t c memo united_states tax_court jeffery allen robinson petitioner v commissioner of internal revenue respondent docket no filed date jeffery allen robinson pro_se john j boyle for respondent memorandum opinion couvillion special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax for and the 10-percent additional tax on unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure early distributions from qualified_retirement_plans under sec_72 the issues for decision are whether petitioner failed to report wage income of dollar_figure in whether petitioner failed to report interest_income of dollar_figure in whether a lump-sum payment of dollar_figure received during by petitioner from a qualified_employee retirement_plan maintained by the greater columbus convention center the convention center is includable in gross_income in the year of distribution and whether petitioner is liable for the 10-percent additional tax on early distributions from qualified_retirement_plans under sec_72 the remaining adjustments in the notice_of_deficiency are computational and will be resolved by the court's holdings on the aforementioned issues some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner's legal residence was columbus ohio during the year at issue petitioner was employed by the convention center as a crew foreman petitioner had been employed by the convention center for approximately years when respondent determined a reduction of dollar_figure in the earned_income_credit claimed by petitioner further respondent allowed petitioner an additional withholding credit of dollar_figure representing taxes withheld on the dollar_figure unreported wage income he left his position on date as a result of his termination of employment petitioner received a lump-sum_distribution of the retirement benefits being held on his behalf in the greater columbus convention center benefit plan petitioner was thereafter employed by the k-mart corp during on his federal_income_tax return petitioner reported taxable wage income from the convention center in the amount of dollar_figure in the notice_of_deficiency respondent determined that petitioner had unreported taxable wage income of dollar_figure unreported taxable interest_income of dollar_figure and unreported taxable lump-sum pension income of dollar_figure all based on information reported to respondent by the respective payers also in the notice_of_deficiency respondent determined that petitioner was liable for the 10-percent additional tax on an early distribution from a qualified_plan under sec_72 in the amount of dollar_figure the determinations of the commissioner in a notice_of_deficiency are presumed correct and the burden is on the taxpayer to prove that the determinations are in error rule a 290_us_111 sec_61 provides that gross_income includes all income from whatever source derived unless otherwise provided furthermore a taxpayer is required to maintain records sufficient to establish the amount of his or her income and deductions sec_6001 the first issue is whether petitioner failed to report wage income of dollar_figure from his employment with k-mart corp during the parties stipulated and petitioner acknowledged at trial that he received wages during from k-mart corp in the amount of dollar_figure which he failed to report on his income_tax return petitioner testified that he failed to report such wages because he used these wages to replace an automobile that was stolen from him during date sec_61 provides that compensation_for services must be included in income petitioner presented no authority to support his position that the unreported wage income constituted an offset to any theft_loss he sustained the court rejects petitioner's position that such income was offset by a theft_loss consequently the court holds that the dollar_figure wage income petitioner did not itemize deductions on his income_tax return that he filed as head_of_household claiming the standard_deduction of dollar_figure the court advised petitioner at trial that a theft_loss is allowable under sec_165 only as an itemized_deduction however based on petitioner's testimony it is unlikely that petitioner could have obtained any_tax benefit from a theft_loss because his basis in the automobile was dollar_figure and it is likely that the fair_market_value at the time of the theft would have been less than dollar_figure under sec_165 and any loss by an individual from a casualty or theft shall be allowed only to the extent the amount of the loss from each casualty or theft exceeds dollar_figure and only to the extent that the amount of the net casualty or theft losses for the year exceeds percent of the taxpayer's adjusted_gross_income received by petitioner constituted gross_income for federal_income_tax purposes respondent therefore is sustained on this issue the second issue is whether petitioner failed to report interest_income of dollar_figure from state savings bank in the parties stipulated and petitioner acknowledged at trial that he received interest during from state savings bank in the amount of dollar_figure which he failed to report on his income_tax return petitioner testified that he failed to report the interest because he used the interest to pay the fee for an income_tax course that he attended in sponsored by h_r block sec_61 provides that gross_income includes interest petitioner presented no authority to support his position that he could offset his interest_income by the cost of a tax course the court rejects petitioner's contention consequently the court holds that the dollar_figure interest_income constituted gross_income under sec_61 respondent therefore is sustained on this issue sec_212 allows as an itemized_deduction for an individual's taxable_year any ordinary and necessary expenses paid in connection with the determination collection_or_refund_of_any_tax the court advised petitioner at trial that although the fee for his income_tax course may have been allowable as a deduction under sec_212 it must have been taken as an itemized_deduction from his adjusted_gross_income see 72_tc_1195 the third issue is whether a lump-sum payment of dollar_figure received by petitioner during from the employee retirement_plan maintained by the convention center is includable in gross_income in the year of distribution the parties stipulated and petitioner acknowledged at trial that he received in date a lump-sum_distribution from the employee retirement_plan with the convention center in the amount of dollar_figure which he failed to report on his income_tax return for in his petition petitioner alleged that since the dollar_figure distribution was paid to him in date the 60-day period in which a rollover of such a distribution is allowed which is discussed below continued into date therefore petitioner contends that taxation of the funds if any should have occurred in the tax_year rather than at trial petitioner acknowledged that the dollar_figure distribution was not rolled over into an individual_retirement_account ira or into any other qualified_plan within days either in or petitioner contended that he could not roll over the distribution for reasons which are not entirely clear to the court and to some extent inconsistent one reason advanced by petitioner was that he could only contribute dollar_figure to an ira and since his distribution exceeded that amount he was precluded from rolling over the distribution to an ira another reason advanced by petitioner is that because he was covered by a qualified_plan at k-mart this also precluded his entitlement to a rollover of the distribution from his former employer the convention center petitioner appears to further contend that by virtue of his being a participant in the k-mart plan such participation constituted a rollover of the convention center distribution without an actual transfer of the distribution to the k-mart plan sec_402 provides that the amount actually distributed to any distributee by any employees' trust described in sec_401 shall be taxable to him in the year in which so distributed under sec_72 relating to annuities however an exception to this general_rule is found in sec_402 which provides petitioner apparently is confused by the fact that sec_219 allows as a deduction for a contribution to an ira for any taxable_year an amount not to exceed the lesser_of dollar_figure or the amount of the compensation includable in the individual's gross_income for such taxable_year sec_219 provides that a qualifying rollover to an ira including but not limited to those described in sec_402 is not deductible as a qualified_retirement_contribution under sec_219 moreover a qualifying rollover to an ira is not included in the calculation of an excess_contribution to which an excise_tax applies under sec_4973 sec_4973 consequently a qualified rollover is not includable in gross_income as explained hereafter in the main text nor deductible against gross_income nor subjected to an excise_tax in the year of the rollover ie a wash transaction for tax purposes if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to him and the employee transfers any portion of the property he receives in such distribution to an eligible_retirement_plan ie rollover then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid further sec_402 provides that such a rollover exclusion shall not apply to any transfer of a distribution made after the 60th day following the day on which the employee received the property distributed in other words if a taxpayer receives a distribution from a retirement_plan and fails to make a rollover of such distribution to an eligible_retirement_plan within days of taxpayer's receipt of such distribution it shall be taxable to him under sec_72 in the year of distribution there is no provision in the law deferring the inclusion of the distribution into gross_income until the succeeding year simply because the 60-day rollover period extends into the succeeding year the term eligible_retirement_plan is defined in sec_402 as i an individual_retirement_account ii an individual_retirement_annuity iii a qualified_trust and iv an annuity plan described in sec_403 emphasis added a qualified_trust is defined in sec_402 to mean an employees' trust described in sec_401 which is exempt from tax under sec_501 petitioner failed to make a sec_402 rollover of the dollar_figure distribution either to an ira or any other type of eligible_retirement_plan furthermore merely being a participant in another qualified_retirement_plan does not in and of itself constitute a rollover into such plan of a distribution from a separate qualified_retirement_plan consequently the court holds that the dollar_figure distribution from the retirement_plan at the convention center was not transferred to an eligible_retirement_plan as required by sec_402 in order for such distribution to be excluded from petitioner's gross_income finally sec_72 contains the general_rule for annuities and sec_72 contains the rule for payments that are not received as an annuity ie petitioner's dollar_figure distribution under sec_72 amounts received from qualified_plans under sec_401 are included in gross_income only to the extent that the amounts received exceed the distributee's investment_in_the_contract sec_72 defines generally investment_in_the_contract as being the consideration paid for the contract less amounts received under the contract before the distribution that are excludable from gross_income thus any nondeductible_contributions a taxpayer has made to a retirement_plan are excluded from gross_income when such distributions are made petitioner presented no evidence to establish that he made any nondeductible_contributions to the retirement_plan maintained by the convention center therefore the entire amount of the distribution petitioner received is includable in gross_income for purposes of sec_72 and e in summary petitioner failed to present evidence that his exclusion_from_gross_income of the dollar_figure distribution from his retirement_plan maintained by the convention center was correct and that respondent's determinations regarding such distribution were incorrect respondent therefore is sustained on this issue the final issue is whether petitioner is liable for the percent additional tax on early distributions from qualified_retirement_plans under sec_72 sec_72 provides that if any taxpayer receives any amount from a qualified_retirement_plan the taxpayer's tax under this chapter for the taxable_year in which such amount is received shall be increased by an amount equal to percent of the portion of such amount which is includible in gross_income sec_72 provides several exceptions to the 10-percent additional tax including but not limited to distributions which are i made on or after the date on which the employee attains age ii made to a beneficiary or to the estate of the employee on or after the death of the employee v made to an employee after separation_from_service after attainment of age petitioner was born on date therefore at the time of his separation_from_service from the convention center and at the time of the dollar_figure distribution petitioner wa sec_37 years of age petitioner presented no evidence to show that any of the other exceptions under t applied to exclude the distribution from the 10-percent additional tax provided for in t the court holds that petitioner is liable for the percent additional tax on early distributions from qualified_retirement_plans under sec_72 respondent therefore is sustained on this issue decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------- --------------------------------------------- ------------------------------------------------------------ ------------------ --------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b01 plr-103038-17 date may x y ------------------------------------------ --------------------------------- -------------------------------------------------- ------------------------------------------------- country --------------- date -------------------- date date ----------------------------- ----------------------------- dear ---------------- this letter responds to a letter dated date submitted on behalf of x by its authorized representatives requesting a ruling that x’s election to be classified as an association_taxable_as_a_corporation was an initial classification election and not a change in classification for purposes of sec_301_7701-3 of the procedure and administration regulations the information submitted states that x was formed under the laws of country on date x elected to be classified as an association_taxable_as_a_corporation by filing a form_8832 entity classification election effective date prior to date x had no assets income deductions liabilities bank accounts business operations or board meetings plr-103038-17 and was dormant on date y x’s sole owner contributed the first asset and funding to x law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that if an eligible_entity makes an election under sec_301_7701-3 to change its classification other than an election made by an existing entity to change its classification as of the effective date of this section the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the of the ownership interests in the entity as of the effective date of the subsequent election are owned by person that did not own any interests in the entity on the filing_date or on the effective date of the entity’s prior election an election by a newly formed eligible_entity that is effective on the date of formation is not considered a change for purposes of sec_301_7701-3 conclusion based solely upon the facts submitted and the representations made we conclude that x’s corporate classification election was an initial classification effective date and not a change in classification for purposes of sec_301_7701-3 as such a subsequent election by x to change its classification will not be subject_to the sixty months limitation set forth in sec_301_7701-3 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above described facts under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-103038-17 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


signiticant index no department of the treasury internal_revenue_service washington d c z jul tax exempt and overnment entities division ter rat ad re dear ein plan number this letter constitutes notice that your request on behalf of the trustees of the above- named multiemployer pension_plan dated date for a ruling further described below has been denied in a letter to you dated date we offered you the opportunity of a conference of right to discuss the denial of your request and set a deadline of days to schedule the conference as of the date of this letter you have not exercised your right to a conference therefore the tentative denial of your request is final and we have closed our file on this request ruling requested you requested a ruling that it is reasonable to reflect the unfunded actuarial liability as a negative number in the plan’s funding_standard_account without limitation in your request you recognize that such a ruling could require the irs to revise applicable provisions of revrul_81_213 1981_2_cb_101 applicable law sec_412 of the internal_revenue_code code provides for the minimum_funding standards for certain pension plans sec_412 of the code describes the elements charges and credits to the funding_standard_account that is maintained for plans subject_to the minimum_funding standards net experience gains and losses are amortized in the funding_standard_account pursuant to sec_412 and sec_412 respectively revrul_81_213 provides guidelines regarding the establishment and treatment of experience gains and losses under a defined_benefit_plan for purposes of sections b and a of the internal_revenue_code section dollar_figure of revrul_81_213 states that for an immediate gain type of funding method the actual unfunded_liability as of any valuation_date is the excess if any of the accrued liability over the actuarial value of assets as of that date emphasis added analysis in a situation where the actuarial value of assets in the plan as of a valuation_date exceeds the accrued liability determined on that same date such as in the above- named plan there will be no excess of the accrued liability over the actuarial value of assets accordingly the actual unfunded_liability must be deemed to be dollar_figure - conclusion your request rightly points out that in order to rule as you have requested a change to the established guidance contained in revrul_81_213 would be required however because no such change has occurred to date a favorable ruling on your request cannot be granted this letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent lf you have any questions regarding this matter please call also please refer written replies to sincerely yours jha lepons martin l pippins manager employee_plans actuarial group - t ep ra t a2 mpippins -283-9698


tcmemo_2010_30 united_states tax_court james barnes petitioner v commissioner of internal revenue respondent docket no 8219-07l filed date r determined to proceed with collection of p’s income_tax_liability for without allowing p to challenge the underlying tax_liability at a sec_6330 i r c hearing before the office of appeals r moved for summary_judgment held pursuant to sec_6330 i r c p is entitled to raise the existence or amount of the underlying tax_liability at an appeals hearing unless p has previously received a notice_of_deficiency or otherwise had an opportunity to dispute the liability p did not receive the notice_of_deficiency for and r has failed to allege or show that p deliberately refused delivery of the notice_of_deficiency r’s motion for summary_judgment will be denied and this case will be remanded to the office of appeals for further hearing james barnes pro_se alisha m harper for respondent memorandum opinion ruwe judge the petition in this case was filed in response to a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination this case is before the court on respondent’s motion for summary_judgment we must decide whether the determination by respondent’s appeals_office to proceed with collection action with respect to petitioner’s unpaid income_tax_liability for tax_year was proper background at the time the petition was filed petitioner resided in kentucky respondent sent to petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing dated date regarding petitioner’s unpaid tax for petitioner submitted to respondent a form request for a collection_due_process_hearing dated date in the form petitioner requested a face-to-face hearing sec_1 unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure hearing and informed the appeals_office that he would be audio recording the sec_6330 hearing petitioner also indicated that one of the issues he wanted to address was whether respondent had followed proper procedures in making the assessment against him by letter dated date respondent’s appeals_office acknowledged receipt of petitioner’s request to audio record the sec_6330 hearing but denied his request for a face-to-face conference stating face-to-face conferences are not allowed if the only items that a taxpayer raises are frivolous or groundless respondent did not identify which of petitioner’s arguments were considered frivolous or groundless by letter dated date petitioner asserted that he had relevant nonfrivolous issues to discuss at the sec_6330 hearing and that it had to be a face-to-face hearing so that he might audio record it petitioner also raised the issue of the underlying tax_liability and stated i have no idea as to how or where the irs got these numbers a lthough you claim that i have had an opportunity to dispute the liability i don’t even recall ever receiving any notification or explanation from the it appears that petitioner did not file a return for internal appeals_office records indicate that the appeals_office had identified petitioner as a frivolous filer form 12153-a referral request for cdp hearing and request for cdpts input dated indicates that petitioner mentions frivolous arguments in the past although di does not show any frivolous filer information irs that explains how they came up with these numbers against me almost months later respondent’s appeals_office sent to petitioner a letter dated date which states in pertinent part you requested a face-to-face conference in order to dispute the underlying liability a notice_of_deficiency for tax_year ended was mailed to you on date at louisville ky you apparently elected not to claim the notice the notice afforded you the opportunity to dispute the liability in tax_court prior to its assessment therefore you may not raise challenges to the existence or amount of the tax_liability specified on the cdp_notice the appeals_office does not provide a face-to-face conference if the only items a taxpayer wishes to discuss are frivolous or may otherwise not be raised in the hearing during the hearing we must consider whether the irs met all the requirements of any applicable law or administrative procedure and any non-frivolous issues you wish to discuss in response by letter dated date petitioner disputed the determination not to grant him a face-to-face conference and the determination that he had been given a prior opportunity to dispute his underlying tax_liability in a letter dated date the appeals officer stated that petitioner’s request had been transferred to the nearest appeals_office for a face-to-face hearing thereafter the newly assigned settlement officer whose office was in south bend indiana sent to petitioner at his louisville kentucky address a followup letter dated date indicating that petitioner would not be allowed a face-to-face hearing and scheduling a telephone conference call for date the letter did however advise petitioner that he might be allowed a face-to-face sec_6330 hearing if he were to provide to the appeals_office the nonfrivolous issue in writing within days from the date of the letter by letter dated date petitioner responded to the settlement officer stating that he would not be able to participate in the telephone conference3 and explaining again that he had no knowledge of ever receiving a notice_of_deficiency the appeals_office did not receive petitioner’s letter until date before receipt of petitioner’s letter however the settlement officer had sent to petitioner a petitioner’s letter states in part regretfully i will not be able to participate in this telephone conference the appeals_office where my pre- scheduled hearing is to be held is located in indiana i currently reside in kentucky but i am certain we can agree on a mutually convenient date and location sometime in the near future knowing that i requested for a face-to-face hearing why did the irs appoint someone in the south bend in office to conduct my cdp hearing the south bend in office is miles away from my place of residence that’s hours worth of driving alone which i can not afford this is most inconvenient and unacceptable i find it hard to believe that the irs does not have a local office in louisville ky please understand that i am not refusing to participate in my cdp hearing i am just asking the irs to assist in making this process a little bit more convenient for me that i may be able to attend the face-to-face hearing that i initially requested letter dated date which indicated that petitioner neither called for his scheduled telephone conference nor indicated that the date and or time were inconvenient the letter also afforded petitioner an additional days to provide information for consideration by the appeals_office before making a determination in response to the settlement officer’s letter dated date petitioner in a letter dated date took exception to the settlement officer’s statement that petitioner had not indicated that the scheduled date for the telephone conference was inconvenient but otherwise did not provide any further information for the appeals_office to consider before making its determination respondent’s appeals_office issued to petitioner a notice_of_determination dated date on date petitioner filed an incomplete petition in which he generally contested the determination made by the appeals_office and requested assistance from the court in an amended petition filed on date petitioner alleged that respondent did not meet all the applicable_requirements during the collection_due_process_hearing and that he was not allowed the opportunity to challenge the liability of the assessed tax discussion this case is before us on respondent’s motion for summary_judgment to which petitioner objects summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see 116_tc_73 rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment is appropriate where there is no genuine issue as to any material fact and a decision may be rendered as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir respondent as the moving party bears the burden of proving that no genuine issue exists as to any material fact and that he is entitled to judgment as a matter of law see 100_tc_32 85_tc_527 in deciding whether to grant summary_judgment the factual materials and the inferences drawn from them must be considered in the light most favorable to the nonmoving party see bond v commissioner supra pincite naftel v commissioner supra pincite sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of the right to a hearing under this section before such levy is made the notice must include in simple and nontechnical terms the right of the person to request a hearing to be held by the internal_revenue_service irs office of appeals sec_6330 sec_6330 governs the conduct of a requested hearing at the hearing the person may raise any relevant issue relating to the unpaid tax or the proposed levy including appropriate spousal defenses challenges to the appropriateness of collection actions and offers of collection alternatives sec_6330 sec_6330 further provides that the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for the tax_liability or did not otherwise have an opportunity to dispute the tax_liability under sec_6330 the receipt of a notice_of_deficiency not its mailing is the relevant event kuykendall v commissioner 129_tc_77 conn v commissioner tcmemo_2008_186 among the attachments to respondent’s motion for summary_judgment were a declaration by the settlement officer who handled petitioner’s case in the appeals_office a copy of the notice of by contrast for purposes of assessing a deficiency in tax a notice_of_deficiency mailed to the taxpayer at his last_known_address is sufficient regardless of receipt or nonreceipt sec_6212 92_tc_729 affd without published opinion 935_f2d_1282 3d cir 63_tc_193 tatum v commissioner tcmemo_2003_115 n deficiency for dated date and the envelope that respondent alleges contained the notice_of_deficiency mailed to petitioner on date the face of the envelope shows that it was returned to respondent and was stamped unclaimed thus there is no dispute that petitioner did not actually receive the notice_of_deficiency because it is undisputed that petitioner did not actually receive the notice_of_deficiency he would normally have been entitled to challenge the underlying tax_liability at the sec_6330 hearing see kuykendall v commissioner supra conn v commissioner supra even if the taxpayer did not actually receive the notice_of_deficiency we have held that the taxpayer cannot dispute the underlying tax_liability where there is a showing that he deliberately refused delivery of a notice_of_deficiency 114_tc_604 but absent sufficient evidence that a taxpayer deliberately refused delivery of the notice_of_deficiency proof that the notice_of_deficiency was not actually received will be sufficient to entitle a taxpayer to dispute the underlying tax_liability in a sec_6330 proceeding conn v commissioner supra calderone v commissioner tcmemo_2004_240 tatum v commissioner tcmemo_2003_115 carey v commissioner tcmemo_2002_209 the notice_of_determination sent by the appeals_office on date alleged that the u s postal service attempted delivery but that petitioner failed to pick up the notice_of_deficiency and that petitioner’s conduct constituted deliberate refusal of delivery in his answer to petitioner’s amended petition respondent alleges that respondent sent a notice_of_deficiency for the year to petitioner at his current address on date and that petitioner refused to claim said notice from the postal service however in his motion for summary_judgment respondent has not alleged that petitioner deliberately refused delivery of the notice_of_deficiency on the record before us we cannot conclude that petitioner deliberately refused its delivery or otherwise had an opportunity to dispute the liability for so as to preclude him from challenging his underlying tax_liability at a hearing before the irs office of appeals attached to respondent’s motion for summary_judgment were the settlement officer’s declaration and exhibits including numerous items of correspondence between the appeals_office and petitioner a copy of the administrative file relating to the examination of petitioner’s income_tax_liability for and various transcripts for several years many of the exhibits contained multiple unnumbered pages that seem to be in no particular order many of the documents in the administrative file and most of the documents labeled as transcripts of petitioner’s account are full of abbreviations alphanumeric codes dates and digits that are indecipherable and unintelligible without additional explanation one page of the transcript related to the year that was intelligible shows entries for the substitute for return withholding credits and the tax_assessment all dated date it also shows that the intent to levy collection_due_process_notice was issued on date and shows an entry dated date for intent to levy collection_due_process_notice return receipt signed noticeably absent from this transcript is an entry for the issuance of a notice_of_deficiency one of the exhibits that respondent identified as the administrative file regarding the examination of petitioner’ sec_2002 income_tax_liability included copies of the notice_of_deficiency dated date the envelope in which it was allegedly mailed a form correspondence examination history sheet showing send 90day letter with report and a computer-generated printout for that shows 90-day statutory notice ll this seemingly conflicting information regarding the date of the notice_of_deficiency raises a question about its mailing date the postmark on the photocopy of the envelope which respondent alleges was returned to him unclaimed is indecipherable as to its mailing date because of the terms notice_of_deficiency 90-day letter and 90-day statutory notice are often used synonymously what appears to be a label that has been marked other as the reason it was returned to the sender the envelope has two windows one to reveal the name and address of petitioner that was typed on the enclosed notice_of_deficiency the other titled certified mail the certified mail number that would appear in this window is printed on the notice_of_deficiency this indicates to us that the certified mail number was placed on the notice_of_deficiency before it was put into the envelope for delivery to the post office absent from the documentation respondent presented is a u s postal service form_3877 certified mailing list showing the date on which the notice_of_deficiency was mailed a properly completed form_3877 certified mailing list reflecting postal service receipt represents direct documentary_evidence of the date and fact of mailing 94_tc_82 in hoyle v commissioner t c ___ ___ slip op pincite we stated we have held that exact compliance with postal service form_3877 mailing procedures raises a presumption of official regularity in favor of the commissioner and is sufficient absent evidence to the contrary to establish that the notice was properly mailed coleman v commissioner 94_tc_91 see also 724_f2d_808 9th cir we also noted that chief_counsel notice cc-2006-019 date states that when an appeals officer identifies an irregularity in the assessment procedure he may be required to examine underlying documents such as the certified mailing list continued also notably absent from the array of documents attached to respondent’s motion for summary_judgment is a form_4340 certificate of assessments payments and other specified matters the irs web site describes form_4340 as follows the certified transcript program certs produces a common language transcript that gives the history assessments and payments on taxpayers’ accounts these transcripts are used in civil and criminal court cases form_4340 certificate of assessments payments and other specified matters is used by the government in litigation to certify extracts from a taxpayer’s account http www irs gov privacy article id html unlike many of the printouts from respondent’s computer system that were attached to respondent’s motion for summary_judgment a form_4340 is normally a readable and understandable history of transactions and events concerning a taxpayer’s account for a particular taxable_period see tufft v commissioner tcmemo_2009_59 form_4340 is ‘generally regarded as being sufficient proof in the absence of evidence to the contrary of the adequacy and propriety of notices and assessments that have been made ’ 123_tc_1 quoting 962_f2d_555 6th cir affd 412_f3d_819 7th cir generally courts have held that form_4340 provides at least presumptive evidence that a tax has been validly assessed under sec_6203 davis v continued id at ___ n slip op pincite commissioner 115_tc_35 citing 10_f3d_1440 9th cir 8_f3d_1169 7th cir 990_f2d_451 9th cir 961_f2d_1 1st cir 933_f2d_991 fed cir 871_f2d_1015 11th cir and 318_f2d_637 7th cir a clear record of relevant transactions is very important in a sec_6330 court_proceeding see 381_f3d_41 2d cir vacating and remanding tcmemo_2002_ this is especially true in cases submitted to the court on in 381_f3d_41 2d cir vacating and remanding tcmemo_2002_312 which was a sec_6330 case the court_of_appeals for the second circuit described the unsatisfactory record before it as follows here the record that has been presented to this court by wright and the irs is unhelpful wright’s initial complaint to the tax_court expressed bewilderment as to the nature of the tax balances that have been calculated and recalculated against him by the irs at oral argument and in its briefs the irs seemed equally unsure about several basic and crucial facts the parties’ confusion is understandable the relevant timeline and tax amounts have been reconstructed using photocopied forms computer screen printouts and dot- matrix printouts of tax account balances many of these records have no supporting explanation and therefore are inscrutable to any non-employee of the irs many are from time periods that are not the same and even the documents that are from similar time periods often contain amounts that are inexplicably contradictory a motion for summary_judgment where there is no opportunity to question witnesses about the meaning of coded computer transcripts that might otherwise be indecipherable or unintelligible to a reviewing court the chief_counsel for the irs recognized this and has instructed his attorneys as follows a certified copy of an updated form_4340 transcript should also be submitted with all summary_judgment motions the form_4340 transcript has been consistently requested by tax_court judges in summary_judgment cases even though this transcript is prepared after the issuance of the notice_of_determination submission of the form_4340 is not a violation of the record rule because it generally contains the same information originally reviewed by the appeals or settlement officer in making the cdp determination see bowman v commissioner tcmemo_2007_114 chief_counsel notice cc-2009-010 date the chief counsel’s instructions also state the form_4340 should be reviewed thoroughly and any issues raised by entries on the form_4340 or inconsistencies with other documents should be explained in the motion id we have recognized that appeals officers are not required to rely on any particular document such as a form_4340 when making their determinations see 119_tc_252 118_tc_162 however a form_4340 generated after the determination by the office of appeals can properly be offered in subsequent court proceedings to explain information used by the appeals officer see dinino v commissioner tcmemo_2009_284 med practice solutions llc v commissioner tcmemo_2009_214 on the basis of the record before us we will deny respondent’s motion for summary_judgment and remand this case to the appeals_office for further hearing to reflect the foregoing an appropriate order will be issued


internal_revenue_service number release date index number --------------------- ---------------------------------------- ---------------------------------- -------------------------------- in re ---------------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- telephone number --------------------- refer reply to cc intl b05 plr-115468-05 date date ----------------------------- taxpayer subsidiary reit ---------------------------------------- dear --------------- this is in response to your letter dated date in which you request a ruling under sec_1_985-1 that a subsidiary real_estate_investment_trust subsidiary reit may use a currency other than the u s dollar as its functional_currency specifically you request a ruling that permits the subsidiary reit to determine its functional_currency by applying the principles used to determine the functional_currency of a qualified_business_unit that is not required to use the dollar as set forth in sec_1_985-1 the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by the appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of factual information representations and other data may be required as part of the audit process taxpayer has represented the facts described below facts taxpayer is a u s_corporation that will own substantially_all the stock of subsidiary reit a u s_corporation taxpayer intends to make mortgage loans and secured mezzanine loans in various european countries which have the euro as their currency euro loans taxpayer plans to raise equity_capital through an initial_public_offering of its shares to investors for u s dollars taxpayer will contribute the dollars to subsidiary reit in exchange for common_stock of the subsidiary subsidiary reit will plr-115468-05 convert the dollars it receives into euros at the spot_rate on the date of contribution taxpayer intends to either negotiate the rights to acquire the euro loans and assign its rights to subsidiary reit or to have subsidiary reit use the net_proceeds of the initial_public_offering to acquire the euro loans taxpayer and subsidiary reit intend to qualify as real_estate_investment_trusts under subchapter_m of the internal_revenue_code they will be domestic corporations for federal_income_tax purposes subsidiary reit will make the euro loans in euros the gross_income of subsidiary reit is expected to consist of interest_income from the euro loans -------------------------- --------------------------------------------------------------------------------------------------------------------- books_and_records in euros subsidiary reit will not have employees in the united_states or conduct business in the united_states subsidiary reit will not enter into transactions in dollars with the exception of meeting administrative expenses subsidiary reit will make distributions to taxpayer in euros taxpayer will immediately convert these distributions into dollars and after setting aside a portion of the distribution to cover expenses will distribute the remainder to its shareholders law in general sec_985 provides that all determinations for federal_income_tax purposes shall be made in the taxpayer’s functional_currency sec_985 sec_1_985-1 provides that except as otherwise provided by ruling or administrative_pronouncement the u s dollar shall be the functional_currency of a qbu that has the united_states as its residence as defined in sec_988 sec_1_989_a_-1 provides that a corporation is a qbu sec_988 provides that the united_states shall be the residence of a corporation which is a united_states_person sec_7701 provides in part that the term united_states_person means a domestic_corporation sec_7701 provides that the term domestic as applied to a corporation means created or organized in the united_states or under the law of the united_states or any state see also sec_1_988-4 sec_1_985-1 provides that if a qbu is not required to use the dollar as its functional_currency then its functional_currency shall be the currency of the economic environment in which a significant part of the qbu's activities are conducted if the qbu keeps or is presumed to keep its books_and_records in such currency sec_1_985-1 provides that the economic environment in which a significant part of the qbu's activities are conducted shall be determined by taking into account all the facts and circumstances sec_1_985-1 sets forth some facts and circumstances which are considered when determining the economic environment in which a significant part of the qbu's activities are conducted plr-115468-05 the general explanation of the tax_reform_act_of_1986 states that i n appropriate circumstances a domestic qbu such as a regulated_investment_company organized to invest in securities denominated in a specific currency may have a foreign_currency as the functional_currency staff of the joint_committee on taxation 100th cong 1st sess general explanation of the tax_reform_act_of_1986 pincite comm print analysis absent a ruling to the contrary subsidiary reit’s functional_currency would be the u s dollar because it is a u s_corporation consequently it would recognize foreign_currency_gain_or_loss on every sec_988 transaction because such transactions would be denominated in a nonfunctional_currency to the reit see sec_988 and sec_1_988-1 moreover any qbus of subsidiary reit with a currency other than the dollar as their functional_currency would be subject_to sec_987 since foreign_currency_gain_or_loss is not expressly listed as qualifying_income in sec_856 or sec_856 and since currency fluctuations could affect the valuation of assets under sec_856 subsidiary reit risks losing reit status if it is not permitted to adopt the euro as its functional_currency if the ruling requested herein is issued subsidiary reit’s functional_currency would be determined by applying the principles of sec_1_985-1 under these principles subsidiary reit would be eligible to adopt the euro as its functional_currency this conclusion is consistent with the language contained in the general explanation of the tax_reform_act_of_1986 as set forth above based solely on the facts and representations submitted taxpayer may apply the principles of sec_1_985-1 to determine the functional_currency of subsidiary reit should subsidiary reit properly adopt the euro as its functional_currency it will compute its taxable_income or loss in the euro and translate its taxable_income into dollars using the average exchange rate for the taxable_year no opinion is expressed regarding the proper functional_currency of a reit under the principles of sec_1_985-1 no opinion is expressed whether the reits qualify as real_estate_investment_trusts under sec_856 no opinion is expressed regarding the character of dividends or other reit income distributed by the reits to u s shareholders or the character of income or loss realized on the sale by shareholders of their ownership_interest in the reit no opinion is expressed regarding the treatment of foreign_currency received as dividends in the hands of the shareholders plr-115468-05 this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax return of the taxpayers involved for the taxable_year in which the determination covered by this letter is made in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer cc ________________________ jeffrey l dorfman chief branch international sincerely


signiticant index no oulu 9o6-so department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec dollar_figure 4' ey la ar re dear this letter is to inform you that the hospital’s request for a waiver of the minimum_funding_standard for the plan for the plan_year ending date has been granted subject_to the following conditions this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code code and sec_303 of the employee retirement income security act erisa as it existed before amendment by the pension_protection_act of ppa ‘06 the plan_sponsor draft an amendment based on our standard amendment specifying a b it will use a rate of interest under the plan in determining costs pursuant to code sec_412 and the methodology it will follow to make affected participant accounts whole should it not be able to amortize the waiver over a year period the plan_sponsor then files for a favorable determination_letter should there be a qualification issue regarding this amendment the plan will be deemed eligible to make an epcrs submission to correct the issue your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement_plan covering employees covered by the plan maintained by the hospital to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the hospital covering employees covered by the plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa the hospital is not-for-profit and experienced a temporary business hardship the plan is a money purchase plan and the requested waiver is for a plan_year occurring before the pension_protection_act of ppa ‘06 the plan was converted effective january contribution requirement in subsequent plan years from a money purchase plan to a profit sharing plan to eliminate the this ruling is directed only to the taxpayer that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in baltimore maryland to the manager ep compliance unit in chicago illinois and to your authorized representative pursuant to a power_of_attorney on file in this office we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b if you have any questions please contact sincerely yours myilh bh werte william hulteng manager employee_plans technical attachment attachment - standard amendment cc attachment the employer if unable to satisfy the minimum_funding_standard for a given plan_year may apply to the internal_revenue_service for a waiver of the minimum_funding_standard f the waiver is granted the following provisions apply the valuation_date for a given plan_year is the last day of each plan_year ‘an adjusted account balance shall be maintained for each plan participant whose actual account balance is less than or equal to his or her adjusted account balance a for the plan_year for which the first waiver is granted the adjusted account balance as of the valuation_date for each affected plan participant equals the participant's actual account balance plus the amount that such participant would have received if the amount waived had been contributed b for each plan_year following the plan_year for which a waiver is granted the adjusted account balance of each participant affected by such waiver calculated as of the valuation_date for that year equals the adjusted account balance as of the valuation_date in the prior plan_year plus the amount equal to the actual investment return credited or charged to the participant's actual account balance plus the amount equal to of the excess of the amount in over the participant's actual account balance calculated as of the same date plus the amount equal to such participant's allocated share of the employer's required_contribution whether or not waived for the plan_year determined without regard to adjusted waiver payments and discretionary contributions minus the amount of the participant's adjusted account balance forfeited during the plan_year under the plan's provisions for a given plan_year the employer is required to contribute a certain amount in order to satisfy the minimum_funding_standard for such plan_year for each plan_year that follows a plan_year for which a waiver of the minimum_funding_standard was granted the amount equals the amount due in accordance with the plan's contribution formula without regard to this section plus the adjusted waiver amount the adjusted waiver amount for a given plan_year equals the sum of the amounts necessary to amortize each waived_funding_deficiency over a period of plan years measured from the valuation_date of the plan_year for which the corresponding waiver was granted at t ' interest compounded annually minus the sum of the amounts necessary to amortize the total of each year's forfeitures which have arisen since the first waiver was granted over a period of plan years measured from the valuation_date of the plan_year in which the corresponding forfeitures arose pincite interest compounded annually an amount equal to the adjusted waiver amount must be contributed only until each actual account balance equals the adjusted account balance any plan provision which provides that employer contributions shall be reduced immediately by forfeitures is revoked until each participant's actual account balance equals that participant's adjusted account balance discretionary employer contributions which are in addition to the amounts contributed to satisfy the minimum_funding_standard can be made in any given plan_year however the total employer_contribution for the plan_year cannot exceed the then remaining underfunded amount the sum of the adjusted account balances minus the total plan assets the adjusted waiver payments discretionary contributions and forfeitures of actual account balances for the current plan_year shall be allocated as of that year's valuation_date to the actual account balance of each affected plan participant each time a waiver is granted an original waiver amount owa will be ' for waivers granted for plan years beginning before date t is the interest rate determined on the first day of the plan_year in accordance with sec_412 of the internal_revenue_code for waivers granted for plan years beginning after date tis the interest rate determined on the first day of the plan_year in accordance with sec_430 of the internal_revenue_code determined for each affected plan participant the owa equals the participant's portion of the amount that was waived commencing with the valuation_date of the plan_year for which a waiver is granted a remaining original waiver amount rowa must be calculated for each affected plan participant as of such valuation_date the owa equals the rowa on the valuation_date of a succeeding plan_year the rowa equals the prior plan year's rowa multiplied by t minus the forfeiture of amounts in the prior year's rowa incurred in the current plan_year minus the allocation with respect to the owa for the current plan_year for each waiver that is granted one owa and a corresponding rowa will be established for each affected plan participant the sum of the adjusted waiver payments discretionary contributions and forfeitures of the actual account balances for a given plan_year are allocated to those participants who have rowa's by multiplying the sum of these three amounts by the fraction i ii the numerator of which equals the sum of owa's for a particular participant and the denominator of which equals the sum of the owa's for all participants to determine the portion of this allocation which is to be assigned to a given rowa multiply the allocation by the corresponding owa then divide by the sum of the owa's for the particular participant if the calculation of a rowa results in a value which is less than zero then the rowa is set equal to zero the corresponding owa is set equal to zero and the excess payments will be reallocated to the remaining rowa's a distribution is determined by multiplying a participant's vested percentage by his or her adjusted account balance however distributions from the plan may not exceed a participant's actual account balance if so limited plan participants shall receive subsequent distributions derived from future adjusted waiver payments


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-105227-00 cc dom p si date date number release date index number 1362-dollar_figure legend x y z properties state entity d1 d2 d3 sh1 sh2 dear this letter responds to your letter dated date and subsequent correspondence on behalf of x requesting a ruling that the income x receives from the plr-105227-00 properties will not be passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts according to the information submitted x is a state entity organized on d1 and elected to be treated as an s_corporation under sec_1362 on d2 the owners of x are sh1 and sh2 x which has accumulated_earnings_and_profits is engaged in the business of owning leasing operating and maintaining commercial and residential rental real_estate through its employees as well as through independent contractors x provides various services in its rental real_estate business for residential properties x is responsible for all maintenance repairs and real_estate_taxes x provides many of the same services for the commercial properties some of the tenants pay a fee to reimburse x for these services x treats these fees as additional rental income in addition to the services provided to tenants x handles the usual marketing leasing and administrative functions involved in leasing and managing the properties for the fiscal_year ending d3 x received or accrued y in rents and paid_or_incurred z in relevant expenses on the properties x represents that it anticipates future figures to be consistent with the income and expense figures for prior periods law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time after the first day of the first taxable_year for which corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination under this paragraph shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting plr-105227-00 property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation after applying the relevant law to the facts submitted and the representations made we conclude that the rents x receives from the properties are not passive_investment_income under sec_1362 except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding x's eligibility under sec_1361 to be an s_corporation further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to the taxpayer this ruling is directed only to the taxpayer who requested it according to sec_6110 of the code this ruling may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-114680-01 date date x property d1 d2 d3 dollar_figurex dollar_figurey dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling that x’s rental income from the property is not passive_investment_income within the meaning of sec_1362 and sec_1375 of the internal_revenue_code according to the information submitted x was incorporated on d1 and is taxed as a c_corporation x plans to elect under sec_1362 to be an s_corporation effective d2 x has accumulated_earnings_and_profits x is in the business of owning and renting the property the property is used as office buildings and for light industrial use through its owner and an independent management company x provides various services in operating the property these services include maintaining the property’s facades roof down-spouts and area fencing maintaining the property’s plumbing heating air conditioning and electrical systems making of ordinary repairs necessary replacements and required alterations inspecting the property establishing emergency situation procedures and maintaining a list of preferred vendors in addition to the services provides to tenants x performs the usual activities involved in managing real_estate these activities include seeking and screening prospective tenants negotiating leases ensuring that tenants understand and comply with lease terms maintaining books records correspondence contracts and leases and engaging accountants attorneys and other professionals as necessary in the fiscal_year ending d3 x accrued approximately dollar_figurex in rents and incurred dollar_figurey in relevant expenses sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination under this paragraph shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1375 provides that if at the close of a taxable_year an s_corporation has subchapter_c_earnings_and_profits and gross_receipts more than percent of which are passive_investment_income a tax is imposed on the excess_net_passive_income of the corporation sec_1375 provides that the terms passive_investment_income and gross_receipts have the same respective meanings as when used in sec_1362 sec_1_1362-2 of the income_tax regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts and the representations submitted and the assumption that x makes a valid election to be an s_corporation we conclude that under sec_1_1362-2 of the regulations the rental income that x derives from property is income from the active trade_or_business of renting property and is not passive_investment_income as described in sec_1362 and sec_1375 of the code except as specifically set forth above we express no opinion as to the federal tax consequences of the transaction described above under any other provision of the code further we express no opinion on whether x is a small_business_corporation eligible to make an s election this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court dora marie martinez and carlos garcia petitioners v commissioner of internal revenue respondent docket no filed date steven ray mather for petitioners jenny r casey and sebastian voth for respondent memorandum findings_of_fact and opinion cohen judge respondent determined an dollar_figure deficiency and a dollar_figure penalty under sec_6662 with respect to petitioners’ federal_income_tax for the issues for decision are whether the unpaid balances of loan amounts that dora martinez petitioner borrowed from her sec_403 qualified_employer_retirement_plan qp were deemed distributions of taxable income in and subject_to a additional tax whether petitioners had other unreported income in of dollar_figure of interest dollar_figure of cost of current_life_insurance_protection and dollar_figure of education program payments received as a distribution from their sec_529 qualified_tuition_program qtp and subject_to a additional tax and whether petitioners are liable for the sec_6662 penalty for unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in california when they filed their petition for the period relevant to this case petitioner was employed as a teacher by the los angeles unified school district lausd and garcia her spouse was employed as a truck driver by kellogg sales co petitioner decided to borrow from her lausd qp as a means of avoiding foreclosure on their residence on date she requested two loans from her lausd qp a loan of dollar_figure from an account administered by north american co for life health insurance namco and a loan of dollar_figure from an account administered by midland national life_insurance co midland each loan agreement indicated that the loan was to be repaid in quarterly payments over a five-year period and also indicated by a checked box that the new loan is not to be used as a residential_loan petitioner signed both loan agreements representing that she understood their terms and acknowledging that any loan not in accordance with the requirements of i r c para p shall be considered as a deemed_distribution and be reported as taxable_income and accepting full responsibility for compliance with those requirements on date namco issued a check to petitioner for dollar_figure and midland issued a check to her for dollar_figure petitioners made initial payments on the loans but stopped as of date they nevertheless continued to receive loan repayment notices from both namco up to date and midland up to date as a result of the loan payments having not been made namco and midland determined that petitioner had defaulted on the loans as of date namco and midland deemed the loan balances dollar_figure and dollar_figure respectively to be taxable_distributions in they each issued to petitioner a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc that reported each gross distribution ie dollar_figure for namco and dollar_figure for midland as fully taxable and indicated a distribution code of l designating a deemed_distribution in petitioner held an insurance_policy with conseco life_insurance co conseco through her employer using standard calculations conseco subsequently determined that for petitioner received a benefit for the cost of life_insurance protection of dollar_figure conseco issued to petitioner form 1099-r reporting the dollar_figure as a fully taxable_distribution and indicating a distribution code of designating the cost of current_life_insurance_protection petitioners maintained a qtp for their children in petitioner withdrew dollar_figure from the qtp she also received interest_income of dollar_figure in petitioner wa sec_43 years old as of date on their jointly filed form_1040 u s individual_income_tax_return petitioners reported only their wage income they did not report income from the deemed distributions of the qp the earned interest the cost of current_life_insurance_protection or the withdrawal from the qtp opinion in unreported income cases where there is no question that the taxpayer received the unreported income in issue the taxpayer has the burden of proving by a preponderance_of_the_evidence that the deficiency determination was arbitrary or erroneous see 181_f3d_1002 9th cir aff’g tcmemo_1997_97 87_tc_74 petitioner admitted during her testimony that she received the proceeds of the two qp loans and dollar_figure from the qtp contrary to the assertion in petitioners’ posttrial brief and petitioners stipulated that petitioner received dollar_figure of interest_income at trial petitioner argued however that she never received money from conseco see hardy v commissioner f 3d pincite requiring where receipt of income is not evident that the commissioner introduce some substantive evidence that the taxpayer received unreported income petitioner nevertheless testified that she held a life_insurance_policy with conseco in and the parties stipulated as an exhibit form 1099-r--issued by conseco and reporting petitioner’s cost of current_life_insurance_protection of dollar_figure--and supporting records showing how conseco determined that cost petitioner would not have actually received dollar_figure because as discussed below the cost of current_life_insurance_protection is a taxable economic benefit and not an actual payment to the participant the dollar_figure shown on form 1099-r is linked to a life_insurance_policy that petitioner held with conseco during and is also supported by conseco’s calculation worksheets and other records see feder v commissioner tcmemo_2012_10 slip op pincite ruling that an initial burden of production was met where the commissioner had shown that income reported on form 1099-r was linked to a life_insurance_policy held by the taxpayer respondent has therefore satisfied any initial burden of production regarding the unreported income in issue petitioners must come forward with proof that respondent’s determination is arbitrary or erroneous or that this income is otherwise not taxable qp deemed distributions sec_402 provides generally that pursuant to sec_72 distributions from a qp are taxable to the distributee for the taxable_year of the distribution see molina v commissioner tcmemo_2004_258 slip op pincite the proceeds of a loan from a qp to a participant are treated as--or deemed to be--a distribution and therefore usually includible in the participant’s income sec_72 see duncan v commissioner tcmemo_2005_171 slip op pincite sec_72 however provides an exception to a loan’s being treated as a taxable_distribution where the principal_amount of the loan when added to the outstanding balance of all other loans from the same plan does not exceed a specified limit see sec_72 and where the loan meets the requirements provided by sec_72 and c as follows sec_72 loans treated as distributions -- exception for certain loans -- b requirement that loan be repayable within years -- i in general --subparagraph a shall not apply to any loan unless such loan by its terms is required to be repaid within years ii exception for home loans --clause i shall not apply to any loan used to acquire any dwelling_unit which within a reasonable_time is to be used determined at the time the loan is made as the principal_residence of the participant c requirement of level amortization --except as provided in regulations this paragraph shall not apply to any loan unless substantially level amortization of such loan with payments not less frequently than quarterly is required over the term of the loan see also sec_1_72_p_-1 q a-3 b income_tax regs requiring additionally that the loan be evidenced by a legally enforceable agreement the substantially level amortization requirement of sec_72 has been interpreted as requiring that payment of principal and interest be made in substantially level amounts over the term of the loan see plotkin v commissioner tcmemo_2001_71 slip op pincite citing estate of gray v commissioner t c memo the sec_72 exception to a loan’s being deemed a distribution ceases to apply when the loan from a qualified_employer_plan no longer satisfies the requirement of sec_72 because the participant fails to make a loan payment either on the date that it is due or within the allowed grace period duncan v commissioner tcmemo_2005_171 slip op pincite accord sec_1_72_p_-1 q a-4 explaining further that such a failure would result in a deemed_distribution q a-10 a providing that plan administrators may allow a cure grace period which cannot continue beyond the last day of the calendar_quarter following the calendar_quarter in which the required_installment payment was due and that sec_72 will not be considered to have been violated if the installment_payment is made not later than the end of the cure period income_tax regs where there is a failure to pay the amount of the deemed_distribution would equal the entire outstanding balance of the loan including accrued interest at the time of the failure sec_1_72_p_-1 q a-10 b income_tax regs petitioners failed to make loan payments after date and they did not repay these missed amounts within the permitted cure period they therefore do not meet the exception of sec_72 and the lausd qp loan balances are deemed taxable_distributions as of date which is when namco and midland determined that the loans’ grace periods had expired and accordingly that petitioner had defaulted see ryan v commissioner tcmemo_2011_139 slip op pincite aff’d 482_fedappx_881 5th cir owusu v commissioner tcmemo_2010_186 slip op petitioners’ brief argues that the amounts of the qp deemed distributions cannot be both distributions and existing loan obligations--existing because namco and midland continued to send quarterly payment notices to petitioners even after the loans were determined defaulted on it concludes that the statute is clear that the qp complied with the statute and citing 562_us_44 that the regulation is not entitled to any deference we disagree petitioners’ brief ignores the first five words of the text of sec_72 e xcept as provided in regulations these words plainly express congress’ intent to have subparagraph c clarified through appropriate regulations and petitioners offer no alternative explanation for that choice of words see mayo found u s pincite filling gaps in the internal_revenue_code plainly requires the treasury_department to make interpretive choices for statutory implementation the regulations under sec_72 establish the timing and amount of a deemed_distribution and this court has heeded the final regulations for those determinations see eg ryan v commissioner tcmemo_2011_139 owusu v commissioner tcmemo_2010_186 petitioner had contracted to repay her qp loans under binding agreements--a completely separate and irrelevant issue from her having tax due because of deemed distributions from her qp cf 574_f3d_1045 9th cir explaining within a bankruptcy context that a retirement_plan participant’s loan from his retirement account is essentially a debt to himself--he has borrowed his own money he contributed the money to the account in the first place should he fail to repay himself the administrator has no personal recourse against him instead the plan will deem the outstanding loan balance to be a distribution of funds thereby reducing the amount available to the participant from his account in the future citations omitted petitioners argue that there is no taxable_income because the loan proceeds were used for a qualifying purpose they assert that sec_72 waives the requirement that the loan be repaid with level amortization in five years if the loan is made in connection with acquiring a principal_residence they rely somewhat ironically on sec_1_72_p_-1 q a-8 income_tax regs for the premise that a plan_loan does not have to be traced to the purchase of a principal_residence so long as it is used to repay a loan that was obtained to purchase a residence they conclude that there was no requirement for level payments and thus no deemed distributions could have occurred in petitioners misinterpret the code sec_72 which addresses an exception for home loans applies only with respect to clause i of subparagraph b which addresses the requirement that a loan be repayable within five years clause ii allows for a loan period longer than five years when the loan is used for acquiring a principal_residence however it has no bearing on the subparagraph c requirement of level amortization which is still mandatory moreover petitioner specifically affirmed in both loan agreements that the loans were not to be used as residential loans hence they were made under a five-year repayment period ultimately petitioners failed to repay the lausd qp loans and they meet no exceptions under the code or the related regulations therefore respondent’s determination to treat the loan balances as deemed distributions in is sustained sec_72 additional tax petitioners’ brief alleges that respondent’s attempt to impose a penalty under sec_72 for premature_distributions_from_annuity_contracts is inappropriate because petitioners did not receive anything in upon which the penalty could be based however the notice_of_deficiency upon which this case is based determined a additional tax under sec_72 t --not sec_72 a tax on early distributions deemed or actual and occurring before the participant reaches the age 59½ generally applies where a taxpayer receives a qp distribution that is includible in her or his gross_income sec_72 and although sec_72 sets forth certain exceptions to the tax on early distributions petitioners neither argue that they fit within any of these exceptions nor present evidence to suggest that they might therefore we find that petitioners are liable for the additional tax under sec_72 see 122_f3d_835 9th cir aff’g tcmemo_1995_298 although petitioners refer to a penalty sec_72 provides for an additional tax and not a penalty see generally el v commissioner t c determining that the commissioner has no initial burden of production with respect to the additional tax under sec_72 because it is not a penalty addition_to_tax or additional_amount under sec_7491 interest_income petitioners stipulated their receipt of dollar_figure of interest_income that was not reported on their return see sec_61 cost of current_life_insurance_protection the cost of current_life_insurance_protection provided by an employer is an economic benefit that is included under sec_61 in the gross_income of the insured employee see 136_tc_38 aff’d 483_fedappx_847 4th cir the cost is included in the employee’s gross_income to allow the death_benefit proceeds of the policy to pass to the employee’s beneficiaries tax free see sec_1_61-22 iii c income_tax regs see also sec_101 basically the cost of current_life_insurance_protection equals the amount of the current_life_insurance_protection provided typically the difference between the face_amount of the policy and its cash_surrender_value multiplied by a life_insurance premium factor as permitted by irs guidance see sec_1_61-22 income_tax regs petitioners argue that conseco’s cost of current_life_insurance_protection computations on which respondent relied for his determination were imprecise they also argue that respondent has not adequately established a methodology for the computation of any taxable_income amount with respect to the life_insurance as shown on its worksheets conseco calculated the cost by multiplying a premium rate of 29--acquired from gov table and based upon petitioner’s age of at that time--to the difference between the face_amount of the policy termed death_benefit on the worksheets and its cash_surrender_value termed surr value then divided by big_number because table see infra is based upon increments of dollar_figure of life_insurance protection the de_minimis imprecision of the calculation’s resulting cost of dollar_figure--when compared to the reported cost of dollar_figure on the form 1099-r issued by conseco--is explained in the worksheets as having occurred because the cash_surrender_value was available only up to date at the time the worksheets were generated and not up to date which would have been the ending period used when calculating the amount shown on the form 1099-r this methodology appears to follow the prescribed calculation and petitioners offer no argument as to why it does not it appears that conseco appropriately used the irs-provided table to arrive at the correct premium rate despite the worksheets’ references to ps-58 headings premium factors provided by p s rates found in revrul_55_747 1955_2_cb_228 have generally been supplanted by table found in notice_2001_10 2001_1_cb_459 or by an insurer’s lower published premium rates that are available to all standard risks for initial issue one-year term_insurance see notice_2002_8 2002_1_cb_398 revoking revrul_55_747 supra except where in certain circumstances p s rates may be used for life_insurance arrangements entered into before date see also sec_1_61-22 income_tax regs this court has found that table can be used to provide a reasonable estimate of the cost of one year of life_insurance protection see cadwell v commissioner t c pincite accordingly respondent’s determination regarding the inclusion in income of the dollar_figure cost of current_life_insurance_protection for is sustained qtp distribution petitioners’ brief alleges that petitioner testified that all her contributions to the qtp were made with post-tax dollars and thus no distributions would be taxable she did not so testify petitioners allege that they spent more than dollar_figure in qualifying tuition as supported by a statement from their daughter’s college which they presented for the first time at trial the statement was not received into evidence because petitioners had failed to comply with the court’s standing_pretrial_order concerning exchange of documents their late production of the statement prejudiced respondent by precluding him from confirming whether the dollar_figure qtp distribution actually was spent on items reflected on the statement generally a distribution from a qtp is includible in the distributee’s gross_income in the manner provided under sec_72 sec_529 a taxpayer who receives a qtp distribution is subject_to a additional tax where the distributions were not used for educational expenses sec_529 sec_530 because there is no reliable evidence showing that the dollar_figure was used for eligible educational expenses respondent’s determination regarding the dollar_figure qtp distribution is sustained the additional tax on a qtp distribution is also sustained accuracy-related_penalty sec_6662 and b imposes a accuracy-related_penalty on the portion of any underpayment of federal_income_tax attributable to a taxpayer’s substantial_understatement_of_income_tax a substantial_understatement_of_income_tax exists if the understatement exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 under sec_7491 the commissioner bears the burden of production with regard to penalties and must come forward with sufficient evidence indicating that it is appropriate to impose penalties see 116_tc_438 once the commissioner has met the burden of production the burden_of_proof remains with the taxpayer including the burden of proving that the penalties are inappropriate because of reasonable_cause or substantial_authority see rule a higbee v commissioner t c pincite petitioners have an understatement of dollar_figure which is more than dollar_figure which is greater than of the dollar_figure of tax that should have been reported on their return respondent has therefore met the burden of production as to the penalty and petitioners must now show that the understatement or any part thereof is attributable to an item that was adequately disclosed and has a reasonable basis or for which there was substantial_authority for its tax treatment see sec_6662 although they were issued forms 1099-r by namco midland and conseco petitioners neither disclosed on their tax_return the taxable amounts reported on the forms 1099-r nor explained why those amounts were not reported see sec_6662 sec_1_6662-4 and f income_tax regs petitioners allege that they did not receive any forms 1099-r and that they had no reason to suspect that there was additional income to report for however namco midland and conseco sent their respective forms 1099-r to petitioners’ correct address it is improbable that they did not receive any of the forms see tokarski v commissioner t c pincite they also have not shown that any of the types of authority listed in sec_1_6662-4 income_tax regs would support their failure to report the taxable amounts received as shown on the forms 1099-r as income with regard to the qtp disbursement petitioners knew that they withdrew money from a savings account that is not subject_to federal tax only because its funds are to be used for qualified_education_expenses when they made the withdrawal in 2012--not shown to be used for educational expenses--they should have expected a tax consequence for that year regardless of whether they subsequently received a form 1099-r reporting the distribution cf brunsman v commissioner tcmemo_2003_291 slip op pincite determining that the taxpayer did not need to receive a form 1099-misc to be alerted to the fact that he had received compensation similarly with respect to the deemed distributions petitioners knew that they had stopped paying on the qp loans from tax-deferred accounts and again should have anticipated tax consequences they suggest that their having continued to receive loan repayment notices should somehow excuse their actions--but the lending institutions’ further attempts to recover the loan balances had no impact on the taxation of petitioners’ deemed distributions in ultimately petitioners have shown no reasonable basis or substantial_authority for their failure to report the income from these sources the accuracy-related_penalty is not imposed with respect to any portion of the underpayment where the taxpayer acted with reasonable_cause and in good_faith sec_6664 see higbee v commissioner t c pincite relevant factors with respect to whether a taxpayer acted with reasonable_cause and in good_faith include the taxpayer’s knowledge and experience and her or his reliance on the advice of a professional such as an accountant see sec_1_6664-4 income_tax regs generally however the most important factor is the extent of the taxpayer’s effort to determine her or his proper tax_liability id accord 471_f3d_1021 9th cir aff’g tcmemo_2004_269 petitioners argue that they suffered multiple calamities in including the death of petitioner’s father possible foreclosure on their personal_residence and in their son’s contracting cancer while their hardships financial and otherwise may have understandably overshadowed their tax problems those difficulties do not constitute reasonable_cause for an underpayment of federal_income_tax within the meaning of sec_6664 petitioner is an educated person yet the facts and circumstances in this case indicate that petitioners did not attempt to assess their proper tax_liability for petitioners knew that they had received nonwage income primarily from the out-of-the- ordinary sources of their qp and qtp and they had a responsibility to determine whether and how those amounts should be reported they exerted no effort to do so and accordingly the sec_6662 penalty is sustained we have considered the other arguments of the parties they are moot immaterial or otherwise without merit to reflect the foregoing decision will be entered for respondent