internal_revenue_service number release date index numbers -------------------------------- ------------------------------ ----------------------------- ------------------------------------------ ---------------------------- ---------------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id ----------------- telephone number --------------------- refer reply to cc fip plr-148331-11 date date legend legend taxpayer ---------------------------------- ------------------------------ ------------------------- parent ---------------------------------------------------------------------- ---------------------------------------- state a year a year b number c number d e ---------- ------- ------- --- ----------- ------------------- f ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ number g number h entity i --- --- -------------------------------------- plr-148331-11 dear --------------- this is in response to the letter submitted by taxpayer requesting a ruling that it is taxable as an insurance_company under sec_831 of the internal_revenue_code facts taxpayer represents as follows taxpayer was incorporated in year a in state a as a general business corporation taxpayer is not recognized as an insurance_company in state a all of the stock of taxpayer is owned percent by parent for calendar tax_year b taxpayer’s business focuses on providing motorists with roadside assistance and can be divided into issuing risk-based contracts and non-risk-based contracts roadside assistance includes towing flat tire changes battery jump starts fuel or coolant delivery and lockout services the assistance is performed by participants of a taxpayer-created network of towing operators and locksmiths the contractual arrangements between taxpayer and these assistance providers are on a fee-for-service basis the towing operators and the locksmiths who perform the actual roadside assistance are independent contractors not employees of company taxpayer has in-force approximately number d risk-based contracts which account for approximately number c percent of taxpayer’s revenue as described more fully below taxpayer acquired this risk-based roadside assistance business through soliciting members having membership benefits offered through arrangements with several major credit card issuers having benefits attached to automobile extended vehicle service contracts whereby there is provided in a risk-based contract a taxpayer roadside assistance benefit and having contracts with an unrelated property and casualty insurance_company whereby taxpayer agrees to provide participating policyholders with roadside assistance upon the occurrence of a fortuitous event necessitating the assistance with respect to the direct solicitation of customers taxpayer has been able to attract a number of customers to its e roadside assistance program taxpayer issues roadside assistance contracts to these customers in exchange for a fee paid directly by these customers this fee is taxpayer’s total compensation_for providing the assistance upon the occurrence of a fortuitous event necessitating the assistance with respect to the solicitation of customers through credit card issuers taxpayer has engaged with a number of travel clubs associated with credit card issuers members of the issuers’ travel clubs are charged a fixed fee on a monthly quarterly or annual basis which is remitted to taxpayer as the total consideration for a contract obligating plr-148331-11 taxpayer to provide the members roadside assistance upon the occurrence of a fortuitous event necessitating the assistance with respect to solicitation of customers through automobile extended vehicle service contracts taxpayer provides emergency roadside services to purchasers of vehicle extended service contracts which include roadside assistance as an ancillary benefit along with the vehicle extended service_contract the purchaser is provided a member agreement which can be cancelled independent of the vehicle service_contract the vehicle extended service contracts are primarily offered by f for a coverage term ranging from number g to number h months the automobile dealer selling these vehicle extended service contracts receives consideration from the purchaser of the contract which includes the ancillary roadside assistance benefit each month the dealer remits to f its allocable share of the consideration received from the purchaser and f in turn remits to taxpayer the portion of the consideration allocable to the risk of incurring roadside assistance the result is that taxpayer is obligated to provide roadside assistance to these purchasers upon the occurrence of a fortuitous event necessitating the assistance the fee received from f represents taxpayer’s total compensation_for providing benefits to the vehicles of the covered members with respect to the contracts with unrelated property and casualty insurance_companies taxpayer partners with participating companies to provide participating policyholders an agreement under which taxpayer will provide roadside assistance to these policyholders upon the occurrence of a fortuitous event necessitating the assistance the property and casualty company remits to taxpayer a fee for each participating policyholder which represents taxpayer’s total compensation_for providing benefits to the participating policyholders in addition to this risk-based business for year b taxpayer also engaged in non-risk based service_contract business illustrative of this business is taxpayer’s contract with unrelated entity i in which taxpayer provided roadside services primarily by having taxpayer’s network tow operators transport entity i’s disabled fleet vehicles from the breakdown location to the entity i assigned repair facility taxpayer would bill entity i subsequent to the performance of the towing or other related_services based on the quantity of the services performed during year b taxpayer provided to its obligees certain de minimus incidental services and benefits such as maps and other related travel information and eligibility for certain discounts from unrelated retail merchants certain of these services and benefits produce revenue for taxpayer others require taxpayer to incur an expense to provide the service and benefit none of the information received suggests that taxpayer is engaged in any activity which is not integral to the risk-based business or the non-risk-based business as described in this letter_ruling plr-148331-11 for calendar tax_year b a majority number c percent of taxpayer’s revenue is sourced to taxpayer’s risk-based business requested ruling taxpayer requests a ruling that for year b it qualifies as an insurance_company taxable under sec_831 law and analysis sec_831 provides that taxes computed as provided in sec_11 are imposed for each taxable_year on the taxable_income of each insurance_company other than a life_insurance_company sec_831 provides that for purposes of sec_831 the term_insurance company has the meaning given to such term by sec_816 under sec_816 the term_insurance company means any company more than half of the business of which during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies neither the code nor the regulations define the terms insurance or insurance_contract in the context of property and casualty insurance the supreme court of the united_states has explained that in order for an arrangement to constitute insurance for federal_income_tax purposes both risk shifting and risk_distribution must be present 312_us_531 the risk transferred must be risk of economic loss 572_f2d_1190 7th cir the risk must contemplate the fortuitous occurrence of a stated contingency 183_f2d_288 2d cir and must not be merely an investment or business risk revrul_2007_47 2007_2_cb_127 in addition the arrangement must constitute insurance in the commonly accepted sense see eg 988_f2d_1135 fed cir 979_f2d_162 9th cir taxpayer’s risk-based contracts are aleatory contracts under which taxpayer for a fixed price is obligated to indemnify the purchasers for economic losses arising from fortuitous events requiring emergency roadside assistance during the contract period in this connection it should be emphasized that taxpayer does not provide this assistance directly but rather through a network of independent service providers by accepting a very large number viz number d of unrelated independent homogeneous risk-based roadside assistance contracts taxpayer has distributed the risk of loss under the contracts these contracts constitute insurance for federal_income_tax purposes plr-148331-11 considering the totality of taxpayer’s business it appears that more than half of the business done during year b is issuing insurance or annuity_contracts or reinsuring risks underwritten by insurance_companies ruling accordingly based solely on the information received and representations made for year b company is taxable an insurance_company under sec_831 no opinion is expressed on the application of any other section of the code or the income_tax regulations to any of the facts described herein this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return which it applies pursuant to an authorization on file in this office a copy of this letter is being sent to your authorized representative sincerely yours john e glover senior counsel branch office of the associate chief_counsel financial institutions products ---------------------------------- -------------------------------------- ----------------------- ---------------------------------- ---------------------------- ------------------- ----------------------------- -------------------------------------- ------------------------------


t c memo united_states tax_court randolph john beale petitioner v commissioner of internal revenue respondent docket no filed date randolph john beale pro_se felicia l branch for respondent memorandum findings_of_fact and opinion parr judge respondent determined deficiencies in and additions to petitioner's federal income taxes as follows additions to tax_year deficiency sec_6651 a sec_6654 dollar_figure dollar_figure --oq- big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure ‘the deficiency amounts listed above do not reflect federal_income_tax withheld from petitioner's wages see eg sec_301_6215-1 proced admin regs which provides that the entire amount redetermined as the deficiency by the decision of the tax_court which has become final shall be assessed while only the unpaid portion of the amount so assessed shall be paid_by the taxpayer upon notice_and_demand therefor emphasis added the issues for decision are whether amounts paid as family support were alimony and therefore deductible by petitioner we hold that certain of these amounts were deductible by petitioner in the amounts stated whether petitioner may deduct various schedule c profit or loss from business_expenses for the taxable years at issue we hold he may not whether petitioner is entitled to claim additional exemptions for his spouse and her two daughters for taxable years through we hold he is not whether petitioner is entitled to head-of-household filing_status in and married filing joint_return status in and we hold he is not whether petitioner is liable for additions to tax ‘the parties stipulated that petitioner was unmarried during taxable years and for taxable_year the proper filing_status of petitioner is single for taxable_year the proper filing_status of petitioner is still at issue - - under sec_6651 for failure to timely file his federal_income_tax returns for the taxable years in issue we hold he is whether petitioner is liable for additions to tax under sec_6654 for failure to pay estimated_tax for the taxable years in issue we hold he is findings_of_fact 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 at the time the petition herein was filed petitioner resided in chuluota florida petitioner did not file federal_income_tax returns for the years in issue at various times during the years in issue petitioner was employed full time as an engineer for the following companies linde hydraulics corp linde hartmann controls inc hartmann motiontek inc motiontek and worksmart inc worksmart petitioner earned_income from his full-time employment as follows 7unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure employer linde dollar_figure dollar_figure dollar_figure -- hartmann --- --- big_number dollar_figure motiontek -- -- -- worksmart -- -- -- big_number for taxable years and linde withheld federal income taxes of dollar_figure dollar_figure and dollar_figure respectively from petitioner's wages additionally for taxable_year hartmann withheld federal_income_tax of dollar_figure and for taxable_year hartmann motiontek and worksmart withheld federal_income_tax of dollar_figure dollar_figure and dollar_figure respectively in addition to his full-time employment petitioner performed services as an engineering consultant petitioner's consulting business involved working principally for two companies tri-state hydraulics inc tri-state and american fluid power inc american to perform his business services petitioner would travel by automobile from his home to approximately nine client sites in wisconsin and illinois petitioner earned nonemployee compensation from his consulting services as follows employer tri-state dollar_figure dollar_figure dollar_figure american big_number big_number petitioner operated his consulting business out of a garage attached to his residence the garage contained a desk a drafting table two phones and filing cabinets the garage made up percent of the total square footage of petitioner's rental house during the years in issue petitioner's total annual housing costs were as follows year rent gas blectricity dollar_figure dollar_figure s540 big_number big_number big_number not in record for through petitioner calculated a home_office deduction by multiplying the total costs of rent and utilities by percent in addition to his employee and nonemployee compensation petitioner received earned interest_income from security bank s s b of dollar_figure in dollar_figure in dollar_figure in and dollar_figure in petitioner also received dollar_figure in interest_income from cornerstone credit_union in finally petitioner received dollar_figure in unemployment_compensation during during the years in issue petitioner made regular payments to two former wives petitioner was divorced from his first wife ms sandra eads in pursuant to a valid enforceable divorce judgment filed on date petitioner is required to pay ms eads dollar_figure per month as family support the judgment provides in relevant part sixth the petitioner shall pay to the respondent as and for family support the sum of six hundred fifty dollars dollar_figure per month said sum shall be paid through the clerk of the circuit_court of milwaukee county on the 5th day of each month commencing date said payments being for family support shall be -- - tax deductible to the petitioner and taxable to the respondent ms eads on their respective federal and state_income_tax returns for the taxable years at issue ms eads included the following payment amounts as alimony on her federal_income_tax returns dollar_figure in dollar_figure in dollar_figure in and dollar_figure in petitioner agrees that these are the amounts he actually paid petitioner was divorced from his second wife ms susan tang in date he was required to pay dollar_figure per month in family support petitioner had an agreement in principle with ms tang that she would include the payments to her as income on her federal_income_tax return and petitioner would claim a deduction for these payments on his federal_income_tax return petitioner was not married at the end of taxable years and however petitioner was married at the end of taxable years and petitioner's third wife has two daughters opinion petitioner has the burden_of_proof with regard to all the issues raised in this case see rule a issue l whether petitioner is entitled to alimony deductions during the years in issue in this case petitioner made family support payments to both ms hads and ms tang petitioner claims that the amounts - he paid to ms eads and ms tang were deductible as alimony during the years in issue under sec_215 ms fads sec_215 provides a deduction for amounts paid_by a taxpayer to a former spouse if the payee spouse is required to include these amounts in gross_income under sec_71 ’ sec_215 was amended by the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_494 the amendment applies to divorce or separation instruments as defined in sec_71 as amended executed after date or executed before date but modified on or after that date if the modification expressly provides that the amendments to sec_215 apply to the modification this amendment is not applicable to petitioner's divorce from ms rads and references to sec_215 are to this section before its amendment sec_71 was amended by defra sec_422 98_stat_795 the amendment applies to divorce or separation instruments as defined in sec_71 as amended executed after date or executed before date but modified on or after that date if the modification expressly provides that the amendments to sec_71 apply to the modification this amendment is not applicable to petitioner's divorce from ms eads and references to sec_71 are to this section before its amendment --- - sec_71 provides for inclusion in the payee spouse's gross_income of periodic_payments received by that spouse pursuant to a decree of divorce or separate_maintenance in discharge of a legal_obligation imposed on or incurred by the payor spouse under the decree or under a written instrument incident to the divorce or separation child_support payments are generally not includable in the payee spouse's income and are not deductible by the payor spouse when the decree instrument or agreement incident to the divorce covers both alimony payments to the payee spouse and child_support payments those periodic_payments are deductible by the payor spouse and taxable to the payee spouse unless the terms of the decree instrument or agreement fix an amount for the support of the minor children of the former spouses see sec_71 commissioner v lester sec_71 alimony and separate_maintenance payments a general_rule -- decree of divorce or separate_maintenance -if a wife is divorced or legally_separated from her husband under a decree of divorce or of separate_maintenance the wife's gross_income includes periodic_payments whether or not made at regular intervals received after such decree in discharge of or attributable to property transferred in trust or otherwise in discharge of a legal_obligation which because of the marital or family relationship is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation sec_71 alimony and separate_maintenance payments continued - u s the amount of child_support must be fixed in terms of an amount of money or a part of the payment in order for it to be excludable from the payee spouse's income and nondeductible by the payor spouse sec_71 the statutory requirement is strict and carefully worded in commissioner v lester supra the supreme court held that periodic_payments made by a husband to his divorced wife pursuant to a written_agreement entered into by them and approved by the divorce court were deductible by the husband as alimony and includable in the wife's gross_income where an amount or portion of the periodic_payments was not specifically earmarked as payable for the support of the children ’ continued b payments to support minor children ---subsection a shall not apply to that part of any payment which the terms of the decree instrument or agreement fix in terms of an amount of money or a part of the payment as a sum which is payable for the support of minor children of the husband for purposes of the preceding sentence if any payment is less than the amount specified in the decree instrument or agreement then so much of such payment as does not exceed the sum payable for support shall be considered a payment for such support ‘for divorce or separation agreements executed after date congress overruled 366_us_299 in that the amount by which support is reduced upon contingencies involving a child is treated as fixed as child_support see sec_71 as amended by defra sec_422 the aforesaid is also true with respect to divorce or separation instruments as defined in sec_71 as amended executed before date but modified on or after that date if the modification expressly provides that the amendments to sec_71 continued -- - in this case the divorce judgment related to petitioner's divorce from ms eads provides for unallocated payments of family support from petitioner to ms eads in wisconsin an award of family support includes both child_support and maintenance ie alimony see wis stat sec the divorce judgment did not designate how much of the family support award was for maintenance and how much was for child_support the divorce judgment contains no provision reducing the family support payments if a contingency related to the children occurs finally the divorce judgment specifically states that the family support payments are taxable to ms fads and tax deductible by petitioner on their respective federal and state_income_tax returns accordingly under lester v commissioner supra ms eads was required to include petitioner's payments in her gross_income during the years at issue and petitioner is entitled to a deduction for those payments under sec_215 ms tan sec_215 provides for a deduction for an amount_paid by a taxpayer to a former spouse if the former spouse is required to continued apply to that modification ssince petitioner and ms tang divorced in date we must apply sec_71 and sec_215 as amended by defra sec_422 and b respectively include these amounts in gross_income under sec_71 therefore to demonstrate that a cash payment is deductible under sec_215 a taxpayer must prove inter alia that the payment was made pursuant to a written divorce_or_separation_instrument that did not designate the payment as not includable in the payee spouse's gross_income under sec_71 see sec_71 a and b petitioner was required to pay ms tang dollar_figure per month as family support although we would ordinarily review the divorce instruments and other documents to determine whether the payments made by petitioner to ms tang were alimony petitioner did not provide us with divorce instruments or other documents such as ms tang's federal_income_tax returns during the years in issue to prove that ms tang was reguired to include the family support payments as income pursuant to sec_71 in addition petitioner did not call ms tang to testify accordingly petitioner is not allowed a deduction for the family support payments to ms tang issue whether petitioner may deduct various schedule c expenses petitioner claims the following expenses related to his consulting business as schedule c profit and loss from business deductions home_office expense rent dollar_figure dollar_figure dollar_figure -- utilities -- telephone -- -- dollar_figure office supplies big_number car and truck expense big_number big_number big_number big_number travel -- -- meals and entertainment home_office expenses sec_162 allows a deduction for ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_280a generally prohibits the deduction of otherwise allowable expenses with respect to the use of an individual taxpayer’s home sec_280a provides a narrow exception to the disallowance of home_office_deductions where a taxpayer can establish that a portion of the home is used exclusively on a regular basis as the taxpayer’s principal_place_of_business ’ or a place of business which is used by clients or customers in meeting or dealing with the taxpayer in the normal course of business for home_office expenses_incurred in taxable years after date congress overruled 506_us_168 in that the term principal_place_of_business now includes a place of business used by the taxpayer to perform administrative or management activities related to the taxpayer's trade_or_business if there is no other fixed location of the taxpayer's trade_or_business where substantial administrative or management activities are undertaken see sec_280a as amended by the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_788 we conclude that petitioner did not meet his burden_of_proof with respect to his home_office_deductions petitioner operated his consulting business out of a garage attached to his residence where a taxpayer's business is conducted in part in the taxpayer's residence and in part at another location the following two primary factors are considered in determining whether the home_office qualifies under sec_280a a as the taxpayer's principal_place_of_business the relative importance of the functions or activities performed at each business location and the amount of time spent at each location see 506_us_168 whether the functions or activities performed at the home_office are necessary to the business is relevant but not controlling and the location at which goods and services are delivered to customers generally will be regarded as an important indicator of the principal place of a taxpayer's business which must be given great weight and is a principal consideration in most cases see id pincite the relative importance of business activities engaged in at the home_office may be substantially outweighed by business activities engaged in at another location the supreme court has explained if the nature of the business requires that its services are rendered or its goods are delivered at a facility with unique or special characteristics this is a further and weighty consideration in finding that it is the delivery point or facility not the taxpayer's residence where the most important functions of the business are undertaken id pincite in this case petitioner provided no evidence as to how many hours he worked at home compared to hours he visited clients' business sites although he presumably kept records made telephone calls and perhaps did some drafting at his home_office this evidence is insufficient to allow us to determine whether petitioner performed most or the most important of his consulting services in his attached garage or at his clients' business sites accordingly in the absence of proving that his residence was his principal_place_of_business petitioner is not entitled to deductions for the home_office expenses automobile expenses for each year in issue petitioner claims expenses for mileage associated with driving his automobile from his residence to various client locations while pursuing his consulting business respondent disallowed all of petitioner's claimed expenses it is well settled that as a general_rule the expenses of traveling between one's home and his place of business or employment constitute commuting expenses which are nondeductible personal expenses see sec_262 413_us_838 326_us_465 -- - 63_tc_129 sullivan v commissioner 1_bta_93 this court has previously held that a taxpayer's cost of transportation between his residence and local job sites may be deductible if his residence serves as his principal_place_of_business and the travel is in the nature of normal and deductible business travel see 76_tc_839 73_tc_766 32_tc_947 affd per curiam 283_f2d_865 5th cir in 101_tc_537 where the taxpayer's residence was considered his regular place of business rather than his principal_place_of_business the taxpayer was allowed to deduct transportation_expenses incurred between his residence and local temporary job sites however as we stated in strohmaier v commissioner t cc the conclusion in walker was based on a concession of the issue by the commissioner based on rev_rul 1990_1_cb_28 this revenue_ruling has subsequently been amended to reflect existing case law as articulated above see revrul_94_47 1994_2_cb_18 accordingly to be entitled to deduct automobile expenses petitioner must prove that his residence was used as his principal_place_of_business since petitioner was unable to do -- - so it follows that the mileage expenses for each year are nondeductible commuting expenses travel meals and entertainment for and petitioner claims dollar_figure and dollar_figure respectively for travel_expenses and dollar_figure and dollar_figure respectively for meals and entertainment_expenses for and petitioner claims dollar_figure and dollar_figure respectively for meals and entertainment_expenses respondent disallowed all of petitioner's claimed expenses a taxpayer is required under sec_274 to substantiate travel meals and entertainment_expenses by either adequate_records or sufficient evidence corroborating the taxpayer's own statement as to the amount of the expense the time and place the expense was incurred the business_purpose of the expense and the business relationship to the taxpayer of each expense incurred in the absence of evidence meeting these strict substantiation requirements deductions for travel meals and entertainment_expenses are not allowed see whalley v commissioner tcmemo_1996_533 sec_1_274-5t temporary income_tax regs fed reg date other than his oral testimony petitioner did not provide substantiation of his expenses for travel meals and entertainment accordingly petitioner has failed to meet the requirements of sec_274 and we therefore sustain respondent’s determination for the taxable years in issue issue whether petitioner is entitled to claim additional exemptions for his spouse and her two daughters for taxable years through in petitioner was engaged to be married to the woman who would become his wife in date because of the support he purportedly provided to his fiancee and her two daughters petitioner claims that he is entitled to additional dependency_exemptions in respondent did not allow additional dependency_exemptions for petitioner's fiancee and her daughters sec_151 allows a taxpayer subject_to certain requirements a deduction for a personal_exemption for each of the taxpayer’s dependents as defined in sec_152 a dependent is defined as an individual over half of whose total support is received from the taxpayer and who must either be related to the taxpayer in one of the ways enumerated in sec_152 a through or be a member of the taxpayer’s household within the meaning of sec_152 see sec_152 in petitioner was not related to his fiancee or her two daughters by blood or marriage nor was he their adoptive or foster father accordingly to claim his fiancee and her daughters as dependents in petitioner must establish inter - - alia that these individuals were members of petitioner’s household within the meaning of sec_152 sec_1_152-1 income_tax regs provides that sec_152 a applies to any individual who lived with the taxpayer and was a member of the taxpayer’s household during the entire taxable_year of the taxpayer petitioner offered no evidence that his fiancee and her daughters were members of his household or that their principal_place_of_abode was his home throughout accordingly petitioner is not entitled to claim his fiancee and her daughters as dependents in and petitioner married his fiancee in date and was married to her at the end of taxable years and for and petitioner claims an exemption for his spouse as well as additional exemptions for both of his stepdaughters respondent denied the exemptions sec_151 provides that a taxpayer may take an exemption for a spouse if the taxpayer and his spouse did not file a joint_return the spouse had no gross_income for the tax_year in question and the spouse was not a dependent of any other person petitioner and his wife did not file joint returns for taxable years and however the record does not show whether petitioner's spouse had any gross_income for either or or whether any other person could claim her as a - - dependent for either year we therefore sustain respondent’s determination that petitioner is not entitled to an additional exemption for his spouse for taxable years and to claim additional exemptions for his stepdaughters petitioner must prove that he provided more than one-half of their total support in and see sec_152 in applying the support_test we evaluate the amount of support furnished by the taxpayer as compared to the total amount of support received by the claimed dependent from all sources see 554_f2d_564 2d cir affg 64_tc_720 sec_1_152-1 income_tax regs in other words in order to establish that the taxpayer provided more than one-half of the claimed dependent’s support the taxpayer must first show by competent evidence the total amount of support received by the claimed dependent from all sources during the year in issue otherwise the taxpayer cannot be said to have established that he or she provided more than one-half of the support for the claimed dependent see eg 56_tc_512 50_tc_756 46_tc_515 petitioner presented no evidence that he provided more than one-half of the support for his stepdaughters during taxable years and accordingly petitioner's claim to - - additional dependency_exemptions for his stepdaughters for taxable years and is denied issue whether petitioner is entitled to head_of_household filing_status in and married filing joint_return filing_status in and petitioner claimed at trial that he was entitled to head-of- household filing_status in respondent contends that petitioner's filing_status in was single in order to qualify for head-of-household filing_status petitioner must satisfy the requirements of sec_2 pursuant to that section and as relevant herein an individual gualifies as a head_of_household if the individual is not married at the close of the taxable_year and maintains as his home a household that constitutes for more than one-half of the taxable_year the principal_place_of_abode of an individual who qualifies as the taxpayer’s dependent within the meaning of sec_151 see sec_2 a however a taxpayer is not considered to be a head_of_household by reason of an individual who would not be a dependent for the taxable_year but for sec_152 a e an individual not related by blood or marriage who is a member of the taxpayer's household see sec_2 b since petitioner is not entitled to dependency_exemptions for his fiancee and her two daughters during he does not gualify as a head_of_household even if petitioner were entitled - to the dependency_exemptions under sec_152 he would still not qualify as a matter of law as a head_of_household because of the limitation set forth in sec_2 b accordingly petitioner is not entitled to head-of-household filing_status but rather must use single filing_status for taxable_year and for taxable years and petitioner claims that he is entitled to married filing joint_return status in the notice_of_deficiency respondent determined that petitioner's filing_status was married_filing_separately section l a provides that the filing_status married filing joint_return applies only to every married individual who makes a single return jointly with his spouse under sec_6013 from this language it is clear that married taxpayers who fail to file returns are not entitled to married filing joint_return tax_rates see martinez v commissioner tcmemo_1998_ affd 198_f3d_242 5th cir collins v commissioner tcmemo_1994_409 ebert v commissioner tcmemo_1991_629 affd without published opinion 986_f2d_1427 10th cir hess v commissioner tcmemo_1989_167 see also 86_tc_433 n affd in part and revd in part on another ground 851_f2d_1492 d c cir the parties stipulated that petitioner failed to file returns - during the years in issue moreover petitioner testified that his wife has not indicated any desire to file a joint_return with him we therefore sustain respondent’s determination that petitioner’s filing_status is married_filing_separately for taxable years and issue failure to timely file tax_return petitioner admits he did not file tax returns for any of the years in issue and that he has income_tax_liability sec_6651 imposes an addition_to_tax for failure to timely file a return unless the taxpayer establishes the failure did not result from willful neglect and the failure was due to reasonable_cause see 469_us_241 petitioner bears the burden_of_proof on this issue see rule a 84_tc_859 petitioner failed to prove reasonable_cause for his failure_to_file respondent's computation of the addition_to_tax in the notice_of_deficiency does take into consideration petitioner’s withholding_tax credits as is required by sec_6651 b see sec_301_6651-1 proced admin regs accordingly the addition_to_tax for failure_to_file returns under sec_6651 as it will be modified in a rule computation is sustained - - issue failure to pay estimated income_tax respondent determined that petitioner was liable for the addition_to_tax under sec_6654 for failure to pay estimated_tax for the years in issue where payments of tax either through withholding or by making estimated quarterly tax_payments during the course of the year do not equal the percentage of total liability required under the statute imposition of the addition_to_tax under sec_6654 is automatic unless petitioner shows that one of the statutory exceptions applies see 99_tc_202 78_tc_304 75_tc_1 none of the exceptions applies we therefore sustain respondent on this issue decision will be entered under rule


internal_revenue_service number release date index numbers --------------------------------------------------- ------------------------ ------------------------------------------------------- --------------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number ------------------- refer reply to cc psi b03 plr-124291-09 date date x --------------------------------------------------------------------------------------------------- ----------------------- legend country --------------------- date ------------------- dear ---------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 facts x was formed under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in plr-124291-09 sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-1 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 internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-124291-09 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 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 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely s curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court gary w andersen and linda c andersen petitioners v commissioner of internal revenue respondent docket no 24326-12s filed date gary w andersen and linda c andersen pro sese craig a ashford and scott lewis student for respondent summary opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure and an accuracy-related_penalty of dollar_figure pursuant to sec_6662 and d on the basis of a substantial_understatement_of_income_tax after a concession by petitioners the sole issue remaining for decision is whether they are liable for the accuracy-related_penalty we hold that they are not background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and accompanying exhibits petitioners resided in utah at the time that the petition was filed petitioners have been married for years and have filed joint federal_income_tax returns throughout their married life before their marriage petitioners filed separate returns as single individuals overall petitioners have a 50-year unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure petitioners concede that they are liable for the deficiency in tax history of filing timely returns all of which have been accepted as filed by the internal_revenue_service with the sole exception of their return for the year in issue in mr andersen was employed by levelor kirsch a subsidiary of newell window furnishings inc he received a fixed salary with a potential for bonuses creating the possibility for his income to fluctuate from year to year in mrs andersen was employed as a registered nurse on a part-time basis she typically worked three to four shifts per month but could be and was called for additional shifts as needed for the year she earned dollar_figure although mrs andersen had intended to retire by she decided to work for another year or so in order to increase her future social_security_benefits petitioners regard their tax situation as fairly complex as they receive income from multiple sources including two subchapter_s_corporations that lease farmland out of state petitioners worry about their ability to prepare accurate tax returns accordingly for many years including petitioners have hired a certified_public_accountant c p a to assist them in the preparation of their returns petitioners are aware of the importance of recordkeeping and for many years they have maintained a system for keeping track of documents that will be needed to prepare their returns thus when petitioners received in the mail a tax document such as a form_w-2 wage and tax statement form_1098 mortgage interest statement form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc or schedule_k-1 beneficiary’s share of income deductions credits etc they would briefly review it and then place it in a dedicated tax file along with other tax-relevant documents that they collected throughout the year in february or march petitioners would meet with their c p a and furnish him with their tax file once the return had been prepared petitioners would again meet with the c p a to review the return over the course of her career mrs andersen was accustomed to receiving a form_w-2 in paper form however for the payroll agent for her employer discontinued issuing forms w-2 in paper form opting instead for the first time to make them available electronically on the internet mrs andersen did not receive notice from either her employer or her employer’s payroll agent about this change nor did she receive a paper copy of her form_w-2 from her employer or her employer’s payroll agent in collecting and organizing their tax documents incident to the preparation of their return petitioners did not realize that they lacked a form_w-2 for mrs andersen’s employment petitioners retained curtis trader a c p a to prepare their federal_income_tax return mr trader had prepared petitioners’ tax returns since and they had confidence in him mr trader held a master of accountancy in tax degree from brigham young university and he had been practicing as an accountant for nearly years and as a c p a for most of that period in or around date petitioners furnished mr trader with all of their tax documents except for a form_w-2 for mrs andersen mr trader had previously spoken with mrs andersen about her retirement plans and he was under the impression that she had already retired a matter that he had recorded in his client notes his impression was later strengthened by the fact that among petitioners’ tax documents was a form 1099-r reporting a modest distribution from a nonemployer payor mr trader was not therefore surprised by the absence of a form_w-2 and he did not inquire about the matter as a result mr trader at the time of trial mr trader was also chair of the utah tax review committee a position to which he had been appointed by the governor of utah did not include mrs andersen’s wage income on line of petitioners’ return nor did he include her tax withholding as a credit on line as was customary mr trader met with petitioners to review the tax_return before it was signed and filed as part of this process petitioners’ return was compared with their return to check for any major deviations in income or apparent discrepancies the adjusted_gross_income on each of these returns was within dollar_figure of the other and there were no anomalies in items of income or otherwise as a consequence neither mr trader nor petitioners noticed the absence of either mrs andersen’s wage income or her tax withholding on the return petitioners signed and timely filed the return on it they reported wages of dollar_figure and total income also adjusted_gross_income of dollar_figure after reducing total_tax due of dollar_figure by withholding estimated_tax payments and a making_work_pay_credit they claimed a modest overpayment which they applied to their estimated_tax in date respondent issued petitioners a notice_of_deficiency determining a deficiency of dollar_figure attributable to mrs andersen’s unreported wages in the notice respondent also determined an accuracy-related_penalty under sec_6662 on the basis of a substantial_understatement_of_income_tax on the day that they received the notice_of_deficiency petitioners perplexed that their return should be questioned by the internal_revenue_service telephoned mr trader and faxed him the notice mr trader promptly reviewed the notice confirmed with petitioners that mrs andersen had in fact received wages in and explained to them that their return had failed to report those wages at that point within one week of receiving the notice_of_deficiency petitioners paid in full the deficiency and the interest thereon thereafter petitioners timely filed a petition for redetermination with this court challenging only the accuracy-related_penalty discussion sec_6662 and b imposes an accuracy-related_penalty equal to of the amount of any underpayment_of_tax that is attributable to any substantial_understatement_of_income_tax by definition an understatement is the excess of the tax required to be shown on the tax_return over the tax actually shown on the return sec_6662 an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 with respect to a taxpayer’s liability for any penalty sec_7491 places on the commissioner the burden of production thereby requiring the commissioner to come forward with sufficient evidence indicating that it is appropriate to impose the penalty 116_tc_438 once the commissioner meets his burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect see rule a 290_us_111 in the instant case respondent determined the accuracy-related_penalty on the basis of a substantial_understatement_of_income_tax see sec_6662 here the understatement of dollar_figure which is attributable to the omission_from_income of mrs andersen’s wages exceeds dollar_figure which amount is greater than of the tax required to be shown on petitioners’ return thus respondent has satisfied his burden of production under sec_7491 as a result petitioners now bear the burden to show that they should not be liable for the penalty see higbee v commissioner t c pincite sec_6664 provides an exception to the imposition of the accuracy- related penalty with respect to any portion of an underpayment if the taxpayer establishes that there was reasonable_cause for such portion and the taxpayer acted in good_faith with respect to such portion the decision as to whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the pertinent facts and circumstances including the taxpayer’s knowledge education and experience as well as the taxpayer’s reliance on professional advice thomas v commissioner tcmemo_2013_60 sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess his or her proper tax_liability humphrey farrington mcclain p c v commissioner tcmemo_2013_23 sec_1 b income_tax regs admittedly this is an exceptionally close case however after weighing all the evidence and in particular the testimony of the witnesses we think the balance shifts in petitioners’ favor at trial both mr andersen and mrs andersen testified we found their testimony to be straightforward and fully credible they readily admitted that they had made a mistake when crossed-examined by respondent’s counsel they were not defensive or argumentative but rather direct and forthright in short petitioners struck us as trustworthy individuals who play by the rules and who take their federal tax responsibilities very seriously apart from our impression of their demeanor this is demonstrated by the fact that petitioners have a 50-year history of filing timely returns all of which have been accepted as filed by the internal_revenue_service with the sole exception of their return for the year in issue that petitioners acted with reasonable_cause and in good_faith is also demonstrated by the fact that for many years petitioners have hired a c p a to prepare their returns although petitioners regard their tax situation as too complex to prepare accurate returns themselves they actively participate in the return preparation process by maintaining a system to keep track of relevant tax records and by reviewing their completed returns with their c p a petitioners’ failure to notice the absence of a form_w-2 for mrs andersen was an oversight on their part however the oversight was at least partially understandable given both the number of petitioners’ tax documents and the fact that mrs andersen never received from either her employer or her employer’s payroll agent a paper copy of a form_w-2 something that she had previously received throughout her career nor had mrs andersen received notification from either of those parties that the payroll agent had discontinued issuing forms w-2 in paper form in favor of making electronic copies available on the internet petitioners also failed to notice when they reviewed their return with mr trader that mrs andersen’s wages were not included on line but when as part of the review process petitioners and mr trader compared the return with the return the parties noted the similarity of the amounts of income and the absence of any anomaly thereby suggesting that no error had occurred indeed the difference between the amounts of income reported on petitioners’ and returns was less than dollar_figure or two-thirds of one percent of their income a difference that would not ordinarily give rise to any suspicion that income had not been fully reported mention should also be made of mr trader a highly credentialed tax professional although petitioners do not seek to shift responsibility to him as they readily admit that they inadvertently failed to furnish him with a form_w-2 for mrs andersen’s wages we are convinced that if mr trader had not proceeded on a mistaken impression about mrs andersen’s retirement the income would never have gone missing from the return finally indicative of petitioners’ good_faith is the fact that on the very day that they received the notice_of_deficiency they contacted mr trader and faxed him a copy for an explanation of why there should be any deficiency in their tax then as soon as petitioners learned that their return had omitted mrs andersen’s at trial we found mr trader to be forthright and credible he readily admitted that he knew that mrs andersen had been employed in the past but assumed that she had retired on the basis of statements of intent she made before petitioners furnished him with their tax file wages and within a week of receiving the notice petitioners paid the deficiency in full together with applicable_interest to us these actions bespeak petitioners’ commitment to fulfilling their tax obligations and their good_faith conclusion clearly petitioners made a mistake but we think it was an honest mistake and not of a type that should justify the imposition of the accuracy-related_penalty in short we think that petitioners’ diligent efforts to keep track of their tax information hiring a c p a to prepare their tax_return reviewing their return with the c p a when it was completed and prompt payment of the deficiency upon receipt of the notice_of_deficiency together with the other facts and circumstances discussed above represent a good-faith attempt to assess their proper tax_liability accordingly we hold that petitioners have carried their burden with respect to the reasonable_cause and good_faith exception under sec_6664 and that petitioners are therefore not liable for the accuracy-related_penalty under sec_6662 see humphrey farrington mcclain p c v commissioner tcmemo_2013_23 sec_1_6664-4 income_tax regs in so holding we have considered all of the arguments advanced by respondent and to the extent not expressly addressed we conclude that those arguments do not support a result contrary to that reached herein in order to give effect to the foregoing decision will be entered for respondent as to the deficiency in tax and for petitioners as to the accuracy- related penalty


department of the treasury internal_revenue_service q washington d c sep set ep a-t erk kkkkrrerekerekeerererer tax_exempt_and_government_entities_division u l l krkekekkkereerkerererere kekererereekererereee kekkeeerekreererererer legend taxpayer a ira x krkerererererrekeeeereerer company f amount d account g mm erkkkekekkererekrererererer kkkkkeeekrekerrrererererer kkrerkeeeekerrereererererer bank b - ek kekkekkererereereekrere company m me erk rekkekekrerkererekkrerkker a ira y me rr khhkrkrekk eker rerererere dear kekekekkeerereeeereer this is in response to your letter dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalties of perjury in support of your request ‘ nee rik iir rr ee in date taxpayer a states that he leq rned from company f that he would have to seek another advisor to handle fhe investment of the individual_retirement_arrangement ira x he maintained with company f because it was no longer able to provide the professional investment services for his ira taxpayer a received a check in the amount of amount d from company f on or about january eee taxpayer a asserts that the check he received from company f was payable to the order of custodian rollover ira fbo taxpayer a’ into thigi account taxpayer a asserts that he discussed this maj er with a bank officer at bank b who informed him that the distribution from ira x needed to be rolled over to another ira documentation submitted with this request for a ruling indicates that taxpayer a opened a money market accpunt g with bank b and on january eee deposited amount d in october lf taxpayer a states that he fou m and requested that bank b transfer amount fs account documentation established with company m on october submitted by taxpayer a indicates that a depdsit described as a deposit rollover was made to ira y on october consisted of the distribution from ira x and c ittain amounts taxpayer a received from an account he maintained with tis employer taxpayer a has removed those amounts from ira y so that ir the amount of the distribution from ira x andj the initial deposit in ira y states that he was not aware that amount d had not been deposited taxpayer a in an ira at bank b and discovered this mista ke after he received a form r from company f that showed the distributiohi of amount d from ira x taxpayer a states that he then contacted bank b and learned that account g was a money market account and not an ira taxpayer a further states that it was his intent to complete a rollover and maintain amount d for his retirement taxpayer a stated that he did not use amount d while it was in account g and y as soon as he found a new that amount d was transferred to a new ira ira financial advisor company m taxpayer a has also submitted account statements for ira y that show that amount djremains in ira y based upon the foregoing facts and represent waive the day rollover requirement with re d from ira x ations you request that the service bect to the distribution of amount case may be in the manner sec_408 of the code provides that e kcept as otherwise provided in sec_408 any amount_paid or distributed put of an ira shall be included in gross_income by the payee or distributee as th provided under sec_72 of the code ‘ rrekkkekrkeerrerrerrrerer w w sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at the time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred ' feted hehe eriereriarreeree form 1099-r issued by company f taxpaye a asserts that prior to depositing this check he discussed the matter with bank b personnel who advised him that taxpayer a states that it was amount d needed to be rolled over to another ira id that the bank officer at band b his intention to roll over amount d to an ira a knew that amount d should have been deposited in an ira because the check issued by company f indicated that it was payable to a custodian rollover ira fbo taxpayer a taxpayer a submitted account statements verifying that amount d was deposited into account g at bank b shortly after he received the check documentation submitted by taxpayer a also shows that amount d was subsequently transferred in october opened with company m taxpayer a states that he was not aware the while that this account jas not an ira and discovered amount d was in account g subsequent to the date amount d was transferred this mistake in january i to iray for his retirement taxpayer a further states that he did not maintain amount d use amount d while it was in account g and statements for ira y indicating that amount d remains in ira y taxpayer a states that it was his intent to complete a rollover and has submitted current account to ira y anew ira taxpayer a the code the service hereby therefore pursuant to sec_408 of waives the 60-day rollover requirement with rdspect to the distribution of amount d from ira x documentation submitted in this case indicates that in october mz taxpayer a established ira y with co pany m and transferred amount d to that ira provided all other requirements o sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d d of the code rollover_contribution within the meaning of section will be considered a nounts that are required to be of the code this ruling does not authorize the rollover of a distributed to taxpayer a by sec_401 this ruling assumes that ira x and ira y satlsfy the qualification requirements of code sec_408 at all times relevant to thié transaction no opinion is expressed as to the tax treatmeht of the transactions described herein under the provisions of any other sectign of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or ited by others as precedent a copy of this ruling is being sent to your auth rized representative in accordance with a power_of_attorney on file ink his office hakkar eker ere ’ if you have any questions concerning this ruling please contact hri k aaai iia ita iii iir kiki ir ier eker arerr e t e_p ra t sincerely yours aalgned sotor a floyd joyce e floyd manager employee_plans technical group enclosures deleted copy of letter_ruling notice


internal_revenue_service number release date index number ----------------------- ------------------------------------------- ---------------------------------- -------------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-151406-08 date may re ----------------------------------------------- ------------------------------------------------ ------------------------------- ein------------------ legend decedent -------------------------- spouse ------------------------------- attorney a ------------------------- attorney b ---------------------------- attorney c -------------------- trust ------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------------------------------- marital trust ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------ date date date a b c d ----------------------- ----------------- ------------------------- --------- ----------- ----------------------------- ----------- dear --------------- this responds to your representative's date letter requesting an extension of time under sec_301 of the procedure and administration regulations to i sever a_trust for which an election was made under sec_2056 of the internal_revenue_code into two separate trusts and ii elect under sec_2652 to treat the property of one such plr-151406-08 trust for generation-skipping_transfer_tax purposes as if the sec_2056 election had not been made the facts submitted and representations made are as follows on date decedent created the trust a revocable_trust he died on date whereupon the trust became irrevocable decedent was survived by his spouse spouse children and grandchildren article ii paragraph d of the trust provides that on decedent’s death a total of dollar_figurea is to be distributed to certain grandchildren under article iii the trust is to be divided into three separate trusts as follows first property equal in value to the applicable_exclusion_amount allowed to decedent’s estate the estate under sec_2010 is to be distributed to one such trust the credit_amount trust this trust is to be held for spouse during her life and on her death distributed to the marital trust described below of the remaining trust property forty percent is to be distributed to a_trust in which spouse is granted a general_power_of_appointment and sixty percent is to be distributed to another trust the marital trust to be held for spouse’s lifetime benefit under article iv paragraph a at spouse’s death an amount of marital trust property equal in value to decedent’s unused generation- skipping transfer_tax exemption is to pass to trusts for decedent’s grandchildren the remaining marital trust property is to be held for decedent’s children accordingly dollar_figurea was distributed outright to the grandchildren dollar_figureb was distributed to the credit_amount trust and dollar_figurec was distributed to the marital trust spouse as executor of the estate engaged attorney a to prepare and assist in timely filing the estate’s united_states estate and generation-skipping_transfer_tax return form_706 on schedule m bequests etc to surviving_spouse an election was made under sec_2056 to treat the marital trust property as qualified_terminable_interest_property qtip and a deduction was claimed for the value of the property on schedule r generation-skipping_transfer_tax dollar_figurea of decedent's gst_exemption was allocated to the outright transfers to the grandchildren in addition under the automatic allocation rules of sec_2632 dollar_figureb of decedent’s gst_exemption was allocated to the credit_amount trust of the total gst_exemption available to decedent and his estate dollar_figured remained unused attorney a failed to advise spouse on utilizing decedent’s unused gst_exemption by severing the marital trust into two trusts and basing the value of property of one such trust on the amount of gst_exemption available making an election under sec_2652 a reverse_qtip_election to treat all of the property of that trust as if the election under sec_2056 had not been made for purposes of chapter and then allocating the unused gst_exemption to the property of that trust this error was discovered after spouse’s death on date by attorney b and attorney c in preparing the federal estate_tax_return for spouse’s estate and reviewing the estate_tax_return filed for the estate you have requested the following rulings an extension of time is granted under sec_301_9100-3 and sec_26_2654-1 to sever the marital trust into two trusts the gst exempt marital trust and the plr-151406-08 gst non-exempt marital trust an extension of time is granted under sec_301_9100-3 to make a reverse_qtip_election under sec_2652 for the gst exempt marital trust the automatic allocation rules of sec_2632 will operate to cause the unused portion of decedent’s gst_exemption to be allocated to the gst exempt marital 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 is to 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 sec_2056 provides that no deduction shall be allowed under sec_2056 where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse 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 such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 and that such an election once made shall be irrevocable sec_2044 provides that the value of the gross_estate shall include the value of any property in which the decedent had a qualifying_income_interest_for_life sec_2044 provides that the section applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 sec_2601 imposes a tax on every generation-skipping_transfer under sec_2611 the term generation-skipping_transfer means a taxable_distribution a taxable plr-151406-08 termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is generally defined as the excess of over the applicable_fraction with respect to a gst that is not a direct_skip the applicable_fraction is generally defined under sec_2642 as a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust under sec_2631 as in effect at decedent’s death for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed under sec_26_2632-1 an allocation of a decedent's unused gst_exemption by the executor of the estate is made on the estate_tax_return filed on or before the date prescribed for filing the return by sec_6075 including any extensions granted an allocation of gst_exemption with respect to property included in the gross_estate of a decedent is effective as of the date of death under sec_2632 and sec_26_2632-1 a decedent's unused gst_exemption is automatically allocated on the due_date for filing the form_706 to the extent not otherwise allocated by the decedent's executor on or before that date the automatic allocation occurs whether or not a return is required to be filed unused exemption is allocated pro_rata on the basis of the value of the property as finally determined for purposes of the estate_tax first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution plr-151406-08 may be made the automatic allocation of gst_exemption is irrevocable under sec_2652 and sec_26_2652-1 the individual with respect to whom property was last subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter under sec_2652 in the case of a_trust for which a deduction is allowed to the decedent under sec_2056 the estate may elect to treat all of the property in the trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made accordingly the decedent and not the surviving_spouse is treated as the transferor of the property for gst tax purposes the election is irrevocable it is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies under sec_26_2652-2 the election is made on the return of tax on which the qtip_election is made under sec_26_2654-1 the severance of a_trust that is included in the transferor's gross_estate into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute 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 section 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 in this case the executor of the estate made a qtip_election with respect to the marital trust property and it is includible in spouse's gross_estate under sec_2044 therefore spouse is considered to be the transferor of that property for gst tax purposes and the estate is precluded from allocating any of decedent's unused gst_exemption to the plr-151406-08 property however if the estate is granted an extension of time to sever the marital trust into a gst exempt marital trust and a gst non-exempt marital trust and to make a reverse_qtip_election for the gst exempt marital trust decedent will be treated as the transferor of the gst exempt marital trust property for gst tax purposes in such case decedent's unused gst_exemption may be allocated to the gst exempt marital trust based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 and sec_26_2654-1 have been satisfied therefore the estate is granted an extension of time of days from the date of this letter to sever the marital trust into the gst exempt marital trust and a gst non-exempt marital trust to make a reverse_qtip_election pursuant to sec_2652 with respect to the gst exempt marital trust and to allocate decedent's unused gst_exemption to the gst exempt marital trust the allocation will be effective as of decedent’s date of death the reverse_qtip_election and the allocation should be made on a supplemental form_706 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_706 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 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes