t c no united_states tax_court fredie lynn charlton petitioner v commissioner of internal revenue respondent sarah k hawthorne f k a sarah k charlton petitioner v commissioner of internal revenue respondent docket nos filed date ps were married in separated in and divorced in in w operated medi-task a physician’s transcription business h was employed full time by a large_corporation until date in the fall of he moved to a lake and began to renovate some rental cabins ps filed a joint tax_return for in which they reported that they had self-employment_tax liability for the transcription business and deducted rental cabin expenses r determined a deficiency based in part on adjustments to ps’ self-employment_tax and denial of deductions relating to the cabins ps filed petitions disputing r’s determination ps also alleged they each qualified for relief as an innocent spouse h contends that he qualifies for relief under sec_6015 and c i r c w contended at trial that she qualifies for relief under sec_6015 c and f i r c but now contends that she qualifies for relief only under sec_6015 i r c r contends that the tax_court lacks jurisdiction to decide w’s claim under sec_6015 i r c held all transcription-related self-employment_income is allocated to w under sec_6017 and sec_1402 i r c held further ps’ rental cabin expenses are not deductible because they are preoperational startup expenses see sec_195 i r c held further h does not qualify for relief under sec_6015 i r c but he qualifies for limitation of liability under sec_6015 i r c to the extent stated herein held further we have jurisdiction to review whether relief is available under sec_6015 i r c fredie lynn charlton pro_se sarah k hawthorne pro_se deborah h delgado carl d inskeep and lewis j hubbard for respondent colvin judge respondent determined that for petitioners were liable for a dollar_figure deficiency in income_tax and a dollar_figure accuracy-related_penalty under sec_6662 following concessions the issues for decision are whether all of petitioners’ self-employment_income from respondent concedes that petitioners are not liable for the accuracy-related_penalty under sec_6662 for both petitioners and respondent agree that petitioners understated medi-task gross_receipts for by dollar_figure on their return medi-task is allocated to petitioner sarah k hawthorne hawthorne for purposes of computing self-employment_tax for we hold that it is whether petitioners may deduct expenses relating to their rental cabins in we hold that they may not whether petitioner fredie lynn charlton charlton is entitled to relief from joint_and_several_liability under sec_6015 for the income_tax deficiency arising from petitioners’ joint_return we hold that he is not whether petitioner fredie lynn charlton qualifies for limitation of liability under sec_6015 for the income_tax deficiency arising from petitioners’ joint_return we hold that he does to the extent described below whether we have jurisdiction to review whether relief is available to petitioner sarah k hawthorne under sec_6015 we hold that we do thus we will delay entry of decision to permit hawthorne and respondent to report on the status of hawthorne’s application_for relief under sec_6015 and if relief is denied to file a motion as part of this docketed_case requesting our review of the secretary’s denial section references are to the internal_revenue_code in effect for rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found a petitioners petitioner sarah k hawthorne hawthorne lived in burnet texas when she filed her petition petitioner fredie lynn charlton charlton lived in buchanan dam texas when he filed his petition petitioners lived in texas a community_property_state at all times relevant to this case hawthorne has a college degree in english she completed an accounting class and a marketing class but she did not do well in them hawthorne did not take any income_tax courses petitioners were married in before they were married charlton hired hawthorne to be an office manager for a large manufacturing business charlton was employed full time in houston texas until date he moved his residence to buchanan dam texas in the fall of b medi-task medi-task was a physician’s transcription service hawthorne managed medi-task and performed most of its day-to-day operations medi-task had one employee in independent contractors did most of the transcribing for medi-task charlton did not devote much time to medi-task because he was employed full time until date he was not involved with medi- task’s hiring or marketing he did not type any reports for medi-task but he assisted when there were computer problems hawthorne kept medi-task’s business records in petitioners’ home in a file cabinet next to charlton’s records she deposited medi-task’s gross_receipts in charter bank of houston and lake buchanan state bank charlton had access to medi-task’s records while he prepared petitioners’ return hawthorne prepared and gave charlton lists that included all but dollar_figure of medi-task’s income and all but dollar_figure of medi-task’s expenses for she also gave him bank statements for medi-task forms forms w-2_wages and tax statement and documents showing medi-task’s expenses charlton received unemployment_compensation and va disability payments in the last quarter of medi-task was charlton’s and hawthorne’s only other source_of_income during that 3-month period petitioners signed a personal financial statement on date which stated that medi-task was worth dollar_figure hawthorne sold medi-task in without charlton’s consent or participation and kept the proceeds c rental cabins petitioners bought real_property in the spring of at charlton pointe on lake buchanan in llano county texas there were some rental cabins on the property which were built in the 1950's and were rented until or petitioners began to rehabilitate the cabins in the fall of charlton spent time in working on the cabins and other aspects of the charlton pointe property petitioners incurred expenses for travel to charlton pointe and expenses to rehabilitate the cabins however petitioners rented no cabins at charlton pointe in charlton began renting the cabins in d petitioners’ income_tax returns charlton used tax_return preparation software to prepare returns for petitioners for years including petitioners filed a joint income_tax return for on it they reported profits and losses on schedules c profit or loss from business for medi-task and the cabins charlton used the gross revenue amounts from the lists hawthorne prepared to prepare the return he did not review the bank statements he also used the lists that hawthorne prepared to report medi-task’s expenses he decided how to report the expenses on part ii of schedule c for medi-task eg as advertising legal and professional services travel and meals utilities wages and other expenses petitioners reported that the medi-task income was divided equally between themselves for self-employment_tax purposes petitioners reported that charlton had dollar_figure in wages for they reported that medi-task had gross_receipts and gross_income of dollar_figure total expenses of dollar_figure and net profit of dollar_figure petitioners underreported gross_receipts for medi- task by dollar_figure and did not deduct dollar_figure of medi-task expenses they reported that they had no income from the cabins and dollar_figure in expenses hawthorne examined parts of the return such as the children’s names and social_security numbers and child care credits but otherwise accepted the return that charlton prepared e the divorce petitioners separated in after they filed their return and were divorced in under the divorce settlement charlton received the rental cabin property and hawthorne received medi-task as required by the divorce settlement charlton deposited petitioners’ refund check for dollar_figure in a joint bank account at texas bank in burnet texas on date charlton used some of the refund to pay his personal expenses opinion a whether all medi-task income is attributable to hawthorne for self-employment_tax purposes charlton contends that the medi-task income should be divided equally between him and hawthorne for self-employment_tax purposes respondent and hawthorne contend that all of the medi- task income is attributable to hawthorne and that the self- employment_tax reported by petitioners for should be increased by dollar_figure self-employment_tax for a husband and wife filing a joint_return is the sum of the taxes computed on the self-employment_income of each spouse see sec_6017 all of the gross_income and deductions from a trade_or_business over which one spouse exercises substantially_all of the management and control are attributable to that spouse see sec_1402 for these purposes management and control means actual management and control even if management and control is imputed to the other spouse under community_property_laws sec_1_1402_a_-8 income_tax regs charlton contends that he and hawthorne jointly operated medi-task and that medi-task was a partnership or should be treated as one we disagree hawthorne managed medi-task and performed most of its day-to-day operations charlton had a full-time job until date and he also renovated cabins in he did not devote much time to medi-task we conclude that all of the medi-task income in is attributable to hawthorne for self-employment_tax purposes b whether petitioners’ expenses for the cabins were preoperational startup expenses charlton contends that petitioners may deduct dollar_figure for supplies taxes travel utilities legal and professional services and car and truck expenses for their cabin rental_activity for under sec_162 we disagree generally a taxpayer may not deduct startup expenses see sec_195 a startup expenditure is any amount a paid_or_incurred in connection with-- i investigating the creation or acquisition of an active trade_or_business or ii creating an active trade_or_business or iii any activity engaged in for profit and for the production_of_income before the day on which the active trade_or_business begins in anticipation of such activity becoming an active trade_or_business and b which if paid_or_incurred in connection with the operation of an existing active trade_or_business in the same field as the trade_or_business referred to in subparagraph a would be allowable as a deduction for the taxable_year in which paid_or_incurred sec_195 petitioners incurred these expenses before the cabin rental_activity became an active trade_or_business charlton renovated the cabins in but did not rent them or offer them for rent until the cabin rental_activity was not an active trade_or_business in thus we conclude that the claimed expenses were nondeductible startup expenses c innocent spouse issue sec_1 procedural status of innocent spouse issues petitioners each asserted in their petitions that they qualify for relief as an innocent spouse the statutory provision providing relief for innocent spouses in effect when the petitions were filed sec_6013 was repealed and replaced before trial by sec_6015 see internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 as a result neither petitioner referred to sec_6015 in the petitions filed in these cases at trial the parties consented to treating the petitions as elections by charlton and hawthorne for relief under sec_6015 procedures for relief from joint liability applicable to all joint filers and sec_6015 procedures to limit liability for divorced and separated taxpayers respondent contends that we lack jurisdiction to decide whether hawthorne is entitled to equitable relief under sec_6015 we deem petitioners to have amended their petitions to claim relief under sec_6015 and c and we treat hawthorne’s request for relief under sec_6015 as an amendment to her petition seeking our review of her entitlement to relief under that subsection hawthorne contended at trial that she was entitled to relief under sec_6015 and c she now concedes that relief is not available to her under sec_6015 and c whether charlton is entitled to relief from joint_and_several_liability for income_tax for under sec_6015 charlton contends that he is entitled to relief from joint_and_several_liability for income_tax for under sec_6015 sec_6015 provides that if a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of one individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election then the other individual shall be relieved of liability for tax including interest penalties and other_amounts for such taxable_year to the extent such liability is attributable to such understatement respondent concedes that charlton qualifies under sec_6015 because he filed a joint federal_income_tax return for and sec_6015 because he elected to seek relief not later than years after collection activities began sec_6015 requires that in signing the return the individual seeking relief did not know and had no reason to know of the understatement charlton contends that he did not know and had no reason to know of the understatement attributable to medi-task because he had no control_over medi-task’s finances and was busy with his other business interests we disagree under prior_law former sec_6013 in a case of omitted income a spouse seeking relief was not permitted to turn a blind eye to facts that were available to him or her to avoid liability as an innocent spouse see 57_tc_732 similarly a taxpayer who prepares a return is not relieved of the duty to prepare an accurate return if the taxpayer relies on summarized information provided by the taxpayer’s spouse when information upon which the summary is based is available to the taxpayer charlton was generally familiar with medi-task hawthorne gave him the bank statements respondent later used in determining medi-task’s income for forms and w-2 and a computer- generated expense list charlton had unfettered access to medi- task’s financial records we conclude that charlton had reason to know of medi-task’s understatement of income thus charlton does not qualify for relief as an innocent spouse under sec_6015 d whether charlton qualifies for limitation of his liability for petitioners’ income_tax under sec_6015 charlton contends that he qualifies for limitation of liability for petitioners’ income_tax under sec_6015 c sec_6015 provides sec_6015 procedures to limit liability for taxpayers no longer married or taxpayers legally_separated or not living together -- in general --except as provided in this subsection if an individual who has made a joint_return for any taxable_year elects the application of this subsection the individual’s liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual under subsection d election -- a individuals eligible to make election -- i in general --an individual shall only be eligible to elect the application of this subsection if- i at the time such election is filed such individual is no longer married to or is legally_separated from the individual with whom such individual filed the joint_return to which the election relates or ii such individual was not a continued for the portion of the deficiency relating to medi-task respondent and hawthorne contend that he does not hawthorne makes no arguments that substantially differ from respondent’s on this point we agree with charlton to be eligible for relief under sec_6015 the individual seeking relief must no longer be married to or must continued member of the same household as the individual with whom such joint_return was filed at any time during the 12-month_period ending on the date such election is filed ii certain taxpayers ineligible to elect --if the secretary demonstrates that assets were transferred between individuals filing a joint_return as part of a fraudulent scheme by such individuals an election under this subsection by either individual shall be invalid and sec_6013 shall apply to the joint_return b time for election --an election under this subsection for any taxable_year shall be made not later than years after the date on which the secretary has begun collection activities with respect to the individual making the election c election not valid with respect to certain deficiencies --if the secretary demonstrates that an individual making an election under this subsection had actual knowledge at the time such individual signed the return of any item giving rise to a deficiency or portion thereof which is not allocable to such individual under subjection d such election shall not apply to such deficiency or portion this subparagraph shall not apply where the individual with actual knowledge establishes that such individual signed the return under duress be legally_separated from the individual with whom he or she filed the joint_return and must have elected the applicability of sec_6015 not later than years after the date on which collection activity began see sec_6015 an electing spouse bears the burden of proving how much of any deficiency is allocable to him or her see sec_6015 an election is not valid if respondent shows that the individual making the election had actual knowledge when signing the return of any item giving rise to a deficiency or portion thereof which is not allocable to the electing individual see sec_6015 the only medi-task item causing a deficiency in this case is omitted income we have concluded that charlton should have known of the omitted income because he knew of and had access to correct information about medi-task see par c-2 above however that does not mean that he actually knew of the medi-task omitted income charlton did not check medi-task’s bank records against the lists of medi-task revenue that hawthorne prepared and gave him the lists hawthorne gave charlton are not in the record charlton testified that he did not know of the omitted income we have no reason not to believe him we conclude that respondent has not shown that charlton had actual knowledge of the item causing the deficiency and that charlton qualifies for relief under sec_6015 thus the procedures in sec_6015 to allocate items between hawthorne and charlton apply sec_6015 provides in part sec_6015 allocation of deficiency --for purposes of subsection c -- in general --the portion of any deficiency on a joint_return allocated to an individual shall be the amount which bears the same ratio to such deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under paragraph bears to the net amount of all items taken into account in computing the deficiency separate treatment of certain items --if a deficiency or portion thereof is attributable to -- a the disallowance of a credit or b any_tax other than tax imposed by sec_1 or required to be included with the joint_return and such item is allocated to one individual under paragraph such deficiency or portion shall be allocated to such individual any such item shall not be taken into account under paragraph allocation of items giving rise to the deficiency for purposes of this subsection-- a in general except as provided in paragraphs and any item giving rise to a deficiency on a joint_return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable_year b exception where other spouse benefits under rules prescribed by the secretary an continued for purposes of sec_6015 an item giving rise to a deficiency on a joint_return is generally allocated as if the individuals had filed separate returns see sec_6015 respondent contends that the parties should perform the computations under sec_6015 as part of the rule_155_computations neither charlton nor hawthorne objects to using that procedure we agree with respondent and we will so order e whether the tax_court has jurisdiction to review a taxpayer’s request for equitable relief under sec_6015 respondent contends that we lack jurisdiction to decide whether the commissioner properly denied relief to a taxpayer under sec_6015 we disagree for reasons stated in butler v commissioner t c __ __ slip op pincite hawthorne and respondent have apparently suspended any activity relating to hawthorne’s claim under sec_6015 while this case is pending if the secretary denies her continued item otherwise allocable to an individual under subparagraph a shall be allocated to the other individual filing the joint_return to the extent the item gave rise to a tax_benefit on the joint_return to the other individual c exception for fraud the secretary may provide for an allocation of any item in a manner not prescribed by subparagraph a if the secretary establishes that such allocation is appropriate due to fraud of one or both individuals application_for relief under sec_6015 hawthorne may file a motion as part of this docketed_case to seek our review of the secretary’s denial within a time period to be provided by order of this court we will delay entry of decision until hawthorne and respondent report the status of the secretary’s action under sec_6015 to reflect the foregoing appropriate orders will be issued


internal_revenue_service number release date index numbers cc dom corp plr-117040-99 re date legend purchaser target target_affiliate country z sellers company officer tax professional individual date a date b date c business x business y a b dear this letter responds to your letter dated date requesting an extension of time under and of the procedure and administration regulations to file elections purchaser is requesting the extension to file sec_338 elections under g of the internal_revenue_code and d and g of the income_tax regulations with respect to purchaser’s acquisition of target and deemed acquisition of target_affiliate on date a sometimes hereinafter collectively referred to as the elections or the election additional information was received in letters dated date january january and date the information submitted for consideration is summarized below purchaser is the common parent of a consolidated_group that has a march taxable_year and uses the accrual_method of accounting purchaser is engaged in business x company officer and tax professional are employees of purchaser prior to the acquisition target was wholly owned by sellers and target_affiliate was owned a by target and b by individual target and target_affiliate are country z corporations and sellers and individual are nonresident foreign individuals target and target_affiliate are engaged in business y it is represented that target and target_affiliate were not subject_to u s taxation and did not file u s income_tax returns moreover it is further represented that neither target nor target_affiliate was a controlled_foreign_corporation within the meaning of a a passive_foreign_investment_company for which an election under is in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in a a united_states_real_property_holding_corporation or required under g to file a u s income_tax return additionally it is represented that sellers and individual are not subject_to a tax on the sale of their respective shares target and target_affiliate stock under b plr-117040-99 on date a pursuant to a sale agreement purchaser acquired all of the outstanding_stock of the target and all of individual’s target_affiliate stock in exchange for cash in fully taxable transactions it is represented that purchaser was not related to sellers within the meaning of h c and that purchaser’s acquisition of target and purchaser’s deemed acquisition of all of the target_affiliate each qualified as a qualified_stock_purchase within the meaning of d after the acquisition new target and target_affiliate were or will be included in purchaser’s first return subsequent to the acquisition by being listed on form_5471 information_return with respect to a foreign_corporation purchaser intended to file the election the election was due on date b but for various reasons it was not filed on date c which is after the due_date for the election company official and tax professional discovered that the election was not filed the statute_of_limitations under has not expired for purchaser’s taxable_year in which the acquisition sale was consummated the taxable_year in which the election was due or for any year s that would be affected by the election had it been timely filed subsequently this request was submitted under for an extension of time to file the election sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes a sec_338 election under g or is treated as having made the election under e and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of a of one corporation is acquired by another corporation by purchase during the 12-month_acquisition_period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under a relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which or applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under a other than paragraph thereof be attributed to the person acquiring such stock sec_1_338-1 provides that the term target_affiliate has the same meaning as in h but without the application of h b i a corporation so described eg a foreign_corporation that would be a member of the affiliated_group except for b is a target_affiliate for all purposes of if a target_affiliate is acquired in a qualified_stock_purchase it is also a target plr-117040-99 sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form_8023 in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the 9th month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable the instructions to form_8023 provide that foreign_corporations who do not need to file a federal_income_tax return make the election by filing a form_8023 with the office of assistant_commissioner international sec_1_338-1 provides that the united_states_shareholders as defined in b of a foreign purchasing_corporation that is a controlled_foreign_corporation as defined in may file a statement of election on behalf of the purchasing_corporation if the purchasing_corporation is not required under g other than g i b to file a united_states income_tax return for its taxable_year that includes the acquisition_date sec_1_338-2 provides that if an election under is made for target old target is deemed to sell target’s assets and new target is deemed to acquire those assets under h b new target’s deemed purchase of stock of another corporation is a purchase for purposes of d on the acquisition_date of target if new target’s deemed purchase causes a qualified_stock_purchase of the other corporation and if a election is made for the other corporation the acquisition_date for the other corporation is the same as the acquisition_date of target however the deemed sale and purchase of the other corporation’s assets is considered to take place after the deemed sale and purchase of target’s assets sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form_8023 and the instructions thereto under a the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates 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 sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of plr-117040-99 time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of requests for relief under will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie d therefore the commissioner has discretionary authority under to grant an extension of time for purchaser to file the election provided purchaser shows it acted reasonably and in good_faith the requirements of and are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser tax professional and company officer explain the circumstances that resulted in the failure_to_file the election the information also establishes that a tax professional was responsible for the election that purchaser relied on the tax professional to timely make the election and that granting an extension will not prejudice the interests of the government see b iv based on the facts and information submitted including the representations made we conclude that purchaser has shown it acted reasonably and in good_faith in failing to timely file the election the requirements of and have been satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under until days from the date_of_issuance of this letter for purchaser as the purchaser of target the u s shareholders of the foreign deemed purchaser of target_affiliate to file the election with respect to the acquisition of target’s stock and the deemed acquisition of target affiliate’s stock as described above the above extension of time is conditioned on the taxpayers’ purchaser’s target’s and target affiliate’s tax_liability being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the district director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ liability is lower c purchaser must file the election in accordance with d and g ie a new election for target and target_affiliate on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the form and the information that is required by the form must plr-117040-99 be attached to the election form a combined form may be filed see e and the instructions on form_8023 also a copy of this letter must be attached to the election form purchaser target new target target_affiliate and new target_affiliate as applicable must report the acquisition as a sec_338 transaction on their return s or amended_return s as applicable see g and that is old target and old target_affiliate must file separate final returns and new target and new target_affiliate must be included in purchaser’s consolidated_return by being listed on form for the year following the acquisition ie included in purchaser’s return from the day after the acquisition no opinion is expressed as to whether a is applicable to the transaction as to whether the above described acquisition of target’s stock and or deemed acquisition of target affiliate’s stock qualifies as a qualified_stock_purchase and or for a treatment or if the acquisition of target’s stock and or deemed acquisition of target affiliate’s stock qualifies as a qualified_stock_purchase and for a treatment as to the amount if any of gain_or_loss recognized on the deemed asset sale s in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under we relied on certain statements and representations made by the taxpayers their employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under to file the election penalties and interest that would otherwise be applicable if any shall apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel corporate by bernita l thigpen deputy assistant chief_counsel corporate


internal_revenue_service department of the treasury significant index no washington dg person to contact telephone number refer reply to cp b ep t date nov legend state a employer m plan x group b employees ordinance this is in response to correspondence dated date in which you request a private_letter_ruling concerning the federal_income_tax treatment under sec_414 of the internal_revenue_code of certain contributions to plan x the following facts and representations have been submitted employer m employer m adopted plan x for the benefit of group b employees plan x x group b employees are required to make mandatory_contributions of dollar_figure percent of salary to plan x a political_subdivision of state a is qualified under sec_401 of the code under plan is ordinance o was adopted by employer m on date in accordance with ordinance employer m will pick up and pay the employee contributions under plan x group b employees do not have the option of receiving the contributed amounts directly instead of having them contributed to plan x will be made by employer m through a reduction in the cash the contributions page salary payable to the employee ordinance o provides that it not effective until the issuance of this letter_ruling by the internal_revenue_service is based on the aforementioned facts and representations you have asked for rulings that the mandatory employee contributions picked up by employer m will be excluded from the current gross_income of group b employees until distributed or otherwise made available that the picked up contributions paid_by employer m are not wages for federal_income_tax withholding purposes and federal income taxes need not be withheld on the picked up contributions sec_414 h of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401l a established by a state government or a political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded c b in that revenue_ruling of the code is specified in revenue contributions which are picked up by the employer within the meaning of sec_414 ruling employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district’s picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 a the school district’s contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees’ salaries with respect to such picked-up contributions of the code the the issue of whether contributions have been picked up by an employer within the meaning of sec_414 h is addressed in revrul_81_35 c b revrul_81_36 c b established that the following two criteria must be met employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan furthermore it these revenue rulings is immaterial for of the code the the and j page purposes of the applicability of sec_414 h whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both revrul_87_10 1987_1_cb_136 provides that in order to satisfy revenue rulings and the required specification of designated employee contributions must be completed before the period to which such contributions relate thus employees may not exclude from current gross_income designated employee contributions to a qualified_plan that relate to compensation earned for services prior to the date of the last governmental action necessary to effect the employer pick up it has been represented that under ordianace employer m will make contributions in lieu of contributions by group b employees and that the employees may not elect to receive such contributions directly therefore ordinance satisfies the criteria set forth in revrul_81_35 and revrul_81_36 accordingly with respect to ruling_request one conclude we that the mandatory employee contributions picked up by employer m will be excluded from the current gross_income of group b employees until distributed or otherwise made available we have determined that the employee contributions paid to plan x by employer m on behalf of group b employees will be treated as picked up contributions in accordance with revrul_81_35 and revrul_81_36 pursuant to revrul_77_462 picked-up contributions are excluded from the employees’ gross_income until such time as they are distributed to the employees accordingly with respect to ruling_request two we conclude that the picked up contributions paid_by employer m are not wages for federal_income_tax withholding purposes and federal income taxes need not be withheld on the picked up contributions these rulings are based on the assumption that plan x will be qualified under sec_401 of the code at the time of the proposed contributions no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement within the meaning of sec_3121 b of the code sincerely yours frances v sloan chief employee_plans technical branch ‘ enclosures deleted copy of letter_ruling form_437


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 corp b04 plr-100703-10 date march legend target acquiring shareholder a x y z date business --------------------------- -------------------------- ----------------------------- ------------- -------------------------- ----------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ----------- ------ ------ ------ -------------- ------------------------------------- plr-100703-10 dear ----------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts target is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return target was originally formed as a holding_company for a number of operating subsidiaries shareholder a directly and indirectly owns approximately x percent of target’s outstanding common_stock the remainder of target’s common_stock is publicly held over the years target has controlled a number of businesses however as of the end of date target had disposed of its interests in operating companies apart from its interest in acquiring currently target’s primary business is acting as a holding_company for acquiring acquiring is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return acquiring is engaged in business acquiring has two classes of stock outstanding class a common_stock and class b common_stock which is exchangeable into class a common_stock acquiring’s class a common_stock is widely held and publicly traded target owns all of acquiring’s outstanding class b common_stock or approximately y percent more than of the outstanding common_stock of acquiring by value proposed transaction for what have been represented to be valid business purposes the following steps have been proposed the proposed transaction i acquiring will form a limited_liability_company llc an entity disregarded as separate from its owner under sec_301_7701-3 plr-100703-10 ii pursuant to state law target will merge with and into llc together with acquiring the acquiring unit with llc surviving the downstream_merger as a result of the downstream_merger the target common_stock will be converted into the right to receive common_stock of acquiring target shareholders may receive class a common_stock of acquiring class b common_stock of acquiring or both it is anticipated that the rights associated with the two classes of stock will be similar to the currently outstanding class a common_stock and class b common_stock of acquiring during the three-year period preceding the date of the downstream_merger shareholder a directly and indirectly will have owned no less than z percent of the stock of target immediately after the downstream_merger shareholder a directly and indirectly will own less than z percent of acquiring representations the following representations are made in connection with the proposed transaction a b c d e the fair_market_value of acquiring common_stock and cash in lieu of fractional shares received in the downstream_merger by each of the target shareholders will be approximately equal to the fair_market_value of target common_stock surrendered in the downstream_merger at least percent of the proprietary interest in target will be exchanged for acquiring common_stock and that proprietary interest will be preserved within the meaning of sec_1_368-1 neither acquiring unit nor any person related to acquiring unit within the meaning of sec_1_368-1 has any plan or intention to reacquire any acquiring common_stock issued in the transaction for any consideration other than acquiring common_stock either directly or through any transaction agreement or other arrangement with any other person acquiring unit has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business or transfers described in sec_368 or described in sec_1_368-2 the liabilities of target assumed by acquiring unit and the liabilities to which the transferred assets of target are subject were incurred by target in the ordinary course of its business plr-100703-10 f g h i j k l m following the downstream_merger acquiring unit will continue the historic_business of the target or use a significant portion of target’s historic_business_assets in a business as required and defined in sec_1_368-1 acquiring unit target and target’s shareholders each will pay their respective expenses if any incurred in connection with the downstream_merger there is no intercorporate indebtedness existing between acquiring unit and target that was or will be issued acquired or settled at a discount no two parties to the downstream_merger are investment companies as defined in sec_368 and iv target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the fair_market_value of the assets of target to be transferred to acquiring unit will equal or exceed the sum of liabilities assumed by acquiring unit plus the amount of liabilities if any to which the transferred assets are subject target and acquiring unit will adopt a plan of merger and the downstream_merger will occur pursuant to such plan the payment of cash in lieu of fractional shares if any of acquiring common_stock will be solely for the purpose of avoiding the expense and inconvenience to acquiring of issuing fractional shares and will not represent separately bargained-for consideration the total cash consideration that will be paid in the downstream_merger to the target shareholders instead of issuing fractional shares of acquiring common_stock will not exceed one percent of the total consideration that will be issued in the downstream_merger to the target shareholders in exchange for their shares of target common_stock the fractional share interests of each target shareholder will be aggregated and no target shareholder will receive cash in an amount equal to or greater than the value of one full share of acquiring common_stock n target acquiring and each of their affiliates will be eligible to file a consolidated_return immediately after the downstream_merger plr-100703-10 rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the proposed transaction the downstream_merger will qualify as a reorganization within the meaning of sec_368 acquiring and target will each be a party to the reorganization within the meaning of sec_368 target will recognize no gain_or_loss upon the transfer of the assets of target to acquiring unit solely in exchange for acquiring common_stock and the assumption_of_liabilities by acquiring unit sec_361 and sec_357 target will recognize no gain_or_loss on the distribution of acquiring common_stock to its shareholders sec_361 acquiring will recognize no gain_or_loss upon acquiring unit’s receipt of target’s assets in exchange for acquiring common_stock sec_1032 the basis of target’s assets in the hands of acquiring unit will be the same as the basis of such assets in the hands of target immediately before the downstream_merger sec_362 the holding_period of target’s assets in the hands of acquiring unit will include the period during which target held such assets sec_1223 a target shareholder will recognize no gain_or_loss upon the receipt of acquiring common_stock in exchange for target common_stock sec_354 a target shareholder’s basis in the acquiring common_stock received will be the same as the basis of the target common_stock surrendered in exchange therefor sec_358 a target shareholder’s holding_period in the acquiring common_stock received will include the period during which the target common_stock surrendered in exchange therefor was held provided the target common_stock was held as a capital_asset on the date of the exchange sec_1223 the payment of cash in lieu of issuing fractional shares of acquiring common_stock will be treated as if the fractional shares were issued in the downstream_merger and then redeemed by acquiring with the cash payments treated as having been received as distributions in full payment in exchange for the redeemed fractional shares as provided in sec_302 provided the fractional share interest is a capital_asset in the hands of the recipient shareholder the gain_or_loss will constitute capital_gain or loss plr-100703-10 subject_to the provisions and limitations of subchapter_p of chapter revrul_66_365 1966_2_cb_116 revproc_77_41 1977_2_cb_574 acquiring will succeed to and take into account as of the close of the effective date of the downstream_merger the items of target described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_1_381_a_-1 with regard to the sec_382 testing_date applicable that occurs as a result of the downstream_merger shareholder a will not contribute to any owner shift in target because a shareholder a's percentage of stock ownership_interest in target will not increase during the testing_period and b immediately following the downstream_merger shareholder a's percentage of stock ownership_interest in acquiring target's successor will not exceed shareholder a's lowest percentage of stock interest in target during the testing_period sec_1_382-2t and sec_1_382-2 the downstream_merger will constitute a reverse_acquisition within the meaning of sec_1_1502-75 with acquiring becoming the common parent of the affiliated_group caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-100703-10 a copy of this letter must be attached to the federal_income_tax return of each party involved in the proposed transaction for the taxable_year in which the proposed transaction is completed under the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely __________________ lewis k brickates chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list tt be rk xxxkxxxkxkxxkxkxkkx xxxkxxxkxkxkxxxkxkx xxxxxxxxxxkxkkx legend taxpayer a ira b bank c account d bank e amount xxxxxxxxkxxxxxx xxxxxkxxkxkxkxkxkxkx xxxxxxxxkxkxkxkkxxk xxxxxkkxkxkkxkxkkx xxxxkxkxxkxkxxkxkkk xxxxxxxxkxxxkkx dear xxxxxxxxxxxxxx this is in response to your submission dated date as supplemented by correspondence dated may june 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’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that she received a distribution from ira b totaling amount taxpayer a asserts that her failure to accomplish a rollover of amount within the 60-day period prescribed by sec_408 was due to the failure of bank e to follow taxpayer a’s instructions taxpayer a also represents that amount has not been used for any other purpose page taxpayer a represents that she owned ira b which was invested in a certificate of deposit cd maintained by bank c upon maturity of the cd taxpayer a decided to invest in an ira with bank e on may taxpayer a received a distribution of amount from ira b with bank c taxpayer a was told by representatives of bank c of the 60-day rollover requirement and specifically what she should tell representatives of bank e taxpayer a immediately went to bank e and told representatives of bank e that her intent was to open a retirement account and that this was a rollover from an ira account at that time bank e opened account d and provided taxpayer a with a screenshot from their webpage showing her new account taxpayer a left bank e believing that she had properly rolled over amount into an ira account in november upon receipt of an irs form cp-2000 taxpayer a became aware that account d was a non-lira account based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount 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 ira 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 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 page 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 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 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 is consistent with her assertion that her failure to accomplish timely rollover was due to the failure of bank e to follow her instructions which resulted in amount being deposited into account d a non-ira account therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount into an ira will be considered a valid rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of any amounts that are required to be distributed by sec_401 of the code applicable thereto 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 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact xxxxxxxxxx by phone at xxx xxx-xxxx please address all correspondence to se t ep ra t1 carlton watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc psi b06 conex-149446-09 o f f i c e o f t h e c h i e f c o u n s e l number info release date uil ------------------ ------------------------------ ---------------------------------------- --------------------------- dear -------------- i apologize for the delay in responding to your letter dated date you wrote to state your concern about the limits on the definition of solar illumination property in sec_48 of the internal_revenue_code the law provides a tax_credit for certain energy_property placed_in_service during a taxable_year energy_property is defined to include equipment that uses solar_energy to illuminate the inside of a structure using fiber-optic distributed sunlight for property placed_in_service in taxable years ending before date you are concerned that the effective development of exciting new solar applications will be inhibited because the credit for equipment that illuminates the inside of a structure is limited to equipment that uses fiber-optic distributed sunlight you believe that the law should use a more neutral term that would include core solar harvesting technology rather than any one specific distribution method however because the statute requires fiber-optic distribution in order for a taxpayer to be eligible for a tax_credit for property that uses solar_energy to illuminate the inside of a structure the congress would have to amend the law for this credit to be available for a broader range of illumination property this letter describes well-established interpretations and principles of tax law without applying them to a specific set of facts it is advisory only and has no binding effect with the internal_revenue_service this letter is intended only to provide general guidance for determining how to comply with applicable law it is intended for informational purposes only and does not constitute a ruling see revproc_2009_1 sec_2 2009_1_irb_1 date conex-149446-09 i hope this information is helpful if you have any further questions on this matter please contact ------------------------or me at --------------------- for assistance sincerely charles b ramsey chief branch office of associate chief_counsel passthroughs special industries


tcmemo_2010_237 united_states tax_court donald w ernle petitioner v commissioner of internal revenue respondent docket no filed date donald w ernle pro_se derek kaczmarek for respondent memorandum findings_of_fact and opinion jacobs judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for at trial respondent filed a motion to conform pleadings to the evidence which the court granted filed an amended answer alleging fraud or in the alternative negligence and orally moved for the imposition of a penalty against petitioner pursuant to sec_6673 which the court took under advisement the issues for decision are whether petitioner received unreported income totaling dollar_figure whether petitioner is liable for the fraud_penalty pursuant to sec_6663 with respect to the underpayment_of_tax or alternatively the accuracy- related penalty pursuant to sec_6662 and whether a penalty under sec_6673 should be imposed against petitioner all section references are to the internal_revenue_code code in effect for and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact at the time he filed his petition petitioner resided in arizona on his timely filed form_1040 u s individual_income_tax_return petitioner reported total income of dollar_figure petitioner claimed a standard_deduction of dollar_figure and a personal_exemption of dollar_figure petitioner reported dollar_figure of federal_income_tax withholding and because the form_1040 showed zero taxable_income petitioner claimed a dollar_figure refund petitioner’s form_1040 was manifestly false in actuality petitioner received dollar_figure in nonemployee compensation from cavu inc dollar_figure in taxable retirement income from the defense finance and accounting service an agency of the department of defense dollar_figure in taxable retirement income from american century services l l c and dollar_figure in wages from aziza dujmic-palm view assisted living these income items were reported to respondent by the respective payors instead of attaching copies of the documents he received from the third-party payors petitioner attached to his form_1040 the following documents that were created and signed by him a corrected form 1099-misc miscellaneous income purporting to be from cavu inc reporting no nonemployee compensation a corrected form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc purporting to be from the defense finance and accounting service reporting no gross distribution and no taxable_amount but reporting dollar_figure in federal_income_tax withheld a series of corrected forms 1099-r purporting to be from american century services tefra agent collectively reporting no gross distributions and no taxable_amount but reporting dollar_figure in federal_income_tax withheld and a form_4852 substitute for form_w-2 wage and tax statement or form 1099-r distributions from pensions annuities retirement or profit-sharing_plans 1this nonemployee compensation is subject_to self- employment_tax iras insurance contracts etc indicating that petitioner received no income from aziza dujmic-palm view assisted living respondent examined petitioner’s form_1040 as an underreporting of income case on date respondent sent petitioner a cp2000 notice stating that the amount of income petitioner reported on his form_1040 did not match the amount of income paid to petitioner as reported on documents received from third-party payors the notice requested that petitioner explain the reason therefor by date petitioner failed to do so on date petitioner filed a form 1040x amended u s individual_income_tax_return for tax_year in which he overreported both his gross_income and his federal_income_tax withholding attached to the form 1040x were several documents purporting to corroborate this overreporting a form oid original_issue_discount purporting to be from countrywide home loans inc showing original_issue_discount of dollar_figure and federal_income_tax withheld of dollar_figure a form_1099-oid purporting to be from bank of the west showing original_issue_discount of dollar_figure and federal_income_tax withheld of dollar_figure and a form 1099-a acquisition or abandonment of 2we note that the corrected forms 1099-r collectively report that dollar_figure dollar_figure plus dollar_figure was withheld from petitioner the record does not reveal why petitioner claimed a lesser amount dollar_figure as a refund secured_property purporting to document a loan of property from petitioner to bank of the west showing a balance of principal outstanding of dollar_figure and the fair_market_value of property to be dollar_figure petitioner created the documents in an obvious attempt to mislead the internal_revenue_service irs into believing he was entitled to a dollar_figure tax_refund the irs did not accept the form 1040x as valid instead respondent sent petitioner a notice_of_deficiency on date petitioner timely petitioned this court and a trial was held on date petitioner refused to cooperate in the required pretrial stipulation process see rule at trial petitioner filed frivolous motions and raised frivolous objections petitioner refused to testify call witnesses or proffer any meaningful or credible_evidence as noted supra p at the conclusion of the trial respondent filed a motion to conform pleadings to the evidence in order to raise the affirmative issues of a sec_6663 fraud_penalty or in the alternative a sec_6662 accuracy- related penalty the penalty amount respondent asserts is based on the understatement reflected in petitioner’s form_1040 and not on petitioner’s inflated claim to withholding_tax credits as reported on his form 1040x opinion the commissioner’s determinations in his notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving by a preponderance_of_the_evidence that these determinations are incorrect rule a 290_us_111 petitioner does not assert that the burden_of_proof shifts to respondent pursuant to sec_7491 but even if he did we need not and do not decide the issue because we resolve the case on the preponderance_of_the_evidence and not on an allocation of the burden_of_proof rendering the issue of burden moot see 131_tc_185 i unreported income sec_61 generally includes in gross_income all income from whatever source derived unless excluded by a specific provision of the code this section is construed broadly to encompass any accession to a taxpayer’s wealth 515_us_323 348_us_426 macgregor v commissioner tcmemo_2010_187 payments for services and retirement payments are specifically included in the definition of gross_income sec_61 in the absence of adequate_records the commissioner may reconstruct income using any method that is reasonable in the light of all the surrounding facts and circumstances 81_tc_8 affd without published opinion sub nom knoll v commissioner 735_f2d_1370 9th cir we have held that the commissioner may rely upon third- party statements including forms see spurlock v commissioner tcmemo_2003_124 the uncontested evidence demonstrates that petitioner received wages from aziza dujmic-palm view assisted living nonemployee income from cavu inc and retirement income ie pension income from the defense finance and accounting service and american century services l l c in the amounts respondent determined these payments constitute income and generally are taxable as such see 127_tc_200 ndollar_figure affd 521_f3d_1289 10th cir retirement income 80_tc_1111 wages brunsman v commissioner tcmemo_2003_291 nonemployee compensation sec_1_61-11 income_tax regs retirement income petitioner presented no evidence demonstrating that any of these amounts were nontaxable we therefore sustain respondent’s determination that petitioner received dollar_figure in unreported income for ii sec_6663 fraud_penalty sec_6663 provides for a 75-percent penalty for any portion of an underpayment attributable to fraud fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing 92_tc_661 fraudulent intent is defined as ‘actual intentional wrongdoing and the intent required is the specific purpose to evade a tax believed to be owing ’ 67_tc_143 quoting 118_f2d_308 5th cir revg 40_bta_424 if any portion of the underpayment is attributable to fraud the entire underpayment is treated as attributable to fraud unless the taxpayer establishes by a preponderance_of_the_evidence that part of the underpayment is not due to fraud sec_6663 the commissioner has the burden of proving by clear_and_convincing evidence that an underpayment exists the year in issue and that some portion of the underpayment is due to fraud see sec_7454 rule b fraud is never imputed or presumed but must be established by independent evidence that establishes fraudulent intent petzoldt v commissioner supra pincite fraud need not be established by direct evidence which is rarely available but may be proved by surveying the taxpayer’s entire course of conduct and drawing reasonable inferences therefrom 541_f3d_671 6th cir affg tcmemo_2007_173 see 317_us_492 several badges_of_fraud have been developed from which fraudulent intent may be inferred understatement of income failure to cooperate with tax authorities filing false documents intent to mislead which may be inferred from a pattern of conduct and maintaining inadequate records 796_f2d_303 9th cir affg tcmemo_1984_601 420_f2d_283 8th cir affg tcmemo_1968_12 respondent has established that petitioner grossly understated his income failed to cooperate with respondent’s agents during the examination of his form_1040 filed a false form_1040 to which were attached phony documents ie the corrected forms 1099-r 1099-misc and the form and filed a false form 1040x together with false documents ie the phony forms 1099-oid and form 1099-a petitioner engaged in a pattern of conduct by which he attempted to defraud the federal government respondent has met the standard of showing by clear_and_convincing evidence that petitioner intentionally filed a fraudulent form_1040 for petitioner presented no evidence or arguments to show that any part of the underpayment is not due to fraud accordingly we hold that petitioner is liable for the sec_6663 fraud_penalty on the underpayment_of_tax reported on his form_1040 because of our holding we need not address respondent’s alternative position that petitioner is liable for the sec_6662 accuracy-related_penalty iii sec_6673 penalty sec_6673 provides for a penalty not in excess of dollar_figure whenever it appears that the taxpayer has instituted proceedings before this court primarily for delay the taxpayer’s position is frivolous or groundless or the taxpayer unreasonably failed to pursue available administrative remedies a taxpayer’s position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir petitioner’s case is frivolous petitioner failed to abide by the court’s rules ie rule to stipulate all relevant matters not privileged he refused to stipulate even his own form_1040 and the notice_of_deficiency at trial petitioner made frivolous objections petitioner filed frivolous motions petitioner refused to testify and failed to provide any colorable argument in defense of his position petitioner through his chicanery has wasted the court’s limited resources we therefore require petitioner to pay a penalty pursuant to sec_6673 of dollar_figure to reflect the foregoing decision will be entered for respondent


number release date id office uilc cca_2010032614444643 -------------- from -------------------- sent friday date pm to ----------------------------------- cc subject re statute_of_limitations on refunds if the taxpayer is not located in the 11th circuit mobil corp controls if the taxpayer did not specifically set forth an alternative_tax_net_operating_loss_deduction calculation as contemplated by sec_56 then i would argue that the grounds for the dollar_figure------------refund were not set forth in the refund claim and the claim was not valid as stated in richardson excerpted below f_supp there is no authority for the notion that the service would be required to notify a taxpayer when it does not give the taxpayer the benefit of an available refund that was never requested because an associated claim_for_refund does not exist and therefore is afforded no consideration by the service plaintiffs urge that the isolated words no taxable_distribution of property in paragraph one was certainly notification to the commissioner that the shareholders claim the distribution to be non-taxable the court cannot agree those few words taken out of context might conceivably support plaintiffs' present contention however this court can only view such a contention in its full context thus the entirety of paragraph one of the claim cannot in any sense be taken to mean that a non-taxable dividend distribution was intended such construction is actually precluded in the last sentence of that paragraph moreover in order to presume that the commissioner was put on notice of the plaintiff's claim that the excess in value of the property was a dividend from previously_taxed_income it must also be presumed that the commissioner was aware the plaintiffs further contended that sec_1 b is invalid such an argument can only be categorized as specious in 302_us_528 58_sct_320 82_led_405 the stated ground for recovery-that the company was entitled to reduce its taxable income-was held insufficient to raise the issue that the company had in fact received no income similarly in 258_f2d_892 5th cir it was held that where taxpayer's claim_for_refund was based on the ground that there was no representative market price taxpayer could not assert in court that the existing representative price was incorrect the court_of_appeals for the fifth circuit found a fatal variance in 201_f2d_360 5th cir between the grounds urged in the claim for refund-alleging that plaintiffs had paid taxes in a previous year on poker winnings and that allowance for such winnings had not been made in determination of a tax_deficiency for the year following-and the grounds urged upon trial of the case alleging no poker earnings for the previous year see also 400_f2d_975 5th cir these cases clearly point out that the regulation requires that the grounds for refund claims and facts pertinent thereto be set out with specificity fn8 the requirement is a practical one enabling the commissioner to determine at the outset the answers to important inquiries how is the refund claim to be handled administratively to what issues and points is the commissioner's attention directed what facts must the commissioner ascertain is the investigation necessitated by the claim one of fraud or limited scope does the claim indicate that the commissioner must take affirmative action to protect the government against the running of statutory periods on assessments 400_f2d_975 5th cir 129_f2d_594 2nd cir cert_denied 317_us_686 63_sct_258 87_led_549 since the uncontroverted evidence clearly shows that the plaintiffs failed to set forth in any manner much less in detail the allegation relating to treating the difference between fair_market_value and sales_price as a distribution of the company's undistributed_taxable_income previously taxed the claim did not nor could it generate any factual investigation by the commissioner the plaintiffs had until date and date to file additional or supplemental claims for refund for the years in question their failure to do so prevents them from asserting grounds not encompassed in the original claim thus as recognized in the foregoing cases a refund_suit seeking recovery upon a ground not set forth in the refund claim is as jurisdictionally defective as a suit which is instituted without any refund claim having previously been filed see 188_f2d_745 3d cir cert_denied 342_us_834 72_sct_50 96_led_631


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c office_of_chief_counsel number info release date uil conex-127853-06 date the honorable barbara cubin u s house of representatives washington dc dear ms cubin i apologize for the delay in responding to your letter dated date to ---------------- ------------------------------------------- about the standard mileage rates published by the internal_revenue_service most recently i n revproc_2005_78 c b you asked why the deduction of the standard mileage rate for business use of an automobile is greater than the standard mileage rate for medical purposes the business and medical standard mileage rates are different because the deductions allowed by law are different business_expenses taxpayers can deduct ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 and sec_167 of the internal_revenue_code the code the business standard mileage rate of cents per mile for business use on or after date represents all of the expenses of owning and operating an automobile for business purposes and takes into account both fixed costs including depreciation or lease payments and operating costs such as gasoline oil maintenance and repairs and tires section dollar_figure of rev_proc medical_expenses taxpayers can deduct medical_expenses paid during the taxable_year for which they are not compensated by insurance or otherwise including the cost of transportation primarily for and essential to medical_care sec_213 of the code the courts have held that only the out-of-pocket expenses of operating an automobile are deductible as medical_expenses see 510_f2d_435 10th cir and calafut v commissioner tcmemo_1964_239 therefore the medical standard mileage rate of cents per mile represents only out-of-pocket costs of operating an automobile section dollar_figure of rev_proc that is why the medical standard mileage rate is lower than the business standard mileage rate i hope this information is helpful if you have any questions please call me at ------------- ----------------------or --------------------------at -------------------- sincerely george baker branch chief branch income_tax accounting


internal_revenue_service department of the treasury number release date index number in re washington dc person to contact telephone number refer reply to cc psi b04-plr-154774-01 date february legend taxpayer trustee trust restated trust date date termination_date dear this letter is in reply to your letter of date requesting two rulings you first requested a ruling that the charitable lead interests in two charitable trusts created under the restated trust will constitute unitrust interests within the meaning of sec_2055 of the internal_revenue_code and sec_20_2055-2 of the estate_tax regulations the value of which determined under section f v will be deductible under sec_2055 we declined to rule on the second request facts on date taxpayer established a revocable inter_vivos_trust trust which provides for her during her lifetime on date taxpayer completely restated the trust restated trust article i paragraph a of the restated trust provides that during taxpayer’s life the trustee or successor trustees shall pay to taxpayer or apply for her benefit the entire net_income of the trust estate in annual or more frequent installments at the written request of taxpayer the trustee or successor trustees shall pay to taxpayer so much of the principal of the trust estate as taxpayer shall request in writing article i paragraph b provides that in the event that taxpayer becomes incapacitated or disabled the successor trustees shall distribute to her or for her benefit from income or principal such sums as the successor trustees taking into consideration the other resources of taxpayer deem reasonably necessary for the support care comfort and maintenance of taxpayer in the standard of living to which plr-154774-01 she is accustomed on taxpayer’s death the trust becomes irrevocable article i paragraph c provides that upon the death of taxpayer the successor trustees may pay from principal of the trust estate the last illness funeral and burial expenses of taxpayer and any and all debts of taxpayer owing at taxpayer’s death paragraph c further provides that in the event there are insufficient assets in the taxpayer’s probate_estate to satisfy specific demonstrative or pecuniary bequests provided for in taxpayer’s will admitted to probate the successor trustees shall satisfy the gifts from the assets of the trust estate article i paragraphs e and f provide that upon taxpayer’s death and after various disbursements have been made under article i paragraphs c and d the successor trustees are to divide the balance of the trust estate into two shares and distribute one share to charitable_trust a charitable_lead_trust and one share to charitable_trust also a charitable_lead_trust article i paragraph g provides that the term of charitable_trust will begin upon the death of taxpayer and terminate on the termination_date article i paragraph h provides that the term of charitable_trust will begin upon the death of taxpayer and terminate on the termination_date or on the seventh year anniversary of taxpayer’s death whichever occurs first article i paragraphs g and h provide that during the term of each charitable_trust the successor trustees shall pay the unitrust_amount each year in equal shares to seven named charitable organizations that qualify under sec_170 and sec_2055 paragraphs g and h of article i further provide that the unitrust_amount for each tax_year is equal to five percent of the net fair_market_value of the trust assets determined as of the first business_day of the year unitrust_amount article i paragraph i provides that payments of the unitrust_amount for each tax_year shall be made annually at the end of each taxable_year of charitable_trust and charitable_trust the payments shall be made first from the ordinary taxable_income of the trust including short-term_capital_gains which is not unrelated_business_income and to the extent not so satisfied from fifty percent of the unrelated_business_income the long-term_capital_gains of the trust the balance of the unrelated_business_income the tax-exempt_income any accumulated income and finally the principal of the trust in that order any net_income for a taxable_year in excess of the unitrust_amount shall be added to principal article i paragraph i further provides that for a short taxable_year and for the taxable_year in which payments of the unitrust_amount terminate the successor trustees shall prorate the unitrust_amount on a daily basis in accordance with sec_1_664-3 of the income_tax regulations in the event that the net fair_market_value of the trust assets as of the first business_day of any taxable_year has been incorrectly determined and as a result a payment to charitable beneficiaries exceeds or is less than the payment required to be made article i paragraph i provides that within a reasonable period after the final_determination of the correct net fair_market_value the successor trustees shall pay to charitable beneficiaries in the case of an plr-154774-01 undervaluation or shall be repaid by charitable beneficiaries in the case of an overvaluation an amount equal to the difference between the amount which the successor trustees should have paid if the correct valuation had been used and the amount which successor trustees actually paid paragraph i of article i authorizes the successor trustees to accept from the successor trustees or any other person additional contributions to the trust following the initial contribution for any taxable_year in which an additional_contribution is received the unitrust_amount shall subject_to proration as provided above if required be five percent of the sum of the net fair_market_value of the trust assets as of the first business_day of such taxable_year and that proportion of the net fair_market_value of the additional_contribution as of the date of its transfer to the successor trustees which the number of days in the period beginning with the date of such transfer and ending with the earlier of the last day of the taxable_year or the termination_date bears to the number of days in the period beginning with the first day of the taxable_year and ending with the earlier of the last day of the taxable_year or the termination_date paragraph i of article i further provides that should an addition to either charitable_trust be made as a result of the death of an individual the obligation to make the payment with respect to such addition shall commence with the date of the death of such individual but the successor trustees may defer or may estimate the amount of payments due charitable beneficiaries on account of such addition for the period from the date of death until the end of the taxable_year of the trust in which occurs the earlier of the end of a reasonable period of administration or settlement of the estate of such individual or complete funding of such addition additionally paragraph i provides that in case the successor trustees defer or estimate the amount of payments due charitable beneficiaries as the result of such addition the amount which is payable to charitable beneficiaries on account of such addition for the period described above shall be retroactively determined within a reasonable period of time after the end of such period and the successor trustees shall pay to charitable beneficiaries in the case of an underpayment or shall be repaid by charitable beneficiaries in the case of an overpayment the amount of any difference between the amount properly payable and the amount_paid for this purpose the unitrust_amount on account of such addition shall be determined in accordance with the special method provided in sec_1 a or the corresponding section of any subsequent u s treasury regulations interest computed at the rate required by the said regulations shall be added to any such difference article i paragraph i also provides that if one or more of the charitable beneficiaries is not an organization described in sec_170 sec_170 sec_2055 and sec_2522 at the time any payment is to be made to the charitable beneficiaries under article i paragraphs g and h the successor trustees shall instead distribute such payments to the other named charitable beneficiaries which are such organizations or if none to one or more organizations described in said sections in such proportions as the successor trustees shall select in the successor trustees’ sole plr-154774-01 discretion paragraph i of article i provides that the successor trustees shall make distributions at such time and in such manner as not to subject either charitable_lead_unitrust to tax under sec_4942 the successor trustees shall not engage in any act of self-dealing as defined in sec_4941 and shall not make any taxable_expenditures as defined in sec_4945 the successor trustees shall not acquire any assets or retain assets which would if acquired by the successor trustees subject the trusts to tax under sec_4944 or retain any excess_business_holdings within the meaning of sec_4943 which would subject the trusts to tax under sec_4943 upon taxpayer’s death the trusts become irrevocable however article ii provides that the successor trustees may amend the restated trust at any time for the sole purpose of enabling the charitable trusts to continue to qualify as charitable lead unitrusts under sec_2055 article i paragraphs g and h provide that upon the termination of each charitable trusts the remaining trust assets are to be distributed to the individual beneficiaries named if then living or if not to the then living lawful issue of such individual beneficiary on the principle of representation or if not in equal shares to those individual beneficiaries who are then living law and analysis sec_2055 provides that for purposes of the federal estate_tax the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises or transfers to or for_the_use_of any corporation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private stockholder or individual under sec_20_2055-2 the amount passing to charity must be ascertainable and determinable as of the date of death similarly under sec_20_2055-2 if the trustee is empowered to divert the property or fund in whole or in part to a noncharitable purpose the deduction is limited to that portion if any of the property which is exempt from an exercise of the power under sec_2055 the estate_tax charitable deduction is not allowable where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest which is extinguished upon the decedent’s death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 unless-- a in the case of a remainder_interest such interest is in a_trust which is a plr-154774-01 charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly under sec_20_2055-2 in the case of decedents dying after date where an interest in property passes from the decedent for charitable purposes and an interest in the same property passes from the decedent for private purposes no deduction is allowed under sec_2055 for the value of the interest passing for charitable purposes unless the interest is a deductible_interest under sec_20_2055-2 the term deductible_interest includes a unitrust_interest a unitrust_interest is a right to receive payment not less often than annually of a fixed percentage of the net fair_market_value determined annually of the property which funds the unitrust_interest the unitrust_interest may be paid for a specified term or for the life or lives of named individuals each of whom must be living at the creation of the trust under sec_20_2055-2 a charitable interest is a unitrust_interest only if it is a unitrust_interest in every respect under sec_20_2055-2 where a unitrust_interest is in trust the instrument may provide that income of the trust in excess of the amount required to pay the unitrust_interest shall be paid to or for_the_use_of a charity nevertheless the amount of the deduction under sec_2055 is limited to the fair_market_value of the unitrust_interest under sec_20_2055-2 the present_value of a unitrust_interest is determined by subtracting the present_value of all interests in the transferred property other than the unitrust_interest from the fair_market_value of the transferred property in this case the amount of the unitrust_interest payable with respect to charitable_trust and charitable_trust will be equal to five percent of the net fair_market_value of the trust assets determined as of the first business_day of the year and must be paid annually over the term of each trust the unitrust_amount will be ascertainable and determinable effective as of the date of taxpayer’s death the successor trustees are prohibited by the terms of restated trust from making any unitrust payments to an organization that is not described in sec_2055 the successor trustees may not engage in any self-dealing nor make any taxable_expenditures accordingly based on the facts submitted and the representations made we conclude that the charitable interests in charitable_trust and charitable_trust will constitute unitrust interests within the meaning of sec_2055 and sec_20_2055-2 therefore a deduction under sec_2055 will be allowed for the value of the unitrust_interest determined in accordance with sec_20_2055-2 as of the date of taxpayer’s death except as expressly provided herein no opinion is expressed or implied plr-154774-01 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries enclosure