony child_support or other court-ordered payments and expenses necessary to the taxpayer’s production_of_income such as dues for a trade_union or professional organization or child care payments which allow the taxpayer to be gainfully_employed c the cost of living in the geographic area in which the taxpayer resides d the amount of property_exempt_from_levy which is available to pay the taxpayer’s expenses e any extraordinary circumstances such as special education expenses a medical catastrophe or natural disaster and f any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director during the appeals process petitioner reported that her monthly income was dollar_figure and she reported that her monthly expenses totaled dollar_figure it appears from the record that petitioner earns sufficient income such that she would not experience economic hardship if required to pay some or all of the tax deficiencies at issue in the present case petitioner has not presented any documentation or testimony to contradict the above claims or the determination of respondent therefore we find that petitioner will not suffer economic hardship if relief is not granted this factor favors denying relief abuse at trial petitioner testified that she was physically and verbally abused by mr tillotson during their marriage petitioner did not present any documentation to substantiate such a claim other than her testimony however we find petitioner’s testimony on this issue to be credible and find that petitioner was abused by mr tillotson during their marriage spousal abuse is a factor listed in revproc_2000_15 sec_4 that will weigh in favor of equitable relief if found but will not weigh against equitable relief if not present in a case therefore this factor favors granting relief knowledge or reason to know in the case of an income_tax_liability that arose from failure to pay a reported liability the fact that the requesting spouse did not know and had no reason to know that the reported liability would be unpaid at the time the return was signed is a factor in favor of granting relief revproc_2000_15 sec_4 d by contrast the fact that the requesting spouse knew or had reason to know that the reported liability would be unpaid at the time the return was signed is a factor weighing against relief revproc_2000_15 sec_4 b petitioner contends that she did not know and had no reason to know that mr tillotson did not satisfy the reported liabilities on their joint tax returns for taxable years and as previously stated petitioner submitted to respondent a form_8857 request for innocent spouse relief attached to the form_8857 was a letter dated date in the letter petitioner states i was not aware of the outstanding monies owing until after my separation and right before my divorce from david a tillotson which was final on date after reviewing my records i believe the monies owed for the years and were due to my ex- husband’s david a tillotson unemployment and or self- employment i maintained a full-time job in which taxes were taken out through my employer therefore i do not feel i am responsible for the taxes owed david a tillotson was solely responsible for the paying of these taxes as he was responsible for all of the household bills i was not aware that he had not been paying them due to the fact that he was home more than i he would always retrieve the mail before i had the opportunity to do so therefore if there was correspondence between you and my household i had no knowledge of it the record shows that petitioner voluntarily signed the and joint returns petitioner testified at trial that she did not review the joint returns before filing petitioner further testified that she and mr tillotson did not have a joint bank account and that when she received a paycheck she would negotiate the paycheck and give the cash to mr tillotson additionally petitioner testified that she assumed the liabilities reported on the joint tax returns were paid_by mr tillotson and that she had no reason of knowing that such liabilities were not paid it should be noted that the majority of the income_tax_liability for taxable_year was a result of petitioner’s wage income also petitioner has not offered any documentary_evidence supporting her testimony that she did not know or had no reason to know that the reported liabilities would be unpaid at the time the return was signed it is well settled that we are not required to accept self-serving testimony in the absence of corroborating evidence 877_f2d_624 7th cir affg tcmemo_1987_295 99_tc_202 upon the basis of the record in the case at bar we find petitioner knew or had reason to know that the reported liability would be unpaid at the time the return was signed this factor favors denying relief to petitioner nonrequesting spouse’s legal_obligation as previously noted petitioner and mr tillotson were divorced on date by a divorce decree entered by the district_court of hunt county texas the divorce decree states in pertinent part it is ordered and decreed that david allen tillotson and wendy lanette tillotson shall be equally responsible for all federal_income_tax liabilities of the parties from the date of marriage through date and each party shall timely pay percent of any deficiencies assessments penalties or interest due thereon and shall indemnify and hold the other party and his or her property harmless from percent of such liabilities unless such additional tax penalty and or interest resulted from a party’s omission of taxable_income or claim of erroneous deductions in such case the portion of the tax penalty and or interest relating to the omitted income of claims of erroneous deductions shall be paid_by the party who earned the omitted income or proffered the claim for an erroneous deduction the parties agree that nothing contained herein shall be construed as or is intended as a waiver of any rights that a party has under the innocent spouse provisions of the internal_revenue_code revproc_2000_15 sec_4 e indicates that if mr tillotson had a legal_obligation under the divorce decree to pay the tax_liabilities then that fact would weigh in favor of granting relief to petitioner likewise if the divorce decree placed the obligation to pay the taxes on petitioner then that fact would weigh against granting relief to her as indicated in revproc_2000_15 sec_4 f in the present case where the divorce decree holds each party equally responsible for all federal_income_tax liabilities of the parties from the date of marriage through date this factor is considered neutral attributable to nonrequesting spouse as previously stated the majority of the income_tax_liability for taxable_year was a result of petitioner’s wage income however the income_tax liabilities of dollar_figure and dollar_figure for taxable years and respectively are attributable to mr tillotson’s self employment and his failure to pay any estimated_taxes as to the income_tax liabilities of dollar_figure and dollar_figure for taxable years and respectively this factor favors granting petitioner equitable relief significant benefit respondent contends that petitioner received benefits from the proceeds of mr tillotson’s self-employment in the form of payment of joint household expenses and living_expenses petitioner testified at trial that mr tillotson would pay household and living_expenses with both his paychecks and her paychecks petitioner also testified at trial that mr tillotson was responsible for paying the bills revproc_2000_15 sec_4 c states that the requesting spouse has significantly benefitted beyond normal support from the unpaid liability or items giving rise to the deficiency due to the use of mr tillotson’s income to pay household and living_expenses during taxable years and we find that petitioner did not benefit beyond normal support from the income which led to the income_tax liabilities for taxable years and therefore this factor is a neutral factor noncompliance with federal_income_tax laws there is no evidence in the record as to this factor therefore we consider this factor neutral conclusion the factors that weigh against granting relief to petitioner outweigh those factors favoring relief therefore under these facts and circumstances we hold that respondent did not abuse his discretion in denying equitable relief to petitioner under sec_6015 reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


