tcmemo_2003_69 united_states tax_court michael d keown and rosann c keown petitioners v commissioner of internal revenue respondent docket no 16173-02l filed date michael d keown and rosann c keown pro sese wendy s harris for respondent memorandum opinion chiechi judge this case is before the court on respondent’s motion for summary_judgment and to impose a penalty under section respondent’s motion we shall grant respondent’s motion background the record establishes and or the parties do not dispute the following petitioners resided in henderson nevada at the time they filed the petition in this case on date petitioners filed jointly a federal_income_tax tax_return for their taxable_year joint_return in their joint_return petitioners reported total income of dollar_figure and tax due of dollar_figure although petitioners attached to their joint_return form 1040-v payment voucher reflecting a payment of dollar_figure they did not remit any such payment with that return on date respondent assessed petitioners’ tax as well as any penalties and interest as provided by law for their taxable_year we shall refer to any such unpaid assessed amounts as well as interest as provided by law accrued after date as petitioners’ unpaid liability for 1all section references are to the internal_revenue_code in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure 2although the court ordered petitioners to file a response to respondent’s motion petitioners failed to do so on date respondent issued to petitioners a notice of balance due with respect to petitioners’ unpaid liabil- ity for on or about september october and date and january and date petitioners sent respondent payments totaling dollar_figure with respect to petitioners’ unpaid liability for petitioners did not make any payments after date with respect to that unpaid liability on date respondent issued to petitioners a final notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy with respect to their taxable_year on date in response to the notice_of_intent_to_levy petitioners filed form request for a collection_due_process_hearing form and requested a hearing with respondent’s appeals_office appeals_office petitioners attached inter alia a document to their form petitioners’ attachment to form that contained state- ments contentions arguments and requests that the court finds to be frivolous and or groundless on date a settlement officer with respondent’ sec_3petitioners’ attachment to form contained statements contentions arguments and requests that are similar to the statements contentions arguments and requests contained in the attachment to form filed with the internal_revenue_service by certain other taxpayers with cases in the court see eg copeland v commissioner tcmemo_2003_46 smith v commis- sioner tcmemo_2003_45 appeals_office settlement officer held an appeals_office hearing with petitioner michael d keown mr keown with re- spect to the notice_of_intent_to_levy at the appeals_office hearing the settlement officer gave mr keown form_4340 certif- icate of assessments payments and other specified matters with respect to petitioners’ taxable_year on date the appeals_office issued a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination to mr keown and a separate notice_of_determination to ms keown we shall refer collec- tively to those two notices as petitioners’ notices of determina- tion an attachment to each such notice_of_determination stated in pertinent part what is the issue the taxpayers requested a hearing under the provisions of sec_6330 to contest the intent to levy notice letter lt-11 verification of legal and procedural requirements the secretary has provided sufficient verification that all legal and procedural requirements have been met appeals has reviewed computer transcripts verifying the assessment an assessment was made and the taxpayers were issued notice_and_demand letters by regular mail to the taxpayers’ last_known_address as required under sec_6303 they neglected or refused to pay the notices required under sec_6331 and sec_6330 were combined 4petitioner rosann c keown ms keown did not appear at the appeals_office hearing held on date in letter lt-11 dated which was mailed certified to the taxpayers’ last_known_address the taxpayers responded with form request for a collection_due_process_hearing which was received the taxpayers’ appeal was timely the taxpayers are entitled to judicial review appropri- ately tc520 was input staying collection this is a levy issue only no notice_of_federal_tax_lien has been filed the taxpayer appeared in person for his collection_due_process_hearing his spouse chose to work instead of coming to the hearing settlement officer mike freitag conducted the hearing and settlement officer donna fisher was also in attendance at the hearing the taxpayer was asked if he had any recording devices he said he did not have one and was again reminded that no recording of appeals hearings was allowed settlement officer mike freitag has had no prior in- volvement with respect to these tax_liabilities issues raised by the taxpayer the taxpayer and his wife timely filed their joint income_tax return for showing taxable earnings attaching their w-2 forms and showing tax due on the return at the hearing the taxpayer was asked to point out any irregularities in the making of the assessment he stated he couldn’t point out any irregularities and thought that the return was correct at the time of filing but continued with his non-filer arguments when the taxpayers were mailed letter lt-11 final notice-notice of intent to levy and notice of your right to a hearing the taxpayers responded with form attaching several page sic of non-filer argu- ments at the hearing appeals provided the following docu- ments a b a copy of the memorandum of stating audio and stenographic recordings of appeals cases will no longer be allowed copies of the forms to which the forms c d e certificate of assessment are annexed for the period in dispute a copy of sec_6673 of the i r c showing that the tax_court can impose sanctions of up to dollar_figure when a taxpayer institutes litiga- tion before it primarily for delay or based on a frivolous position a copy of the case davis v comm t c memo sic in which it shows that the court imposed sanctions of dollar_figure against the taxpayer for raising frivolous arguments in a cdp case a copy of the case perry v comm t c memo sic in which the court imposed sanctions of dollar_figure against the taxpayer for raising frivolous arguments in a cdp case upon receipt of the first court opinion he stated the courts were a separate issue and when appeals tried to explain that the court could impose sanctions he stated that would be like squeezing the turnip the taxpayer was asked if he were sic interested in collection alternatives such as an offer_in_compromise or an installment_agreement and was reminded that all returns due to date must be appropriately filed for an offer to be considered or for an installment agree- ment according to irs computer records the taxpayers have not filed returns for the taxpayer claims the returns have been filed showing zero income he was asked if he had wages and he said yes but stated he did not believe that wages were taxable_income and he was unwilling to discuss collection alternatives collection issues could not be discussed with rosann keown as she did not attend the hearing the taxpayer raised no non-filer issues the informa- tion previously submitted by the taxpayers was re- viewed and rosann keown raised no non-filer issues balancing the need for efficient collection with tax- payer concerns the requirements of all applicable laws and administra- tive procedures have been met the taxpayers received their required notices at the hearing appeals raised collection alternatives with michael keown but he was not interested given the taxpayers’ continued non- compliance the government should be allowed to proceed with its proposed enforcement action its intent to levy lacking the taxpayers’ cooperation the proposed collection action balances the need for efficient collection with the taxpayer’s sic concern that any collection action be no more intrusive than necessary discussion the court may grant summary_judgment where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue of material fact regard- ing the questions raised in respondent’s motion a taxpayer may raise challenges to the existence or the amount of the taxpayer’s underlying tax_liability if the taxpayer did not receive a notice_of_deficiency or did not otherwise have an opportunity to dispute the tax_liability sec_6330 where the validity of the underlying tax_liability is properly placed at issue the court will review the matter on a de novo basis 114_tc_604 114_tc_176 although petitioners did not receive a notice_of_deficiency with respect to their taxable_year the contentions that petitioners raised at their appeals_office hearing and in their petition with respect to petitioners’ unpaid liability for are that they had no statutory income to report that wages are not income and that no section makes them liable for tax the court finds those contentions to be frivolous and groundless we now turn to the remaining issues that petitioners raised at their appeals_office hearing and in the petition with respect to petitioners’ notices of determination which we shall review for abuse_of_discretion sego v commissioner supra goza v commissioner supra we find all those remaining issues to be frivolous and or groundless based upon our examination of the entire record before us we find that respondent did not abuse respondent’s discretion in determining to proceed with the collection action as determined in petitioners’ notices of determination with respect to peti- tioners’ taxable_year in respondent’s motion respondent requests that the court require petitioners to pay a penalty to the united_states pursu- ant to sec_6673 sec_6673 authorizes the court to require a taxpayer to pay to the united_states a penalty in an amount not to exceed dollar_figure whenever it appears to the court inter alia that a proceeding before it was instituted or maintained primarily for delay sec_6673 or that the taxpayer’s position in such a proceeding is frivolous or ground- less sec_6673 in 115_tc_576 we issued an unequivocal warning to taxpayers concerning the imposi- tion of a penalty under sec_6673 on those taxpayers who abuse the protections afforded by sec_6320 and sec_6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in such actions in the instant case petitioners advance we believe primar- ily for delay frivolous and or groundless contentions argu- ments and requests thereby causing the court to waste its limited resources we shall impose a penalty on petitioners pursuant to sec_6673 in the amount of dollar_figure we have considered all of petitioners’ contentions argu- ments and requests that are not discussed herein and we find them to be without merit and or irrelevant on the record before us we shall grant respondent’s motion to reflect the foregoing an appropriate order granting respondent’s motion and decision will be entered for respondent 5we note that petitioners allege in the petition that by not allowing petitioner to make an adequate record of the cdp hearing respondent violated sec_7521 we shall not address petitioners’ allegation that is because assuming arguendo that sec_7521 were applicable in the case of an appeals_office hearing under sec_6330 the record does not establish that petitioners complied with the requirement of sec_7521 that they present respondent with their request to make an audio recording of their appeals_office hearing in advance of that hearing


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-111438-00 date date legend x a b c d e f g h i j date1 state this responds to a ruling_request dated date submitted on behalf of x which requests relief under sec_1362 of the internal_revenue_code facts x was incorporated on date1 under the laws of state at that time a b d e i and j were the shareholders of x and intended that x be treated as an s_corporation effective date1 but an s election was not timely filed currently a b c d e f g h i and j are the shareholders of x law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective plr- sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to make such election timely then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file a timely election to be treated as an s_corporation under sec_1362 effective on date1 x has however established reasonable_cause for not making a timely s election and is entitied to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date1 if x submits a form_2553 properly executed by a b c d e f g h i and j to the relevant service_center within days from the date of this letter x should also submit a copy of this letter with the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically we express no opinion as to whether x is otherwise qualified to be an s_corporation this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be cited or used as precedent as directed in a power_of_attorney on file in this office a copy of this letter_ruling is being sent to your authorized representative sincerely yours david haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court gerald jacoby and arlene jacoby petitioners v commissioner of internal revenue respondent docket no filed date martin rosen and l william fishman for petitioner gerald jacoby ira b stechel and thomas j fleming for petitioner arlene jacoby diane mirabito and gary bornholdt for respondent memorandum findings_of_fact and opinion clapp judge respondent determined deficiencies in petitioners' federal income taxes as follows year deficiency dollar_figure big_number big_number respondent also determined that petitioners are liable for increased interest pursuant to sec_6621 formerly sec_6621 for the taxable years and after concessions by the parties the sole issue for decision is whether arlene jacoby petitioner is entitled to relief as an innocent spouse for the taxable years and we hold that she is so entitled petitioner gerald jacoby gerald has reached a settlement with respondent regarding his liabilities for all taxable years all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated sec_6621 was redesignated as sec_6621 by sec_1 c a of the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 and repealed by sec b of the omnibus budget reconciliation act of obra publaw_101_239 103_stat_2106 effective for tax returns due after date obra sec d 103_stat_2400 the repeal does not affect the instant case for convenience we refer to this section as sec_6621 the annual rate of interest under sec_6621 for interest accruing after date equal sec_120 percent of the interest payable under sec_6601 with respect to any substantial_underpayment attributable to tax-motivated transactions findings_of_fact some of the facts are stipulated and are so found we incorporate by reference the stipulation of facts and attached exhibits petitioner resided in old westbury new york when the petition in this case was filed petitioner married gerald in they separated in date and obtained a divorce in petitioner graduated from high school and completed two semesters of college where she majored in child psychology following her marriage petitioner worked as a receptionist but she discontinued her job when their first child douglas was born in their second child karen was born in from the time of douglas' birth through the years in issue petitioner was a housewife and mother petitioner has no training or experience in business matters when gerald married petitioner he worked at his family's auto parts distribution business in the early 1960's gerald organized ajac transmission parts corp ajac which manufactured and repackaged automotive automatic transmission parts gerald worked hard to make ajac a success and by the mid-1970's ajac employed to people and had nationwide sales of dollar_figure million to dollar_figure million gerald also owned other businesses during the years in issue petitioner had no role in gerald's businesses petitioner never went to gerald's business offices except on one occasion when he was redecorating petitioner never attended christmas parties held for gerald's employees nor was she invited gerald never discussed with petitioner the details or the finances of his businesses gerald had no interest in discussing business matters with petitioner he considered petitioner responsible for tending the house and caring for the children gerald considered himself responsible for all matters related to his businesses and the family's finances petitioner managed a joint household checking account to which gerald contributed dollar_figure to dollar_figure monthly plus an amount for the monthly mortgage payment from this account petitioner paid the household expenses such as food and utility bills this was petitioner's sole involvement in the family's finances petitioner and gerald the jacobys led an affluent lifestyle for several years up to and during the years at issue in one of gerald's businesses acquired a pleasure boat that petitioner occasionally used with gerald they owned a residence located on acres which they purchased for dollar_figure in they had a housekeeper and took family vacations and the children attended summer camp in gerald acquired a condominium in florida that he used in connection with his business interests petitioner and the jacoby children visited the florida condominium twice in for the easter and christmas holidays petitioner also used the florida condominium on a couple of vacations while the children were out of school petitioner's lifestyle did not change during the years in issue the jacobys continued to live in the house they acquired in there were minimal increases in the family's savings and the amount of petitioner's monthly allowance received from gerald did not change neither petitioner nor the children received any large gifts from gerald during the years in issue in the early 1980's the jacobys began to live apart in gerald moved out of the marital residence permanently thereafter gerald experienced financial difficulties and business failures gerald sold his business interests to his employees in and and petitioner received no proceeds from the sale gerald sold the florida condominium in and none of the proceeds of the sale went to petitioner in gerald told petitioner that he was having serious financial problems and had incurred a great deal of debt about that same time petitioner learned that tax_liens had been filed against their home in gerald sold the boat and none of the proceeds of the sale went to petitioner in date the jacobys entered into a separation agreement under which petitioner received ownership of the marital residence in exchange for ownership of the marital residence petitioner waived her rights to alimony spousal support and spousal maintenance pursuant to the separation agreement gerald transferred full ownership of the marital residence to petitioner and petitioner incurred a dollar_figure home equity loan home equity loan using the residence as collateral gerald received dollar_figure of the proceeds from the home equity loan and petitioner used about dollar_figure of the proceeds from the home equity loan to pay the tax_liabilities attributable to income_tax deficiencies for the taxable years and those deficiencies are not at issue in this case but they are discussed below in the separation agreement gerald agreed to pay petitioner dollar_figure per month to amortize the home equity loan until the loan was repaid gerald reneged on this agreement after making six monthly payments of dollar_figure gerald also reneged on his obligation to pay a portion of the children's college expenses insurance and other expenses petitioner's divorce attorney advised her not to file suit against gerald in an attempt to enforce the separation agreement because the divorce attorney felt that gerald had no resources or income and was judgment proof in petitioner sold a portion of the land on which her home was located after the sale petitioner discovered that taxes for the taxable_year remained unpaid so she used approximately dollar_figure of the proceeds to satisfy the tax_liability she also used the proceeds for living_expenses and karen's college tuition petitioner filed in bankruptcy after the lender of the home equity loan threatened to foreclose on her residence the bankruptcy proceedings were terminated when petitioner found a buyer for her residence tax_return preparation stanley j gelda gelda prepared the jacobys' u s individual income_tax returns form sec_1040 for the years in issue gelda has been a certified_public_accountant since and he has prepared tax returns for individuals and businesses since gelda has had a long affiliation with the jacoby family gerald's parents retained gelda's firm to provide tax and accounting services in the 1960's when they organized their automobile parts distributorship when gerald formed ajac gelda handled ajac's tax and accounting work as gerald formed or acquired more businesses gelda provided accounting services for them as well gelda also advised the jacobys in personal tax matters and he prepared the jacobys' income_tax returns from through the jacobys filed joint income_tax returns for the taxable years we have concluded that the returns for and were joint returns the record is not clear as to their filing_status in prior years gelda's method for preparing the jacobys' income_tax returns did not vary gerald would meet with gelda and they would assemble the information necessary to prepare the form sec_1040 petitioner would assemble charitable_contribution receipts and mortgage payment statements and give them to gerald this was petitioner's only participation in the preparation of the form sec_1040 after preparing the returns gelda would sign them as preparer and then forward the return to gerald to sign and file petitioner knew that gelda had a longstanding professional relationship with gerald and his family and she believed that gelda was a cautious return preparer petitioner had known gelda personally since she married gerald and she trusted gelda entirely petitioner considered gelda an expert in tax matters and had no reason to question his judgment for the taxable years and the jacobys filed form sec_1040 and each form_1040 indicated a filing_status of married filing joint_return gelda prepared the form_1040 signed it and forwarded it to gerald to sign and file gerald signed petitioner's name on the form_1040 and petitioner never reviewed it petitioner did not know that gerald had placed her signature on the form_1040 and gerald never discussed with petitioner his having signed her name gelda prepared the form_1040 signed it and forwarded it to gerald to sign and file gerald gave the form_1040 to petitioner to sign and he assured her that it had been prepared properly petitioner noticed that gelda had signed the form_1040 and she believed that gelda had prepared it properly before signing the form_1040 petitioner reviewed it as best she could gelda prepared the form_1040 signed it and forwarded it to gerald to sign and file gerald signed petitioner's name on the form_1040 and petitioner never reviewed it petitioner did not know that gerald had placed her signature on the form_1040 and gerald never discussed with petitioner his having signed her name tax_shelter investments gerald invested in tax_shelters as early as as a result of gerald's tax_shelter investments respondent determined tax deficiencies against the jacobys for the taxable years and the deficiencies in the amounts of dollar_figure dollar_figure and dollar_figure respectively none of these deficiencies is at issue in this case the deficiencies were attributable to gerald's investments in hawk mining co ltd hawk mining mason coal program mason coal and t a b production co t a b production gerald reinvested the tax savings derived from the and tax_shelter investments in his businesses respondent assessed the deficiencies in income_tax the deficiencies remained unpaid until when petitioner paid them with the proceeds of the home equity loan gerald paid no portion of the deficiencies during the years in issue gerald invested in five tax_shelters that steven gurian gurian gerald's financial adviser had recommended to him ajac also invested in the tax_shelters gurian recommended gerald reinvested the tax savings derived from the and tax_shelter investments in his businesses petitioner had met gurian once at a social event and she knew that gurian was a financial adviser petitioner did not know that gurian sold tax_shelters and she never discussed business or financial matters with gurian gerald discussed each tax_shelter investment with gelda gelda reviewed the tax_shelters and concluded that the shelters were solely tax motivated with no opportunity for economic gain and he advised gerald not to invest in the tax_shelters gelda came to a definitive conclusion that each of the tax_shelters was solely tax motivated gelda never discussed the tax_shelters or gerald's businesses with petitioner gelda believed that petitioner had no knowledge of the tax_shelter investments petitioner did not know that gerald had invested in the tax_shelters and she had no ownership_interest in them she also did not know that ajac had invested in the tax_shelters petitioner was not present when the tax_shelters were discussed and she never saw the tax_shelter documents gerald never discussed the tax_shelter investments with her when petitioner noticed the amount of mail they received from the internal_revenue_service for prior tax years she asked gerald what was going on gerald told her that gelda was the accountant everything was under control and she should not worry about it gerald invested in the following tax_shelters hawk mining masada press ltd mason coal power control sales corp power control and t a b production for the taxable_year gerald claimed deductions of dollar_figure dollar_figure dollar_figure and dollar_figure attributable to the investments in hawk mining masada press ltd mason coal and t a b production respectively gerald claimed an investment_tax_credit of dollar_figure attributable to the investment in masada press ltd for the taxable_year for the taxable_year gerald claimed deductions of dollar_figure dollar_figure and dollar_figure attributable to the investments in hawk mining masada press ltd and power control respectively gerald claimed an investment_tax_credit of dollar_figure for the taxable_year but the record does not make clear to which investment this tax_credit relates when petitioner reviewed the form_1040 the deductions related to the tax_shelters had no meaning to her and she did not understand the financial consequences of the tax_shelter investments for the taxable_year gerald claimed a deduction of dollar_figure attributable to the investment in power control respondent disallowed the aforementioned deductions and investment tax_credits attributable to the tax_shelters and the jacobys filed a petition in this court in gerald and respondent entered into a stipulation of settlement for the taxable_year gerald conceded that he was not entitled to any loss attributable to hawk mining mason coal or t a b production gerald also conceded that he was not entitled to the investment_tax_credit claimed for respondent conceded that gerald was entitled to a dollar_figure loss resulting from masada press ltd that amount being equal to his cash investment for the taxable_year gerald conceded that he was not entitled to any loss attributable to hawk mining or masada press ltd gerald also conceded that he was not entitled to the investment_tax_credit claimed for respondent conceded that gerald was entitled to a dollar_figure loss resulting from power control for the taxable_year gerald conceded that he was not entitled to any loss attributable to power control gerald conceded that the deficiencies for the taxable years and were subject_to the increased rate of interest pursuant to sec_6621 respondent assessed deficiencies against gerald for his taxable years and in the amounts of dollar_figure dollar_figure and dollar_figure respectively plus interest computed pursuant to sec_6621 gerald paid nothing on the assessed amounts and thereafter filed in bankruptcy and was discharged from liability on the assessments petitioner had no representation separate from gerald's in connection with respondent's audit of the form sec_1040 for the taxable years or nor did she have separate representation at the time the petition in this case was filed opinion petitioner concedes that she is not entitled to any of the losses or investment tax_credits attributable to the tax_shelters and disallowed by respondent in the notice_of_deficiency petitioner also concedes that the deficiencies at issue are subject_to the increased rate of interest pursuant to sec_6621 spouses filing a joint_return are jointly and severally liable for the tax arising therefrom sec_6013 the innocent_spouse_rule permits a spouse to avoid joint_and_several_liability in certain cases sec_6013 for petitioner to qualify as an innocent spouse it must be established that a joint_return was filed for each year in issue that there were substantial understatements of tax and that the understatements were attributable to grossly_erroneous_items of gerald that in signing the returns she did not know or have reason to know of the substantial understatements and that taking into account all the facts and circumstances it would be inequitable to hold her liable for the deficiencies sec_6013 through d petitioner has the burden of proving that she had met each requirement of sec_6013 rule a 98_tc_28 a failure to meet any one of the requirements will preclude petitioner from relief 872_f2d_1499 11th cir affg tcmemo_1988_63 94_tc_126 affd 992_f2d_1132 11th cir sec_6013 states the numerical prerequisite to determine whether a substantial_understatement exists and sec_6013 concerns whether such understatements exceed a specified percentage of the putative innocent spouse's income respondent concedes that petitioner satisfies the requirements of sec_6013 and the parties agree that there were substantial understatements of tax attributable to items of gerald for each of the years in issue we first decide whether the jacobys filed a joint_return for each of the taxable years and whether petitioner intended to file a joint_return is a question of fact o'connor v commissi412_f2d_304 2d cir affg in part and revg in part tcmemo_1967_174 if petitioner did not file a joint income_tax return for the taxable years and she is not liable for the deficiencies determined by respondent and the question of petitioner's innocent spouse status becomes moot see 48_tc_921 the parties agree that the jacobys filed a joint_return for the taxable_year respondent concedes that petitioner did not sign the form sec_1040 for the and taxable years thus respondent must produce some evidence that petitioner intended to file a joint_return with gerald for those years o'connor v commissioner supra pincite petitioner filed a joint income_tax return for each of the taxable years and this pattern is some evidence that petitioner intended to file a joint_return in and see 56_tc_1 petitioner assembled charitable_contribution receipts and mortgage payment statements and gave them to gerald who in turn gave the documents to gelda petitioner's cooperative effort in assembling these documents and her delivering them to gerald for the sole purpose of the preparation of income_tax returns indicates that petitioner intended to file joint returns for the taxable years and see 419_f2d_1057 6th cir vacating and remanding on another issue tcmemo_1968_89 from through the years in issue gerald worked with gelda in preparing the jacobys' tax returns there existed a general understanding between petitioner and gerald that gerald would handle the family business and tax matters we find the understanding between petitioner and gerald is evidence that petitioner intended to file joint returns for and we conclude that petitioner intended to file and did file joint returns for the taxable years and we next decide whether the understatements of tax were attributable to grossly_erroneous_items a deduction for which there is no basis in fact or law is grossly erroneous sec_6013 a deduction has no basis in fact if the expense for which the deduction is taken was not made and a deduction has no basis in law if the expense is not deductible under well- established legal principles or if no substantial legal argument can be made to support its deductibility russo v commissioner supra pincite 86_tc_758 we evaluate whether a claim is grossly erroneous as of the time of filing of the tax_return 53_f3d_523 2d cir revg in part and remanding tcmemo_1993_549 petitioner cannot rely on respondent's disallowance in the statutory notice or her inability to substantiate the losses to prove the lack of basis in fact or law douglas v commissioner supra pincite petitioner's concession that respondent's adjustments for the losses are correct is not sufficient to establish that there was no basis in fact or law for the claimed losses 86_tc_228 affd 826_f2d_470 6th cir respondent concedes that the deduction related to t a b production is grossly erroneous in the stipulation of settlement entered into between respondent and gerald respondent allowed gerald a deduction of dollar_figure attributable to masada press ltd for the taxable_year and a deduction of dollar_figure attributable to power control for the taxable_year respondent argues that where a deduction was allowed in a settlement it necessarily follows that there is some basis in fact or law for that deduction respondent's agreement to a compromise settlement may suggest that the deductions claimed on a return were less than grossly erroneous see eg crowley v commissioner tcmemo_1993_503 anthony v commissioner tcmemo_1992_133 neary v commissioner tcmemo_1985_261 however parties consider a myriad of factors during settlement negotiations and we attach little weight to the stipulation of settlement in this case the naked stipulation of settlement gives no insight into which factors influenced respondent's settlement position the settlement allowed deductions to gerald for his out-of-pocket expenses in and presumably for his out-of-pocket expenses in and no deduction in the out-of-pocket_expense settlement has been entered into by respondent in numerous tax_shelter cases the stipulation of settlement does not support the inference that respondent asks this court to draw the promotional materials for each tax_shelter highlight and discuss at length the tax benefits derived from the investments each of the tax_shelters provided for deferred consideration using promissory notes that were primarily nonrecourse and secured_by the property upon which the tax_shelter was built we also consider significant gelda's conclusions reached during the years at issue as to each of the tax_shelter investments gelda was an experienced accountant who had been a certified_public_accountant since he reviewed the tax_shelter documents and attended several of the meetings with gerald and gurian gelda concluded that each of the tax_shelters had no economic_substance gelda concluded that the tax_shelters were solely tax motivated and provided no opportunity for economic gain gelda's conclusion was not equivocal gelda advised gerald not to invest in the tax_shelters but gerald rejected gelda's advice we find that the understatements of tax were attributable to grossly_erroneous_items petitioner must establish that she did not know and did not have reason to know that the deductions would give rise to a substantial_understatement friedman v commissioner supra pincite large deductions on a tax_return may give rise to a duty to inquire as to the propriety of such deductions 992_f2d_1256 2d cir affg tcmemo_1992_228 as noted below gerald assured petitioner that everything was in order and she relied on gelda's reputation as return preparer we look at the following four factors to determine whether a reasonably prudent taxpayer in petitioner's position should have known that the return contained a substantial_understatement petitioner's level of education petitioner's knowledge and experience in the family's business and financial affairs whether the family's standard of living during the years in issue was lavish compared to past levels of income and expenditures and the conduct of the culpable spouse in concealing the true state of the family's finances from petitioner friedman v commissioner supra pincite petitioner graduated from high school and completed two semesters of college she had no training or experience in business matters petitioner has worked in the home since petitioner's knowledge of the family's financial affairs and gerald's business affairs was minimal petitioner paid household expenses from a joint checking account and that was her only involvement in the family's financial affairs petitioner had no voice in the jacobys' investments and she was not aware that gerald had invested in tax_shelters she had no role in gerald's businesses and he would not discuss his business activities with her petitioner enjoyed a comfortable lifestyle during the years in issue but that lifestyle was consistent with that of prior years the tax savings from the tax_shelter investments were not used to better petitioner's standard of living rather those tax savings flowed into gerald's business activities gerald subsequently sold his business activities and petitioner received no benefits from those sales gerald generally concealed his business activities and tax_shelter investments from petitioner petitioner did not sign the or the form_1040 petitioner signed the form_1040 after being instructed to do so by gerald gerald considered all matters related to his businesses and the family finances to be his domain gerald did not discuss any investments with petitioner including the tax_shelter investments and he had no interest in discussing those matters with her gerald reinvested the tax savings derived from the tax_shelter investments in his businesses and he did not discuss this with petitioner petitioner was not present when gerald met with gurian or gelda gelda advised gerald not to invest in the tax_shelters but gerald never shared gelda's advice with petitioner petitioner satisfied any duty she may have had to inquire as to the propriety of the tax_shelter deductions petitioner reviewed the form_1040 as best she could she saw that gelda already had signed the form_1040 which led her to believe that the form_1040 had been prepared properly petitioner had known gelda for many years trusted him and knew that he had prepared the form sec_1040 in addition gerald assured petitioner that gelda properly prepared the form_1040 and that it presented no problem for her we conclude that petitioner did not know and did not have reason to know that the deductions would give rise to a substantial_understatement in determining whether it would be inequitable to hold petitioner jointly liable for the deficiencies we consider whether she significantly benefited from the erroneous items of the other spouse 9_f3d_290 3d cir affg tcmemo_1992_580 93_tc_672 any significant benefit received by petitioner must be considered in the totality of the circumstances 542_f2d_421 7th cir normal support is not considered a significant benefit 93_tc_434 we look at the lifestyle to which the taxpayer is accustomed when considering what constitutes normal support id gerald invested in his businesses the tax savings derived from the tax_shelter investments the tax savings were not used to better petitioner's standard of living gerald sold his business interests in and and petitioner received no proceeds from those sales petitioner's family vacations and use of the pleasure boat were consistent with the lifestyle to which the jacobys had become accustomed that lifestyle did not change during the years in issue petitioner received no large gifts from gerald during the years in issue and the monthly allowance she used to pay household expenses did not increase during the years in issue we also consider whether the spouses have been divorced friedman v commissioner f 3d pincite 93_tc_355 petitioner and gerald separated in date and divorced in when they separated petitioner received the marital residence petitioner obtained a home equity loan and used most of the proceeds to pay the tax_liabilities attributable to the deficiencies gerald agreed to pay petitioner dollar_figure a month to amortize the home equity loan but he reneged on that agreement given gerald's financial condition we consider inconsequential any obligation he may have had to reimburse petitioner pursuant to the separation agreement petitioner avoided bankruptcy by selling the marital residence and using the proceeds to pay the home equity loan as for the deficiencies related to the years in issue gerald and respondent entered into a settlement respondent assessed deficiencies against gerald for the taxable years and but gerald filed in bankruptcy and was discharged from liability gerald invested in tax_shelters in the taxable years through and the tax savings derived from the tax_shelter investments went into his businesses gerald left petitioner with the deficiencies for the taxable years through which she paid respondent now intends to collect from petitioner the deficiencies for the taxable years through in short gerald made the investments appropriated the benefits and left petitioner with the tab we conclude that it would be inequitable to hold petitioner liable for the deficiencies we hold that petitioner qualifies as an innocent spouse to reflect the foregoing an appropriate decision will be entered in accordance with the stipulation of settlement as to petitioner gerald be entered for petitioner arlene jacoby jacoby and decision will


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 plr-100587-05 date date re request for extension of time to file application_for certification of historic status --------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------- ------------------------------------------------------------------------- ------- ----------- ------------------------- ------------------------ --------------------- ------------------ ------- ------- ------------------ ---------------------------- -------------- ---------------------- ----------------------------------------------- ------------------ ----------------- ---------------------------------------------------------------------- taxpayer property historical district b c d e f g h i j k l m n o p sb_se official dear ----------- this letter responds to a letter filed with the national_office on date requesting an extension of time pursuant to ' of the procedure and administration regulations for taxpayer to file an application_for certification of historic status with the united_states department of interior plr-100587-05 taxpayer is the sole member of n the owner of the property the property a two-story red brick building is a certified_historic_structure in the historical district taxpayer purchased the property in b and spent dollar_figurec to restore the property before placing it in service on d for use as office and retail rental property taxpayer was unaware that he could claim a historic_rehabilitation_credit attributable to the rehabilitation consequently taxpayer did not file the application_for certification of historic status with the department of interior national park service anps before the property was placed_in_service as required by sec_1_48-12 of the income_tax regulations taxpayer did not file part of the application with the nps until e two years and two months after the property was placed_in_service the nps approved part on f the nps approved part of the application the final certification of completed work on p taxpayer represents that he has no education experience or background in finance or accounting since b taxpayer used the same local certified_public_accountant g to prepare his b h and i federal_income_tax returns and provide professional advice taxpayer provided g with all information regarding rehabilitation of the property however at no time did g discuss the historic_rehabilitation_credit or related issues with taxpayer taxpayer filed his federal_income_tax return for the h taxable_year on j before the due_date of such return taxpayer first learned of the historical rehabilitation_credit from k in l taxpayer subsequently learned of the requirement to file part of the historical certification application prior to placing the property in service from the nps shortly after m taxpayer's request for relief under sec_301_9100-3 was filed on date law and analysis sec_47 of the internal_revenue_code provides that the rehabilitation_credit for any taxable_year includes an amount equal to percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_47 provides that the term certified_historic_structure means any building listed in the national register of historic places or located in a registered_historic_district and certified by the secretary of the interior as being of historic significance to the district sec_1_48-12 provides that a building shall be considered to be a certified_historic_structure at the time it is placed_in_service if the taxpayer reasonably believes on that date the building will be determined to be a certified_historic_structure plr-100587-05 and has requested on or before that date a determination from the u s department of the interior that such a building is a certified_historic_structure within the meaning of the historic_rehabilitation_credit provisions and the u s department of interior later determines that the building is a certified_historic_structure under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election sec_301_9100-1 provides that the term election includes an application_for relief in respect of tax sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' sec_301_9100-3 provides that a request for relief under ' will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of and have been satisfied accordingly taxpayer's part of the application_for certification of historic status for the property will be considered timely filed for purposes of ' d to claim the rehabilitation_credit for the qualified_rehabilitation_expenditures with respect to the property taxpayer must file an amended federal tax_return for the h taxable_year on or before o the expiration date of the period of limitation on assessment for the h taxable_year with a completed form_3468 investment_credit and a copy of this letter a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter to the sb_se official plr-100587-05 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely signed heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-159746-04 number release date index uil no case-mis no director field operations heavy manufacturing and transportation industry large and mid-size business lmsb hmt dfo taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference --------------------------------------------------------------- ---------------- ------------------- ----------------------------------- ---------------- -------------- date --------------------------- legend taxpayer ----------------------------------------------------------------------- ----------------------------------------- facility issue whether the tangible_personal_property other tangible_property and non-residential real_property used in connection with racetrack operations is includible in macrs asset guideline cla sec_80 theme and amusement parks cla sec_80 as described in revproc_87_56 1987_2_cb_674 for depreciation purposes the particular emphasis of this issue is whether specialized land improvements are depreciated under cla sec_80 or as land improvements described in asset_guideline_class and as nonresidential_real_property conclusion tam-159746-04 the tangible_personal_property other tangible_property and non-residential real_property used in connection with racetrack operations are not includible in macrs asset guideline cla sec_80 theme and amusement parks as described in revproc_87_56 for depreciation purposes facts taxpayer operates ------------------------ motorsports entertainment facilities ---------------- ---------------------------------the facility ---- large covering hundreds of acres during ------ ------- there were ----racing events scheduled to be held at the facility -- of which were held comprising --- days of racing events in connection with the racing events at taxpayer’s facilities motorsports-themed activities and events tours of the track and pit areas live entertainment exhibits and displays relating to racing fireworks and food and souvenir concessions are offered in the days surrounding the racing events as well as on the day of the event itself many of the motorsports-themed activities and much of the other entertainment are provided by third-party vendors at times other than when racing events are scheduled an unrelated third party provides an opportunity to ride in a competition-quality racing vehicle at competition speed as well as the opportunity to drive that car after training in addition to the racing events described above an area outside of the track itself is used for ------ racing on ------------------ the facilities are also rented by third parties and used for trade shows conventions concerts fairs television commercials movies and training by police departments law and analysis sec_167 of the internal_revenue_code provides a depreciation allowance for the exhaustion wear_and_tear including a reasonable allowance for obsolescence of property used in a trade_or_business or held_for_the_production_of_income the depreciation deduction provided by sec_167 for tangible_property placed_in_service after generally is determined under sec_168 this section prescribes two methods_of_accounting for determining depreciation allowances one method is the general depreciation system in sec_168 and the other method is the alternative_depreciation_system in sec_168 under either depreciation system the depreciation deduction is computed by using a prescribed depreciation method recovery_period and convention for purposes of either sec_168 or sec_168 the applicable_depreciation_method and recovery_period are determined by reference to class_life or by statute the term class_life is defined in sec_168 as meaning the class_life if any that would be applicable with respect to any property as of date under sec_167 determined without regard to sec_167 and as if the taxpayer had made an election under sec_167 the reference to sec_167 is a reference to that section as in effect on the day before the date of enactment of the revenue reconciliation act of former sec_167 provided that in the case of a the taxpayer notes that there are substantial non-tax reasons for using third-party vendors to provide the activities and events tam-159746-04 taxpayer who elected the asset_depreciation_range_system of depreciation the depreciation allowance is computed based on the class_life prescribed by the secretary that reasonably reflected the anticipated useful_life of that class of property to the industry or other group sec_1_167_a_-11 provides rules for classifying property under former sec_167 property is included in the asset_guideline_class for the activity in which the property is primarily used sec_1_48-1 defines a building as any structure or edifice enclosing a space within its walls and usually covered by a roof the purpose of which is for example to provide shelter or housing or to provide working office parking display or sales space the term includes for example structures such as apartment houses factory and office buildings warehouses barns garages railway or bus stations and stores the class lives of property subject_to depreciation under sec_168 are set forth in revproc_87_56 this revenue_procedure divides assets into two broad categories asset classes dollar_figure through that consist of specific depreciable assets used in all business activities and asset classes through that consist of depreciable assets used in specific business activities an asset that falls within both an asset category that is asset classes dollar_figure through and an activity category that is asset classes through is classified in the asset category see 111_tc_105 the business activity asset classes described below are set forth in revproc_87_56 asset class land improvements includes improvements directly to or added to land whether such improvements are sec_1245 property or sec_1250 property provided such improvements are depreciable examples of such assets might include sidewalks roads canals waterways drainage facilities sewers not including municipal sewers in cla sec_51 wharves and docks bridges fences landscaping shrubbery or radio and television transmitting towers does not include land improvements that are explicitly included in any other class and buildings and structural_components as defined in sec_1_48-1 of the regulations asset cla sec_79 recreation includes assets used in the provision of entertainment services on payment of a fee or admission charge as in the operation of bowling alleys billiard and pool establishments theaters concert halls and miniature golf courses does not include amusement and theme parks and assets which consist primarily of specialized land improvements or tam-159746-04 structures such as golf courses sports stadia race tracks ski slopes and buildings which house the assets used in entertainment services asset cla sec_80 theme and amusement parks includes assets used in the provision of rides attractions and amusements in activities defined as theme and amusement parks and includes appurtenances associated with a ride attraction amusement or theme setting within the park such as ticket booths facades shop interiors and props special purpose structures and buildings other than warehouses administration buildings hotels and motels includes all land improvements for or in support of park activities eg parking lots sidewalks waterways bridges fences landscaping etc and support functions eg food and beverage retailing souvenir vending and other nonlodging accommodations if owned by the park and provided exclusively for the benefit of park patrons theme and amusement parks are defined as combinations of amusements rides and attractions which are permanently situated on park land and open to the public for the price of admission this guideline_class is a composite of all assets used in this industry except transportation equipment general purpose trucks cars airplanes etc which are included in asset guideline classes with the prefix assets used in the provision of administrative services asset classes with the prefix and warehouses administration buildings hotels and motels asset cla sec_80 was introduced in revproc_74_32 1974_2_cb_487 prior to that revenue_procedure cla sec_79 described those activities now encompassed within cla sec_80 and was entitled recreation and amusement former cla sec_79 was described in revproc_72_10 1972_1_cb_721 as including assets used in the provision of amusement or entertainment services on payment of a fee or admission charge as in the operation of bowling alleys billiard and pool establishments theatres concert halls amusement parks and miniature golf courses former cla sec_79 specifically excluded such assets that consist primarily of specialized land improvements or structures such as golf courses sports stadia racetracks ski slopes or buildings which house bowling alleys under former sec_167 a taxpayer depreciated an asset based on the class_life prescribed by the secretary which reasonably reflects the anticipated useful_life of that class of property to the industry or other group similarly when sec_168 was enacted as part of the tax_reform_act_of_1986 congress gave permission to the secretary except in the case of residential_real_property or non-residential real_property to prescribe a new class_life for any property or modify the class_life for any assigned_property and instructed that any class_life or assigned_item prescribed or modified under this authority shall reasonably reflect the anticipated useful_life and the anticipated decline in value over time of the property to the industry or other group tam-159746-04 the anticipated useful_life of the property was linked to the industry or other group because it was expected that taxpayers in the same business activity would have similar experiences h_r conf_rep no 99th cong 2d sess ii-41-42 vol c b in the present case the issue is whether the activity conducted by the taxpayer at its facilities is within that activity described in cla sec_80 application of cla sec_80 is limited to theme and amusement parks defined in cla sec_80 as combinations of amusements rides and attractions which are permanently situated on park land and open to the public for the price of admission the remainder of cla sec_80 in revproc_87_56 contains a listing of the assets included within that class the facilities at issue here have few if any attractions that are permanently situated on park land other than the race track itself rather the amusements and attractions are present for those few days surrounding a racing event and then are moved by their owners to another location thus these attractions are only temporarily situated on the park land the taxpayer argues that cla sec_80 requires only the facility itself to be permanently situated on park land rather than the combinations of amusements rides or other attractions we do not agree the definition of cla sec_80 states that t heme and amusement parks are defined as combinations of amusements rides and attractions which are permanently situated on park land and open to the public for the price of admission the which in the definition refers to the combinations of amusements rides or other attractions and not merely to the facility itself the rides and attractions at taxpayer’s racetrack other than those few directly used with the race track are not permanently situated at the race track facility during their useful_life rather these rides and attractions are similar to carnival rides and attractions that are set up at a particular location for a short time and then moved to a different location a traditional theme or amusement park by contrast retains its rides and other attractions so long as those attractions are economically useful furthermore the activities conducted by the taxpayer are included in the activities described in cla sec_79 cla sec_79 is broader than cla sec_80 and includes assets used in the provision of entertainment services on payment of a fee or admission charge included in cla sec_79 are the assets used to provide entertainment services but not the land improvements and buildings used in providing these services cla sec_79 specifically excludes specialized land improvements and structures such as golf courses sports stadia racetracks ski slopes and buildings that house the assets used in providing entertainment services the entertainment services provided by in the secretary’s authority to prescribe class lives was changed to the authority to monitor and analyze actual experience with respect to depreciable assets in of technical_and_miscellaneous_revenue_act_of_1988 pub l we note that tours of the race track and pit areas are popular events however these tours of static facilities are more closely analogous to tours of other sports stadiums and do not satisfy the requirements of cla sec_80 tam-159746-04 taxpayer are essentially the same entertainment services that are provided at sports stadia and other racetracks the entertainment services provided at sports stadia and racetracks are the type of entertainment services included in asset cla sec_79 otherwise exclusion of these specialized land improvements from cla sec_79 would not have been necessary cla sec_79 also specifically excludes assets included in cla sec_80 cla sec_80 lists included land improvements however this list does not specifically include sports stadia and racetracks because cla sec_80 was excluded from cla sec_79 if cla sec_80 had been intended to include specialized land improvements such as racetracks and sports stadia these specialized land improvements would have been listed with the other land improvements that are specifically included in cla sec_80 in the present case the racing events offered at taxpayer’s motorsports entertainment facilities constitute entertainment services and the assets used to provide those entertainment services are included within cla sec_79 however the buildings to the extent included in the definition of buildings or structural_components as set forth in sec_1_48-1 and land improvements described in class are specifically excluded from cla sec_79 prior to the creation of cla sec_80 by revproc_74_32 by excluding it from cla sec_79 and adding to it certain land improvements that were excluded from cla sec_79 former cla sec_79 excluded specialized land improvements such as assets that consist primarily of sports stadia and race tracks the continuation of this exclusion in current cla sec_79 does not indicate as argued by taxpayer that those assets were moved to cla sec_80 when that class was created out of former cla sec_79 the separate exclusion contained within the description of cla sec_79 for amusement and theme parks describes all the assets that were moved from former cla sec_79 to cla sec_80 accordingly land improvements associated with a cla sec_79 activity are included in asset class buildings associated with a cla sec_79 activity are depreciated as nonresidential_real_property if they meet the definition of a building set forth in sec_1 e under the rules in sec_168 and sec_168 caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent