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 b07 plr-113346-05 date date taxpayer partner legend -------------------------------------------------------------------------------------------------------------- --------- ----------------------- ------------------ ---------------------- ------------- field unit formation --------------------------------- --------------------------------------------- intervals location year date --------------------------------- ------------------------------------------- ------------------------------------------ ------------------ ------- --------------------- --------- --------- --------- a date date b year date date date ----- ------------------------ --------------------- ----- ------- ---------------------------- ---------------- --------------- ----------------------------------- ------------------------------------------- -------------------------------- plr-113346-05 injectant year c --------- d ------- ---- --- dear ------------ this letter responds to your letter dated date requesting a ruling under sec_43 of the internal_revenue_code the represented facts are as follows partner is the tax_matters_partner of taxpayer taxpayer is an accrual taxpayer utilizing a calendar taxable_year taxpayer is engaged in the recovery_of hydrocarbons from the field which is located within the unit in location the producing reservoir is called the formation which is petrophysically divided into several zones and subzones partner is the operator of the field the unit was formed in year production from the field began in date from the formation a field-wide waterflood was implemented shortly thereafter production increased to a plateau production rate of a thousand barrels of oil per day mbopd in date the plateau was maintained until date at which point production began to decline the field’s peak production rate was b mbopd in year a miscible water- alternating-gas mwag process was certified as an enhanced oil recovery eor project on date the mwag project was implemented in specific zones in date with a significant ramp-up of the project occurring in date taxpayer intends to implement a project involving the injection of injectant into the intervals of the formation in lieu of a conventional injectant except to a minor degree these intervals will not be affected by the mwag project taxpayer will self-produce the injectant the first injection of injectant will occur in year taxpayer represents that the injection of the injectant will affect the reservoir fluid by increasing the ph of the reservoir fluids and by reducing the interfacial tension between the oil reservoir rock and water the water wettability of the reservoir will also be increased as a result the injection of injectant can result in a reduction in residual oil saturation by c of total pore volume leading to an incremental recovery_of d mmbo of the original oil in place while the injection of injectant will also provide energy and drive mechanisms similar to conventional waterflooding the above-mentioned changes to the relative properties of the reservoir fluids do not occur with conventional waterflooding taxpayer represents plr-113346-05 that the injection of injectant achieves a result similar to surfactant or caustic flooding projects taxpayer has also provided a substantial amount of laboratory study and simulation data describing the benefits of the process in detail taxpayer requests a ruling that the process of injecting injectant as described is a qualified tertiary_recovery_method not described in sec_1_43-2 or in a revenue_ruling for purposes of the sec_43 enhanced_oil_recovery_credit sec_43 provides a credit in an amount equal to of certain costs paid_or_incurred by a taxpayer in connection with a qualified_enhanced_oil_recovery_project sec_43 defines the term qualified_enhanced_oil_recovery_project to mean any project that involves the application in accordance with sound engineering principles of one or more qualified tertiary recovery methods as defined in sec_193 that reasonably can be expected to result in a more than insignificant increase in the amount of crude_oil that ultimately will be recovered is located within the united_states within the meaning of sec_638 and with respect to which the first injection of liquids gases or other matter commences after date sec_1_43-2 of the regulations defines the term qualified tertiary_recovery_method to mean any one or combination of the tertiary recovery methods described in sec_1_43-2 or a method not described in sec_1_43-2 which has been determined by revenue_ruling to be a qualified tertiary_recovery_method a taxpayer may request a private_letter_ruling that a method not described in sec_1_43-2 or in a revenue_ruling is a qualified tertiary_recovery_method generally methods identified in revenue rulings or private letter rulings will be limited to those methods that involve the displacement of oil from the reservoir rock by modifying the properties of the fluids in the reservoir or providing the energy and drive mechanism to force the oil to a production well sec_1_43-2 states that waterflooding is not a qualified tertiary_recovery_method waterflooding is defined as the injection of water into an oil reservoir to displace oil from the reservoir rock and into the bore of the producing well taxpayer represents that the recovery method under consideration changes the properties of the fluids in the reservoir by increasing the ph of the reservoir fluids by reducing the interfacial tension between the oil reservoir rock and water and by increasing the water wettability of the reservoir the proposed recovery method also provides the energy and drive mechanism to force the oil to a production well sec_1_43-2 of the regulations states that a qualified method generally is limited to methods that involve the displacement of oil from the reservoir rock by modifying the properties of the fluids in the reservoir or that provide the energy and drive mechanism to force the oil to a production well this project does both plr-113346-05 the injection of the injectant resembles waterflooding an excluded method under sec_1_43-2 however the proposed method causes changes in the properties of the fluids in the reservoir which do not occur with conventional waterflooding further the proposed recovery method is not a conventional recovery method that was in use at the time sec_43 was enacted taxpayer has represented that the proposed project is within the united_states and first injection will occur after date as required under sec_43 also taxpayer has represented that the project involves the application in accordance with sound engineering principles of a recovery method which can reasonably be expected to result in a more than insignificant increase in the amount of oil that will ultimately be recovered based on these facts as well as review by service experts we conclude that the recovery method taxpayer will implement at field is a qualified tertiary_recovery_method not described in sec_1_43-2 or in a revenue_ruling and therefore the project using the method is a qualified tertiary recovery project provided it otherwise meets the requirements of sec_43 and the regulations thereunder except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion whether the project implemented by the taxpayer otherwise meets the requirements of a qualified_enhanced_oil_recovery_project under sec_43 and the regulations thereunder 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 a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s joseph h makurath senior technician reviewer branch passthroughs special industries cc


internal_revenue_service number release date index number ---------------------------------- ------------------------- --------------------------------------- --------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-145214-05 date november x state date ------------------------- legend ------------------------------------------------------------------------------ ------------------ dear ---------------- for a written_determination granting relief under sec_1362 of the internal_revenue_code ----------------------- --------- facts this letter is in response to your request on behalf of x dated date x was incorporated under the laws of state on date the shareholders of x intended that x elect to be treated as an s_corporation effective date however the election to be treated as an s_corporation effective date was not timely filed law and analysis sec_1362 of the code provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 of the code provides guidance on when the s election becomes effective if an s election is made within the first two and one-half months of a corporation s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if the corporation makes an election after the plr-145214-05 first two and one-half months of a corporation s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year sec_1362 of the code provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determined reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as being timely made for that taxable_year and effective as of the first day of that taxable_year x did not file a timely election to be treated as a s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election therefore x is entitled to relief under section b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective date an original form_2553 along with a copy of this letter must be forwarded to the relevant service_center within sixty days from the date of this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent this ruling to your representative pursuant to the power_of_attorney on file with this office we will send a copy of sincerely dianna k miosi dianna k miosi branch chief branch passthroughs special industries copy of this letter copy of this letter for sec_6110 purposes enclosures cc


t c memo united_states tax_court chad r baldwin petitioner v commissioner of internal revenue respondent docket no filed date chad r baldwin pro_se peter t mccary and a gary begun for respondent memorandum opinion nega judge this case is before the court on petitioner’s motion for litigation and administrative costs pursuant to sec_7430 and rule shellie h hart entered an appearance for petitioner on date and withdrew as petitioner’s counsel on date all section references are to the internal_revenue_code code in effect at continued respondent filed a response opposing petitioner’s motion and petitioner filed a reply to respondent’s response as discussed in detail below we conclude that respondent’s position in these proceedings was substantially justified and consequently we will deny petitioner’s motion background the following facts are based on the parties’ submissions and an evidentiary hearing on the matter some of the facts have been deemed stipulated pursuant to rule f by reason of petitioner’s failure to properly respond to an order to show cause petitioner resided in florida when his petition was filed in in addition to other employment petitioner worked as a salesperson for florida leisure products inc florida leisure florida leisure did not have a policy of reimbursing employees for business-related expenses on a timely submitted return for the tax_year petitioner deducted expenses for mileage for his personal vehicle travel_expenses business_expenses and meals and continued all relevant times and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated proposed stipulations of fact were accepted as established by the court’s order on date entertainment_expenses in early respondent conducted an examination of petitioner’s tax_return and requested additional information from petitioner to substantiate the claimed employee business_expenses as well as items underlying other miscellaneous deductions after petitioner failed to respond to that request respondent sent him an audit report proposing certain adjustments with respect to these expenses and asked petitioner to respond to the report again petitioner did not respond by letter dated date respondent determined a deficiency in petitioner’s income_tax_liability specifically respondent determinated that petitioner was not entitled to his claimed employee_business_expense deduction and other miscellaneous deductions because petitioner did not establish that he had paid_or_incurred the underlying expenses in the tax_year and that the expenses were ordinary and necessary on date petitioner timely filed a petition with the court for redetermination of the deficiency on date respondent timely filed an answer maintaining the arguments in the notice_of_deficiency petitioner later claimed deductions for home_office expenses and increased amounts of business_expenses and meals and entertainment_expenses in an effort to resolve petitioner’s case without litigation respondent assigned it to the office of appeals the office of appeals contacted petitioner by letter dated date and explained its case handling process by letter dated date petitioner acknowledged receiving the september letter and stated that he would send documents to substantiate expenses underlying his claimed deductions sometime in date soon after an appeals officer scheduled a telephone conference with petitioner for date on date the appeals officer received a package of documents from petitioner including bank statements and a handwritten mileage log the appeals officer and petitioner held their scheduled telephone conference during which the appeals officer discovered that petitioner had reached a settlement in a lawsuit against his former employer midwest direct of canton inc mdi during the tax_year under the terms of the settlement mdi would pay petitioner dollar_figure and forgo dollar_figure of restitution payments due from him on date the appeals officer sent petitioner a proposed decision for a deficiency for the tax_year and asked him to respond by date petitioner did not accept the proposed deficiency by letter dated date the office of appeals informed petitioner that his case was being forwarded to respondent’s counsel for trial preparation the court set the case for trial during the trial calendar beginning on date in tampa florida on date respondent filed a motion for leave to file amendment to answer motion for leave and pleaded an increased deficiency based on petitioner’s failure to include the mdi settlement proceeds on his federal_income_tax return the court ordered petitioner to respond to respondent’s motion for leave on or before date petitioner did not timely respond by order dated date the court continued the case and directed petitioner to provide respondent with copies of all documents that he intended to present at trial in support of his case on or before date the court warned petitioner that any documents submitted thereafter might not be admitted at trial on date petitioner provided a packet of documents to respondent soon thereafter petitioner enlisted the help of community legal services of mid- florida in a letter dated date an attorney from this organization provided respondent with six pages of documentation related to petitioner’s claimed home_office expense deduction the attorney also stated that she would no longer be working on petitioner’s case on date petitioner sent respondent a letter stating i still haven’t sent you all of my receipts for tax_year i have a large stacked envelope of toll receipts that i dread having to photo copy sic as it will take all day and cost dollar_figure in ink and paper on date the court granted respondent’s motion for leave and filed respondent’s amendment to answer petitioner subsequently filed motions contesting respondent’s amendment to answer the court denied these motions on date shellie h hart entered an appearance as counsel for petitioner in the months following mr hart’s entry of appearance respondent completed a full analysis of petitioner’s documents and determined that he had properly substantiated his claimed deductions for the tax_year mr hart also notified respondent that petitioner’s mdi settlement proceeds were not taxable because petitioner was insolvent when mdi forgave his restitution payments the remainder of petitioner’s settlement proceeds which consisted of a cash payment of dollar_figure was not paid to petitioner until after his attorney subtracted attorney’s fees on date the court entered a stipulated decision signed by the parties indicating there is no deficiency in income_tax due from nor overpayment due to petitioner for the taxable_year on date petitioner filed the motion pending before the court prompting the court to vacate and set_aside the stipulated decision see rule f stating that disposition of motion for reasonable administrative and litigation costs shall be included in the decision entered in the case sec_7430 petitioner asserts that he is entitled to an award of dollar_figure for attorney’s fees and dollar_figure for out-of-pocket expenses for a total of dollar_figure petitioner also asserts that his federal_income_tax has been overpaid by dollar_figure and he is entitled to a refund discussion the parties agreed in a previously entered decision that there is no deficiency due from nor overpayment due to petitioner for the tax_year that decision was vacated only to permit petitioner to make a claim for costs by order dated date the court stated that to the extent that petitioner’s motion for costs claims that his tax for the tax_year was overpaid the claim is not properly raised and will not be considered therefore the sole issue before the court is petitioner’s motion for litigation and administrative costs sec_7430 permits the award of reasonable administrative and litigation costs to a taxpayer in an administrative or court_proceeding brought against the united_states in connection with the determination of any_tax interest or penalty under the code an award of reasonable administrative or litigation costs may be made where the taxpayer is the prevailing_party and did not unreasonably protract the administrative or judicial proceedings see sec_7430 b litigation costs may be awarded only if the taxpayer exhausted available administrative remedies see sec_7430 to be a prevailing_party a taxpayer must substantially prevail with respect to either the amount in controversy or the most significant issue or set of issues presented and meet certain net_worth requirements see sec_7430 and ii respondent concedes that petitioner substantially prevailed and meets the net_worth requirements respondent argues however that petitioner is not the prevailing_party because respondent was substantially justified in maintaining his position in the administrative and judicial proceedings respondent also argues that petitioner did not exhaust his administrative remedies that petitioner unreasonably protracted the judicial proceedings and that the fees requested are unreasonable as a general_rule the taxpayer in an administrative or court_proceeding is not treated as the prevailing_party if the commissioner establishes that the position_of_the_united_states was substantially justified see sec_7430 the position_of_the_united_states is in turn defined in sec_7430 as the position taken by the government in an administrative_proceeding as of the earlier of the date of receipt by the taxpayer of the notice of decision of the office of appeals or the date of the notice_of_deficiency the record does not reflect that the office of appeals ever issued a notice of decision before the issuance of the notice_of_deficiency accordingly respondent’s position in the administrative_proceeding was established as of date--the date of the notice_of_deficiency see sec_7430 fla country clubs inc v commissioner 122_tc_73 aff’d 404_f3d_1291 11th cir respondent’s position in the judicial proceedings was established by his answer filed on date and his amendment to answer filed on date see sec_7430 grant v commissioner 103_f3d_948 11th cir aff’g tcmemo_1995_374 huffman v commissioner 978_f2d_1139 9th cir aff’g in part rev’g in part and remanding on other grounds tcmemo_1991_144 although the positions the commissioner takes in the administrative and judicial proceedings are normally considered separately the distinction is of little consequence when the commissioner takes the same position in both the notice_of_deficiency and in the answer see livingston v commissioner tcmemo_2000_387 the united states’ position is substantially justified if there is a reasonable basis for it both in law and in fact 487_us_552 whether the commissioner’s position was reasonable depends on all the facts known to him when he took positions in the administrative and judicial proceedings see 108_tc_430 85_tc_927 the fact that the commissioner eventually loses or concedes a case does not establish that his position was unreasonable see 92_tc_760 86_tc_962 a significant factor in determining whether the commissioner’s position is reasonable as of a given date is whether on or before that date the taxpayer has presented all relevant information under the taxpayer’s control and relevant legal arguments supporting the taxpayer’s position 123_tc_202 sec_301_7430-5 proced admin regs respondent asserted in the notice_of_deficiency his administrative position that petitioner was not entitled to certain miscellaneous deductions after limitations because at the time petitioner did not establish that he had paid_or_incurred the underlying expenses in the tax_year and that the expenses were ordinary and necessary more than two years after petitioner received the notice of deficiency petitioner sent a letter to respondent stating that he had not submitted all of the relevant receipts for the tax_year it was not until more than three years after the notice_of_deficiency was issued that petitioner submitted all of the relevant documentation to respondent to prove his claims petitioner argues that he was allowed the same deductions for previous years the commissioner is not required however for any given year to allow a tax_benefit that was permitted for a previous or subsequent year see eg 877_f2d_624 n 7th cir aff’g tcmemo_1987_ 113_tc_158 the commissioner is entitled to maintain his position until adequate substantiation is received and verified newman v commissioner tcmemo_2012_74 hall v commissioner tcmemo_2003_159 aff’d 118_fedappx_308 9th cir accordingly we find that respondent’s administrative position had a reasonable basis in fact and law and therefore was substantially justified respondent’s litigation position in his answer was the same position he took during the administrative_proceeding and there is no indication that any developments between the time he issued the notice_of_deficiency and the time he filed his answer would render his litigating position any less justified therefore respondent was substantially justified in the litigation position taken in his answer see cooley v commissioner tcmemo_2012_164 later respondent amended his answer to account for petitioner’s mdi settlement proceeds when respondent filed the amendment to answer he did not know that petitioner was insolvent at the time of the settlement it was not until several months after the court filed respondent’s amendment to answer that petitioner’s attorney mr hart introduced the issue of petitioner’s insolvency and the application of a relevant code section to make the debt forgiveness nontaxable on the basis of the facts available to respondent at the time the amendment to answer was filed as well as the longstanding legal precedent that forgiven debt is generally taxable_income respondent’s litigation position had a reasonable basis in both law and fact and therefore was substantially justified see maggie mgmt co v commissioner t c pincite we also note that respondent timely conceded that petitioner had no deficiency after receiving all the relevant documents to substantiate petitioner’s expenses and being informed by mr hart of petitioner’s insolvency at the time of the settlement in the light of our conclusions that respondent’s administrative and litigation positions were substantially justified we need not reach respondent’s arguments that petitioner failed to exhaust administrative remedies and unreasonably protracted the proceedings and that the fees requested are unreasonable to reflect the foregoing petitioner’s motion for an award of administrative and litigation costs will be denied an appropriate order and decision will be entered


number release date uil cc el gl b2 ’0’4 cid cid dollar_figure ’6 department of the treasury internal_revenue_service 2iilfh cid ri cid klhi cid rxqvho 7klv xoohwlq lv iru lqirupdwlrqdo sxusrvhv w lv qrw d gluhfwlyh bulletin no october unsuccessful garnishments sufficient to perfect creditor’s lien perfection jack schulman an independent insurance agent for primerica life_insurance_company died intestate on date primerica paid schulman on commission including commissions for policy renewals that continue to be paid to schulman’s estate the amount of commission income to the estate is between dollar_figure and dollar_figure per month primerica will continue to pay commission income to schulman’s estate as long as policies he issued or managed continue to be renewed the estate owes federal taxes on and tax assessments against schulman although the and assessments were made after his death the and taxes totaling about dollar_figure are secured_by notices of federal_tax_lien filed in the and taxes assessed on date and totaling about dollar_figure are unsecured ks financial group inc ks obtained a default judgment in for dollar_figure against the schulmans although the schulmans lived in georgia the judgment was granted in texas where schulman had worked from until his retirement in on date ks issued a garnishment summons against schulman in texas ks did not receive any payment from this garnishment in addition to ks’ claim judye schulman claims dollar_figure for twelve months widow’s support from the estate on date ks filed a garnishment suit in georgia state court which was removed to federal district_court against commission income withheld by primerica the parties agreed that the and federal tax_liens had first priority to the funds of the insolvent estate the parties disagreed as to whether ks judye schulman or the united_states had priority to the remaining funds 1schulman’s surviving_spouse judye schulman is jointly liable for the and taxes 2the district_court for harris county texas dissolved this garnishment date on the grounds that tex prop code sec_42 exempts commission income from garnishment bulletin no october in its decision entered date the district_court found the garnishment summons issued by ks properly perfected its judgment lien and thus gave ks priority to the remaining funds under the reasoning of 523_us_517 a perfected judgment lien takes priority over an unsecured federal tax debt to the assets of a decedent’s estate despite the priority otherwise provided by the insolvency statute u s c a the government unsuccessfully argued that ks’ judgment lien was unperfected because the texas garnishment was invalid the court was unpersuaded finding instead that ks had done all it could under texas law to perfect its lien the fact that the garnishment was unsuccessful did not alter the priority afforded under sec_6323 ks financial group inc v schulman u s dist lexis n d ga date liens priority over judgment lien creditor bankruptcy code cases collection of tax assets in court in re beam u s app lexis 9th cir date - service filed proof_of_claim for dollar_figure against debtors in chapter bankruptcy causing court to deny plan confirmation debtors then filed a motion to withdraw their case and demanded the return of dollar_figure they deposited in anticipation of plan confirmation when the court granted the dismissal the service levied on the funds held by the trustee the debtors argued that under b c a the trustee was obligated to return the dollar_figure to them the court disagreed holding that under sec_6334 the only categories of property_exempt_from_levy are those specified under sec_6334 since b c is not a listed category the court found it would frustrate congressional intent to return the monies to the debtors bankruptcy code cases collection of tax injunction against levy retirement benefits wood v united_states bankr lexis bankr m d fla date - debtors owing secured federal taxes filed chapter bankruptcy on july listing dollar_figure ira as exempt on october debtors deposited dollar_figure into an investment account from which they withdrew funds over the next eight days to pay various state taxes and other debts debtors then were discharged from chapter on october by summons the service discovered where the payments were made and levied each of the payee banks one remitted funds but they were funds earned by the debtors post-petition the court found the federal levy did not attach to property of a debtor after the debtor’s personal liability was discharged and ordered the levied funds returned however due to the debtors’ conduct in using exempt funds subject_to a federal_tax_lien to pay other debts the court refused to award sanctions for the improper levy 3texas law provides an exemption from garnishment for the amount of monthly commission payments that the estate was receiving bulletin no october bankruptcy code cases compromise or settlement irs v pattullo u s dist lexis d az date - in debtor’s chapter bankruptcy service stipulated to amount of its amended claim as less than dollar_figure debtor then filed chapter and the service tried to have the case dismissed for exceeding the dollar_figure jurisdictional limit of b c sec_109 the district_court affirming the bankruptcy court agreed that the service was estopped from changing the valuations in an agreed order signed only seven months previously bankruptcy code cases exceptions to discharge krik v irs bankr lexi sec_1288 bankr e d pa date - debtor after receiving a tax levy reduced his pay to a bare minimum while substantially increasing his wife’s pay he made some tax_payments but when his company went into financial distress he filed for chapter bankruptcy the court found the debtor’s taxes to be dischargeable because he tried to cooperate with the service by filing returns and seeking an offer_in_compromise therefore the court concluded that the debtor did not willfully seek to evade or defeat his tax_liability under b c a c bankruptcy code cases exceptions to discharge no late or fraudulent_returns 237_br_600 bankr e d penn - under the test of in re fegeley 118_f3d_979 3d cir the bankruptcy court determined the debtor had a duty to file tax returns and as an attorney knew of this duty as to the third standard whether the debtor voluntarily and intentionally violated that duty the court found that the debtor’s ex-wife had stolen his tax records for and and so for those years the debtor did not voluntarily and intentionally fail his duty however after the debtor had access to his records and had the ability to pay the taxes the court did not accept the debtor’s payment of what he thought he owed nor his excuse that continuing marital difficulties and a nightmare house construction made it impractical to file correct returns as a sufficient defense to the third fegeley standard bankruptcy code cases jurisdiction of bankruptcy court kieslich v united_states u s dist lexis d nev date - while in chapter bankruptcy debtor initiated an adversary proceeding to determine tax_liability this adversary action basically lay dormant until after the chapter case was closed following an adverse decision by the bankruptcy court the united_states on appeal first raised the issue of subject matter jurisdiction the district_court found the fact that the parties earlier stipulated to jurisdiction irrelevant because subject matter jurisdiction cannot be created where it does not exist the court then found that although the determination of tax_liability was non-core it was related to the bankruptcy case and so the bankruptcy court had jurisdiction at the time the adversary suit was filed however because judicial economy convenience and fairness disfavored retention of the case at the time the bankruptcy was closed bulletin no october subject matter jurisdiction ceased to exist and the bankruptcy court should not have heard the case bankruptcy code cases jurisdiction of bankruptcy court in re pecovsky bankr lexis bankr m d penn date - debtor a sole_proprietor used his social_security_number instead of his employer_identification_number on his chapter bankruptcy petition the service not discovering the business_debts did not file a proof_of_claim the debtor then attempted to convert the case to chapter the court while denying the conversion because of jurisdictional debt limits stated in dicta that notice to the service was deficient and would have allowed a late filed proof_of_claim bankruptcy code cases jurisdiction of bankruptcy court in re sullivan u s dist lexis n d fla date - court held that eligibility for chapter under b c sec_109 was determined by what the debtor actually owed to the service not what she claims the service told her was owed although the court found a delay of ten months for the service to raise this eligibility issue was not unreasonable it would not accept the service’s argument that eligibility was jurisdictional and could thus be raised at any time bankruptcy code cases statute_of_limitations on collection after assessment compromise settlement bankruptcy colish v united_states bankr lexis bankr e d n y date - debtor submitted offer_in_compromise for taxes after which the service assessed the taxes the debtor later amended the oic but the service issued a rejection in in the debtor submitted a second oic for the taxes in may the service assessed taxes and the debtor submitted an oic for the taxes some days later which also was rejected also in the service assessed taxes and days later the debtor submitted an oic for the taxes which was rejected as well the debtor filed chapter bankruptcy in the bankruptcy court first found that b c sec_507 which tolls the statute_of_limitations where an oic is pending did not apply to the taxes because the debtor’s oic was submitted before the taxes were assessed the court found unconvincing the government’s argument that the debtor’s amended oic constituted a new oic the court next held that since the debtor’s oic for the taxes was made more than days after the tax_assessment the tax did not fall within the exception of sec_507 and so was dischargeable finally the court found in favor of the government as to the taxes which were made less than days before the oic was submitted the court rejected the debtor’s assertions that the government’s delay in processing the oic was a constructive rejection and that the government should be equitably estopped from alleging the statutory time period had not run bulletin no october compromise settlement authority olcsvary v united_states bankr lexis bankr e d tenn date - the court held that the tax_matters_partner was authorized by partners in a tax_shelter to extend the statute_of_limitations on assessment because there was no evidence that the tax_matters_partner was pressured to abandon his fiduciary duties however the court refused to enforce the partnership’s closing agreements with the service because they had not been signed by an official with proper authority the court found no basis to enforce the agreements by estoppel since the service lost no legal right because the closing agreements were unenforceable decedent’s estates collection procedures liability of fiduciary levy wrongful craig v united_states u s dist lexis s d tex date - decedent left property to wife and son naming the son as executor the son opened an estate bank account in the son’s name using his own social_security_number and reported interest generated by the account on his individual_income_tax_return however the bank account was funded solely by estate assets and never used for personal purposes the wife and son had a falling out and during their dispute the service levied on the estate account for taxes owed by the son individually the son then settled with his mother but the bank paid over the estate account to the service prompting the son to file a wrongful_levy action the court found the levy wrongful determining that although the son as a beneficiary and after settlement with the wife sole beneficiary had an interest in the levied funds and that the interest was sufficiently vested to provide a nexus for the levy the estate had a superior right to the assets in the account at the time of the levy because the service by levy had only the rights that the son as a taxpayer possessed the service could not have required the estate to make distribution and so had no interest to levy on the court found no authority to support the levy of an account simply because the fiduciary of the account was also the beneficiary liens actions to quiet title follum v united_states u s app lexis 2d cir date unpublished - in a summary opinion the second circuit held the taxpayer’s action to quiet title under u s c due to alleged invalidity of the underlying assessments did not waive the government’s sovereign immunity although the second circuit recognizes an exception to section for a challenge to procedural irregularities the court found the taxpayer intended to dispute the liability not the timing of the assessment the court also held that a suit_for_refund after payment of the taxes was not an inadequate remedy sufficient to create an exception under the anti-injunction statute sec_7421 therefore the quiet title action was dismissed liens priority over state and local_taxes in re johns u s dist lexis d n j date - taxpayers filed state tax returns which were entered into the state’s computers prior to the bulletin no october assessment of federal taxes the court found under new jersey law the state taxes were properly assessed and the state could have enforced its liens on the day the taxpayers filed their returns therefore the state taxes were perfected choate under 347_us_81 and had priority over the later filed federal taxes however under new jersey law penalties and interest must be assessed through a deficiency procedure which was not done therefore the liens for penalty and interest were not choate and were inferior to the federal taxes penalties failure to collect withhold or pay over hudson v united_states u s dist lexis e d pa date - taxpayer who exerted monolithic command over his company’s finances was responsible for sec_6672 trust fund recovery penalty despite his claims that he made good_faith efforts to repay the taxes the court found a responsible_person cannot avoid a finding of willfulness by taking reasonable steps to pay back money after he willfully failed to make payment when the taxes were due


internal_revenue_service number release date index number -------------------------------------------------- ------------------------------------------------ --------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-135837-09 date date legend x ------------------------------------------- ---------------------------------------------------- d1 ------------------- dear ------------- this responds to the letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 the shareholders of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of plr-135837-09 a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ------------------------ ----------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc tege eoeg eo1 plr-109042-11 date date city -------------------------------------------- trust ---------------------------------------------------------------------------- trustee ------------------------------------------------------ administrator ---------------------------------------- agreement ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- year state -------- ------------- statute ------------------------------------------------------------------ --------------------------------------------------- dear --------------- this letter responds to a letter from your authorized representative dated date submitted on behalf of the city requesting rulings that the income from the trust is excludable from gross_income under sec_115 of the internal_revenue_code the city represents the following facts plr-109042-11 facts the city was formed in year and is a political_subdivision of the state it contributes an agreed-upon amount monthly for payment of health insurance premiums for its employees and retirees under the statute the city has agreed also to pay additional_amounts for employees’ and retirees’ health_insurance_coverage under a health_reimbursement_arrangement the city has established the trust to fund payment of post-employment medical insurance premiums for eligible retirees and has appointed trustee and administrator to serve accordingly the trustee will accept and account for contributions from the city will keep the contributions and earnings separate from the city’s operating funds will invest and reinvest the contributions according to instructions from the administrator and will pay out benefits for the exclusive benefit of the city’s eligible employees and retirees contributions to the trust are irrevocable and are to be used solely to provide benefits for beneficiaries and to pay expenses of administering the trust the trust income will consist of contributions from the city plus investment earnings private interests will neither participate in nor benefit from the operation of the trust other than as providers of goods or services for reasonable_compensation the agreement may be amended or terminated according to its terms by either the administrator or the city upon termination of the trust and after satisfaction of all liabilities to employees or former employees and their beneficiaries any remaining balance will be distributed to the city to an entity whose income is excludable under sec_115 or to a qualified_trust as described in the agreement law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance plr-109042-11 of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in revrul_90_74 1990_2_cb_34 the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health was excludable from gross_income under sec_115 in revrul_90_74 private interests neither materially participated in the organization nor benefited more than incidentally from the organization the trust was established and is maintained by the city to fund health insurance premiums for its retired employees and their beneficiaries providing such health benefits to former public employees constitutes the performance of an essential_governmental_function within the meaning of sec_115 see revrul_90_74 and revrul_77_261 the funding and payment of retiree health insurance premiums through the trust satisfies the obligation of the city to provide such benefits thus the income of the trust accrues to the benefit of the city which is a political_subdivision of the state no private interests participate in or benefit from the operation of the trust other than as providers of goods and services any amounts remaining in the trust after all liabilities have been satisfied shall be distributed to the city a sec_115 entity or a qualified_trust as defined in the trust’s governing document in no instance will any remaining assets by distributed to an entity other than the state a political_subdivision or a sec_115 entity the benefit to retired employees is incidental to the public benefit see revrul_90_74 conclusion based solely on the facts and representations submitted by the city including the proposed first amendment to the agreement we conclude that the income of the trust is derived from the exercise of essential governmental functions and will accrue to a state or a political_subdivision thereof for purposes of sec_115 consequently we rule that as of the date the first amendment is adopted the income of the trusts is excludable from gross_income under sec_115 except for the specific ruling above no opinion is expressed or implied regarding the federal tax consequences of the facts of this case under any other provision of the code specifically no representation is made that contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be tax-free this ruling concerns only the federal tax treatment of the trust's income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits plr-109042-11 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely sylvia hunt assistant chief exempt_organizations branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy for sec_6110 purposes cc