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 corp b04 plr-154409-06 date date ------------------ ------------- --------------------------------- legend distributing ---------------------------------------------------------------------------- --------------------------------------------------------------------- controlled ---------------------------------------------------------------------------- --------------------------------------------------------------------- fsub a ------------------------------------------------------------------------------------- sub b ---------------------------------------------------------------------------- --------------------------------------------------------------------- sub c ---------------------------------------------------------------------------- sub d ---------------------------------------------------------------------------- --------------------------------------------------------------------- fsub e -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------ --------------------------- ------------------------- ------------------------ ------------------------------- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------- --------------------------------------------------- ------------------ plr-154409-06 fsub f ------------------------------------------------------------------------------------- fsub g fsub h fsub i fsub j business a business b business c a a b c d e ------------------------------------- -------------------------------- ---------------------------- ------------------------ ------------------------ ------------------------ ---------------- ---- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------ ---------------------------------- -------------- f g dear ----------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information submitted in that letter and in later correspondence is summarized below plr-154409-06 the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by the appropriate parties this office has not verified any of the materials submitted in the support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution defined below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is being used principally as a device for the distribution of earnings_and_profits of the distributing or controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a or greater interest in the distributing or controlled_corporation see sec_355 and sec_1_355-7 summary of facts proposed transaction publicly traded distributing is the common parent of an affiliated_group_of_corporations that file a consolidated_return distributing wholly owns fsub a sub b sub c sub d fsub e and fsub f distributing directly engages in business a and business b and members of its affiliated_group conduct business c financial information has been submitted which indicates that distributing’s business a and business b each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years to achieve what are represented to be valid corporate business purposes distributing has proposed the following steps collectively the proposed transaction ii controlled will form fsub g which in turn will form fsub h it is expected that fsub h will elect to be disregarded as an entity separate from its owner for federal_income_tax purposes controlled will also form fsub i the formations of fsub g fsub h and fsub i will be referred to together as the formations exchange for d v fsub j will acquire c less than of the stock of controlled in i distributing will form controlled iv fsub e will form fsub j and contribute b to fsub j iii distributing will contribute a to fsub e plr-154409-06 vi distributing will transfer its fsub a sub b and sub c stock assets utilized in business b e and f to controlled in exchange for controlled stock and the assumption by controlled of certain liabilities associated with the transferred assets collectively the contribution vii distributing will distribute all of the controlled stock received in step vi above pro_rata to the distributing shareholders the distribution distributing will not distribute fractional shares of controlled stock in the distribution rather a distribution agent will aggregate fractional shares of controlled stock sell them on the open market and distribute the net_proceeds of the sale to beneficial owners of distributing stock who otherwise would have received the controlled fractional shares in connection with the proposed transaction distributing and controlled will enter into various ancillary agreements collectively the ancillary agreements including a transition services agreement representations the following representations have been submitted regarding the contribution and the distribution a except for obligations that may arise under the ancillary agreements no intercorporate debt will exist between distributing and controlled at the time of or after the distribution any indebtedness owed by controlled to distributing will not constitute stock_or_securities b no part of the controlled stock to be distributed by distributing will be received by a distributing shareholder as a creditor employee or in any capacity other than that of a shareholder c the c of controlled stock held by fsub j after the distribution is motivated by the following business purposes i to provide the distributing group and fsub j in particular with a more efficient means of raising capital ii to send a positive signal to the market by showing distributing’s continuing confidence in controlled’s businesses after the distribution iii to ensure a smooth transition by demonstrating to controlled’s employees customers and investors that the division of the business is amicable and that a spirit of cooperation will exist between distributing controlled and their employees and iv to maintain business a’s g presence through its relationship with controlled d except for a a member of distributing’s board who will also serve on controlled’s board for a transition_period there will be no common officers or directors between distributing and controlled after the distribution a will not hold any other f fsub j will vote the c of controlled stock in proportion to the votes cast by e the c of controlled stock held by fsub j will be disposed of as soon as a plr-154409-06 position in controlled as an officer or otherwise and he will not be involved in the day- to-day operations of controlled disposition is warranted but in any event not later than five years after the distribution controlled’s other shareholders g the five years of financial information submitted on behalf of distributing’s business a and business b is representative of each business’s present operations and there have been no substantial operational changes with regard to either business since the date of the last financial statements submitted h following the proposed transaction distributing and controlled will each continue the active_conduct of its respective business independently and with its own separate employees except for services to be provided by distributing to controlled or vice versa for a transitional period following the distribution pursuant to the transition services agreement i the distribution is being carried out for the following corporate business purposes the distribution will position each of distributing and controlled to separately pursue the business and financial strategies that best suit its long-term interests allowing each corporation to develop capital structures financing strategies and equity- based compensation plans designed to best meet the underlying fundamentals of its business and the industries in which it operates the distribution is motivated in whole or substantial part by one or more of these corporate business purposes earnings_and_profits of distributing controlled or both k the total fair_market_value of the assets that distributing will transfer to controlled in the contribution will exceed the sum of a the amount of liabilities if any assumed within the meaning of sec_357 by controlled in connection with the exchange b the amount of liabilities if any owed to controlled by distributing that are discharged or extinguished in connection with the exchange and c the amount of cash if any and the fair_market_value of other_property if any other than stock_or_securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange j the distribution is not used principally as a device for the distribution of plr-154409-06 l the total fair_market_value of the assets transferred to controlled by distributing in the contribution will equal or exceed the aggregate adjusted_basis of the transferred assets m the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing in the contribution each equals or exceeds the sum of the liabilities assumed within the meaning of sec_357 by controlled plus any liabilities to which the transferred assets are subject n the liabilities assumed within the meaning of sec_357 by controlled in the contribution and the liabilities to which the transferred assets are subject were incurred in the ordinary course of businesses and are associated with the assets being transferred o immediately after the distribution as defined in sec_355 either no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation immediately before the proposed transaction or distributing and controlled will not be a disqualified_investment_corporation within the meaning of sec_355 p the income_tax_liability for the taxable_year in which investment_credit_property including any building to which sec_47 applies is transferred will be adjusted pursuant to sec_50 or a or sec_47 as in effect before amendment by public law title 104_stat_1388 if applicable to reflect an early disposition of the property q immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d any excess_loss_account distributing may have in the controlled stock or a member may have in the stock of another member that is required to be taken into account by sec_1_1502-19 will be included in income immediately before the distribution to the extent required by regulations see sec_1 r payments made in connection with all continuing transactions if any between distributing and its affiliates and controlled and its affiliates will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length s no two parties to the transaction are investment companies as defined in plr-154409-06 sec_368 and iv t for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of distributing stock entitled to vote or or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution u for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five year-period determined after applying sec_355 ending on the date of the distribution v the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock possessing a or greater interest within the meaning of sec_355 in distributing and controlled including any predecessor or successor of any such corporation taking into account the special rules of sec_355 w the payment of cash in lieu of fractional shares of controlled stock will be solely for the purpose of avoiding the expense and inconvenience of issuing and maintaining for consideration the total cash that will be paid in connection with the distribution in lieu of fractional shares of controlled stock will not exceed of the total consideration that will be distributed in the distribution it is intended that no distributing shareholder will receive cash in lieu of fractional shares in an amount equal to or greater than the value of one full share of controlled stock above we rule as follows regarding the contribution and the distribution based solely on the information submitted and the representations set forth fractional shares and will not represent separately bargained rulings the contribution together with the distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 plr-154409-06 no gain_or_loss will be recognized by distributing in the contribution sec_361 sec_357 and sec_357 no gain_or_loss will be recognized by controlled in the contribution sec_1032 controlled’s basis in each asset received from distributing in the contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 the holding_period of each asset received by controlled in the contribution will include the period during which such asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing in the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing stockholders on their receipt of the controlled stock in the distribution sec_355 each distributing shareholder's basis in a share of distributing stock as adjusted under sec_1_358-1 shall be allocated between the share of distributing stock with respect to which the distribution is made and the share of controlled stock received with respect to the share of distributing stock in proportion to their fair market values if a distributing shareholder that purchased or acquired shares of distributing stock on different dates or at different prices is not able to identify which particular share of controlled stock or portion thereof is received with respect to a particular share of distributing stock or portion thereof the shareholder may designate which share of controlled stock is received with respect to a particular share of distributing stock provided the terms of the designation are consistent with the terms of the distribution each distributing shareholder's holding_period in the controlled stock received in the distribution will include the holding_period of the distributing stock with respect to which the distribution is made provided that the shareholder held such distributing stock as a capital_asset on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 a distributing shareholder who receives cash in lieu of a fractional share of controlled stock will recognize gain_or_loss measured by the difference between the amount of cash received and the adjusted_basis of the fractional share as determined under ruling above sec_1001 if the fractional share interest is a capital_asset in the hands of the distributing shareholder then gain_or_loss will be capital_gain or loss subject_to the conditions and limitations of subchapter_p chapter of the code sec_1221 and sec_1222 the holding by fsub j of c of controlled’s stock as described herein will not adversely affect the distribution's qualification under sec_355 plr-154409-06 following the distribution controlled will not be considered a successor to distributing for purposes of sec_1504 therefore controlled and its subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be members of an affiliated_group_of_corporations entitled to file a consolidated federal_income_tax return with controlled as the common parent for the first tax_year following the distribution and all tax years thereafter caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular we express no opinion regarding i whether the distribution will satisfy the business_purpose requirement of sec_1_355-2 ii whether the distribution is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled see sec_355 and sec_1_355-2 iii whether the distribution is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a or greater interest in distributing or controlled see sec_355 and sec_1_355-7 iv the federal_income_tax consequences or effects of the formations described in step ii v the federal_income_tax consequences or effects of the contribution to fsub e described in step iii the formation and contribution to fsub j described in step iv and except as described in ruling above fsub j’s acquisition of the controlled stock described in step v including fsub j’s basis and holding_period in such stock vi the aspects of the proposed transaction under sec_367 or sec_1248 and vi the federal_income_tax consequences and effects of any transactions consummated under the ancillary agreements procedural statements this ruling letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent plr-154409-06 a copy of this letter must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely ___________________________________ richard k passales senior counsel branch office of associate chief_counsel corporate cc director


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-132348-09 date date legend x --------------------------------------------------------------------------------------------- ------------------------ state -------- shareholder --------------------------------------------------------------------------------------------- -------------------------- d1 ----------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s sole shareholder shareholder intended for x to be an s_corporation effective d1 however a form_2553 election by a small_business_corporation was not filed timely x requests a ruling that it will be recognized as an s_corporation effective d1 law and analysis plr-132348-09 sec_1362 provides that a small_business_corporation may elect 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 small_business_corporation makes an election under sec_1362 for any taxable_year and 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 is treated as made for the following taxable_year sec_1362 provides that if 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 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 on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make an s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 within days following the date of this letter containing an effective date of d1 the election shall be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose 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 specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes 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 your authorized representative plr-132348-09 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 support of the ruling_request it is subject_to verification on examination sincerely s tara p volungis senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index no washington dc contact person telephone numbery ep-ra t1 in reference to date may - big_number dear this is in response to a letter dated date as supplemented by correspondence dated date in which you requested rulings under sec_414 of the intemal revenue code code you submitted the following facts and representations in connection with your request plan a is a defined_contribution_plan offered only to certain elected officials employees of state m and exempt staff the exempt staff includes category b employees plan a is a governmental_plan described in code sec_414 state m has submitted an application_for determination that plan a is qualified under sec_401 and its trust exempt under sec_501 plan a is funded by both employer and employee contributions ail eligible employees are required to make mandatory employee contributions in an amount equal to a specified percentage of gross salary for each participant state m is required to make a like contribution state m passed statute p effective date requiring that all employee contributions to plan a be picked up and paid_by the employer in lieu of contributions by the employees statute p provides that employees do not have the option of choosing to receive the pick up amounts directly instead of the employer paying these amounts to plan a statute p also provides that the contributions picked up by the employer may be gad made by a reduction in the employee’s salary or an offset against future salary increases or a combination of both the specified effective date of the pick up shall not be before the date plan a receives notification from the internal_revenue_service the service that the pick up contributions are not includible in the gross_income of employees for the taxable_year contributed based on the above facts and representations you request the following rulings that amounts picked up by state m in accordance with statute p on behalf of its employees participating in the plan are not considered includible in such employees’ gross_income for income_tax purposes until the contributions are distributed that the amounts picked up by state m pursuant to statute p although designated as employee contributions are considered employer contributions for purposes of federal_income_tax and that the employee contributions picked up by state m pursuant to statute p are not treated as wages under code sec_3401 for purposes of income_tax_withholding code sec_414 provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded contributions which are picked up by the employer within the meaning of code sec_414 is specified in revrul_77_462 1977_2_cb_358 in that revenue_ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district’s picked up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue tuling held further that under the provisions of sec_3401 the school district’s contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees’ salaries with respect to the picked up contributions the issue of whether contributions have been picked up by an employer within the meaning of code sec_414 is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 these revenue rulings established that the following two criteria must be me the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan furthermore it is immaterial for purposes of the applicability of sec_414 whether an employer picks up 2g contributions through a reduction in salary an offset against future salary increases or a combination of both in revrul_87_10 1987_1_cb_136 the service considered whether contributions designated as employee contributions to a governmental_plan are excludable from the gross_income of the employee satisfy the criteria set forth in revrul_81_35 and with respect to particular contributions the required specification of designated employee contributions must be completed before the period to which such contributions relate the service concluded that to in this case state m adopted statute p which specifically provides that the contributions shall be picked up and paid_by the employer in lieu of contributions by the participant statute p further provides that employees do not have the option to choose to receive the amounts directly rather than have them paid_by the employer to plan a accordingly we conclude with respect to ruling_request that amounts picked by state m in accordance with statute p on behalf of participants will not be considered includible in the participants’ gross_income until the contributions are distributed regarding ruling_request we conclude that the amounts picked up by the employer although designated as employee contributions are treated as employer contributions for federal_income_tax purposes under code sec_414 finally we conclude with regard to ruling that the employee contributions to plan a picked up by state m will be excepted from wages under code sec_3401 for purposes of income_tax _ withholding this ruling does not apply to any contribution to the extent it relates to compensation eamed before the last governmental action necessary to implement the pick up further ruling does not apply to category b employees in order for ruling to apply to those employees of a particular employer such as an agency_or_instrumentality of state m of category b employees the employer may request a ruling on this issue no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement under code sec_3121 these rulings are based on the assumption that plan a will be qualified under sec_401 at all times relevant to the proposed transaction this ruling is directed only tot he taxpayer who requested it code sec_61 k provides that it may not be used or cited as precedent sincerely yours john swieca manager employee_plans technical group tax_exempt_and_government_entities_division cc


t c summary opinion united_states tax_court raymond ochoa petitioner v commissioner of internal revenue respondent docket no 21609-15s filed date raymond ochoa pro_se kris h an for respondent summary opinion carluzzo 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 1unless otherwise indicated section references are to the internal revenue continued 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 notice respondent determined a dollar_figure deficiency in petitioner’ sec_2013 federal_income_tax after a concession the issues for decision are whether petitioner is entitled to a dependency_exemption deduction for h o head_of_household filing_status an earned_income_credit a child_tax_credit and an additional_child_tax_credit and education credits background some of the facts have been stipulated and are so found at the time the petition was filed petitioner resided in california petitioner and gloria mada are the uncle and grandmother respectively of h o born in petitioner ms mada and h o resided in an apartment in pasadena california apartment during h o ’s mother darlene ochoa continued code of as amended in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure 2respondent now concedes that petitioner paid dollar_figure of qualified_education_expenses in and is entitled to the corresponding education credit 3it is the policy of this court not to identify minors we refer to minor children by their initials see rule a resided in washington d c during most of h o attended public school in the pasadena unified school district school district ms mada paid approximately dollar_figure to dollar_figure monthly to rent the apartment she also paid the monthly utility bills petitioner reimbursed ms mada for dollar_figure of the rent and for the entire cost of the utilities each month additionally petitioner paid much if not all of the other living_expenses for himself ms mada and h o ms ochoa occasionally sent money to ms mada and or petitioner to help defray h o ’s living_expenses ms mada’s only source_of_income during was the dollar_figure of social_security income she received each month during petitioner was employed as an electrician and attended classes at intercoast college intercoast four nights per week intercoast issued a form 1098-t tuition statement for which reflected petitioner’s student status as at least half time and the total_payment of dollar_figure received for qualified_tuition_and_related_expenses petitioner’s timely filed federal_income_tax return reported wages of dollar_figure from his employment as an electrician and unemployment income of dollar_figure no other income or source_of_income is reported on that return petitioner who was not married as of the close of filed as a head_of_household claimed a dependency_exemption deduction for h o and claimed an earned_income_credit and a child_tax_credit and an additional_child_tax_credit computed as though h o was his qualifying_child for purposes of those credits also included with petitioner’ sec_2013 return is a form_8863 education credits american opportunity and lifetime learning credits on the form_8863 petitioner claimed an american_opportunity_tax_credit aotc of dollar_figure of which he treated dollar_figure as refundable and dollar_figure as nonrefundable according to that form the credit is attributable to petitioner’s education expenses at intercoast in the notice respondent changed petitioner’s filing_status from head_of_household to single and adjusted the standard_deduction accordingly disallowed the dependency_exemption deduction petitioner claimed for h o and disallowed all of the above-referenced credits discussion as we have observed in countless opinions deductions and credits are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any claimed deduction or credit rule a indopco inc v 4petitioner now acknowledges that h o is his niece and not his daughter as originally described on his return 5petitioner does not claim and the record does not otherwise demonstrate continued commissioner 503_us_79 292_us_435 this includes the burden of substantiation 65_tc_87 aff’d per curiam 540_f2d_821 5th cir i qualifying_child under sec_152 under the circumstances presented petitioner’s entitlement to the dependency_exemption deduction and certain credits here in dispute depends upon who as among petitioner ms mada or ms ochoa may treat h o as a qualifying_child as that term is defined in sec_152 pursuant to that section an individual may be treated as the qualifying_child of a taxpayer if the individual is a child of the taxpayer or a descendant of such a child or a brother sister stepbrother or stepsister of the taxpayer or a descendant of such a relative has the same principal_place_of_abode as the taxpayer for more than one-half of such taxable_year meets certain age requirements and has not provided over one-half of such individual’s own support for the calendar_year in which the taxable_year of the taxpayer begins continued that the provisions of sec_7491 are applicable here and we proceed as though they are not respondent takes the position that h o cannot be treated as petitioner’s qualifying_child because petitioner has failed to show that he provided more than one-half of h o ’s support respondent’s focus on the source of h o ’s support however misses the mark for purposes of determining a taxpayer’s qualifying_child it matters not how much support a child receives from others so long as the child did not provide more than one-half of his or her own support see sec_152 we are satisfied that h o did not contribute more than one-half of her own support during so the support_test does not as respondent suggests preclude her treatment as petitioner’s qualifying_child during furthermore according to respondent h o may not be treated as petitioner’s qualifying_child because h o did not reside with petitioner during relying entirely upon the reference to h o ’s mother on the records of the school district respondent would have us find that h o and ms ochoa resided in the same household during and that the household did not include petitioner for most of the year however petitioner and ms mada credibly testified that they along with h o shared the same residence during and that ms ochoa did not live with them for most of the year we find their testimonies more persuasive than the inference respondent draws from the records of the school district furthermore it should be pointed out that even if ms ochoa and h o did share the same principal_residence for more than one-half of that fact would not necessarily preclude a finding that h o was petitioner’s qualifying_child because of the tiebreaker rule_of sec_152 which is more fully discussed below as it turns out that tiebreaker rule is applicable here the evidence shows that for h o fit within the definition of a qualifying_child within the meaning of sec_152 with respect to petitioner as well as ms mada that being so a tiebreaker rule establishes which of them may treat h o as a qualifying_child for under that rule h o is treated as the qualifying_child of the taxpayer with the higher adjusted_gross_income for the tax_year in question see sec_152 petitioner’s adjusted_gross_income for as shown on his return was dollar_figure ms mada’s sole source_of_income was the dollar_figure of social_security income she received each month it is clear that petitioner had the higher adjusted_gross_income and therefore h o is his qualifying_child for therefore petitioner could claim h o as a qualifying_child for purposes of the dependency_exemption deduction the earned_income_tax_credit the child_tax_credit and the additional_child_tax_credit see sec_152 sec_24 sec_32 accordingly petitioner is entitled to that deduction and those credits as claimed on his return see sec_24 sec_32 sec_151 ii filing_status sec_2 provides that a head_of_household includes an unmarried individual if the individual maintains a home which is the principal_place_of_abode for at least one-half of the year for either a qualifying_child as defined under sec_152 or any other person who is the individual’s dependent under sec_151 petitioner has established that h o was his qualifying_child for an individual will be considered to maintain a household only if the individual pays more than one-half of the expenses associated with the household sec_1_2-2 income_tax regs the expenses of maintaining a household include property taxes mortgage interest rent utility charges upkeep and repairs property insurance and food consumed on the premises id such expenses do not include the cost of clothing education medical treatment vacations life_insurance and transportation id as discussed supra p petitioner established that he paid most of the rent and utilities for the apartment that was the principal abode for himself ms mada and h o during ms ochoa also contributed to the maintenance of the household during but the evidence is insufficient to support a finding that whatever support she provided when added to the support provided by ms mada exceeded the support provided by petitioner consequently petitioner qualifies as a head_of_household for iii aotc on form_8863 attached to hi sec_2013 return petitioner claimed an aotc of dollar_figure according to that form the credit is attributable to petitioner’s education expenses respondent now concedes that petitioner is entitled to the education credit of dollar_figure and the refundable aotc of dollar_figure on the basis of the form 1098-t which reflected petitioner’s student status as at least half time and the total_payment of dollar_figure received for qualified_tuition_and_related_expenses according to petitioner the discrepancy between the amount he claimed to have paid for qualified_tuition_and_related_expenses and the amount reported on the form t relates to the cost of tools that he used in the weekly workshop that was part of his course at intercoast the aotc is a modified version of the hope scholarship credit see sec_25a it provides for a credit for qualified_tuition_and_related_expenses paid_by a taxpayer for education furnished to an eligible_student the credit is equal to a percent of so much of the qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year as does not exceed dollar_figure plus b percent of such expenses so paid as exceeds dollar_figure but does not exceed dollar_figure sec_25a the statute defines qualified_tuition_and_related_expenses to include tuition and fees at an eligible_educational_institution that the taxpayer the taxpayer’s spouse or the taxpayer’s dependent attends as well as course materials sec_25a i as relevant qualified_tuition_and_related_expenses also include fees for equipment used in a course of study only if the fees must be paid to the eligible education institution for the enrollment or attendance of the student at the institution sec_1_25a-2 income_tax regs although we find petitioner’s testimony credible and have no doubt that he expended amounts for tools and or equipment used in his weekly workshop at intercoast the expenses do not constitute fees paid to intercoast and therefore are not included in the definition of qualified_tuition_and_related_expenses see id accordingly petitioner is not entitled to an aotc for in an amount greater than the amount respondent now concedes to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number -------------------------- ------------------------ ------------------------ in re -------------------------------- -------------------------------- -------------------------- department of the treasury washington dc person to contact ------------------- id no ------------- telephone number -------------------- refer reply to cc psi - plr-151899-03 date date ---------------- -------------------- --------------------- ---------------------- -------------------------------- x ----------------------------------------- a ------------------------------------------- b ------------------------------------------- d1 state dear ------------------ ruling under sec_1362 of the internal_revenue_code facts for x to be an s_corporation as of d1 however x’s form_2553 election be a small_business_corporation was not filed timely x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 law and analysis s_corporation sec_1362 provides that such election shall be effective for the current taxable_year if it is made during the preceding_taxable_year or before the 15th day of the third month of the current taxable_year sec_1362 provides that an sec_1362 provides that a small_business_corporation may elect to be an x was incorporated under state law on d1 x’s shareholders a and b intended this letter responds to a letter dated date on behalf of x requesting a based on the facts submitted and representations made we conclude that x has plr-151899-03 election made after the 15th day of the third month of the current taxable_year shall be treated as having been made for the following taxable_year sec_1362 provides that if an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by this subsection for making such election for such taxable_year or no such election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply conclusion established reasonable_cause for failing to make an s election in a timely manner thus based on the facts submitted and representations made we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 within days of this letter containing as an effective date d1 then such election shall be treated as timely made for x’s taxable_year beginning d1 a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal_income_tax purposes letter is being sent to the taxpayer the code provides that it may not be used or cited as precedent except as expressly provided herein we express or imply no opinion concerning this ruling is directed only to the taxpayer requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this sincerely jeanne m sullivan senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes -------------------------------------------------------------- plr-151899-03 cc ---------------------------------------------- ---------------------------------- ------------------------------------------- ------------------------------------------- ------------------------ --------------------------------------- ------------------------------------------ -------------------------------------------- ----------------------------------------- -----------------------------------


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uics sep - set eriat legend taxpayer a taxpayer b taxpayer c taxpayer d ira x company m trust t date date date date state w percentage percentage dear a percentage this is in response to the request for letter rulings under sec_401 of the internal_revenue_code ‘code as amended by correspondence received by the internal_revenue_service on and following facts and representations support your ruling_request the taxpayer a whose date of birth was date died on date a resident of state w without having attained age taxpayer a was survived by his spouse taxpayer b and his two daughters taxpayers c and d taxpayer c is older than taxpayer d taxpayer b is older than taxpayer c at the time of his death taxpayer a was the owner of ira x an individual taxpayer a named trust t as the beneficiary of his ira x your authorized retirement account which it is represented complies within the requirements of code sec_408 maintained with company m_ representative has asserted on your behalf that trust t is valid under the laws of state w your authorized representative has also asserted on your behalf that a copy of trust t was presented to company m within nine months of date taxpayer a’s death by means of a beneficiary designation dated date the date of trust t was established by taxpayer a on date and has been subsequently amended article seventh c of trust t provides that trust t became irrevocable at the death of taxpayer a article eleventh b of trust t provides that taxpayer b became the sole trustee of trust t upon the death of taxpayer a article sixth b of trust t provides in relevant part that upon the death of taxpayer a percentage of the trust t estate shall be distributed to taxpayer b percentage of the trust t estate shall be distributed to taxpayer c and percentage of the trust t estate shall be distributed to taxpayer d your authorized representative has asserted on your behalf that consistent with article sixth d of trust t no portion of ira x has been or will be used to pay taxpayer a’s debts debts associated with his estate debts associated with his funeral estate_taxes etc - taxpayers b c and d have requested that company m divide ira x by means of trustee-to-trustee transfers into three iras each of the three transferee iras will be maintained in the name of taxpayer a deceased one of the three transferee iras will hold percentage of ira x and will be set up and maintained to benefit taxpayer d as a beneficiary of trust t code sec_401 required distributions from the transferee ira set up to benefit taxpayer d will be based on the life expectancy of taxpayer c after the three transferee iras are set up the transferee ira set up to benefit taxpayer b will be converted by means of a distribution and subsequent rollover into an ira set up and maintained in the name of taxpayer b said distribution and rollover will be accomplished no later than september based upon the above facts and representations you through your authorized representative request the following letter rulings that trust t constitutes a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final regulations question and answer-5 that company m’s dividing ira x by means of trustee to trustee transfers into three transferee iras in the name of taxpayer a deceased including one set up to benefit taxpayer d as a beneficiary of trust t will not result in the transferee ira set up to benefit taxpayer d failing to comply with the requirements of code sec_408 including the requirements of code sec_408 that for purposes of determining the amount s of code sec_401 required distributions from the transferee ira set up and maintained in the name of taxpayer a deceased for the benefit of trust t beneficiary thereof to benefit taxpayer d the beneficiary of percentage of ira x the life expectancy of taxpayer b may be disregarded and that taxpayer d may receive code sec_401 required distributions from the transferee ira set up to benefit her over the life expectancy of taxpayer c with respect to your ruling requests code sec_408 provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit an ira trust is maintained code sec_401 provides in relevant part that distributions from an ira are required to begin to the ira holder no later than april of the calendar_year following the calendar_year during which the ira holder attains age ‘ code sec_401 provides in summary that a_trust shall not constitute a qualified_trust under this section unless the plan provides that if an employee dies before the distribution of the employee’s interest has begun in accordance with subparagraph a ii the entire_interest of the employee will be distributed within years after the death of the employee code sec_401 provides in general that if any portion of the interest of a deceased plan participant is payable to or for the benefit of a designated_beneficiary such portion will be distributed beginning not later than year after the date of the deceased’s death or a later date as prescribed by the secretary under regulations in accordance with regulations over the life of the designated_beneficiary or a period not extending beyond the life expectancy of the beneficiary sec_401 of the code provides in summary that the term designated_beneficiary means any individual designated as a beneficiary by the employee with respect to your ruling requests final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite lr b date the preamble to the final regulations in relevant part provide that the regulations apply for determining required minimum distributions for calendar years beginning after date sec_1_401_a_9_-3 of the final regulations q a-1 describes in relevant part the life expectancy exception to the 5-year rule sec_1_401_a_9_-3 of the final regulations q a-3 a provides in general that with respect to the life expectancy exception to the 5-year rule described in code sec_401 and in a-1 distributions are required to begin to a non-spouse beneficiary on or before the end of the calendar_year immediately following the calendar_year in which the employee died q a-3 a adds that this rule also applies to the distribution of the entire remaining benefit if another individual is a designated_beneficiary in addition to the employee’s surviving_spouse sec_1_401_a_9_-5 of the final regulations q a-5 b provides in general that if an employee dies before his required_beginning_date in order to satisfy the requirements of code sec_401gii or iv and the life_expectancy_rule described in a-1 of sec_1_401_a_9_-3 the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee’s date of death is determined in accordance with paragraph c of this a-5 sec_1_401_a_9_-5 of the final regulations q a-5 c provides in general that with respect to a non-spouse beneficiary the applicable distribution period measured by the beneficiary’s remaining life expectancy is determined using the beneficiary’s age as of the beneficiary’s birthday in the calendar_year immediately in subsequent calendar years the following the calendar_year of the employee’s death applicable distribution period is reduced by one for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee’s death sec_1_401_a_9_-4 of the final regulations q a-4 a provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee’s or ira holder’s death generally an employee’s designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death sec_1_401_a_9_-4 of the final regulations q a-4 a further provides in relevant part that any person who was a beneficiary as of the date of the employee’s death but who is not a beneficiary as the following september eg because the person receives the entire benefit to which he is entitled before that september is not taken into account in determining the employee’s designated_beneficiary for purposes of determining the distribution period after the employee’s death the rule in q a-4 a applies to amounts distributed from a qualified_plan which pass through a valid see-through trust sec_1_401_a_9_-4 of the final regulations q a-4 c provides in relevant part that for purposes of this a-4 an individual who is a beneficiary as of the date of the employee’s death and dies prior to september of the calendar_year following the calendar_year of death without disclaiming continues to be treated as a beneficiary for purposes of determining minimum required distributions after the employee’s death without regard to the identity of the employee’s successor beneficiary this rule is summarized in the preamble to the final regulations sec_1_401_a_9_-5 of the final regulations q a-7 a provides that except as otherwise provided in paragraph c of this a-7 not pertinent to this ruling_request if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the applicable distribution period sec_1_401_a_9_-4 of the final regulations q a-3 provides that only the trust is valid under state law or would be but for the fact that there is no individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements are met corpus the trust is irrevocable or the trust contains language to the effect it becomes irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of a-1 of this section from the trust instrument the documentation described in a-6 of this section has been provided to the plan_administrator sec_1_401_a_9_-4 of the final regulations q a-6 b provides generally with respect to required minimum distributions after the death of the employee that documentation described therein must be provided by the trustee of the trust_beneficiary to the plan_administrator by october of the calendar_year following the calendar_year in which the employee died sec_1_401_a_9_-8 of the final regulations q a-2 a provides the separate_account rules with respect to defined contribution plans a separate_account is an account under which the beneficiary or beneficiaries differ from the beneficiary or beneficiaries of the other accounts in general if separate_accounts are set up for years subsequent to the calendar_year containing the date on which the separate_accounts were established or the date of death if later a separate_account under a plan is not aggregated with the other separate_accounts under the plan in order to determine whether the distributions from such separate_account satisfy the requirements of code sec_401 instead the rules in code sec_401 apply separately to each separate_account under the plan sec_1_401_a_9_-8 of the final regulations q a-3 provides that a separate_account is a separate portion of an employee’s benefit which reflects the separate interest of an employee’s beneficiary under the plan as of the employee’s death for which separate_accounting is maintained the separate_accounting must allocate all post-death investment gains and losses contributions and forfeitures for the period prior to the establishment of the separate_accounts on a pro-rata basis in a consistent and reasonable manner among the separate_accounts sec_1_401_a_9_-9 of the final regulations provides the life expectancy and sec_1_401_a_9_-4 of the final regulations q a-5 c provides in relevant part that the separate_account rules under a-2 of sec_1_401_a_9_-8 are not available to beneficiaries of a_trust with respect to the trust’s interest in the employee’s benefit distribution period tables used to determine minimum required distributions the uniform lifetime table is the table to be used to determine the life expectancy of an individual code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 provides that sec_408 does not apply toa rollover_contribution if such contribution satisfies the requirements of sec_408 and d b code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution code sec_408 provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution code sec_408 provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual thus pursuant to code sec_408 c i a surviving_spouse who acquires ira proceeds from and by reason of the death of her husband may elect to treat those ira proceeds as her own and roll them over into her own ira revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in code sec_408 furthermore such a transfer does not constitute a rollover_distribution additionally a trustee to trustee transfer as described in revrul_78_406 does not constitute a distribution or payment as those terms are defined for purposes of code sec_408 finally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary with respect to your first ruling_request trust t is the named beneficiary of taxpayer a’s interest in ira x your authorized representative has asserted on your behalf that trust t is a valid trust under the laws of state w that trust t became irrevocable upon the death of taxpayer a as provided for under article seventh c of trust t and that documentation relating to trust t’s status as the beneficiary of taxpayer a’s interest in ira x was given to the administrator of ira x by the date required under the final regulations furthermore the service notes that the identity of each person or entity entitled to receive any portion of taxpayer a’s interest in ira x upon taxpayer a’s death is determinable by perusing the provisions of trust t ‘thus with respect to your first ruling_request we determine as follows that trust t constitutes a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final regulations question and answer-5 with respect to your remaining ruling requests pursuant to the paragraphs of code sec_408 referenced above taxpayer d who is not the surviving_spouse of taxpayer a may not receive a distribution of her percentage interest in ira x and roll over said distribution into another ira however as noted above a trustee to trustee transfer described in revrul_78_406 does not constitute a distribution and transfer furthermore such a transfer may be accomplished after the death of the ira holder on behalf of the beneficiaries of a decedent’s ira as noted above in general if more than one beneficiary exists with respect to an ira code sec_401 minimum required distributions must be based on the life expectancy of the eldest beneficiary in this case taxpayer b b c and d is the eldest of taxpayers however as noted above sec_1_401_a_9_-4 of the final regulations q a- a provides in relevant part that any person who was a beneficiary as of the date of the employee’s death but who is not a beneficiary as the following september eg because the person receives the entire benefit to which he is entitled before that september is not taken into account in determining the employee’s designated_beneficiary for purposes of determining the distribution period after the employee’s death in this case taxpayer b will have received a distribution of her percentage interest in ira x and rolled over said interest into an ira set up and maintained in her name no later than september entitled to receive nothing additional from ira x thus pursuant to the rule in sec_1_401_a_9_-4 of the final regulations q a-4 a taxpayer b may be disregarded for purposes of determining required distributions from the transferee ira set up to benefit taxpayer d therefore it is necessary to consider only the life expectancies of taxpayers c and d for code sec_401 purposes taxpayer c is older than taxpayer d as a result by that date taxpayer b will be therefore with respect to your second third and fourth requests we conclude as follows that company m’s dividing ira x by means of trustee to trustee transfers into three transferee iras in the name of taxpayer a deceased including one set up to benefit taxpayer d as a beneficiary of trust t will not result in the transferee ira set up to benefit taxpayer d failing to comply with the requirements of code sec_408 including the requirements of code sec_408 that for purposes of determining the amount s of code sec_401 required distributions from the transferee ira set up and maintained in the name of taxpayer a deceased for the benefit of trust t beneficiary thereof to benefit taxpayer d the beneficiary of percentage of ira x the life expectancy of taxpayer b may be disregarded and that taxpayer d may receive code sec_401 required distributions from the transferee ira set up to benefit her over the life expectancy of taxpayer c this letter_ruling is based on the assumption that ira x and the transferee ira set up in the name of taxpayer a deceased to benefit taxpayer d either meet have met or will meet the requirements of code sec_408 at all times relevant thereto finally it assumes that trust t is valid under state law as asserted this letter_ruling is based on the facts and representations contained herein this letter is directed only to the taxpayer that requested it and is based solely on the representations made with respect thereto sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office the original of this letter_ruling is being sent to your authorized representative the service’s point_of_contact with respect to this letter_ruling is esq id who may be reached pincite- phone or fax sincerely yours q yio rances v sl manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose