internal_revenue_service number release date index numbers ----------------------- ------------------------------------------------ ---------------------------------------------------- ---------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number --------------------- refer reply to cc corp b06 plr-120890-08 date date ------------ ------------ legend distributing ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------- controlled ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------- holdings ------------------------------------------------------------------- -------------------------------------------------------- sub ------------------------------------------------------------------- -------------------------------------------- sub -------------------------------------------------------------------- ------------------------------------------------- sub ------------------------------------------------------------------- -------------------------------------------------------- sub ----------------------------- ------------------------------------------------------------------- sub ------------------------------------------------------------------- ---------------------------------------------- sub ------------------------------------------------------- plr-120890-08 ------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------- sub ------------------------------------------------------------------- -------------------------------------------------------------- sub sub ------------------------------------------------- ----------------------------------------- parent -------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------- corp ------------------------------------------------------------------- --------------------------------------------- country x country y busine sec_1 busine sec_2 busine sec_3 busine sec_4 ------------ --------------------- --------------------------------------------- ----------------------------------------------------------- ---------------------------- --------------------------------------- agreement -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- agreement business_purpose contract --------------------------------------------------------------------------------- --------- -------------------------------------------------------------------------------- ------------------------------------------------------- --------------------------------------------------------------------------------- ------- plr-120890-08 year date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg x y a ------ ------------------- ----------------------- --------------------- -------------- -------------- ---------------- ---------------- ---------------- ---------------- ---------------- --------------- ------------- ------ dear ------------- this letter responds to your date letter from your authorized representatives requesting rulings on certain federal_income_tax consequences of a proposed transaction additional information was received subsequently the information provided in these letters is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and except where expressly provided has made no determination regarding whether the distribution described below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the plr-120890-08 distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 distributing is a country x corporation whose stock is publicly-traded as of date distributing has outstanding x shares of common_stock of which corp owns y shares approximately a corp purchased the distributing stock on date which is less than five years from the date of this letter by paying distributing dollar_figuree in cash upon the exercise of warrants for distributing stock parent indirectly owns all of the stock of corp distributing is the parent of a group of domestic and foreign_corporations engaged primarily in busine sec_1 busine sec_2 busine sec_3 and busine sec_4 distributing is treated for federal_income_tax purposes as a corporation it is a holding_company and is not engaged in a trade_or_business in the united_states within the meaning of sec_864 distributing owns all of the stock of holdings a country x corporation holdings is treated for federal_income_tax purposes as a corporation it is a holding_company and is not engaged in a trade_or_business in the united_states within the meaning of sec_864 holdings owns all of the stock of controlled and sub holdings indirectly owns all of the stock of sub sub owns all of the stock of sub and sub holdings also indirectly owns all of the stock of sub sub owns all of the stock of sub and sub sub owns all of the stock of sub sub and sub sub is a country y corporation that has elected under sec_953 to be treated as a domestic_corporation for federal_income_tax purposes sub sub sub sub and sub are each engaged in busine sec_1 pursuant to agreement and for valid corporate business purposes described herein distributing desires to undertake the following steps the proposed transaction i holdings will contribute to controlled approximately dollar_figureg of cash ii controlled will transfer dollar_figured in cash to sub in exchange for two notes issued by sub one note will have principal_amount of dollar_figurea note and the other note will have a principal_amount of dollar_figurec note the notes are intended to bear a market rate of interest iii controlled will acquire all of the stock of sub from sub in exchange for note and will acquire all of the stock of sub from sub in exchange for note and incurring liability under agreement plr-120890-08 pursuant to agreement controlled must reimburse sub for certain payments sub makes under a contingent purchase_price note agreement it entered into in connection with the year acquisition of sub agreement will also create a back-to-back arrangement for certain rights and obligations under certain contracts to which sub is a party that remain outstanding from the purchase by sub of sub in year to the extent that sub cannot assign such agreements to controlled prior to the consummation of the proposed transaction iv holding will liquidate into distributing in accordance with the corporate laws of country x the holdings liquidation v distributing will contribute to controlled approximately dollar_figureb of cash thus immediately after step v of the proposed transaction controlled will hold approximately dollar_figuref of cash and directly or indirectly the stock of sub sub sub sub and sub however if certain circumstances described in agreement are present the amount of cash that controlled would hold could be less than dollar_figuref further after the proposed transaction amounts may be payable from sub to sub pursuant to the contract vi distributing will distribute all of the controlled stock to corp in exchange for an amount of the distributing stock owned by corp approximately equal in value to such controlled stock the distribution the following representations have been made in connection with the portion of the proposed transaction described in steps v and vi a the indebtedness if any owed by controlled to distributing after the consummation of the proposed transaction will not constitute stock_or_securities b the fair_market_value of controlled stock to be received by corp will be approximately equal to the fair_market_value of the distributing stock to be surrendered by corp in the exchange the fair market values referred to in this representation are calculated as of date the day on which the parties agreed on the value of controlled for purposes of the proposed transaction c no part of the consideration to be exchanged by distributing will be received by corp as a creditor employee or in any capacity other than that of a shareholder of distributing d the five years of financial information submitted on behalf of distributing is representative of distributing’s present operation and with regard to distributing there have been no substantial operational changes since the date of the last financial plr-120890-08 statements submitted this representation is made with respect to busine sec_2 busine sec_3 and busine sec_4 of distributing e the five years of financial information submitted on behalf of controlled with respect to busine sec_1 is representative of controlled’s present operation and with regard to controlled there have been no substantial operational changes since the date of the last financial statements submitted in the ordinary course of business the assets and liabilities of busine sec_1 have declined during the five-year period ending on the date of the distribution as reflected in the five years of financial information submitted f following the consummation of the proposed transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees g the proposed transaction is being carried out for the following corporate business purposes i redeeming a large block of distributing stock on favorable economic terms ii averting a potentially disruptive scenario in which two of distributing’s largest shareholders each seek to sell their distributing stock within a relatively short span of time iii business_purpose and iv providing distributing with a clean and final exit from potential adverse development of certain liabilities of sub and sub the proposed transaction is motivated in whole or substantial part by these corporate business purposes h the proposed transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both i no property will be transferred by distributing to controlled for which an investment_credit allowed under sec_46 has been or will be claimed j distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the proposed transaction k no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock other than amounts that may be payable after the consummation of the proposed transaction by controlled to sub pursuant to agreement and by sub to sub pursuant to the contract l payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length this representation is made with respect to any transactions entered into while agreement was being negotiated or after it was entered into the terms of any other transactions between parent and its affiliates excluding controlled sub sub sub sub and sub on the one hand and distributing and its affiliates including controlled sub sub sub sub and plr-120890-08 sub on the other hand were set without contemplation of the proposed transaction and were not subsequently changed in contemplation of the proposed transaction m no two parties to the transaction are investment companies as defined in sec_368 and iv n distributing controlled and corp will each pay its own respective expenses if any incurred in connection with the proposed transaction o no cash or other assets have been or will be contributed in anticipation of the proposed transaction by distributing controlled or any member of the distributing group to sub sub or sub p following the distribution controlled will not make any loans to parent or any affiliate of parent except subsidiaries of controlled for two years further following the distribution controlled will not purchase stock in parent or any affiliate of parent except subsidiaries of controlled for two years q following the distribution parent has no plan or intention to liquidate controlled the taxpayer makes the following additional representations aa neither distributing nor controlled i was or will be a united_states_real_property_holding_corporation as defined in code sec_897 at any time during the 5-year period ending on the date of the distribution or ii will be a united_states_real_property_holding_corporation immediately after the distribution distributing is not aware of any foreign shareholder who currently hold sec_5 or more of any class of distributing stock or will hold or more of any class of distributing stock either immediately before or immediately after the distribution bb distributing will not be a controlled_foreign_corporation within the meaning of code sec_957 immediately before or after the distribution cc holdings and distributing will not be passive foreign investment companies pfics within the meaning of code sec_1297 immediately before or after the holdings liquidation dd distributing will not be a pfic within the meaning of code sec_1297 immediately before or after the distribution ee distributing will not hold any united_states real_property interests usrpis within the meaning of code sec_897 immediately before or after the distribution plr-120890-08 ff no usrpis within the meaning of code sec_897 will be distributed by holdings in connection with the holdings liquidation gg the holdings liquidation will not include the transfer of any property used by holdings in the conduct of a u s trade_or_business as described in sec_1_367_e_-2 hh the holdings liquidation will not include the transfer of stock of any corporation that has been a u s transferor the transferee foreign_corporation or the transferred corporation with respect to any unexpired ‘gain recognition agreement’ within the meaning of sec_1_367_a_-3 sec_1_367_a_-8 and sec_1_367_a_-8t ii the distribution will not include the transfer of stock of any corporation that has been a u s transferor the transferee foreign_corporation or the transferred corporation with respect to any unexpired ‘gain recognition agreement’ within the meaning of sec_1_367_a_-3 sec_1_367_a_-8 and sec_1_367_a_-8t based on the information submitted and the representations provided we rule as follows in connection with the portion of the proposed transaction described in steps v and vi the transfer by distributing of cash to controlled followed by the distribution pursuant to the proposed transaction will constitute a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will not recognize any gain_or_loss on the receipt of the controlled stock pursuant to the proposed transaction sec_361 controlled will not recognize any gain_or_loss on the receipt of cash from distributing pursuant to the proposed transaction sec_1032 corp will not recognize any gain_or_loss and will not otherwise include any amount in income upon the receipt of the controlled stock in exchange for an amount of the distributing stock equivalent in value to the controlled stock received pursuant to the proposed transaction sec_355 corp’s aggregate basis in the controlled stock received pursuant to the proposed transaction will equal its basis in the distributing stock surrendered in exchange therefore sec_358 corp’s holding_period in the controlled stock received pursuant to the proposed transaction will include its holding_period for the distributing stock surrendered in plr-120890-08 exchange therefore provided that the distributing stock is held as a capital_asset on the date of the proposed transaction sec_1223 the distribution will not qualify under sec_361 sec_355 thus distributing will recognize any gain but not loss upon the distribution sec_311 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 controlled will not be a disqualified investment_company immediately after the consummation of the proposed transaction sec_355 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 iv to the extent not otherwise specifically ruled upon above the adjustments to earnings_and_profits or deficits in earnings_and_profits if any in any of the transactions to which sec_367 applies v to the extent not otherwise specifically ruled upon above any other consequences under sec_367 on any internal restructuring transaction in this ruling letter and vi whether any or all of the above-referenced foreign_corporations are pfics within the meaning of sec_1297 if it is determined that any such corporations are pfics no opinion is expressed with respect to the application of sec_1291 through to the proposed transaction in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provisions 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-120890-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely alfred c bishop jr chief branch corporate cc


internal_revenue_service number release date index number ------------------------------------------- ------------------------------------------------------------ -- ------------------------------------ ----------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc fip b04 plr-101295-19 date august taxpayer ------------------------------------------------------------------------------------- parent --------------------------------------------------------------- dear ----------------- this letter responds to taxpayer’s request for a letter_ruling that the payment of certain investment advisory fees from an annuity_contract will not be treated as an amount received by the owner of that annuity_contract for purposes of sec_72 of the internal_revenue_code facts taxpayer is a life_insurance_company within the meaning of sec_816 and is a subsidiary of parent and joins in the filing of a consolidated federal_income_tax return with parent on a calendar yearly basis using an accrual_method of accounting taxpayer intends to offer three non-qualified deferred_annuity contracts referred to herein as the contract the contract will be issued to and owned by an individual or issued to and owned by a_trust or other entity as an agent for a natural_person within the meaning of sec_72 the owner the contract is an annuity_contract under the law of the jurisdiction where issued the contract qualifies for treatment as an annuity_contract for federal_income_tax purposes including by complying with the requirements of sec_72 one of the contracts is a variable_contract under sec_817 while two of the contracts are not variable_contracts under sec_817 the contract is not part of any qualified_retirement_plan within the meaning of sec_4974 plr-101295-19 the contract is comprised of an accumulation_phase and a payout phase during the accumulation_phase the cash_value of the contract is credited with earnings or interest based on options the owner selects from a menu provided by taxpayer the options consistent with applicable nonforfeiture law the contract is designed for owners who will receive ongoing investment advice from an investment adviser the adviser on how to allocate the contract’s cash_value within the meaning of sec_72 among the available options the adviser is expected to take into account factors such as the owner’s personal risk tolerance and investment timeline the interest rate and market environment the menu of options available under the contract and the various other_benefits and features available under the contract the adviser will be an appropriately licensed professional who is in the business of providing investment advice in consideration for its advice the owner will authorize investment advisory fees the fees to be paid periodically to the adviser from the contract’s cash_value the authorization the fees will be determined based on an arms-length transaction between the owner and the adviser the fees will not exceed an amount equal to an annual rate of of the contract’s cash_value within the meaning of sec_72 determined at the time and in the manner provided in the authorization or other written_agreement with the adviser but in all events based on such cash_value during the period to which the fees relate the fees will compensate the adviser only for investment advice that the adviser provides to the owner with respect to the contract and not for any other services the fees will not result in any reduction in fees related to any other asset or for any other service taxpayer will pay the fees directly to the adviser during any period for which the authorization is in effect the contract will be solely liable for paying the fees and the fees will not be paid directly by the owner the owner will not have the right to direct payment of the fees for any other purpose or to any other person the adviser will not receive a commission for the sale of the contract from taxpayers requested ruling taxpayer requests a ruling that the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 law law and analysis sec_72 distinguishes between an amount_received_as_an_annuity under an annuity endowment or life_insurance_contract and an amount not received as an annuity under those contracts sec_1_72-1 of the income_tax regulations the plr-101295-19 regulations provides that amounts received as an annuity are amounts which are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date see sec_1_72-1 and of the regulations any other_amounts to which the provisions of sec_72 apply are considered to be amounts_not_received_as_an_annuity sec_1_72-2 of the regulations provides that amounts are considered amounts received as an annuity only in the event that the following tests are met i they must be received on or after the annuity_starting_date as that term is defined in paragraph b of sec_1_72-4 of the regulations the first day of the first period for which an amount is received as an annuity under the contract ii they must be payable in periodic installments at regular intervals whether annually semiannually quarterly monthly weekly or otherwise over a period of more than one full year from the annuity_starting_date and iii except as indicated in subparagraph b of the regulations relating to variable_contracts the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both in conjunction with such terms and in accordance with sound actuarial theory sec_1_72-11 of the regulations describes amounts_not_received_as_an_annuity as any amount received under an annuity_contract if the amount i does not meet the requirements set forth in sec_1_72-2 of the regulations for amounts received as an annuity ii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments received differ in either amount duration or both from those originally provided under the contract or iii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments are received by a beneficiary after the death of an annuitant or annuitants in full discharge of the obligation under the contract and solely because of a guarantee sec_72 applies to any amount not received as an annuity under an annuity endowment or life_insurance_contract sec_72 provides that if any amount which is not received as an annuity is received on or after the annuity_starting_date it is included in gross_income sec_72 provides that if any amount which is not received as an annuity is received before the annuity_starting_date it is included in gross plr-101295-19 income to the extent allocable to income_on_the_contract and is not included in gross_income to the extent allocable to the investment_in_the_contract analysis in this case the fees are integral to the operation of the contract during any period for which the authorization is in effect the owner will receive ongoing investment advice from the adviser with respect to the contract so that the owner may properly utilize the contract the adviser is expected to help the owner select options related to the contract taxpayer has represented that the fees will not serve as consideration for anything other than investment advice provided by the adviser in relation to the contract furthermore taxpayer has represented that the fees will not exceed an annual rate of of the contract’s cash_value based on the period in which the fees related based on taxpayer’s representations the fees will only be used to pay for investment advisory services relating to the contract because the contracts are designed to work with an adviser the contract is solely liable for the fees based on the facts above the fees do not constitute compensation to the advisor for services related to any assets of the owner other than the contract or any services other than investment advice services with respect to the contract therefore the fees are an expense of the contract not a distribution to the owner ruling based solely on the information submitted and the representations made the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 caveats the ruling contained in this letter is based upon information and representations taxpayer submitted accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the material submitted in support of the ruling_request and it is subject_to verification on examination the ruling contained in this letter does not apply to any amount_paid by taxpayer that compensate the advisor for services related to assets other than the contract or for any services provided other than investment advice services with respect to the contract any such amount would be an amount received by the owner of the contract for purposes of sec_72 no opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the code and regulations which may also be applicable plr-101295-19 thereto or to the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically covered by the above rulings this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of taxpayers for the taxable_year in which the transaction covered by this ruling is consummated pursuant to a power_of_attorney on file in this office a copy of this ruling is being furnished to your authorized representatives sincerely john glover senior counsel branch associate chief_counsel financial institutions and products cc


t c summary opinion united_states tax_court ensyc technologies petitioner v commissioner of internal revenue respondent docket no 14399-10s l filed date steven jessup an officer for petitioner michael w lloyd for respondent summary opinion morrison judge this case was heard pursuant to section of the internal_revenue_code in effect when the petition was filed pursuant to sec_1all section references are to the internal_revenue_code in effect at all relevant times unless otherwise indicated b the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case pursuant to sec_6330 ensyc technologies seeks review of the determination of the irs office of appeals that it is liable for a penalty for failing to timely file its annual tax_return for the tax_year we hold that ensyc is not liable for the penalty and that therefore the office of appeals erred background the parties agreed to a stipulation of facts which the court hereby adopts the respondent will be referred to as the irs ensyc technologies is an s_corporation domiciled in nevada that manufactures radio frequency identification equipment ensyc is operated entirely by its president steven jessup with the assistance of subcontractors jessup works from his home in meridian idaho ensyc’s tax returns are prepared by an outside accountant in reno nevada jessup signs the returns and mails them to the irs ensyc’s annual tax_return for was due_date on date ensyc’s accountant sent jessup a form_1120s u s income_tax return for an s_corporation to file with the irs the accountant also sent copies of schedules k-1 shareholder’s share of income deductions credits etc for jessup to distribute to each of ensyc’s shareholders jessup’s files contain a copy of a form_1120s bearing jessup’s signature and dated date the irs has no record of receiving a form_1120s from ensyc around that time it received a form_1120s from ensyc six months later on date a form that ensyc contends was intended to be an amended form_1120s the form received by the irs on date was in an envelope bearing a date postmark however the form itself was dated date on the theory that the form_1120s it received on date was the only form_1120s ensyc had filed for the tax_year the irs assessed a dollar_figure late-filing penalty against ensyc on date on date the irs mailed a notice to ensyc that it intended to collect the late-filing penalty by levying on ensyc’s property on date ensyc requested a collection-review hearing with the office of appeals during the hearing jessup represented ensyc on date the office of appeals determined that ensyc did not timely file a form_1120s and ensyc did not have reasonable_cause for failing to timely file the form the office of appeals sustained the levy ensyc filed a petition challenging the determination of the office of appeals its only argument is that it is not liable for the late-filing penalty because it contends it mailed a form_1120s on date the case was tried before the tax_court in boise idaho discussion in a collection-review hearing a taxpayer is entitled to challenge the liability sought to be collected if the taxpayer did not have a prior opportunity to do so sec_6330 ensyc’s argument that it is not liable for the late-filing penalty is a challenge to the underlying liability the irs sought to collect see 130_tc_44 ensyc did not have a prior opportunity to challenge its liability for the late-filing penalty therefore ensyc was entitled to challenge its liability for the late-filing penalty in reviewing a determination of the office of appeals concerning a challenged liability the court applies a de novo standard of review 114_tc_604 therefore we review the determination of the office of appeals de novo in general an s_corporation does not pay federal income taxes sec_1363 its shareholders are taxed on their respective shares of the s corporation’s income sec_1366 the s_corporation must file an annual tax_return reporting its income sec_6037 the return to be filed is a form_1120s sec_1_6037-1 the s_corporation must attach a schedule_k-1 pertaining to each of its shareholders see id requiring form_1120s to set forth certain information about shareholders and other information as required by the form or the form’s instructions irs instructions for form_1120s pincite the irs instructs each s_corporation to send each of its shareholders a copy of the respective schedule_k-1 id sec_6699 provides that an s_corporation that does not timely file its annual tax_return is liable for a penalty equal to dollar_figure per shareholder for every month the tax_return is late but not to exceed months sec_6699 and b the penalty is not imposed if the failure to timely file the return is due to reasonable_cause sec_6699 sec_7491 places the burden of production on the irs to present sufficient evidence that a penalty is appropriate except that the irs has no burden of production with respect to mitigating circumstances such as reasonable_cause see 116_tc_438 once the irs satisfies the burden of production the taxpayer has the burden of persuading the court that the irs’s determination is incorrect id pincite the burden of persuasion is satisfied if a preponderance_of_the_evidence supports the fact asserted john jay mckelvay handbook of the law of evidence sec_47 pincite 5th ed as explained below we find that ensyc has shown by a preponderance_of_the_evidence that it had reasonable_cause for not timely filing the return we must first resolve the parties’ dispute about whether jessup mailed the form_1120s on date jessup claimed that after receiving the form_1120s from ensyc’s accountant he drove to his local post office on date and mailed the form to the irs there are several possible explanations for why the irs has no record of receiving the form_1120s jessup did not mail the form at the post office as he claims he did and thus the irs never received it jessup mailed the form but the post office lost it and thus the irs never received it jessup mailed the form the post office delivered it to the irs and the irs did not record it considering each of these possibilities we find by a preponderance_of_the_evidence that jessup never mailed the form_1120s that the accountant had sent him on date because jessup did not mail the form on or before its due_date of date we next consider whether there was reasonable_cause for not filing the form on time as far as we can tell no judicial opinion has yet considered the scope of the reasonable_cause exception to the section-6699 penalty the penalty was first added to the code in mortgage forgiveness debt relief act of pub_l_no sec a stat pincite no regulatory interpretation of the penalty has been adopted by the department of the treasury sec_6651 which imposes an addition_to_tax for failing to file certain other types of returns such as income-tax returns exempts a taxpayer from the addition_to_tax if it is shown that such failure is due to reasonable_cause and not due to willful neglect interpreting this last phrase sec_301_6651-1 provides if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time then the delay is due to a reasonable_cause we hold that the failure of an s_corporation to timely file its annual return is due to reasonable_cause if the s_corporation exercised ordinary business care and prudence and was nevertheless unable to timely file its return in effect we are applying the ordinary-business-care-and-prudence test from the section-6651 regulation though we are not required to do so by regulatory- deference principles see acme music co v irs in re 196_br_925 w d pa applying this test in determining there was reasonable_cause for failing to file a partnership tax_return for purposes of the section-6698 penalty the preponderance_of_the_evidence shows that ensyc exercised ordinary business care and prudence in its efforts to timely file its form_1120s for jessup usually mailed ensyc’s tax returns on time ensyc’s accountant sent jessup the return in time for jessup to file it by the date deadline jessup executed the form_1120s he retained a copy of the form_1120s in his files erroneously thinking he had mailed the original jessup mailed the schedules k-1 to ensyc’s shareholders we surmise this because an ensyc shareholder filed an annual individual income-tax return on date that reflected the shareholder’s passthrough loss from ensyc the irs argues that jessup’s testimony is incredible because he wrote the date date on the form_1120s that was postmarked date and that was received by the irs on date jessup’s explanation for why ensyc filed this form_1120s is that the original form_1120s that he thought he filed in date failed to reflect information about the value of ensyc’s assets that ensyc would be unable to get a loan unless ensyc filed another form_1120s that ensyc’s accountant mailed him an amended form_1120s showing the value of ensyc’s assets on date and that it was this amended form_1120s that the irs received from jessup on date jessup’s testimony in this regard is believable and is corroborated by documentary_evidence although jessup could not explain why he had misdated the form_1120s we do not think misdating the form was a deliberate attempt to mislead the irs it does not seem likely that jessup thought that mailing a return in september with a february date would fool the irs into thinking that he actually mailed the return in february although jessup misdated the september form_1120s we believe his testimony that he thought he had mailed the march form_1120s on date we find that ensyc’s failure to timely file a form_1120s for the tax_year was due to reasonable_cause therefore ensyc is not liable for the section-6699 penalty for failing to timely file an s_corporation return the office of appeals erred in determining that ensyc is liable for the penalty to reflect the foregoing decision will be entered for petitioner