internal_revenue_service number release date index number --------------- ---------------------- ---------------------------- ---------------------------- in re ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- telephone number --------------------- refer reply to cc tege eb ec plr-143748-08 date date legend taxpayer subsidiary a state a stock plan_year year year month date date date dollar_figurea dear ------------ ---------------------- ---------------------------------------- ------------- --------------------------------------------------- ------- ------- ------- --------------- ----------------------- ----------------------- -------------------------- -------- this letter is in response to the letter dated date and submitted by your authorized representative requesting certain rulings under sec_424 of the internal_revenue_code code regarding the adjustment as the result of a particular transaction of outstanding options intended to qualify as incentive stock_options under sec_422 of the code the facts as presented are as follows taxpayer is a real_estate_investment_trust reit incorporated in state a taxpayer has common equity securities that are required to be registered under sec_12 of the securities exchange act of in year taxpayer adopted the stock plan which was approved by taxpayer’s stockholders under the terms of the stock plan eligible individuals may receive incentive stock_options nonstatutory stock_options stock appreciation rights and restricted_stock options intended to qualify as incentive stock_options under sec_422 of the code have been granted under the stock plan to officers and directors of taxpayer plr-143748-08 the stock plan includes an adjustment provision under which taxpayer’s compensation committee may make such substitution or adjustment if any as it deems to be equitable with respect to the number or kind of shares or other_securities issued or reserved for issuance pursuant to the stock plan as applicable and to outstanding awards in the event of any change in taxpayer’s outstanding shares by reason of any share dividend or split recapitalization merger consolidation spinoff combination or exchange of shares or other corporate change or any distributions to common stockholders other than regular cash dividends the agreement evidencing options granted under the stock plan that are intended to qualify as incentive stock_options includes an adjustment provision under which taxpayer’s compensation committee shall make such substitution or adjustment if any as it deems to be equitable with respect to the number or kind of shares or other_securities issued or reserved for issuance pursuant to the stock plan as applicable and to outstanding awards in the event of any change in taxpayer’s outstanding shares by reason of any share dividend or split recapitalization merger consolidation spinoff combination or exchange of shares or other corporate change or any distributions to common stockholders other than regular cash dividends since taxpayer became a reit in year taxpayer has not paid regular dividends and has not paid any other dividend or made any other distribution to its stockholders in month of year taxpayer liquidated subsidiary a as a result of such liquidation on date taxpayer declared a special distribution of dollar_figurea per share payable to its stockholders of record on date the special distribution represents a nonrecurring event and not a part of a pattern of dividends or distributions the special distribution is directly related to a capital_transaction ie the liquidation of subsidiary a representing a nonrecurring event that is separate and apart from taxpayer’s core business activities the special distribution is not a payout of normal corporate earnings further the special distribution potentially reduced or diluted the value of the option holders’ interests relative to those of the stockholders who received the special distribution as a result of the special distribution on date taxpayer made a proportional adjustment of outstanding options including options intended to qualify as incentive stock_options under sec_422 of the code under the stock plan the adjustment applied to all options that were outstanding when the special distribution was paid the options cover the same stock before and after the adjustments sec_424 of the code provides that the term issuing or assuming a stock_option in a transaction to which sec_424 applies means a substitution of a new option for the old option or an assumption of the old option by an employer_corporation or a parent or subsidiary of such corporation by reason of a corporate merger consolidation acquisition of property or stock separation reorganization or liquidation if the excess of the aggregate fair_market_value of the shares subject_to plr-143748-08 the option immediately after the substitution or assumption over the aggregate option_price of such shares is not more than the excess of the aggregate fair_market_value of all shares subject_to the option immediately before such substitution or assumption over the aggregate option_price of such shares and the new option or the assumption of the old option does not give the employee additional benefits which he did not have under the old option sec_1_424-1 of the income_tax regulations regulations provides that in order for a change in an option or issuance of a new option to qualify as a substitution or assumption the change must occur by reason of a corporate transaction as defined in sec_1_424-1 sec_1_424-1 of the regulations provides that generally a change in an option or issuance of a new option is considered to be by reason of a corporate transaction unless the relevant facts and circumstances demonstrate that such change or issuance is made for reasons unrelated to such corporate transaction a change in an option or issuance of a new option will be considered to be made for reasons unrelated to a corporate transaction if there is an unreasonable delay between the corporate transaction and such change in the option or issuance of a new option or if the corporate transaction serves no substantial corporate business_purpose independent of the change in options sec_1_424-1 of the regulations provides that a change in an option or issuance of a new option is by reason of a distribution or change in the terms or number of the outstanding shares of a corporation only if the option as changed or the new option issued is an option on the same stock as under the old option sec_1_424-1 of the regulations provides that the term corporate transaction includes a distribution excluding an ordinary dividend or a stock split or stock_dividend described in sec_1_424-1 or change in the terms or number of outstanding shares of a corporation based solely on the facts presented we rule as follows the special distribution made on date was a corporate transaction within the meaning of that term as used in sec_1_424-1 of the regulations the date adjustment of options intended to qualify as incentive stock_options that were granted pursuant to the stock plan to reflect the special distribution is treated as occurring by reason of a corporate transaction within the meaning of those terms as used in sec_1_424-1 and of the regulations no opinion is expressed or implied regarding whether options granted under the stock plan satisfy the requirements of sec_422 of the code no opinion is expressed or implied concerning the tax consequences of the proposed transactions plr-143748-08 under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed or implied concerning the application of sec_409a of the code to the proposed transactions this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by 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 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 thomas d scholz assistant branch chief executive compensation branch office of division counsel associate chief_counsel tax exempt and government entities


department of the treasury internal_revenue_service washington d c date number release date cc pa apjp br3 uilc internal_revenue_service national_office field_service_advice memorandum for district_counsel district_counsel pacific northwest cc wr pnw hon from subject curtis g wilson assistant chief_counsel cc pa apjp request for chief_counsel_advice procedures to resolve certain tax_court cases this chief_counsel_advice responds to your memorandum dated date chief_counsel_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend a b c issue how should counsel resolve certain cases related to a common investment program where petitioners wish to enter into stipulated decisions consistent with earlier decisions in tax_court test cases that concerned the same investment program conclusion petitioners should submit to your office for review information which would substantiate claims for sanctions in line with the tax court’s prior holdings your office should make the determination with respect to whether the information provided is sufficient to substantiate sanctions in each particular case if your office determines the information provided is sufficient in a particular case you should enter into a stipulated decision for that case facts there are numerous cases before the tax_court involving investment programs promoted by a petitioners b and c were program participants and agreed with the government to be bound by the tax_court decisions in certain test cases due to government misconduct the tax_court decided with respect to certain test and nontest cases that petitioners who either had not had decisions entered in their cases or whose decisions were not final were relieved of liability for certain time-sensitive interest rate-based penalties that sanctions pursuant to sec_6673 would be imposed against the government based upon an approximation of excess attorney’s fees and costs petitioners incurred as a consequence of the misconduct that interest on these sanctions would commence from the date of the decisions and orders and that petitioners would not be entitled to attorney’s fees pursuant to sec_7430 the tax_court entered decisions in the test cases reflecting its holdings b and c are interested in ending their involvement in the litigation by entering into a stipulated decision they do not wish to await the outcome of any court of appeals’ decision b and c have offered to provide counsel with substantiation of attorney’s fees in order to calculate appropriate sanctions in line with the tax court’s prior holdings counsel anticipates other petitioners will wish to resolve their involvement in like manner rather than wait for disposition of any appeals law and analysis should b and c or other petitioners whose tax_court cases arose out of their involvement with the investment programs promoted by a wish to resolve their cases they should submit to your office for review information which would substantiate claims for sanctions in line with the tax court’s prior holdings your office should make the determination with respect to whether the information provided is sufficient to substantiate sanctions in each particular case if your office determines the information provided is sufficient in a particular case you should enter into a stipulated decision for that case the stipulated decisions should be patterned after the decisions already entered in the test cases except the paragraph relating to the payment of interest as of the date of the decision should appear below the judge’s signature due to jurisdictional concerns the stipulated decision would also contain a paragraph above the judge’s signature stating that petitioners are not entitled to an award of litigation costs under sec_7430 you should also add a paragraph below the judge’s signature where petitioners would stipulate that they will not seek further relief under the tax court's rules_of_practice and procedure or under sec_6673 with respect to their case s_case development hazards and other considerations none if you have any further questions please call the branch telephone number


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person identification_number telephone number date feb number release date se t eo ra t uniform issue list number legend b c d e f s t dear ------------ - we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below your articles of incorporation state that you are organized under the nonprofit religious corporation law exclusively for religious purposes your articles state further the specific purpose of this corporation is to provide support networking and fellowship between christian b around the world as well as reaching out to non-christians in the industry in your application you state that you have a number of different programs and activities for your subscribers and that most of your programs are either online or related to online activity you state that your newsletter is currently your main ministry taking up about of your time in the newsletter is a devotional article recent d job listings that have been posted to your website industry c contests hints and tips a d learning article a trivia game anecdotes and more you state that your website includes a d learning area christianity in the e articles d charts message boards c links recommended books games chat room members listing and more you state that there is also an area for people to post their d job listings on your website so that your members can network to find employment and your employers can find reputable and dependable qualified b you state that one other program is your pen-pal program in which people can make friends and grow in god's grace together you also state that your ministry is focused on helping christian b who are in the industry you f are a nonprofit corporation incorporated in the state of s on the date of t in response to a letter from the internal_revenue_service you state that you are for christian b for the interest of members of the profession but that your primary focus is on god not the profession you state that it is about how to be a christian helping people grow as christians and helping to reach out to witness to others to spread the gospel of jesus you state that everything is geared towards something related either to the advancement of religion or the advancement of d you state that for religion you have many religious articles links books and fellowship opportunities and that every single webpage includes a who is jesus link to witness to anybody who might not know or have a clear understanding of the religion you also state that a great deal of the rest of the website is full of d learning articles d charts d instructional videos c and links for the advancement of viewers' education you state that networking otherwise known as fellowship is an extremely important aspect in both advancing religion and education you state that the employment service helps to advance d education by helping people having a hard time to find jobs to find one so that they may be able to learn more about d under the instruction of a good b sec_501 of the code provides in pertinent part for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or educational_purposes in construing the meaning of the phrase exclusively for educational_purposes in 326_us_279 date ct_d c b the supreme court of the united_states said this plainly means that the presence of a single non-educational purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly educational_purposes this rationale applies equally to any category of charitable purpose under sec_501 of the code sec_1_501_c_3_-1 of the income_tax regulations provides that an organization does not operate exclusively for exempt purposes if more than an insubstantial part of its activities does not further exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for exempt purposes under sec_501 of the code unless it serves a public interest rather than a private interest revrul_76_206 1976_1_cb_154 holds that a nonprofit organization formed to generate community interest in the retention of classical music programs by a local for-profit radio station does not qualify for exemption under sec_501 of the code the organization's activities consist of seeking program sponsors encouraging continuation of contracts by existing sponsors urging the public to patronize the sponsors soliciting subscriptions to the station's program guide and distributing materials promoting the classical music program these activities benefit the for-profit radio station in more than an incidental way accordingly the organization is serving a private rather than a public purpose in 70_tc_1037 date the court held that an organization failed to establish that its discussions with christians on making donations to christian groups did not involve more than an insubstantial benefit to the participants as private persons because the advice also served the participants’ own private interests of tax planning in the 76_tc_380 date the court held that an organization failed to establish that its christian gathering did not involve more than an insubstantial nonexempt purpose of private interests in obtaining recreation the organization’s operation provided rest relaxation and fellowship over the advancement of religion and because of this nonexempt fellowship purpose which was more than insubstantial exemption under sec_501 of the code was denied in st louis science fiction limited v commissioner t c memo date the court held that an organization failed to establish that its annual show to educate participants on science fiction did not involve more than an insubstantial nonexempt purpose of entertainment in your case we find that one of your substantial purposes is to facilitate job networking information for professional b you indicate that this helps to spread the religious messages and fellowship however the commingling of that professional or job purpose is inconsistent with being operated directly for charitable and educational_purposes without more than an incidental serving of any nonexempt or private purpose you indicate that the posting of c is educational however the c may also serve to enhance the job-related private interests of your b in addition a substantial portion of your website is dedicated to nonexempt activities such as contests a trivia game anecdotes links chat room and member listings as in revrul_76_206 supra where the statements for classical music benefited the private radio station your statements for religion are combined as part of christian b job networking that benefits for-profit job private interests of the christian b as in christian stewardship assistance inc supra where there was a tax reduction benefit to christian individuals as donors your activities commingle b job networking and c that serve to more than an incidental and insubstantial extent the individual private or personal interests of the b as in the schoger foundation supra and as in st louis science fiction limited supra the presence of your significant fellowship activities which are more than merely incidental or required exclusively religious or educational_purposes amount to more than an insubstantial nonexempt purpose as in better business bureau of washington dc supra your purposes of fellowship job employment network and d purposes which are nonexempt and more than insubstantial preclude exemption under sec_501 of the code accordingly for these reasons you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns you have the right to protest this ruling if you believe it is incorrect to protest you should contributions to you are not deductible under sec_170 of the code submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney such as form and otherwise qualify under our conference and practices requirements if you do not protest this ruling in a timely manner it will be considered by the internal_revenue_service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory judgement or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 in the event this ruling becomes final it will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make when available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you decide to protest this ruling your protest statement should be sent to the address shown below if it is convenient you may fax your reply using the fax number shown in the heading of this letter if you fax your reply please contact the person identified in the heading of this letter by telephone to confirm that your fax was received internal_revenue_service te_ge se t eo ra t ---------------------------------------- constitution avenue nw washington dc if you do not intend to protest this ruling and if you agree with our proposed deletions as shown in the letter attached to notice you do not need to take any further action are shown in the heading of this letter enclosure notice if you have any questions please contact the person whose name and telephone number sincerely lois g lerner director exempt_organizations rulings and agreements


department of the treasury internal_revenue_service washington d c mar commissioner tax_exempt_and_government_entities_division uniform issue list tec ral t2 sas kkk kk legend taxpayer a taxpayer b ira x amount a financial_institution a ee ee ee ee kee dear penalty of perjury in support of the ruling requested this is in response to your request dated date as supplemented the following facts and representations have been submitted under by correspondence dated date and date and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ distribution from ira x maintained by financial_institution a totaling amount a taxpayer a asserts that taxpayer b’s failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to taxpayer b’s medical_condition which impaired his ability to make decisions during the day period taxpayer a asserts that she has power_of_attorney for taxpayer b taxpayer a represents that her husband taxpayer b received a page dollar_figure taxpayer a represents that on may taxpayer b took a distribution from ira x maintained by financial_institution a totaling amount a taxpayer a represents that taxpayer b’s failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to his dementia during this same time period taxpayer a became concerned about taxpayer b’s mental condition and his ability to make financial decisions two treating physicians diagnosed taxpayer b with dementia during independent visits on july and august taxpayer a did not discover the distribution from ira x to taxpayer b until early when she received a form_1099 for ira x she then consulted an attorney and submitted this ruling_request based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount a sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code 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 ra is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii 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 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 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 any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 page sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date 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 hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a including diagnoses of two of taxpayer b’s treating physicians is consistent with her assertion that taxpayer b’s failure to accomplish a timely rollover was caused by his dementia which impaired his ability to remember deadlines and his financial decision making therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a from ira x taxpayer a issuance of this ruling letter to contribute amount a into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount a will be considered a rollover_contribution within the meaning of sec_408 of the code is granted a period of days from the this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto kk page this letter 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 if you wish to inquire about this ruling please contact at - please address all correspondence to se t ep ra t2 ittlejohn manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc kk ak rek kkk kk


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 --------------------- --------------------- postn-120714-08 uilc date date to gail lontine supervisory tax examining technician sb_se service centers from janine cook branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities subject voluntary compliance under sec_3509 and sec_6205 this chief_counsel_advice responds to questions in connection with our separate review of publication information guide for employers filing form_941 or form_944 frequently asked questions about the reclassification of workers as employees all section references refer to the internal_revenue_code_of_1986 as amended code unless otherwise noted this advice may not be used or cited as precedent issue sec_1 may an employer use sec_3509 to determine its employee federal_insurance_contributions_act fica tax and federal_income_tax withholding liability for prior years when the employer is reclassifying a worker following receipt of a determination_letter from the internal_revenue_service service regarding the worker’s classification as an employee may an employer make an interest-free adjustment to pay its employee fica tax and federal_income_tax withholding for prior years as determined under sec_3509 attributable to a reclassified worker following receipt of a determination_letter from the service regarding the worker’s classification as an employee postn-120714-08 conclusion sec_1 yes if an employer satisfies the requirements of sec_3509 the employer may use sec_3509 to determine its employee fica tax and federal_income_tax withholding liability for prior years when the employer is reclassifying a worker following receipt of a determination_letter from the service regarding the worker’s classification as an employee yes the employer is eligible to make an interest-free adjustment to pay its employee fica tax and federal_income_tax withholding liability for prior years as determined under sec_3509 when the employer is reclassifying a worker following receipt of a determination_letter from the service regarding the worker’s classification as an employee facts either a worker or a firm may request that the service determine whether the worker is an employee or a nonemployee for federal employment_tax purposes through the form ss-8 process the requester files a form ss-8 determination of worker status for purposes of federal employment_taxes and income_tax_withholding to request a determination or ruling letter regarding a worker's status for federal employment_tax purposes if the firm is an entity other than a federal government agency the completed form ss-8 is submitted to one of two ss-8 units if the worker has submitted the form the ss-8 unit requests that the firm also provide the information requested by the form the ss-8 unit reviews all the submitted information and where appropriate issues a determination_letter based upon the facts and circumstances presented if the worker has requested the determination the determination_letter is issued to both the worker and the firm if the firm has requested the determination the determination_letter is issued to the firm only a determination_letter is a written_determination issued by the service that applies the principles and precedents previously announced to a specific set of facts revproc_2008_1 2008_1_irb_1 sec_2 neither the form ss-8 determination process nor the review of any records in connection with the determination constitutes an examination audit of any federal tax_return a determination_letter with respect to worker classification does not have an effective date thus the determination_letter applies to all periods for which the facts are the same as those presented in the request if the firm is determined to be the employer of the worker it will generally be liable for the resulting underpayment of employment_taxes see sec_3102 sec_3111 and sec_3403 the firm may not be liable for employment_taxes if another party is the statutory employer under sec_3401 as the party in control of the payment of wages or if the firm is entitled to relief under sec_530 of the revenue act of p l as amended postn-120714-08 at any time including throughout the determination process the firm may reclassify a worker as an employee and resolve any resulting employment_tax liability the ss-8 units provide assistance to employers on how to comply with any such determination the ss-8 units provide publication information guide for employers filing form_941 or form_944 to aid employers who have received a determination_letter reclassifying the employer’s workers as employees in completing and filing the correct employment_tax returns and issuing the correct information returns to the reclassified workers the ss-8 units requested guidance as to the applicability of sec_3509 and sec_6205 of the code to the form ss-8 determination process sec_3509 provides reduced rates for certain employment_taxes when a worker is reclassified as an employee sec_6205 permits employers to adjust underreported employment_taxes without the imposition of interest the ss-8 units inquired whether both sections are available to calculate and pay the taxes when an employer reclassifies a worker as an employee after receipt of a determination_letter from the service indicating the worker is an employee law and analysi sec_1 application of sec_3509 to determine an employer’s employment_tax liability attributable to worker misclassifications subtitle c of the code sets forth the provisions for employment_taxes chapter imposes the fica tax upon both the employer and employee in addition to being exclusively liable for its own portion of the fica tax under sec_3111 the employer is obligated under sec_3102 to collect the employee’s fica tax imposed under sec_3101 and is liable if it does not deduct or withhold such tax sec_3102 and sec_3102 chapter requires the employer to deduct and withhold income_tax from the payment of wages to the employee sec_3402 the amount the employer is required to withhold generally depends upon the employee’s form_w-4 employee's withholding allowance certificate and the employer’s authorized withholding method the employer is liable for the payment of this withholding_tax whether or not it is collected or deducted from the employee sec_3403 generally the code imposes employment_taxes on wages paid_by an employer to an employee as remuneration for employment sec_3121 of the code provides that the term employee means any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee see also sec_31_3121_d_-1 and sec_31_3401_c_-1 such a sec_3509 and sec_6205 do not apply to the federal_unemployment_tax_act futa_tax imposed by chapter of the code see sec_3509 and sec_6205 thus this memorandum will not discuss the effect of a reclassification of workers on an employer’s liability for futa_tax postn-120714-08 relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he has the right to do so sec_31_3121_d_-1 and sec_31_3401_c_-1 this determination is based on the facts and circumstances in order to further compliance with worker classification for employment_tax purposes the code prescribes reduced rates of tax for employers in certain situations involving misclassification of workers sec_3509 reduces an employer's liability for federal_income_tax withholding and the employee portion of the fica_taxes where the employer failed to deduct and withhold those taxes because it treated the employee as a nonemployee sec_3509 that liability is reduced from the amount the employer was required to withhold to of the employee’s wages for federal_income_tax withholding and from of the employee’s wages to of such amount for the employee’s portion of the fica tax sec_3509 if the employer failed without reasonable_cause to comply with applicable information reporting requirements consistent with the treatment of the employee as a nonemployee eg filing a form 1099-misc miscellaneous income the percentages are doubled so that the employer pay sec_3 of the employee’s wages for federal_income_tax withholding and of the amount of the employee’s fica tax ie of of the employee’s wages both rates must be used and they cannot be applied separately except under special circumstances applicable only to statutory employees an employer must meet several requirements to be eligible to apply sec_3509 rates the employer must have treated the worker as a nonemployee for purposes of both income_tax_withholding and fica tax thus if the employer withheld federal_income_tax but did not withhold the employee’s share of fica tax sec_3509 rates are not available sec_3509 the employer must also have treated the worker as a nonemployee for purposes of information reporting thus if the employer filed a form_w-2 wage and tax statement with respect to such employee sec_3509 rates are not available further if the employer intentionally disregarded the deduction and withholding requirements the reduced rates do not apply and the employer is liable for the full taxes that should have been withheld sec_3509 if sec_3509 rates apply to determine the employer’s tax_liability for the employee’s share of fica tax and income_tax_withholding the employer nonetheless remains liable for the full amount of the employer’s share of fica tax furthermore if sec_3509 applies the employer may not recover any of the amount of tax so determined from the employee nor do the abatement provisions of sec_3402 and sec_6521 apply if the employee would be a statutory_employee described in sec_3121 but for the fact that the employee is also a common_law_employee or an officer the sec_3509 rate for federal_income_tax withholding could be used but not the sec_3509 rate for the employee’s share of fica tax sec_3509 postn-120714-08 sec_3509 and c since these abatement procedures are unavailable any payment of federal_income_tax by the employee will not abate the employer’s liability under sec_3509 for income_tax required to be withheld similarly the employee’s payments of self-employment_tax do not offset the employer’s liability under sec_3509 for the employee’s share of fica tax the legislative_history specifies that the section was enacted to relieve the serious retroactive tax burdens that may arise when a worker who has been treated as an independent_contractor is reclassified as an employee s rep no pincite the section provides a statutory offset mechanism that was intended as a substantial simplification of present law procedures and will reduce burdens on employers whose workers are reclassified by making the abatement provisions of sec_3402 unnecessary for reducing the attending employment_tax liabilities id pincite the committee report states that assessment under sec_3509 would serve the dual function of deterring noncompliance on the part of employers and compensating the treasury for the revenue loss typically associated with employer noncompliance with wage withholding id pincite sec_3509 is silent as to whether it applies only if the reclassification occurs pursuant to an examination by the service like the statute the legislative_history refers to reclassification of workers but does not discuss whether the reclassification is triggered by a service enforcement action in an examination or may be initiated by the employer due to the receipt of a determination_letter regarding the worker’s classification as an employee nothing in the statute or legislative_history of sec_3509 limits the availability of the special rates to circumstances where a worker misclassification is determined pursuant to examination by the irs furthermore the legislative_history indicates that sec_3509 was enacted in part to facilitate compliance by simplifying procedures allowing employers to determine employment_tax liability using sec_3509 rates following an ss-8 determination to correct underpayments will encourage compliance with the ss-8 determination the code and legislative_history are also silent as to whether sec_3509 applies only to a prior year or whether it also applies to determine the employer’s liability for the current_year when an employer discovers a misclassification during the calendar_year if an employer fails to deduct and withhold employment_taxes during a calendar_year because it erroneously views the worker as a nonemployee and discovers such error during that year the employer can remedy such failure to withhold before the calendar_year ends and correctly report such wages to the worker for the calendar_year according to the legislative_history sec_3509 is a mitigation and simplification procedure when the employer has come across a mistake for the past if the mistake is made and discovered in the current_year there is no need for a simplified procedure sec_3402 provides that income_tax required to be deducted and withheld will not be collected from the employer who was required to deduct and withhold such tax and failed to do so if the tax is paid_by the employee sec_6521 provides an offset of self-employment_tax paid against fica tax owed or vice versa in certain circumstances postn-120714-08 the need for simplification arises only when the calendar_year is over because there is no further opportunity to withhold the income_tax for the calendar_year and the employee may have already paid self-employment_tax without simplification the abatement provisions in sec_3402 and sec_6521 would otherwise apply moreover the statute defines the type of mistake that qualifies for sec_3509 in part by the employer’s reporting behavior with respect to the worker until the year is over and the employer does or does not issue an information_return to the worker such as a form 1099-misc it cannot be determined whether the employer met the qualifications for sec_3509 and which rates apply thus it seems implicit that sec_3509 was intended to calculate only prior year liabilities attributable to reclassified workers based on the above analysis we conclude that employers may use sec_3509 rates to calculate their liability for income_tax_withholding and the employee’s share of fica tax where the employer a has become aware of a misclassification after receiving a determination_letter from the service regarding a worker’s classification as an employee b meets the requirements of sec_3509 and c seeks to correct a failure to withhold employment_taxes for a prior year eligibility for sec_6205 interest-free adjustments to pay employment_tax liability under sec_3509 attributable to worker misclassifications under sec_6205 if less than the correct amount of employee’s fica tax sec_3101 employer’s fica tax sec_3111 or federal_income_tax withholding sec_3402 is paid with respect to any payment of wages proper adjustments of both the tax and amount deducted shall be made without interest as prescribed by regulations the employment_tax regulations permit employers to correct their employment_tax underpayments without incurring any interest if the error is timely reported and the tax is timely paid sec_31_6205-1 for purposes of sec_31_6205-1 an error is ascertained when an employer has sufficient knowledge of the error to be able to correct it such as the date of the service’s determination_letter sec_31_6205-1 provides two methods for correcting underpayments for fica tax and federal_income_tax withholding for purposes of an underpayment of fica tax the regulation provides that the employer shall adjust the underpayment either by a reporting the additional tax due as an adjustment on a return filed on or before the last day on which the return is required to be filed for the quarter in which the error is ascertained or b reporting the additional tax on a supplemental return for the quarter in which the wages were paid other than in an examination there are no forms or procedures for filing a supplemental return for the quarter in which the wages were paid if the underpayment is reported on the return for the period in which the error is ascertained and the missing fica tax is paid_by the due_date of the return for the proposed_regulations if made final would change the process to correct underpayments for fica tax and federal_income_tax withholding see employment_tax adjustments fed reg 2008_4_irb_319 postn-120714-08 quarter in which the error is ascertained the reported underpayment will not be subject_to interest however if the adjustment is properly reported but the additional fica tax due is not paid_by the due_date of the return for the quarter in which the error is ascertained interest thereafter accrues sec_31_6205-1 provides that an employer may adjust an underpayment of federal_income_tax withholding either by a reporting the additional tax on a return for any quarter in the calendar_year in which the wages were paid or b reporting the additional tax on a supplemental return for the quarter in which the wages were paid there is no calendar_year limitation for adjustment on a supplemental return however other than in an examination there are no forms or procedures for filing a supplemental return for the quarter in which the wages were paid if the underpayment is reported on the return for the period in which the error is ascertained and the missing federal_income_tax withholding is paid_by the due_date of the return for the quarter in which the error is ascertained the reported underpayment will not be subject_to interest however if the adjustment is properly reported but the additional federal_income_tax withholding due is not paid_by the due_date of the return for the quarter in which the error is ascertained interest thereafter accrues during an examination sec_6205 may apply when an employer reclassifies workers as employees revrul_75_464 1975_2_cb_474 when workers are reclassified pursuant to an examination and the employer agrees to the resulting assessment form 2504-wc agreement to assessment and collection of additional employment_tax and acceptance of overassessment in worker classification cases serves as a supplemental return reporting the additional wages for the period in which the wages were paid to the misclassified workers assessments in examination generally relate to prior calendar years the form 2504-wc as a supplemental return can include assessments for federal_income_tax withholding for prior calendar years as an interest- free adjustment nothing in sec_6205 limits employers to making interest-free adjustments for income_tax_withholding for prior years solely in the context of an examination by the service nor does the statute limit an employer’s ability to make interest-free adjustments for income_tax_withholding for prior years to satisfy underpayments resulting from only certain types of errors the regulations provide for interest-free adjustment of federal_income_tax withholding for wages paid in prior calendar years only on supplemental returns currently only form sec_2504 and 2504-wc used in an examination context are supplemental returns as discussed in issue above employers may use sec_3509 rates if permitted by the rules of that section to determine their tax_liability attributable to worker an error is ascertained when form_2504 or form 2504-wc is signed either at the examination level or at the appeals level when the taxpayer pays the full amount due so as to file a refund claim if prior to notice_and_demand or at the conclusion of in-service appeal rights if no agreement is reached revrul_75_464 postn-120714-08 reclassification following receipt of a determination_letter from the service however as discussed above based on the intent of sec_3509 employers are limited to using such rates to determine employer tax_liabilities for wages paid in prior years that is not in a current calendar_year taken together the sec_6205 regulations and the available processes limit interest-free adjustments of federal_income_tax withholding outside the examination context to the liability for the current calendar_year and sec_3509 limits the use of such rates to calculate the liability for prior calendar years while these limitations together appear to prevent employers from making interest-free adjustments for worker reclassifications for prior years using sec_3509 rates outside of an examination by the service both sec_3509 and sec_6205 are intended to facilitate compliance including with respect to correction of worker misclassification furthermore the general current_year limitation in the sec_6205 regulations for adjusting underpayments of federal_income_tax withholding is intended to maintain the separate nature of each tax_year for income_tax_withholding purposes while the employer remains liable for the underpayment of federal_income_tax withholding for prior years the employer cannot adjust the federal_income_tax withholding for prior years because the employer can no longer withhold the tax from the employee for such prior years since the use of rates proscribes the application of the abatement rules of sec_3402 and prohibits the employer from collecting any of the tax paid under sec_3509 from the employee the rationale for the current calendar_year limitation for adjusting income_tax_withholding does not apply additionally the supplemental return provision in the sec_6205 regulations would have a broader effect if the service provided a supplemental return process outside the examination context there are no direct_tax effects for the reclassified employees when an employer makes adjustments using sec_3509 rates accordingly interest-free adjustments should be permitted for employers using sec_3509 rates to correct worker misclassifications for prior calendar years following receipt of a determination_letter from the service regarding the worker’s classification as an employee this result is consistent with the policy of both provisions to encourage compliance with determinations of worker classification by the service indeed the service’s proposed_regulations under sec_6205 issued in indicate an intent for employers to make interest-free adjustments by using rates in sec_3509 when correcting a misclassification of workers see interest-free adjustments of underpayments of employment_taxes fed reg 1993_1_cb_640 if an employer satisfies the requirements of sec_3509 the employer may use sec_3509 to determine its employee fica tax and federal_income_tax withholding liability for prior years when the employer is reclassifying a worker following receipt of a determination_letter from the service regarding the worker’s classification as an employee see also employment_tax adjustments supra note fed reg 2008_4_irb_319 postn-120714-08 furthermore the employer is eligible to make an interest-free adjustment to pay its employee fica tax and federal_income_tax withholding liability for prior years as determined under sec_3509 when the employer is reclassifying the worker this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please contact selvan boominathan at if you have any further questions _____________________________ janine cook branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


internal_revenue_service date cc el gl br2 gl-119860-98 uilc number release date memorandum for pennsylvania district_counsel attn david breen from kathryn a zuba chief branch general litigation subject csed recovery project offers in compromise this responds to your memorandum dated date this document is not to be cited as precedent legend taxpayers years period a date a date b date c date d date e date f date g date h date i date j date k date l date m date n date o date p date r amount a amount b amount c amount d amount e amount f amount g amount h amount i issue sec_1 whether the service may retain the amount_paid by the taxpayers pursuant to a joint offer_in_compromise for income_tax_liability for year and year where the statute_of_limitations for collection of year taxes had expired prior to the submission and acceptance of the offer and the amount of money paid with the offer exceeded the taxpayers’ year tax_liability gl-119860-98 whether the service may retain the amount_paid by the taxpayer husband pursuant to an offer_in_compromise for his separate tax_liability for period a whether the service may retain any refunds otherwise due to the taxpayers for years prior to and including the year in which the two offers in compromise were accepted by the service conclusion sec_1 the service may retain the amount necessary to satisfy the taxpayers’ year tax_liability the remaining amount constitutes a tax overpayment and should be refunded to the taxpayers in accordance with the discussion below the service may retain the full amount accepted under the taxpayer husband’s offer_in_compromise the service may retain any refund otherwise due to the taxpayer husband and apply these amounts to the taxpayer husband’s compromised liability pursuant to the terms of the offer_in_compromise facts we understand the relevant facts to be as follows the taxpayers had outstanding income_tax liabilities for year sec_1 and on date a the taxpayers signed a payroll deduction installment_agreement under which amount a was deducted from the taxpayer husband’s wages and remitted directly to the service by the taxpayer husband’s employer the installment_agreement was approved on date b the taxpayers’ account shows that timely and regular payments were made between june of year and july of year on date c or approximately one year after the taxpayers entered into an installment_agreement the service asked the taxpayers to execute a form_900 tax_collection_waiver extending the statute_of_limitations on collection of year and year tax_liabilities the ten-year statue of limitations on collection of these taxes was due to expire on date f the letter requesting the waiver from the taxpayers provided as follows in order for the installment_agreement to remain in effect it will be necessary for you to sign and date the enclosed form_900 in response the taxpayers executed two waivers the first waiver extended the collection_period for year liability until date g the second waiver extended the subsequent to entering into the installment_agreement the taxpayers incurred additional income_tax liabilities the liability for year was assessed on date d and the liabilities for year sec_12 and were assessed on date e gl-119860-98 statute for collection of year tax_liability until date h according to the service’s records both of these waivers were signed by the taxpayers on date i and accepted by the service on date j the taxpayers refused to sign additional tax collection waivers requested by the service the statute_of_limitations for collection of year and year income_tax_liability expired in july and august of year respectively no payments were applied to these tax_liabilities subsequent to the expiration of the collection_period sometime in year the service terminated the taxpayers installment_agreement and referred the case to the collection_division for collection on date l the revenue_officer assigned to the case requested that notice_of_federal_tax_lien be filed to protect the government’s interest also on the same date the service issued to the taxpayers a final notice of its intent to levy sometime thereafter the service levied on the taxpayers’ wages the service also received approximately amount b in proceeds from a sale of the taxpayers’ former residence in addition to the joint income_tax liabilities the taxpayer husband was also liable to the service for trust fund recovery penalty tfrp while originally the service made assessments for several quarters of year and year most of these assessments were later abated and some of the periods were allowed to expire as of date m the only outstanding liability was for the period a the limitations_period for collection of the extensions of the limitations_period were not posted to the taxpayers account until after the original statutes had expired due to this late posting the service inadvertently released its liens for year and year on date k the service subsequently revoked the erroneous release pursuant to sec_6325 the taxpayers dispute the propriety of this action and claim that the service should be bound by the release because we conclude that the extensions of the statute_of_limitations in question are invalid we also conclude that the service did not have a statutory lien for income_tax liabilities for year and year after date f sec_6322 it is not clear whether the installment_agreement was terminated because the taxpayers failed to pay their taxes for year and year or because the taxpayers refused to sign additional collection waivers gl-119860-98 this liability calculated without regard to the taxpayer husband’s accepted offer_in_compromise is due to expire on date n it is not clear whether the tfrp liability was covered by the taxpayers’ payroll deduction installment_agreement since the termination of the taxpayers’ installment_agreement the taxpayers have submitted several offers in compromise with the exceptions of the two offers which the service ultimately accepted these offers were determined to be unprocessable and were returned to the taxpayers in the meantime the service continued its efforts to collect on the unpaid tax_liabilities the taxpayers submitted their current offers in compromise based on doubt as to collectibility on date p at that time the service’s records showed an outstanding income_tax_liability for year of amount c and for year of amount d the taxpayer husband’s liability for the tfrp for the period a was in amount e the taxpayers offered to pay amount f in compromise of their year and year income_tax liabilities the taxpayer husband offered to pay amount g in compromise of his tfrp for period a the service has determined that the taxpayers’ offers exceeded what the service could reasonably collect from the taxpayers the service accepted both offers on date m on the same date the service deposited the taxpayers’ two checks in the amount f and amount g7 respectively and mailed to the taxpayers two acceptance letters one letter informed the taxpayers of the acceptance of their joint offer the other informed the taxpayer husband of the the original statute_of_limitations for this liability was due to expire on date o however due to an earlier offer_in_compromise the statute was suspended for one year five months and days the taxpayers originally proposed to pay amount h to compromise all of their tax_liabilities both joint and individual because individual and joint liabilities of married taxpayers cannot be compromised on the same offer agreement the taxpayers were asked to submit separate offers for their joint and individual liabilities the present_value of the taxpayers’ future income was determined to be and the net realizable equity in assets was determined not to exceed amount i accordingly the total amount offered exceeded the service’s collection potential the payment in amount f was credited to the taxpayers’ year income_tax_liability no portion of this amount was applied to the taxpayers’ year tax module gl-119860-98 acceptance of his individual offer in all other respects the acceptance letters were identical they explained to the taxpayers their obligations under the offers including the service’s right to retain any refunds or credits otherwise due to the taxpayers for year and prior the case was referred to this office in connection with the collection statute expiration date csed recovery project to consider the validity of the taxpayers’ two offers in compromise and the service’s right to retain the funds paid in connection with these offers in light of the service’s earlier determination that the statute of limitation on collection of one of the liabilities covered by the taxpayers’ joint offer_in_compromise expired prior to the acceptance of that offer by the service law analysis the service is provided a broad authority to compromise any civil or criminal case arising under the internal revenue laws prior to the reference of that case to the department of justice pursuant to sec_7122 a tax_liability may be compromised only if there is either a doubt as to the service’s ability to collect the tax_liability or legal uncertainty as to the amount of the liability sec_301_7122-1 a tax may not be compromised if the tax_liability has been established by a valid judgment and there is no doubt as to the ability of the government to collect the amounts owing with respect to such liability id taxpayers’ joint offer_in_compromise the taxpayers submitted a joint offer_in_compromise to compromise their income_tax liabilities for year and year the service should not have compromised year tax_liability because at the time the taxpayers’ joint offer was submitted the statute_of_limitations for collection of year liability had expired thus the liability was no longer enforceable and should not have been compromised likewise the taxpayers’ liability for year should not be compromised by the service because there was no basis for the compromise the taxpayers offer cited doubt as to collectibility as the reason for the compromise however no doubt as to collectibility existed at the time the offer prior to the acceptance of the taxpayers’ joint offer_in_compromise the service had pursuant to counsel’s earlier advice the service has determined on date r that the waivers obtained with respect to year and year are invalid and that any payments applied to these tax_liabilities after date f are statutory overpayments subject_to offset or refund pursuant to sec_6401 sec_6402 and sec_6511 before the service was able to take appropriate steps to correct the taxpayers’ account however another function within the service processed and accepted the taxpayers’ two offers gl-119860-98 determined that the statutes of limitations with respect to year and year were improperly extended the statute of limitation for collection of the liabilities with respect to both of these years had expired on date f under sec_6401 of the internal_revenue_code any payment of internal revenue tax whether voluntary or involuntary collected after the expiration of the collection_period is an overpayment_of_tax sec_6401 tax overpayments may be credited to other outstanding federal tax_liabilities subject_to the restrictions set forth in sec_6402 and sec_6511 in the case at hand several payments made by the taxpayers pursuant to their installment_agreement were applied to year and year after the expiration of the collection statute subject_to the restrictions set forth in sec_6511 these payments may be offset against the taxpayers’ year liability while we do not know the exact amount available for offset we know that this amount is more than sufficient to extinguish the taxpayers’ joint liability for year thus at the time the taxpayers’ joint offer_in_compromise was evaluated by the service there was not doubt as to the service’s ability to collect the year liability and no basis upon which the taxpayers’ compromise could be accepted because the service should not have accepted the taxpayers’ joint offer_in_compromise the service may not retain the full amount_paid by the taxpayers with the offer the portion of the payment which exceeds the taxpayers’ year tax_liability is an overpayment_of_tax which should be refunded to the taxpayers and or offset to the taxpayer husband’s tfrp liability in accordance with the discussion below in addition the service should reverse all transaction codes relating to the taxpayers’ joint offer_in_compromise including any suspensions of the statute_of_limitations on collection agreed upon in conjunction with the offer taxpayer husband’s individual offer_in_compromise the individual and joint tax_liabilities of married taxpayers cannot be compromised on the same offer agreement if both spouses wish to compromise all of their liabilities separate agreements must be secured each of these agreements will constitute a separate offer_in_compromise each agreement must by fully sustainable on its own merits inability of the service to accept one of the offers thus does not impact the service’s ability to accept the other sec_6511 limits the amount which can be refunded to the taxpayer or credited against other liability to taxes paid in the two years immediately proceeding the date the taxpayer’s claim for a refund is filed or if no claim is filed the date the refund is allowed in this case the taxpayers did not file a claim_for_refund gl-119860-98 in the instant case the taxpayer husband offered to pay amount g to compromise his personal liability for period a based on doubt as to collectibility the service’s financial analysis disclosed that the maximum amount the service can expect to collect from the taxpayers jointly is approximately amount i in july of year the total balance owed by the taxpayer husband for the period a was in amount e thus even if the entire amount i were property of the taxpayer husband this amount would not sufficient to fully satisfy the taxpayer husband’s tfrp liability the tfrp therefore was susceptible to compromise based on doubt as to collectibility the offer was properly accepted by the service and the service has a right to retain the amount g payment made by the taxpayer husband’s pursuant to his offer_in_compromise moreover under the terms of the offer_in_compromise the service has the right to retain any refund due to the taxpayer husband for any_tax periods extending through the calendar_year in which the offer was accepted by the service see form_656 item g it is well established that couples filing a joint_return have a separate_property interest in the resulting overpayment see eg 397_fsupp_342 e d pa 673_f2d_366 cl_ct cert denie459_us_906 michaelson v commissioner t c memo thus a joint overpayment_of_tax is allocated to each spouse according to the contribution made by each 757_f2d_1157 11th cir oman v commissioner t c memo if all of the payments which respect to a joint tax_liability are made only by one spouse the refund of overpayment_of_tax with respect to that liability belongs to that spouse alone and the other spouse is not entitled to any portion of such refund revrul_74_611 c b as amplified by revrul_85_70 1985_1_cb_361 also revrul_80_7 1980_1_cb_296 as amplified by revrul_85_70 1985_1_cb_361 the taxpayers’ overpaid their taxes for year sec_1 and the service should determine what amount of the tax overpayment with respect to each year belongs to the taxpayer husband and which portion belongs to the wife the amount of the overpayment which is properly allocable to the taxpayer husband may then be offset against the taxpayer husband’s compromised tfrp to the extent the taxpayer husband’s share of the tax overpayment exceeds his compromised liability the difference should be refunded to the taxpayer husband in accordance with sec_6511 and the applicable refund procedures the portion of the overpayments for year year and year which is properly attributable to the wife should be refunded to her separately hazards and other considerations as noted above it is not clear whether the service terminated the taxpayers’ installment_agreement because the taxpayers had failed to pay their year and year income_tax liabilities in which case termination would have been proper or because the taxpayers refused to execute waivers of the collection_period with respect to the year and year joint income taxes in which case termination would not have been proper gl-119860-98 from the documents submitted to us in connection with this case we were able to determine that the taxpayers’ installment_agreement was terminated sometime in year however the files do not contain any correspondence advising the taxpayers of the termination and their appeal rights while the computer_program designed to monitor the taxpayers’ compliance with the installment_agreement should have identified the taxpayers’ installment_agreement as being in default once the new liabilities for year and year were assessed on date e we do not know whether the taxpayers were notified of this default the revenue officer’s notes indicate that the installment_agreement was terminated because the taxpayers refused to execute additional tax collection waivers however we have no correspondence to discern whether the taxpayers were asked for these additional waivers while in compliance with their installment_agreement or whether they were asked for these waivers as a condition of entering into a new installment_agreement after they defaulted on the earlier installment_agreement we recommend that you look into this matter and determine the reason for the termination of the taxpayers’ installment_agreement and whether or not the taxpayers are entitled to receive additional_amounts from the service pursuant to sec_6343 as always we hope the advice provided herein is helpful in resolving this matter if you have any questions or concerns please contact the attorney assigned to this matter cc assistant regional_counsel gl northeast region new jersey district_counsel attn william lyons


internal_revenue_service number release date index number 468a ------------------------ ------------------------------------ ---------------------------------------------------------- ---------------------------- ---------------------------------------- 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 b6 plr-113023-10 date date re ---------------------------------------- ------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------ legend taxpayer parent plant ------------------------------------------ ein ---------------- ------------------------ ein ---------------- --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------------------------------------------------------------------------------- location ------------------------------------------------------------------------------------------------------------- independent study -------------------------------------------------------------------------------------------------------------- method commission fund director ---------------------- ---------------------------------------------------- ------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------- -------------------------- --------------------- -------------------------- --------------------- ------- ------- ------- date date date date date year year year plr-113023-10 year year a b c d e f g h i j dear ---------------- ------- ------- --- ------ ------------------ ------ ------------------ --- --- -------- -------- ------------------ this letter responds to your request dated date for a revised schedule of ruling amounts and an initial schedule of deduction amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t of the temporary income_tax regulations taxpayer was previously granted schedules of ruling amounts most recently on date taxpayer represents the facts and information relating to its request for rulings as follows taxpayer is a wholly-owned subsidiary of parent that elects to be taxed as a corporation for federal_income_tax purposes parent files a consolidated federal_income_tax return with its affiliated corporations including taxpayer taxpayer owns a a percent undivided_interest in the plant the plant is situated at location the estimated base cost for decommissioning the plant is based on an independent study and the proposed method of decommissioning the plant is method based upon the assumptions used in taxpayer’s most recent schedule of ruling amounts it is estimated that fund assets will earn an after-tax rate of return of b percent the total cost of decommissioning the plant is estimated to be c in year dollars this base cost of decommissioning the plant is escalated at a --percent yearly rate resulting in a total future cost to taxpayer of decommissioning the plant of -- in year through year dollars under ratemaking assumptions used during the first proceeding before commission the plant would no longer be included in rate base in year in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to taxpayer represented that the funding_period and level_funding limitation period are in effect for f years date through date and the estimated_useful_life of the plant is g years date through date as elected in the initial and plr-113023-10 subsequent requests for a schedule of ruling amounts taxpayer calculated the qualifying percentage pursuant to sec_1_468a-8 of the regulations as in effect prior to date thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was h percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant plr-113023-10 sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the plr-113023-10 schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year plr-113023-10 sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1_468a-8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated plr-113023-10 as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayers were allowed to contribute h percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act thus taxpayer is able to contribute the additional i percent of the amounts necessary to decommission its ownership share of the plant we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that the taxpayer may make a special transfer of j in year and may ratably deduct the amount contributed for the year through year tax years as set forth below schedule of deduction amounts year ---------------------------------------- deduction amount --------------------- the special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for year in order to make an additional special transfer in a later year including a special transfer of the difference between the special transfer amount stated above and the lesser amount transferred in year taxpayer must request a new schedule of deduction amounts and in that request must take the year transfer into account and recalculate the pre-2005 qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions plr-113023-10 pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent commissioning study that taxpayer has represented is a standard type study used in the industry based on that representation taxpayer has demonstrated pursuant to sec_1_468a-3t a that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts the mandatory review date for this matter remains the same approved schedule of ruling amounts year ---------------------------------------- ruling_amount ----------------------- if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-113023-10 specifically no determination is made whether the independent commissioning study conforms to industry standards and practices this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs 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-107803-09 date date legend x -------------------------------------------------- ------------------------------------- y -------------------------------------------------- -------------------- ------------------------------------- ------------------ ---------- ------------------- ------------------- z country date date dear ----------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity the information submitted states that x was formed as a company under the laws of country on date x was acquired by y and z z is an entity disregarded from its owner y x represents that as a foreign eligible_entity x intended to elect to be treated as a disregarded_entity effective date however x inadvertently failed to timely file a form_8832 entity classification election plr-107803-09 sec_301_7701-3 of the income_tax regulations provides that an eligible_entity with at least two members may elect to be classified as either an association and thus a corporation under 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 further 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 provides that except as provided in sec_301_7701-3 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 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 that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form 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 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_9100-1 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 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 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an plr-107803-09 extension of time of sixty days following the date of this letter to file form_8832 and to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative 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 sincerely curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes