t c no united_states tax_court george w guill petitioner v commissioner of internal revenue respondent docket no filed date p an independent_contractor commenced a lawsuit against d alleging that d was liable to p for breach of contract and conversion arising out of p's work for d as to the conversion claim the jury awarded p actual and punitive_damages together with interest and costs p received the award in and from this amount p paid his attorneys their fees and the court costs collectively legal costs p deducted the legal costs on his schedule c profit or loss from business reporting that the costs arose out of his sole-proprietor business and he reported the actual damages on that schedule as income from the business p did not include the punitive_damages in his gross_income r determined that the legal costs were deductible as a nonbusiness itemized_deduction on schedule a itemized_deductions and that the punitive_damages were reportable as nonbussiness income r concedes that the legal costs are a business_expense to the extent they are attributable to p's recovery_of the actual damages r asserts that the remaining legal costs are a nonbusiness itemized_deduction because they are attributable to p's recovery_of the punitive_damages p and r agree that the punitive_damages are includable in p's business income if the legal costs are a business_expense held all of the legal costs are attributable to p's trade_or_business hence the legal costs are all deductible on schedule c as a business_expense bobby wayne enlow for petitioner jeanne gramling for respondent opinion laro judge this case is before the court fully stipulated see rule george w guill petitioned the court to redetermine deficiencies of dollar_figure and dollar_figure in his and federal_income_tax respectively following the parties' concessions the primary issue left to decide is whether all of the attorney's_fees and court costs collectively legal costs paid_by petitioner in the successful prosecution of his claim of conversion are expenses of his sole-proprietor business petitioner was awarded actual damages punitive_damages costs and interest we hold they are section references are to the internal_revenue_code in effect for rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded to the nearest dollar background all facts have been stipulated and are so found the stipulation of facts and exhibits submitted therewith are incorporated herein by this reference petitioner resided in columbia south carolina when he petitioned the court petitioner began working as an agent for academy life_insurance co academy in the late 1970's he worked for it as an independent_contractor under a contract between the two academy fired him in date when it did it was contractually obligated to pay him renewal_commissions on policies that he or an agent under his supervision had sold after his firing academy remitted to him reduced monthly commissions it also stopped sending to him the paperwork documenting his commissions in date petitioner sued academy for breach of contract and conversion praying in his complaint for an award of actual and punitive_damages petitioner alleged that academy was liable to him for an unlawful termination of contracts with resulting failure to pay money due thereunder breach of contract and conversion unfair trade practices also seeking treble_damages and attorney's_fees a termination of resident counselor status a failure to pay commissions and the fraudulent filing of federal tax forms reporting income not paid to him following a jury trial the u s district_court hearing the case directed a verdict against academy for breach of contract and sent the issues of conversion and resulting damages to the jury the judge instructed the jury as follows with respect to punitive_damages the plaintiffs petitioner and the male taxpayer in whitley v commissioner t c memo are also seeking punitive_damages in their conversion cause of action the law permits the jury under certain circumstances to award punitive_damages in order to punish a wrong-doer for some extraordinary misconduct and to serve as a warning not to engage in such conduct in the future thus if you find that the plaintiffs have shown by a preponderance_of_the_evidence that the defendant converted the plaintiffs' money with malice ill will a conscious indifference to the rights of others ora reckless disregard for the rights of others you may award the plaintiffs punitive_damages if you so find it becomes your right to award punitive_damages in such an amount as you unanimously agree to be proper in light of the character of the wrong committed the punishment which should be applied and the ability of the defendant to pay the jury found against academy on the conversion claim and awarded petitioner dollar_figure in actual damages for unpaid commissions and dollar_figure in punitive_damages together with interest thereon at the rate of dollar_figure per cent and his costs of action the jury's verdict was affirmed upon appeal academy paid dollar_figure to petitioner in and from that amount he paid his attorneys the legal costs which consisted of dollar_figure in attorney's_fees and dollar_figure in court costs petitioner included the actual damages in income on his schedule c profit or loss from business and he claimed on that schedule a deduction for the legal costs petitioner did not report any of the punitive_damages on his federal_income_tax return respondent issued petitioner a notice_of_deficiency that reflects respondent's determination that the dollar_figure in punitive_damages is includable in petitioner's gross_income as other income and that he must deduct the legal costs on schedule a itemized_deductions as a miscellaneous deduction respondent's determination as to the punitive_damages and the legal costs resulted in certain other mechanical adjustments one of which was the applicability of the alternative_minimum_tax discussion in a case of first impression we must decide whether the litigation costs attributable to an independent contractor's recovery_of punitive_damages are deductible on schedule c as a business_expense or on schedule a as a nonbusiness itemized_deduction ’ petitioner also contests respondent's determination that petitioner did not receive the punitive_damages on account of a personal injury we recently held that the punitive_damages received by mr whitley petitioner's coplaintiff in the academy lawsuit were includable in mr whitley's gross_income see whitley v commissioner tcmemo_1999_124 we relied mainly on 519_us_79 515_us_323 and 504_us_229 concluding that punitive_damages received under south carolina law are not excludable from gross_income respondent concedes that the litigation costs attributable to the actual damages are deductible on schedule c as a business_expense under sec_104 we apply the reasoning in whitley and hold the same here as to the primary issue sec_162 governs the deductibility of litigation costs as a business_expense sec_162 allows an individual to deduct all of the ordinary and necessary expenses of carrying on his or her trade_or_business sec_212 governs the deductibility of litigation costs as an itemized_deduction when the costs are incurred as a nonbusiness profit--seeking expense sec_212 allows an individual to deduct all of the ordinary and necessary expenses paid_or_incurred in producing income managing conserving or maintaining property_held_for_the_production_of_income or determining collecting or refunding a tax sec_162 and sec_212 are considered in_pari_materia except for the fact that the income-producing activity of the former section is a trade_or_business whereas the income-producing activity of the latter section is a pursuit of investing or other profitmaking that lacks the regularity and continuity of a business see 397_us_572 n 372_us_39 bingham's 325_us_365 a deduction of litigation costs under sec_162 may be more desirable to an individual than is a deduction under sec_212 the primary advantage to a deduction under sec_162 vis-a-vis a deduction under sec_212 rests on each deduction's effect on gross_income and adjusted_gross_income a deduction under sec_162 is subtracted in full from gross_income to arrive at adjusted_gross_income a deduction under sec_212 is subtracted from adjusted_gross_income to arrive at taxable_income and is subject_to certain floor limitations in sec_67 the benefit from a deduction of litigation costs under sec_212 may also be limited by application of the alternative_minimum_tax see sec_56 see also benci-woodward v commissioner tcmemo_1998_395 whether an ordinary and necessary litigation expense is deductible under sec_162 or sec_212 depends on the origin and character of the claim for which the expense was incurred and whether the claim bears a sufficient nexus to the taxpayer's business see woodward v commissioner supra united_states v gilmore supra pincite see also 327_f2d_855 4th cir affg 40_tc_315 ordinary and necessary litigation costs are generally deductible under sec_162 when the matter giving rise to the costs arises from or is proximately related to a business activity see woodward v commissioner supra 276_us_145 litigation costs must be attributable to a trade_or_business carried on by the taxpayer in order to be deductible as a business_expense sec_62 the ascertainment of a claim's origin and character is a factual determination that must be made on the basis of the facts and circumstances of the litigation see united_states v gilmore supra pincite the most important factor to consider is the circumstances out of which the litigation arose see 59_tc_708 in passing on this factor the fact finder must take into account among other things the allegations set forth in the complaint the issues which arise from the pleadings the litigation's background nature and purpose and the facts surrounding the controversy see id pincite petitioner's legal costs which the parties agree are ordinary and necessary expenses bear the required nexus to his sole-proprietor insurance_business to meet the requirements for deductibility under sec_162 as a matter of fact petitioner's lawsuit against academy arose entirely from his insurance_business each cause of action petitioner alleged in the lawsuit was spawned entirely from the fact that after academy fired him it failed to honor the terms of their working agreement by not paying him the commissions to which he was entitled under their agreement but for the agreement and the fact that academy breached the agreement by unilaterally terminating its obligation to pay commissions to petitioner the instant lawsuit as it was framed would never have arisen and petitioner would never have incurred or paid any of the legal costs respondent devotes much time in his opening brief to his proffered method of apportioning petitioner's legal costs between his business and nonbusiness activities spending little time arguing that apportionment of the legal costs is appropriate as we understand respondent's argument on apportionment petitioner must apportion his legal costs because respondent asserts petitioner has not proven that he incurred percent of the costs in his insurance_business we disagree after reviewing the record which includes stipulations and exhibits we are persuaded by more than a preponderance_of_the_evidence that all of petitioner's legal costs were attributable to his insurance_business and more importantly that all of the costs were connected to claims which arose in that business petitioner's complaint for example attests to the fact that each of his claims and not simply his claim of conversion arose from the sole-proprietor insurance_business we consider it both ordinary and necessary from a business standpoint for petitioner to have filed the lawsuit against academy and for him to have sought any and all damages to which he was entitled on account of academy's breach of contract and related conversion the mere fact that petitioner sought and was paid punitive_damages to punish academy for its extraordinary misconduct and to serve as a warning to it and to other persons not to engage in such conduct in the future does not - change the fact that petitioner's legal costs were all attributable to his business activity pursuant to south carolina law see oxford fin cos v burgess s e 2d s c rhode v ray waits motors inc s e 2d s c see also 713_f2d_1047 4th cir and the judge's instructions the jury in the academy lawsuit awarded petitioner both actual and punitive_damages on his conversion claim the fact that petitioner received two different types of damages on his single claim of conversion does not mean as respondent would have us hold that the claim is bifurcated into two claims solely for purposes of applying the federal_income_tax laws contrary to respondent's position in this case the various types of damages which petitioner received on his conversion claim do not dictate whether his legal costs must be apportioned between his business and nonbusiness we recognize that south carolina law does not provide that punitive_damages are awarded in every case in which a tortfeasor is held liable for an act of conversion see 713_f2d_1047 4th cir in order to recover punitive_damages under south carolina law there must be more than mere conversion there must be malice ill will a conscious indifference to the rights of others or a reckless disregard thereof citations and guotation marks omitted the fact that the converter's degree of culpability enters into an award of punitive_damages under south carolina law however does not change the fact that the origin and character of a claim for punitive damage under that law is an act of conversion which in this case stems from petitioner's business activity activities an allocation of litigation costs if and when applicable rests on the origin of the claims relating to those expenses see woodward v commissioner u s pincite united_states v gilmore u s pincite see also peckham v commissioner f 2d pincite we recognize that when appropriate litigation costs must be apportioned between business and personal claims and that business litigation costs are nondeductible to the extent that they constitute capital expenditures see eg 65_tc_862 deduction disallowed for portion of attorney's_fees attributable to personal matters 65_tc_640 deduction disallowed for portion of attorney fees attributable to acquisition of intangible assets 60_tc_187 deduction disallowed for portion of attorney's_fees attributable to personal matters see also boagni v commissioner supra recognizing that litigation costs can be characterized as both deductible and nondeductible when the litigation is rooted in situations giving rise to both types of expenditures this principle of allocation is inapposite to our decision herein for two main reasons first petitioner's legal costs were all attributable to claims which originated in his business activity the primary claim being that of conversion second in contrast to cases where each of the underlying claims could have resulted in an award of damages regardless of an award of damages on any other claim petitioner's award of punitive_damages could not have been made in isolation as south carolina's highest court has stated punitive_damages may be awarded under south carolina law only upon a finding of actual damages dowling v home buyers warranty corp s ebe 2d s c see also gamble v stevenson s e 2d s c we hold that petitioner may deduct the legal costs under sec_162 in reaching our holdings herein we have considered all arguments by the parties and to the extent not addressed above find them to be meritless or irrelevant to reflect the foregoing decision will be entered under rule the parties agree that our holding on this issue means that the punitive damage award is includable in petitioner's self-employment_income and that it is subject_to self-employment_tax see sec_1401 and sec_1402


department of the treasury i n t e r n al r e v e n u e s e r v i c e w as h i n g t o n d c date o f f ic e o f c h ief c o u n sel number release date cc tege eoeg et1 scaf-114853-02 uilc internal_revenue_service national_office service_center advice memorandum for elizabeth s henn deputy area_counsel northeast and midatlantic area cc tege nema bal attention sandra m jefferson from michael a swim acting assistant chief_counsel exempt_organizations employment_tax government entities office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg subject fica refund claims based upon the case of north dakota state university v united_states this responds to your request for significant service_center advice dated date in connection with questions posed by the philadelphia service_center concerning how to process refund claims filed by taxpayers based on the decision in 255_f3d_599 8th cir in accordance with sec_6110 this significant service_center advice should not be cited as precedent issue whether service centers should make refund payments to universities and colleges or university and college professors who file claims for refunds of the employer or employee portion of federal_insurance_contributions_act fica_taxes paid based upon the north dakota state university decision conclusion service centers should make refunds of fica_taxes only to taxpayers having claims that concern cases that arise within the jurisdiction of the eighth circuit of the united_states court_of_appeals and that have the exact facts as the facts in the north dakota state university case cases having the exact facts are cases involving tl-n-1440-00 payments to college or university professors made in exchange for the relinquishment of their tenure rights all other claims of refund of fica_taxes that cite the north dakota state university decision should be denied as provided in north dakota state university v united_states aod cc-2001-08 date we will continue to litigate our position in cases having different facts in cases that are appealable to the eighth circuit and in all cases in other circuits discussion the eighth circuit of the united_states court_of_appeals is the first circuit_court to address the issue of whether early retirement benefits paid to tenured university professors should be considered wages for the purposes of fica in the north dakota state university case the irs argued that the determination of whether early retirement payments made to tenured faculty members are subject_to fica_taxes depends upon whether such payments arise out of the employer-employee relationship and not upon whether the payments are made to employees to relinquish a contractual and constitutionally-protected right in 327_us_358 the supreme court stated that the term wages is to be broadly interpreted to import the breadth of coverage consistent with the purposes of the social_security act since no statutory exclusion from wages exists for early requirement payments made to employees or for payments made to employees for relinquishment of tenure rights and because the payments in this case arise out of the employer-employee context for services rendered by the tenured faculty members for their employer these payments should be considered wages subject_to fica_taxes the irs further argued that the payments should be considered wages subject_to fica because the payments were similar to the amounts employees received in relinquishing their seniority rights acquired as a consequence of past services under revrul_75_44 1975_1_cb_15 after the eighth circuit entered a judgment adverse to the service we issued an action on decision cc-2001-08 date aod lexis stating the service’s nonacquiescence in the decision although the irs disagrees with the decision several taxpayers have filed refund claims with the philadelphia service_center for the fica_taxes withheld and paid_by their employers citing the north dakota state university decision as support for issuing the refunds you requested advice on how to process these refund claims in accordance with action on decision cc-2001-08 date service centers should deny all refund claims of fica_taxes filed that cite the north dakota state university as support for issuing the refund unless the taxpayer’s claim concerns a case that arises within the jurisdiction of the eighth circuit and has the exact facts as the north dakota state university case in those cases the taxpayer must submit adequate proof of tenured status and a copy of the early retirement agreement to support a claim_for_refund of fica_taxes if you have any additional questions please contact elliot rogers at


internal_revenue_service number release date index number ---------------------------------- -------------------------------------- ---------------------------------- ---------------------------------------- in re --------------------- ------- ---------------------- ---------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b04 plr-135603-18 date date legend date settlor spouse trust child child child child child child trust trust trust trust trust trust state grandfather grandmother x y year --------------------------- ------------------------------------------------------ ----------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------- -------------------------------------------------- -------------------------------------------------- ----------------------------------------------- -------------------------------------------------- -------------------------------------------------------------------- ------------------------ ----------------------------------------------------------------- ------------------------ ------------------------------------------------------------------- ------------------------ -------------------------------------------------------------------- ------------------------ ----------------------------------------------------------------- ------------------------ ------------------------------------------------------------------- ------------------------ ------------- -------------------------------------------------------- ------------------------------------------------------ ---------- -------- ------- plr-135603-18 year year year attorney date date court statute statute ------- ------- ------- ------------------------- ----------------------- ------------------- ------------------------------------------------------------ ----------------------------------------- ----------------------------------------- dear ------------------ this letter responds to the letter dated date and subsequent correspondence submitted by your authorized representative requesting rulings on the gift estate and generation-skipping_transfer gst tax consequences of the proposed reformation of an irrevocable_trust facts the facts submitted and the representations made are as follows on date a date after date settlor executed an irrevocable_trust trust with spouse as trustee for the benefit of their six children child child child child child and child and their descendants pursuant to the terms of trust six separate trusts trust trust trust trust trust and trust were established one to benefit each child collectively the children’s trusts individually a child’s trust the children’s trusts are governed by the laws of state under paragraphs dollar_figure and of trust each child is the primary beneficiary of his or her child’s trust property transferred to trustee shall be allocated among the children’s trusts equally between all of such trusts paragraph provides that during each primary beneficiary’s life the trustee shall distribute all of the income of such beneficiary’s child trust to the primary beneficiary and may distribute such portion or all of the principal of such child’s trust to or for the support maintenance medical_expenses health and education of the primary beneficiary as the trustee in her sole and absolute judgment and discretion determines under paragraph at the time of death of the primary beneficiary such child’s trust shall continue in separate trust shares per stirpes for his or her lineal_descendants and upon the death of each of such respective lineal_descendants then plr-135603-18 for such respective deceased lineal descendant’s lineal_descendants in separate trust shares per stirpes for their respective lives and so forth until such trusts terminate under paragraph paragraph dollar_figure provides that any trust created under trust if not otherwise fully terminated shall terminate fully and all principal and undistributed_income shall be distributed to the respective income_beneficiary at the end of twenty-one years after the death of the last to die of settlor and all primary beneficiaries of the trusts created under trust paragraph dollar_figure provides generally that the trustee may receive property from the settlor or any other person or persons by lifetime_gift under a will or trust or from any other source with respect to additions during any calendar_year from any donor each beneficiary may demand for a period of thirty days immediately after each such initial contribution and any additions during any calendar_year from each donor up to the maximum amount allowable with respect to such donor as an annual exclusion for gift_tax purposes within sec_2503 and sec_2513 payable in cash or in_kind immediately upon receipt by the trustee of the demand in writing such payment shall be made from the gift of that donor for that year or from property purchased with such gift if any such beneficiary is a minor at the time of such gift of any donor for that year or if any such beneficiary fails in legal capacity for any reason at such time then such beneficiary’s guardian may make such demand on behalf of said beneficiary and the property received pursuant to such demand shall be held by the guardian for the benefit of said beneficiary the trustee shall give written notice of the receipt of any property by the trustee to be held in trust hereunder to all beneficiaries of the trust or to the guardian of any minor beneficiary or any other beneficiary who fails in legal capacity within thirty days of the receipt of such property settlor transferred dollar_figurex to each child’s trust in year year year and year settlor timely filed form sec_709 united_states gift and generation-skipping_transfer_tax returns for year year year and year on each form_709 settlor and spouse signified consent to treat all gifts made by settlor in year year year and year as having been made one-half by each spouse under sec_2513 on each form_709 for year year and year the transfers of dollar_figurex to each child’s trust were incorrectly reported on form sec_709 schedule a part 1-gifts subject only to gift_tax instead of schedule a part 3-indirect skips no affirmative allocation of gst_exemption was made to the transfers to each child’s trust furthermore the automatic allocation of the gst_exemption was not reported on schedule c computation of generation-skipping_transfer_tax grandfather transferred dollar_figurey to each child’s trust in year and year grandfather and grandmother timely filed form sec_709 for year and year on each form_709 grandfather and grandmother signified consent to treat all gifts made by grandfather in year and year as having been made one-half by each spouse under sec_2513 on plr-135603-18 each form_709 for year and year the transfers of dollar_figurey to each child’s trust were incorrectly reported as an outright gift to each of child through child on schedule a part 1-gifts subject only to gift_tax instead of a gift to each child’s trust on schedule a part 2-direct skips no affirmative allocation of gst_exemption was made to the transfers to each child’s trust furthermore accountant left blank schedule c of form sec_709 for both grandfather and grandmother for year and year attorney drafted trust settlor created and funded trust relying on the advice of attorney based on affidavits of settlor and attorney settlor created trust to provide for his descendants of all generations and to reduce the overall transfer_taxes payable on trust assets by ensuring that the assets held in trust would not be includible in a primary beneficiary’s gross_estate upon his or her death and to minimize the amount subject_to gst tax by utilizing settlor’s and spouse’s gst_exemption settlor also intended to ensure that the primary beneficiary would avoid incurring federal gift and estate_tax in connection with a transfer to trust the withdrawal provision in paragraph dollar_figure contains a drafting error each primary beneficiary’s withdrawal right over the assets contributed to a child’s trust in any given year is not limited to the greater of dollar_figure or percent of the value of the trust assets accordingly any lapse of a primary beneficiary’s withdrawal right would be treated as a taxable transfer by that primary beneficiary under sec_2514 to the extent that the property that could have been withdrawn exceeds in value the greater of dollar_figure or percent of the aggregate value of the assets subject_to withdrawal moreover each primary beneficiary would become a transferor to his or her child’s trust for gst tax purposes with respect to the portion of the child’s trust constituting a gift by the child thereby preventing i an effective deemed_allocation of gst_exemption under sec_2632 by settlor and spouse with respect to settlor’s transfers to that child’s trust for each of year year year and year and ii an effective deemed_allocation of gst_exemption under sec_2632 by grandfather and grandmother with respect to grandfather’s transfer to that child’s trust for each of year and year in addition the portion of each child’s trust relating to the lapsed withdrawal right in excess of dollar_figure or percent of the value of the trust assets would be included in the primary beneficiary’s gross_estate for estate_tax purposes the error was discovered when settlor engaged new estate_planning counsel who reviewed settlor’s current estate plan including trust settlor was informed of the drafting error that defeated the intent of the settlor in establishing trust on date trustee filed a petition in state court requesting judicial reformation of the erroneous provision of paragraph effective as of the date trust was originally created on date state court issued an order reforming trust to eliminate the scrivener’s error retroactive to the date of trust’s creation the order is contingent upon the issuance of a favorable private_letter_ruling by the internal_revenue_service plr-135603-18 as reformed trust limits the annual lapse of each primary beneficiary’s withdrawal right to the greater of dollar_figure or percent of the value of the trust assets you have requested the following rulings as a result of the reformation no child will be deemed to have released a general_power_of_appointment within the meaning of sec_2514 and sec_2041 by reason of the lapse of any right of withdrawal held by the child with respect to any transfers to his or her child’s trust accordingly no child will be deemed to have made a taxable gift under sec_2514 to his or her child’s trust and no part of his or her child’s trust will be included in his or her gross_estate under sec_2041 as a result of the reformation the only transferors to each child’s trust for gst tax purposes are settlor spouse grandfather and grandmother as a result of the reformation each of settlor’s and spouse’s gst_exemption is automatically allocated to one-half of the transfers by settlor to each child’s trust and each of grandfather’s and grandmother’s gst_exemption is automatically allocated to one-half of the transfers by grandfather to each child’s trust law and analysis ruling sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides generally that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2041 provides that the value of the gross_estate includes the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised plr-135603-18 sec_2041 provides that for purposes of sec_2041 the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power the preceding sentence shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeded in value at the time of such lapse the greater of the following amounts a dollar_figure or b percent of the aggregate value at the time of such lapse of the assets out of which or the proceeds of which the exercise of the lapsed powers could have been satisfied sec_2501 provides generally that a tax is imposed for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that for purposes of sec_2514 the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate sec_2514 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power the rule_of the preceding sentence shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts dollar_figure or percent of the aggregate value of the assets out of which or the proceeds of which the exercise of the lapsed powers could be satisfied in 387_us_456 the court considered whether a state trial court’s characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it plr-135603-18 finds to be state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court state statute provides in part that a proceeding to approve or disapprove a proposed modification or termination of a_trust may be commenced by a trustee or a beneficiary state statute provides in part that the court may reform the terms of a_trust even if unambiguous to conform the terms to the settlor’s intention if it is proved by clear_and_convincing evidence that the settlor’s intent or the terms of the trust were affected by a mistake of fact or law in this case an examination of the relevant trust instruments affidavits and representations of the parties indicate that the original terms of paragraph resulting from a scrivener’s error were contrary to the intent of settlor the purpose of the reformation is to correct the scrivener’s error not to alter or modify the trust instrument accordingly based on the facts presented and the representations made we conclude that as a result of the reformation of trust each of settlor’s children child through child does not possess general powers of appointment over the assets of his or her respective child’s trust except to the extent of each child’s withdrawal right under the reformed trust instrument as a result of the reformation no child will be deemed to have released a general_power_of_appointment within the meaning of sec_2514 and sec_2041 by reason of the lapse of any right of withdrawal held by the child with respect to any transfers to his or her child’s trust accordingly no child will be deemed to have made a taxable gift under sec_2514 to his or her child’s trust and no part of his or her child’s trust will be included in his or her gross_estate under sec_2041 ruling sec_2 and sec_2513 provides generally that a gift made by one spouse to any person other than the donor’s spouse is considered for purposes of the gift_tax as made one-half by the donor and one-half by the donor’s spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_25_2513-1 of the gift_tax regulations provides that the consent is effective only if both spouses signify their consent to treat all gifts made to third parties during that calendar_period by both spouses while married to each other as having been made one-half by each spouse such consent if signified with respect to any calendar_period is effective with respect to all gifts made to third parties during such calendar_period except in part if one spouse transferred property in part to his or her spouse and in part to third parties the consent is effective with respect to the interest transferred to third parties only insofar as such interest is ascertainable at the time of the gift and severable from the interest transferred to his spouse plr-135603-18 sec_25_2513-1 provides that the consent applies alike to gifts made by one spouse alone and to gifts made partly by each spouse provided such gifts were to third parties and do not fall within any of the exceptions set forth in sec_25_2513-1 through b the consent may not be applied only to a portion of the property interest constituting such gifts if the consent is effectively signified on either the husband’s return or the wife’s return all gifts made by the spouses to third parties except as described in subparagraphs through of this paragraph during the calendar_period will be treated as having been made one-half by each spouse sec_2601 imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2652 provides in part that the term transferor means in the case of any property subject_to the tax imposed by chapter the donor sec_26_2652-1 of the generation-skipping_transfer_tax regulations provides that the individual with respect to whom property was most recently subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter under sec_26_2652-1 example t transfers dollar_figure to a new trust providing that the trust income is to be paid to t’s child c for c’s life and on the death of c the trust principal is to be paid to t’s grandchild gc the trustee has discretion to distribute plr-135603-18 principal for gc’s benefit during c’s lifetime c has a right to withdraw dollar_figure from the trust for a 60-day period following the transfer thereafter the power lapses c does not exercise the withdrawal right the transfer by t is subject_to federal gift_tax because a gift_tax is imposed under sec_2501 without regard to exemptions exclusions deductions and credits and thus t is treated as having transferred the entire dollar_figure to the trust on the lapse of the withdrawal right c becomes a transferor to the extent c is treated as having made a completed_transfer for purposes of chapter therefore except to the extent that the amount with respect to which the power_of_withdrawal lapses exceeds the greater of dollar_figure or percent of the value of the trust property t remains the transferor of the trust property for purposes of chapter sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of this chapter sec_26_2652-1 provides that in the case of a transfer with respect to which the donor’s spouse makes an election under sec_2513 to treat the gift as made one-half by the spouse the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 the donor is treated as the transferor of one-half of the value of the entire property sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed under sec_2632 if an individual makes a direct_skip transfer during his or her lifetime any unused portion of such individual’s gst_exemption is automatically allocated to the property transferred to the extent necessary to make the inclusion_ratio zero under sec_2612 the term direct_skip means a transfer subject_to tax imposed by chapter or of an interest in property to a skip_person sec_26_2632-1 provides in part that an automatic allocation of gst_exemption is effective as of the date of the transfer to which it relates a form_709 need not be filed to report an automatic allocation sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero sec_2632 provides that for purposes of sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by plr-135603-18 chapter made to a gst_trust sec_2632 provides in part that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the exceptions enumerated in i through vi apply sec_2642 provides in part that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 in this case each child’s trust is a gst_trust for purposes of sec_2632 settlor and spouse timely filed form sec_709 for year year year and year signifying their consent to treat the gifts made in each of year year year and year to each child’s trust as having been made one-half by each spouse under sec_2513 accordingly under sec_2652 settlor and spouse will be treated as the transferor of one-half of the value of the entire property transferred to each child’s trust in year year year and year based on the facts presented and the representations made we rule that the automatic allocation rules under sec_2632 apply to allocate settlor’s and spouse’s gst_exemption to one-half of the transfers of property made to each child’s trust in each of year year year and year grandfather and grandmother timely filed form sec_709 for year and year signifying their consent to treat the gifts made in each of year and year to each child’s trust as having been made one-half by each spouse under sec_2513 accordingly under sec_2652 grandfather and grandmother will be treated as the transferor of one-half of the value of the entire property transferred to each child’s trust in year and year based on the facts presented and the representations made we rule that the automatic allocation rules under sec_2632 apply to allocate grandfather’s and grandmother’s gst_exemption to one-half of the transfers of property made to each child’s trust in each of year and year in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-135603-18 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court peter a mclauchlan petitioner v commissioner of internal revenue respondent docket no filed date kathlyn c curtis for petitioner adam p sweet for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined deficiencies in petitioner’s federal income taxes and accuracy-related_penalties under sec_6662 a for and years at issue 1all section references are to the internal_revenue_code as amended and in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated after concessions there are two issues for decision the first issue is whether certain expenses that petitioner claimed on schedule c profit or loss from business schedule c for and are deductible we hold they are not we also must decide whether petitioner is liable for an accuracy-related_penalty for each year at issue we hold he is liable findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated by this reference petitioner resided in houston texas at the time he filed the petition 2petitioner conceded or settled all of the adjustments in the deficiency_notice concerning the disallowed itemized_deductions and unreported income petitioner also conceded that he is not entitled to a deduction for the legal and professional services expense that he claimed on schedule c for each of the years at issue finally petitioner conceded that he is liable for additional tax for an early distribution from a retirement account for respondent conceded that petitioner is allowed deductions for claimed contributions to pension and profit sharing plans for and other remaining adjustments are computational and need not be discussed 3notwithstanding we hold that the depreciation expense claimed on line of schedule c for and the charitable_contribution expense claimed on line of schedules c for and are allowed because they are flow-through partnership items under sec_702 background petitioner is married with two children he has practiced law since petitioner was practicing law as a partner at ar a law partnership during the years at issue petitioner’s share of ar income for and was dollar_figure and dollar_figure respectively petitioner paid various expenses eg advertising home_office automobile travel meals entertainment cell phone professional organizations continuing legal education state bar membership supplies interest banking fees and legal support services in connection with practicing law at ar ar reimbursed petitioner for over dollar_figure of expenses for each of and petitioner contends however that he paid over dollar_figure of ar expenses in both and for which he was not reimbursed he categorized and claimed these expenses on schedules c petitioner left ar in reimbursement of ar expenses ar partners were required under ar’s partnership_agreement to pay expenses for business meals automobiles travel entertainment conventions continuing legal education and professional organizations collectively indirect ar expenses indirect ar expenses were reimbursable under ar’s partnership 4the court granted petitioner’s motion to seal the part of the record that identifies the name of the law firm agreement if approved by a managing partner or a designee of the managing partner ar had a written reimbursement policy that specifically provided for reimbursement of certain indirect ar expenses reasonable travel_expenses were reimbursable including expenses related to client maintenance and development interoffice travel_expenses involving an automobile were reimbursable lease and rental automobile expenses_incurred for client travel were reimbursable business meals and entertainment were reimbursable if authorized and approved continuing legal education expenses were reimbursable if approved the written reimbursement policy however also provided that in-town transportation ie transportation within a mile radius of an attorney’s home_office expenses and spousal travel_expenses were not reimbursable as a matter of routine practice ar would reimburse other indirect ar expenses that were not provided for in the written reimbursement policy including state bar membership expenses and professional organization_expenses ar did not have a limit on the amount for which a partner could be reimbursed reasonableness rather was the overarching standard for approving reimbursement of indirect ar expenses ar would deem an expense unreasonable if it was personal excessive or not in ar’s best interests the deficiency case petitioner filed federal_income_tax returns for the years at issue after examination respondent issued petitioner the deficiency_notice petitioner timely filed the petition for redetermination with this court respondent filed an answer and an amended answer respondent asserted in the amended answer that petitioner was not entitled to any of the claimed schedule c expenses for and resulting in increased income_tax deficiencies the following expenses are at issue expenses advertising car and truck commissions and fees professional organizations and continuing legal education contract labor depreciation and sec_179 insurance automobile insurance and home insurance interest office rent or lease vehicle lease and vehicle rental repairs and maintenance automobile repairs and maintenance and other repairs and maintenance supplies taxes and licenses automobile taxes and licenses and state bar membership travel meals and entertainment utilities wages other charitable_contributions dollar_figure big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number 1for simplicity’s sake we have delineated in parentheses certain subcategories of expenses that petitioner deducted opinion we are asked to decide whether petitioner an attorney in a law partnership can deduct the expenses at issue as unreimbursed partnership expenses and if so whether any of the expenses at issue are nonetheless disallowable for lack of proper substantiation we are also asked to decide whether petitioner is liable for an accuracy-related_penalty under sec_6662 for each year at issue we begin with the burden_of_proof i burden_of_proof taxpayers generally bear the burden of proving that the commissioner’s determinations are erroneous rule a the commissioner bears the burden_of_proof on any new_matter increases in deficiencies and affirmative defenses pleaded in his answer see id 290_us_111 our resolution of whether the expenses are deductible is based on a preponderance of evidence standard not upon an allocation of the burden_of_proof therefore we need not consider who bears the burden_of_proof on this issue see 124_tc_95 we now turn to the expenses at issue ii unreimbursed partnership expenses the parties dispute whether the expenses at issue are deductible as unreimbursed partnership expenses generally a partner may not directly deduct the expenses of the partnership on his or her individual returns even if the expenses were incurred by the partner in furtherance of partnership business 75_tc_288 affd without published opinion 665_f2d_1050 7th cir an exception applies however when there is an agreement among partners or a routine practice equal to an agreement that requires a partner to use his or her own funds to pay a partnership expense id 25_tc_1045 the ar partnership_agreement required petitioner to pay indirect ar expenses that were unreimbursable there was no routine practice at ar that required petitioner to pay any other ar expenses accordingly the expenses at issue are deductible if they were indirect ar expenses unreimbursable and actually incurred we now turn to each of these requirements a expenses that were not indirect ar expenses the only indirect ar expenses petitioner claimed for and are the travel meals entertainment automobile expenses vehicle rental professional organizations continuing legal education and state bar membership expenses all other expenses at issue are not indirect ar expenses and thus are not deductible as unreimbursed partnership expenses 5the car and truck vehicle lease automobile repairs maintenance automobile insurance and automobile taxes and licenses expenses claimed on schedules c for and all arise from petitioner’s alleged use of two passenger automobiles a bmw and an unidentified vehicle for ar business for simplicity’s sake we refer to these expense categories collectively as automobile expenses b expenses that were reimbursable we now focus on whether the indirect ar expenses petitioner claimed were reimbursable ar’s written reimbursement policy shows that they were ar’s reimbursement policy reflects that ar reimbursed reasonable travel_expenses in that regard ar reimbursed authorized and approved business meals and entertainment_expenses ar also reimbursed approved continuing legal education expenses and vehicle rental expenses for client- related travel moreover ar’s routine reimbursement practices show that the indirect ar expenses petitioner claimed were reimbursable specifically the record indicates that ar routinely reimbursed reasonable expenses for professional organizations and state bar memberships more generally the record reflects that ar had no set limit on the amount of expenses for which it would reimburse a partner instead reasonableness was the determinative criterion for approving or authorizing an indirect ar expense ar would deem an expense unreasonable if it was personal excessive or not in ar’s best interest we find petitioner was not required under the ar partnership_agreement or by routine practice to pay such expenses 6because we hold that petitioner did not meet the strict substantiation requirements of sec_274 for claiming the automobile expenses for and it is unnecessary to consider whether the automobile expenses were reimbursable in addition petitioner fails to point to any specific expense for which ar denied him reimbursement petitioner merely offers his own general and vague testimony that ar denied him reimbursement for some of his travel meal and entertainment_expenses this court is not required to accept petitioner’s self-serving unverified and undocumented testimony see 112_tc_183 87_tc_74 we find that petitioner was not required to pay without reimbursement any expenses for travel meals entertainment vehicle rental continuing legal education professional organizations or state bar memberships we therefore sustain respondent’s disallowance of these expenses c expenses that were not properly substantiated we now focus on the automobile expenses respondent argues that petitioner is not entitled to deduct any portion of the automobile expenses that he claimed because they were not properly substantiated we agree no deduction may be allowed for expenditures or use with respect to listed_property unless the taxpayer substantiates certain elements sec_274 passenger automobiles are listed 7we note that even if we found that the travel meals and entertainment_expenses were deductible as unreimbursed partnership expenses they would still be disallowed under the strict substantiation rules of sec_274 property sec_280f the automobile expenses stem from petitioner’s use of two passenger automobiles and are therefore subject_to the strict substantiation requirements of sec_274 a taxpayer shall substantiate certain elements of expenditure and use by adequate_records or sufficient evidence to corroborate his or her own statement before a deduction with respect to an alleged business use of an automobile will be allowed sec_1_274-5t temporary income_tax regs fed reg date the elements petitioner must substantiate are the amount of each separate expenditure the mileage for each business use of the relevant automobiles and the total mileage for all use of the automobiles during the taxable_period the date of the expenditure or use and the business_purpose for the expenditure or use see id moreover expenses subject_to the strict substantiation rules such as passenger_automobile expenses may not be estimated ie sec_274 overrides the so-called cohan_rule 39_f2d_540 2d cir 50_tc_823 affd 8adequate records generally must be written and must be prepared or maintained such that a record of each element of an expenditure or use that must be substantiated is made at or near the time of the expenditure or use when the taxpayer has full present knowledge of each element see sec_1_274-5t temporary income_tax regs fed reg date per curiam 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs fed reg date sec_1_280f-6 income_tax regs for these expenses only strict substantiation will suffice against this background we analyze whether petitioner satisfied the strict substantiation requirements of sec_274 to allow any automobile expenses for and petitioner has shown that he paid some expenses regarding certain automobiles he contends were used for ar business petitioner failed however to maintain records that indicate the amount of business use and total use the dates of any business use and the purposes of any business use for the automobiles instead petitioner offers his general vague self-serving and uncorroborated testimony that he used the automobiles to conduct ar business petitioner is therefore not entitled to deduct the automobile expenses consequently we sustain respondent’s disallowance of the automobile expenses iii accuracy-related_penalties we now turn to respondent’s determination that petitioner is liable for an accuracy-related_penalty under sec_6662 for each year at issue the commissioner has the burden of production and must come forward with sufficient evidence that it is appropriate to impose a penalty sec_7491 see 116_tc_438 the taxpayer bears the burden_of_proof as to any defense to the accuracy-related_penalty sec_7491 rule a higbee v commissioner supra pincite a taxpayer is liable for an accuracy-related_penalty on any part of an underpayment attributable to among other things a substantial_understatement_of_income_tax sec_6662 there is a substantial_understatement_of_income_tax if the amount of the understatement exceeds the greater of either percent of the tax required to be shown on the return or dollar_figure sec_6662 b d a sec_1_6662-4 income_tax regs respondent has met his burden of production because the court’s decision results in a substantial_understatement_of_income_tax for each of the years at issue see higbee v commissioner supra pincite jarman v commissioner tcmemo_2010_285 a taxpayer is not liable for an accuracy-related_penalty however if the taxpayer acted with reasonable_cause and in good_faith with respect to any portion of the underpayment sec_6664 sec_1_6664-4 income_tax regs the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess his or her proper tax_liability the knowledge experience and education of the taxpayer and the reliance on the advice of a professional sec_1_6664-4 income_tax regs petitioner is well educated and has been an attorney for over years he prepared his own federal_income_tax returns for the years at issue petitioner admitted that he had difficulty preparing his tax returns yet he failed to seek the assistance of a tax professional moreover the full amount of each underpayment resulted from petitioner repeatedly disregarding the rules and regulations on reporting income and claiming deductions against income petitioner failed to offer any persuasive evidence that he acted with reasonable_cause and in good_faith in disregarding the relevant rules and regulations we find under the relevant facts and circumstances that petitioner did not act with reasonable_cause and in good_faith with respect to the underpayments for the years at issue we therefore hold petitioner liable for the accuracy-related_penalty under sec_6662 on the underpayments of tax for the years at issue we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing and the parties’ concessions decision will be entered under rule


number release date id office uilc cca_2012040510455937 ---------- from ------------------- sent thursday april am to ---------------- cc ----------- subject re tmp issue if your tefra partnership is lp and llc is its tmp then a manager of the llc under state law would sign for the llc the tmp of the llc or subsequent tiers is irrelevant this is covered by page e of the attached notice on frequently asked tefra questions the tmp of a state law entity has no power as tmp to sign any document for the state law entity so if a state law entity is the tmp of a tefra partnership a state law authorized official must sign for the tmp not its own tmp the tmp is a creature of statute whose powers are defined by statute while a tmp has certain powers vis a vis the partners of the tefra partnership such as extending their period for assessment he generally has no power under statute to sign any document for the tefra entity itself attachment chief_counsel notice cc-2009-027


department of the treasury internal_revenue_service washington d c tax exempt and government entities feb tep eal company former parent salaried plan un plan_of_reorganization re dear this letter constitutes notice that the company’s request for a modification of the conditional waiver of the minimum_funding_standard for the hourly plan for the plan_year ending modified by ruling letters dated date and date has been approved accordingly we are replacing the conditions of the funding waiver as modified with these conditions that was granted in a ruling letter dated date and the bankruptcy court enters an order by plan_of_reorganization confirming the the company does not enter into any agreement or amend any existing agreement that would prevent it from satisfying its agreement under this funding waiver to make the pension contributions described in condition if the company fails to meet any one of the by date the company replaces the current letter_of_credit with a letter_of_credit in favor of the hourly plan from a financial_institution acceptable to the pension_benefit_guaranty_corporation pbgc’ in the amount of dollar_figure conditions under which this funding waiver has been granted the pbgc may draw upon this letter_of_credit for the benefit of the hourly plan at anytime thereafter this letter_of_credit shall expire on the earlier of i the date that condition i is satisfied or ii date not later than five days after the effective date of the plan_of_reorganization the company either i effects a transfer under sec_414 of the internal_revenue_code code of unfunded liabilities from the hourly plan to a plan sponsored by the former parent ii makes contributions to the hourly plan or iii makes a combination of transfers of unfunded liabilities under the hourly plan and cash contributions so that the net unfunded liabilities under the hourly plan are reduced by at least dollar_figure determined on a fa sec_87 basis this condition shall be deemed satisfied if the company satisfies condition of the waiver of the minimum_funding_standard for the hourly plan for the plan_year ending i as not later than five days after the effective date of the plan_of_reorganization the company a makes a contribution to the hourly plan equa to seventy-four and two-tenths percent of the estimated amount described in ii below based on the projections and assumptions provided by the company in its waiver application submitted to the service on date ie of the amount described as the estimated quarterly payment due on page one of the schedule labeled irs scenario d the scenario d amount and b deposits into escrow an amount equal to twenty-five and eight-tenths percent of such scenario d amount no later than five months after the effective date of the plan_of_reorganization the company calculates the amount sufficient to result in a funded_current_liability_percentage as of the effective date of the plan_of_reorganization when measured reflecting such contributions and the impact of the sec_414 transfer that is the same funded_current_liability_percentage that would have existed as of the effective date of the plan_of_reorganization if a the funding waivers had not been granted b the sec_414 transfer had not occurred and c a contribution had been made on the effective date of the plan_of_reorganization equal to the accumulated employee_retirement_income_security_act_of_1974 erisa funding deficiency as of septeniber these calculations should exclude the dollar_figure contribution outlined in conditions and of this ruling letter ii iii iv v if the contribution described in i a above is less than the amount calculated in ii above the company makes an additional_contribution within days after making the calculation described in ii above from the escrow account described in i b above in an amount that is sufficient to make the funded current_liability percentages described in ii above equal if the amount in the escrow account in i b above is not sufficient to make the additional_contribution described in iii above the company makes an additional_contribution within days after making the calculation described in ii above that is sufficient to make the funded current_liability percentages described in ii above equal any amount remaining in the escrow account after condition is met will be returned to the company within days after condition is met f a credit balance is created as a result of the contributions described in i iii or iv above the company elects to reduce to zero such remaining credit balance as exists in the hourly plan as of date prior to determining the value of plan assets and crediting them against the minimum_required_contribution for the plan_year ending - protection act of ppa if the contribution described in i a is greater than the amount calculated in ii the company will be allowed to keep a credit balance equal to the amount of such excess and this credit balance will be available to offset contributions for plan years beginning date and later in accordance with the pension vi this condition shall be deemed satisfied if the company satisfies condition of the waiver of the minimum_funding_standard for the hourly plan for the plan_year ending not later than five days after the effective date of the plan_of_reorganization the company makes a contribution to the hourly plan in the amount of dollar_figure for the plan_year ending not later than five days after the effective date of the company's plan_of_reorganization under chapter the company makes a contribution to the in addition to the dollar_figure hourly plan in the amount of dollar_figure contribution in condition above for the plan_year ending in full and final settlement of all claims or potential claims against the company under sec_4971 of the code with respect to the hourly plan and the salaried plan for the plan years ending the service will not pursue any such claims against the company prior to the effective date of the company's plan_of_reorganization under chapter not later than five days after the effective date of the plan_of_reorganization the company reimburses the pbgc for outside consulting fees incurred in the review of the company's funding waiver request in an amount not to exceed dollar_figure million this condition shall be deemed satisfied if the company satisfies condition of the waiver of the minimum_funding standard for the hourly plan for the plan_year ending the effective date of the plan_of_reorganization is no later than date the company makes contributions to the hourly plan in amounts sufficient to meet the minimum_funding_standard for the hourly plan for the plan_year ending by date the conditions above reflect a codification of the conditions of the ruling letter dated date as modified in ruling letters dated date and date as well as modifications to conditions and your authorized representative agreed to these conditions in a letter dated date if any one of the conditions is not met the waiver for the plan_year ending date is retroactively null and void with the bankruptcy court confirmed the plan_of_reorganization on the confirmed plan_of_reorganization in place the company has announced that it following expects to emerge from chapter bankruptcy protection by the syndication and closing of exit financing facilities and satisfaction of other conditions including completing rights offerings closing of an investment agreement with investors and consummation of a global_settlement agreement with the former parent the company has represented that the funding waivers that the salaried and hourly plans have received are critical to the implementation of the plan_of_reorganization if the modifications that the company has requested are not approved the waivers would be rendered retroactively null and void if the company does not emerge from chapter bankruptcy protection on or before date the modifications agreed to by the company will extend the deadline for the company’s emergence from chapter bankruptcy protection to date in consideration of this extension the company will a replace certain letters of credit that it has provided to the salaried plan and the hourly plan as a condition of the funding waivers each plan received for the plan years ending held by the hourly plan by dollar_figure and b increase the value of the letter_of_credit by this conditional waiver has been granted in accordance with sec_412 of the code and sec_303 of erisa the amount for which this conditional waiver has been granted is equal to the contributions that would otherwise be required to reduce the balance in the funding_standard_account to zero as of date your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the hourly plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by the hourly plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by the hourly plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the and to your authorized representative pursuant to a power_of_attorney on file in this office we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b if you require further assistance in this matter please contact at sincerely yours ichaél d julianelle irector employee_plans fe


t c memo united_states tax_court thomas iris tilley petitioners v commissioner of internal revenue docket no 400-o1l filed knox kent lively iii for petitioners blake ferguson and j craig young for memorandum opinion pajak special_trial_judge this case court on respondent’s motion to dismiss for and on petitioners’ cross-motion to dismiss are to the internal_revenue_code as amended respondent date respondent comes before the lack of jurisdiction section references on date the internal_revenue_service appeals_office in greensboro north carolina issued two separate notices of determination concerning collection action s under sec_6320 - and or notice s of determination one notice_of_determination was issued to both petitioners stating respondent’s intention to proceed with collection by levy of their joint federal_income_tax liabilities for the taxable years and the other notice_of_determination was issued to petitioner thomas tilley stating respondent’s intention to proceed with collection by levy of his separate federal_income_tax liabilities for the taxable years and the notice_of_determination for the and income taxes was sent to petitioners at their last_known_address farrington road chapel hill north carolina by certified mail on date the notice_of_determination for the and income taxes was sent to mr tilley at his last_known_address farrington road chapel hill north carolina by certified mail on date petitioners filed one petition for review of respondent’s notices of determination relating to the federal income taxes for the taxable years and petitioners resided in chapel hill north carolina at the time their petition was filed the 30-day period provided by sec_6330 for timely filing a petition for review of the notices of determination with this court expired on date that date was not a legal_holiday in the district of columbia the petition was filed with the tax_court on date which date i sec_593 days after the mailing of the notices of determination the date of the u s postmark stamped on the cover in which the petition was mailed by regular mail to this court is date which date is days after the mailing of the notices of determination petitioners do not contest the foregoing facts respondent’s position is that the petition was not filed with the court within the time prescribed by sec_6330 d or petitioners’ position is that respondent did not provide petitioners with an opportunity for a hearing as required by sec_6330 and therefore that this court should dismiss this case because petitioners claim the notices of determination are invalid there is no dispute that the court lacks jurisdiction in this case sec_6330 provides in part as follows sec_6330 requirement of notice before levy --- in general --no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of their right to a hearing under this section before such levy is made such notice shall be required only once for the taxable_period to which the unpaid tax specified in paragraph a relates time and method for notice ---the notice required under paragraph shall be-- c sent by certified or registered mail return receipt requested to such person’s last_known_address - - not less than days before the day of the first levy with respect to the amount of the unpaid tax for the taxable_period information included with notice --the notice required under paragraph shall include in simple and nontechnical terms-- a the amount of unpaid tax b the right of the person to request a hearing during the 30-day period under paragraph and b right to fair hearing -- in general --if the person requests a hearing under subsection a b such hearing shall be held by the internal_revenue_service office of appeals one hearing per period --a person shall be entitled to only one hearing under this section with respect to the taxable_period to which the unpaid tax specified in subsection a a relates on date respondent sent to petitioners a notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy with respect to the taxable years and on date the internal_revenue_service irs received petitioners’ date request for a collection_due_process_hearing with respect to those years on date a g wilson mr wilson an appeals officer sent a letter to petitioners which states as follows this case has been referred to our office i will write or call you soon to arrange a mutually satisfactory date for a conference if you need to contact me in the meantime you may write me at the address below or call me at the telephone --- - number shown above please enclose a copy of this letter with any written correspondence on date mr wilson held a telephone conference with mr tilley in response to the request for a collection hearing both parties discussed the issues in the request mr wilson observed that there were four basic issues in petitioners’ protest and went over those issues with mr tilley at that time one issue discussed was a notice_of_intent_to_levy sent to mrs tilley for years not applicable to her mr wilson discovered this had been corrected and that an appropriate notice_of_intent_to_levy had been sent another issue discussed during the telephone conference was the application of funds received by way of lien discharges and mr wilson determined the funds had been properly applied mr tilley argued that he was entitled to certain deductions and credits mr wilson offered to send mr tilley the transcripts of account mr wilson observed that the tax_court had decided petitioners’ and years on the merits as to and mr wilson noted that mr tilley who had not filed returns for those years was sent notices of deficiency but did not file a petition with this court the last issue mr tilley and mr wilson discussed during the telephone conference was that mr tilley challenged the federal_income_tax laws as being unconstitutional because they were capitation taxes mr wilson advised mr tilley that it was not the function of appeals to decide such questions but that these were matters for the courts during the telephone conference mr wilson asked mr tilley if he wanted a face-to-face meeting as mr wilson testified i asked him at the beginning of the conference whether he wanted a face-to-face meeting he said not at this time and at the end of the conference i asked him if he had any questions for me and he did not ask for a person-to-person hearing at that time mr wilson also said well after i explained that if there were no other issues i’d be issuing a determination_letter at which time he mr tilley indicated it would be fine just to go ahead and send the transcripts with the determination_letter instead of separately or earlier it is obvious from the record that mr tilley and the appeals officer did in fact discuss the case over the telephone and that the appeals officer heard and considered mr tilley’s arguments in 115_tc_329 this court held that where the taxpayer and the appeals officer had a telephone conference about the taxpayer’s arguments the taxpayer had received an appeals hearing as provided in sec_6320 in the circumstances of that case on date mr wilson received another letter from mr tilley dated date which was a second request for a hearing mr tilley had sent this letter to a revenue_officer who forwarded it to mr wilson as detailed above a telephone - conference took place on date the date the second request was received by mr wilson ina date letter petitioners referred to the telephone conference with an appeals officer and among other things requested a person-to-person hearing in a date letter petitioners acknowledged that during a telephone conference mr tilley initially agreed with an irs official that a face-to-face hearing would not be necessary but upon further reflection petitioners later requested a person-to-person hearing in their date letter on date respondent issued two notices of determination one to petitioners for the taxable years and and one to mr tilley for the taxable years and nothing in the notices of determination leads us to conclude that the determinations were invalid we find that the notices of determination clearly embody the appeals officer’s determinations that collections by way of levy may proceed thus regardless of whether petitioners were given an appropriate hearing opportunity there was a valid determination we recently held that in determining the validity of a notice_of_determination for jurisdictional purposes we shall not look behind such a notice in order to ascertain whether the taxpayer was afforded an appropriate hearing with respondent’s appeals_office 117_tc_159 consistent with --- - our holding in lunsford we hold that the notices of determination issued to petitioners were valid because the notices of determination were valid we consider respondent’s motion petitioners acknowledge in their cross-- motion to dismiss that a petition from a notice_of_determination must be filed within days of such a determination the undisputed facts underlying respondent’s motion and set forth above compel us to conclude that this petition was untimely under sec_6330 or sec_7502 and this case must be dismissed for that reason an appropriate order and order of dismissal will be entered