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 fip b01 plr-114586-13 date date legend taxpayer lp university state a state b project initial year year year year year date date date ------------------------------- ------------------------- -------------------------------------- ------------------------- ----------------------------------------- -------------- -------------- ------------------------------------------------------ -------------------------------------------- ------- ------- ------- ------- -------------------------- ------------------ ------------------ plr-114586-13 date a b c d e f g ------------------ ---- ----- -- -- ---- ---- ------ dear ---------------- this responds to a letter dated date submitted on behalf of taxpayer taxpayer requests a ruling that sales of its assets pursuant to a plan_of_liquidation under the below circumstances will not constitute prohibited_transactions within the meaning of sec_857 facts taxpayer is a state a corporation that has elected to be taxed as a real_estate_investment_trust reit under sec_856 beginning with its first taxable_year initial year and for each taxable_year thereafter through subsidiary entities that are generally taxed as disregarded entities for federal_income_tax purposes taxpayer primarily owns and leases residential real_estate to third parties lp a state b limited_partnership is a closed-end private equity fund that commenced operations on date lp owns in excess of a percent of all classes of the stock of taxpayer and all of its voting common_stock the remaining non-controlling interest of taxpayer is made up of preferred_stock owned by b persons in order to facilitate the winding down and dissolution of lp taxpayer intends to adopt a plan_of_liquidation pursuant to which it will dispose_of its remaining assets during year year and year and liquidate taxpayer makes the following additional representations that address its purposes with respect to the properties at issue taxpayer represents that it acquired the properties with the intent to own the properties for a long-term_holding_period and to derive its profits from capital appreciation and rental income from the properties the disposition of the properties is pursuant to a plan_of_liquidation no individual property plr-114586-13 to be disposed of has been owned for fewer than c years all the individual properties will have been operated as rental properties for at least years at the time of the proposed sale with the sole exception of a portion of project the weighted average holding_period of the properties based on current estimated fair_market_value was e months as of the close of year taxpayer will use one or more independent third party broker from which taxpayer will derive no income to dispose_of the properties project is a collaboration with university to develop a community that provides student housing a subsidiary of taxpayer entered a joint_venture in initial year to be the university’s development partner for phase one of project due to circumstances beyond taxpayer’s control a master ground lease for project was not signed until date over d years behind schedule the intent of the parties at that time was to operate project as rental property and derive profit from long-term holdings of the property project began receiving rental income on date when part of the first_phase was completed the last phase of project is scheduled to be complete on date the expenditures relating to the first_phase account for approximately f percent of the total cost of project accordingly by the end of year prior to the anticipated sale date of project taxpayer will have derived rental income for years from over half of the total investment in project taxpayer estimates that the ratio of development expenses to estimated fair_market_value during the two years immediately prior to the proposed sale of the properties at issue will be less than g percent law and analysis sec_857 imposes a percent tax on a reit’s net_income from prohibited_transactions sec_857 defines the term prohibited_transaction as the sale_or_other_disposition of property described in sec_1221 that is not foreclosure_property sec_1221 property in turn consists of property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business sec_857 provides that losses attributable to prohibited_transactions are not taken into account in determining the amount of net_income_derived_from_prohibited_transactions sec_857 excludes certain_sales from the definition of a prohibited_transaction under sec_857 the term prohibited_transaction does not include the sale of property which is a real_estate asset as defined in sec_856 and which is described in sec_1221 if -- i the reit has held the property for not less than years ii the aggregate expenditures made by the reit or any partner of the reit during the 2-year period preceding the date of sale which are plr-114586-13 includible in the basis of the property do not exceed percent of the net selling_price of the property iii i during the taxable_year the reit does not make more than sales of property other than sales of foreclosure_property or sales to which sec_1033 applies or ii the aggregate adjusted bases as determined for purposes of computing earnings_and_profits of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the aggregate bases of all the assets of the reit as of the beginning of the taxable_year or iii the fair_market_value of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the fair_market_value of all the assets of the reit as of the beginning of the taxable_year iv in the case of property which consists of land or improvements not acquired through foreclosure or deed in lieu of foreclosure or lease termination the reit has held the property for not less than years for production of rental income and v if the requirement of clause iii i is not satisfied substantially_all of the marketing and development_expenditures with respect to the property were made through an independent_contractor as defined in sec_856 from whom the reit itself does not derive or receive any income the legislative_history underlying sec_857 which was added to the code by the tax reform act of indicates that the purpose of that section was to prevent a reit from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development project s rep no 84th cong 2d sess vol c b to determine whether a taxpayer holds property primarily_for_sale_to_customers in the ordinary course of its trade_or_business the tax_court has held that several factors must be considered none of which is dispositive among those factors are the nature and purpose of the acquisition of the property and the duration of the ownership the extent and nature of the taxpayer’s efforts to sell the property the number extent continuity and substantiality of the sales the extent of subdividing developing and advertising to increase sales and the time and effort the taxpayer habitually devoted to the sales generally it is the purpose for which property is held at the time of the sale that is determinative although earlier events may be considered to decide the taxpayer’s purpose at the time of the sale see 89_tc_467 conclusion plr-114586-13 based on the facts presented and representations made we conclude that sales of taxpayer’s assets pursuant to a plan_of_liquidation under the above circumstances will not constitute prohibited_transactions within the meaning of sec_857 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 in particular no opinion is expressed with regard to whether taxpayer qualifies as a reit under subchapter_m of the code this ruling is directed only at the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely andrea m hoffenson assistant to the branch chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes cc sec_4 of revproc_2013_3 sets forth those areas in which rulings or determination letters will not ordinarily be issued by the service not ordinarily means that unique and compelling reasons must be demonstrated to justify the issuance of a ruling or determination_letter see revproc_2013_3 sec_2 section dollar_figure of revproc_2013_3 provides that one of the areas in which rulings or determination letters will not ordinarily be issued is any matter dealing with the question of whether property is held primarily_for_sale_to_customers in the ordinary course of a trade_or_business in this case taxpayer has demonstrated unique and compelling reasons to justify issuance of the ruling


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b program c d e f x y z company and subsidiaries business country country number dollar amount dollar amount dear you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your schoiarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will operate an employer-related scholarship program called b scholarships you award will recognize and encourage academic achievements plus accomplishments and talent of current high school students to be eligible applicants must be the son or daughter of a current full-time c employee the employee must have a minimum of one-year employment with the company at the letter catalog number 58264e time of the application deadline retired employee’s children those employed full-time at the time of retirement are eligible c officer's children will not be eligible to apply nor will any relatives of members of the selection committee or of your officers directors or substantial contributors students must be planning to enroll in a full-time course of study at an accredited two or four year college or university or vocational-technical school in the e or f you have contracted with d to administer your program and select recipients you will provide d with your eligibility guidelines however you will utilize the standard selection procedures set by d the selection procedures include the following consideration of past academic performance participation in school and community activities work experience career and educational aspirations and goals unusual or family circumstances and an outside appraisal a teacher counselor work supervisor or other professional familiar with the applicant completes the outside appraisal the appraisal validates the applicant's academic and extracurricular achievements selected recipients will represent a cross section of c employees both geographically and at various employee levels applicants must be entering classes in the fall of the year in which the award is given once selected recipient's financial data is reviewed to determine the amount of each award to determine financial need and the family’s ability to contribute toward educational expenses d has adopted the methodology used by college financial aid offices to support their decision however qualified students demonstrating no financial need are eligible for honorariums at the minimum level awarded approxiiiiately x awards will be distributed annually ranging from y to z dollars future awards are given on a one-time basis and not renewable this is determined each year based on d’s selection procedures and available funds you will publicize your program internally to all c employees internal channels are to include e-mail announcements on the employee portal and inclusion at facility town hall meetings the selection committee is comprised of staff members of d they have no connection with you other than as the contracted administrator of your program once the committee has made its recommendations the number of grants is fixed you will verify the selected recipients’ eligibility lf any of the recommended recipients do not meet eligibility requirements alternates may be selected if you determine more funding is available additional recipients may be selected in both scenarios the selection ratio limit set forth by irs revproc_76_47 will not be exceeded d confirms the recipient’s school enrollment you will aisburse funds for the awards to d and mails a check payable to the school to the recipient for the award d tracks each transaction annually d will submit reports to you to include the following updates on the number of applications received while the program is open verification reports renewal reports applicant recipient location summary applicant recipient statistical summary program history program summary and credit reports of awards not used letter catalog number 58264e you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that e e the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or letter catalog number 58264e e the number of grants awarded to employees in any year will not exceed percent of the number of employees who were eligible for grants were applicants for grants and were considered by the selection committee for grants you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 when applying the percent test applicable to employees’ children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written_statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular e e e an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination e e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures do not differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the office of at internal_revenue_service e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives letter catalog number 58264e e e all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely holly o paz director exempt_organizations rulings and agreements letter catalog number 58264e


department of the treasury internal_revenue_service washington d c number release date date cc el gl br2 gl-607811-97 uilc memorandum for district_counsel north florida district jacksonville from subject gary d gray assistant chief_counsel general litigation bankruptcy court jurisdiction over relief from joint_and_several_liability under sec_6015 this memorandum responds to your request for advice dated date this document is not to be cited as precedent issue does a bankruptcy court have jurisdiction over relief from joint_and_several_liability under sec_6015 conclusion the bankruptcy court has jurisdiction to consider relief from joint_and_several_liability under subsections b and c of sec_6015 even if the taxpayer has not filed an administrative request for relief with the service the bankruptcy court does not have jurisdiction to consider equitable relief under subsection f since this is within the sole discretion of the service and is not reviewable by any court facts taxpayer a debtor in a bankruptcy case has asserted she is entitled to relief from joint_and_several_liability under sec_6015 the taxpayer has not previously raised sec_6015 administratively with the service you have questioned whether the bankruptcy court has jurisdiction to consider this matter the argument can be made that sec_6015 requires that a taxpayer first request relief administratively from the service and that sec_6015 only permits review of service administrative determinations in the tax_court or in the district_court or court of claims if refund suits are filed arguably this scheme does not provide the bankruptcy court with jurisdiction to consider relief under sec_6015 law and analysis i background a relief from joint_and_several_liability gl-607811-97 - sec_3201 of the internal_revenue_service restructuring and reform act of rra added sec_6015 which offers individuals three options for relief from liability for taxes for which they are jointly and severally liable under sec_6013 sec_6015 referred to as innocent spouse relief which is an expanded version of the innocent spouse relief available prior to the rra under sec_6013 permits an individual to elect relief from liability with respect to understatements of tax on the joint_return that are attributable to the non-electing spouse relief is available if the individual establishes that he or she did not know and had no reason to know of the understatement and it is inequitable to hold such individual liable for the deficiency attributable to the understatement sec_6015 referred to as allocation of liability provides an alternative ground for obtaining relief from joint_and_several_liability this provision permits an individual if the spouses are no longer married are legally_separated or have not lived together for the entire month-period prior to the election to elect to have that individual’s liability for a deficiency limited to items which would be allocable to that individual if the spouses had filed separate returns sec_6015 referred to as equitable relief permits the secretary to relieve an individual of liability for any unpaid tax or any deficiency pursuant to procedures prescribed by the secretary if relief is not available under subsections b or c and it is inequitable to hold the individual liable subsection f is the only provision of sec_6015 which permits relief in the case of an underpayment_of_tax which is not a deficiency eg the correct amount is reported on the return but the tax is not fully paid the service has issued interim guidance for equitable relief under subsection f effective date notice_98_61 1998_51_irb_13 section dollar_figure contains the threshold conditions for equitable relief which includes the condition that relief is not available to the individual under sec_6015 or c section dollar_figure lists the circumstances under which equitable relief will ordinarily be granted these circumstances include an unpaid liability on a joint_return the individual is no longer married is legally_separated or has not lived with the other spouse for months the individual did not know and had no reason to know that the tax would not be paid and the individual would suffer undue_hardship if relief were not granted section dollar_figure applies to individuals who meet the threshold conditions of section dollar_figure but who do not qualify for relief under sec_3 these individuals may qualify for relief if taking into account all facts and circumstances it is inequitable to hold the individual liable for the unpaid liability or deficiency section dollar_figure contains a non-exhaustive list of factors to be considered in granting relief under sec_3 factors weighing in favor of relief include the individual requesting relief is separated the individual will suffer hardship if relief is not granted the individual was abused by the other spouse and the other spouse has a legal_obligation to pay the liability pursuant to a divorce decree or agreement factors weighing against relief include that the liability is attributable to the individual the individual had gl-607811-97 - relief from liability under subsections b and c is only available if an individual makes an election not later than two years after the commencement of collection activities occurring after date with respect to the individual making the election sec_6015 sec_6015 rra g sec_6015 does not specify any period for filing for equitable relief under subsection f however the service has imposed a two-year time limitation for filing requests for equitable relief under sec_6015 see notice_98_61 sec_3201 of the rra requires the secretary to develop a separate form for applying for relief under sec_6015 the service has developed form_8857 which permits the taxpayer to elect relief under each of the three subsections of sec_6015 announcement sec_6015 provides for tax_court review of requests for relief under subsections b or c if the electing spouse files a petition during the 90-day period beginning on the date that the secretary mails by certified or registered mail a notice to the electing spouse of the secretary’s determination if a notice_of_determination is not mailed within months after the election is filed the spouse may file a tax_court petition at any time after the 6-month period and before the close of the 90-day period if the taxpayer brings a suit_for_refund the tax_court loses jurisdiction to the extent the district_court or court of federal claims acquires jurisdiction over the taxable years and the district_court or court of federal claims acquires jurisdiction over the innocent spouse issues sec_6015 sec_6015 does not provide for any_tax court review of the service’s determinations as to equitable relief under sec_6015 b bankruptcy court jurisdiction sec_505 of the bankruptcy code gives a bankruptcy court jurisdiction to determine the amount and validity of a debtor’s taxes see 74_f3d_906 9th cir cert_denied 517_us_1192 930_f2d_1132 6th cir 895_f2d_921 3d cir sec_505 states knowledge or had reason to know of the liability the individual has significantly benefitted from the unpaid liability beyond normal support and the individual has a legal_obligation pursuant to a divorce decree or agreement to pay the liability id pincite a taxpayer can only bring a suit_for_refund with respect to relief under subsection b since credits and refunds are only permitted with respect to subsections b and f sec_6015 and as discussed in this memorandum relief under f is not reviewable by a court gl-607811-97 - except as provided in paragraph of this subsection the court may determine the amount or legality of any_tax any fine or penalty relating to a tax or any addition_to_tax whether or not previously assessed whether or not paid and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction b c sec_505 this provision is described in the legislative_history as permitting a determination by the bankruptcy court of any unpaid tax_liability of the debtor s rep 95th cong 2d sess reprinted in u s c c a n sec_505 however provides that the bankruptcy court has no jurisdiction where there has been a prior judicial determination as to the merits of the tax_liability or with respect to the right of the estate to a tax_refund before the government has the opportunity to administratively consider a request for a tax_refund see baker supra f 3d pincite the automatic_stay prohibits the commencement or continuation of a proceeding before the tax_court concerning the debtor after the filing of a bankruptcy petition b c sec_362 the filing of a bankruptcy petition has the effect of giving the bankruptcy court concurrent jurisdiction with the tax_court over issues involving the debtor’s tax_liability because the bankruptcy court can lift the stay of tax_court proceedings in its discretion the bankruptcy court has the power to decide in which court the tax issues will be litigated see 974_f2d_514 4th cir cert 507_us_945 the purpose of this broad grant of jurisdiction to the bankruptcy court is to allow the bankruptcy court to resolve all tax disputes necessary for the efficient administration of the estate 210_br_200 bankr m d fla in re 181_br_756 s d n y congress wanted to provide a forum for the quick resolution of disputed tax claims in order to avoid any delay in the conclusion of this provision states the court may not so determine - a the amount or legality of a tax fine penalty or addition_to_tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under this title or b any right of the estate to a tax_refund before the earlier of - i days after the trustee properly requests such refund from the governmental_unit from which such refund is claimed or ii a determination by such governmental_unit of such request b c sec_505 gl-607811-97 - the administration of the estate stevens supra br pincite 45_br_137 bankr s d fla ii legal analysis as previously discussed sec_6015 affords three types of relief innocent spouse relief under subsection b allocation of liability under subsection c and equitable relief under subsection f we first discuss relief under subsections b and c if a debtor taxpayer is entitled to relief from liability under subsections b or c then this will reduce the debtor’s tax_liability we thus conclude that a bankruptcy court’s determination as to relief under sec_6015 and c just like any other issue affecting the amount of the taxpayer’s tax_liability is a determination regarding the amount or legality of any_tax under sec_505 and is within the bankruptcy court’s jurisdiction the argument has been made however that because sec_6015 specifically gives the tax_court jurisdiction over sec_6015 and c relief but does not confer similar jurisdiction on the bankruptcy courts this precludes bankruptcy courts from obtaining jurisdiction this argument however ignores the fact that sec_505 is a general grant of jurisdiction to bankruptcy courts of jurisdiction over all matters concerning the amount or legality of the debtor's tax_liability see eg wilson supra 783_f2d_1546 11th cir bankruptcy court jurisdiction is not dependent on a specific grant of jurisdiction in the internal_revenue_code in contrast the tax_court is a court of limited jurisdiction and it can exercise its jurisdiction only to the extent authorized by congress 96_tc_895 85_tc_527 in order to deprive a bankruptcy court of jurisdiction sec_6015 would have to be interpreted as an implied partial repeal of sec_505 however it is a general_rule of statutory construction that repeals by implication are not favored unless the intent to repeal is clear and express 480_us_522 am jur 2d statutes 2d ed there is no indication in sec_6015 that congress intended to withdraw jurisdiction from bankruptcy courts over relief from joint_and_several_liability the general_rule of concurrent bankruptcy court and tax_court jurisdiction over tax matters should apply with respect to sec_6015 to the same extent as it would with any other internal_revenue_code provision for example the tax_court only acquires jurisdiction to determine the taxpayer’s deficiency upon the filing of a proper tax_court petition by the taxpayer after the service issues a notice_of_deficiency sec_6213 and only acquires jurisdiction to review the service’s determination as to whether the taxpayer is entitled to sec_6015 relief when the taxpayer files a proper petition from such determination under sec_6015 gl-607811-97 - as previously discussed the purpose of the broad grant of jurisdiction to bankruptcy courts is to permit bankruptcy courts to efficiently resolve all matters affecting the estate consistent with this purpose if the debtor contests the service’s tax claim on the ground that she is entitled to relief pursuant to sec_6015 and c it is critical that the bankruptcy court have jurisdiction over subsections b and c in order to resolve all of the issues involving the debtor’s tax_liability we thus cannot argue that the lack of an express grant of authority in sec_6015 precludes the bankruptcy court from having jurisdiction over sec_6015 and c relief the argument has also been made that sec_6015 requires that the taxpayer exhaust administrative remedies within the service before the bankruptcy court can have jurisdiction over any matter concerning sec_6015 relief while it is true that exhaustion of administrative remedies is a jurisdictional prerequisite to obtain tax_court review of the service’s final_determination as to relief under sec_6015 see tax_court rule this is merely a restriction on tax_court review of the service’s final_determination and does not affect bankruptcy court jurisdiction in any case our position is that the administrative request and issuance by the service of a final_determination under sec_6015 or failure to rule thereon are not jurisdictional prerequisites for the tax_court to consider relief from joint_and_several_liability in a proceeding commenced in response to a notice_of_deficiency pursuant to sec_6213 as was possible with pre-rra innocent spouse issues raised under sec_6013 a petitioner can raise sec_6015 in a deficiency case a petitioner can raise sec_6015 in a deficiency case even if such case was filed before the enactment_date date since sec_6015 applies to unpaid liabilities for taxes arising on or before the date of enactment while sec_6015 and c require an election to be made this can take any number of forms including tax_court pleadings or other writings not necessarily a form_8857 we conclude that a taxpayer can raise sec_6015 relief in bankruptcy court without following the administrative procedures in sec_6015 just as a taxpayer can raise sec_6015 relief in a tax_court deficiency as a general matter limitations on tax_court jurisdiction are not applicable in bankruptcy court for example the tax_court cannot review a tax_liability until the service has first made an administrative determination by issuing a notice_of_deficiency sec_6213 in contrast the bankruptcy court is under no such restriction it can determine the amount or legality of any_tax regardless of the administrative stage of the service’s consideration of the tax_liability the service may estimate taxes on a proof_of_claim where no returns have been filed and an audit has not been commenced see eg 36_f3d_996 10th cir there is no question that the bankruptcy court has jurisdiction to determine such tax_liabilities if a party objects to the proof_of_claim see generally 974_f2d_514 4th cir gl-607811-97 - proceeding commenced pursuant to sec_6213 without following those administrative procedures we also note that as previously discussed sec_505 contains an express exhaustion of administrative remedies requirement with respect to refunds a similar provision in sec_505 would be necessary to deprive the bankruptcy court of jurisdiction over sec_6015 relief prior to a determination by the service there are limitations to bankruptcy court jurisdiction over sec_6015 and c relief first the requirement of sec_6015 and c b that the taxpayer must file for relief no later than two years after the secretary has begun collection activities with respect to the taxpayer must apply if the issue is raised for the first time in the bankruptcy case since the taxpayer is not entitled to sec_6015 relief unless that requirement is met the date that the taxpayer raises the sec_6015 issue in the bankruptcy court should be considered the time the election is made for purposes of the two-year period our office’s position is that collection activity does not commence for purposes of the two-year period until the service makes an actual levy against property in which the electing spouse has an interest or files a suit or a claim in a judicial proceeding eg a proof_of_claim against the electing spouse second the requirements of sec_505 apply the debtor cannot raise relief from joint liability if the tax_liability was previously contested and adjudicated pursuant to sec_505 see baker supra note however that sec_6015 provides that in the case of an election under subsection b or c a prior final tax_court decision for the same taxable_year for which relief is requested shall be conclusive except with respect to qualification for relief which was not an issue in the prior tax_court proceeding this exception to res_judicata for relief from joint liability does not apply if the tax_court determines that the individual participated meaningfully in the prior tax_court proceeding although this provision appears to have been drafted with tax_court jurisdiction in mind when the bankruptcy court is considering relief from joint liability it is acting as an alternative forum to the tax_court and thus the same res_judicata exception applicable in tax_court should apply to the bankruptcy court we thus conclude that the sec_6015 exception permits a debtor to raise relief in bankruptcy court under subsections b or c despite a prior final tax_court decision unless the bankruptcy court determines that the debtor participated meaningfully in the prior tax_court proceeding while we conclude that the bankruptcy court has jurisdiction over relief under subsections b and c we conclude that the bankruptcy court does not have jurisdiction to consider equitable relief under subsection f sec_6015 states that the secretary may relieve such individual of such liability emphasis added which indicates that equitable relief can only be granted by the secretary since the word may rather than shall is used this also indicates that the secretary can decide whether or not to grant relief in the secretary’s sole discretion in contrast sec_6015 states that the individual shall be relieved of liability and sec_6015 gl-607811-97 - states that the individual’s liability shall not exceed the portion of such deficiency properly allocable to the individual under subsection d sec_6015 does not provide for any review of the service’s determination as to equitable relief under subsection f sec_6015 only permits a petition to be filed with the tax_court in the case of an individual who elects to have subsection b or c apply we conclude that the fact that the tax_court was not provided any jurisdiction over subsection f relief reflects congressional intent that the service’s determination as to equitable relief is within its sole discretion and not reviewable by any court when a bankruptcy court is determining the amount or legality of a tax under sec_505 it is acting in place of the normal judicial forum for tax controversies eg tax_court since the tax_court does not have jurisdiction over equitable relief the bankruptcy court should be similarly precluded from considering equitable relief although we conclude that the bankruptcy court has jurisdiction over sec_6015 and c relief to avoid unnecessary litigation and to ensure uniformity in granting relief any debtor requesting relief in a bankruptcy case should be urged to file an administrative request for relief with the service and to agree to a postponement of any proceedings to permit the service sufficient time to consider the request and make a determination one major advantage of administrative consideration to the taxpayer is that the service will have the opportunity to consider equitable relief under sec_6015 which cannot be considered by the bankruptcy court additionally administrative consideration will assist in the development of a record regarding entitlement to relief thus when sec_6015 is raised in bankruptcy court the service should attempt to have the matter administratively resolved before the bankruptcy court considers the issue in conclusion our position is that a bankruptcy court does have jurisdiction to consider relief under sec_6015 and c even in the absence of an administrative request for relief although the service should urge debtors to file administrative requests for relief and request bankruptcy courts to defer consideration of the issue until after the service makes a determination our position is also that the bankruptcy court has no jurisdiction to consider equitable relief under sec_6015 since the granting of such relief is within the sole discretion of the service and is not reviewable by a court case developments hazards and other considerations gl-607811-97 - gl-607811-97 - finally one additional issue which may arise in a bankruptcy court case in which the debtor raises sec_6015 relief is the ability of the non-debtor spouse to participate and the bankruptcy court’s jurisdiction over the other spouse’s tax_liability sec_6015 provides for notice to and participation by the other spouse in administrative and tax_court proceedings sec_6015 g there is no comparable statutory authority which would permit a non-debtor spouse to have notice of and to participate in a bankruptcy case where the debtor seeks sec_6015 relief arguably unless the non-debtor spouse is a creditor of the debtor the non-debtor spouse has no right to participate in the bankruptcy case insofar as the bankruptcy court permits a non-debtor spouse to participate the question arises whether the bankruptcy court has jurisdiction to determine the non-debtor spouse’s entitlement to sec_6015 relief our office’s position is that a bankruptcy court has no jurisdiction over the tax_liability of a non-debtor and thus has no jurisdiction to determine the entitlement of a non-debtor spouse to sec_6015 relief see 904_f2d_477 9th cir in re brandt airflex corp 904_f2d_477 2d cir 783_f2d_1546 11th cir please contact this office at if you have any questions or comments concerning this memorandum cc assistant chief_counsel it a assistant chief_counsel field service


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 ----------------------- ---------- ------------- telephone number --------------------- refer reply to cc pa apjp b01 plr-110486-06 date date - sec_3406 -- backup withholding backup withholding sec_6041 -- information_at_source fixed or determinable gains profits or income payments specifically included sec_6045 -- returns of broker sec_6045 returns of brokers sec_6049 -- returns regarding payments of interest reportable interest legend taxpayer ------------------------------------------- fund ------------------------------------------- x -------------------------------------- years -------------- dollar_figurea ----------------- dear ------------------ plr-110486-06 this letter responds to the letter dated date as supplemented by a letter dated date submitted on behalf of the fund requesting the following rulings settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6041 of the internal_revenue_code except in the case of payments made directly to participants in tax-qualified retirement plans settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6045 settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6049 for purposes of meeting any obligations it may have under sec_3406 as a payor of reportable payments the fund need not solicit taxpayer identification numbers tins from the individuals to whom it will make distributions the fund may obtain the tins from the mutual funds or tax-qualified plans in which such individuals held accounts or from transfer agents performing services for the funds or plans facts based upon the facts and the representations made the fund is a qualified_settlement_fund qsf as described in sec_468b and the regulations thereunder the fund was created in year to resolve an administrative_proceeding brought by the securities_and_exchange_commission commission against x relating to inadequate or nonexistent disclosure of certain remuneration arrangements between x and certain entities providing investment-related services to x’s customers this improper lack of disclosure may have begun as early as year and continued at least through year in an order instituting proceedings oip the commission alleged that x received significant revenue from the remuneration arrangements noted above while failing to describe these arrangements to its customers in the manner the law required the customers from whom information was withheld had purchased mutual_fund investments through x the commission based on the improper conduct described above and the resulting injury to mutual_fund investors sought profit disgorgement and other damages after investigation and negotiations x agreed to pay dollar_figurea in disgorgement civil penalties and pre-judgment interest to settle the commission’s claims pursuant to section a of the sarbanes-oxley_act of u s c the oip authorized a fair fund for the disgorgement penalty and interest components of the settlement thus permitting each of those components to be paid to injured investors plr-110486-06 investors holding units of certain mutual funds during any portion of the time period beginning with year and ending late in year will be eligible to receive distributions from the fund the distributions will be based on the commission’s oip the amount available for distribution is the net settlement pool which includes the sum of dollar_figurea the amount transferred by x into the fund and the amount of net_income earned by the fund investors will be allocated portions of the net settlement pool law and analysis ruling sec_1_468b-2 of the treasury regulations provides that in general distributions by a qsf are subject_to certain information reporting and withholding requirements sec_1_468b-2 provides that a qsf must make a return for or must withhold tax on a distribution to a claimant if one or more transferors would have been required to make a return or withhold tax had that transferor made the distribution directly to the claimant the regulations further provide that for purposes of sec_6041 and sec_6041a if a qsf makes a distribution on behalf of a transferor or a claimant the fund is deemed to make the distribution to the recipient of that payment or distribution in the course of a trade_or_business in such a situation the qsf is also deemed to have made the distribution to the transferor or claimant see sec_1_468b-2 c - d sec_6041 requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the service and to furnish an information statement to the payee sec_1_6041-1 provides that payments are fixed when they are paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_1 a requires a payor to report sec_6041 amounts on form_1099 thus payments that are not fixed or determinable are not subject_to information reporting under sec_6041 amounts a taxpayer receives to restore a loss of capital are not income except to the extent that the payment exceeds the taxpayer’s basis in the injured property that is the subject of the payment 144_f2d_110 1st cir to the extent the fund cannot properly characterize its distributions to investors as tax-free compensation_for loss of capital fund distributions may constitute gross_income to investors due to limitations on its data collecting authority however the fund cannot determine whether any given distribution to an investor will constitute gross_income the payments therefore are not fixed or determinable income within the meaning of the regulations under sec_6041 accordingly subject_to the exceptions noted below regarding distributions to qualified_retirement_plan participants plr-110486-06 and distributions of pre-judgment interest the fund has no information reporting obligations under sec_6041 the fund states that it may make a certain number of distributions directly to participants in tax-qualified retirement plans sec_72 of the code controls the taxation of such distributions and the distributions must be reported on form 1099-r pursuant to sec_6041 subject_to the dollar_figure reporting threshold set forth in sec_6041 and sec_1_6041-1 as noted above x will pay pre-judgment interest in addition to other sums this component of the settlement constitutes fixed or determinable income for purposes of sec_6041 accordingly the fund must report on form 1099-int the share of this pre-judgment interest_paid to each investor subject_to any applicable exceptions in the sec_6041 regulations and the dollar_figure reporting threshold set forth in sec_6041 and sec_1_6041-1 ruling sec_1_468b-2 provides that a qsf must make a return for a distribution to a claimant if one or more transferors would have been required to make a return had that transferor made the distribution directly to the claimant sec_6045 provides generally that every person doing business as a broker shall when required by the secretary make a return in accordance with such regulations as the secretary may prescribe sec_6045 defines the term broker to include a dealer a barter_exchange and any other person who for a consideration regularly acts as a middleman with respect to property or services the regulations further define the term broker to mean a person that in the ordinary course of a trade_or_business during the calendar_year stands ready to effect sales to be made by others see sec_1_6045-1 sec_1_6045-1 provides generally that a broker shall make an information_return for each sale effected by the broker in the ordinary course of the broker’s trade_or_business sec_1_6045-1 defines a sale as any disposition of securities commodities regulated_futures_contracts or forward contracts for cash and as including redemptions of stock retirements of indebtedness and entering into short_sales the fund’s payments to investors do not result from a sale as that term is defined above the fund therefore has no information reporting obligations under sec_6045 with respect to these payments ruling sec_6049 provides that every person who makes payments of interest aggregating dollar_figure or more to any other person during any calendar_year or receives payments of interest as a nominee and who makes payments aggregating dollar_figure or more during any calendar_year to any other person with respect to the interest so plr-110486-06 received shall make a return according to the forms or regulations prescribed by the secretary sec_6049 b provides that the term_interest includes interest on any obligation issued in_registered_form or of a type offered to the public other than any obligation with a maturity at issue of a year or less which is held by a corporation pursuant to sec_6049 interest also includes interest on deposits with brokers as defined in sec_6045 the fund distributions in the present case do not relate to deposits with brokers or obligations issued in_registered_form and do not otherwise qualify as interest within the meaning of sec_6049 this is so even though interest earnings have accrued on the funds to be paid to investors from the time x paid such funds to the fund the fund distributions to investors relate to violations of securities law and compensation_for financial harm not to obligations issued in_registered_form or other instruments that generate interest as sec_6049 defines that term accordingly the fund has no information reporting obligations under sec_6049 regarding its distributions to the investors ruling sec_3406 generally provides that in the case of any reportable_payment if a the payee fails to furnish his or her tin to the payor in the manner required b the secretary notifies the payor that the tin furnished by the payee is incorrect c there has been a notified_payee_underreporting of interest and dividends or d there has been a certification failure collectively referred to as payee failures then the payor shall deduct and withhold from such reportable_payment a backup withholding amount totaling of such payment sec_3406 provides that the term reportable_payment means any reportable_interest_or_dividend_payment and any other_reportable_payment sec_3406 provides that the term other_reportable_payment includes any payment of a kind and to a payee required to be shown on a return under sec_6041 or sec_6045 in light of rulings one through three above only direct payments by the fund to participants in tax-qualified plans and fund payments of pre-judgment interest will be reportable payments subject_to backup withholding under sec_3406 in order to meet its obligations under sec_3406 and to include tins on information returns it must provide for these reportable payments the fund plans to obtain those tins from one of the following sources the plan_administrator the mutual funds in which the investors held accounts or the transfer agents that provide services to the administrator or mutual funds obtaining the tins in this manner should prove more reliable and less burdensome and costly to the fund than soliciting the tins from the plan participants and pre-judgment interest recipients collectively payees in light of the authority it has been granted by plr-110486-06 the commission the fund will be able to obtain the payees’ tins from the plan administrators mutual funds or transfer agents the fund will not be required to solicit tins from the payees for purposes of applying the backup withholding rules of sec_3406 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 furthermore this letter expresses no opinion about information reporting requirements for fund distributions that are not made directly to the injured investors this letter also expresses no opinion about the income_tax consequences to investors of fund distributions this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely carol p nachman acting senior technician reviewer office of associate chief_counsel procedure and administration administrative provisions and judicial practice enclosure


t c no united_states tax_court michael patrick and debye lee leahy petitioners v commissioner of internal revenue respondent docket no 17199-06l filed date ps filed a petition pursuant to sec_6330 i r c challenging r’s determination concerning collection of ps’ unpaid income_tax for the years ps requested that their case be conducted under the small_tax_case procedures authorized by sec_7463 i r c in the case of an appeal under sec_6330 to the tax_court of a determination in which the unpaid tax does not exceed dollar_figure on the date respondent issued the notice_of_determination the total amount of unpaid tax exceeded dollar_figure nevertheless ps contend that because they dispute less than dollar_figure of the underlying tax_liability this case should proceed under the small_tax_case procedures of sec_7463 i r c held for a case to qualify for the small_tax_case procedures under sec_7463 i r c the total amount of unpaid tax which includes interest and penalties calculated as of the date of the notice_of_determination cannot exceed dollar_figure the amount of the underlying tax_liability in dispute is irrelevant therefore this case is not eligible to be conducted under the small_tax_case procedures of sec_7463 i r c michael patrick and debye lee leahy pro sese john r bampfield for respondent opinion ruwe judge pursuant to sec_6330 petitioners filed a petition for review of respondent’s notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination petitioners request that this case be conducted under sec_7463 which provides for what are commonly referred to as small_tax_case or s_case procedures where a taxpayer is challenging a collection determination in which the unpaid tax does not exceed dollar_figure in this opinion we decide whether this case is eligible to proceed as a small_tax_case unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure sec_7463 and rule b generally allow disputes in small tax cases to be decided in proceedings in which the normally applicable procedures and evidentiary rules are relaxed on date this court held that the dollar_figure limit in sec_7463 refers to the total amount of unpaid tax including interest and penalties which the commissioner has determined to collect schwartz v commissioner 128_tc_6 respondent argues that this case cannot proceed as a small_tax_case because the total amount of unpaid tax on the date he issued the notice_of_determination exceeded dollar_figure petitioners do not dispute respondent’s assertion that the aggregate unpaid tax that respondent determined to collect for the years through exceeded dollar_figure on the date of respondent’s notice_of_determination nevertheless petitioners argue that a sec_6330 collection case may be conducted under the small_tax_case procedures of sec_7463 when the amount of the underlying tax_liability in dispute is less than dollar_figure in their petition they agree to dollar_figure of the underlying tax_liability petitioners argue that the remaining amount of the underlying tax_liability which they dispute i sec_3 sec_7463 refers to the amount of unpaid tax in a sec_6330 collection case any reference in the internal_revenue_code to tax with exceptions not applicable to this case shall be deemed to include interest and penalties sec_6601 sec_6665 schwartz v commissioner 128_tc_6 table n the fact that the unpaid tax for each individual year did not exceed dollar_figure was held to be irrelevant schwartz v commissioner supra pincite respondent alleges that the amount of unpaid tax on the date of the notice_of_determination was dollar_figure less than dollar_figure making this case eligible to proceed under the small_tax_case procedures respondent argues that the amount of the underlying tax_liability in dispute is not relevant to determining small_tax_case eligibility in a sec_6330 collection case because eligibility is measured by the amount of unpaid tax that the commissioner has determined to collect not the amount of the underlying tax_liability in dispute sec_7463 provides sec_7463 additional cases in which proceedings may be conducted under this section --at the option of the taxpayer concurred in by the tax_court or a division thereof before the hearing of the case proceedings may be conducted under this section in the same manner as a case described in subsection a in the case of-- a petition to the tax_court under sec_6015 in which the amount of relief sought does not exceed dollar_figure and an appeal under sec_6330 to the tax_court of a determination in which the unpaid tax does not exceed dollar_figure in their last filing with the court petitioners state petitioner sic argues that this determination should be conducted under ‘s case’ procedures as the amount in dispute is not the fall sic amount of the determination dollar_figure petitioner sic does not dispute dollar_figure of this determination the amount of dispute is dollar_figure which is below the dollar_figure threshold we attribute to a math error the dollar_figure difference between the amount respondent determined and the sum of the tax petitioners conceded plus the alleged amount in dispute sec_6330 was amended by the pension_protection_act of publaw_109_280 120_stat_1019 for determinations made after the date which is days after date the amendment eliminated subsec d a however continued unlike the dollar limitation in sec_7463 that refers to the amount of the deficiency placed in dispute the dollar limitation in sec_7463 refers to the amount of unpaid tax sec_7463 not sec_7463 controls whether continued the reference to subsec d a in sec_7463 was not changed in any event the amendment does not affect this case because the determination was made on date see schwartz v commissioner supra pincite n sec_7463 provides sec_7463 in general --in the case of any petition filed with the tax_court for a redetermination of a deficiency where neither the amount of the deficiency placed in dispute nor the amount of any claimed overpayment exceeds-- dollar_figure for any one taxable_year in the case of the taxes imposed by subtitle a dollar_figure in the case of the tax imposed by chapter dollar_figure for any one calendar_year in the case of the tax imposed by chapter or dollar_figure for any taxable_period or if there is no taxable_period taxable_event in the case of any_tax imposed by subtitle d which is described in sec_6212 relating to a notice_of_deficiency at the option of the taxpayer concurred in by the tax_court or a division thereof before the hearing of the case proceedings in the case shall be conducted under this section notwithstanding the provisions of sec_7453 such proceedings shall be conducted in accordance with such rules of evidence practice and procedure as the tax_court may prescribe a decision together with a brief summary of the reasons therefor in any such case shall satisfy the requirements of sec_7459 and sec_7460 the instant sec_6330 collection case qualifies for the small_tax_case procedures therefore we look to the amount of unpaid tax that respondent has determined to collect not the amount of the underlying tax_liability in dispute to decide whether this case may proceed under the small_tax_case procedures of sec_7463 schwartz v commissioner supra it is true that in certain limited circumstances a taxpayer can dispute all or a portion of the underlying tax_liability in a sec_6330 collection case see 114_tc_176 however the fact that petitioners are disputing less than dollar_figure of the underlying tax_liability has no relevance to the application of the dollar limit in sec_7463 sec_7463 applies to the case of an appeal under sec_6330 to the tax_court of a determination in which the unpaid tax does not exceed dollar_figure emphasis added we hold that for a case to qualify for the small_tax_case procedures under sec_7463 the total amount of unpaid tax that the commissioner has determined to collect cannot exceed dollar_figure the amount of the underlying tax_liability in dispute is irrelevant respondent cites schwartz for the proposition that the amount of unpaid tax including interest and penalties should in schwartz the taxpayers were not disputing the amount of their underlying tax_liability schwartz v commissioner supra pincite n be determined as of the date of the notice_of_determination in schwartz we did not explicitly decide when the amount of unpaid tax should be calculated for purposes of applying the dollar limit in sec_7463 even though petitioners do not dispute respondent’s assertion that the amount of unpaid tax should be determined as of the date of the notice_of_determination this issue concerns the court’s authority to proceed under sec_7463 and is in the nature of a jurisdictional question which may be raised sua sponte at any timedollar_figure 129_tc_1 __ slip op pincite see schwartz v commissioner t c pincite 127_tc_109 this court has previously held that the date of filing a petition under sec_6015 for relief from joint liability is the date on which the amount of relief sought should be calculated for purposes of deciding whether a sec_6015 stand-alone case may proceed under the small_tax_case procedures of sec_7463 petrane v commissioner supra at __ slip op pincite sec_7463 refers to the case of a petition to the tax_court under sec_6015 in which the amount of relief sought does not exceed dollar_figure emphasis there is no question that we have jurisdiction to review respondent’s determination under sec_6330 the question is whether we can decide this matter as a small_tax_case under sec_7463 schwartz v commissioner t c pincite n added the words in which in sec_7463 can logically refer back only to a petition not to the tax_court or sec_6015 while the petition date was the appropriate date on which to calculate the amount of spousal relief sought for purposes of sec_7463 the proper date to calculate the amount of unpaid tax in a sec_6330 collection case must be analyzed separately under the specific but different language of sec_7463 respondent alleges that the amount of unpaid tax on the date of the notice_of_determination exceeds dollar_figure and petitioners do not dispute this if the date of the notice_of_determination is the date for determining the amount of unpaid tax for purposes of sec_7463 then this case cannot proceed as a small_tax_case however if a subsequent date such as the date of filing the petition is the relevant date we would have to ascertain the unpaid tax on that later date occurrences after issuance of the notice_of_determination such as abatements payments or credits could decrease the amount of unpaid tax as of any subsequent date the amount of unpaid tax depends on the amount of accrued interest as of a particular date therefore it is necessary to decide the date on which the amount of unpaid tax should be calculated for purposes of applying the dollar limit in sec_7463 sec_7463 refers to the case of an appeal under sec_6330 to the tax_court of a determination in which the unpaid tax does not exceed dollar_figure emphasis added the words in which could conceivably refer back to either an appeal or a determination an appeal within the meaning of sec_7463 occurs when the taxpayer petitions the tax_court however if the words in which were meant to refer to an appeal then inclusion of the words of a determination immediately preceding in which the unpaid tax does not exceed dollar_figure would be rendered surplusage and could have been omitted statutory language is interpreted by giving each word its plain obvious and rational meaning am tobacco co v patterson 456_us_63 263_us_179 103_tc_285 n affd 65_f3d_329 3d cir fundamental principles of statutory construction generally preclude us from reading a statute in such a way as to render statutory language mere surplusage 126_tc_215 see also 404_us_293 ndollar_figure failure to give any meaning to the words of a determination in interpreting sec_7463 would violate these canons of statutory construction in addition it is a general_rule of style and composition to position a modifying word or clause close to the term it explains in order to avoid awkwardness confusion and ambiguity see strunk white the elements of style 4th ed see also richmond legal writing form and function the clause in which the unpaid tax does not exceed dollar_figure acts as a modifier to a noun and the noun determination immediately precedes in which the unpaid tax does not exceed dollar_figure we conclude that the dollar_figure limit refers to the total unpaid tax as of the date of the determination accordingly we hold that for purposes of deciding whether a sec_6330 collection case may proceed under the small_tax_case procedures provided for in sec_7463 the date the commissioner issues the notice_of_determination is the date on which the amount of unpaid tax should be calculateddollar_figure the total unpaid tax on the date respondent issued the notice_of_determination exceeds the dollar_figure limit provided in sec_7463 we will therefore deny petitioners’ request to have this case proceed under the small_tax_case procedures to reflect the foregoing an appropriate order will be issued the total amount of unpaid tax is often omitted from notices of determination issued pursuant to sec_6330 the commissioner could assist taxpayers and the court if he were to calculate the total unpaid tax as of the date of the sec_6330 notice_of_determination and include it in the notice


t c memo united_states tax_court leonard and pearl fein petitioners v commissioner of internal revenue respondent docket no filed date leonard and pearl fein pro sese deborah aloof for respondent memorandum findings_of_fact and opinion swift judge respondent determined deficiencies penalties and additions to tax with respect to petitioners’ federal income taxes for and as follows additions to tax penalties year deficiency sec_6651 sec_6662 dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number the issue for decision is whether petitioners have substantiated claimed business and entertainment_expenses under sec_162 sec_274 and sec_6001 relating to leonard fein’s petitioner’s accounting and photographic activities the trial of this case was held on november and date in new york city unless otherwise indicated all section references are to the internal_revenue_code applicable to the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found at the time the petition was filed petitioners resided in new york since the late 1970s petitioner has been a certified_public_accountant from through most of however petitioner did not work as an accountant in and through the years in issue petitioner resumed his accounting activity including the preparation of tax returns during the years in issue petitioner also engaged in some photographic activity the evidence does not indicate that petitioner received any training in photography petitioner paid his children what petitioner refers to as per_diem allegedly in connection with services they performed in petitioner’s accounting activity these per_diem payments however appear to have been set at amounts that would allow the children to benefit from the earned_income_tax_credit not at amounts that reflect the value of any services the children actually performed for petitioner and the credible_evidence does not establish the nature and extent of any services the children performed for petitioner petitioner paid little attention to recordkeeping and financial aspects of his accounting and photographic activities documentation petitioner maintained regarding his accounting and photographic activities was disorganized and incomplete petitioner maintained no credible records and no bank accounts relating to these activities and petitioner commingled funds relating to these activities with funds pertaining to his personal and family activities during the years in issue petitioner lived in his father’s house with between to other family members and individuals other than petitioner none of the persons living in this house owned a car the car petitioner owned and used in his accounting and photographic activities was also used by petitioner and by other persons living with petitioner for their personal_use in some of the office space petitioner apparently rented petitioner had no phone lines or internet connections the eight phones that petitioner alleges to have used in his accounting and photographic activities were all registered in the names of petitioner’s wife and children during the years in issue petitioner had severe medical problems--poor eyesight stomach ailments and eating disorders in petitioner traveled to israel and while there received medical treatment for his eye problems petitioners’ federal_income_tax returns for and were filed late on february march and date respectively on which returns petitioner reported the following gross_income relating to his accounting and photographic activities year accounting photography total gross_income 1dollar_figure big_number big_number dollar_figure dollar_figure big_number big_number big_number big_number 1in connection with petitioners’ federal_income_tax return petitioners and respondent dispute which copy of the schedule c profit or loss from business relating to petitioner’s accounting activity was filed we use the figures from the schedule c respondent asserts was filed on each of petitioners’ federal_income_tax returns for the years in issue petitioner attached two schedules c profit or loss from business the first relating to petitioner’s accounting activity and the second relating to his photographic activity the table below summarizes for each year in issue the expenses petitioner claimed on the schedules c as deductible business_expenses relating to petitioner’s accounting and photographic activities accounting--schedule c-1 years expense sec_2002 depreciation dollar_figure dollar_figure dollar_figure rent big_number big_number big_number postage big_number big_number big_number telephone internet big_number big_number big_number per_diem big_number big_number big_number office big_number big_number big_number repairs maintenance supplies big_number big_number big_number professional books tax computer form sec_512 computer tax programs big_number big_number big_number computer supplies big_number other big_number tolls parking big_number big_number big_number car truck big_number big_number big_number promotion gifts big_number big_number big_number travel big_number meals entertainment big_number big_number big_number total expenses big_number big_number big_number photography--schedule c-2 years expense sec_2002 depreciation dollar_figure dollar_figure dollar_figure postage big_number big_number big_number telephone big_number big_number big_number office expense big_number big_number big_number repairs maintenance supplies big_number big_number big_number printing developing big_number big_number big_number computer programs big_number big_number big_number computer supplies big_number big_number big_number publications big_number videotapes discs big_number big_number big_number research material big_number big_number big_number car truck big_number big_number big_number promotion gifts big_number big_number big_number travel big_number meals entertainment big_number big_number total expenses big_number big_number big_number on the basis of the above-reported income and expenses petitioners reported on their and federal_income_tax returns net profit from petitioner’s accounting and photographic activities as follows net profit year accounting photography total dollar_figure big_number big_number dollar_figure dollar_figure big_number big_number big_number big_number on audit respondent disallowed in their entirety the claimed business_expenses relating to petitioner’s accounting and photographic activities reflected on petitioners’ untimely filed federal_income_tax returns for and determined the tax deficiencies at issue herein and imposed on petitioners the sec_6651 late-filing additions to tax and the sec_6662 accuracy-related_penalties much of the documentation petitioner offered at trial relating to his accounting and photographic activities is illegible with dates prices and descriptions unreadable testimony petitioner gave with regard to his proffered documentation was generally vague and inadequate petitioner testified that bills for expenses relating to his accounting and photographic activities were the responsibility of his wife--that he never saw the bills never paid the bills and never checked whether his wife had paid the bills petitioner however did not call his wife his children or others to testify at the trial opinion respondent claims that petitioner in and was not engaged in a trade_or_business of accounting or photography and alternatively that petitioner is not entitled to the claimed expenses relating thereto for lack of proper and adequate documentation and substantiation we address only respondent’s lack of substantiation argument taxpayers have a responsibility to maintain records sufficient to determine their correct federal_income_tax liability sec_6001 116_tc_438 no deduction is allowed for personal living or family_expenses unless expressly provided by law sec_262 deductions are a matter of legislative grace and the taxpayer generally bears the burden of proving he or she is entitled to the deductions claimed rule a 292_us_435 taxpayers must be able to substantiate both the amount_paid and the purpose of claimed deductions higbee v commissioner supra pincite at trial petitioner did not credibly explain how he accounted for the income received and the expenses_incurred in his accounting and photographic activities petitioner stated he gave funds received to his wife and she did whatever she wanted with them as noted above documentation petitioner offered to substantiate claimed expenses relating to his accounting and photographic activities is illegible some of it is blank and much of it is not in petitioner’s name but rather in the names of petitioner’s wife and children much of the documentation that is legible is utterly unclear as to the purpose of the claimed expense--whether personal accounting or photography-- and no further explanatory evidence is provided 1because petitioner has not maintained and submitted adequate_records to substantiate his claimed expenses petitioners do not qualify for a shift in the burden_of_proof under sec_7491 see sec_7491 petitioner produced no credible documentation with regard to claimed gasoline purchases car repairs expenses and toll costs documentation petitioner produced in support of car and truck expenses gifts and promotions meals entertainment and travel does not meet the recordkeeping requirements of sec_274 there is no credible_evidence that petitioners’ children worked in any meaningful way for petitioner in either his accounting or his photographic activities that would have justified the per_diem payments petitioner paid to them in support of claimed depreciation petitioner offers a list of assets for this list is insufficient to establish that petitioner purchased and placed into service the depreciable assets and that the depreciation amounts petitioner claimed during the years in issue were correct petitioner claims that some of the documentation relating to his accounting and photographic activities was destroyed in a fire or lost as a result of a computer crash petitioner submitted numerous general receipts at trial but has provided no credible_evidence that the purpose for those expenses related to petitioner’s accounting and photographic activities and petitioner’s ability to produce numerous receipts calls into question petitioner’s allegation that a fire or a computer crash occurred that destroyed his records over the course of the years in issue petitioner claims approximately dollar_figure in meal and entertainment_expenses the diary petitioner offers in support of these expenses however inadequately describes the business relationship between petitioner the named client and any business_purpose for the expenses see sec_274 petitioner claims his trip to israel qualifies as a business trip in his photographic activities however no credible_evidence supports that claim rather it appears petitioner’s trip to israel related to needed medical treatments in summary we sustain respondent’s disallowance of all of the expenses claimed on the schedules c-1 or c-2 on petitioners’ and federal_income_tax returns respondent has satisfied his burden of production under sec_7491 and petitioners have not established any reasonable_cause with regard to the late filing of petitioners’ and federal_income_tax returns and the underpayments associated therewith see higbee v commissioner supra pincite the credible_evidence does not establish that petitioner’s or other family members’ medical problems incapacitated petitioner from filing timely and proper federal_income_tax returns for the years in issue see wright v commissioner tcmemo_1998_224 affd without published opinion 173_f3d_848 2d cir we sustain respondent’s imposition of both the sec_6651 late-filing additions to tax and the sec_6662 accuracy- related penalties to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c dec commissioner tax_exempt_and_government_entities_division uniform issue list tt zp natl kkekk kkk legend taxpayer a spouse ira x financial_institution a financial advisor a amount a dear i e ex ee this is in response to your request signed may as supplemented by correspondence dated august 20' in which you request a letter_ruling under sec_408 of the internal_revenue_code the code’ september october 20' ‘ and december the following facts and representations have been submitted under penalties of perjury in support of the ruling requested taxpayer a represents that he received a distribution from ira x of amount a taxpayer a asserts that his failure to accomplish rollovers within the 60-day period prescribed by sec_408 of the code was due to an error by financial_institution a in that financial advisor a an employee of financial_institution a provided the incorrect rollover deadline date to taxpayer a taxpayer a represents that he is the owner of ira x maintained at financial_institution a in february 20__ taxpayer a contacted financial advisor a his long-time financial advisor seeking advice regarding options for accessing amount a on a short-term basis for the purpose page of funding a cash purchase of a residence that was in foreclosure financial advisor a told taxpayer a that he could borrow the funds from ira x so long as the funds were redeposited back into the ira by a certain deadline the deadline provided by financial advisor a was after the required 60-day period on march and his wife spouse marked the calendar for the incorrect deadline provided by financial advisor a for the redeposit of amount a in ira x taxpayer a withdrew amount a from ira xx in may spouse contacted financial advisor a to verify when amount a needed to be redeposited into ira x financial advisor a confirmed the incorrect deadline he had previously provided taxpayer a had taxpayer a known the correct 60-day deadline he could have completed the rollover because he had the funds available during the 60-day period to redeposit amount a in ira x on june 20' taxpayer a sent a check for amount a to financial advisor a and it was deposited into ira x before the incorrect deadline but after the 60-day rollover period had ended financial advisor a verified to taxpayer a that amount a was back in ira x taxpayer a did not discover that financial advisor a's advice was incorrect until he brought his from financial_institution a showing a taxable_distribution of amount a taxpayer a has since removed amount a from ira x to avoid additional penalties tax documents to his accountant and the accountant saw the form 1099-r based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount a sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is day after paid into an ira for the benefit of such individual not later than the the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received page any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 related to required distributions under sec_401 and incidental death_benefit requirements of sec_401 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error committed by financial_institution a in that financial advisor a provided the incorrect rollover deadline date to taxpayer a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount a into a rollover ira provided all other requirements of sec_408 except the 60-day ' requirement are met with respect to such contribution amount a will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code regarding required distributions no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent