t c memo united_states tax_court frank anthony colonna petitioner v commissioner of internal revenue respondent docket no filed date frank anthony colonna pro_se k elizabeth kelly for respondent memorandum opinion chiechi judge this case is before us on respondent’s motion for default judgment respondent’s motion we shall grant respondent’s motion petitioner resided in illinois at the time he filed the petition in the petition petitioner indicated that he disagreed with the determinations in the notice_of_deficiency dated date that respondent issued to him for his taxable years and and that he attached to the petition in support of that disagreement petitioner alleged in the petition i disagree with this irs determination for the following facts plea agreement was approved signed by all parties to the amount owed the amount was completed by my accountant and audited by federal irs agents and agreed upon by irs agents in federal court on date and judgment was signed by judge harry leinenweber on date in the answer respondent responded to the above-quoted allegations of petitioner as follows first sentence admits petitioner disagrees with respondent’s determination denies remaining material allegations of fact if any second third and fourth sentences admits that petitioner entered into a plea agreement in which he admitted to knowingly and willfully failing to report income in tax years and denies that respondent was a party to said plea agreement or that said plea agreement set limitations on petitioner’s tax_liability for the years at issue alleges that petitioner’s plea agreement contained the following language this plea agreement concerns criminal liability only except as expressly set forth in this agreement nothing herein shall constitute a limitation waiver or release by the united_states or any of its agencies of any administrative or judicial civil claim demand or cause of action it may have against defendant in the form petition that petitioner used he erroneously checked the box notice_of_determination instead of the box notice_of_deficiency to indicate the type of respondent’s determinations that he was disputing in the petition there is a total of only three sentences we presume therefore that respon- dent intended to refer to the second and third sentences not to the second third and fourth sentences or any other person or entity denies remaining material allegations of fact if any respondent further affirmatively alleged in the answer alleges further answering the petition respondent a during tax_year petitioner owned and operated globel star communications inc globel star a computer modem repair business b petitioner was president manager and owner of globel star petitioner was required to report all income and expenses related to the business on forms 1120s filed by the corpo- ration petitioner was also required to report all income he received from the business including his share of the net profit of the business on his personal tax_return form_1040 c during petitioner diverted funds from the business to himself by means of cash withdrawals and the use of business checks to pay personal expenses d petitioner knowingly and willfully failed to report the cash withdrawals or the payment of personal expenses by the business as income on his form_1040 e petitioner sought to conceal the cash withdrawals and use of business checks to pay personal expenses by inflating business_expenses on globel star’s form_1120s f on or about date petitioner willfully made and subscribed and caused to be made and subscribed a form_1040 for tax_year which was signed under penalty of perjury and filed with respondent which petitioner did not believe to be true and correct as to every matter in that said return reported on line that petitioner’s total income was dollar_figure petitioner knew and believed that his income exceeded dollar_figure in that he knowingly and willfully failed to include additional income of approximately dollar_figure he received from the operation of globel star petitioner did so with the intent of defrauding respondent g on or about date petitioner filed an amended form_1040 reporting a corrected tax_liability of dollar_figure petitioner’s self-reported liability was then assessed by respondent h during tax_year petitioner owned and operated globel star communications inc globel star a computer modem repair business i petitioner was president manager and owner of globel star petitioner was required to report all income and expenses related to the business on forms 1120s filed by the corpo- ration petitioner was also required to report all income he received from the business including his share of the net profit of the business on his personal tax_return form_1040 j during petitioner diverted funds from the business to himself by means of cash withdrawals and the use of business checks to pay personal expenses k petitioner knowingly and willfully failed to report the cash withdrawals or the payment of personal expenses by the business as income on his form_1040 petitioner sought to conceal the cash withdrawals and use of business checks to pay personal expenses by inflating business_expenses on globel star’s form_1120s m on or about date petitioner willfully made and subscribed and caused to be made and subscribed a form_1040 for tax_year which was signed under penalty of perjury and filed with respondent which petitioner did not believe to be true and correct as to every matter in that said return reported on line that petitioner’s total income was dollar_figure petitioner knew and believed that his income exceeded dollar_figure in that he knowingly and willfully failed to include additional income of approximately dollar_figure he received from the operation of globel star petitioner did so with the intent of defrauding respondent n on or about date petitioner filed an amended form_1040 reporting a corrected tax_liability of dollar_figure petitioner’s self-reported liability was then assessed by respondent o during tax_year petitioner owned and operated globel star communications inc globel star a computer modem repair business p petitioner was president manager and owner of globel star petitioner was required to report all income and expenses related to the business on forms 1120s filed by the corpo- ration petitioner was also required to report all income he received from the business including his share of the net profit of the business on his personal tax_return form_1040 q during petitioner diverted funds from the business to himself by means of cash withdrawals and the use of business checks to pay personal expenses r petitioner knowingly and willfully failed to report the cash withdrawals or the payment of personal expenses by the business as income on his form_1040 s petitioner sought to conceal the cash withdrawals and use of business checks to pay personal expenses by inflating business_expenses on globel star’s form_1120s t on or about date petitioner willfully made and subscribed and caused to be made and subscribed a form_1040 for tax_year which was signed under penalty of perjury and filed with respondent which petitioner did not believe to be true and correct as to every matter in that said return reported on line that petitioner’s total income was dollar_figure petitioner knew and believed that his income exceeded dollar_figure in that he knowingly and willfully failed to include additional income of approximately dollar_figure he received from the operation of globel star petitioner did so with the intent of defrauding respondent u on or about date petitioner filed an amended form_1040 reporting a corrected tax_liability of dollar_figure petitioner’s self-reported liability was then assessed by respondent v during tax_year petitioner owned and operated globel star communications inc globel star a computer modem repair business w petitioner was president manager and owner of globel star petitioner was required to report all income and expenses related to the business on forms 1120s filed by the corpo- ration petitioner was also required to report all income he received from the business including his share of the net profit of the business on his personal tax_return form_1040 x during petitioner diverted funds from the business to himself by means of cash withdrawals and the use of business checks to pay personal expenses y petitioner knowingly and willfully failed to report the cash withdrawals or the payment of personal expenses by the business as income on his form_1040 z petitioner sought to conceal the cash withdrawals and use of business checks to pay personal expenses by inflating business_expenses on globel star’s form_1120s aa on or about date petitioner willfully made and subscribed and caused to be made and subscribed a form_1040 for tax_year which was signed under penalty of perjury and filed with respondent which petitioner did not believe to be true and correct as to every matter in that said return reported on line that petitioner’s total income was dollar_figure petitioner knew and believed that his income exceeded dollar_figure in that he knowingly and willfully failed to include additional income of approximately dollar_figure he received from the operation of globel star petitioner did so with the intent of defrauding respondent bb on or about date petitioner sub- mitted to respondent an amended form_1040 reporting a corrected tax_liability of dollar_figure this form was not filed by respondent and petitioner’s self-reported liability has not been assessed petitioner did not file a reply to the answer pursuant to rule c each of the following matters set forth in respondent’s request for admissions which essentially restates many of the all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code in effect for the years at issue affirmative allegations in the answer is deemed admitted see eg 85_tc_267 during taxable years and petitioner owned percent of globel star communications inc globel star a computer modem repair business and served as its president and manager petitioner filed form_1040 u s individual_income_tax_return for each of his taxable years return return return and return petitioner diverted funds received on behalf of globel star by means of cash withdrawals and the use of business checks to pay personal expenses he did not report those diverted funds as income in his return return return or return petitioner concealed the funds of globel star that he diverted as described above by deliberately inflating business_expenses that globel star claimed in form_1120s u s income_tax return for an s_corporation that it filed for each of its taxable years and petitioner failed to file any response to respondent’s request for admis- sions petitioner knowingly and willfully failed to report in his return return return and return income of approximately dollar_figure dollar_figure dollar_figure and dollar_figure respectively that he received during those years from the operation of globel star petitioner’s failure to do so was with the intent to evade or defeat federal_income_tax tax for each of his taxable years and petitioner knew that his failure to report in his return return return and return the respective amounts of income as described above would result in his claiming in those returns respective tax_liabilities that were less than the respective tax_liabilities that were required to be shown in those returns during each of his taxable years and petitioner consistently engaged in illegal gambling activities he supported those illegal gambling activities during each of those years with the funds that he had diverted from globel star petitioner entered into a plea agreement in the u s district_court for the northern district of illinois in which he pleaded guilty to violating sec_7206 by knowingly and willfully filing false tax returns for his taxable years and respectively in that plea agreement petitioner also admitted to knowingly and willfully filing false tax returns for his taxable years and respectively respondent issued a notice_of_deficiency notice to petitioner with respect to his taxable years and in that notice respondent determined the following deficiency in and fraud penalties under sec_6663 on petitioner’s tax taxable_year deficiency -0- -0- -0- dollar_figure fraud_penalty dollar_figure dollar_figure dollar_figure dollar_figure this case was called from the calendar calendar call at the trial session of the court that began on date in chicago illinois chicago trial session counsel for respondent appeared there was no appearance by or on before respondent issued the notice petitioner had submitted to respondent an amended tax_return for each of his taxable years and in which he showed the corrected tax_liability for each of those years respondent processed and had filed petitioner’s amended tax returns for and and assessed the corrected respective tax_liabilities shown therein respondent did not process or have filed petitioner’s amended tax_return for his taxable_year and did not assess the tax_liability shown therein behalf of petitioner and respondent filed the motion before us in that motion respondent represented the following facts that petitioner does not dispute before the calendar call on date despite repeated attempts to contact petitioner by respondent’s counsel petitioner failed to cooperate with respondent’s counsel in preparing this case for trial and or attempting to settle it thus petitioner failed to comply with certain rules of the court and our standing_pretrial_order dated date petitioner’s failure to cooperate with respon- dent’s counsel is evidenced by the following actions or inactions of petitioner on date respondent sent a letter date letter to petitioner at the address shown in the petition respondent’s counsel asked petitioner to provide certain specified documents answers to questions pertaining to his case and his in an order dated date october order we ordered petitioner’s address of record changed to a different address ie p o box south elgin illinois petitioner’s new address because respondent informed us at the calendar call that petitioner’s address was no longer the address shown for him in our records in that order we also ordered petitioner to file a response to respondent’s motion that was to be received by date on date petitioner electronically submitted a document titled response that we had filed on date as his response to respon- dent’s motion that response puzzlingly stated only the following responding to court date october to set request new trial date i confirm the new address is petitioner’s new address shown in the october order and responding before november th th telephone number respondent’s counsel proposed that petitioner meet with her on date pincite a m the date letter was returned to respondent undelivered and petitioner did not attend the proposed meeting on date respondent served a copy of respondent’s request for admissions on petitioner at the address shown in the petition on date after having made an extensive search for reliable con- tact information for petitioner respondent’s counsel ascertained a telephone number for petitioner and had a telephone call date telephone call with him during that call petitioner provided respondent’s counsel with his telephone number and his mailing address at p o box south elgin illinois during the date telephone call respondent’s counsel attempted to schedule a meeting with petitioner to discuss his case but he indicated that he would have to check his schedule and call her back on date respondent’s counsel sent a letter date letter to petitioner at the address that he had given her on the preceding day she proposed in that letter that petitioner have a conference with her by no later than date respondent’s counsel enclosed with the letter a copy of the request for admissions that respondent had served on petitioner on date see supra note at petitioner’s address of record on that date in both the date letter and the date telephone call respondent’s counsel emphasized to petitioner that the statements in the request for admissions would be deemed admitted by him if he did not file a response to that request by date respondent’s counsel spoke again with petitioner on an unspecified date between august and post-date discussion petitioner indicated during that discussion that he did not know whether he would file a response to the request for admissions petitioner asked during the post-date discussion with respondent’s counsel about the consequences of his failure to appear when his case was called at the chicago trial session respondent informed petitioner that if he failed to appear at that session respondent would file a motion for default judgment petitioner then asked respondent’s counsel to call him in early september to schedule a time for a meeting to discuss his case the post-date discussion was the last time respondent’s counsel spoke with petitioner despite the following attempts to do so respondent’s counsel telephoned petitioner on september and and left messages attempting to schedule a meeting petitioner never responded to those messages on date respondent’s counsel sent a letter to petitioner at the address that he had provided to her during the date telephone call that letter asked petitioner to contact respondent’s counsel and reminded him of his obligation under rule to inform the court of any change in his address respondent’s counsel called petitioner on october and and left messages that respondent’s counsel would file a motion for default judgment if there was no appearance by him or on his behalf at the calendar call on date at the chicago trial session on date a copy of respondent’s pretrial memorandum was mailed to petitioner both at the address shown in the petition and at the address that petitioner gave her during the date telephone call petitioner bears the burden_of_proof with respect to the deficiency determination for his taxable_year see rule a respondent bears the burden_of_proof with respect to the fraud_penalty under sec_6663 for each of petitioner’s taxable years and and respondent must satisfy that burden by clear_and_convincing evidence see sec_7454 rule b on the record before us we find petitioner in default under rule a we further find on that record that the undenied admissions and the well-pleaded facts in the answer establish facts requiring a decision in respondent’s favor with our holding petitioner in default has the effect of admitting well-pleaded facts in the answer see eg 91_tc_1049 aff’d 926_f2d_1470 6th cir respect to both the deficiency determination for petitioner’s taxable_year on which petitioner has the burden_of_proof and the fraud_penalty under sec_6663 for each of his taxable years and on which respondent has the burden_of_proof to reflect the foregoing an order granting respondent’s motion and decision for respondent will be entered


internal_revenue_service issued date number release date cc el gl br1 gl-701696-99 uilc memorandum for district_counsel north central district from subject alan c levine chief branch general litigation rra sec_3401 impact on summonses gl-701696-99 this responds to your request for advice dated date asking us to review your proposed answers to a request for advice sent to you from the north central district rra collection coordinator the request described the following hypothetical fact pattern a taxpayer makes a request for a collection_due_process cdp hearing after receiving an sec_6330 notice the revenue_officer wants to continue investigation of potential fraudulent transfers and potentially use nominee liens because the taxpayer had previously transferred property to his wife and a_trust the revenue_officer wishes to continue this investigation while the taxpayer is going through the cdp hearing process the revenue_officer believes he will need to serve a summons for collection information you asked us to review your responses to the following issues issue sec_1 whether sec_6330 refers only to levy and seizure actions whether sec_6330 and other code sections limit the use of summonses for collection information during the pendency of the cdp appeal whether sec_6330 and other code sections limit the filing of liens and or nominee liens during the pendency of the cdp appeal law and analysi sec_1 whether sec_6330 refers only to levy and seizure actions sec_6330 provides that if a hearing is requested under subsection a b the levy actions which are the subject of the requested hearing and the running of the period of limitations shall be suspended for the period during which such hearing and appeals therein are pending in no event shall any such period expire before the 90th day after the day on which there is a final_determination in such hearing this provision is incorporated into sec_6320 by sec_6320 it is important to differentiate whether a taxpayer is sent a sec_6320 notice notice_of_federal_tax_lien filing and right to a hearing or a sec_6330 notice notice_of_intent_to_levy and right to a hearing because the suspension of collection activity differs depending on the notice the taxpayer received the effect the levy suspension has on collection activity also depends on whether the taxpayer’s appeal rights under sec_6320 and or have concluded and whether a nftl was on file prior to the effective date of sec_6320 and sec_6330 -- date please see the attached chart for an explanation of the effect of the suspension on collection action under sec_6320 and sec_6330 sec_6330 provides an exception to the bar on levy action while an appeal is pending if the underlying tax_liability is not at issue in the appeal and the court determines that the service has shown good cause not to suspend the levy the determination of whether good cause is appropriate is decided on a case by case basis whether sec_6330 and other code sections limit the use of summonses for collection information during the pendency of the cdp appeal as mentioned above under sec_6330 in some situations there is a suspension on levying and seizing the taxpayer’s property however there is no suspension on investigation accordingly sec_6330 does not limit the use of summonses during this period sec_7602 provides that a summons cannot be issued with respect to any person if a justice_department referral is in effect with respect to such person as long as the prohibition in sec_7602 does not apply a revenue_officer can continue an investigation through the use of summonses during the pendency of a cdp appeal however the revenue_officer may wish to forego the use of a summons until the cdp hearing is concluded because the information the revenue_officer is interested in obtaining may be disclosed at the cdp hearing whether sec_6330 and other code sections limit the filing of liens and or nominee liens during the pendency of the cdp appeal once a sec_6330 cdp_notice is issued only levy action is required to be suspended if it is determined by the revenue_officer that the filing of a lien is necessary then he is legally able to do so even though the levy action has been suspended there is also no legal prohibition against filing a nominee lien during this period we are advised that consideration is being given that in the next revision of the internal_revenue_manual irm it will provide that the filing of nftls including nominee liens will be suspended once a taxpayer has requested a cdp hearing except in certain circumstances however the irm has not been finalized and should be checked upon release if an nftl is filed the taxpayer must be given notice of the filing not more than business days after the day of the filing of the notice of lien if you have any questions regarding this memorandum please call attachment interplay between and the phrase cdp rights under sec_6320 have concluded means that either days passed from the date the service sends the taxpayer the sec_6320 notice and the taxpayer has failed to request a cdp hearing or the service receives written withdrawal by the taxpayer of the request for a cdp hearing after a taxpayer has requested a cdp hearing or the determination made at the hearing becomes final by expiration of the time for seeking its review or reconsideration see temp sec_301_6330-1t a-g1 legally explanation administrativel y explanation result i - notice_of_intent_to_levy and right to a hearing a notice has not been sent to taxpayer requires that effective the taxpayer must be given a right to a cdp hearing before the service levies note if a continuous wage levy was issued prior to the taxpayer is not entitled to a cdp_notice or hearing under sec_6330 with respect to the levy because levy action was initiated prior to requires that effective the taxpayer must be given a right to a cdp hearing before the service levie sec_1 notice_of_intent_to_levy given before cannot levy no notice_of_intent_to_levy given before cannot levy b cdp rights are not concluded same as legal same as legal same as legal same as legal - cannot levy until the taxpayer has been given a notice_of_intent_to_levy and right to a hearing notice and his rights under have concluded - nftls can be filed -cannot levy until the taxpayer has been given a notice_of_intent_to_levy and right to a hearing notice and his rights under have concluded - nftls can be filed once a notice is sent to the taxpayer suspension on levy action pursuant to sec_6330 once a cdp hearing is requested pursuant to a notice suspension on levy action pursuant to sec_6330 c cdp rights are concluded - suspension on levy action - nftls can be filed - suspension on levy action - the irm has not been finalized and should be checked upon release to determine as a matter of policy when the filing of nftls is suspended same same don’t want to complicate or interfere with the proper functioning of the cdp hearing we are advised that consideration is being given that in the next revision of the irm it will provide that the filing of nftls including nominee liens will be suspended once a taxpayer has requested a cdp hearing except in certain circumstance sec_1 nftl on file before can levy including seizures nftl is effective from before we don’t have to send a notice same same can levy including seizures can levy including seizures can levy including seizure sec_2 nftl on file on or after and cdp rights under are concluded nftl is not on file prior to or nftl on file on or after and notice has been sent to taxpayer but cdp rights under are not concluded and taxpayer has not yet requested a hearing sec_6320 is satisfied same same can levy including seizures sec_6320 does not suspend levy action can levy but cannot seize - can levy -cannot seize until there is a nftl and taxpayer has been given a notice and his cdp rights under have concluded internal procedures require a nftl to be on file before the service seizes property i r m therefore taxpayer should have opportunity to challenge lien before seizure can levy including seizures sec_6320 does not suspend levy action cannot levy for liabilities for the tax period s listed on the nftl to give effect to the cross- reference between c and e - cannot levy for liabilities for the tax period s listed on the nftl once the taxpayer requests a hearing pursuant to a notice nftl is not on file prior to or nftl on file on or after and taxpayer has requested a hearing but cdp rights under are not concluded ii - notice_of_federal_tax_lien filing and the right to a hearing a cdp rights are not concluded notice has been sent but no notice has been sent cannot levy but a notice can be sent sec_6330 requires that effective the taxpayer must be given a right to a cdp hearing before the service levies same same -cannot levy - can send notice - nftl already filed can levy as long as the taxpayer’s cdp rights under are concluded cannot seize - can levy as long as taxpayer’s cdp rights under are concluded - no seizures - nftl already filed internal procedures require a nftl to be on file before the service seizes property i r m therefore taxpayer should have opportunity to challenge lien before seizure notice has been sent and notice has been sent and the taxpayer’s cdp rights under are concluded b cdp rights are concluded notice has been sent but no notice has been sent cannot levy but a notice can be sent requires that effective the taxpayer must be given a right to a cdp hearing before the service levies same same -cannot levy - can send notice - nftl already filed can levy as long as the taxpayer’s cdp rights under are concluded can seize taxpayer has had opportunity to challenge lien - can levy as long as taxpayer’s cdp rights under are concluded notice has been sent and notice has been sent and the taxpayer’s cdp rights under are concluded


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita presp-124834-08 uilc date date to associate area_counsel buffalo small_business self-employed cc sb buf from andrew m irving senior counsel branch office of associate chief_counsel income_tax and accounting cc ita subject new york qeze credit for real_property_taxes this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue what is the proper federal_income_tax treatment of the state of new york qualified empire zone enterprise qeze credit for real_property_taxes facts the following summarizes the relevant general rules for the state of new york qeze credit for real_property_taxes general overview the facts are based primarily on the information contained in the following materials issued by the new york state department of taxation and finance tsb-m-06 c tsb-m-06 i -- qualified empire zone enterprise qeze tax_credits date instructions for form ct-606 claim for qeze credit for real_property_taxes and instructions for form it-606 claim for qeze credit for real_property_taxes citations to specific pages of those materials and quotation marks have been omitted to make the facts easier to read presp-124834-08 among other_benefits available to businesses that invest in certain designated areas of new york state the state provides a corporate_income_tax franchise tax_credit or a personal income_tax_credit for taxes paid on real_property located in an empire zone with respect to a business that qualifies as a qeze to qualify as a qeze a business must be located within a designated zone and meet an annual test of maintaining or increasing the number of full-time employees the amount of the credit is based on one of two formulas depending on the date the business first became a qeze one formula calculates a portion of real_property_taxes based on two factors that reflect the increase in the number of employees and the length of time since the business first became a qeze resulting in a decreased credit for the later years the other formula takes into account either a percentage of the wages and benefits of new employees or a percentage of capital_investment in empire zones under either formula the income_tax_credit cannot exceed the amount of real_property_taxes paid the credit is available for up to years for the earlier version or years for the current version and is refundable for income_tax purposes - that is it can be obtained as a cash payment to the extent it exceeds the taxpayer's income_tax_liability for a year qualification as a qeze the state of new york empire zones program was enacted in and applies to tax years beginning on or after date among other_benefits the program provides for a credit for real_property_taxes against corporate or personal income tax3 for qualified empire zone enterprises qezes that annually meet an employment test a qeze is a business_enterprise that has been certified as eligible to receive benefits under article 18-b of the state general municipal law5 and that annually meets an employment test during a business tax_benefit period the state had an economic development zone program prior to this time the taxes against which the credit can be applied are those imposed under articles 9-a franchise tax on business corporations personal income_tax franchise tax on banking corporations or franchise tax on insurance corporations of the state of new york tax law qezes also can be eligible for a tax reduction credit and a sales and use_tax exemption see tsb-m- s - qualified empire zone enterprise qeze exemptions from sales and compensating_use_tax date for information about the various credits available to taxpayers within empire zones see new york state department of taxation and finance publication a guide to business tax and personal income_tax credits within empire zones date sec_956 of that article reads as follows presp-124834-08 the employment test in the case of a business first certified before date a pre-4 business will be met for a tax_year if the business's employment number7 in all empire zones for the tax_year equals or exceeds its employment number in all empire zones for the base_period and the business’s employment number in new york state outside of the empire zones for the tax_year equals or exceeds its employment number in the state outside of the empire zones for the base_period in the case of a business first certified on or after date a post-4 business the employment test will be met for a tax_year if the business’s employment number in new york state for the tax_year exceeds its employment number in the state for the base_period and the business’s employment number in all empire zones for the tax_year exceeds its employment number in all empire zones for the base_period base_period generally means the five tax years immediately before the test year for a pre- business or the four tax years immediately before the tax_year it was first certified for a post-4 business the business tax_benefit period is for businesses with a pre-2002 test date the first tax years beginning on or after date for businesses with a test date between date and date the first tax years following the test year or for businesses certified after date the first tax years starting with the year of certification calculation and application of credit a taxpayer that is a qeze a sole_proprietor of a qeze a shareholder of an s_corporation that is a qeze or a partner in a partnership that is a qeze is allowed a credit against income franchise tax for eligible real_property_taxes it is hereby found and declared that there exist within the state certain areas characterized by persistent and pervasive poverty high unemployment limited new job creation a dependence on public assistance income dilapidated and abandoned industrial and commercial facilities and shrinking tax bases these severe conditions require state government to target for these areas extraordinary economic and human resource development programs in order to stimulate private investment private business development and job creation it is the public policy of the state to offer special incentives and assistance that will promote the development of new businesses the expansion of existing businesses and the development of human resources within these economically impoverished areas and to do so without encouraging the relocation of business investment from other areas of the state it is further found and declared that it is the public policy of the state to achieve these goals through the mutual cooperation of all levels of state and local_government and the business community for tax years beginning on or after date agricultural cooperatives are eligible for the credit a qeze also includes a certified clean energy enterprise that annually meets the employment test employment number means the average number of individuals excluding general executive officers in the case of a corporation employed full-time by the business for at least one-half of the tax_year test year means the last tax_year of the business ending before the test date the later of date or the date the business was first certified as a qeze presp-124834-08 eligible real_property_taxes mean the taxes imposed on real_property owned by the qeze and located in an empire zone in which the qeze is certified the real_property_taxes must have been paid_by the qeze that is the owner or by a tenant provided the tenant is not itself a qeze or cannot treat the payment as eligible real_property_taxes the taxes must become a lien on the real_property in a tax_year in which the owner is both certified and a qeze in general the lien_date is the first day of the period for which the taxes are imposed payments in_lieu_of_taxes pilots are considered eligible real_property_taxes if certain conditions are met for a pre-4 qeze the amount of the credit is equal to the eligible real_property_taxes or pro_rata share in the case of a partner or s_corporation shareholder multiplied by the following two factors the benefit period factor and the employment increase factordollar_figure the benefit period factor gradually decreases from to over the 14-year benefit period the employment increase factor which cannot exceed one is the greater of the increase in the qeze’s employment number11 in empire zones in which the qeze is certified over the qeze’s test-year employment number in those zones divided by the qeze’s test-year employment number or the increase in the qeze’s employment number in zones in which the qeze is certified over the qeze’s test-year employment number in those zones divided by for a post-4 qeze the amount of the credit is the greater of the credit_amount or the capital_investment amount the credit_amount is generally of the total wages health and retirement benefits of net new employees for the tax_year the capital_investment amount is generally of the federal tax basis of real_property owned by the qeze and located in empire zones as of a certain date multiplied by the greater of the percentage physically occupied and used by the qeze or a related_person or the percentage of basis attributable to construction expansion or rehabilitation as opposed to acquisition for both pre-4 and post-4 qezes the amount of the credit cannot exceed the amount of eligible real_property_taxes for corporations and other entities the amount of the credit used to reduce income or franchise tax for a given year cannot reduce the tax below certain minimum amounts for tax years beginning on or after date eligible real_property_taxes also include taxes paid_by a qeze that is a lessee when certain conditions are met certain additional limitations apply to qezes certified between date and date see fn above presp-124834-08 calculated differently for agricultural cooperatives business corporations banking corporations and insurance corporations for taxpayers subject_to personal income_tax the credit can reduce the tax to zero any amount of the credit not used in the current tax_year - including any portion precluded by the minimums described in the preceding paragraph - may be refunded or applied as an overpayment against the tax_liability for the next tax_year however no interest is paid on such a refund_or_credit a portion of the qeze real_property tax_credit must be recaptured if the amount of the real_property_taxes on which the credit was calculated is subsequently reduced by a final order in any legal proceeding to the extent the recalculated credit exceeds the credit originally taken for post-4 qezes recapture is only necessary if the real_property_taxes are reduced to an amount less than the original credit taken eligible s_corporations and partnerships compute the credit and provide their shareholders or partners with their pro_rata share of the credit or recapture individual shareholders or partners claim their share of the credit on new york form it-606 law and analysis sec_164 of the internal_revenue_code provides for the deduction of the following taxes paid_or_accrued within the tax_year state and local real_property_taxes state_and_local_personal_property_taxes and state_and_local_income_taxes sec_461 provides the general_rule that the amount of any deduction or credit allowed by subtitle a shall be taken for the tax_year that is the proper tax_year under the method_of_accounting used in computing taxable_income sec_1_461-1 of the income_tax regulations provides that under the cash_receipts_and_disbursements_method of accounting amounts representing allowable deductions shall generally be taken into account for the tax_year in which paid see also sec_1_446-1 sec_1_446-1 and sec_1_461-1 provide that under an accrual_method of accounting a liability is incurred and generally is taken into account in the tax_year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred for the liability sec_1_461-4 provides that if the liability of a taxpayer is to pay a tax economic_performance occurs as the tax is paid to the governmental authority that imposed the tax in certain cases a liability to pay a tax is permitted to be taken into account in the tax_year before the tax_year during which economic_performance occurs under the recurring_item_exception of sec_1_461-5 presp-124834-08 sec_61 of the code provides that except as otherwise provided gross_income means all income from whatever source derived see also 348_us_426 reh'g denied 349_us_925 holding gross_income encompasses any item representing undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion sec_111 provides that gross_income does not include income attributable to the recovery during the tax_year of any amount deducted in any prior tax_year to the extent that amount did not reduce the amount of tax_imposed_by_chapter_1 of the code generally the tax_benefit_rule requires a taxpayer who received a tax_benefit from a deduction in an earlier year to recognize income in a later year if there occurs an event that is fundamentally inconsistent with the premise on which the deduction was initially based 460_us_370 the term tax_benefit_rule encompasses two concepts an inclusionary part and an exclusionary part the inclusionary part has been developed in the courts and requires a taxpayer to include a previously deducted amount in the current year's income when a fundamentally_inconsistent_event has occurred the exclusionary part is currently codified at sec_111 and permits a taxpayer to exclude an amount that did not previously provide a tax_benefit when it was deducted the tax_benefit_rule allays some of the inflexibilities of the annual accounting system under specific circumstances hillsboro u s pincite its purpose is to approximate the results produced by a tax system based on transactional rather than annual accounting id pincite the tax_benefit_rule will cancel out an earlier deduction when the later event is fundamentally inconsistent with the premise on which the deduction was initially based even if there is no actual recovery_of funds id pincite- dollar_figure one must consider the facts and circumstances of each case in light of the purpose and function of the provision granting the deduction id pincite although it is usually helpful to determine whether the later event would have foreclosed the deduction if it had occurred within the same tax_year that inquiry is not an exclusive test see 267_f3d_1344 fed cir your request for assistance indicated that it was not related to any particular case rather it was for the purpose of obtaining general information concerning the basic federal tax treatment of the qeze real_property tax_credit accordingly for the purposes of the following analysis we assume that the qeze is the owner of the real_property it pays the real_property_taxes these property taxes are not required to be capitalized for federal_income_tax purposes and would generally be deductible under sec_164 of the internal_revenue_code under hillsboro this principle is subject_to possible modification if the recovery or inconsistent event occurs in the context of a nonrecognition or other provision the purpose of which might need to be considered see id pincite n there is no such provision in the present situation presp-124834-08 the first and simplest situation to consider is a c_corporation that uses the cash_receipts_and_disbursements_method of accountingdollar_figure such a taxpayer would deduct state and local real_property_taxes for the tax_year during which the taxes are paid year the federal_income_tax return and the state franchise tax_return for that year would be filed in the following year year on the state return the taxpayer would claim the qeze real_property tax_credit with respect to taxes paid in year the credit could either reduce the amount of state franchise tax imposed for year and or result in a payment from the state in year consequently it is necessary to determine whether the state franchise tax reduction and or a payment attributable to a refundable_credit is fundamentally inconsistent with the sec_164 deduction for property taxes before analyzing the credit under the inclusionary part of the tax_benefit_rule it would be helpful to review the general treatment of state_income_tax credits although any reduction in liability can potentially be recharacterized as a means of making a payment to the obligor the traditional federal tax treatment of nonrefundable nontransferable state_income_tax credits with some exceptions has been as a reduction in liability cf revrul_79_315 1979_2_cb_27 holding under certain circumstances it may be appropriate to recharacterize a state_or_local_tax benefit as something other than a reduction in liability that decreases a sec_164 deduction cf 16_bta_604 local_tax reduction could be viewed as payment for services this could occur when the state_or_local_tax benefit is provided for specific consideration such as specific services property or the use of property and the taxpayer could be viewed as having satisfied its tax_liability in_kind this is not the case here however with respect to refundable state tax_credits the service and the treasury_department have not issued published guidance addressing the treatment of such credits however some informal nonprecedential advisories have applied an approach whereby a refundable_credit is bifurcated that is refundability by itself does not cause the entire credit to be treated as a payment from the state instead the portion of the credit that is applied to reduce tax before the tax becomes due is still generally treated as a reduction in tax only to the extent the credit exceeds the tax_liability and is made available to the taxpayer as a cash payment is it treated as a payment from the state includable in income unless some exclusion applies after considering the facts and circumstances of the qeze real_property tax_credit the traditional treatment of state_income_tax credits as reductions in liability and the purpose and function of sec_164 we conclude that the state franchise tax reduction attributable to the credit is not fundamentally inconsistent for purposes of applying the tax_benefit_rule with a previous sec_164 deduction for property taxes taken by a c_corporation that uses the cash_receipts_and_disbursements_method of accounting the see sec_448 for the exceptions from the general_rule that a c_corporation cannot use the cash_receipts_and_disbursements_method of accounting presp-124834-08 federal_income_tax consequence is therefore a reduction in state franchise tax generally deductible under sec_164 we further conclude however that receipt of a cash payment attributable to the refundable_credit is fundamentally inconsistent with a previous sec_164 deduction for property taxes accordingly a payment attributable to the refundable_credit would be income under the inclusionary part of the tax_benefit_rule subject_to the provisions of sec_111 cf revrul_70_86 1970_1_cb_23 the refunded amount would be treated as a recovery_of property_tax not franchise tax and would be includable in federal gross_income in year depending on the extent to which deduction of the year payment of state property_tax reduced the taxpayer's year federal_income_tax since the taxpayer has the option of receiving such an excess refunded amount of the credit in cash the taxpayer would be in constructive receipt of that amount even if the taxpayer chose to use it as a credit against state tax for another tax_year cf schulz v united_states civil no 76-c-646 e d wis aff'd without published opinion 624_f2d_1103 7th cir cert deni445_us_962 however the taxpayer would also be treated as having made a corresponding payment of state tax for that other tax yeardollar_figure the preceding conclusions also apply to a sole_proprietor who uses the cash_receipts_and_disbursements_method of accounting15 and -- in general -- to a c_corporation or a sole_proprietor using an accrual_method of accounting however in the case of an accrual-basis taxpayer and depending on the facts there may be questions concerning how to treat the refunded portion of the credit in terms of the timing of tax_benefit income and whether to accrue income or alternatively reduce the original deduction for real_property_taxes by the anticipated recovery in light of an open revenue_ruling project priority guidance plan general tax issues on this general issue and the possible variations in different fact situations we believe it is better to address these issues in the context of a particular case where the facts have been developed in order to furnish a timely response to the central questions we have not discussed in detail other potential situations such as the treatment of partners and s_corporation shareholders other than to state that the general principles discussed above would a payment of estimated income_tax pursuant to state law constitutes the payment of a tax within the meaning of sec_164 when the amount is based on a reasonable good_faith estimate of the taxpayer's actual tax_liability see revrul_71_190 1971_1_cb_70 revrul_82_208 1982_2_cb_58 we believe that the state_income_tax reduction attributable to the credit is not fundamentally inconsistent with a previous sec_164 deduction for property taxes even though the deduction under sec_164 - taken on a form_1040 schedule c profit or loss from business - and the deduction under sec_164 - taken on schedule a itemized_deductions - are treated differently for purposes of the alternative_minimum_tax presp-124834-08 apply we would be happy to provide further responses if after consideration you feel that addressing these or other situations in detail would be helpful please call if you have any questions


tax_exempt_and_government_entities_division date fer a department of the treasury internal_revenue_service washington d c contact person identification_number uniform issue list telephone number jt -e0 b2 legend aa bb dear sir or madam we have considered your letter dated date requesting approval of a set- aside under sec_4942 of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_tax regulations and a determination that the amount set_aside may be treated as a qualifying_distribution in the year in which it is set_aside but not in the year in which actually paid facts m is recognized as an organization described in sec_501 of the code and is classified as a private_foundation within the meaning of sec_509 m wishes to set_aside a grant totaling dollar_figure5x to n n is recognized as an organization described in sec_501 of the code and is classified as a publicly_supported_organization within the meaning of sec_509 and sec_170 of the code no additions to the set-aside are planned the purpose of the grant is to restore and renovate an historic site known as p which is now owned by n the restoration project according to an historic_structure report prepared by q the q report p is architecturally significant because of the stick style addition to the front of the house erected in z therefore the goal is to restore p to that period p is listed on the national register of historic places once the restoration project is complete n will show the lower level of p as a museum and divide the upper level into two areas one area will be used as an office and the other as an apartment for visiting dignitaries according to the q report the total cost of the restoration project is estimated to be dollar_figurex m's grant is subject_to an agreement between m and n the agreement under the agreement m will make a grant of dollar_figure5x to n to partially fund the costs of the restoration project the restoration grant m will disburse the funds to n in a lump sum within business days after the satisfaction of the conditions set forth in paragraph sec_2 b and c of the agreement upon receipt of the funds from m n will deposit the funds in a separate interest bearing account the project account as the conditions set forth in paragraph sec_2 and e are satisfied n may make disbursements from the project account solely to pay reimbursable costs of the restoration project according to the agreement the term reimbursable costs means costs actually incurred by n for labor materials furnishings fixtures fees and permits for the restoration project m's obligation to make the restoration grant to n is subject_to the following conditions precedent detailed in paragraph of the agreement a on or before june bb n shall have received eligible matching_contributions for the restoration project in an amount not less than dollar_figure5x and shall have provided m with evidence satisfactory to m in its sole discretion that such contributions have been received b on or before june bb m shall have received assurances satisfactory to it that q_and_a have been engaged to provide consulting and supervisory services with respect to the restoration project c on or before september bb i n shall have submitted to m and m shall have approved in writing the drawings plans and specifications for the restoration project collectively the plans and ii m shall be satisfied in its sole discretion that n has sufficient funding to complete the restoration project as embodied in the plans d prior to the disbursement of any portion of the restoration grant from the project account for the purchase of any materials or the performance of any work for the restoration project n shall have submitted to m and m shall have approved in writing the contractor vendor or other supplier and the finally awarded contract for the labor or materials for which such disbursement is to be made e at the time of disbursement of any portion of the restoration grant from the project account n shall not be in default in the performance of any of its obligations under the agreement and shall be an organization described in sec_501 and sec_509 or of the code should any of the conditions not be satisfied and should m be unwilling to waive the same then m's obligation to make the restoration grant may be terminated m states that the set-aside was made as of october aa and that the amounts set_aside must and will actually be paid for the restoration project within a period of time that ends not more than months after the date of the set-aside the agreement requires that the payments of the restoration grant be made on or before october bb which is less than months from the date of the set-aside m believes that due to the extent and cost of repairs and renovations needed for p grants from the community at large must form an essential and significant part of the restoration project funding m states that the restoration grant as part of a matching-grant program is intended to stimulate grants to n from the community at large by providing a thirty-two month period during which n may receive commitments from members of the community m hopes to give n adequate time to publicize the renovation as well as the financial needs of p to generate the necessary community financial support in addition because of m's concern with the preservation of the historical and architectural features of p m believes it is crucial that it retain a degree of control_over the renovation process by making the disbursement of the funds dependent upon approval of drawings plans and specifications of the restoration project m believes it can best meet the goal of preserving p law sec_4942 of the internal_revenue_code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second taxable_year following such taxable_year a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second taxable_year sec_4942 of the code provides that for purposes of sec_4942 the term undistributed_income means with respect to any private_foundation for any taxable_year as of any time the amount by which the distributable_amount for each taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code defines the term qualifying_distribution in general as any amount_paid to accomplish one or more purposes described in sec_170 or to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code provides that an amount of income that is set_aside for a specific project which comes within one or more purposes described in sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the private_foundation establishes to the satisfaction of the secretary both that the amount set_aside will be a paid for the specific project within five years and that the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that an amount set_aside for a specific project that is for one or more of the purposes described in sec_170 or b of the code may be treated as a qualifying_distribution in the year in which set_aside but not in the year in which actually paid if the requirements of sec_4942 of the code are met the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it has been set_aside and the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 of the regulations sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the private_foundation establishes to the satisfaction of the commissioner that the specific project for which the amount is set_aside is one that can be better accomplished by a set-aside than by the immediate payment of funds specific projects that can be better accomplished by the use of a set-aside include but are not limited to projects in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments as defined in sec_4944 or where grants are made as part of a matching-grant program such projects include for example a plan to erect a building to house the direct charitable educational or other similar exempt activity of the private_foundation even though the exact location and architectural plans have not been finalized revrul_77_7 1977_1_cb_354 holds that the term specific project includes a building project to be undertaken by a public charity unrelated to the foundation making the set_aside sec_53_4942_a_-3 of the regulations provides that if an amount is set_aside under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations the private_foundation must apply for the commissioner's approval of the set- aside before the end of the taxable_year in which the amount is set_aside discussion on the basis of the facts presented and applicable law m's set-aside in aa of the restoration grant to n for renovation and restoration of p pursuant to the terms of the agreement meets the requirements for a set-aside as described in sec_4942 of the code and sec_53_4942_a_-3 of the regulations m has timely sought approval of its set-aside of income in advance of the time when the amounts of income are to be set_aside as required by sec_4942 i of the code and sec_53_4942_a_-3 of the regulations m's set-aside of dollar_figure5x as a matching-grant will be for specific projects within the charitable purposes of sec_170 of the code as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations m represents that the amount set_aside for the restoration project will be paid out within months from the time it is set_aside as o required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations m's specific project ie the restoration grant is better accomplished by this set-aside of income rather than by immediate payment because it involves a grant made as part of a matching grant program as described in sec_53_4942_a_-3 of the regulations thus m's restoration grant to n meets the requirements for a set-aside of income under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations conclusion accordingly we rule that up to dollar_figure5x of m's income to be set_aside for the restoration grant to n will be treated as a qualifying_distribution under sec_4942 of the code and sec_53_4942_a_-3 of the regulations in the tax_year when such amount is set_aside this ruling is based on the understanding that there will be no material changes in the facts upon which it is based sec_53_4942_a_-3 of the regulations provides that any set-aside approved by the internal_revenue_service must be evidenced by the entry of a dollar amount in on the books_and_records of a private_foundation as a pledge or obligation to be paid at a future date or dates further any amount which is set_aside must be taken into account in determining the private_foundation's_minimum_investment_return under sec_53_4942_a_-2 of the regulations and any income attributable to a set-aside must be taken into account in computing adjusted_net_income under sec_53_4942_a_-2 of the regulations except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code because this ruling letter could help to resolve any questions please keep it in m's permanent records and include a copy with m's annual return form_990-pf this ruling letter is directed only to m sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed terrell m berkovsky terrell m berkovsky manager exempt_organizations technical group


internal_revenue_service department of the treasury number release date index number legend washington dc person to contact telephone number refer reply to cc intl br1-plr-105381-01 date date a date b country c year d this is in response to a’s letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below 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 a ruling it is subject_to verification on examination a is a long-term permanent resident_of_the_united_states within the meaning of sec_877 who relinquished his u s lawful permanent resident status expatriated a became a permanent resident_of_the_united_states and obtained his green card in year d a expatriated to country c where he has been a citizen all his life on date b on that date his net_worth exceeded the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the plr-105381-01 taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former citizen or former long-term_resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that person is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 a c under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because a became not later than the close of a reasonable period after his expatriation a resident fully liable to income_tax in country c the country of his birth a submitted all the information required by notice_98_34 based on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts a presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and plr-105381-01 a a see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent resident status or for taxable periods after his loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return 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 this letter is being sent in accordance with the power_of_attorney on file with this office sincerely w edward williams senior technical reviewer office of the associate chief_counsel international


t c memo united_states tax_court louis stein and estate of yvonne stein deceased louis stein personal representative petitioners v commissioner of internal revenue respondent docket no filed date glen a stankee for petitioners sergio garcia-pages for respondent memorandum opinion foley judge this matter is before the court on petitioners’ motion for recovery_of reasonable_litigation_costs pursuant to sec_7430 and rule unless otherwise indicated all section references are to the internal revenue - - code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure background on their federal_income_tax returns petitioners did not report income relating to through from controlled_foreign_corporations that operated concessionaires aboard cruise ships cfc issue did not report income relating to from marne investments limited marne issue and deducted a loss relating to loss issue by notice dated date respondent determined deficiencies and additions to tax relating to these issues petitioners resided in leesburg florida when they filed the petition on date before trial the parties settled the case petitioners conceded that there was a dollar_figure deficiency relating to respondent conceded all other issues petitioners thereafter filed the motion for dollar_figure of litigation costs discussion we may award litigation costs to petitioners if they meet the statutory requirements see sec_7430 b c b c after concessions the remaining issues are whether respondent’s positions relating to the marne and loss issues were substantially justified and whether certain fees and other costs are reasonable it substantial justification we may award costs to petitioners where respondent’s position was not substantially justified ie did not have a reasonable basis in law and fact see 487_us_552 the justification for each of respondent’s positions must be independently determined foothill ranch co partnership v commissioner 1t c respondent concedes that his position on the cfc issue was not substantially justified respondent contends that his position on the marne issue was substantially justified but he offers no law or fact supporting his position in addition respondent failed to contend that his position on the loss issue was substantially justified and offers no law or fact supporting his position thus respondent has not established that his positions were substantially justified see 108_tc_430 stating that respondent must establish that his position was substantially justified as to petitions filed after date il reasonableness of fees and costs a attorney’s fees - - petitioners seek reimbursement for attorney’s fees at hourly rates of dollar_figure and dollar_figure relating to and respectively respondent contends these rates are unreasonable sec_7430 b imposes a statutory rate for attorney’s fees ie dollar_figure and dollar_figure per hour relating to and respectively see revproc_96_59 1996_2_cb_392 revproc_97_57 1997_2_cb_584 petitioners may receive fees in excess of the statutory rate if the court determines that a special factor such as the limited availability of qualified attorneys for such proceeding justifies a higher rate sec_7430 b the court has explained in order for the limited availability of qualified attorneys to constitute a special factor warranting departure from the statutory cap there must be a limited availability of attorneys who possess distinctive knowledge or a specialized skill needful to the particular litigation in question 109_tc_227 citing pierce v underwood supra pincite cf 100_tc_457 stating that there was no special factor where the case did not require a distinctive knowledge or specialized skill within the general field of taxation affd in part revd in part and remanded on another ground 43_f3d_172 5th cir - - the parties have stipulated that there were a few other attorneys in south florida who had the expertise to deal with the issues raised in the notice_of_deficiency and who charged hourly rates comparable to or higher than those charged by petitioners’ counsel in essence respondent admits that there was limited availability of qualified attorneys that petitioners’ attorney possessed a specialized skill needful for the litigation in question and that the services could not be obtained at a lower rate we also note that respondent has represented to the court that the cfc issue is complex and a case of first impression and that petitioners’ attorney possessed recognized expertise in united_states international_taxation accordingly petitioners are entitled to the higher rates paid the parties stipulated that fees for hours in relate to legal work which did not require specialized knowledge therefore no special factor justifies the higher rate for those fees b paralegal fees and other costs petitioners seek reimbursement for the fees of two paralegals at hourly rates of dollar_figure and dollar_figure respondent contends that dollar_figure per hour 1ie about half the attorney rate would be reasonable we agree see eg powers v commissioner supra pincite awarding paralegal fees at about half the attorney rate - - accordingly petitioners are entitled to a rate of dollar_figure per hour e for hours petitioners incurred dollar_figure of reimbursable litigation costs relating to postage photocopies telephone calls faxes and tax_court filing fee an unsubstantiated dollar_figure expense and an dollar_figure federal express expense shall not be reimbursed see 93_tc_256 declining to reimburse federal express expense absent proof of necessity affd in part and revd in part on another ground 936_f2d_736 2d cir we award petitioners dollar_figure any other contention made by the parties is irrelevant moot or meritless to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 1-plr-108146-99 date may18 legend x d1 this letter responds to the ruling_request dated date you submitted on behalf of x which requests relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the cc dom p si br 1-plr-108146-99 secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours signed david r haglund david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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-151986-05 date date ------------------ --------------------- --------------------------------- legend legend x -------------------------------------------------- country d dear -------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-151986-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-151986-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_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 in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


t c memo united_states tax_court joseph s rozpad and kathleen m rozpad petitioners v commissioner of internal revenue respondent floriano dibiasio and angela dibiasio petitioners v commissioner of internal revenue respondent docket nos filed date justin s holden and kimberly l o'brien for petitioners carmino j santaniello for respondent memorandum findings_of_fact and opinion foley judge respondent issued notices of deficiency to joseph and kathleen rozpad for their tax_year and to floriano and angela dibiasio for their tax_year the rozpads and the dibiasios each petitioned this court in april of - -2 on date we granted respondent's motion to consolidate the rozpads' and the dibiasios' cases unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether portions of the proceeds received by petitioners in their respective settlements of tort actions are excludable from gross_income under sec_104 we hold that they are not excludable whether petitioners may pursuant to sec_212 deduct attorney's_fees and costs relating to their respective settlements we hold that they are entitled to deduct such fees and costs whether the 3-year statute of limitation bars respondent from assessing and collecting the deficiency relating to the dibiasios' tax_year we hold that it does not findings_of_fact the parties submitted these cases fully stipulated pursuant to rule at the time the rozpads filed their petition they resided in riverside rhode island at the time the dibiasios filed their petition they resided in cranston rhode island the rozpads - -3 on date at the memorial hospital in providence rhode island dr douglas j glod operated on mrs rozpad's right foot mrs rozpad was scheduled however to have an operation on her left foot the rozpads filed a medical malpractice claim in the superior court of rhode island against the memorial hospital and dr glod the rozpads settled their dispute with the memorial hospital but did not settle with dr glod on date a jury rendered a verdict against dr glod and awarded dollar_figure million to mrs rozpad and dollar_figure to mr rozpad as required by r i gen laws sec the court added statutory prejudgment_interest to the awards on date dr glod filed a motion for a new trial or in the alternative a remittitur of the judgment on date the trial_court ordered a new trial solely on the issue of damages unless mrs rozpad agreed to remit all of the jury's verdict in excess of dollar_figure on date mrs rozpad consented to the remittitur on date the trial_court entered judgments for mrs rozpad and mr rozpad of dollar_figure and dollar_figure respectively plus statutory prejudgment_interest totaling dollar_figure following the judgment the rozpads and dr glod settled their dispute the settlement agreement required dr glod to pay the rozpads dollar_figure for a release and discharge of any and all past and future claims during the settlement negotiations the - -4 parties did not discuss the tax consequences of the settlement in addition the agreement did not contain any reference to prejudgment or postjudgment interest on date the parties filed a stipulation of dismissal with the trial_court the stipulation states the above-entitled action is hereby dismissed no interest no costs the settlement and stipulation of dismissal voided any judgment previously entered in the case dr glod's medical malpractice insurer issued an dollar_figure check to the rozpads and their attorney their attorney cashed the check retained dollar_figure for attorney's_fees and costs and issued a dollar_figure check to the rozpads dr glod's medical malpractice insurer did not issue a form_1099 regarding the dollar_figure settlement to either the rozpads or the internal_revenue_service the rozpads on their federal_income_tax return neither reported any portion of the dollar_figure settlement nor claimed any deductions relating to the medical malpractice dispute the dibiasios on date at st joseph hospital in providence rhode island dr a louis mariorenzi operated on mr dibiasio's left knee during the operation dr mariorenzi punctured an artery in mr dibiasio's knee as a result of complications relating to the punctured artery mr dibiasio required extensive vascular - -5 surgery over the next years lost significant use of his leg received a blood transfusion and contracted a chronic blood disease for which he continues to receive treatment on date mr dibiasio commenced a medical malpractice action in the superior court of rhode island against dr mariorenzi and st joseph hospital mr dibiasio settled his dispute with the hospital but did not settle with dr mariorenzi on date following a 10-day trial a jury rendered a verdict against dr mariorenzi and awarded damages of dollar_figure to mr dibiasio as required by r i gen laws sec the court added dollar_figure in statutory prejudgment_interest to the award bringing the total judgment to dollar_figure following the judgment mr dibiasio and dr mariorenzi settled their dispute the settlement agreement required dr mariorenzi to pay mr dibiasio dollar_figure million for a release and discharge of any and all past and future claims during the settlement negotiations the parties did not discuss the tax consequences of the settlement in addition the agreement did not contain any reference to prejudgment or postjudgment interest on date mr dibiasio and dr mariorenzi filed a stipulation of dismissal with the trial_court the stipulation states that the case is dismissed with prejudice no interest no costs dr mariorenzi's medical malpractice insurer issued a - -6 dollar_figure million check to mr dibiasio and his attorney mr dibiasio's attorney cashed the check retained dollar_figure for attorney's_fees and costs and issued a dollar_figure check to mr dibiasio dr mariorenzi's medical malpractice insurer did not issue a form_1099 regarding the dollar_figure million settlement to either mr dibiasio or the internal_revenue_service the dibiasios on their federal_income_tax return for the taxable_year neither reported any portion of the dollar_figure million settlement on their return nor claimed any deductions relating to mr dibiasio's medical malpractice dispute allocation of settlement proceeds opinion respondent determined that in each case petitioners' gross_income includes the portion of their respective settlement that is attributable to prejudgment_interest petitioners contend that no part of their respective settlement is attributable to prejudgment_interest to support their contention petitioners rely on the stipulations of dismissal the stipulations state no interest petitioners contend that the phrase no interest means no portion of the settlement is allocable to prejudgment_interest for the following reasons we reject petitioners' contention first in 99_f3d_20 1st cir affg tcmemo_1995_378 the u s court_of_appeals for - -7 the first circuit found on similar facts that the phrase no interest is ambiguous and could mean that there is no interest in addition to the interest implicit in the settlement amount see also delaney v commissioner tcmemo_1995_378 forest v commissioner tcmemo_1995_377 affd without published opinion 104_f3d_348 1st cir second the stipulations are not part of the settlement and do not relate to the allocation of settlement proceeds they are merely requests for the court to dismiss the respective actions without imposing interest or costs accordingly a portion of both the rozpads' and the dibiasios' settlement is allocable to prejudgment_interest respondent determined that a portion of each settlement must be allocated to statutory interest in the same ratio that statutory interest bore to the total judgment the facts and case law support respondent's determination each settlement occurred after petitioners received awards of damages and prejudgment_interest in delaney f 3d pincite the court_of_appeals affirmed this court's finding that the prejudgment_interest component of a settlement was in the same proportion as the prejudgment_interest that was added to the court's damage award see 70_f3d_34 5th cir affg in part revg in part and remanding in part 102_tc_116 see also 504_us_229 - -8 72_f3d_938 1st cir affg tcmemo_1995_51 accordingly we sustain respondent's determination prejudgment_interest petitioners contend that prejudgment_interest is excludable from gross_income they rely on sec_104 which permits taxpayers to exclude damages received whether by suit or agreement on account of personal injuries or sickness contrary to well-established precedent petitioners contend that the receipt of prejudgment_interest is tantamount to the receipt of damages within the meaning of sec_104 in the seminal case 100_tc_124 affd without published opinion 25_f3d_1048 6th cir and in every case this court has decided since we have consistently held that statutorily mandated prejudgment_interest does not constitute damages within the meaning of sec_104 see eg 102_tc_116 delaney v commissioner tcmemo_1995_378 forest v commissioner supra burns v commissioner tcmemo_1994_284 see also 73_f3d_1040 10th cir prejudgment_interest imposed by r i gen laws sec is indistinguishable from the prejudgment_interest at issue in kovacs and its progeny delaney v commissioner tcmemo_1995_378 forest v commissioner supra see delaney v - -9 commissioner f 3d pincite therefore the kovacs line of authority controls petitioners contend that the holdings of kovacs and its progeny are flawed and should not be followed we are however bound by this court's prior decisions unless subsequent events warrant a change in position see 474_us_254 97_tc_94 after considering the relevant post-kovacs authorities including 515_us_323 holding that damages received under the age discrimination in employment act of publaw_90_202 81_stat_602 are not excludable pursuant to sec_104 and o'gilvie v united_states u s __ 117_sct_452 holding that punitive_damages are not excludable pursuant to sec_104 we reject petitioners' contention that departure from kovacs and its progeny is warranted accordingly petitioners must include in income the prejudgment_interest portion of their respective settlements sec_212 deduction respondent determined that petitioners were entitled to an itemized_deduction for attorney's_fees and costs relating to the taxable_portion ie the portion relating to prejudgment_interest of their respective settlements respondent's determination is presumed correct and petitioners have the burden of proving it erroneous rule a petitioners have offered neither arguments nor evidence to contradict respondent's determination accordingly we affirm respondent's determination see 80_tc_1104 forest v commissioner supra statute_of_limitations the dibiasios contend that respondent cannot assess or collect any_tax deficiency for their tax_year because the notice_of_deficiency was issued after the expiration of the year period of limitation on assessment and collection sec_6501 respondent however contends that the 6-year period of limitation which has not yet expired is applicable because the dibiasios omitted from gross_income an amount properly includible therein which is in excess of percent of the amount of gross_income stated in the return sec_6501 respondent has the burden of proving that the exception applies 82_tc_546 affd 774_f2d_644 4th cir on their federal_income_tax return the dibiasios reported gross_income totaling dollar_figure and omitted approximately dollar_figure ie more than percent of the gross_income reported accordingly the 6-year statute of limitation is applicable all other arguments raised by the parties are either irrelevant or without merit to reflect the foregoing decisions will be entered under rule


internal_revenue_service number release date index number --------------------------------- ---------------------------------------------------------- ----------------------------- ------------------------------- department of the treasury washington dc person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-143675-03 date nov legend x d1 ----------------------------------- ----------------------- --------------------------- ------------- ------------------------------------------------ ----------------------------------------------------------------------- ------------------------ -------------------------------------------------------- ----------------------- state d2 a --------------------------------------------------- b --------------------------------------------------- d3 d4 ------------------------ y --------------------------------------------------- d5 --------------------------- dear -------------- correspondence written on behalf of x requesting relief for inadvertent invalid subchapter_s_election under sec_1362 of the internal_revenue_code code this letter responds to the letter dated date and related facts the information submitted discloses that x was incorporated on d1 under state law and elected to be treated as an s_corporation effective for its taxable_year beginning d2 also effective d2 x elected to treat a a wholly owned subsidiary as a qualified_subchapter_s_subsidiary qsub x elected treat b also a wholly owned subsidiary as a qsub effective d3 as of d2 x was unaware that on d4 a portion of x’s stock was transferred to y a partnership subsequently upon a review of corporate matters x’s accountant and legal counsel discovered that on d2 a portion of x’s stock was held by y an ineligible shareholder to rectify the error x immediately initiated action to have the portion of stock then held by y transferred back to x’s eligible shareholder shortly thereafter on d5 y transferred the stock to back to x’s eligible shareholder 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 such year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under '1362 a shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of the cessation ' d b sec_1361 defines a qsub as a domestic_corporation that is not an ineligible_corporation if percent of the stock of the corporation is owned by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1362 in relevant part provides that if an election under ' a by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or b was terminated under ' d the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that x s s election was ineffective for the taxable_year beginning on d2 because y was an ineligible shareholder of x we further conclude that the ineffectiveness of x’s s election constituted an inadvertent invalid election within the meaning of sec_1362 in addition we conclude that the inadvertent invalid s election does not affect the status of a and b as qsubs under the provisions of sec_1362 x will be treated as an s_corporation from d2 and thereafter provided that apart from the inadvertent invalid election ruling above x s s election was otherwise valid and has not otherwise terminated under ' d and provided that the qsub elections were otherwise valid and have not otherwise terminated this ruling is contingent upon x and all its shareholders treating x as having been an s_corporation for the period beginning d2 and thereafter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed regarding whether x is otherwise eligible to be an s_corporation or whether a and b are otherwise eligible to be qsubs 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 mailed to your authorized representative sincerely s david r haglund david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes