guidant llc f k a guidant corporation and subsidiaries et al petitioners v commissioner of internal revenue respondent docket nos filed date ps are a group of u s_corporations which filed consolidated federal_income_tax returns for the subject years during those years ps primarily through the group’s u s subsidiaries con- summated transactions with their foreign affiliates the transactions included the licensing of intangibles the pur- chase and sale of manufactured property and services r relying upon his authority under sec_482 adjusted the reported prices at which items were transferred between ps and their foreign affiliates r then determined the group’s true consolidated_taxable_income cti by posting all of the adjustments to the separate_taxable_income of the group’s parent which increased pro tanto the group’s cti and with- out making any specific adjustment to any subsidiary’s sepa- rate taxable_income r also did not determine any portion of the adjustments that related solely to tangibles to intangi- bles or to services ps assert that r’s adjustments are arbitrary capricious and unreasonable as a matter of law because r did not determine the true separate_taxable_income of each controlled_taxpayer within the meaning of sec_1_482-1 f iv income_tax regs and r did not make specific adjustments with respect transaction involving an intangible a purchase and sale of property or a provision of services held neither sec_482 nor the regulations thereunder require that r when exercising his authority under sec_482 always determine the true separate_taxable_income of each controlled_taxpayer in a consolidated_group contemporaneously with the making of the resulting adjustments held further sec_482 and the regulations thereunder allow r when exercising his authority under sec_482 to aggregate one or more related trans- actions instead of making specific adjustments with respect to each type of transaction to each the following cases are consolidated herewith cardiac pacemakers inc as substitute agent for the guidant consolidated_group docket no cardiac pacemakers inc as successor by merger to cpi del caribe ltd docket no boston scientific corporation and sub- sidiaries docket no guidant llc f k a guidant corporation and subsidiaries docket no and cardiac pacemakers inc as substitute agent for guidant consolidated_group docket no guidant llc v commissioner joel v williamson jonathan l hunt jason b grover john t hildy thomas l kittle-kamp and justin d hoag for petitioners jeffrey l bassin and gretchen a kindel for respondent opinion laro judge these cases are before the court consolidated for purposes of trial briefing and opinion petitioners peti- tioned the court to redetermine the following federal_income_tax deficiencies and accuracy-related_penalty that respondent determined guidant llc f k a guidant corp subs docket no year deficiency dollar_figure big_number big_number big_number cardiac pacemakers inc as substitute agent for the guidant consolidated_group docket no year deficiency dollar_figure cardiac pacemakers inc as successor by merger to cpi del caribe ltd docket no year deficiency dollar_figure boston scientific corp subs docket no year deficiency dollar_figure big_number unless otherwise indicated section references are to the internal rev- enue code code applicable to the years at issue and rule references are to the tax_court rules_of_practice and procedure united_states tax_court reports guidant llc f k a guidant corp subs docket no year deficiency dollar_figure cardiac pacemakers inc as substitute agent for guidant consolidated_group docket no year deficiency dollar_figure big_number big_number accuracy-related_penalty sec_6662 -0- -0- dollar_figure the deficiencies and the accuracy-related_penalty flow from respondent’s transfer_pricing adjustments under sec_482 that increased the income of guidant corp and its u s subsidiaries sometimes collectively guidant group by approximately dollar_figure billion the guidant group filed consoli- dated federal_income_tax returns and respondent’s adjust- ments stem from transactions that the guidant group engaged in with the group’s affiliated foreign entities respondent determined for purposes of ascertaining the guidant group’s consolidated_taxable_income cti that all of the adjusted_income was the separate_taxable_income sti of guidant corp respondent did not determine that any of the adjusted_income was the sti of one or more of the guidant group’s u s subsidiaries respondent also did not determine the specific amount of the adjustments that related to tangibles to intangibles or to services petitioners move for partial summary_judgment asserting that respondent’s adjustments are arbitrary capricious and unreasonable as a matter of law such is so petitioners argue because respondent did not determine the true separate_taxable_income of each controlled_taxpayer in the guidant group as required by sec_1_482-1 f iv income_tax regs and respondent did not make specific adjustments with respect to each transaction involving an intangible a purchase and sale of property or a provision of services petitioners filed a memorandum in support of their motion and set forth their factual and legal positions in the guidant llc v commissioner memorandum respondent filed an objection to petitioners’ motion and filed a memorandum as later amended setting forth his positions as to the motion petitioners filed a reply as later amended to respondent’s objection the parties argued their respective positions at a hearing held in new york new york we now decide whether to grant the motion we will deny it we hold as to petitioners’ former argument that neither sec_482 nor the regulations thereunder require that the commissioner when exercising his authority under sec_482 always determine the true separate_taxable_income of each controlled_taxpayer in a consolidated_group contemporaneously with the making of the resulting adjustments we hold as to petitioners’ latter argument that sec_482 and the regulations thereunder allow the commissioner when exercising his authority under sec_482 to aggregate one or more related transactions concerning an intangible a purchase and sale of tangible_property or a provision of services instead of making specific adjustments with respect to each type of transaction i preliminaries background we have derived the recitations listed in this background section primarily from the undisputed portions of each party’s statement of the facts as drawn from the pleadings and other acceptable materials we also have derived some of the recitations from the disputed portions of each party’s statement of the facts as viewed in a manner most favorable to respondent the party opposing petitioners’ motion for par- tial summary_judgment we set forth all recitations solely for purposes of deciding petitioners’ motion and not as findings_of_fact see 98_tc_518 aff ’d 17_f3d_965 7th cir ii guidant group a guidant corp guidant corp is a u s_corporation that from through was the parent of an affiliated_group that included its u s subsidiaries cardiac pacemakers inc cpi cardiothoracic systems inc cts guidant sale sec_146 united_states tax_court reports corp gsc advanced cardiovascular systems inc acs and endovascular technologies inc evt boston scientific corp bsc acquired guidant corp on date guidant corp and each of its u s subsidiaries were there- after separate members of the affiliated_group of which bsc was the parent guidant corp remained the parent of its remaining subsidiaries for which it had been the parent before bsc acquired guidant corp guidant corp and its u s and foreign business entities collectively subsidiaries developed manufactured and sold medical devices guidant corp and its subsidiaries con- ducted business throughout the developed world b subsidiaries for each subject year guidant corp ’s first-tier u s subsidiaries included cpi and cts and guidant corp ’s second-tier u s subsidiaries included gsc from through guidant corp ’s first-tier u s subsidiaries also included acs and evt included two netherlands guidant corp ’s first- second- and third-tier foreign subsidiaries corporations guidant bv renamed guidant group bv in and guidant puerto rico bv and one luxembourg cor- poration guidant luxembourg sarl guidant puerto rico bv and guidant luxembourg sarl were subsidiaries of guidant bv guidant luxembourg sarl owned and operated a manu- facturing facility through a branch guidant ireland estab- lished in ireland guidant puerto rico bv owned and oper- ated a manufacturing_facility through a branch guidant puerto rico established in puerto rico guidant corp pro- vided administrative services to guidant ireland and to guidant puerto rico iii guidant group business units a background the guidant group consisted of various business units operated by separate corporations from through date these business units were cardiac rhythm management crm endovascular solutions es vascular intervention vi and cardiac surgery cs on april guidant llc v commissioner the guidant group sold its vi and es business units thereafter the guidant group consisted of the crm and the cs business units b crm crm devices included pulse generators pgs eg pace- makers implantable cardiac defibrillators and cardiac re- synchronization devices and leads cpi operated the crm business unit during all subject years c es es devices included an aortic vascular prosthesis ancure that could be delivered via balloon catheter to treat aortic aneurysms evt operated the es business unit from through part of guidant endovascular solutions inc ges a u s_corporation assumed evt’s operations on date ges did not participate in any of the controlled trans- actions at issue d vi vi devices included balloon catheters used in angioplasty procedures coronary stents and their delivery systems and guidewires used to direct balloon catheters and stent delivery systems to the area of treatment acs operated the vi business unit during through e cs cs devices included devices used to harvest femoral arteries from a patient for use in coronary artery bypass grafting surgery vasoview off-pump coronary artery bypass opcab systems and cardiac ablation devices cts operated the cs business unit during all subject years iv devices that guidant ireland or guidant puerto rico manufactured a guidant ireland guidant ireland manufactured pgs during all subject years each pg contained a hybrid which is an electric cir- united_states tax_court reports cuit board to which integrated circuits and other electronic components are bonded before guidant ireland purchased from cpi all of the hybrids that were incorporated into the pgs it manufactured guidant ireland began manufacturing hybrids in from through guidant ireland manufactured pgs using both hybrids it manufactured and hybrids purchased from cpi from until the guidant group sold the vi business guidant ireland manufactured vi coronary stents and coro- nary stent delivery systems from until that sales date guidant ireland also manufactured vi stand-alone balloon catheters for use in angioplasty procedures b guidant puerto rico guidant puerto rico manufactured crm leads and cs vasoview devices during all subject years during and part of guidant puerto rico also manufactured es ancure devices from until the guidant group sold its vi business guidant puerto rico also manufactured vi guidewires from through the end of the subject years guidant puerto rico also manufactured cs cardiac ablation devices during guidant puerto rico also manufactured cs opcab systems c sales of devices gsc was the guidant group’s u s marketing and sales affiliate gsc sold and distributed to end users in the united_states devices that guidant ireland or guidant puerto rico manufactured foreign guidant corp distribution subsidiaries guidant foreign sales affiliates sold in many countries outside of the united_states devices that guidant corp and its subsidiaries manufactured in a foreign market with a guidant foreign sales affiliate that affiliate sold and distributed to end users in its market devices that guidant ireland or guidant puerto rico manufactured in foreign markets without a guidant foreign sales affiliate foreign distributors sold and distributed to end users devices that guidant corp and its subsidiaries manufactured independent third-party guidant llc v commissioner v controlled transactions related to devices that guidant ireland or guidant puerto rico manufactured a guidant ireland crm devices cpi owned intangible_property related to crm pgs and hybrids that it licensed to guidant ireland in exchange for royalties cpi manufactured and sold crm hybrids to guidant ire- land guidant ireland sold finished crm devices to gsc and to cpi cpi resold the guidant ireland crm devices it pur- chased to foreign distributors guidant ireland also sold finished crm devices directly to guidant foreign sales affiliates and to independent third- party foreign distributors independent third-party b guidant puerto rico crm devices cpi owned intangible_property related to crm leads that it licensed to guidant puerto rico in exchange for royalties guidant puerto rico sold crm leads it manufactured to gsc and to cpi cpi resold the guidant puerto rico leads it purchased to the guidant foreign sales affiliates and to independent third-party foreign distributors guidant puerto rico also sold crm leads it manufactured to guidant ire- land guidant ireland resold the guidant puerto rico leads it purchased to the guidant foreign sales affiliates and to the independent third-party foreign distributors c guidant ireland vi devices acs owned intangible_property related to vi stents stent delivery systems and angioplasty balloon catheters that it licensed to guidant ireland guidant ireland paid acs royal- ties in exchange for that license before guidant ireland gained vi product sterilization capabilities in guidant ireland sold all of the vi devices it manufactured to acs acs sterilized the guidant ireland vi devices it purchased in return for a sterilization fee acs resold the guidant ireland vi devices it purchased and sterilized to gsc to the guidant foreign sales affiliates and to the independent third-party foreign distributors after guidant ireland gained vi product sterilization capabilities in guidant ireland continued selling its vi devices intended for the u s market to acs acs continued to resell these devices to gsc after guidant ireland gained united_states tax_court reports vi product sterilization capabilities in guidant ireland also sold its vi devices intended for foreign markets to the guidant foreign sales affiliates and to the independent third- party foreign distributors d guidant puerto rico vi devices acs owned intangible_property related to vi guidewires that it licensed to guidant puerto rico guidant puerto rico paid acs royalties in exchange for that license guidant puerto rico sold all of the vi devices it manufac- tured to acs acs sterilized the guidant puerto rico vi devices it purchased in return for a sterilization fee acs resold the guidant puerto rico vi devices it purchased to gsc to the guidant foreign sales affiliates and to the inde- pendent third-party foreign distributors e guidant puerto rico es devices evt owned intangible_property related to es ancure devices that it licensed to guidant puerto rico guidant puerto rico paid evt royalties in exchange for that license guidant puerto rico sold all of the es devices it manufac- tured to evt evt resold the guidant puerto rico es devices it purchased to gsc to the guidant foreign sales affiliates and to the foreign distributors independent third-party f guidant puerto rico cs devices cts owned intangible_property related to cs vasoview devices opcab systems and cardiac ablation devices that it licensed to guidant puerto rico guidant puerto rico paid cts royalties in exchange for that license guidant puerto rico sold all of the cs devices it manufac- tured to cts cts resold the guidant puerto rico cs devices it purchased to gsc to the guidant foreign sales affiliates and to the foreign distributors vi audit independent third-party respondent audited the consolidated federal_income_tax returns that the guidant group filed for through date and the consolidated federal_income_tax returns that bsc and its u s subsidiaries bsc group filed for and during the audits respondent considered as to the guidant llc v commissioner years ended on or before date whether income was allocated properly between the guidant group and their for- eign affiliates and as to and whether income was allocated properly between the bsc group and their foreign affiliates respondent considered whether the transfer of intangible_property the sale of components and finished goods and the provision of services with respect to certain products collectively transactions at issue were made at arm’s length for each subject year the transactions at issue involved guidant corp cpi cts and gsc the trans- actions at issue also involved acs for through date and evt for through to evaluate whether income was allocated at arm’s length between the guidant group and their foreign affiliates respondent considered petitioners’ transfer_pricing studies as well as financial data and other information made available by petitioners and that was publicly available in connection with the audit for and respondent also considered the methodologies and approaches taken with respect to the audit for the through date examination cycles respondent concluded that income was not allocated at arm’s length between the guidant group and their foreign affiliates and adjusted guidant corp ’s sti for each subject year to effect a pro tanto adjustment to the group’s cti for those years respondent did not compute specific adjustments for each controlled_taxpayer included in the group member-spe- cific adjustments the irs’ practice is to compute member- specific adjustments when the taxpayer and the audit team can agree on such adjustments or when the audit team has sufficient information to make them the irs’ practice is to defer making member-specific adjustments in other cir- cumstances until a final resolution has been reached because these determinations often involve complex calculations as well as extensive and collaborative discussions with the tax- payer because the parties did not reach a resolution of the sec_482 issue respondent did not expend time or resources to determine member-specific adjustments for each guidant group controlled_taxpayer respondent did not believe that he could independently make reliable member-specific adjustments on the basis of the information available to him respondent considered the complexity of the activities of each member of the guidant united_states tax_court reports group and its relationship with the activities of other mem- bers of the guidant group and or of their foreign affiliates respondent also concluded that he could not independently make reliable member-specific adjustments for each of the guidant group members after considering the flow of prod- ucts among guidant group entities involving multiple steps and multiple transfer_pricing transactions for many prod- ucts the flow involved a round trip from the united_states to ireland or to puerto rico and back each guidant group member’s available financial state- ments encompassed all activities the entity performed and all products produced and sold including those not at issue in these cases respondent was unable to extract the informa- tion necessary to ascertain the income reported by each guidant group member with respect to the products and transactions at issue and to determine the sti of each guidant group member for the products and transactions at issue petitioners did not maintain their financial records in a manner that allowed them to readily track income and expenses by place of manufacture and petitioners could not tie the income and expenses in the business unit financial statements to particular product lines eg pulse generators or leads or to products manufactured in the united_states in ireland or in puerto rico an example of the information that respondent needed to determine the income reported by each guidant group member with respect to the products manufactured in ire- land and in puerto rico was the transfer prices paid_by each guidant group member for the vi business acs purchased finished products from guidant ireland and guidant puerto rico at a set transfer price acs then either resold these products to gsc or to guidant group foreign distribution affiliates at a different transfer price or sold these products to an independent foreign distributor at a final sale price respondent did not have the transfer prices for any of these transactions so as to determine the profit reported by each guidant group member for the products at issue while the available information enabled respondent to make what he considered a reliable calculation of cti for the guidant group he did not believe the available information enabled him to make a sufficiently reliable calculation of member- specific adjustments for each of the guidant group members guidant llc v commissioner vii deficiency notices a deficiency_notice for and the deficiency_notice for and described the sec_482 adjustments as follows indirectly owned it is determined under sec_482 that an adjustment is necessary to reflect an arm’s length result for intercompany_transactions that guidant corporation and its u s subsidiaries entered into with guidant corporation’s directly and foreign subsidiaries regarding cardiac rhythm management vascular intervention cardiac surgery and endovascular solutions products produced in the puerto rico and ireland manufacturing operations of guidant puerto rico b v and guidant luxembourg during tax_year sec_2001 and sec_2002 in order to properly reflect an arm’s length result for these intercompany trans- actions guidant corporation’s income for the tax_year sec_2001 and sec_2002 is increased in the amount of dollar_figure and dollar_figure respec- tively the deficiency_notice for described the sec_482 adjustments as follows it is determined under sec_482 that an adjustment is necessary to reflect an arm’s length result for intercompany_transactions that guidant corporation and its u s subsidiaries entered into with guidant corporation’s directly and foreign subsidiaries regarding cardiac rhythm management vascular intervention cardiac surgery and endovascular solutions products produced in the puerto rico and ireland manufacturing operations of guidant puerto rico b v and guidant luxembourg during tax_year in order to properly reflect an arm’s length result for these intercompany_transactions guidant corporation’s income for the tax_year is increased in the amount of dollar_figure indirectly owned those notices did not calculate or specify what if any amount of the sec_482 adjustments was attributable to cpi to acs to evt to cts or to gsc or to specific types of controlled transactions b deficiency_notice for through date the deficiency_notice for through date described the sec_482 adjustments as follows it is determined under sec_482 that an adjustment is necessary to reflect an arm’s length result for intercompany_transactions that guidant corporation and its u s subsidiaries entered into with guidant corporation’s directly and foreign subsidiaries regarding cardiac rhythm management vascular intervention cardiac surgery and endovascular solutions products produced in the puerto indirectly owned united_states tax_court reports rico and ireland manufacturing operations of guidant puerto rico b v and guidant luxembourg during the tax years ended date date and date therefore in order to properly reflect an arm’s length result for these intercompany trans- actions taxable_income is increased dollar_figure dollar_figure and dollar_figure for the tax years ended date date and date respectively that notice did not calculate or specify what if any amount of the sec_482 adjustments was attributable to cpi to acs to evt to cts or to gsc or to specific types of controlled transactions c deficiency_notice for and the deficiency_notice for and described the sec_482 adjustments as follows it is determined under irc section sec_482 sic that an adjustment is nec- essary to reflect an arm’s length result for intercompany_transactions that guidant corporation and its u s subsidiaries entered into with guidant corporation’s directly and indirectly owned foreign subsidiaries regarding cardiac rhythm management and cardiac surgery products produced in the puerto rico and ireland manufacturing operations of guidant group b v a controlled_foreign_corporation of guidant cor- poration and owner of guidant luxembourg and guidant puerto rico bv during tax years and in order to properly reflect an arm’s length result for these intercompany_transactions guidant cor- poration’s income for tax years and is increased in the amount of dollar_figure and dollar_figure respectively this notice did not calculate or specify what if any amount of the sec_482 adjustments was attributable to cpi to cts or to gsc or to specific types of controlled trans- actions discussion i overview the commissioner may distribute apportion or allocate gross_income deductions credits or allowances between or among controlled enterprises if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such enterprises sec_482 see also 856_f2d_855 7th cir aff ’g in part rev’g in part and remanding 84_tc_996 guidant llc v commissioner 92_tc_525 aff ’d 933_f2d_1084 2d cir the commis- sioner’s use of his powers under this provision is an exercise of discretion undertaken to place a controlled_taxpayer on a tax parity with an uncontrolled taxpayer by determining the true_taxable_income of the controlled_taxpayer sec_1 a income_tax regs see also bausch lomb inc v commissioner t c pincite the commissioner’s authority to adjust items under sec_482 is broad and whether the commissioner has inappropriately allocated items under sec_482 is usually a question of fact see eli lilly co v commissioner f 2d pincite bausch lomb inc v commissioner t c pincite taxpayers such as petitioners which ask the court to reject the commissioner’s sec_482 allocations in favor of the taxpayers’ allocations must clear two hurdles in order to prevail first a taxpayer must establish that the commissioner abused his discretion by making allocations that are arbitrary capricious and unreasonable see eli lilly co v commissioner f 2d pincite 96_tc_226 second a taxpayer must establish that arm’s-length consideration for the adjusted transactions is consistent with the taxpayer’s alloca- tions see sundstrand corp v commissioner t c pincite in reviewing the reasonableness of the commissioner’s sec_482 allocations the court focuses on the reasonableness of the result and not on the details of the methodology employed see bausch lomb inc v commissioner t c pincite summary for partial petitioners’ motion judgment addresses the first hurdle specifically the issue of whether respondent abused his discretion petitioners argue primarily that respondent abused his discretion because he failed to determine the true sti of each controlled_taxpayer that engaged in the adjusted transactions as petitioners see it sec_482 and the applicable regulations require that the commissioner contemporaneously with making a sec_482 adjustment in the setting of a consolidated_return determine the true separate_taxable_income within the meaning of sec_1_482-1 f iv income_tax regs of each controlled_taxpayer in that return petitioners note that respondent applied his sec_482 adjustments solely to joining united_states tax_court reports guidant corp and observe that guidant corp did not participate in most of the adjusted transactions respondent agrees that guidant corp did not participate in most of the adjusted transactions but counters that the commissioner need not determine each controlled taxpayer’s true sti whenever the commissioner makes a sec_482 adjustment in the setting of a consolidated_return respondent asserts that in such a setting the commissioner must determine the affiliated group’s true cti and that the commissioner will determine each controlled taxpayer’s true sti only to the extent that doing so will not interfere with the commis- sioner’s reliably determining taxable_income from the con- trolled transactions underlying the sec_482 adjustments petitioners argue secondarily that respondent abused his discretion because he failed to make a sec_482 adjust- ment with respect to each transaction involving an intangi- bles license a purchase and sale of tangible_property or a provision of services instead petitioners assert respondent’s adjustments were inappropriately made through a combined groupwide analysis on the basis of multiple types of con- trolled transactions among multiple corporations respondent counters as to petitioners’ secondary argument that the commissioner may aggregate transactions of different types for purposes of effecting a reliable sec_482 adjustment ii rules applicable to summary_judgment either party may move for summary_judgment on all or some of the legal issues in dispute see rule a sum- mary judgment expedites litigation and avoids unnecessary and expensive trials see 119_tc_252 summary_judgment may be granted with respect to all or any part of the issues if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits or declarations if any show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule a and b sundstrand corp v commissioner t c pincite the moving party bears the burden of proving the absence of any genuine issue of mate- rial fact and factual inferences are drawn in a manner most guidant llc v commissioner favorable to the party opposing summary_judgment see craig v commissioner t c pincite iii petitioners’ primary argument petitioners argue primarily that respondent’s adjustments are arbitrary capricious and unreasonable as a matter of law because respondent did not determine the true separate_taxable_income of each controlled_taxpayer within the meaning of sec_1_482-1 f iv income_tax regs when determining sec_482 adjustments our analysis of this argument starts with a reading of the statute see 118_tc_1 nothing in the text of sec_482 requires respondent to make member-specific adjustments to reflect income clearly petitioners do not dis- pute that the statute does not specifically set forth a member-specific adjustment requirement but argue that such a requirement is found in the regulations interpreting the statute specifically in sec_1_482-1 f iv income_tax regs that section provides iv consolidated_returns - sec_482 and the regulations thereunder apply to all controlled taxpayers whether the controlled_taxpayer files a separate or consolidated u s income_tax return if a controlled tax- payer files a separate_return its true separate_taxable_income will be determined if a controlled_taxpayer is a party to a consolidated_return the true consolidated_taxable_income of the affiliated_group and the true separate_taxable_income of the controlled_taxpayer must be determined consistently with the principles of a consolidated_return we construe the meaning of regulatory text using rules similar to the rules which we use to construe statutory text see 138_tc_18 we thus construe the quoted text of the regulations in accordance with its plain meaning to the extent that we can see id we do not construe that text in isolation but ascertain its plain meaning through a lens that takes in the text and the intent of the regulations as a whole cf 484_us_365 467_us_822 we first turn to the plain language of sec_1 f iv income_tax regs the regulation distinguishes between a controlled_taxpayer who files a separate_return and a controlled_taxpayer who is a party to a consolidated united_states tax_court reports return in the former case the regulation states that the tax- payer’s sti will be determined in the latter case the regu- lation lacks the same words stating instead that the tax- payer’s sti and the group’s cti must be determined consistently with the principles of a consolidated_return the use of the words will be determined in the first instance mandates that the commissioner determine a taxpayer’s sti as part and parcel of his allocations under sec_482 the absence of the same words in the second instance commands a different interpretation to wit in making sec_482 adjustments the commissioner must determine cti and sti under the principles applicable to consolidated_returns the plain language of the regulation thus clearly mandates that both cti and sti be determined but the regulation does not specifically require that the commissioner determine sti contemporaneously with his making of a sec_482 adjust- ment we thus turn to the meaning of the words consistently with the principles of a consolidated_return in sec_1 f iv income_tax regs petitioner argues that this wording mandates that respondent should have determined the sti of the individual guidant group members at the time of making sec_482 adjustment to the group’s cti peti- tioner maintains that this interpretation is in line with the consolidated_return regime which requires that consolidated_taxable_income is computed by first taking into account the separate_taxable_income of each member of the group 143_tc_310 see also sec_1_1502-11 income_tax regs respondent disagrees with this interpretation we construe the words consistently with the principles of a consolidated_return with the assistance of longstanding supreme court precedent and of contemporaneous legislative_history revealing the intent of the consolidated_return regime four score and three years ago the u s supreme court stated in the setting of two corporations desiring to file a consolidated_return that t he requirement of consolidated_returns was ‘based upon the principle of levying the tax according to the true net_income and invested capital of a single business_enterprise even though the business is oper- ated through more than one corporation ’ 288_us_152 quoting regs guidant llc v commissioner art the supreme court’s statement parallels a state- ment that the senate_finance_committee memorialized in its report on and issued contemporaneously with the birth of the consolidated_return regime see s rept no c b part stating that the consoli- dated return regime was adopted with an understanding that the principle of taxing as a business unit what in reality is a business unit is sound and equitable and convenient both to the taxpayer and to the government the legislative his- tory and the supreme court statement reveal that the pri- mary principle underlying the consolidated_return regime is a taxing of the true net_income of the consolidated_group as a whole cf united dominion indus inc v 532_us_822 noting that the sole purpose of sti is that of an accounting construct devised as an interim step in computing the group’s consolidated_taxable_income or consolidated_net_operating_loss further interpretation of the consolidated_return regula- tions by this court reveals that t he purpose of the consoli- dated return regulations is to provide rules so that the tax_liability of a consolidated_group will be clearly reflected and to prevent an avoidance of such tax_liability 112_tc_270 at the same time this court has long recognized that e ach corporation is a separate taxpayer whether it stands alone or is in an affiliated_group and files a consolidated_return applied research assocs inc v commissioner t c pincite quoting 69_tc_276 we recognize that the consolidated_return_regulations state that the computation of cti begins with a determination of each group member’s sti see sec_1_1502-11 income_tax regs we also recognize that the determination of sti is a component in the computation of cti and that the computa- tion of cti may sometimes be affected by sec_482 adjust- ments to an individual member’s or members’ sti following the bottom to top approach and determining sti before moving to a higher level of cti would thus yield the most reliable results yet we are also mindful that the term true separate tax- able income is somewhat of a misnomer in that the true sti of a controlled_taxpayer is not actually that taxpayer’s tax- united_states tax_court reports able income which would be taxed were the taxpayer to have filed a separate tax_return instead sti serves as a recapitulation of each member’s taxable items in accordance with the provisions of the code as possibly adjusted to reflect certain modifications and exclusions see sec_1 income_tax regs while the sti of each member is then combined into a single number that combination is per- formed without regard to items such as net_operating_loss deductions capital_gains or losses charitable_contribution deductions or dividends_paid or received those items are calculated and where applicable offset only on a consoli- dated basis see sec_1_1502-11 sec_1_1502-12 income_tax regs bearing the principles of the consolidated_return regime in mind we read sec_1_482-1 f iv income_tax regs to require the commissioner to determine both cti and sti when making a sec_482 adjustment with respect to income reported on a consolidated_return but also giving the commissioner a certain latitude to decide when the deter- mination of sti becomes necessary the primary objective of sec_482 as we discern from our reading of that section is to prevent a distortion_of_income or an evasion of tax on account of controlled transactions that distort the taxable base as we see it the commissioner’s main responsibility under the regulation when read in the light of the statute to which it relates is to make sure that the sec_482 adjustments serve the purposes of the consolidated_return regime discussed above ie reflect the consolidated group’s true net_income clearly and prevent an avoidance of such tax_liability see atl city elec co v commissioner u s pincite gen motors corp v commissioner t c pincite consistent with the irs practice on this matter sec_1_482-1 f iv income_tax regs does not preclude the commissioner from deferring making the true sti deter- mination for each member until the time when such a deter- mination is actually required of course when that time comes eg when a determination of sti is needed to process setoffs under sec_482 see eg sec_1_482-1 income_tax regs or to process separate_return_limitation_year items such as net operating losses see sec_1_1502-21 income_tax regs the regulation requires that a member’s guidant llc v commissioner sti must be determined consistently with the goal of taxing the consolidated_group on its true cti our reading of sec_1_482-1 f iv income_tax regs is also consistent with the underlying purpose of both transfer_pricing regulations and the consolidated_return regime of preventing tax_avoidance petitioners’ suggested interpretation-requiring the commissioner to make sti adjustments contemporaneously with sec_482 adjust- ments in all cases-could completely eliminate the commis- sioner’s ability to make sec_482 adjustments when a tax- payer consciously withholds or fails to maintain records of information necessary for sti adjustments our reading is also consistent with the principle of treating each corporation as a separate taxpayer regardless of the filing of a consoli- dated return because it requires the commissioner to eventu- ally determine the sti of each consolidated_group member when making sec_482 adjustments while using the bot- tom to top approach would theoretically yield the most reli- able results we cannot require the commissioner to use it in cases when taxpayers cannot provide the commissioner with reliable information for member-specific adjustments the determination of whether the commissioner abused his discretion by making top to bottom sec_482 adjustments beginning at the cti level thus depends on the facts and cir- cumstances of a given case on the basis of the record before us which we must con- strue favorably to respondent as the party opposing the motion for partial summary_judgment respondent’s revenue agents concluded that they were unable to make reliable member-specific adjustments on the basis of the available information the agents reached their conclusion in part on the basis of the relationships between the guidant group members and their foreign affiliates and on the alleged lack of documentation to make reliable adjustments each of peti- tioners’ entities including cpi acs evt and cts per- formed numerous functions on behalf of its business unit and performed functions on behalf of other guidant-group-related entities including guidant ireland guidant puerto rico gsc and guidant’s sales affiliates in addition the guidant group members each owned valuable_intangibles relating to the development and manufacture of the products within their business units and many products were manufactured united_states tax_court reports both by a guidant group member and by guidant ireland or guidant puerto rico petitioners allege that they maintained all the necessary information and records to make the sti determinations but it would be too costly or otherwise difficult for respondent to extract that information at the time of the audit from peti- tioners’ accounting databases whether respondent’s decision to delay the sti computations constitutes abuse_of_discretion under these circumstances is thus still in dispute and remains to be determined on the full record of the case as developed at trial for the reasons stated above we will deny petitioners’ motion to the extent of their primary argument sec_482 and the regulations thereunder do not require that the commissioner when exercising his authority under sec_482 always determine the true sti of each controlled tax- payer in a consolidated_group contemporaneously with the making of the resulting adjustments we do not now conclu- sively hold that respondent’s sec_482 adjustments in these cases are not arbitrary capricious or unreasonable as a matter of fact we hold only that respondent’s sec_482 adjustments are not arbitrary capricious or unreasonable as a matter of law whether respondent’s sec_482 adjust- ments are or are not arbitrary capricious or unreasonable will be decided to the extent necessary on the basis of an evidentiary record built at trial iv petitioners’ secondary argument petitioners argue secondarily that respondent’s sec_482 adjustments are arbitrary capricious and unreasonable because he did not make separate adjustments for each transfer of tangible_property transfer of intangible_property and provision of service once again the statute is silent as to this matter so we turn to the regulations the applicable regulations are found in sec_1_482-1 income_tax regs the relevant portions of those regulations state including for some of the years through incorporation of a cross-ref- erence to sec_1_482-1t temporary income_tax regs b arm’s length standard - in general -in determining the true_taxable_income of a controlled_taxpayer the standard to be applied in every case is that of a taxpayer dealing at arm’s length with an uncon- trolled taxpayer a controlled_transaction meets the arm’s length guidant llc v commissioner standard if the results of that transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances arm’s length result arm’s length methods - i methods - sec_1_482-2 and certain other regulations prescribed under sec_482 pro- vide specific methods to be used to evaluate whether transactions between or among members of the controlled_group satisfy the arm’s length standard and if they do not to determine the arm’s length result ii selection of category of method applicable to transaction - the methods listed in sec_1_482-2 apply to different types of transactions such as transfers of property services loans or advances and rentals accord- ingly the method or methods most appropriate to the calculation of arm’s length results for controlled transactions must be selected and dif- ferent methods may be applied to interrelated transactions if such trans- actions are most reliably evaluated on a separate basis for example if services are provided in connection with the transfer of property it may be appropriate to separately apply the methods applicable to services and property in order to determine an arm’s length result but see sec_1_482-1 f i aggregation of transactions f scope of review - rules relating to determination of true_taxable_income - the fol- lowing rules must be taken into account in determining the true_taxable_income of a controlled_taxpayer i aggregation of transactions - a in general -the combined effect of two or more separate transactions whether before during or after the taxable_year under review may be considered if such transactions taken as a whole are so interrelated that consideration of multiple transactions is the most reliable means of determining the arm’s length consideration for the controlled transactions generally transactions will be aggregated only when they involve related products or services as defined in sec_1_6038a-3 iv product lines and statistical techniques -the methods described in sec_1_482-2 through are generally stated in terms of individual transactions however because a taxpayer may have controlled trans- actions involving many different products or many separate transactions involving the same product it may be impractical to analyze every indi- sec_1_6038a-3 income_tax regs states the term ‘related products or services’ means groupings of products and types of services that reflect reasonable accounting marketing or other business practices within the industries in which the related_party group operates united_states tax_court reports vidual transaction to determine its arm’s length price in such cases it is permissible to evaluate the arm’s length results by applying the appropriate methods to the overall results for product lines or other groupings in addition the arm’s length results of all related_party transactions entered into by a controlled_taxpayer may be evaluated by employing sampling and other valid statistical techniques as we have discussed sec_482 gives the commissioner broad discretion to allocate income between or among con- trolled enterprises in order to clearly reflect income or to pre- vent evasion of tax sec_1_482-1 income_tax regs in turn sets the standard for a clear_reflection_of_income as that of a taxpayer dealing at arm’s length with an uncon- trolled taxpayer sec_1_482-1 income_tax regs requires that the commissioner determine the arm’s-length consideration for each controlled_transaction by using the most reliable method or means under the circumstances sec- tion f income_tax regs lets the commissioner aggregate two or more separate transactions to the extent that aggregation serves as the most reliable means of deter- mining the arm’s-length consideration for the transactions sec_1_482-1 f i income_tax regs adds that the combined effect of two or more transactions may be consid- ered if such transactions taken as a whole are so inter- related that consideration of multiple transactions is the most reliable means of determining the arm’s-length consid- eration for the controlled transactions notwithstanding the strength of the regulations peti- tioners argue that the commissioner may not aggregate separate transactions involving tangibles intangibles or services we disagree the regulations let the commissioner aggregate separate transactions involving tangibles intangi- bles or services when doing so provides the best means of determining the true_taxable_income of a controlled_taxpayer see eg sec_1_482-1 f i income_tax regs while it is true that sec_1_482-1 income_tax regs indicates generally that an arm’s-length result may be calculated by separately applying one or more methods in the case of interrelated transactions eg ones involving services and the transfer of property the section then goes on by way of a reference to sec_1_482-1 f i income_tax regs to clarify that an aggregation of these transactions may some- times be more appropriate guidant llc v commissioner the ability to aggregate transactions involving transfers of tangible_property transfers of intangible_property and provi- sion of services is further confirmed by sec_1_482-1 f iv income_tax regs and by sec_1_482-1 f i b examples and income_tax regs the former section allows the commissioner to evaluate the arm’s length results by applying the appropriate methods to the overall results for product lines or other groupings because it may be impractical to analyze the arm’s-length price of individual transactions in example transactions involving tangibles finished computers marketing intangibles and service fees may be aggregated and considered together in determining the arm’s-length consideration for the controlled trans- actions because these transactions are so interrelated that they are most reliably analyzed on an aggregated basis example has similar facts and a similar result except it also incorporates the element of the choice of third-party comparables example concludes that using a controlled_group of taxpayers unrelated to the u s parent and its subsidiaries identified in example would provide a more reliable measure of an arm’s-length result than using three separate uncontrolled taxpayers each respectively performing similar functions as the three controlled_subsidiaries the example indicates and we so infer that pricing of each sepa- rate transaction between the u s parent and the three con- trolled subsidiaries is not required because the information to perform such separate transaction pricing would not be available from the more reliable controlled_group comparable in closing on this issue we will deny petitioners’ motion to the extent of their secondary argument the transfer_pricing regulations permit the commissioner to aggregate interrelated transactions when doing so would produce the most reliable means of determining the arm’s length consid- eration for the controlled transactions sec_1_482-1 f i income_tax regs whether respondent abused his discretion by aggregating transactions involving intangibles tangible petitioners also argue that the setoff rules and certain penalty provi- sions may not be applied appropriately if adjustments are not made by transaction types we are unpersuaded by these arguments for reasons al- ready discussed united_states tax_court reports goods and provision of services thus is a question of fact that should be resolved on the basis of the trial record v conclusion we will deny petitioners’ motion for partial summary judg- ment we have considered all arguments that the parties made and to the extent not discussed above conclude that those arguments not discussed herein are irrelevant moot or without merit to reflect the foregoing an appropriate order will be issued f


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number info release date conex-111063-10 uil the honorable sherrod brown united_states senate washington dc attention -------------------- dear senator brown this letter responds to your inquiry dated date submitted on behalf of your constituent --------------------------- she asked whether she may take the first-time_homebuyer credit for a home purchased by her and her husband from her father-in-law as you requested i responded directly to ----------------and am enclosing a copy of my response i hope this information is helpful if you have any further questions please call me or -----------------at --------------------- sincerely william a jackson chief branch office of associate chief_counsel income_tax and accounting enclosure o f f i c e o f t h e c h i e f c o u n s e l conex-111063-10 department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date 2uil --------------------------- --------------------------------- ---------------------------- dear ---------------- i am responding to your letter to senator sherrod brown in which you asked whether you may take the first-time_homebuyer credit for a home purchased by you and your husband from your father-in-law first-time homebuyers can generally take a refundable_credit for the purchase of a principal_residence sec_36 of the internal_revenue_code the code however a taxpayer may not take a credit for a purchase from a related_person see sec_36 of the code for purposes of the homebuyer credit family members that are treated as related_persons include the taxpayer’s spouse ancestors and lineal_descendants in addition for purchases after date related_persons include a spouse’s ancestors or lineal_descendants for purchases before date related_persons do not include a spouse’s ancestors or lineal_descendants you did not state when you and your husband bought the home from your father-in-law if you and your husband purchased the home after date you may not take the first-time_homebuyer credit because you and your husband purchased the home from your father-in-law who is a related_person however if you purchased the home before date although your husband cannot take the credit because he acquired his interest from his parents you may take the credit if you meet the other requirements to take the credit as the purchase of your interest would not be from a related_party conex-111063-10 i hope this information is helpful if you have any questions please call ---------------- identification_number ------------ at -------------------- sincerely william a jackson chief branch office of associate chief_counsel income_tax accounting cc the honorable sherrod brown attention --------------------


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-128605-16 date date internal_revenue_service number release date index number ----------------------------------- ---------------------------- ----------------------------------- attn ------------------------------------- legend decedent ------------------- spouse date date dear ---------------- -------------------------- ------------------------ -------------------------- --------------------- this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date the estate discovered its failure to elect portability after the due_date for making the election plr-128605-16 decedent’s estate represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and that during her lifetime decedent made no taxable_gifts decedent’s estate requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-128605-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 plr-128605-16 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date decedent’s estate represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-128605-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact index no control no cc psi bo8-tam-132662-02 none director area small_business self-employed operating division taxpayer name taxpayer address taxpayer identification no quarters involved date of conference legend taxpayer model a state m state n issue whether model a dump truck is excepted from the definition of a highway vehicle under sec_48_4061_a_-1 of the manufacturers and retailers excise_tax regulations the offhighway vehicle exception and therefore not subject_to the tax imposed by sec_4051 if the model a is considered a taxable highway vehicle is taxpayer’s liability for tax affected by its acceptance of a statement from the purchaser that the truck is purchased for off-road use conclusion model a dump truck is not is excepted from the definition of a highway vehicle under the offhighway vehicle exception and therefore is subject_to the tax imposed by sec_4051 taxpayer’s liability for tax is not affected by its acceptance of a statement from the purchaser that the truck is purchased for off-road use facts taxpayer is a retail seller of heavy trucks located in state m taxpayer is a form_637 registrant that purchases the trucks from the manufacturer tax free for resale as such taxpayer is liable for tax if any on its retail sales of the trucks the model a is designed with rugged heavy-duty features and is commonly purchased for use in transporting coal both at the mine site and from the mine site to a tipple taxpayer sold a model a to a purchaser but did not pay excise_tax on the sale instead taxpayer secured a certificate from the purchaser stating that the model a was being purchased for off-road use the purchaser did not register the model a for highway use the model a has a standard highway chassis and body as ordered by taxpayer from the manufacturer the model a is equipped with a rear axle including tires rims and spokes that provides an increased rear width of two to four inches as compared with a model a with a standard smaller axle neither taxpayer nor its purchaser made additional modifications to the model a so equipped the model a slightly exceeds the normal 102-inch width allowable on state n public highways taxpayer reported and paid tax on a model a it sold to a different purchaser that did not certify its off-road use law and analysis sec_4051 imposes on the first_retail_sale of certain enumerated articles including in each case the parts or accessories sold on or in connection therewith a tax equal to percent of the article's sale price included among those articles are truck chassis and bodies sec_145 a -1 a of the temporary excise_tax regulations under the highway revenue act of pub l provides that a chassis or body is taxable only if it is sold for use as a component part of a highway vehicle as defined in sec_48_4061_a_-1 sec_48_4061_a_-1 defines a highway vehicle as any self-propelled vehicle or any trailer or semitrailer designed to perform a function of transporting a load over public highways whether or not also designed to perform other functions but does not include a vehicle described in sec_48_4061_a_-1 the term public highway includes any road in the united_states that is not a private roadway examples of vehicles that are designed to perform a function of transporting a load over the public highways are highway-type trucks truck tractors trailers and semi-trailers sec_48_4061_a_-1 provides an exception from the definition of a highway vehicle for certain vehicles specially designed for off-highway transportation this exception provides that a vehicle is not a highway vehicle if it meets two tests a it is specially designed for the primary function of transporting a particular type of load other than over the public highway in connection with construction manufacturing processing farming mining drilling timbering or an operation similar to any of the foregoing enumerated operations the special design test and b by reason of the special design the use of the vehicle to transport the load over the public highways is substantially limited or substantially impaired the substantial impairment test in determining whether the use is limited or impaired account may be taken of whether the vehicle may be driven at regular highway speeds requires a special permit for highway use is overweight overheight or overwidth for regular use and any other relevant considerations revrul_70_350 1970_2_cb_262 holds that tax applies to the sale of a heavy-duty truck chassis irrespective of its width weight construction or the extent to which it may travel other than over the highway the fact that a chassis is designed to withstand rugged use when transporting property over rough terrain does not negate the fact that the chassis is also designed to transport property over the highway the ruling reasons that the paramount consideration in determining whether a vehicle is a highway vehicle is whether the vehicle is designed for the transportation of persons or property over the highway and not the ultimate use of the vehicle revrul_79_296 1979_2_cb_370 holds that tax applies to the sale of truck-tractors and low-bed semitrailers that are used in combination to transport military equipment on and off the highway and that are oversize and require special permits and or escort vehicles on most state highways the ruling holds that while the vehicles have characteristics that impair their use on the highway in that they are oversize and require special permits those characteristics are necessary in order to enable the vehicles to carry their intended load and accomplish their highway transportation function thus the vehicles are not specially designed for off-highway transportation the truck-tractors are eight-by-eight with a ton capacity inch width and maximum speed of miles per hour with a heavy load the low-bed trailers have four axles and a ton capacity and are inches wide revrul_79_308 1979_2_cb_372 holds that tax applies to the sale of a mixer-feeder vehicle designed to transport a load over the public highway with an overall width of inches that sustains highway speeds of miles per hour revrul_81_252 1981_2_cb_209 holds that tax applies to the sale of a dual-use vehicle designed to transport cargo both off-road and in over-the-highway operations because of its special design the vehicle's on-highway cargo capacity is percent less than the cargo capacity of a conventional highway-type cargo carrier however this special design does not substantially limit the vehicle's ability to transport a load over public highways revrul_77_141 1977_1_cb_317 holds that semitrailers designed for hauling heavy oil-field equipment over rough terrain come within the offhighway vehicle exception the semitrailers have gross vehicle weights ranging from big_number to big_number pounds and widths from to inches and may be used on the public highway only under highly restrictive special permits the permits restrict highway movement of the vehicles to daylight hours and prohibit movement on weekends and during inclement weather the ruling concludes that the use of the semitrailers on the highway is substantially limited to be excluded from the definition of a highway vehicle by the offhighway vehicle exception a vehicle must meet both the sec_48_4061_a_-1 special design test and the sec_48_4061_a_-1 substantial impairment test as suggested by the revenue rulings discussed above no single characteristic such as width automatically excludes a vehicle from the definition of a highway vehicle under the offhighway vehicle exception slight modifications made to an otherwise taxable highway vehicle do not satisfy the special design test these types of changes do not contribute to the primary function of transporting a particular type of load other than over the public highway the model a does not meet the offhighway vehicle exception under sec_48_4061_a_-1 because it meets neither the special design nor the substantial impairment test the only evidence submitted with respect to either test is that the rear axle assembly is slightly larger than inches this evidence does not support a substantial impairment or limitation of the use of the vehicle to transport loads over the public highways the classification of an otherwise taxable highway vehicle is based on the design of the vehicle and is not affected by the use for which a particular customer purchases a vehicle that is whether a vehicle purchaser registers that vehicle for highway use or uses the vehicle on the highways is not determinative of whether the vehicle is designed for highway use taxpayer’s liability for tax is not affected by its purchaser’s certification of off-road use of the model a caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it shall not be used or cited as precedent in accordance with sec_6110 names addresses and other identifying numbers have been deleted under sec_48_4061-1 either a chassis or a body may be sold tax free for use as a component in the production of a nonhighway vehicle however this section does not apply to the sale of a completed vehicle as is the case here


number release date id office uilc cca_2009082716473439 ---------------------------- from ------------------------- sent thursday date pm to -------------------- cc subject imperfect protests i have been trying to think of any circumstances where an imperfect protest would hold open the period of limitations for assessment and am having trouble coming up with a fact scenario my experience is that a protest is filed in response to a day letter and occurs before assessment of any_tax it's very common for a taxpayer to file an imperfect refund claim which can hold the period of limitations open for making a refund under but a protest in response to a day letter has no effect on the suspension of the period unlike a tax_court petition and would not normally be considered a claim_for_refund because the assessment hadn't yet occurred as far as i know it is a common practice for the service to suspend a case administratively while a taxpayer pursues appeals relief but that would be in response to a day letter where plenty of time remains open on the statute the period of limitations would continue to run the service just would not be working the case towards stat_notice whether a timely but undeveloped protest has any effect on an oic claim or a cdp case i can't say you'd have to ask someone like ----------------or ----------------- does that help


internal_revenue_service number release date index number ----------------------------------------------- --------------------------------------------- ------------------------------------ ---------------------- attn ------------------------------------------ ein --------------- 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 ita b01 plr-109876-17 date date legend taxpayer date date date q sub buyer parent merger sub cpa dear ------------ ---------------------------------------------------------- ----------------------- --------------------------- --------------------------- --------------------------------------------- -------------------------------------------- ---------------------------- -------------------------------- ------------------------ this responds to a letter_ruling request dated march submitted on behalf of taxpayer taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make an election for the treatment of a success-based_fee in accordance with revproc_2011_29 2011_18_irb_746 which requires that a statement be attached to taxpayer’s original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred taxpayer’s request is with respect to the short taxable_year beginning date and ending date plr-109876-17 facts taxpayer is an s_corporation with a qualified_subchapter_s_subsidiary q sub on date in accordance with the terms of the merger agreement and exchange_agreement buyer acquired all issued and outstanding shares of taxpayer as part of the transaction certain shareholders of taxpayer sold a portion of their common_stock for cash as well as contributed a portion of their common_stock to parent parent is the sole shareholder of buyer in return the shareholders became partial owners of parent in accordance with the merger agreement merger sub a subsidiary of buyer merged with and into taxpayer with merger sub ceasing to exist and taxpayer becoming a wholly-owned subsidiary of buyer taxpayer represents that the transaction qualified as a covered transaction pursuant to sec_1_263_a_-5 of the income_tax regulations on or around date taxpayer hired cpa to prepare and timely file its u s form_1120s for the short tax_year beginning date and ending date consistent with the safe_harbor election provided in revproc_2011_29 i r b pincite taxpayer capitalized of the success-based fees and deducted the remaining on its tax_return for the taxable_year cpa prepared and timely filed the short_year form_1120s on behalf of taxpayer cpa on behalf of taxpayer failed to include the statement required by sec_4 of revproc_2011_29 i r b pincite to elect to use the safe_harbor method of allocating success-based fees to taxpayer’s original federal tax_return for the taxable_year promptly upon the discovery of the inadvertent and unintentional omission of the safe_harbor election statement taxpayer sought relief based on its reasonable reliance on cpa taxpayer and cpa have each prepared and submitted an affidavit regarding cpa’s failure to attach the required election statement to taxpayer’s return law sec_263 of the internal_revenue_code provides generally that no deduction shall be allowed for any amount_paid in exchange for property having a useful_life extending beyond the end of the taxable_year see also sec_1_263_a_-2 no deduction is allowed for an amount_paid to acquire or create an intangible which includes an ownership_interest in a corporation or other entity sec_1_263_a_-1 see also sec_1_263_a_-4 a -4 d i a costs incurred in the process of acquisition or reorganization of a business_entity that produce significant long-term benefits must be capitalized 503_us_79 sec_1_263_a_-5 providing that taxpayers must capitalize amounts paid to facilitate certain transactions set forth in that section sec_1_263_a_-5 provides that an amount is paid to facilitate a transaction if the amount is paid in investigating or otherwise pursuing the transaction whether an plr-109876-17 amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances sec_1_263_a_-5 sets forth the rule governing success-based fees it provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 is treated as an amount_paid to facilitate the transaction except to the extent the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction this documentation must be completed on or before the due_date of the taxpayer’s timely filed original federal_income_tax return including extensions for the taxable_year during which the transaction closes a taxpayer’s method for determining the portion of a success-based_fee that facilitates a transaction and the portion that does not facilitate the transaction is a method_of_accounting under sec_446 section dollar_figure of revproc_2011_29 2011_18_irb_746 provides a safe_harbor election for allocating success-based fees paid in business_acquisitions or reorganizations described in sec_1_263_a_-5 pursuant to section dollar_figure of revproc_2011_29 i r b pincite the service will not challenge a taxpayer’s allocation of a success-based_fee between activities that facilitate a transaction described in sec_1_263_a_-5 and activities that do not facilitate the transaction if the taxpayer treats of the amount of the success-based_fee as an amount that does not facilitate the transaction capitalizes the remaining as an amount that does facilitate the transaction and attaches a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success- based fee amounts that are deducted and capitalized sec_301_9100-1 sets forth the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin pursuant to sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 sets forth the rules applicable to requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief pursuant to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 that plr-109876-17 establishes that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the service failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides that an extension of time to make a regulatory election will be granted only when the interests of the government are not prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section sec_301_9100-3 plr-109876-17 sec_301_9100-3 provides special rules for accounting_method regulatory elections the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested i ii iii iv is subject_to the procedure set forth in sec_1_446-1 of this chapter requiring advance written consent of the commissioner requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year in which the election should have been made would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals_office or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year analysis taxpayer’s election is a regulatory election as defined in sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_263_a_-5 the commissioner has the authority under sec_301_9100-1 and sec_301_9100-3 to grant an extension of time to file a late regulatory election the information provided and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith taxpayer requested relief before the failure to make the regulatory election was discovered by the service taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time relief is requested taxpayer did not affirmatively choose not to make the election after having been informed in all material respects of the required election and related tax consequences rather taxpayer inadvertently failed to attach the mandatory election statement immediately upon realizing the omission taxpayer filed for relief taxpayer is not using hindsight in requesting relief further based on the information provided and representations made by taxpayer granting an extension will not prejudice the interests of the government taxpayer will not have a lower tax_liability in the aggregate for all taxable years to which the election applies at this time than taxpayer would have had if the election had been timely made in addition the taxable_year in which the regulatory elections should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under plr-109876-17 sec_6501 before taxpayer’s receipt of the ruling granting an extension of time to make a late election conclusion based solely on the information provided and representations made we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statement as required by section dollar_figure of revproc_2011_29 i r b pincite stating that it is electing the safe_harbor for allocating success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether taxpayer properly included the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer’s transactions were within the scope of revproc_2011_29 2011_18_irb_746 this ruling is directed only to the taxpayer requesting it pursuant to sec_6110 this ruling 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 alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to its return that provides the date and control number of the letter_ruling the rulings contained in this letter are based on information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-109876-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely tajuana e nelson hyde senior technician reviewer branch income_tax accounting cc internal_revenue_service attn psp


internal_revenue_service department of the treasury washington dc number release date index number ----------------------- -------------------------------------------------------- ------------------------------- --------------------------------- third party communication none date of communication not applicable_person to contact ----------------- id no ------------------ telephone number ---------------------- refer reply to cc tege eb qp3 plr-110889-18 date date ------------------------------------------------------------------------------------------ ------------------- ------------------ --------------- ---------------------------------------------------------- ---------------------- -------------------- --------------------------- -------------------- -------------------------- ------- ------- -------------- ------------------------------------------------------------------------------------------ ------------------- -------------------------------------------------------------- ----------------------- administrator taxpayer decedent trust date date date date date year year state ira rollover ira custodian dear ----------------- this letter responds to taxpayer’s request dated date as supplemented by correspondence following taxpayer’s death on date dated date date date date date and date submitted on behalf of administrator administrator of taxpayer’s estate by administrator’s authorized representative in which a series of rulings are requested under sec_408 of the internal_revenue_code code plr-110889-18 the following facts and representations were submitted under penalty of perjury on first taxpayer’s and subsequently administrator’s behalf decedent and taxpayer husband and wife established a revocable_trust trust on date under the laws of state decedent died on date all assets held by trust consisted entirely of taxpayer's and decedent’s community_property upon decedent’s death taxpayer became the sole trustee of trust at the time of decedent’s death decedent owned an ira held by custodian trust was listed as the beneficiary of ira when decedent died ira became an asset of the trust in accordance with the terms of the trust trust assets including ira were allocated to a subtrust survivor’s trust under the terms of the survivor’s trust taxpayer as the sole income and principal beneficiary was entitled to receive the right to income_for_life and as much of the principal as is reasonably necessary for taxpayer’s health support maintenance comfort or happiness to maintain at a minimum taxpayer’s accustomed manner of living the trust also granted taxpayer the unlimited right to appoint any or all of the survivor’s trust property including to herself on date through the exercise of taxpayer’s power_of_appointment under the survivor’s trust the assets of ira were distributed and transferred to a non-ira account of the survivor’s trust on date which is within sixty days of date those amounts were distributed from the non-ira account held by the survivor’s trust and paid to rollover ira established in taxpayer’s name on date after submitting this request taxpayer died administrator is pursuing this request on behalf of the taxpayer’s estate based on the preceding facts taxpayer requested the following rulings that taxpayer will be treated as the payee or distributee of decedent’s ira that decedent’s ira is not an inherited ira for purposes of sec_408 with respect to taxpayer that taxpayer’s rollover of ira assets into rollover ira in her name was a valid rollover under sec_408 that taxpayer will not be required to include in her gross_income for federal income_tax purposes in year or year the amount distributed from decedent’s ira and rolled over to rollover ira pursuant to sec_408 plr-110889-18 with respect to your ruling requests sec_408 provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b 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 i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at the time during the one-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in his gross_income because of the application of sec_408 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 gross_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 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 in the present case decedent’s ira passed to the trust pursuant to the terms of the trust trust assets including ira were allocated to the survivor’s trust however under the terms of the survivor’s trust taxpayer as sole beneficiary was entitled to receive all of the income and principal of the survivor’s trust to which ira was allocated this is because taxpayer had the right to and did in fact direct the trustee in writing to pay to taxpayer any such amounts from the survivor’s trust as taxpayer plr-110889-18 may designate which included directing the assets from ira to first be distributed from ira and then within days rolled over to rollover ira notwithstanding the fact that the assets were held in a non-ira account before being paid to rollover ira accordingly for purposes of applying sec_408 to the ira taxpayer is effectively the individual for whose benefit the account is maintained as such taxpayer was entitled to roll over such amounts other than those required_minimum_distribution amounts required to have been distributed under sec_401 into rollover ira an ira established and maintained in her name therefore with respect to your ruling requests we conclude that taxpayer will be treated as the payee or distributee of decedent’s ira that decedent’s ira is not an inherited ira for purposes of sec_408 with respect to taxpayer that taxpayer’s rollover of the assets from decedent’s ira into rollover ira in her name was a valid rollover under sec_408 that taxpayer will not be required to include in her gross_income for federal income_tax purposes in year or year the amount distributed from decedent’s ira and rolled over to rollover ira pursuant to sec_408 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 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 as specified in revproc_2018_1 2018_1_irb_1 b this office has not verified any of the material submitted in support of the request_for_ruling and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions the controlling facts change during the course of the transaction see revproc_2018_1 dollar_figure plr-110889-18 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely jason levine senior technician reviewer qualified_plans branch tax exempt government entities cc