internal_revenue_service department of the treasury number release date index number legend washington dc person to contact telephone number refer reply to cc psi b09 plr-106299-01 date date decedent date spouse date trust daughter dear sir this letter responds to your letter dated date and subsequent correspondence submitted on behalf of decedent’s estate requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make a qualified_terminable_interest_property qtip_election under sec_2056 of the internal_revenue_code the facts and representations submitted are summarized as follows decedent died on date survived by spouse the executor represents that the estate retained an attorney to prepare the estate_tax_return the estate filed a form_706 federal estate_tax_return in date the executor relied on the advice of the attorney and signed the estate_tax_return as it was prepared the attorney failed to advise the estate of the need to make a sec_2056 qtip_election on schedule m of the return the ninth paragraph of article fourth of decedent’s will provides that if my wife spouse shall survive me i give devise and bequeath to my trustee hereinafter referred to as the trust an aggregate dollar amount of property equal to the unlimited_marital_deduction allowable in determining the federal estate_tax payable by reason of my death diminished by i the amount by which my gross_estate for federal estate_tax purposes is deemed increased by virtue of sec_2602 of the internal_revenue_code as a result of a generation-skipping_transfer and ii provided however that this plr-106299-01 bequest shall be reduced by an amount if any needed to increase my credit against the federal estate_tax being imposed upon my estate the fourteenth paragraph of article fourth of decedent’s will provides that it is my intention to create hereby a pecuniary_bequest and not a fractional share of my estate and that this trust be available and qualify for the federal estate_tax unlimited_marital_deduction this bequest shall carry with it its share of the income of my estate from the date of my death the sixteenth paragraph of article fourth of decedent’s will provides that in establishing and administering the trust my executor and trustee shall be vested with all of the powers and authority hereinafter set out provided however that it is my intention that the trust shall qualify for the marital_deduction and neither my executors nor my trustees shall have power or authority to exercise any of such powers in any manner which would disqualify this trust for the marital_deduction in addition i direct that my executor shall make any elections necessary in accordance with sec_2056 or otherwise to effectuate that this bequest shall qualify for the marital_deduction the seventeenth paragraph of article fourth of decedent’s will provides that the trust shall be held administered and disposed of as follows a the trustee shall pay to or apply for the benefit of my wife spouse during her lifetime all of the net_income in convenient installments but at least quarter-annually b upon the death of my said wife the principal remaining in this trust together with any accrued or undistributed_income therefrom i give devise and bequeath to my daughter daughter absolutely and outright and c on the death of my said wife my trustee is authorized to withhold from distribution an amount of property sufficient in its judgment to cover any liability that may be imposed on my trustee or on the trust remainderman pursuant to sec_2207 for estate or other taxes or liabilities until such taxes or liabilities are finally determined and provided for and to pay such liability from such property you have requested an extension of time under sec_301_9100-1 to make a qtip_election under sec_2056 for the trust 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_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by subsection b be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate plr-106299-01 sec_2056 provides the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines qualified_terminable_interest_property as property that passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if the surviving_spouse is entitled to all of the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property is made by the executor on the return of tax imposed by sec_2001 such an election once made is irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections plr-106299-01 sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_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 sec_301_9100-3 provides that a taxpayer will not be considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not i competent to render advice on the regulatory election or ii aware of all relevant facts sec_301_9100-3 provides that 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 based on the facts submitted and the representations made the standards of sec_301_9100-1 and sec_301_9100-3 have been met because the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government consequently we grant an extension of time for making the qtip_election under sec_2056 for trust the election must be made within days of the date of this letter the election should be made on a supplemental form_706 filed with the service office where the original from was filed a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for that purpose except as expressly provided herein 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 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to decedent’s estate plr-106299-01 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely paul f kugler associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------------------------ --------------------------- ----------------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-142248-09 date january legend x country date --------------------------- ------- --------------- --------------------- -------------------------- dear -------------- this responds to your letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a partnership for federal tax purposes the information submitted states that x was formed in country on date x represents that as a foreign eligible_entity x was eligible to elect to be treated as a partnership for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 of the income_tax regulations provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 further provides that an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under plr-142248-09 sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a partnership if it has two or more members and at least one member does not have limited_liability except as provided in sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than 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 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as a partnership for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 plr-142248-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely curt g wilson associate chief_counsel passthroughs special industries enclosure copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court wilson heirs trust r s ohendalski trustee petitioner v commissioner of internal revenue respondent docket no 22627-14l filed date richard s ohendalski trustee for petitioner susan kathy greene for respondent memorandum findings_of_fact and opinion pugh judge richard s ohendalski a resident of texas in his capacity as trustee for petitioner wilson heirs trust trust petitioned the court for review of respondent’s notice_of_determination concerning collection action s under and or sustaining the notice_of_intent_to_levy levy notice and filing of a notice_of_federal_tax_lien lien notice with respect to the trust’s unpaid federal tax_liabilities reported on form sec_1041 u s income_tax return for estates and trusts for and the issue for decision is whether respondent may proceed with the collection actions identified in the notice_of_determination findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference the trust had a texas mailing address and legal residence at the time the petition was filed on date respondent issued to the trust the lien notice at issue in this case and on date respondent timely received from mr ohendalski a form request for a collection_due_process or equivalent_hearing requesting a hearing on date respondent issued to the trust the levy notice at issue in this case and on date respondent timely received from mr ohendalski a form requesting a hearing in both hearing requests mr ohendalski summarized the trust’s reason for the challenge as follows taxpayer not covered by statutory unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended in effect at all relevant times levy and distraint authority this was the only issue raised during the administrative hearing as well the trust did not challenge the underlying liabilities the settlement officer rejected the trust’s position as frivolous and on date respondent issued the notices of determination the trust timely petitioned the court for review opinion if a taxpayer requests a hearing in response to a lien or levy notice pursuant to sec_6320 or sec_6330 a hearing shall be held before an impartial officer_or_employee of appeals sec_6320 b at the hearing the taxpayer may raise any relevant issue sec_6330 in addition to considering issues raised by the taxpayer under sec_6330 the appeals officer must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 where the validity of the underlying tax_liability is at issue we review the commissioner’s determination de novo 114_tc_176 where the underlying tax_liability it not properly at issue we review the determination for abuse_of_discretion id pincite the question of whether the trust is subject_to the proposed collection actions was the only issue that mr ohendalski raised during the administrative hearing and is the only issue before us see 129_tc_107 i ssues under sec_6330 must have been raised properly when the appeals officer made her determination before we can review those issues in the context of an appeal of that determination the trust has not challenged whether the settlement officer satisfied the verification requirements of sec_6330 and our review of the administrative record and notice_of_determination likewise reveals no irregularities at trial mr ohendalski explained that he was not intending to take a frivolous position nor was he claiming that the trust was exempt from collection activities just because it is a_trust rather his position is that the collection action is improper because the trust is not among the entities covered by the levy procedures under sec_6331 he bases his legal argument on the language of sec_6331 as clarified in his view by sec_3310 of the internal_revenue_code_of_1939 we begin our analysis where mr ohendalski did with sec_6331 that section authorizes the internal_revenue_service to collect by levy taxes owed from any person liable to pay any_tax who neglects or refuses to pay the same within days after notice_and_demand mr ohendalski argues that we must define any person by reference to sec_3310 of the internal revenue code because sec_3310 was the predecessor provision to sec_6331 that matches the statute congress enacted originally mr ohendalski argues that we must resort to the original statute because the internal_revenue_code is a code not positive law and as a code it is only prima facia evidence of what was in the statute that congress enacted when mr ohendalski traces sec_6331 back to a statute enacted by congress he ends with the statute enacted in sec_3310 he asserts that the original section covered only two classes of persons and that the trust does not fall in either class therefore according to mr ohendalski the trust cannot be subject_to levy when asked by the court whether he would agree that the trust is subject_to levy if we produced a citation of a statute rather than the internal_revenue_code that includes the same language that now appears in sec_6331 mr ohendalski readily did so we now fulfill our promise sec_6331 was enacted as part of the internal_revenue_code of irc ch 68a stat pincite which provides if any person liable to pay any_tax neglects or refuses to pay the same within days after notice_and_demand it shall be lawful for the secretary or_his_delegate to collect such tax by levy upon all property and rights to property belonging to such person or on which there is a lien provided in this chapter for the payment of such tax thus irc sec_6331 is positive law as is for that matter the internal_revenue_code_of_1986 which was enacted by congress in the tax_reform_act_of_1986 pub_l_no stat see u s c sec_112 each amendment thereto also is positive law and as we have said before any argument that the revenue laws are not applicable because of the status of the internal_revenue_code is frivolous e g wagenknecht v commissioner tcmemo_2008_288 urban v commissioner tcmemo_1984_85 the language used in sec_6331 has changed very little since the original statute was enacted in the provision applies to any person liable to pay any_tax as the trust is a person liable to pay any_tax sec_6331 we hold that it is covered by the levy procedures under sec_6331 we find no abuse_of_discretion by the settlement officer and sustain respondent’s determination to reflect the foregoing decision will be entered for respondent


tcmemo_1996_379 united_states tax_court sarah r elgart and stephen k glassman petitioners v commissioner of internal revenue respondent docket no filed date phyllis a steinhauer for petitioners marilyn devin for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge larry l nameroff pursuant to sec_7443a and rules the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge nameroff special_trial_judge this case is before us on respondent's motion to dismiss for lack of jurisdiction on the ground that petitioners failed to file their petition within the time period prescribed by sec_6213 background prior to march of respondent commenced an examination of petitioners' return on date petitioners signed and filed form_2848 power_of_attorney and declaration of representative appointing their attorney phyllis a steinhauer ms steinhauer eighth street manhattan beach california as their attorney-in-fact for the taxable_year line of the form_2848 provides notices and communications --notices and other written communications will be sent to the first representative listed in line ie ms steinhauer on the form_2848 petitioners showed their home address a sec_703 palms boulevard venice california the palms address all section references are to the internal_revenue_code all rule references are to the tax_court rules_of_practice and procedure by notice_of_deficiency dated date respondent determined a deficiency in petitioners' federal_income_tax in the amount of dollar_figure plus an addition_to_tax under sec_6651 in the amount of dollar_figure and an accuracy-related_penalty under sec_6662 in the amount of dollar_figure the notice_of_deficiency was sent by certified mail to petitioners at the palms address according to the certified mail receipt the deficiency_notice was delivered by the u s postal service and signed for on date in a letter dated date richard r orosco district_director of the los angeles office of the internal_revenue_service irs advised ms steinhauer that materials pertaining to the petitioners were being furnished to her pursuant to a power_of_attorney on file with the irs a copy of the notice_of_deficiency clearly dated date and stamped original was attached to the letter the envelope containing this letter and the copy of the deficiency_notice has an illegible postmark date however the envelope and its contents were stamped as received by ms steinhauer on date the copy of the deficiency_notice was not sent by certified mail or registered mail to ms steinhauer on date ms steinhauer telephoned cynthia lowden assistant manager of the 90-day section of the los angeles irs office regarding the final date for filing a petition with this court ms steinhauer was advised that the final due_date for filing a petition with this court was date ms steinhauer sent a letter confirming this information to ms lowden at the irs on date on date petitioner stephen k glassman and ms steinhauer attended a meeting with revenue_agent kim slater during that meeting they were advised by ms slater that a petition with this court could be filed and was due by date petitioners filed a petition for redetermination with this court on date the petition was delivered to the court by certified mail in an envelope bearing a u s postmark date of date the 90-day period for filing a petition with this court expired on wednesday date which date was not a legal_holiday in the district of columbia as indicated respondent filed a motion to dismiss for lack of jurisdiction on the ground that the petition was not filed within the 90-day period prescribed in sec_6213 on date petitioners filed an objection to respondent's motion to dismiss alleging that respondent failed to mail the original deficiency_notice by registered or certified mail to their last_known_address which they contend is the address of their authorized representative ms steinhauer and as a result the 90-day period to file a petition did not begin to run until the actual receipt of the deficiency_notice by ms steinhauer on date in addition petitioners contend that they received and relied on advice from the irs regarding the due_date of the petition discussion this court's jurisdiction to redetermine a deficiency depends upon the timely issuance of a valid notice_of_deficiency and a timely filed petition rule a c 93_tc_22 90_tc_142 sec_6212 authorizes the secretary or_his_delegate upon determining that there is a deficiency in income_tax to send a notice_of_deficiency to the taxpayer by certified or registered mail sec_6212 provides that a notice_of_deficiency in respect of an income_tax shall be sufficient if it is mailed to the taxpayer at his last_known_address generally the commissioner has no duty to effectuate delivery of the notice after it is mailed monge v commissioner supra pincite neither sec_6212 nor the regulation promulgated thereunder sec_301_6212-1 proced admin regs defines what constitutes a taxpayer's last_known_address we have defined it as the taxpayer's last permanent address or legal residence known by the commissioner or the last known temporary address of a definite duration to which the taxpayer has directed the commissioner to send all communications during such period 74_tc_430 62_tc_367 affd without published opinion 538_f2d_334 9th cir stated otherwise it is the address to which in light of all the surrounding facts and circumstances the commissioner reasonably believed the taxpayer wished the notice to be sent weinroth v commissioner supra the relevant focus is thus on the commissioner's knowledge rather than on what in fact may have been the taxpayer's actual address in use 78_tc_215 citing alta sierra vista inc v commissioner supra in 91_tc_1019 we held that a taxpayer's last_known_address is the address shown on his most recent return absent clear and concise notice of a change_of address monge v commissioner supra pincite however once respondent has become aware of a change in address she must use reasonable care and diligence in ascertaining and mailing the notice_of_deficiency to the correct address whether respondent has properly discharged this obligation is a question of fact weinroth v commissioner supra pincite alta sierra vista inc v commissioner supra pincite a validly executed power_of_attorney may suffice to render an attorney's address as the taxpayer's last_known_address if it directs that all original notices and written communications be sent to the taxpayer at the attorney's address see d'an263_f2d_904 d c cir 72_tc_21 59_tc_818 the forms executed by the parties in the above-cited cases directed the taxpayers to choose between having originals or copies of all notices and written communications sent to their representatives the new form_2848 which was revised in march of and which is involved in this case provides simply that notices and other written communications will be sent to the taxpayer's designee we have previously held that such language is sufficient to render the address of the taxpayer's representative as the last_known_address of the taxpayer see honts v commissioner tcmemo_1995_532 even if a validly executed power_of_attorney directs that all notices and communications relating to the taxpayers be delivered to the attorney the failure to send a notice_of_deficiency to the attorney as directed is not necessarily fatal see paul v commissioner tcmemo_1985_21 it is clearly established that if mailing results in actual notice without prejudicial delay the notice_of_deficiency meets the conditions of sec_6212 no matter what address was used 886_f2d_1237 9th cir affg 89_tc_1063 527_f2d_754 9th cir affg 57_tc_102 needham v commissioner tcmemo_1993_440 in the present case it is irrelevant whether ms steinhauer's address or the palms address was petitioners' last_known_address on date respondent mailed a notice_of_deficiency to petitioners at the palms address a copy of the deficiency_notice and a letter from the irs both dated date were also mailed to ms steinhauer's address pursuant to the power_of_attorney petitioners received the deficiency_notice on date and ms steinhauer received the deficiency_notice on date regardless of which address was the last_known_address an individual at each address received the notice in time for petitioners to timely file a petition see 81_tc_65 affd 769_f2d_1376 9th cir the last day to timely file a petition with this court was on date however the petition was not mailed until date petitioners failed to file the petition within the 90-day period prescribed in sec_6213 accordingly petitioners did not timely file their petition and we lack jurisdiction we disagree with petitioners' argument that respondent must send the original notice_of_deficiency to petitioners' last_known_address see mulvania v commissioner supra pincite we note that the united_states court_of_appeals for the third circuit has squarely addressed and rejected petitioners' argument in 404_f2d_668 3d cir affg 48_tc_848 in berger pincite the court stated we therefore reject a construction of the procedural provisions of sec_6212 which would yield the startling conclusion that a notice given to clients and their lawyer is inadequate even though they received it in due course simply because the lawyer's copy should have been the original and the channel of certified mail which was used for the taxpayers should have been used for the lawyer moreover petitioners' argument that because the irs did not send an original of the deficiency_notice to ms steinhauer the date of her receipt commences the 90-day period for filing of the petition lacks merit turning to petitioners' argument that they were advised by several employees of the irs that the date by which a petition must be filed in this case was date we are unable to provide any relief for petitioners the law is clear that erroneous legal advice rendered by employees of the irs generally is not binding on the commissioner 381_us_68 312_f2d_311 9th cir affg in part and revg in part 32_tc_998 and however as indicated earlier it appears that the copy ms steinhauer received was stamped original in this day of modern communication and photocopies there is little to distinguish an original from a copy stamped original 32_tc_1017 41_tc_316 affd 353_f2d_429 3d cir in any event the commissioner cannot waive the jurisdictional requirements and jurisdiction cannot be established by estoppel the notice_of_deficiency provides if you want to contest this determination in court before making any payment you have days from the date of this letter to file a petition with the united_states tax_court for a redetermination of the deficiency the date stamped on the notice_of_deficiency was clearly date petitioners and their counsel had the responsibility for correctly calculating the end of the 90-day period because the petition was not mailed until days after the mailing of the notice_of_deficiency we conclude that the petition was not timely filed within meaning of sec_7502 and sec_6213 accordingly we shall grant respondent's motion to dismiss this case for lack of jurisdiction in order to give effect to the foregoing although petitioners cannot pursue their case in this court they are not without a remedy in short petitioners may pay the tax file a claim_for_refund with the internal_revenue_service and if the claim is denied sue for refund in the appropriate federal district_court or in the u s court of federal claims see 55_tc_138 an order will be entered granting respondent's motion to dismiss for lack of jurisdiction


internal_revenue_service number release date index number --------------------------------------------------------- --------------------------- ---------------------------------- -------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no -------------- telephone number --------------------- refer reply to cc intl b04 plr-105207-08 date date --------------------------------------- taxpayer ------------------------------------------------- ----------------------------------------- parent -------------------------------------------------- -------------------------- --------------------------- entity ----------------------------------------- --------------------------------------------- --------------------------------------------------------- sub ------------------------------------------------- ----------------------------------------- sub ------------------------------------------------- ------------------------------------------------------- --------------------------------------------------- sub ------------------------------------------------ ----------------------------------------- sub --------------------------------- ----------------------------------------------------- ----------------------------------------- plr-105207-08 date ------------------- date ------------------- date --------------------------- dear ---------------------------- this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to satisfy the statement and notice requirements of sec_1_897-2 and sec_1_897-2 the information submitted for consideration is substantially as set forth below the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request_for_ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer is a foreign_corporation wholly-owned by parent also a foreign_corporation taxpayer wholly owns entity a domestic limited_liability_company which is disregarded as an entity separate from taxpayer for federal tax purposes entity wholly owns sub a domestic_corporation which owns other entities including sub a domestic_corporation on date entity formed sub a foreign_corporation in a transaction pursuant to sec_351 on date entity transferred sub to sub in a transaction pursuant to sec_351 on date entity formed sub a foreign_corporation in a transaction pursuant to sec_351 also on date entity transferred the stock of newly formed sub to sub in a transaction pursuant to sec_351 finally on date sub transferred the stock of sub to sub in a transaction pursuant to sec_351 neither taxpayer nor sub timely filed the statements and notices required under sec_1_897-2 and sec_1_897-2 to establish that sub was not a u s real_property holding corporation and that withholding under sec_1445 was not required upon the disposition of the stock of sub sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement an election includes an application_for relief in respect of tax plr-105207-08 sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and circumstances of this case we conclude that the standards of sec_301_9100-3 have been satisfied accordingly the parties are granted an extension of time until days from the date of this ruling letter to satisfy the statement notice and withholding requirements of sec_1_897-2 sec_1 h and c with respect to the transfer of sub stock on date and the transfer of sub stock on date the granting of an extension of time is not a determination that the parties are otherwise eligible to comply with the statement notice and withholding requirements sec_301_9100-1 no opinion is expressed as to the application of any other section of the code or regulations to the facts presented this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling should be attached with the statements and the notices mailed to the irs 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 david b bailey assistant to the branch chief branch international cc


department of the treasury internal_revenue_service washington d c date number release date cc intl br4 wta-n-109399-00 uilc internal_revenue_service national_office field_service_advice memorandum for from subject this field_service_advice is issued pursuant to section b of revproc_2000_1 2001_1_irb_4 this field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent disclosure statement field_service_advice is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend parent dsub1 fdistributing fcontrolled fsub1 fsub2 fsub3 fsub4 country a country b business x business y a b c d e f g h i j k l m date a date b date c date d date e date f facts publicly traded parent is the parent of an affiliated_group_of_corporations filing a consolidated_return taxpayer taxpayer conducts business x and business y among others through both domestic and foreign_corporations parent had requested rulings as to the federal_income_tax consequences of the transaction described below that was consummated beginning on date a before the steps described below parent wholly owned dsub1 and fsub1 and a percent of fdistributing fsub1 owned the remaining b percent of fdistributing and wholly owned fsub2 which was represented to be classified as disregarded as an entity separate from fsub1 under sec_301_7701-3 of the income_tax regulations after the steps described below parent wholly owned dsub1 and fsub1 dsub1 wholly owned fcontrolled fsub1 wholly owned fsub2 and fsub2 wholly owned fdistributing taxpayer represented that pursuant to its plan the steps of the country a restructuring transaction the plan_of_reorganization occurred as follows step on date a parent sold its entire_interest in fdistributing to fsub1 for c which taxpayer represented to be an amount equal to fair_market_value step on date b fsub1 contributed its interest in fdistributing to fsub2 step on date c fdistributing contributed all of its business y assets including its subsidiaries to newly formed fcontrolled in exchange for fcontrolled stock and the assumption by fcontrolled of related liabilities step on date c parent contributed d to dsub1 step on date c dsub1 purchased the shares of fcontrolled from fdistributing in exchange for d which taxpayer represented to be an amount equal to fair_market_value step on date c fdistributing distributed e the full extent of its known available distributable earnings to fsub1 through fsub2 step on or about date d fdistributing and fcontrolled were renamed fsub3 and fsub4 respectively step on date e more than months after step fdistributing distributed f to the full extent of fdistributing’s known available distributable earnings to fsub1 step on date f months after step fdistributing distributed g out of fdistributing’s available distributable earnings to fsub1 discussion taxpayer sought several related rulings to the effect that there was a circle of cash in the amount of d that would be disregarded under the authority of revrul_83_142 1983_2_cb_68 thus taxpayer proposed that the steps described in step through step of the plan_of_reorganization set forth above would be treated for federal_income_tax purposes as if a fdistributing had transferred its business y assets including the stock of its business y subsidiaries to newly formed fcontrolled in exchange for fcontrolled stock and the assumption by fcontrolled of related liabilities known available distributable earnings is the amount of earnings that taxpayer represented could be distributed without causing fdistributing to incur a country a tax b fdistributing had distributed all the stock of fcontrolled to parent in redemption of parent’s entire stock interest in fdistributing and c parent had transferred the stock of fcontrolled to dsub1 no ruling was requested with respect to the amount of m c less d received by parent from fsub1 in exchange for the fdistributing stock however we do not believe that the distributions of f and g in step and step respectively of the plan_of_reorganization should be treated as part of a circle of cash so as to be disregarded among the factors taken into consideration were there was no binding agreement for step and step to occur ab initio the period of time that step and step occurred after step through step suggests that these steps were not transitory the amounts of f and g were not segregated by fdistributing and could be used for general corporate purposes including to earn income or be pledged to treat these amounts as part of a circle of cash would result in parent making funds available to fdistributing for a period of time without receiving payment for_the_use_of these amounts there was no intention for fdistributing to pay these amounts to parent until an independent separate event occurred ie until fdistributing had available distributable earnings the presence of which would avoid incurring a country a tax upon their distribution and there was no apparent legal prohibition under applicable country a law preventing step and step from occurring prior to months and months respectively after step thus we concluded that the cash in the amount of k should not be disregarded and should be given tax significance pursuant to the plan_of_reorganization to the extent of e the circle of cash amount step through step of the plan_of_reorganization should be characterized in the manner requested by taxpayer ie to the extent of h of the fcontrolled stock that was distributed by fdistributing to parent as a reorganization under sec_368 and sec_355 see revrul_83_142 1983_2_cb_68 thus to this extent taxpayer’s characterization of the steps is to be respected to the extent that the cash exceeded e the circle of cash amount in steps one through six of the plan_of_reorganization the tax consequences may be viewed as follows first with respect to step the amount of i c less e may be treated as the purchase_price paid_by fsub1 for the acquisition from parent of approximately j of the outstanding fdistributing stock however we do not express any opinion as to the applicability of sec_304 to such purchase second with respect to step the amount of k d less e may be treated as a transfer by parent to dsub1 third with respect to step the amount of k d less e may be treated as the purchase_price paid_by dsub1 for the acquisition from fdistributing of approximately j of the outstanding fcontrolled stock however we do not express any opinion as to the applicability of sec_304 to such purchase fourth with respect to step and step since only the distribution of e on date c should be treated as part of the circle of cash amount the remaining distributions from fdistributing to fsub1 in the amount of f and g on date e and date f respectively may be treated as dividend distributions under sec_301 to the extent dividend treatment is applicable such distributions may be foreign personal holding income under sec_954 since fdistributing and fsub1 were incorporated in country a and country b respectively case development hazards and other considerations if your office determines that an adjustment is appropriate we are setting forth below tax consequences that your office may associate with the characterizations described above first with respect to the characterization of step we note that if sec_304 were applicable it would treat the amount of i as being distributed to parent in redemption of stock of fsub1 and if the amount of i is treated as a distribution to which sec_301 applies parent is treated as making a transfer of fdistributing stock to fsub1 in exchange for stock in fsub1 in a transaction to which sec_351 applies consequently sec_367 would apply as appropriate followed by fsub1's redemption of the fsub1 stock it was treated as issuing to parent second with respect to the characterization of step as a transfer from parent to dsub1 the characterization may be viewed as a transfer described in sec_118 and or third with respect to the characterization of step we note that if sec_304 were applicable it would treat the amount of k as being distributed to fdistributing in redemption of stock of dsub1 and if the amount of k is treated as a distribution to which sec_301 applies fdistributing is treated as making a transfer of fcontrolled stock to dsub1 in exchange for stock in dsub1 in a transaction to which sec_351 applies consequently sec_367 would apply as appropriate followed by dsub1's redemption of the dsub1 stock it was treated as issuing to fdistributing further to the extent the redemption is treated as a dividend under sec_301 sec_1442 may have required the deduction and withholding of taxes by dsub1 imposed under sec_881 in addition we are including two alternative characterizations of the amounts in excess of the e circle of cash amount these alternatives were set forth by parent and may be expected to be set forth again we are also including some of our initial thoughts on these alternatives in order that you have the benefit of them for discussion purposes or determining the risks of litigation if necessary one alternative would characterize the undistributed amount as of date e ie g and or date c ie k as a capital_contribution from fsub1 to fdistributing based on the substance of the transaction under this alternative the distributions in the amount of g and or f on date f and date e respectively would be dividend distributions under sec_301 and would constitute foreign_personal_holding_company_income under sec_954 this alternative was not adopted partially based upon nestle holdings inc v commissioner 152_f3d_83 2nd cir another alternative would characterize the transaction as i a sale by parent of j of its interest in fdistributing to fsub1 in return for i ii a purchase by parent of l of the stock of fcontrolled from fdistributing for k and iii a contribution of such fcontrolled stock by parent to dsub1 this characterization reflects the actual transfer of the cash by wire from parent to fdistributing rather than from parent to dsub1 to fdistributing as set forth in step and step however we partially declined to accept this characterization because we understood that the wire transfer from parent to fdistributing rather than from dsub1 as set forth in the ruling_request and the plan_of_reorganization was unknown to any of the persons at the conference of right until after we had advised that we were tentatively adverse our discussions with parent personnel indicated that the cash received by fdistributing was intended to be the consideration for the sale by it to dsub1 of the stock of fcontrolled further in this case the short-cutting of the steps of the plan_of_reorganization was ignored as it appeared that the parties to the transaction gave credence to each of the planned transfers as a step as appropriate although the circle of cash in the amount of e was a series of steps that were transitory and thus to be disregarded in accordance with revrul_83_142 supra also nestle holdings inc v commissioner 152_f3d_83 2nd cir may support this approach if you have any further questions please call aaron farmer at michael h frankel assistant to the branch chief office of associate chief_counsel international


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-153602-01 date date legend taxpayer division plant commission a commission b state law a b c d e f g h i j k l m n o p q nuclearco company company partnership new name holding parent plr-153602-01 dear this letter responds to your request dated date that we rule on certain tax consequences under sec_468a of the internal_revenue_code of the transfer of the plant in the context of a tax-free reorganization intended to qualify under sec_351 as set forth below you have requested rulings regarding the tax consequences to taxpayer and nuclearco and their qualified nuclear decommissioning funds taxpayer has represented the following facts and information relating to the ruling_request within taxpayer the division conducts taxpayer’s regulated electric utility business providing generation transmission distribution and retail sales of electric power to industrial and retail customers in the state taxpayer is under the regulatory jurisdiction of commission a and commission b taxpayer owns a percent of the plant in b the state enacted law in order to allow full retail competition beginning on c pursuant to law taxpayer is required to separate its generation transmission and distribution and retail activities into three segments under either common or separate ownership beginning on c all existing retail electric customers of taxpayer will have the option of selecting a different retail electric provider or become a customer of taxpayer’s affiliated retail electric provider taxpayer’s affiliated retail electric provider is required_by_law to offer to sell electricity to residential and small_business customers in its traditional service territory at a specified price until d unless commission a determines before that date that e percent of the power consumed by that class of consumers is being served by other non-affiliated retail electric providers taxpayer’s affiliated retail electric provider is also required to sell at auction f percent of the output of its installed electric generating capacity the first auction was held in g for power delivered after h this obligation continues until i unless commission a determines before that date that e percent of the power consumed by residential and small_business customers in its traditional service territory is being served by other non- affiliated retail electric providers commission a allowed stranded costs to be recovered by means of a non- bypassable transmission and distribution charge beginning in j in the event that actual revenues attributable to the generating assets exceed the forecasted revenues used in commission a’s stranded cost model the excess will be returned to ratepayers with respect to nuclear decommissioning costs the amount that commission a previously allowed division to collect will continue to be collected by taxpayer from retail customers as part of the non-bypassable charge from k through l law subjects any nuclear decommissioning costs remaining after this period to cost-of-service rate regulation and includes such costs as a non-bypassable charge imposed on all retail customers plr-153602-01 taxpayer filed with commission a a business separation plan in m with amendments in n outlining a comprehensive restructuring of taxpayer’s operations into a group of companies predominantly subject_to traditional cost-of-service rate regulation and a group of companies that either are unregulated or have been given pricing flexibility to compete in competitive markets in o commission a approved the taxpayer’s comprehensive restructuring proposal as amended a new version of the business separation plan was filed with commission in p as part of the restructuring taxpayer will transfer the ownership of the plants and associated qualified and nonqualified decommissioning funds to nuclearco in a transaction intended to qualify for nonrecognition under sec_351 nuclearco will assume the decommissioning liability for the plants nuclearco will also be the owner of company and company which will in turn be the sole partners of partnership taxpayer represents that company company and partnership will be disregarded for tax purposes and treated as divisions of nuclearco nuclearco subsequently will transfer the ownership of the plants the liability for decommissioning the plants and the associated qualified and nonqualified decommissioning funds to company and company which will in turn contribute such assets and liabilities to partnership in addition under the terms of the restructuring taxpayer will be converted to a q and will be renamed new name following the reorganization taxpayer new name and nuclearco will be owned by holding and holding will be owned by parent taxpayer represents that holding will be disregarded for tax purposes and treated as a division of parent taxpayer newname will continue to collect decommissioning expenses through the non-bypassable transmission and distribution charge and is required under the business separation plan approved by commission a to transfer the funds collected to partnership taxpayer represents that it is legally required under state law to undertake the decommissioning aspects of the business separation plan approved by commission a including the transfer to partnership of amounts collected for decommissioning expenses requested ruling neither taxpayer nuclearco nor their respective qualified nuclear decommissioning funds will recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of taxpayer’s qualified nuclear decommissioning trust funds to nuclearco the nuclearco’s qualified nuclear decommissioning funds will have a basis in the assets held equal to the basis of such assets in taxpayer’s qualified nuclear decommissioning funds immediately prior to the transfer sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified nuclear decommissioning fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year plr-153602-01 sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding under sec_1_468a-2 of the income_tax regulations decommissioning costs are included in a taxpayer’s cost of service for a taxable_year to the extent such costs are directly or indirectly charged to customers of the taxpayer by reason of electric energy consumed during the taxable_year or otherwise required to be included in the taxpayer’s income under sec_88 and the corresponding regulations sec_1_88-1 provides that decommissioning costs directly or indirectly charged to customers of the taxpayer include all decommissioning costs that consumers are liable to pay by reason of electric energy furnished by the taxpayer during the taxable_year whether payable to the taxpayer a_trust state government or other entity sec_468a provides that the rate_of_tax on the income of a qualified nuclear decommissioning fund is percent sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified nuclear decommissioning fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified nuclear decommissioning fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included plr-153602-01 in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a based on the information submitted by taxpayer including taxpayer’s representation that partnership is properly treated as a division of nuclearco for tax purposes and taxpayer’s representation that the business separation plan approved by commission a requires taxpayer newname to collect from its customers the decommissioning costs on behalf of partnership and transfer all collected amounts to partnership the service will treat these transfers as dispositions qualifying under the general provisions of sec_1_468a-6 commission a’s approval of the business separation plan and the legal requirement that such plan and its provisions be followed enables the service to treat these transfers as decommissioning costs included in cost of service that are directly or indirectly charged to customers of nuclearco by reason of electric energy furnished by nuclearco within the meaning of sec_88 and sec_468a and the corresponding regulations thus under sec_1_468a-6 taxpayer’s funds will not be disqualified upon the transfer of the plants and the funds to nuclearco sec_1_468a-6 provides that neither a transferor of an interest in a nuclear power plant nor the transferor’s fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of a sale_or_other_disposition sec_1_468a-6 provides that neither a transferee of an interest in a nuclear power plant nor the transferee’s fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of a sale_or_other_disposition accordingly neither taxpayer nuclearco nor their respective qualified funds will recognize gain_or_loss or otherwise take into account any income_or_deduction upon the transfer of the qualified nuclear decommissioning funds to nuclearco sec_1_468a-6 provides that transfers to which sec_1_468a-6 apply do not affect basis thus the qualified funds in the hands of nuclearco will have a basis in their assets equal to the basis in their assets prior to the transfer from taxpayer requested ruling following the transfer of the plant and nuclear decommissioning funds to nuclearco nuclearco will be treated as the eligible_taxpayer and the electing taxpayer with respect to the nuclearco qualified nuclear decommissioning funds and therefore nuclearco may make deductible contributions to its qualified nuclear decommissioning funds in an amount equal to the lesser_of the amount of nuclear decommissioning costs allocable to the funds that are included in nuclearco’s cost of service for ratemaking purposes for such taxable_year or the ruling_amount plr-153602-01 applicable to such taxable_year sec_1_468a-1 defines an eligible_taxpayer as any taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 defines a qualifying interest to include a direct ownership_interest pursuant to sec_1_468a-2 an eligible_taxpayer that elects the application of sec_468a is an electing taxpayer sec_1_468a-6 provides rules for the determination of a schedule of ruling amounts for a transferee of a nuclear power plant sec_468a limits the deductible contribution to the lesser_of the ruling_amount or the nuclear decommissioning costs allocable to the fund which is included in a taxpayer’s cost of service for ratemaking purposes for the taxable_year fundamental to making a deductible contribution to a qualified nuclear decommissioning fund pursuant to a schedule of ruling amounts under sec_468a are four requirements first a taxpayer must be an eligible_taxpayer second a taxpayer must be liable for the decommissioning of the nuclear power plant third a taxpayer must have decommissioning costs included in its cost of service for ratemaking purposes for the year for which the deductible contribution is made fourth a taxpayer must request and receive a schedule of ruling amounts from the service based on the information submitted by taxpayer and based on taxpayer’s representation that partnership is properly treated as a division of nuclearco for tax purposes nuclearco satisfies the requirements for being an eligible_taxpayer under sec_1_468a-1 and an electing taxpayer under sec_1_468a-2 in addition as part of the restructuring plan approved by commission a the liability to decommission the plants has been transferred to a division of nuclearco because taxpayer newname is legally required to transfer to a division of nuclearco amounts collected from ratepayers for decommissioning expenses nuclearco has satisfied the requirement of having decommissioning costs included in its cost of service for ratemaking purposes for the year for which the deductible contribution is made nuclearco may rely on the provisions of sec_1_468a-6 for a determination of the ruling_amount in the year of transfer pursuant to sec_1_468a-6 nuclearco must request a revised schedule of ruling amounts for any_tax year subsequent to the tax_year in which the plants are transferred finally sec_468a limits the deductible contribution to the lesser_of the ruling_amount or the nuclear decommissioning costs allocable to the fund which is included in a taxpayer’s cost of service for ratemaking purposes for the taxable_year except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular no opinion is expressed or implied concerning whether the non- bypassable transmission and distribution charge is includible in the gross_income of and deductible by any entity other than partnership in addition no opinion is expressed or implied concerning whether company company and partnership are properly disregarded for tax purposes and treated as divisions of nuclearco plr-153602-01 the rulings expressed herein are expressly conditioned on commission a’s approval of the business separation plan relating to the collection and contribution of decommissioning costs as described in this letter eg taxpayer’s collection of costs from ratepayers the transfer of amounts collected to partnership and partnership’s contribution of the authorized amounts to its funds in addition these rulings are expressly conditioned on the continued direct or indirect ownership and control of taxpayer nuclearco and partnership by parent specifically as continuing conditions to requested ruling taxpayer and nuclearco must be part of the same affiliated_group or be treated as a division of a member of the same affiliated_group as parent and parent must satisfy the ownership requirement of sec_1504 with respect to taxpayer and nuclearco nuclearco must continue to be able under the internal_revenue_code and regulations to treat partnership as a division for tax purposes and parent taxpayer and nuclearco must file a consolidated tax_return or must be treated for tax purposes as divisions of entities that file a consolidated_return with parent for each year for which a deductible payment is made under 468a if any of these conditions are no longer applicable no further contributions may be made to the qualified nuclear decommissioning funds with respect to the units of the plant that are the subject of requested ruling this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office the original of this letter is being sent to taxpayer’s authorized representative we are also sending a copy of this letter_ruling to taxpayer and to the industry director natural_resources lm nr sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court joseph h schenker petitioner v commissioner of internal revenue respondent docket no 5755-07s filed date joseph h schenker pro_se elizabeth martini for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issue for decision is whether petitioner was engaged in a trade_or_business during and which would allow him to deduct expenses claimed on schedule c profit or loss from business for these years if petitioner was not engaged in a trade_or_business then a second issue for decision arises as to whether petitioner is entitled to deduct those expenses under any other provisions of the code background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in new york state when he filed his petition after graduating from the talmudical academy of baltimore maryland petitioner studied at and received his rabbinical ordination from hebron yeshiva knesset israel hebron yeshiva in jerusalem israel a yeshiva is a rabbinical seminary 1the prestigious hebron spelled alternately as hevron or chevron on many documents depending on the translation from hebrew to english yeshiva originated in the 1800s in slabodka lithuania following the tumultuous aftermath of world war i the yeshiva relocated to hebron in palestine which was then under a british mandate in date many members of the hebron jewish community including teachers and students of the yeshiva were killed in a massacre the yeshiva resettled in the geula section of jerusalem and formally renamed the school the hebron yeshiva knesset israel in memory of the students and continued petitioner returned to the united_states where he earned a bachelor’s degree in economics from queens college in new york and a master’s degree in educational research from city college in new york following a brief stint as a talmud teacher at a yeshiva in miami florida petitioner returned to the city college of new york where he worked for many years in the educational research field then he rejoined the talmudical academy of baltimore as a fundraiser on or about date petitioner signed an employment contract with rabbi chevroni the administrator of givat mordechai the contract called for petitioner to serve a 6-month trial period starting date as full-time executive director of hebron yeshiva’s new york city office the new york office has the official name american friends of hebron yeshiva in jerusalem inc american friends the contract stated that petitioner’s official title was president of the friends of the yeshiva in america and that his principal responsibilities were to oversee office functions such as collection donor mailing lists and bookkeeping and to raise funds from supporters in the continued teachers who died there because of its location the yeshiva became known as hebron yeshiva geula geula because of its growth around hebron yeshiva opened a second more spacious location in the givat mordechai section of jerusalem this second location became known as hebron yeshiva givat mordechai givat mordechai and left hebron yeshiva with two branches geula and givat mordechai operating under one charter united_states and canada the pay was dollar_figure per year petitioner in addition to his salary was to receive percent of all income arising from new contributors to the yeshiva that he brought in personally the percentage was reduced to percent if the contributor earmarked the donation for the building fund and gave more than dollar_figure earlier two american sisters from titusville pennsylvania rebecca and mirrel davis created sizable charitable trusts through their wills each sister directed that hebron yeshiva was to receive percent of the trust’s annual income petitioner learned of the sisters’ trusts through his position with american friends after hebron yeshiva established a second campus givat mordechai’s enrollment grew rapidly the record is not clear about the ensuing events but it appears that the leader of geula rabbi sarna and the leader of givat mordechai rabbi chevroni had a dispute rabbi sarna and rabbi chevroni tried to find a solution but eventually they went to a religious court to resolve the matter apparently the religious court suggested that they dissolve the unified charter operate under separate names and seek civil arbitration to divide the assets and income in date for unknown reasons rabbi chevroni terminated petitioner’s job with american friends petitioner with his knowledge as the former director approached rabbi sarna and offered to provide information that might be valuable in the arbitration on or about date petitioner signed a contract drafted by rabbi sarna the contract stated that petitioner would have available certain information related to american friends’ assets donor mailing lists and transfers to hebron yeshiva as compensation_for the information the contract called for petitioner to receive one of three percentages depending on the reaction of rabbi chevroni to rabbi sarna’s contract with petitioner if the contract caused rabbi chevroni to provide previously undisclosed information to the arbitrator then petitioner would receive percent of the amount that geula received over years as a result of the arbitrator’s decision however if rabbi chevroni was not forthcoming and rabbi sarna needed petitioner’s information then petitioner’s percentage would be percent finally if rabbi chevroni offered geula a fixed annual payment and geula did not need to contact the donors on the american friends’ mailing lists then petitioner’s percentage would be one-third the contract also provided that if rabbi sarna and petitioner were to have any other joint projects in the future then at that time they would agree on petitioner’s compensation_for such cooperation it turned out that rabbi sarna did need and petitioner did furnish valuable information such as donor lists and funding figures from american friends apparently at some point afterwards the leadership of the two branches formally dissolved the parent_corporation through israel’s registrar of corporations and officially established two separate entities hebron yeshiva guela and hebron yeshiva knesset israel--givat mordechai the leaders also apparently agreed to divide donations and perhaps certain assets in a ratio of percent to givat mordechai and percent to geula petitioner who was living in brooklyn and who was now out of a job tried his hand as an independent mortgage broker in he paid dollar_figure to buy a one-bedroom cooperative co-op apartment on the upper west side of manhattan around petitioner also entered into an oral agreement with rabbi sarna to raise funds for geula in exchange for one-third of the donations he generated on occasion petitioner would meet with mortgage clients and fundraising donors at the co-op apartment but more often he would go to the client’s or donor’s location he would also call donors and read the new york times for leads intermittently rabbi sarna would visit the united_states sometimes for up to to weeks to meet with people and help with fundraising very often on these visits rabbi sarna would stay at petitioner’s co-op apartment petitioner did not charge him rent apparently at some point petitioner began to include a schedule c with his annual income_tax return to claim business deductions for expenses related to his mortgage activities fundraising efforts and co-op apartment in petitioner began working full time for the new york city department of finance where he continues to work full time to date even though petitioner’s mortgage efforts ended sometime during the first half of petitioner continued to deduct apartment and other expenses on schedules c through the end of he did not list a business name principal activity or business code on the schedules c petitioner generated donations to geula of about dollar_figure dollar_figure and zero in and respectively in petitioner traveled to and stayed in israel for days during which time he met with rabbi sarna and other leaders at geula to discuss fundraising petitioner deducted the cost of the trip on the schedule c by this time unfortunately for petitioner he still had not received a penny from geula either under the contract or for his subsequent fundraising activities petitioner did not press his claim because he assumed the payments would be forthcoming after geula started receiving funds under the agreement to split income with givat mordechai however in rabbi sarna indicated to petitioner that geula would not pay him for prior years in date petitioner traveled again to israel this time staying for days he confronted rabbi sarna regarding payment under the contract petitioner received no payment or commitment from rabbi sarna as a consequence before returning home petitioner met with and engaged an israeli law firm to sue geula and rabbi sarna petitioner deducted the travel_expenses related to the trip on schedule c after returning to new york petitioner continued to fundraise intermittently for guela because he wanted to maintain his relationship with the institution during the litigation however petitioner stopped fundraising completely by the spring of and in late date petitioner moved out of brooklyn and into the co-op apartment after date petitioner stopped claiming schedule c deductions for apartment expenses in date the initial phase of his israeli litigation concluded when the district_court of jerusalem israel ruled that petitioner was entitled to receive percent of the sums that geula was to receive over a 5-year period from givat mordechai because petitioner was dissatisfied with the judicial decision of what he believed was an unfairly low percentage he appealed to the israeli supreme court around date a few days after a pretrial conference with a justice of the israeli supreme court petitioner and rabbi sarna reached a settlement they agreed petitioner is to receive percent of all monies from the sisters’ fund to be obtained by hebron yeshiva geula dating on a yearly basis back to and from the date the first monies are received for the next years--22 percent from to givat mordechai received about dollar_figure million in donations through american friends of which it owes geula about dollar_figure million the record is not clear as to the source of the donations and whether the percentages in the settlement refer solely to donations from the sisters’ trusts or to all funds geula is to receive from givat mordechai before the settlement petitioner’s israeli attorney estimated petitioner could receive a judgment between dollar_figure to dollar_figure after the settlement petitioner estimated geula owed him more than dollar_figure through the date of trial in date petitioner still had not received any payment from geula petitioner timely filed his through federal_income_tax returns he reported the following taxable_income wages state tax_refund business income loss pension distribution adjusted_gross_income itemized_deductions personal_exemption taxable_income dollar_figure big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number the detail for each schedule c is as follows income expenses advertising legal fees medical_expenses mortgage interest nycers pension buyback real_estate_taxes travel other expenses apt maintenance fees newspapers magazines telephone petitioner discrepancy2 profit loss -0- -0- dollar_figure -0- big_number big_number big_number n a big_number big_number big_number -0- dollar_figure -0- -0- -0- big_number big_number big_number n a n a big_number big_number -0- dollar_figure big_number big_number -0- n a big_number -0- big_number 1for the court received a transcript of petitioner’s account instead of a tax_return as a result no breakout was available of petitioner’s other expenses which the transcript reported as dollar_figure however the stipulation of facts states that petitioner deducted dollar_figure in apartment maintenance fees leaving dollar_figure as other expenses 2petitioner prepared his tax returns manually in each year the sum of the individual expenses did not add up to and were less than the total amount of expenses that petitioner reported on schedule c petitioner did not explain the discrepancies respondent audited petitioner’s tax returns for through and determined that petitioner’s fundraising and other activities did not rise to the level of an active trade_or_business consequently respondent disallowed petitioner’s schedule c deductions respondent however allowed petitioner’s deductions for mortgage interest and real_estate_taxes on schedule a itemized_deductions as a result of all of the above adjustments respondent issued a notice_of_deficiency dated date determining deficiencies of dollar_figure dollar_figure and dollar_figure in petitioner’s federal income taxes for and respectively petitioner timely petitioned this court seeking allowance of his schedule c deductions discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of showing that the determination is in error rule a 290_us_111 under sec_7491 a taxpayer may shift the burden to the commissioner regarding factual matters if the taxpayer produces credible_evidence and meets the other requirements of the section petitioner has not raised the burden_of_proof as an issue and therefore the burden remains with petitioner deductions are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to a deduction 503_us_79 292_us_435 2the court rounded all dollar amounts in this opinion to the nearest dollar sec_6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction see also sec_1_6001-1 e income_tax regs taxpayers may deduct only the business_expenses that they can substantiate 90_tc_74 a taxpayer may deduct ordinary and necessary expenses that he pays in connection with the operation of a trade_or_business sec_162 122_tc_305 to be ordinary the expense must be of a common or frequent occurrence in the type of business involved 308_us_488 to be necessary an expense must be appropriate and helpful to the taxpayer’s business welch v helvering supra pincite additionally the expenditure must be directly connected with or pertaining to the taxpayer’s trade_or_business sec_1_162-1 income_tax regs sec_262 disallows deductions for personal living or family_expenses if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount we may estimate the amount bearing heavily against the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir however the taxpayer must present sufficient evidence for the court to form an estimate because without such a basis any allowance would amount to unguided largesse 245_f2d_559 5th cir 85_tc_731 i whether petitioner was engaged in a trade_or_business respondent determined that petitioner was not engaged in fundraising or any other activity sufficient to qualify the expenses for and as sec_162 business deductions on schedule c to be engaged in a trade_or_business within the meaning of sec_162 an individual taxpayer must be involved in the activity with continuity and regularity and with the primary purpose of deriving a profit 480_us_23 52_f3d_23 2d cir vacating and remanding tcmemo_1993_536 whether the taxpayer is carrying_on_a_trade_or_business requires an examination of all of the facts and circumstances in each case commissioner v groetzinger supra pincite ranciato v commissioner supra pincite although a reasonable expectation of a profit is not required the taxpayer’s profit objective must be actual and honest ranciato v commissioner supra pincite 78_tc_642 affd without published opinion 702_f2d_1205 d c cir sec_1 a income_tax regs whether a taxpayer has an actual and honest profit objective is a question of fact to be answered from all of the relevant facts and circumstances ranciato v commissioner supra pincite hastings v commissioner tcmemo_2002_310 sec_1_183-2 income_tax regs the pertinent regulations set forth a nonexhaustive list of factors that may be considered in deciding whether a profit objective exists these factors include the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort the taxpayer expended in carrying on the activity the taxpayer’s expectation that assets he used in the activity would appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which the taxpayer earned the financial status of the taxpayer and the elements of personal pleasure or recreation 72_tc_411 affd without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs no single factor or group of factors is determinative golanty v commissioner supra pincite a final_determination is made only after a consideration of all of the relevant facts and circumstances sometime during the first half of petitioner ended his mortgage brokerage activity he did not receive any income from the mortgage business during the years in dispute therefore at the outset we conclude on the basis of the above factors that petitioner was not in the trade_or_business of being a mortgage broker during the years at issue petitioner’s fundraising activities require greater analysis petitioner received no payments for his fundraising efforts during or petitioner spent the bulk of his working hours maintaining his full-time job with the city in petitioner’s fundraising efforts were infrequent and petitioner did not conduct his efforts with the continuity or regularity that sec_162 requires petitioner curtailed his fundraising activities even further after date when he started suing geula and rabbi sarna and he ceased fundraising entirely by spring importantly the law holds that a sporadic activity does not qualify as a trade_or_business commissioner v groetzinger supra pincite petitioner has not established a profit objective for his fundraising activity on behalf of geula we observe that petitioner did not receive any payment for his efforts during the years at issue and that he did not conduct the activity on a regular basis further petitioner as a rabbi may find it a righteous deed to help jewish causes and raise funds for his alma mater likewise petitioner’s efforts in trying to gain payment from the contract was not an ongoing trade_or_business within the meaning of sec_162 but rather was an activity that fits well under the definition of sec_212 as an endeavor petitioner pursued for the collection of income due him for all the foregoing reasons we hold that petitioner’s fundraising activity was not a trade_or_business during through although petitioner may not deduct his expenses as sec_162 trade_or_business_expenses on schedule c other sections allow deductions for some of the expenses as itemized_deductions on schedule a we now discuss each of the disputed expenses ii deductibility of expenses a advertising petitioner sent a dollar_figure check dated date to his synagogue in new york to display the name of his mortgage business in an advertising brochure printed for the synagogue instead the synagogue listed petitioner’s personal name on a one-page scroll of honor for a date luncheon petitioner deducted the dollar_figure on schedule c in as an advertising expense because we have already concluded that petitioner was not in the trade_or_business of mortgage brokering during he may not deduct the payment as an above_the_line advertising expense similarly because petitioner did not write the check with detached and disinterested generosity the payment is not deductible as a schedule a charitable_contribution see 125_tc_281 affd 549_f3d_1252 9th cir if petitioner had received any income from his mortgage activity he would have had to report the income therefore petitioner may deduct the dollar_figure as a sec_212 miscellaneous itemized_deduction incurred for the production_of_income subject_to the 2-percent floor that sec_67 imposes on sec_212 expenses b legal fees petitioner deducted dollar_figure and dollar_figure for and respectively on schedules c for payments to an israeli law firm petitioner had engaged the firm to press his legal claim against geula and rabbi sarna for payment under the contract petitioner’s only substantiation for the expenses was a letter from the israeli law firm stating that pertaining to the litigation petitioner paid dollar_figure in and dollar_figure in because petitioner’s litigation expenses arose from a contract right generating income he may deduct the legal fees under sec_212 as miscellaneous_itemized_deductions incurred for the production_or_collection_of_income see 372_us_39 335_f2d_738 2d cir affg 39_tc_647 respondent acknowledged that petitioner’s legal fees are deductible under sec_212 but disallowed the deduction because petitioner did not substantiate the fees we find the law firm’s letter to be credible_evidence and therefore we hold that petitioner may deduct the legal fees the law firm reported subject_to the 2-percent limitation that sec_67 imposes on sec_212 expenses see knight v commissioner u s __ __ 128_sct_782 sec_1_67-1t and temporary income_tax regs fed reg date c medical_expenses petitioner deducted dollar_figure and dollar_figure for and respectively on schedules c for medical_expenses he may have also claimed medical_expenses in on schedule c which respondent’s transcript may have included in other expenses or which petitioner may have included as part of the discrepancy in adding up his total expenses sec_213 permits a deduction for medical_expenses that taxpayers incur and which insurance does not cover but only to the extent that the expenses exceed percent of the taxpayer’s adjusted_gross_income further sec_1_213-1 income_tax regs requires taxpayers to substantiate their medical_expenses by providing the names and addresses of the persons or organizations to whom they made payment and the amounts and dates of the payments we have some leeway because of cohan v commissioner f 2d 2d cir however petitioner has not provided doctors’ invoices printouts from pharmacies or any other evidence from which we can form a reasonable estimate of the expenses he paid moreover petitioner would have to establish that his payments went for qualifying medical_expenses and that insurance did not cover or reimburse the payments for the foregoing reasons petitioner may not deduct medical_expenses for or d nycers pension buyback during and petitioner paid dollar_figure and dollar_figure respectively to buy back pension credits with the new york city employee retirement_system nycers the buy back program is an option for nycers members who previously worked for a public employer within new york state and who at that time did not participate in nycers eligible members may buy pension credits in nycers for their prior state employment petitioner funded his buy backs by writing a dollar_figure check in and by paying for the remaining and buy backs through payroll withholdings petitioner makes two arguments to support the validity of the deductions first petitioner contends that his payments should qualify as deductible employer contributions however as noted above petitioner has not established that he was operating a business during through and further he made the contributions as an employee of new york city not as an employer secondly petitioner contends that the combination of the following two sentences in nycers’s brochure buy back no pincite disallows a deduction only when an employee pays for the buy back through payroll withholdings members generally have three options to purchase previous service lump sum payroll deductions or roll over funds from a or b deferred_compensation plan and if you pay for your previous service through payroll deductions those deductions are subject_to federal state_and_local_income_taxes however to the extent that those sentences are relevant they focus narrowly on the taxation of payroll withholdings and do not overcome the broader and more pertinent language in the brochure which states explicitly that there is no tax advantage to buying-back time moreover from a legal standpoint it is long settled that employee contributions to a pension_plan are not deductible under sec_162 business_expenses sec_212 expenses for the production_of_income or any other section of the code 144_f2d_287 4th cir affg 2_tc_267 72_tc_996 42_tc_766 the courts have held that two main reasons explain why employee contributions are not deductible first one can view an employee’s contributions to a pension_plan as a capital_contribution that the employee recovers without tax after he or she begins to receive the pension benefit sims v commissioner supra pincite secondly if the contributions are an expense then they are a nondeductible sec_262 payment for personal living or family_expenses id for all the foregoing reasons petitioner may not deduct his buy back payments e travel petitioner deducted travel_expenses of dollar_figure and dollar_figure for and 12-day stays in israel in april through date and in date respectively these expenses consisted of dollar_figure and dollar_figure for airfare respectively with the remainder for each year going to meals and incidentals which petitioner computed using a per_diem rate of approximately dollar_figure per day petitioner testified that during the trip he discussed fundraising with rabbi sarna and other leaders at geula and that during the trip he confronted rabbi sarna and engaged an israeli law firm to try to collect payment from the contract because petitioner was not engaged in the trade_or_business of fundraising during or none of the travel_expenses are deductible as sec_162 business_expenses however regarding the trip we discuss below whether the travel_expenses are deductible under sec_212 sec_212 allows a deduction for travel_expenses that taxpayers incur for the production_or_collection_of_income however sec_274 requires substantiation before a deduction can be allowed when a trip consists of personal and business activities the taxpayer may deduct the travel_expenses only if the trip is related primarily to the business_purpose which is a facts and circumstances inquiry 370_us_269 for travel outside the united_states sec_274 generally disallows a deduction for the portion of the expense that is not allocable to the income-producing activity however sec_274 provides an exception to sec_274 if the trip qualifies under one of two exceptions a the trip does not exceed week or b the portion of the trip not attributable to the taxpayer’s sec_212 activities constitutes less than percent of the total time of the stay hintze v commissioner tcmemo_2001_70 regarding petitioner’s trip to israel we note that because he is an orthodox rabbi and because he studied for and received his ordination in israel he had religious and personal reasons for visiting there out of hi sec_12 days in israel we give petitioner the benefit of the doubt and estimate that he spent days percent of his stay discussing the contract with rabbi sarna and with the israeli law firm because out of days is well less than percent of the time he stayed in the country petitioner’s trip was primarily personal and therefore he may not deduct his airfare however under sec_274 the portion of his expenses allocable to his sec_212 activities may be deductible sec_274 the commissioner under authority of sec_274 issues annual revenue procedures that rely on monthly rates published by the u s department of state bureau of administration to allow a combined per_diem meal and incidental rate for jerusalem israel of dollar_figure per day for april and date as well as dollar_figure per day for date 115_tc_210 sec_1_274-5 income_tax regs revproc_2002_63 2002_2_cb_691 for the trip revproc_2003_80 2003_2_cb_1037 for the trip consequently petitioner is entitled to a deduction for meals and incidental_expenses of dollar_figure dollar_figure x days subject_to the 50-percent limitation on meals and entertainment that sec_274 imposes and subject_to 2-percent floor that sec_67 imposes on sec_212 expenses see johnson v commissioner supra pincite f co-op apartment maintenance fees newspaper and magazine subscriptions and telephone expenses on schedules c for and petitioner deducted dollar_figure dollar_figure and dollar_figure respectively for co-op maintenance fees on his upper west side co-op apartment likewise petitioner deducted dollar_figure and dollar_figure on schedules c for telephone service at the co-op apartment for and respectively petitioner also deducted dollar_figure on schedule c for for a subscription to the new york times newspaper and briefly to new york magazine petitioner testified that on occasion he met with potential donors at the apartment rabbi sarna on occasion stayed there about percent of the telephone usage was for fundraising and he read the newspaper for fundraising leads sec_262 disallows a deduction for personal living or family_expenses the taxpayer bears the burden of proving that an expense was for a business or income-producing purpose rather than for personal reasons 72_tc_433 for an expense to be deductible the taxpayer must show that he incurred the expense primarily to benefit his business and the expense must have had a proximate rather than a remote or incidental relationship to the taxpayer’s business id specifically the purchase of general circulation newspapers is a personal_expense that taxpayers may not deduct 690_f2d_40 2d cir affg in part and revg in part 76_tc_252 as to the telephone expenses petitioner moved into the co-op apartment in date because petitioner has not substantiated the pre-residential income-producing use the claimed deduction must be disallowed under sec_262 further once the apartment became petitioner’s residence near the end of the telephone expenses would become subject_to sec_262 which disallows a deduction with respect to the first telephone line to a taxpayer’s residence moreover as we have previously discussed petitioner was not conducting fundraising during through with sufficient continuity and regularity to qualify his expenses as deductible sec_162 trade_or_business_expenses on schedules c further petitioner has not shown how these expenses are proximately and not incidentally related to his attempts to collect payment from the contract for all the foregoing reasons petitioner may not deduct the apartment maintenance fees telephone charges or newspaper subscriptions to reflect our disposition of the issues conclusion decision will be entered under rule