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 b03 plr-133995-11 date date company --------------------------------------------------------------------------------------------- ----------------------- legend state date ------------------ ----------------- shareholder --------------------------------------------------------------------------------------------- ------------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code code facts company incorporated under the laws of state on date company’s sole shareholder shareholder intended for company to be an s_corporation effective date however a form_2553 election by a small_business_corporation was not filed timely shareholder requests a ruling that company will be recognized as an s_corporation effective date law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation plr-133995-11 sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to timely make an s_corporation_election thus we conclude that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 within one hundred twenty days following the date of this letter containing an effective date of date the election shall be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion as to whether company is otherwise eligible to be an s_corporation for federal tax purposes 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 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination plr-133995-11 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely mary beth carchia senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-125965-00 date date x properties d1 d2 year dollar_figurex dollar_figurey dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling that x’s rental income from properties is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in year and elected under sec_1362 to be an s_corporation effective d1 x has accumulated_earnings_and_profits x is in the business of owning operating and managing properties which are commercial rental real_estate through x’s two directors and two employees x provides various services in operating properties services x provides include engaging and selecting all subcontractors to expedite repairs and maintenance on all properties maintaining all required insurance for itself the tenants and subcontractors creating and placing all advertising providing maintenance service for common areas and parking facilities inspecting and maintaining properties’ foundations exterior walls plumbing systems electrical systems hvac systems fire alarms sprinkler systems elevators fencing and landscaping and providing emergency contact source and access for all public safety purposes in addition to the services x provides to tenants x performs the usual activities involved in managing real_estate these activities include inspecting maintaining advertising and exhibiting all vacant space available for lease negotiating and preparing the documents for all leases and lease renewal and billing and collecting all rents in the fiscal_year ending d2 x accrued approximately dollar_figurex in rents and incurred approximately dollar_figurey in relevant expenses other than depreciation sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination under sec_1362 shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts and the representations submitted we conclude that the rental income that x derives from properties is income from the active trade_or_business of renting property and is not passive_investment_income as described in sec_1362 except as specifically set forth above we express no opinion as to the federal tax consequences of the transaction described above under any other provision of the code further we express no opinion on whether x is eligible to be an s_corporation this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours enclosures copy of this letter copy for sec_6110 purposes j thomas hines chief branch associate chief_counsel passthroughs and special industries


t c memo united_states tax_court andrea n grant petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time she filed the petition petitioner resided in shelburne new hampshire during petitioner performed services at mcmurdo station in ross island antarctica on her federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


t c memo united_states tax_court sari f deihl petitioner v commissioner of internal revenue respondent docket nos filed date tim alan tarter for petitioner anne ward durning for respondent memorandum findings_of_fact and opinion marvel judge these consolidated cases arise from petitioner’s requests for section relief with respect to the federal_income_tax liabilities of 1all section references are to the internal_revenue_code in effect for the relevant years and all rule references are to the tax_court rules_of_practice and procedure petitioner and her deceased husband joseph deihl respondent determined that petitioner was not entitled to relief under sec_6015 petitioner timely filed petitions seeking review of respondent’s determination after concession sec_2 and in accordance with our opinion in 134_tc_156 deihl ii in which we held that sec_6015 barred petitioner from making an election under sec_6015 and from requesting equitable relief under sec_6015 for but did not otherwise bar her from requesting relief under sec_6015 for or from requesting relief under sec_6015 c and f for and the issues for decision are whether petitioner is entitled to relief under sec_6015 for whether she is entitled to relief under sec_6015 for and whether she is entitled to relief under sec_6015 for 2respondent concedes that petitioner is entitled to partial relief for under sec_6015 in that of the tax_liabilities are allocable to mr deihl and she is not liable for the amounts so allocated 3for unlike the other years at issue although petitioner sought relief under sec_6015 in her petition she argued for relief at trial and on brief only under sec_6015 and f and she asserted a corresponding claim_for_refund of the amount_paid and applied to the liability although we hold that petitioner is not entitled to sec_6015 or f relief from the liability respondent concedes that she is entitled to relief under sec_6015 with respect to and we agree however a taxpayer who qualifies for relief from a tax_liability under sec_6015 is not entitled to claim a refund for that part of the liability that has already been continued findings_of_fact some of the facts have been stipulated the stipulation of facts is incorporated herein by this reference petitioner resided in arizona when she petitioned this court background petitioner did not graduate from high school she first met joseph deihl when she wa sec_12 years old in when she was years old petitioner married mr deihl and she remained married to him until his death on date during the period from to mr deihl held various sales positions and petitioner and mr deihl moved several times to accommodate his employment in approximately mr deihl traveled to phoenix and purchased a company that manufactured tear-gas-spraying flashlights after operating that company for about a year mr deihl and petitioner incorporated mayor pharmaceutical laboratories inc mayor an s_corporation petitioner worked for mayor from approximately until sometime in or when mr deihl told her that there was no reason for her to continue coming down to the company to work nevertheless a sec_3 continued paid see sec_6015 more fully explained herein petitioner continued to be involved with mayor and related companies after during the course of their marriage mr deihl made the financial decisions for the family and petitioner paid the household bills petitioner filed joint income_tax returns with mr deihl but she never reviewed them before signing them mayor and karemor in the early 1980s petitioner and mr deihl came up with the idea for and ultimately acquired a patent for a multivitamin spray that came to be known as vitamist in petitioner and mr deihl incorporated mayor to manufacture vitamist petitioner and mr deihl jointly owned of mayor’s stock and were at all relevant times officers of mayor after experimenting with various methods of distribution in mr deihl and petitioner incorporated karemor international inc karemor an s_corporation to market vitamist products petitioner and mr deihl jointly owned of karemor’s stock and were at all relevant times officers of karemor karemor marketed vitamist through independent distributors who purchased vitamist products from karemor and then resold them the distribution structure 4the vitamist web site refers to petitioner as a co-founder of the vitamist enterprise co-founder letter http www vitamist com articles asp id last visited date had multiple levels because karemor encouraged distributors to recruit additional distributors known as downline distributors distributors advanced in the karemor hierarchy as they recruited additional downline distributors although petitioner did not work at mayor during the years at issue she worked for karemor in and and earned wages of dollar_figure and dollar_figure respectively according to the form_w-2 wage and tax statement attached to petitioner’s return she also worked at creative personnel resources and earned dollar_figure in wages she also regularly visited the corporate offices to sign corporate documents and she signed checks drawn on the mayor and karemor accounts throughout during petitioner used two corporate credit cards for a variety of personal and corporate purchases petitioner involved herself in mayor and karemor in other ways in a related case we described her involvement as follows petitioner and mr deihl and members of their extended family played a prominent role in interacting personally with distributors at karemor events in these interactions petitioners believed that it was critical for every aspect of their lives from their attire and personal grooming to their residence to portray an appearance of extreme affluence and success petitioners felt that distributors who were impressed to the point of being overwhelmed 5no forms w-2 are attached to the joint_return that is in the record with what could be achieved through multilevel marketing would be encouraged to build their own downline networks in hopes of reaping similar benefits in execution of this strategy petitioner and mr deihl hosted at their residence a number of events training sessions meetings and entertainment functions deihl v commissioner tcmemo_2005_287 deihl i petitioner planned many of the karemor events attended all of the karemor conventions and hosted numerous events at her and mr deihl’s paradise valley home she also traveled with mr deihl on business and headed women of karemor an organization for wives of distributors since mr deihl’s death and through the date of trial petitioner has operated the vitamist business through mayor and other business entities other business entities petitioner and or mr deihl also held ownership interests in other business entities including but not limited to the following 6before the date of trial the vitamist web site contained a marketing statement petitioner signed as co-founder ceo mayor pharmaceutical labs 7petitioner testified that right now the companies are insolvent we do not find this testimony to be credible petitioner offered no documentation such as financial statements tax returns account statements corporate books_and_records or appraisals to substantiate her testimony in addition petitioner acknowledged that some part of the family business is still operating and as of the trial date had continued phoenix foundation a company sometimes referred to as a genealogy company that was apparently formed to receive the commissions from downline sales to which petitioner and mr deihl were entitled under the multilevel marketing structure used to market vitamist products pharmanutra inc a company that is also part of the genealogy and that receives commissions for the benefit of petitioner petitioner holds all of the officer positions and is a director of this company which was incorporated in nevada in several years after mr deihl died spray fun inc a company incorporated in nevada in to sell vitamins petitioner holds all of the officer positions and is a director of the company legacy lodging ii an investment_entity windy city properties llc a real_estate_holding_company that held title to among other things the property used as the corporate offices pincite south 24th st phoenix arizona that property was eventually sold to petitioner’s continued employees her son william deihl continues to work for the family business and petitioner is the chief_executive_officer according to the vitamist web site sons8 on a date and for a price that do not appear in the record the property pincite south 24th st is still used as the vitamist companies’ headquarters regency medical_research a company that was apparently formed by mr deihl to market products on a retail basis to doctors vitamist ltd a company formed to market vitamist products that apparently was the successor to karemor spoiled brat ltd a company formed by mr deihl to market a line of facial products named after petitioner alternative employment solutions a company that leases employees to various business entities involved in the manufacturing and distribution of vitamist products 8one of petitioner’s sons also may have received the proceeds from her sale of residential property in petitioner testified that the property in question which was titled in her name was her son’s property and that she could not remember who received the sale proceeds petitioner acknowledged that the sale price may have been dollar_figure and testified that she could not remember whether she reported the sale on her return 9the record does not explain how when or by whom vitamist ltd was formed nor does it reveal whether vitamist ltd purchased assets from karemor for consideration the record also does not indicate who owns vitamist ltd absent proof to the contrary it is reasonable to infer from the limited record that petitioner holds some ownership_interest in vitamist ltd creative personnel resources inc a company that was the same as alternative employment solutions and of which petitioner was an officer and director lifestyle advantage ltd another company organized by mr deihl to sell products liberty group international another company organized to sell products and left field productions inc a company organized to put on shows paradise valley home during the years at issue petitioner and mr deihl lived in a big_number square- foot residence in paradise valley arizona paradise valley home petitioner and mr deihl owned the paradise valley home as community_property with right_of_survivorship in the late 1980s petitioner and mr diehl purchased the paradise valley home for dollar_figure cash and almost immediately began an extensive remodeling project on the property which continued for several years the improvements were 10the corporation was dissolved on date for failure_to_file its annual report with the arizona corporation commission paid for at least in part by karemor which claimed amortization expense deductions with respect to the improvement costs on its corporate tax returns see deihl i in date after mr deihl’s death petitioner the surviving and sole owner sold the paradise valley home for approximately dollar_figure the final disbursement report reflects that petitioner received a disbursement of dollar_figure and that the department of internal revenue received a disbursement of dollar_figure from the sale proceeds petitioner used a portion of the money she received from the sale of the paradise valley home to purchase a home on cactus road in scottsdale arizona cactus road home for dollar_figure in petitioner made a downpayment of approximately dollar_figure and financed the balance of the purchase_price and closing costs with a mortgage of dollar_figure 11respondent alleged that karemor and mayor paid for over dollar_figure million of improvements to the paradise valley home during and that were reported as expenses on the corporation’s corporate tax returns for those years 12petitioner testified at trial that the value of her cactus road home had declined substantially since she purchased it and she estimated that as of the trial date the property was worth substantially less than the mortgage balance petitioner testified that she has ceased making mortgage payments and the property was in foreclosure as of the trial date petitioner and mr deihl’s standard of living petitioner and mr deihl drove expensive cars took vacations and business trips to europe las vegas and the caribbean and purchased fine jewelry they also invested in commercial property such as office buildings and strip malls and held several investment accounts petitioner and mr deihl were members of the gainey ranch golf club and the arizona club at which they entertained people in connection with their business petitioner’s requests for sec_6015 relief petitioner and mr deihl filed joint federal_income_tax returns for tax years respondent issued notices of deficiency to petitioner and mr deihl for petitioner and mr deihl subsequently filed a petition for redetermination of respondent’s determinations in deihl i we held that petitioner and mr deihl were not entitled to certain deductions for expenses claimed through and in connection with mayor and karemor a reduction in gross_income related to certain items of mayor’s cost of 13we held that petitioner and mr deihl were not entitled to the following claimed deductions capitalized residence improvement deductions related to the paradise valley home maintenance and landscaping deductions related to residential property and unsubstantiated maintenance and landscaping deductions continued goods sold or a reduction in adjusted_gross_income for alleged duplicate reporting we concluded that petitioner and mr deihl were also liable for sec_6662 accuracy-related_penalties we entered our decision as follows year deficiency penalty sec_6662 1dollar_figure big_number big_number dollar_figure big_number big_number 1all monetary amounts have been rounded to the nearest dollar on or about date petitioner signed a form_8857 request for innocent spouse relief petitioner requested relief under sec_6015 c and f for on date respondent issued a notice_of_determination denying petitioner’s request for relief for each of those years petitioner timely filed a petition for review of respondent’s determination continued security costs related to the paradise valley home and other unsubstantiated security costs dues for membership in various social clubs and expenses_incurred at those clubs unsubstantiated entertainment_expenses unsubstantiated business gift_expenses clothing costs equipment and furnishings expenses unsubstantiated travel_expenses charitable_contributions and unsubstantiated promotional and marketing expenses see deihl v commissioner tcmemo_2005_287 tax_year respondent issued a notice_of_deficiency to petitioner and mr deihl for respondent subsequently assessed an income_tax deficiency for which resulted from an examination of karemor’s return as well as respondent’s disallowance of depreciation_deductions for improvements made to the paradise valley home interest and penalties collectively tax_liability because petitioner and mr deihl failed to pay the tax_liability respondent mailed them a letter notice_of_levy and your right to a hearing for in response petitioner’s representative donald w mcpherson submitted a form request for a collection_due_process or equivalent_hearing before and during the hearing mr mcpherson raised spousal defenses for petitioner and requested that she receive relief under sec_6015 or f on date respondent issued to petitioner and mr deihl a notice_of_determination concerning collection action s under sec_6320 and or sustaining respondent’s proposed levy in the notice_of_determination the appeals officer concluded that petitioner was not entitled to relief under sec_6015 petitioner timely filed a petition contesting respondent’s determination subsequently on date respondent filed a notice_of_federal_tax_lien for because respondent filed the lien before petitioner’s sale of the paradise valley home part of the sale proceeds was used to satisfy petitioner and mr deihl’s tax_liability procedural history we consolidated petitioner’s two petitions for sec_6015 relief for and subsequently we severed the issue of whether sec_6015 barred petitioner’s claims for sec_6015 relief for which we decided in an opinion issued on date see deihl ii in deihl ii respondent argued that sec_6015 barred petitioner from claiming relief from joint_and_several_liability under sec_6015 c and f with respect to her joint federal_income_tax liabilities for and we held that sec_6015 barred petitioner from seeking relief under sec_6015 and f for sec_6015 did not bar her from seeking relief under sec_6015 for and sec_6015 did not bar her from seeking relief under sec_6015 c and f for and id sec_6015 provides that in the case of any request for relief under sec_6015 c or f if a decision of a court in any prior proceeding for the same taxable_year has become final such decision shall be conclusive except with respect to the qualification of the individual for relief which was not an issue in such proceeding however the exception does not apply if the individual participated meaningfully in the prior proceeding sec_6015 opinion i evidentiary matters petitioner reserved an objection to exhibit 30-j the trial transcript from deihl i the deihl i transcript includes the testimony of five witnesses petitioner mr deihl robert j hartmann an attorney who worked for mayor and karemor martin d goltz who worked as a consultant for mayor and karemor before becoming cfo of karemor in the mid-1990s and kermit lennick a contractor who remodeled the paradise valley property petitioner withdrew her objection with respect to her own testimony in the deihl i transcript but not with respect to the rest of the transcript in connection with the partial trial in docket no diehl ii the parties stipulated the admissibility of the entire transcript from diehl i neither party reserved an objection to the transcript which was marked and admitted as exhibit 14-j during the partial trial the parties did not limit the use of the transcript to the specific issue that was the subject of the partial trial and decided in diehl ii by reason of the above respondent contends that exhibit 30-j is already in evidence pursuant to rule e rule e provides e binding effect a stipulation shall be treated to the extent of its terms as a conclusive admission by the parties to the stipulation unless otherwise permitted by the court or agreed upon by those parties the court will not permit a party to a stipulation to qualify change or contradict a stipulation in whole or in part except that it may do so where justice requires a stipulation and the admissions therein shall be binding and have effect only in the pending case and not for any other purpose and cannot be used against any of the parties thereto in any other case or proceeding alternatively respondent contends that to the extent exhibit 30-j contains the testimony of mr deihl exhibit 30-j is admissible under the former testimony exception to the hearsay rule neither party relied on the contested part of the deihl i transcript as the sole basis for a requested finding of fact in that party’s posttrial briefs and we do not rely on the transcript to decide this case consequently it is not necessary for us to admit the remaining portion of the deihl i transcript for these reasons we shall exclude the remaining portion of the deihl i transcript see fed r evid a ii sec_6015 relief generally taxpayers who file a joint federal_income_tax return are each responsible for the accuracy of their return and are jointly and severally liable for the entire tax_liability due for that year sec_6013 114_tc_276 in certain circumstances however a spouse may obtain relief from joint_and_several_liability by satisfying the requirements of section dollar_figure sec_6015 provides that a spouse may request relief from joint_and_several_liability under sec_6015 for an understatement_of_tax on a joint_return additionally sec_6015 provides that an eligible spouse may request to limit her liability for any deficiency with respect to a joint_return under sec_6015 if complete relief is not available under subsection b or c of sec_6015 a spouse may request equitable relief under sec_6015 petitioner contends that she is entitled to relief from all of the liabilities under sec_6015 or f petitioner also requested relief from the liability and the liabilities under sec_6015 in her petition contending that no part of the deficiencies is attributable to her sec_6015 confers jurisdiction on this court to review petitioner’s requests for relief from joint_and_several_liability a spouse who has requested relief may contest the commissioner’s denial of that relief by timely filing a petition in sec_6015 applies to tax_liabilities arising after date and to tax_liabilities arising on or before date that remain unpaid as of such date see internal_revenue_service restructuring and reform act of pub_l_no sec_3201 sec_112 stat pincite this court sec_6015 we address petitioner’s request for relief under sec_6015 c and f in turn a sec_6015 sec_6015 authorizes the secretary16 to grant relief if the taxpayer satisfies the requirements of subparagraphs a through e and provides as follows sec_6015 procedures for relief from liability applicable to all joint filers -- in general --under procedures prescribed by the secretary if-- a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement 16the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 and the term or_his_delegate means any officer employee or agency of the treasury_department duly authorized by the secretary_of_the_treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned or described in the context sec_7701 d taking into account all of the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election then the other individual shall be relieved of liability for tax including interest penalties and other_amounts for such taxable_year to the extent such liability is attributable to such understatement the requirements of sec_6015 are stated in the conjunctive therefore if the requesting spouse fails to satisfy any one of the requirements she does not qualify for relief 119_tc_306 aff’d 101_fedappx_34 6th cir the requesting spouse bears the burden of proving that she satisfies each requirement of sec_6015 see rule a respondent does not dispute that petitioner meets the requirements in subparagraphs a and e for respondent contends that petitioner fails to satisfy the requirements of subparagraphs b through d petitioner disagrees with respect to subparagraph b of sec_6015 both parties agree that the understatements were attributable to erroneous deductions of mayor and karemor expenses and disallowed depreciation on the paradise valley home respondent argues that of the understatements are allocable to petitioner because petitioner and mr deihl jointly owned and operated mayor and karemor petitioner argues that the understatements are allocable solely to mr deihl because she did not assist mr deihl in managing mayor or karemor or in making any related financial decisions erroneous items are allocable to the individual whose activities gave rise to the items sec_1_6015-1 income_tax regs while it may be a factor joint_ownership alone does not dictate whether an erroneous item is allocated to both spouses buchine v commissioner tcmemo_1992_36 aff’d 20_f3d_173 5th cir generally an allocation is made without regard to community_property_laws sec_1_6015-1 income_tax regs a requesting spouse who voluntarily agrees to enter into an investment and who actively participates in it cannot allocate the entire investment to the nonrequesting spouse juell v commissioner tcmemo_2007_219 see also olson v commissioner tcmemo_2009_294 however a requesting spouse who does not actually participate in the investment or business activity even if she is listed as a shareholder or partner and signed investment documents may avoid an allocation of liability to her in certain circumstances see juell v commissioner tcmemo_2007_219 in juell we declined to allocate understatements to the requesting spouse when the requesting spouse did not invest any funds in the partnership attend any partnership meetings or have access to any partnership funds in contrast we have allocated understatements resulting from the adjustment of partnership items to a requesting spouse who agreed to invest in the partnership signed documents relating to the partnership and wrote checks to the partnership drawn on the spouses’ joint bank account see bartak v commissioner tcmemo_2004_83 aff’d 158_fedappx_43 9th cir we have also allocated understatements to a requesting spouse where the spouse agreed to make the investment in the business jointly invested in the business and participated actively in the business see abelein v commissioner tcmemo_2004_274 petitioner and mr deihl jointly owned of the stock in were officers of and controlled mayor and karemor petitioner signed corporate checks used corporate credit cards and deposited money from mayor and karemor into her personal accounts petitioner actively participated in the mayor and karemor businesses through her event planning and through the women of karemor organization furthermore petitioner and mr deihl viewed themselves and their lifestyle as a key element in karemor’s success petitioner cannot convincingly argue that she did not actively participate in the business activity when she and mr deihl relied on their personal interactions to spur business growth petitioner testified that she performed these tasks as directed by mr deihl and that she never made any financial decisions related to mayor and karemordollar_figure given the level of petitioner’s involvement with the corporations however her professed lack of interest and involvement in corporate finances is not credible nor is it sufficient to support an allocation of all of the understatements attributable to the disallowance of mayor and karemor deductions to mr deihl petitioner failed to prove that the erroneous items giving rise to the understatement_of_tax are attributable solely to mr deihl because petitioner failed to satisfy the subparagraph b requirement she is not entitled to relief under sec_6015 we need not address whether petitioner satisfied the require- ments of subparagraphs c and d of sec_6015 accordingly we sustain respondent’s determination to deny petitioner relief under sec_6015 for 17petitioner testified that she personally paid the contractors who performed the renovations on the paradise valley home with either personal funds or with corporate funds although petitioner testified that mr deihl directed her to pay the contractors she personally paid for the renovations and used corporate funds to do so petitioner introduced no other evidence to support her argument that the paradise valley depreciation_deductions are allocable solely to mr deihl b sec_6015 under sec_6015 if the requesting spouse is no longer married to or is legally_separated from the spouse with whom she filed the joint_return the requesting spouse may seek to limit her liability for a deficiency as provided in sec_6015 sec_6015 a i i a requesting spouse may request sec_6015 relief any time after a deficiency is asserted but no later than two years after the date on which the secretary has begun collection activities with respect to the requesting spouse sec_6015 in general sec_6015 provides that any item giving rise to a deficiency on a joint_return is allocated to the spouses as if they had filed separate returns sec_6015 the requesting spouse is liable only for her proportionate share of the deficiency that results from such allocation sec_6015 if an item giving rise to a deficiency provided a tax_benefit on the joint_return to the nonrequesting spouse the item is allocated to the nonrequesting spouse sec_6015 121_tc_73 the requesting spouse bears the burden of establishing the amount of the deficiency allocable to her sec_6015 18an electing spouse is no longer married if she is widowed see rosenthal v commissioner tcmemo_2004_89 unallowable deductions attributable to a business or investment are allocated to the spouse who owned the business or investment sec_1_6015-3 income_tax regs generally an erroneous deduction is allocated in proportion to each spouse’s ownership_interest id the regulations provide that i n the absence of clear_and_convincing evidence supporting a different allocation an erroneous deduction item relating to an asset that the spouses owned jointly is generally allocated to each spouse id both parties agree that petitioner qualifies for sec_6015 relief for and the deficiencies resulted from erroneous deductions attributable to mayor and karemor and disallowed depreciation_deductions related to the paradise valley home respondent concedes that of the deficiencies are allocable to mr deihl but contends that the other are allocable to petitioner because she jointly owned and controlled mayor and karemor petitioner contends however that the entire deficiency is allocable to mr deihl she argues that joint_ownership of the corporations is not determinative of whether the disallowed deductions are jointly allocable to her and mr deihl because petitioner contends that she held her interest in mayor and karemor purely in a nominal capacity made no financial decisions regarding the corporations and never saw the corporate tax returns she concludes that the deficiency is not allocable to her petitioner relies on rowe v commissioner tcmemo_2001_ and mcknight v commissioner tcmemo_2006_155 to support her argument in rowe we declined to allocate farming activity losses to the requesting spouse even though the requesting spouse was listed as a proprietor of the business on her tax returns we stated the evidence in the record reflects that petitioner’s involvement in the farming activity was minimal and purely social in nature other than infrequent attendance at horse shows to support her son petitioner’s only apparent link to the activity is that her name is listed as a proprietor on the tax returns similarly in mcknight we declined to allocate s_corporation income to the requesting spouse although the requesting spouse signed the articles of incorporation for the s_corporation and was listed as a director she did not make a capital_contribution participate in decisionmaking receive stock have signatory authority on the corporate bank account know what title she held with the corporation or receive any distributions or wages from the corporation petitioner failed to prove that the items giving rise to the deficiencies are allocable solely to mr deihl unlike the requesting spouses in rowe and mcknight petitioner actively participated in the business activities of mayor and karemor as described supra pp while petitioner’s role was predominantly social she engaged in those social activities as a business strategy and not merely for personal enjoyment because petitioner and mr deihl jointly owned mayor and karemor and were both active in the businesses we conclude that of the mayor and karemor items giving rise to the deficiency are allocable to each spouse petitioner failed to produce clear_and_convincing evidence supporting a different allocation see sec_1_6015-3 income_tax regs furthermore petitioner failed to prove that the erroneous depreciation_deductions are allocable solely to mr deihl petitioner owned the paradise valley home with mr deihl she lived in the home during the years at issue and she personally paid for the improvements on which the depreciation_deductions were based she failed to produce any evidence supporting a different allocation of the depreciation_deductions therefore we sustain respondent’s determination that petitioner is entitled to relief only from of the liabilities for under sec_6015 c sec_6015 sec_6015 provides an alternative means of relief for a requesting spouse who does not qualify for relief under sec_6015 or c because we have not relieved petitioner of all liability for the deficiencies we now consider whether she is entitled to any additional relief under sec_6015 under sec_6015 the secretary may grant relief where it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either sec_6015 pursuant to sec_6015 the commissioner has prescribed guidelines in revproc_2003_61 2003_2_cb_296 for determining whether the requesting spouse qualified for relief under that section generally the commissioner has analyzed requests for sec_6015 relief filed on or after date using the procedures set forth in revproc_2003_61 supra and this court has considered the guidelines but is not bound by them in evaluating the facts and circumstances of a case in order to decide whether equitable relief is appropriate see 136_tc_432 132_tc_203 19rev proc 2003_2_cb_296 supersedes revproc_2000_15 2000_1_cb_447 and is effective for requests for sec_6015 relief filed on or after date revproc_2003_61 secs and c b pincite on date the irs released notice_2012_8 2012_4_irb_309 a proposed revenue_procedure that if finalized would revise the factors the irs will use to evaluate a requesting spouse’s claim for equitable relief under sec_6015 and would supersede revproc_2003_61 supra notice_2012_8 supra provides that until the revenue_procedure is finalized the service will apply the provisions in the proposed revenue_procedure instead of revproc_2003_61 in evaluating claims for equitable relief under sec_6015 the parties contend that this court should apply the provisions of the proposed revenue_procedure set forth in notice_2012_8 supra in determining whether petitioner is entitled to equitable relief under sec_6015dollar_figure however 20notice 2012_4_irb_309 updates the guidelines for determining whether a requesting spouse is entitled to relief from joint_and_several_liability under sec_66 and sec_6015 the commissioner released notice_2012_8 supra to expand how the irs will take into account abuse and financial control by the nonrequesting spouse in determining whether equitable relief is warranted id in particular notice_2012_8 supra provides that abuse or lack of financial control may mitigate factors that otherwise weigh against granting relief from joint_and_several_liability see id 21on date we held a conference call with the parties during which counsel for the parties requested the opportunity to state their positions with respect to the proper interpretation and application of notice_2012_8 supra to the facts of these cases by order dated date we ordered the parties to file a status report informing the court of their positions with respect to the proper interpretation and application of notice_2012_8 supra in these cases the parties contend that notice_2012_8 supra applies to these cases in sriram v commissioner tcmemo_2012_91 slip op pincite n we took the position that we would continue to apply the factors in revproc_2003_61 2003_2_cb_296 in view of the fact that the proposed revenue_procedure is not final and because the comment period under the notice only recently closed additionally because our holding in sriram did not turn on any single factor as revised in the proposed revenue_procedure we called attention in the opinion to the effect if any of a revised factor only to the extent we deemed it necessary for clarity id we adopt a similar approach here we shall decide whether petitioner is entitled to relief under sec_6015 by considering all of the relevant facts and circumstances evaluating them through the prism of revproc_2003_61 supra and noting where appropriate how the analysis used in revproc_2003_61 supra would change if the proposed revenue_procedure in notice_2012_8 supra had actually been finalized in any event our approach to deciding whether petitioner qualifies for relief under sec_6015 and our conclusion remain the same regardless of whether we apply the analysis of revproc_2003_61 supra or adopt the approach proposed in notice_2012_8 supra we consider all relevant facts and circumstances in deciding whether a requesting spouse is entitled to relief under sec_6015 porter v commissioner t c pincite in making our analysis we apply a de novo standard of review and a de novo scope of review see id and we examine whether the requirements set forth in revproc_2003_61 supra were satisfied see eg pugsley v commissioner tcmemo_2010_255 o’meara v commissioner tcmemo_2009_71 petitioner bears the burden of proving that she is entitled to relief under sec_6015 see porter v commissioner t c pincite see also rule a revproc_2003_61 sec_4 c b pincite lists seven threshold requirements that a requesting spouse must satisfy before the commissioner will consider a request for relief under sec_6015 the requesting spouse filed a joint_return for the taxable_year for which he or she seeks relief relief is not available to the requesting spouse under sec_6015 or c the requesting spouse applies for relief no later than two years after the date of the service’s first collection activity after date with respect to the requesting spouse 22notice sec_4 a i r b pincite provides that i f the requesting spouse is applying for relief from a liability or a portion of a liability that remains unpaid the request for relief must be made before the expiration of the period of limitation on collection of the income_tax_liability as provided in sec_6502 generally that period expires years after the assessment of tax respondent does not contend that petitioner failed to satisfy the threshold requirement of revproc_2003_61 sec_4 c b pincite no assets were transferred between the spouses as part of a fraudulent scheme by the spouses the nonrequesting spouse did not transfer disqualified assets to the requesting spouse the requesting spouse did not file or fail to file the return with fraudulent intent the income_tax_liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint_return the nonrequesting spouse unless one of the following exceptions applies b nominal ownership if the item is titled in the name of the requesting spouse the item is presumptively attributable to the requesting spouse this presumption is rebuttable d abuse not amounting to duress if the requesting spouse establishes that he or she was the victim of abuse prior to the time the return was signed and that as a result of the prior abuse the requesting spouse did not challenge the treatment of any items on the return for fear of the nonrequesting spouse’s retaliation the service will consider granting equitable relief although the deficiency or underpayment may be attributable in part or in full to an item of the requesting spouse petitioner satisfies revproc_2003_61 sec_4 - dollar_figure respondent contends that petitioner does not satisfy sec_4 because the remaining liability is attributable to her items petitioner contends that she satisfies sec_4 because either the nominal ownership exception or the abuse not amounting to duress exception applies nominal ownership under revproc_2003_61 sec_4 b a requesting spouse who is a named owner may rebut the presumption of ownership see 431_fedappx_130 3d cir aff’g tcmemo_2009_281 revproc_2003_61 sec_4 b provides the following example b nominal ownership for example h opens an individual_retirement_account ira in w’s name and forges w’s signature on the ira in thereafter h makes contributions to the ira and in takes a taxable_distribution from the ira h and w 23in his brief respondent contends that petitioner does not satisfy revproc_2003_61 sec_4 we reject this contention as described supra pp petitioner does not qualify for relief under sec_6015 and qualifies for only partial relief under sec_6015 because we have not relieved petitioner of all liability for the deficiencies she satisfies revproc_2003_61 sec_4 see eg phemister v commissioner tcmemo_2009_201 furthermore in his status report filed date respondent concedes that petitioner meets all of the threshold conditions except sec_4 24notice supra proposes no significant changes to the nominal ownership exception see notice_2012_8 sec_3 b i r b pincite- file a joint_return for the taxable_year but do not report the taxable_distribution on their joint_return the service later proposes a deficiency relating to the taxable ira distribution and assesses the deficiency against h and w w requests relief from joint_and_several_liability under sec_6015 w establishes that w did not contribute to the ira sign paperwork relating to the ira or otherwise act as if w were the owner of the ira w thereby rebutted the presumption that the ira is attributable to w furthermore if the requesting spouse acts as an owner of the investment the requesting spouse cannot avoid attribution see bell v commissioner tcmemo_2011_152 petitioner and mr deihl jointly owned mayor and karemor of mayor and of karemor is presumptively attributable to petitioner petitioner has not produced evidence sufficient to rebut this presumption in the example in revproc_2003_61 sec_4 b the requesting spouse had no knowledge of the investment and her nominal ownership resulted from the nonrequesting spouse’s forgery unlike the spouse in the example petitioner knew about mayor and karemor and knew that she owned of both corporations petitioner acted as an owner of the corporations by signing corporate documents and checks using corporate credit cards drawing a salary from karemor and actively participating in business activities we conclude that the nominal ownership exception does not apply abuse not amounting to duress under revproc_2003_61 sec_4 d if the requesting spouse proves that she was a victim of abuse sec_6015 relief may be granted even though the liability is attributable to items of the requesting spouse for purposes of innocent spouse relief abuse includes verifiable physical harm as well as severe psychological mistreatment see nihiser v commissioner tcmemo_2008_135 if the requesting spouse did not question or disobey the nonrequesting spouse for fear of such abuse the abuse exception applies thomassen v commissioner tcmemo_2011_88 stephenson v commissioner tcmemo_2011_16 this court requires substantiation or at a minimum specificity with regard to allegations of abuse see nihiser v commissioner tcmemo_2008_135 a generalized claim of abuse is insufficient see thomassen v commissioner tcmemo_2011_88 knorr v commissioner tcmemo_2004_212 to carry this burden it is helpful for the requesting spouse to provide corroborating evidence or substantiation of the alleged abuse see thomassen v commissioner tcmemo_2011_88 25notice supra proposes no significant changes to the abuse not amounting to duress exception to the threshold requirement of revproc_2003_61 sec_4 see notice_2012_8 sec_3 d i r b pincite petitioner testified that mr deihl physically and mentally abused her throughout their marriage she further testified that she never questioned mr deihl’s decisions for fear of retaliation petitioner testified that she did not report the physical abuse to the police or other law enforcement authorities petitioner’s testimony was not specific as to the timeframe of the alleged abuse and she did not testify as to any specific abuse that occurred during the relevant timeframe petitioner did not testify that mr deihl’s physical or verbal abuse affected her decision to file or sign a joint_return when questioned about signing the joint returns petitioner did not mention mr deihl’s physical or verbal abuse petitioner simply testified that she signed the joint returns when mr deihl presented them to her petitioner’s son william m deihl testified that he heard mr deihl verbally abusing her and saw signs of physical abuse such as bruises william m deihl testified that he last observed signs of physical abuse in when questioned about mr deihl’s verbal abuse william m deihl testified that mr deihl constantly yelled at petitioner no one else testified regarding any abuse of petitioner by mr deihl abuse is a genuine reason to grant relief from joint_and_several_liability and we are sensitive to the legal and emotional issues related thereto however we cannot conclude on this record that petitioner did not question the treatment of items reported on the joint returns for fear of mr deihl’s retaliation we did not find petitioner’s testimony credible or convincing petitioner provided no substantiation of the alleged abuse such as a police incident report or a medical report as corroborating evidence petitioner introduced only the testimony of william m deihl which we do not find credible in the absence of corroborating evidence we are not required to accept petitioner’s self-serving testimony see 112_tc_183 petitioner has failed to meet her burden of proving that she was a victim of abuse petitioner has not satisfied the seventh threshold condition of revproc_2003_61 supra consequently we conclude that petitioner is not entitled to sec_6015 relief from the parts of the tax_liabilities attributable to her 26petitioner’s son may have a personal_interest in the result of this litigation he may have received property from petitioner after mr deihl’s death for no consideration in addition he is employed by the successor_in_interest to karemor and the record does not disclose whether he has an ownership_interest in the continuing companies or how he might have obtained that interest in the absence of persuasive corroborating evidence we are not required to accept the self-serving testimony of interested parties see 466_us_485 87_tc_74 we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing decisions will be entered under rule


tcmemo_1996_489 united_states tax_court the cleveland trencher company petitioner v commissioner of internal revenue respondent docket no filed date metin aydin an officer for petitioner marc a shapiro for respondent memorandum findings_of_fact and opinion beghe judge respondent determined a deficiency of dollar_figure in petitioner's income_tax for the taxable_year ended date after concessions the sole issue for decision is whether petitioner is entitled to a deduction for dollar_figure of commission expense that respondent disallowed findings_of_fact some of the facts have been stipulated and are so found the stipulations of fact and the exhibits thereto are incorporated herein the cleveland trencher co petitioner is an ohio corporation whose principal_place_of_business was in cleveland when the petition was filed petitioner is an accrual basis taxpayer petitioner established in is in the business of manufacturing and selling trenching machines also called ditching machines or trenchers trenchers are tractorlike machines used to dig ditches for pipelines irrigation channels and other purposes a corporation called a-a-h international trading co inc was incorporated in ohio in to operate an export import business and any lawful act or activity for which corporations may be formed under ohio law its corporate charter was revoked in on date petitioner entered into an agreement the first commission agreement with aa h international aa h the agreement was executed on behalf of aa h by metin aydin mr aydin on date petitioner entered into another agreement the second commission agreement with aa h and mr aydin the second commission agreement called for payments to be made by petitioner to aa h or mr aydin and was signed twice by mr aydin in his personal capacity and on behalf of aa h the second commission agreement does not refer to the first commission agreement but the two agreements cover similar subject matter the entitlement to payments in respect of the supply and sale of trenching machines to a turkish government agency first commission agreement or the government of turkey second commission agreement the first commission agreement refers to bid and provides for a schedule of payments to aa h of all proceeds in excess of specified amounts received for three types of trenching machines the specified amounts ranging from dollar_figure to dollar_figure per unit f o b factory for example if petitioner should sell one of its least expensive trencher machines to the turkish government agency for dollar_figure with the assistance of aa h petitioner would be obligated under the commission agreement to remit dollar_figure dollar_figure - dollar_figure to aa h petitioner agrees to absorb any penalties imposed for late payment provided that delays are not caused by situations beyond its control and aa h agrees to pay from its share of the proceeds all commissions consulting fees freight and other miscellaneous expenses related to this contract the second commission agreement fixes the liability to make payments under the underlying sales contract specifies that its terms of payment to mr aydin or aa h are irrevocable sight letter_of_credit confirmed by a major u s bank and provides for a delay in payment of no more than work days after funds are received by petitioner the schedule of payments for the three types of machines is identical to that under the first commission agreement except that the threshold of the obligation to make payments with respect to the most expensive heavy-duty machine--model 7036-sd--is raised from dollar_figure to dollar_figure per unit the second commission agreement contains four pairs of disjunctive references to metin aydin or aa h international the preamble referring to the following terms of payment to mr aydin or aa h for sales he secures for the government of turkey petitioner's acceptance of liability for amounts due to mr aydin or aa h when an acceptable letter_of_credit is received the agreement of mr aydin or aa h to allow delay in payment of no more than business days after funds are received by petitioner and mr aydin's two signatures on behalf of himself and aa h in date mr aydin having sold trenching machines for petitioner in previous years as a sales representative became the owner and sole shareholder of petitioner he owned percent of the stock of petitioner during the taxable_year ended date his acquisition of petitioner occurred against expert advice questioning his wisdom in doing so petitioner's financial posture was and continues to be shaky mr aydin's purchase of petitioner saved at least temporarily the jobs of several individuals mr aydin has a valid green card which was issued to him in confirming his status as a resident_alien of the united_states mr aydin is of armenian descent and continues to use a turkish passport mr and mrs aydin filed a joint u s individual_income_tax_return on form 1040a for the calendar_year and are cash_basis taxpayers mr and mrs aydin reported no income from aa h on that joint_return aa h has a one-room office in petitioner's building in cleveland mr aydin carried out extensive business for aa h aa h never filed any u s income_tax returns although evidence was presented at trial that aa h did business in turkey there is no evidence that it was registered to do business there if aa h had any books_and_records at all for the years and mr aydin sent them to turkey petitioner at some time in entered into an agreement with the general directorate of rural services republic of turkey turkish government to build cleveland trencher trenching machines for dollar_figure petitioner entered into a second agreement dated date with the turkish government to build cleveland trencher trenching machines for dollar_figure the record contains a credit memo on petitioner's letterhead to aa h dated date bearing an order date of date and referring to a commission credit for turkey contract in the amount of dollar_figure the record contains a series of documents beginning with an advice dated date from chase manhattan bank in the united_states to chase manhattan bank istanbul turkey to pay the bid bond under the second agreement for the sale of trenching machines shipping and insurance documents indicating that at least of the trenching machines under the second sales agreement had been shipped during the fiscal_year ended date culminating in petitioner's invoice to the turkish government that as of date the balance due petitioner on the sale of trenching machines amounted to dollar_figure and that as of date petitioner had not yet been paid this amount on petitioner's form_1120 u s_corporation income_tax return for its fiscal_year ending date petitioner accrued a deduction of dollar_figure for commissions respondent disallowed dollar_figure of the claimed deduction on the ground that petitioner had not established that this amount had been paid_or_incurred for the purpose designated or that it qualified as a business_expense under sec_162 and sec_267 although schedule m to the return shows a deficit in retained earnings_of dollar_figure at the beginning of the fiscal_year no net_operating_loss_deduction is claimed on the face of the return payment of the dollar_figure had not been made at the time of the trial and apparently has still not been made at the time of trial petitioner still owed approximately dollar_figure as commissions and interest on sales of trenching machines to the turkish government opinion respondent's determinations are presumed to be correct and petitioner bears the burden of showing that they are wrong rule a petitioner has not carried its burdens of proof and persuasion that it is entitled under sec_162 and sec_267 to the balance of the commission deduction expense that respondent disallowed issue accrual of expense deduction for commission balance petitioner asserts that the disputed claimed deduction of dollar_figure represents accrued commissions and interest to aa h from sales that occurred in the tax_year ending date respondent argues that petitioner has not satisfied the all 1unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure events test as modified by the economic_performance test for the deduction at issue whether a business_expense has been incurred so as to entitle an accrual basis taxpayer to deduct it under sec_162 has long been governed by the all_events_test 481_us_239 476_us_593 sec_1_461-1 income_tax regs in congress added to the internal_revenue_code a new sec_461 that provides that in certain circumstances the all_events_test is not met until economic_performance occurs united_states v general dynamics corp supra pincite n halle v commissioner tcmemo_1996_116 spitzer columbus inc v commissioner tcmemo_1995_397 sec_1_461-4 income_tax regs here economic_performance occurred as aa h provided to petitioner the services covered by petitioner's obligation sec_461 sec_1_461-4 income_tax regs although 2petitioner although having listed the deduction as a commission expense deduction on its income_tax return claims on brief that the disputed deduction was of interest on what it owed to aa h if the disputed amount is interest then economic_performance occurred as the interest cost economically accrued sec_1_461-4 income_tax regs however petitioner adduces as evidence for the assertion that the disputed amount is interest only a credit memo of petitioner allowing a commission credit to aa h for the turkey contract of dollar_figure petitioner has not shown how the interest economically accrued nor how to the extent that interest did accrue it is not included in as much of the total deduction as respondent has allowed one of continued we have no doubt that mr aydin procured the sales of trencher machines to the turkish government the record is obscure as to precisely what services aa h provided and when it provided them so as to give rise to the rights of aa h or mr aydin to receive commission payments there is evidence that at least some necessary services had not been provided at the end of petitioner's fiscal_year ended date that the sale of at least two trencher machines under the second agreement had not been completed and that petitioner had not received a substantial portion of the payments due from the turkish government the credit memo that petitioner produced does not demonstrate performance during the taxable_year we therefore continued petitioner's witnesses at trial testified that petitioner owed to aa h at that point dollar_figure including interest which is inconsistent with the view that all of the deduction which respondent allowed plus this additional disputed amount consists entirely of interest in characterizing the deduction at trial mr aydin did not mention that any of it was interest 3additionally it is arguable that petitioner's liability to the extent that respondent did not recognize it as a business_expense under sec_162 and sec_267 did not arise from an arm's- length arrangement between petitioner and aa h and so cannot be deducted see bissey v commissioner tcmemo_1994_540 van valkenburgh v commissioner tcmemo_1967_162 petitioner in its trial memorandum said that it had in each of the years and a tax loss carryover in excess of the amount in dispute although mr aydin made cursory mention of this at trial he did not pursue it then and petitioner has made no argument to that effect on brief we hold petitioner to have waived the argument and therefore do not consider whether in view of mr aydin's acquisition of continued find that petitioner has not carried its burden of showing that the all_events_test was satisfied during the taxable_year issue related_party objection to the deduction the parties dispute what kind of business_entity aa h was and how great mr aydin's ownership_interest in it was respondent claims aa h is mr aydin's sole_proprietorship petitioner claims that aa h is a turkish business_entity of unspecified nature which operated as petitioner's agent in the republic of turkey as a ghost company trading in turkey with an address and attorney in turkey in which mr aydin held a percent interest with an option to purchase an additional percent aa h is either a sole_proprietorship a partnership or a corporation the record does not enable us to determine which of these it is if aa h were a sole_proprietorship then it would be identical for tax purposes with mr aydin who as a resident continued petitioner sec_382 renders petitioner unable to claim a net_operating_loss_deduction for any such carryover cf 104_tc_584 4turkey has the panoply of forms of business_enterprise characteristic of civil law systems including corporations anonim cid irketler limited_liability companies limited cid irketler general partnerships kollektif cid irketler limited_partnerships komandit cid irketler and sole proprietorships schneider bilgen foreign investment laws in the republic of turkey a model for reform transnatl law mr aydin testified to aa h's being a ghost company but we have no way of knowing to which of these forms that characterization would correspond alien is a u_s_person sec_7701 since mr aydin owns more than percent of petitioner he and petitioner would be related_taxpayers under sec_267 mr aydin has the burden of establishing that he is not a cash_basis taxpayer 33_tc_677 remanded on compromise aftr 2d ustc par 7th cir cited for this point in 390_f2d_965 and he has not met that burden indeed his federal personal income_tax return for indicates that he is a cash_basis taxpayer petitioner admits that the subject dollar_figure was not paid during the year in issue neither mr aydin nor aa h included the subject commission in income sec_267 does not allow a payor to deduct an amount before it is included in the payee's gross_income where a by reason of the payee's method_of_accounting the amount is not gross_income to the payee until paid and b the payor and payee are related_taxpayers within the terms of sec_267 if aa h is a sole_proprietorship both these requirements would be 5the court_of_appeals for the seventh circuit in north american service co v commissioner ordered this case remanded and disposed of in accordance with a stipulated settlement as this court has previously noted this remand does not affect the vitality of the opinion as an expression of the tax court's views on the issue involved see cosmopolitan credit corp v commissioner t c memo n met and sec_267 would prevent the deduction of the dollar_figure in issue respondent in seeking to establish that aa h is a sole_proprietorship adduces turkish law that obliges turkish business entities to register in the trade register of their domicile under pain of fine turkey commercial code türk ticaret kanunu law no of date arts laws of the republic of turkey türkiye cumhuriyeti kanunlar2 ed coker kazanc2 under rule the determination of foreign law is an issue of law for this court and we may consider any relevant material or source whether or not submitted by a party or otherwise admissible in evidence see also fed r civ p 88_f3d_501 7th cir as we read the turkish law it like its swiss antecedent or schweizerisches obligationenrecht swiss code of obligations arts applies just as much to sole proprietorships as to corporations and partnerships cf schneider bilgen foreign investment laws in the republic of turkey a model for reform transnatl law if therefore aa h and mr aydin failed to register in turkey as respondent seeks to establish that tells us nothing about the form of organization of aa h respondent admits that the information about the turkish law which she submitted to us is not admissible as evidence and we have not used it as such rule permits us to consider materials relating to foreign law whether or not they are admissible in evidence consequently we will deny petitioner's motion to strike the exhibit attached to respondent's brief that contained references to turkish law in any event we conclude nothing from respondent's information about turkish law or our own research that helps us to decide this case even if aa h is an entity distinct from mr aydin such as a partnership or corporation petitioner must show that the disputed amount sought to be deducted could not have been paid to mr aydin rather than to aa h we have seen supra pp that the second of the two commission agreements between petitioner and aa h provided for payment to aa h or mr aydin if the disputed amount could have been paid to mr aydin a cash_basis taxpayer related to petitioner under sec_267 then petitioner cannot take the deduction in the year at issue at trial mr aydin admitted that the amount in controversy related to both contracts with the turkish government and thus also to the second commission agreement between petitioner and aa h and that petitioner had to show that as of he no longer had the right to receive the payments in question but petitioner has not done so as a result petitioner's accrual of the deduction for the unpaid commission must be disallowed under sec_267 our disposition of the case on this ground makes it unnecessary for us to address whether aa h was an entity such as a partnership or corporation or the extent of mr aydin's ownership_interest in it we therefore need not consider whether aa h was a foreign_entity so as to bring sec_267 into play for the foregoing reasons an appropriate order and decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date number release date cc dom fs it a tl-n-3527-99 uilc 216-dollar_figure internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel field service cc dom fs subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer x year year year year year year year issue s whether the taxpayer was required to seek approval of the commissioner pursuant to sec_442 before changing its accounting_period in year whether the taxpayer could carry forward its net operating losses from prior tax years to its short_period for year whether the taxpayer’s failure to qualify for sec_216 cooperative_housing_corporation status in the short_year prevented it from qualifying in subsequent taxable years conclusion the taxpayer was not required to seek the approval of the commissioner in order to change its accounting_period the taxpayer can carry forward its net operating losses the taxpayer’s failure to qualify for cooperative_housing_corporation status in the short_year does not affect its qualification in other years facts the taxpayer incorporated in year and began filing tax returns on a calendar_year basis in year it acquired land and a building and qualified as a cooperative_housing_corporation under sec_216 in year it sold shares of stock to x an unrelated entity in connection with a lease of commercial property in the building x made pre-paid rental payments in january of year that caused it to lose its qualification as a cooperative because of the rule in sec_216 the taxpayer filed a short_year return for the period ending january year attaching the following statement to the return the corporation is hereby changing its fiscal tax_year under the provisions of reg c it does hereby affirm that the conditions contained in that regulation are met and there is no infirmity in making the automatic election to change its year from a calendar_year to one which ends on january the taxpayer filed a 12-month return for the year ended january year the taxpayer has subsequently filed on the basis of years ended january while it was a cooperative_housing_corporation the taxpayer incurred net operating losses for year year year year and year the taxpayer used those losses in the short_year return for the year ended january year law and analysis sec_1_442-1 provides that a c_corporation can change its annual_accounting_period without prior approval of the commissioner if the corporation complies with the relevant procedural rule and meets five requirements based on your submission the procedural requirements were met and all five substantive requirements listed in the regulations were also met the regulations under sec_442 do not provide any special rules for cooperative housing corporations that would change this result for the years in question net operating losses could be carried back taxable years and forward taxable years for purposes of net operating losses a fractional part of a year that is a taxable_year under sec_441 and sec_7701 is treated as a taxable_year sec_1_172-4 valley paperback manufacturers inc v commissioner tcmemo_1975_311 discussion of legislative_history accordingly absent any authority to the contrary the taxpayer should be able to use its net operating losses from year sec_1 through in the short_year ended january year the regulations under sec_172 do not provide any special rules for cooperative housing corporations furthermore there is nothing in sec_216 or the regulations thereunder that prevents use of the carryforward indeed we would not expect to find such a limitation in the cooperative_housing_corporation provisions those provisions are designed to place the owner occupants of housing cooperatives in the same place as homeowners with respect to the deduction of mortgage interest real_estate_taxes as well as depreciation for those shareholders owning interests for business or investment purposes in other respects the corporation generally is subject_to the same rules as other corporations accordingly we see no reason why the taxpayer could not change its annual_accounting_period and use the net_operating_loss carryforward against its income for that period a corporation having the characteristics set forth in sec_216 in a taxable_year is a cooperative_housing_corporation in that year a corporation not having those characteristics is not a cooperative_housing_corporation in that year as revrul_59_257 1959_2_cb_101 states whether or not a corporation is a cooperative_housing_corporation as defined in the code must be determined with respect to each year in other words the determination is made for each year independent of other years and the corporation’s status as a cooperative_housing_corporation can change from year to year accordingly the taxpayer’s failure to qualify as a sec_216 cooperative_housing_corporation in a short taxable_year does not prevent it from qualifying in subsequent years case development hazards and other considerations our answers presuppose that the facts presented are correct if any of them are not the taxpayer may not have qualified for the automatic change in its accounting_period if development of the facts indicate that this is the case the taxpayer should have filed a return for calendar_year with the consequences that flow from that which include potential disallowance of cooperative_housing_corporation status for the entire tax_year and a requirement that the net_operating_loss carryforward be used up in the calendar_year return we considered that the taxpayer’s plan was abusive and should be challenged on such a basis however after reflecting on this we do not think that such an argument should be made and the transaction allowed while the plan adopted by the taxpayer allowed it to in effect cushion the effects of a one-time receipt of income for one month without losing its cooperative_housing_corporation status for the rest of the year we observe that the shareholders would not be entitled to the benefits of sec_216 and the passthrough of deductions allowable under sec_216 for that month given this analysis and the statutory scheme that seems to allow this we would not recommend challenging the transaction if you have any further questions please call the branch telephone number by gerald m horan senior technician reviewer income_tax accounting branch


t c no united_states tax_court henry randolph consulting petitioner v commissioner of internal revenue respondent docket no filed date p has moved to dismiss this case for lack of jurisdiction on the ground that the notice_of_determination concerning worker classification under sec_7436 is invalid for failure to identify by name the individuals determined by respondent to be employees held the notice is not invalid and p's motion is denied george w connelly jr linda s paine and william o grimsinger for petitioner m kathryn bellis for respondent opinion cohen chief_judge in 112_tc_1 randolph consulting i we considered and granted respondent's motion to dismiss for lack of jurisdiction and to strike as to the amounts of employment_taxes proposed for assessment by the respondent for the years in issue the case is now before the court on petitioner's motion for judgment on the pleadings which is more properly characterized as petitioner's motion to dismiss for lack of jurisdiction on the ground that respondent did not issue a valid notice_of_determination concerning worker classification under sec_7436 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue as we discussed in detail in randolph consulting i on date respondent mailed to petitioner a notice_of_determination concerning worker classification under sec_7436 that notice stated in part we have determined that the individual s listed or described on the attached schedule are to be legally classified as employees for purposes of federal employment_taxes the attachments to the notice_of_determination did not include a list of the individuals by name they did include however a copy of examination changes---federal unemployment tax for form and employment_tax examination changes report for and form detailing respondent's wage adjustments for employees and employees and included calculations of the amounts to be assessed after the court granted respondent's motion to dismiss for lack of jurisdiction and to strike as to the amounts of employment_taxes proposed for assessment by the respondent respondent's answer was filed attached to the answer was a list of individuals that respondent determined should be reclassified as employees of petitioner petitioner then filed its motion arguing that the notice is invalid because the list of individuals was not part of the notice_of_determination sent to petitioner in date petitioner asserts the shortcoming is tantamount to failure to specify the amount of the determined deficiency anywhere in a notice_of_deficiency in a case under sec_6212 respondent argues that the standard to be applied toa notice_of_determination is whether it advises the taxpayer that respondent has determined that for specified time periods some or all of its workers are to be reclassified as employees and that the notice in this case meets that standard respondent acknowledges that petitioner's analogy between the notice_of_determination and a notice_of_deficiency is reasonable inasmuch as the form of neither is prescribed by statute respondent contends however that petitioner overreaches the scope of the analogy in equating the list of workers reclassified with the amount of a deficiency respondent notes that sec_7522 effective for notices sent on or after date provides certain requirements for the statutory notice but also provides that inadequate description of the amount shall not invalidate such notice sec_6212 is not among those sections referred to in sec_7436 which provides that the principles of certain other sections shall apply to cases arising under sec_7436 nonetheless we agree with the parties that a general analogy to cases involving deficiency notices is useful we do not agree with petitioner however that those cases suggest that the notice in this case is fatally defective we need not discuss every case cited by either party specifically discussions of circumstances in which the court will or will not examine events occurring prior to the time a notice was sent are not useful here inasmuch as petitioner acknowledges that it has not been misled and asserts that this is not a question of being misled we need not discuss cases in which inconsistencies in a notice arguably created confusion nor need we discuss cases in which the notice showed on it face that there was no determination such as 814_f2d_1363 9th cir revg 81_tc_855 or cases limiting the application of scar such as 875_f2d_1396 9th cir petitioner argues that none of the cases cited by respondent are on point but petitioner has cited no case that held invalid a notice analogous to the notice in issue here petitioner relies on ipse dixit and on the bald assertion that the statutory scheme in this case is clear and respondent has manifestly violated it we are not persuaded the statutory scheme provides to taxpayers a remedy not previously available to wit an opportunity to have employment status disputes resolved in this court see randolph consulting i supra pincite as in other cases within our jurisdiction the notice of that determination is the taxpayer's ticket to the tax_court the notice sent to petitioner is the notice_of_determination concerning worker classification under sec_7436 that permits the taxpayer to seek relief in this court it specifically states that the determination described in sec_7436 has been made as we held in randolph consulting i we do not have jurisdiction to determine the amount of taxes owing in any event attachments to the notice sent to petitioner calculated the amounts to be assessed the failure to attach the list of named individuals that respondent determined to be employees is not incurable it was cured in this instance by the attachment to the answer and no prejudice to petitioner can be asserted plausibly there is nothing on the face of the notice that suggested no determination was made prior to the time the notice was sent there is no dispute that the name of the taxpayer and the affected tax periods are set forth in the notice in randolph consulting i t c pincite we concluded that sec_7436 is more like the declaratory_judgment provisions than like the deficiency jurisdiction under which we may redetermine the amount of tax due petitioner has not cited and we have not found any declaratory_judgment case in which a notice_of_determination was held inadequate cases involving a taxpayer's attempt to invoke our jurisdiction on the basis of a document that was not a notice of final_determination have been dismissed on respondent's motions see 79_tc_390 72_tc_372 petitioner's contention that the notice is invalid for failure to specify the individual or individuals whose status has been determined therefore is only comparable or analogous to arguments by taxpayers that a notice was invalid for failure to explain the adjustments failure to cite statutory provisions on which respondent relied or inconsistencies in the notice the cases have held that none of the asserted inadequacies invalidates the notice see eg 90_tc_110 47_tc_340 st paul bottling co v commissioner 34_tc_1137 in conclusion petitioner has not provided any statutory language case law or convincing reason to invalidate the notice in this case an order denying petitioner's motion will be issued


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b02-plr-143499-03 date date legend x a d1 year dear this responds to a letter dated date submitted by x’s authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the sole shareholder of x represents that x was intended to be an s_corporation effective d1 of year the organizational minutes of x indicate this intent moreover a form_1120s u s income_tax return for an s_corporation was filed for the year taxable_year indicating the shareholder’s intention that x be an s_corporation however no form_2553 election to be a small_business_corporation was timely filed for x sec_1362 of the code provides that if - a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year plr-143499-03 based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x and x’s other authorized representative sincerely yours audrey ellis reviewer cc psi office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes