internal_revenue_service number release date index number ------------------------------- ----------------- ------------------------ ------------------------------------------- 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-120229-14 date november legend --------------------------- settlor ----------------------------------------------------------------------- trust --------------------------------------------------------------------------------------------------------------------- --- --------------------------------------------------------------------- ------------------------------------------------------------------- date date date date corporate trustee child grandchild great-grandchild a great-grandchild b great-grandchild c state court -------------------------------------------------------------------------------------------------------------- x -------------------------- --------------------- --------------------- --------------------------- ------------------------------------------------- -------------------------------------------- ----------------------------------- ------------------- ------------------ ---------------------- ------------------------------------------------------------------------ ------------ dear --------------- plr-120229-14 this is in response to a letter dated date and subsequent correspondence submitted by your authorized representative requesting a ruling under sec_2601 of the internal_revenue_code the facts and representations submitted are summarized as follows settlor created and funded trust an irrevocable_trust on date a date before date for the primary benefit of grandchild corporate trustee is the current trustee under article ii a of trust the trustee is authorized to purchase and maintain insurance on the life of child the net_income is to be accumulated however the trustee may in its sole discretion pay for the benefit of grandchild so much of the net_income as the trustee may deem necessary and proper to provide for the support maintenance and education of grandchild article ii b provides that in the event of grandchild’s death during the life of the trust the trustee is to pay to or expend for the benefit of grandchild’s descendants so much of the net_income and to the extent necessary principal of trust as the trustee in its discretion may deem appropriate for the proper and appropriate education maintenance comfort care and support of grandchild’s descendants trust is to terminate on the earlier of child’s death if no descendants the death of child’s last surviving descendant or five years after child’s death upon termination the trustee is to distribute all of the trust assets in equal shares to grandchild’s then surviving descendants child died on date trust will terminate on date the fifth anniversary of child’s death grandchild the income_beneficiary of trust is living grandchild has three children great-grandchild a great-grandchild b and great-grandchild c who are to receive the trust principal outright on date on date the parties petitioned state court for an order modifying trust to provide that on termination of trust the portion of principal and accumulated income otherwise passing outright to great-grandchild a will be held in a separate trust to be administered for great-grandchild a’s exclusive benefit and the portion of trust principal and accumulated income otherwise passing outright to great-grandchild b will be held in a separate trust to be administered for great-grandchild b’s exclusive benefit finally the portion of trust principal and accumulated income otherwise passing outright to great- grandchild c will be held in a separate trust to be administered for great-grandchild c’s exclusive benefit corporate trustee will serve as the trustee grandchild may serve as an advisor with regard to discretionary distributions but grandchild’s suggestions will not be binding on corporate trustee and corporate trustee will have the final authority and responsibility for all decisions regarding discretionary distributions plr-120229-14 each great-grandchild’s separate trust each great-grandchild’s separate trust will provide that throughout its duration the trustee is authorized in its discretion to distribute such amount of income of that separate trust as may be reasonably necessary to provide adequately for the health education support and maintenance of the great-grandchild-beneficiary of that separate trust each trust will authorize the trustee in its discretion at any time to distribute such amounts of the principal of that separate trust as may be reasonably necessary to provide adequately for the health education support and maintenance of the great-grandchild beneficiary of that separate trust in addition the following distributions are to be made to a great-grandchild-beneficiary from that great-grandchild’s separate trust the sum of dollar_figurex will be distributed to him or her upon reaching age the trustee will distribute one-third of the great-grandchild’s separate trust assets to him or her upon reaching age one-half of the great- grandchild’s separate trust assets then on hand will be distributed to him or her upon reaching age finally a great-grandchild’s separate trust will terminate on the first to occur of i the great-grandchild’s reaching age at which time the remaining separate trust assets will be distributed to him or her or ii the great-grandchild’s death at which time the remaining assets in that great-grandchild’s separate trust will be distributed in accordance with his or her exercise of a general testamentary_power_of_appointment over the principal and accumulated income of that separate trust if the great- grandchild fails to exercise his or her general testamentary_power_of_appointment the separate trust assets will be distributed to or for the great-grandchild’s descendants per stirpes if a great-grandchild-beneficiary becomes incapacitated during the term of his or her separate trust the assets of that great-grandchild’s separate trust will be retained in the separate trust for the duration of the incapacity or until his or her earlier death you have asked to rule that the proposed reformation and modification of the trust agreement will not cause the trust or any great-grandchild’s separate trust to be established on the partition to be subject_to the tax_on_generation-skipping_transfers under sec_2601 sec_2601 imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of principal added to the trust by an actual or constructive_addition after date plr-120229-14 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust in the instant case the reformation and modification of trust pursuant to the state court order will provide that the trust principal that would otherwise pass outright to great- grandchild a on termination of trust will be held in further trust for the exclusive benefit of great-grandchild a likewise the trust principal that would otherwise pass outright to great-grandchild b on termination of trust will be held in further trust for the exclusive benefit of great-grandchild b and the trust principal that would otherwise pass outright to great-grandchild c on termination of trust will be held in further trust for the exclusive benefit of great-grandchild c each great-grandchild will have a testamentary general power to appoint the property of his or her respective separate trust to anyone including his or her estate or the creditors of his or her estate under these circumstances the assets held in a great-grandchild’s separate trust at his or her death will be included in his or her gross_estate for estate_tax purposes under sec_2041 further each great-grandchild will be treated as the transferor of the principal of his or her separate trust for gst tax purposes under sec_2041 accordingly the proposed modifications will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial_interest prior to the modification further the modifications of trust will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust finally the modifications pertaining to trustee powers are administrative in nature sec_26_2601-1 plr-120229-14 based on the facts submitted and the representations made we conclude that the proposed modifications comply with the provisions of sec_26_2601-1 and will not cause trust or any great-grandchild's separate trust to be subject_to the tax_on_generation-skipping_transfers except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries melissa c liquerman chief branch office of associate chief_counsel passthroughs special industries enclosure copy of letter for sec_6110 purposes


internal_revenue_service number release date index numbers ----------------------------- -------------------------- ------------------------ ------------------------------------------------------------ ------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-112134-09 date date legend x --------------------------------------------------- --------------------------- d1 d2 country ------------------- ------------------- --------------------- dear --------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d2 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective d2 plr-112134-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 and iii provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that an election under sec_301_7701-3 must be signed by - a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury sec_301_7701-3 provides that if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301 c i for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-112134-09 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 effective d2 with the appropriate service_center to elect to be classified as a disregarded_entity a copy of this letter should be attached to the form_8832 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 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 sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend x university y hospital z city state dear you asked for advance approval of your 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 scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't 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 provide in code sec_117 description of your request you engage in charitable activities by providing scholarships for young persons training to be nurses at x your program is publicized through x and y to be eligible a student must be entering their junior or senior year of school and demonstrate a financial need you will select recipients based on their demonstrated financial need and ability to complete the nursing program awards vary year to year based on the funds you have available and the number of qualifying nursing students at x that complete their training at y in z scholarships are renewable each year the student must reapply under the same criteria each year they apply letter catalog number 58263t your scholarship selection committee consists of a representative of y two members of x and a representative of your trustee your committee reviews all scholarship applications provided by x and pares the applications down to those students that qualify for the scholarship you are responsible for choosing the final award recipients you pay the scholarship proceeds directly to the university college the recipient attends for the benefit of the recipient you provide a letter to each university college specifying that the university college’s acceptance of the funds constitutes an agreement to i refund any unused portion of the scholarship if a scholarship recipient fails to meet any term or condition of the scholarship and ii notify the trustee if the scholarship recipient fails to meet any term or condition of the scholarship if the university school will not agree to such terms you will obtain the needed reports and grade transcripts from the scholarship recipient the school follows the requirements based on the criteria in their handbook to identify students eligible for the scholarships your selection committee then oversees the selection of the scholarship recipients you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes take all reasonable and appropriate steps to recover 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 diversions from occurring you represent that you will maintain all records related to the following individual grants including information to evaluate grantees grantees which are identified as a disqualified_person how the amount and purpose of each grant was established and how you established 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 the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 e letter catalog number 58263t other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request the effective date of our approval is date which is the date your request was submitted 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 cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives 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 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 stephen a martin director exempt_organizations rulings and agreements letter catalog number 58263t


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec tep qa alr significant index number harkkkekkekkekkkekkkek hrekkekrekkrereeeeekrkrekrererere kekkereerekkekrerkkereeke kkkekekekekrkkakrereekeekerrekrek krekekekekekekrekererer krekkekekereeeeeekerererker in re hhrrekekeekerkekrere keke eker kkeekeekrereerer eee kee erkekrreerekrerererererrerererreeere krekkeekekkekekkkekkekkek plan no ee e n kkk _kkkkhekerk company hekkekkekekererereereeee plan erk rkkkrkekreakr eee rrr ekererrereererek krrekkkekekkeek dear plan_year by the later of a days from the date of collateral acceptable to prgc is provided to the plan for the full amount of the funding waiver for the the irs ruling letter granting the waiver final ruling letter and b the earlier of i the date pbgc notifies the service in writing that this condition has not been met and ii days from the date of the final ruling letter this letter constitutes notice that a waiver of the minimum_required_contribution for the plan for the plan_year ending december 20' ‘has been approved subject_to the conditions listed below the waiver is for the required minimum contribution for the above listed plan_year all waiver amortization payments representing this waiver still must be paid as stated in sec_412 of the code starting with the quarterly contribution due on date the company makes contributions equal to the required quarterly contributions to the plan ina timely fashion while the plan is subject_to a waiver of the minimum_funding_standard for this purpose the total amount of each quarterly contribution will be determined in accordance with sec_430 and sec_430 of the code and can be comprised of several installments made prior to the respective due_date of the quarterly contribution under sec_412 of the code the company is restricted from amending the plan to increase benefits and or plan liabilities while any portion of the waived_funding_deficiency remains unamortized except to any extent otherwise permitted under code sec_412 in which case the company copies pbgc on any correspondence with the irs regarding notification of or application_for such an exception the company makes timely contributions to the plan in an amount sufficient to meet the minimum_funding requirements for the plan for the plan years ending december respectively through by september through the company provides proof of payment of all contributions described above within five business days after each payment thereof to the service and pbgc using the fax numbers or addresses below irs - ep classification kekkekrererereererere hike rereeekere ree kerereerereeeere hkkkikkhakekkekakke ree eker fax a kxrekkekkekkekeeeereek pension_benefit_guaranty_corporation hk kkkkekkererkrekekerrer eer erererrer ere kkkkerekekreerereereererere kaka eerie kee rerer fax hiker if any one of these conditions is not satisfied the waiver is retroactively null and void this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the company has suffered a temporary substantial business hardship due to a number of factors including increasing costs of resources increased competition from foreign companies and an overall economic recession it has also had to reduce its accounts_payable and other liabilities which reduced company's overall cash flows the company has executed a strategy to reduce expenses and raise additional revenue to improve the financial health of the organization including replacing some high level personnel its financial projections show that it will likely generate increasing profits and operating cash flows in future years the company believes and its financial projections illustrate that its cash flows will improve adequately to satisfy the plan’s funding obligation in the near future your attention is called to sec_412 of the code and sec_302 of erisa which describe the consequences that would result in the event the 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 this plan maintained by the company to increase or any_action by the company or its authorized agents or designees such as a board_of directors or board_of trustees that has the effect of increasing the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_302 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_302 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 when filing form_5500 for the plan_year ending december 20'_ the date of this letter should be entered on schedule sb actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule sb we have sent a copy of this letter to the manager ep classification in baltimore maryland and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contac’ heekkreekerkee at rekk kekekk cc manager ep classification baltimore maryland manager ep compliance unit chicago illinois sincerely william b hulteng manager employee_plans technical


t c memo united_states tax_court cecilia m hylton petitioner v commissioner of internal revenue respondent docket nos filed date glen e frost kaitlyn a loughner bertram p husband richard w craigo and jessica f marine for petitioner bradley c plovan david a indek and nancy m gilmore for respondent memorandum findings_of_fact and opinion ruwe judge these cases were consolidated for purposes of trial briefing and opinion respondent determined deficiencies in petitioner’s federal_income_tax additions to tax and accuracy-related_penalties as follows docket no addition_to_tax accuracy-related_penalty year deficiency sec_6651 sec_6662 dollar_figure dollar_figure --- big_number dollar_figure --- big_number --- dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure docket no addition_to_tax accuracy-related_penalty year deficiency sec_6651 sec_6662 dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure the issues for decision are whether petitioner’s horse breeding training showing and sales operation was an activity_not_engaged_in_for_profit within the meaning of sec_183 for the taxable years years in issue whether petitioner is liable for additions to tax under sec_6651 for failure to timely file for the taxable years and and whether petitioner is liable for accuracy-related_penalties under sec_6662 for the taxable years unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the first second and third stipulations of fact and the attached exhibits are incorporated herein by this reference at the time the petitions in these cases were filed petitioner resided in virginia the hylton group petitioner is the president of the hylton group a successful real_estate group founded by her father cecil hylton primarily in the business of developing real_property building and selling residences and apartment buildings and managing commercial and residential properties in virginia the hylton group consists of several entities which collectively own at least five strip malls and approximately big_number apartment units in northern virginia as well as building contractors and other entities involved in real_property development the hylton 1mr hylton was the primary executive of the hylton group and developed the first satellite community dale city virginia he passed away in date group is a family business and petitioner has been involved with various aspects of the business from a young age during the years in issue petitioner normally worked at the hylton group’s offices hours every wednesday petitioner has no formal education beyond high school petitioner’s brothers manage the financial side of these companies petitioner’s main sources of income for the years in issue were trusts holding the hylton group companies petitioner and her brothers control these trusts at trial petitioner did not know her current net_worth or her net_worth in any year from to hylton quarter horses petitioner was exposed to horse ownership at a young age when she wa sec_12 years old mr hylton acquired for petitioner her first horse whose name was midnight following mr hylton’s death petitioner purchased her first american quarter horse quarter horse jimmers jj on date because she needed a shoulder to cry on and the horse served that purpose petitioner paid dollar_figure for jimmers jj from to petitioner was mentored in horse riding and showing by professional horse trainer connie christopher 2one of petitioner’s brothers is now deceased in petitioner started hylton quarter horses hqh which breeds trains shows and sells quarter horses the predominant use for quarter horses is recreational riding but they are also used in rodeos and horse shows and as working ranch horses at horse shows quarter horses compete in various disciplines including reining calf roping western pleasure ranch pleasure and other events quarter horses are also shown in english disciplines and driving and are used in many other equestrian activities in operating hqh petitioner sought to raise the best horses possible petitioner’s process to produce quality quarter horses involved the following accumulate the best mares acquire stallions to breed breed the mares produce foals and cull a portion of the foal crop and keep the remainder 3petitioner’s quarter horse operation was initially named whipperwill hill quarter horse farm before changing its name to hylton quarter horses for simplicity we will refer to petitioner’s operation throughout our opinion as hqh 4the reining discipline involves quarter horses running in specified patterns and performing maneuvers such as sliding stops from runs and spins in the western pleasure discipline quarter horses are shown in groups and the emphasis is on soft quiet slow movements including walking jogging and loping ranch pleasure was added as a discipline in or and is a combination of various quarter horse disciplines to train petitioner did not prepare a written business plan when she started hqh the record includes an undated five-page written business plan which provides inter alia a general background about the quarter horse breed background information regarding petitioner’s interest in quarter horses goals of hqh’s breeding training and showing programs and a single-page income and expense projection according to petitioner she never regarded this written business plan as a true business plan rather her certified_public_accountant c p a kenneth anderson developed it in response to the internal_revenue_service irs audit the income and expense projection included in the business plan covers the years and shows the following income expenses and profit hqh income year before expenses hqh expenses profit or loss dollar_figure dollar_figure 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 cull means to selectively reduce the size of the horse herd to get rid of the horses that do not fit into the breeding and or training program in a normal crop of foals petitioner would keep approximately half of the foals and cull the other half the culled foals would be either sold or donated to universities having equine programs during the years in issue petitioner spent approximately hours per week on hqh-related activities such as researching horse bloodlines attending horse sales and auctions traveling to horse shows observing hqh’s training and breeding programs making final decisions regarding culls and reviewing invoices and signing checks petitioner received no monetary compensation from hqh in date petitioner was inducted into the virginia quarter horse hall of fame petitioner’s son george markley serves as hqh’s business manager and does not receive any compensation_for his services mr markley spends approximately hours per week performing duties as hqh’s business manager and is mainly responsible for monitoring the operation’s finances mr markley also attends horse shows and shows horses in the western pleasure discipline mr markley is also employed as the general manager for interstate investment an entity of the hylton group that manages commercial properties mr markley works approximately hours per week as the general manager of interstate investment and is paid a salary for his services during the years in issue and to the present time mr markley resided pincite2 kettle run road in nokesville virginia mr markley has no formal education beyond high school petitioner’s daughter jamie hylton serves as hqh’s farm manager and does not receive any compensation_for her services jamie hylton works about hours per week for hqh and is mainly responsible for recordkeeping registration of horses organization and naming foals for purposes of trial jamie hylton created rosters of hqh horses from to using horse registration records and veterinarian and training invoices during the years in issue petitioner operated hqh at four locations in northern virginia collectively virginia properties kettle run road in nokesville which is owned by mr markley kettle run road in nokesville which is owned in trust with mr markley as trustee herring lane in nokesville which is owned in trust with mr markley as trustee and and james madison highway in gainesville which are owned in trust with mr markley as trustee petitioner’s primary residence is pincite james madison highway petitioner primarily uses the virginia properties for boarding and training of hqh show horses and generally does not provide any commercial boarding or training services to other horse owners 6the properties pincite2 and kettle run road are adjacent three of the virginia properties are held in trust with mr markley as trustee for estate_planning purposes the property pincite2 kettle run road consists of acres one acre of this property consists of mr markley’s residence and the surrounding curtilage petitioner uses the remaining acres as the primary virginia training facility for hqh show horses the property includes barns stalls run-ins and indoor outdoor training arenas the current fair_market_value of kettle run road excluding mr markley’s residence and the surrounding curtilage is between dollar_figure and dollar_figure the property pincite2 kettle run road consists of acres in date this property was purchased for dollar_figure the current fair_market_value of kettle run road is between dollar_figure and dollar_figure the property pincite0 herring lane consists of seven acres one acre of this property consists of a single-family home and the surrounding curtilage petitioner’s head trainer in virginia resides in the single-family home which petitioner provides as part of the trainer’s compensation_for services rendered to hqh the remaining six acres include barns stalls run-ins and outdoor pastures which petitioner uses to house yearlings until they are ready to train under saddle the current fair_market_value of herring lane excluding the house and the surrounding curtilage is between dollar_figure and dollar_figure the properties pincite and james madison highway have combined acreage of acres one acre consists of petitioner’s residence and the surrounding curtilage the remaining acres include stables pastures run- ins and buildings to store equipment for hqh petitioner also keeps her main hqh office above the stables at this location the current fair_market_value of the combined properties excluding petitioner’s residence and the surrounding curtilage is between dollar_figure and dollar_figure petitioner employs full-time horse trainers for hqh and as part of the trainers’ compensation packages provides housing for them and their families pincite0 herring lane from to petitioner contracted with meadows quarter horses and its owners steve meadows and his wife to provide horse training and showing services mr meadows is a professional horseman based in virginia and is a former president of the virginia quarter horse association chairman of the american quarter horse association aqha professional horsemen’s council a national director of the aqha and an aqha steward 7quarter horses are registered with the aqha which is a membership_organization the aqha was formed in by a group of ranchers who were dedicated to forming a registry to preserve the pedigrees of quarter horses and develop rules for competitions petitioner is a member of the aqha the virginia quarter horse association the virginia quarter horse youth association and the national snaffle bit association petitioner registers her quarter horses with the aqha from to the time of trial petitioner contracted with lucas cash show horses llc and its owner lucas cash as the head trainer for hqh in virginia mr cash is responsible for the day-to-day training of show horses in virginia for each of the years in issue petitioner hired farmhands to clean stalls and do various clean-up around the farm petitioner paid the farmhands and provided them with a rented house to reside in while working for hqh petitioner did not issue either a form_w-2 wage and tax statement or a form 1099-misc miscellaneous income to any of the farmhands for any of the years in issue hqh advertises its operation in horse magazines and publications on a web site and a facebook page and by showing horses during the years in issue petitioner attended approximately horse shows per year with the average show lasting six to seven days including travel time in petitioner created a competition named the hylton maiden class to compete in the hylton maiden class a horse must be at least three years old and not previously have been campaigned or shown petitioner’s motivation in creating the hylton maiden class was concern for the welfare of younger show horses and a desire to show that she cared about her horses and cared about all horses petitioner personally provides dollar_figure in prize money for the winner of the hylton maiden class in addition to the entry fees in petitioner purchased two motor coaches for use in conjunction with hqh’s showing activities the motor coaches were used to travel to and from horse shows and to reside in while at the shows the first motor coach cost dollar_figure and was purchased for petitioner’s use and the second motor coach cost dollar_figure and was purchased for mr markley’s use when attending horse shows petitioner and an assistant would stay in her motor coach and mr markley would stay by himself in his motor coach if petitioner and mr markley both attended the same horse show they would each bring their respective motor coaches in order to have privacy on date petitioner completed an application_for insurance coverage on mr markley’s motor coach and indicated therein that the motor coach would not be used in connection with a business petitioner began taking depreciation_deductions on the motor coaches in petitioner’s quarter horse breeding program included acquiring stallions in petitioner paid dollar_figure for a world champion stallion named flashy zipper and four mares however flashy zipper died the same year after flashy zipper died petitioner had a veterinarian remove his testicles and ship them to colorado 8during the years in issue petitioner selectively insured her highest valued horses for risks against death and injury she determined these values annually petitioner collected dollar_figure in insurance proceeds from the death of flashy zipper and dollar_figure from the death of another horse impulse to sparkle state university to harvest and freeze his semen petitioner artificially inseminates hqh mares using flashy zipper’s semen and will not sell the semen outside of the hqh breeding program hqh uses embryo transfer in its breeding program which is the process of transplanting an embryo into a surrogate mare to enable the biological dam ie the mother horse to continue competing in shows hqh also uses embryo transfers in the case of older mares who are valuable but are unable to carry a foal to term months hqh currently owns three stallions two were purchased and one was bred by hqh hqh currently charges stud fees for these stallions of dollar_figure dollar_figure and dollar_figure respectively hqh also uses non-hqh stallions to breed its mares sometime after petitioner decided to move some of hqh’s breeding horses to whitesboro texas because it is the premier show place of quarter horses and the location of breeding experts petitioner keeps mares colts and her three stallions in texas petitioner contracts with three entities in whitesboro texas knabenshue performance horses llc knabenshue mc equine enterprises llc mc equine and cedar ridge stallion station casey hinton quarter horses cedar ridge knabenshue manages hqh’s stallions if a third party is interested in breeding an hqh stallion they call knabenshue hqh keeps mares and foals at mc equine which is responsible for the collection and shipping of semen cedar ridge specializes in reining horses and petitioner keeps her world champion reining stallion at this location petitioner usually travels to texas once per year to observe the hqh breeding program and stays for approximately one week each trip during the years in issue petitioner maintained a separate mailing address for hqh at a post office box in gainesville virginia petitioner maintained a separate checking account for hqh with wachovia wells fargo for hqh expenses checking account which was funded by her the checking account was used to pay most of hqh’s major expenses such as feed trainers veterinarians and blacksmiths petitioner had signatory authority over the checking account petitioner maintained a separate brokerage account for hqh with edward jones brokerage account which was used to pay show fees camping fees and any other expenses that would arise at horse shows petitioner mr markley jamie hylton and the head trainer had signatory authority over the brokerage account mr markley would prepare checks for payment of hqh expenses and petitioner would sign them petitioner mr markley jamie hylton and hqh’s head trainer would typically meet once a month sometimes more to review hqh’s invoices and receipts no minutes or records were kept of these meetings mr markley kept hqh’s invoices and receipts in files at interstate investment and would pro- vide these documents to petitioner’s tax_return_preparer in order to prepare returns petitioner hired kenneth anderson of anderson stone co ltd p c to prepare and file her form sec_1040 u s individual_income_tax_return for the years in issue the following table summarizes the income petitioner reported on her form sec_1040 for the taxable years exclusive of income loss from hqh year non-hqh income 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 total big_number 9mr anderson had prepared petitioner’s tax returns since approximately and continued doing so until his death on date petitioner reported all income and expenses from the operation of hqh on schedules f profit or loss from farming mr anderson prepared the schedules f on the basis of invoices and income information he received from mr markley the following table summarizes hqh’s gross_income before expenses total expenses and net_profit_or_loss as reported by petitioner on schedules f for the taxable years hqh gross_income year before expenses hqh expenses net_profit_or_loss dollar_figure dollar_figure 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 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 total big_number big_number big_number petitioner used hqh losses as reported on schedules f to offset her non-hqh income as follows schedule f total income year non-hqh income loss from hqh reported dollar_figure dollar_figure 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 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 total big_number big_number big_number the record includes copies of petitioner’s tax returns for the taxable years which are signed and dated by mr anderson as the return preparer petitioner’s tax_return shows a preparation date of date petitioner’s tax_return shows a preparation date of date petitioner’s tax_return shows a preparation date of date petitioner’s tax_return shows a preparation date of date petitioner’s tax_return shows a preparation date of date petitioner’s tax_return shows a preparation date of date petitioner’ sec_2010 tax_return shows a preparation date of date and petitioner’ sec_2011 tax_return shows a preparation date of date mr anderson created financial statements for hqh for each of the years in issue solely for the purpose of preparing petitioner’s tax returns the financial statements were created on the basis of petitioner’s check register and other third-party documents such as invoices statements bills and credit card receipts the financial statements were given to mr markley after the filing of petitioner’s tax returns and he did not use them for business planning petitioner had not seen the financial statements before trial and did not use them for business planning respondent issued to petitioner separate notices of deficiency on date and date respectively disallowing her claimed losses from the operation of hqh for the years in issue petitioner timely filed a petition with the court disputing respondent’s determination opinion respondent determined that petitioner’s ownership and operation of hqh was an activity_not_engaged_in_for_profit within the meaning of sec_183 and disallowed loss deductions claimed on her schedules f for the years in issue a 10the first notice_of_deficiency is for the taxable years and forms the basis of the case at docket no the second notice_of_deficiency is for the taxable years and forms the basis of the case at docket no taxpayer may not fully deduct expenses regarding an activity under sec_162 or sec_212 if the activity is not engaged in for profit sec_183 c see also 94_tc_41 pursuant to sec_183 if an activity is not engaged in for profit no deduction attributable to that activity is allowed except to the extent provided by sec_183 in relevant part sec_183 allows deductions that would have been allowable had the activity been engaged in for profit but only to the extent of gross_income derived from the activity reduced by deductions attributable to the activity that are allowable without regard to whether the activity was engaged in for profit sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 deductions are allowed under sec_162 for the ordinary and necessary expenses of carrying on an activity which constitutes the taxpayer’s trade_or_business deductions are allowed under sec_212 for expenses paid_or_incurred in connection with an activity engaged in for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income with respect to either section the taxpayer must demonstrate a profit objective for the activities in order to deduct associated expenses 66_tc_312 collins v commissioner tcmemo_2011_37 tax ct memo lexi sec_31 at sec_1_183-2 income_tax regs the profit standard applicable to sec_212 is the same as that used in sec_162 see 893_f2d_656 4th cir aff’g 91_tc_686 72_tc_28 the supreme court has held that for deductions to be allowable under sec_162 the primary purpose for engaging in the activity must be for profit antonides v commissioner f 2d pincite citing 480_us_23 see also 224_f3d_16 1st cir aff’g tcmemo_1999_92 68_f3d_868 5th cir aff’g tcmemo_1993_634 under sec_183 an activity that consists in major part of the breeding training showing or racing of horses is presumed to be engaged in for profit if the activity produces gross_income in excess of the deductions for any two of seven consecutive years unless the commissioner establishes to the contrary see also 112_tc_247 petitioner’s ownership and operation of hqh did not produce income in excess of its deductions at any time during its operation accordingly the presumption does not apply in these cases whether the required profit objective exists is to be determined on the basis of all the facts and circumstances of each case 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir embroidery express llc v commissioner tcmemo_2016_136 at sec_1_183-2 income_tax regs we give greater weight to objective facts than to the taxpayer’s statement of intent see sec_1_183-2 income_tax regs see also 544_f3d_900 8th cir aff’g tcmemo_2007_309 evidence from years after the years in issue is relevant to the extent it creates inferences regarding the taxpayer’s requisite profit objective in earlier years see eg foster v commissioner tcmemo_2012_207 bronson v commissioner tcmemo_2012_17 tax ct memo lexis aff’d 591_fedappx_625 9th cir the taxpayer generally bears the burden of proving that the requisite profit objective exists see rule a see also westbrook v commissioner f 3d pincite pursuant to sec_7491 the burden_of_proof on factual issues may shift to the commissioner where the taxpayer complies with certain requirements petitioner argues that the burden_of_proof should shift to respondent because our conclusions are based on a preponderance_of_the_evidence the allocation of the burden_of_proof in these cases is immaterial see foster v commissioner t c n mcgowen v commissioner tcmemo_2011_186 tax ct memo lexi sec_185 at n sec_1_183-2 income_tax regs provides a nonexhaustive list of the following nine factors used to determine whether an activity is engaged in for profit whether the taxpayer carries on the activity in a businesslike manner the expertise of the taxpayer or his or her advisors the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which are earned the taxpayer’s financial status and elements of personal pleasure or recreation all facts and circumstances are to be taken into account and no single factor is determinative id see also keating v commissioner f 3d pincite we will consider each of these factors in turn businesslike manner the regulations under sec_183 provide that carrying on an activity in a businesslike manner may indicate a profit objective sec_1_183-2 income_tax regs the regulations explain that businesslike operations typically involve the maintenance of complete and accurate books_and_records the conduct of the activity in a manner similar to profitable businesses of the same nature and changes to improve operations and profitability id numerous court opinions also provide that a businesslike manner includes the preparation of a business plan and a consistent and concentrated advertising program see bronson v commissioner tax ct memo lexis at see also keating v commissioner tcmemo_2007_309 dodge v commissioner tcmemo_1998_89 aff’d without published opinion 188_f3d_507 6th cir some aspects of petitioner’s ownership and operation of hqh display a businesslike manner while others do not petitioner’s books_and_records for hqh consisted of a check register and hard copies of third-party documentation such as bills invoices statements and receipts petitioner provided this information to her c p a mr anderson for use in preparing her tax returns mr anderson used this information to create certain financial statements eg profit and loss statements however the financial statements were given to mr markley only after the filing of petitioner’s tax returns and were not used by petitioner or anyone else to analyze hqh’s profitability or expenses petitioner did not maintain income and expense records for each horse and did not keep current or historical rosters of her horses jamie hylton prepared yearly horse rosters for the years through by reviewing registration records and other invoices but these records were compiled solely for purposes of trial mr markley and jamie hylton served as hqh’s business manager and farm manager respectively but did not receive compensation_for their services petitioner hired farmhands to help tend to her horses for each of the years in issue but did not issue either a form_1099 or a form_w-2 reporting wages paid to any of these workers despite investing considerable financial resources into hqh petitioner did not prepare a written business plan when she started hqh and testified that she kept a business plan only in her head the record before the court includes a written business plan however mr anderson developed this business plan in response to the irs’s audit and petitioner never regarded this document as a true business plan or used it to help manage hqh operations petitioner’s purchase of two motor coaches in is also not indicative of a businesslike manner petitioner testified that she recognized an impending economic downturn in the quarter horse market as early as despite this prediction petitioner purchased two motor coaches for amounts totaling dollar_figure million which exceeds hqh’s total revenues from to petitioner and mr markley explained in general terms that the motor coaches were purchased to reduce travel costs however petitioner did not offer detailed expense projections or any other credible_evidence to support this claim furthermore the financial statements that mr anderson prepared show that travel-related costs exclusive of depreciation increased substantially after when the motor coaches were placed into service on the other hand some aspects of petitioner’s ownership and operation of hqh were indicative of a businesslike manner for instance petitioner had a separate checking account brokerage account and mailing address for hqh furthermore petitioner advertised hqh in horse publications on a web site and a facebook page and at horse shows although petitioner advertised for hqh a characteristic indicative of a businesslike operation she provided no credible_evidence that hqh engaged in substantial and concentrated advertising unrelated to horse shows eg the breeding program or horse sales see eg 72_tc_659 expertise of taxpayer or advisers preparation for an activity by extensive study or consultation with experts may indicate a profit objective when the taxpayer carries on the activity as advised sec_1_183-2 income_tax regs when analyzing profit objective expertise with respect to the breeding of horses should be distinguished from expertise in the economics of the business bronson v commissioner tax ct memo lexis at citing golanty v commissioner t c pincite petitioner has been involved with horses since she wa sec_12 years old and has owned and operated hqh since there is no question that petitioner has extensive knowledge about the quarter horse breed and can develop successful show horses however hqh has never made a profit in any year since its formation and there is no credible_evidence indicating that petitioner sought or received financial advice from experts on the business end of the activity see burger v commissioner tcmemo_1985_523 tax ct memo lexi sec_107 at aff’d 809_f2d_355 7th cir time and effort the fact that the taxpayer devotes much of his or her personal time and effort to carrying on an activity particularly if the activity does not have substantial personal or recreational aspects may indicate a profit objective sec_1_183-2 income_tax regs petitioner spent a substantial amount of time in connection with the operation of hqh however petitioner’s activities with hqh entail significant personal and recreational aspects expectation of asset appreciation an expectation that assets used in the activity will appreciate may indicate a profit objective even if the taxpayer derives no profit from the current operations sec_1_183-2 income_tax regs the appreciation of the activity’s assets must exceed operating_expenses and be sufficient to recoup the accumulated losses of prior years see hillman v commissioner tcmemo_1999_255 tax ct memo lexis at petitioner argues that she expects the virginia properties and hqh’s quarter horses to appreciate petitioner did not offer any credible_evidence as to the specific measurement of appreciation she expects with respect to the properties and the quarter horses furthermore petitioner does not contend that the expected appreciation of the properties and horses will recoup hqh’s accumulated losses which exceed dollar_figure million from to success in similar or dissimilar activities a taxpayer’s past success in similar or dissimilar activities is relevant in determining profit objective sec_1_183-2 income_tax regs petitioner did not engage in a horse breeding training showing and sales operation before she started hqh in petitioner works hours each week as the president of the hylton group and earns substantial income from the hylton group companies the hylton group is undoubtedly a successful family business founded by petitioner’s father however it is impossible to parse out and measure petitioner’s contributions to the development and ongoing success of the hylton group history of income losses and amount of occasional profits while a series of losses during the initial or startup stage of an activity may not necessarily indicate a lack of profit objective a record of large losses over many years and the unlikelihood of achieving profitability are persuasive evidence that a taxpayer did not have such an objective see golanty v commissioner t c pincite sec_1_183-2 income_tax regs the amount of profits in relation to the amount of losses_incurred may provide useful criteria in determining the taxpayer’s intent sec_1_183-2 income_tax regs petitioner’s ownership and operation of hqh generated substantial losses from to which she used to offset taxable_income from other sources although losses in the formative years of a business are not inconsistent with a profit objective the goal must be to realize a profit on the entire operation which presupposes sufficient future net_earnings from the activity to recoup the losses see golanty v commissioner t c pincite in the present case petitioner owned and operated hqh for years and claimed losses of dollar_figure compared with reporting gross_income before expenses of dollar_figure over the same period financial status of taxpayer substantial income from sources other than the activity particularly if the losses from the activity generate substantial tax benefits may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved sec_1_183-2 income_tax regs from to petitioner received dollar_figure in non-hqh income petitioner claimed sizable tax benefits from the losses generated by hqh personal pleasure or recreation the existence of recreational elements or personal motives with respect to an activity may indicate a lack of profit objective sec_1_183-2 income_tax regs on the other hand a profit objective may be indicated where an activity lacks any appeal other than profit id there is no question that petitioner is a quarter horse enthusiast who has enjoyed horse-related activities since she wa sec_12 years old at trial petitioner spoke affectionately of the quarter horse breed although some activities associated with petitioner’s ownership and operation of hqh could indicate a profit objective they are equally consistent with an avid and costly hobby that provides her with recreation and personal enjoyment that she could well afford this is illustrated by petitioner’s purchase of two nicely appointed motor coaches in one year after she identified an impending economic downturn in the quarter horse industry petitioner contends that she paid dollar_figure million for two motor coaches for business reasons ie to save on travel_expenses and to use as meeting locations for prospective customers at horse shows however traveling to horse shows and residing in expensive motor coaches clearly has a personal or recreational element and petitioner provided no evidence or analysis regarding what financial benefit if any that she expected would result from the purchase use of motor coaches versus other means of transportation indeed as previously discussed the financial statements for hqh show increased travel costs exclusive of depreciation after the motor coaches were purchased in order to prevail petitioner must show that she owned and operated hqh primarily for the purpose of making a profit see warden v commissioner tcmemo_1995_176 tax ct memo lexi sec_170 at aff’d 111_f3d_139 9th cir where a taxpayer has both personal and profit objectives for engaging in an activity it is our task to determine which was primary id tax ct memo lexi sec_170 at see also antonides v commissioner f 2d pincite citing commissioner v groetzinger u s pincite the evidence adduced at trial is more consistent with the conclusion that petitioner has a passion for quarter horses and also has ample financial resources to own and operate a quarter horse activity to further her personal pleasure regardless of the consistent large lossesdollar_figure therefore we find that petitioner’s profit objective was not the primary or dominant reason for engaging in her quarter horse activity accordingly we hold that petitioner’s ownership and operation of hqh was not engaged in for profit within the meaning of sec_183 11one court_of_appeals has suggested that the tax_court would be better off if rather than wading through the nine factors it said simply that a business that is in an industry known to attract hobbyists and horse racing is that business par excellence and that loses large sums of money year after year that the owner of the business deducts from a very large income that he derives from other and genuine businesses or from trusts or other conventional sources of income is presumptively a hobby though before deciding for sure the court must listen to the owner’s protestations of business motive for an analysis along these lines see our decision in 811_f3d_890 7th cir 820_f3d_247 7th cir rev’g tcmemo_2014_74 using this abbreviated analysis leads us to the same conclusion additions to tax respondent determined that petitioner is liable for additions to tax pursuant to sec_6651 for the taxable years and respondent has the burden of production with respect to these additions to tax see sec_7491 to meet this burden respondent must produce evidence showing that the additions to tax are appropriate see id 116_tc_438 once respondent satisfies this burden petitioner has the burden_of_proof with respect to exculpatory factors such as reasonable_cause see higbee v commissioner t c pincite sec_6651 imposes an addition_to_tax when a taxpayer fails to file a timely return unless the taxpayer establishes that the failure was due to reasonable_cause and not due to willful neglect the addition_to_tax is equal to of the amount_required_to_be_shown_as_tax on the delinquent_return for each month or fraction thereof during which the return remains delinquent up to a maximum addition of for returns more than four months delinquent id to meet his burden of production respondent relies on filing dates stated in the notices of deficiency which are used to calculate the additions to tax under sec_6651 and copies of petitioner’s tax returns the filing dates in the notices of deficiency are insufficient to satisfy respondent’s burden of production under sec_7491 because they are merely a summary of his position respondent did not introduce any credible_evidence such as certified account transcripts to support the filing dates used in the notices of deficiency thus the filing dates in the notices of deficiency are insufficient to satisfy respondent’s burden of production under sec_7491 the parties introduced into evidence copies of petitioner’s federal tax returns which were prepared and signed by mr anderson and filed with the irs the following table summarizes the due_date of each return and the date shown on each return as the date mr anderson signed the return date mr anderson year due_date signed return 12petitioner’s signature does not appear on the copies of the returns in evidence the dates shown on petitioner’s tax returns for and are after the respective due dates and it follows logically that these returns could not have been timely filed because the parties stipulate that these are true and correct copies of petitioner’s filed tax returns we find that respondent has met his burden of production under sec_7491 as to the tax years and dollar_figure petitioner has not provided evidence sufficient for us to find that her failure to timely file for and was due to reasonable_cause accordingly we hold that petitioner is liable for additions to tax under sec_6651 for these three years the amounts of the sec_6651 additions to tax will be computed by the parties in a rule computation using the dates shown on petitioner’s tax returns not the dates in the notices of deficiency accuracy-related_penalties respondent determined that petitioner is liable for sec_6662 accuracy-related_penalties for the taxable years of dollar_figure 13petitioner’ sec_2010 tax_return was due on date which is a saturday accordingly this return would be considered timely filed on or before monday date see sec_7503 14because the and tax returns are dated before the respective due dates--and because respondent failed to offer any other evidence to establish the filing dates for these returns--we find that respondent did not meet his burden of production under sec_7491 as to these years dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively sec_6662 imposes an accuracy-related_penalty equal to of the underpayment to which sec_6662 applies sec_6662 applies to the portion of any underpayment which is attributable to among other things a substantial_understatement_of_income_tax sec_6662 sec_7491 provides that the commissioner bears the burden of production with regard to penalties and must come forward with sufficient evidence indicating that it is appropriate to impose the penalty see higbee v commissioner t c pincite once the commissioner meets his burden of production however the burden_of_proof remains with the taxpayer including the burden of proving that the penalty is inappropriate because of reasonable_cause under sec_6664 see rule a higbee v commissioner t c pincite- there is a substantial_understatement_of_income_tax for any taxable_year if the amount of the understatement exceeds the greater of of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 the understatement of income_tax for each of the tax years exceeds the greater of of the tax required to be shown on the return or dollar_figure therefore petitioner’s understatements are substantial consequently for those years we conclude that respondent has met his burden of production with respect to petitioner’s substantial understatements of income_tax sec_6664 provides that the penalty under sec_6662 shall not apply to any portion of an underpayment if it is shown that there was reasonable_cause for the taxpayer’s position and that the taxpayer acted in good_faith with respect to that portion see higbee v commissioner t c pincite the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs petitioner has the burden of proving that the penalty is inappropriate because of reasonable_cause under sec_6664 see rule a higbee v commissioner t c pincite- reasonable_cause requires that the taxpayer have exercised ordinary business care and prudence as to the disputed item 115_tc_43 aff’d 299_f3d_221 3d cir the good-faith reliance on the advice of an independent competent professional as to the tax treatment of an item may meet this requirement id citing 469_us_241 sec_1_6664-4 income_tax regs whether the taxpayer relies on the advice and whether such reliance is reasonable hinge on the facts and circumstances of the case and the law that applies to those facts and circumstances neonatology assocs p a v commissioner t c pincite sec_1_6664-4 income_tax regs for reliance to be reasonable the taxpayer must prove by a preponderance_of_the_evidence that the taxpayer meets each requirement of the following three-prong test the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment neonatology assocs p a v commissioner t c pincite petitioner argues that she reasonably relied in good_faith on the advice of her c p a mr anderson in preparing her tax returns specifically petitioner argues that she consulted with mr anderson before starting hqh and that he independently decided that hqh’s activity should be reported as a business on schedules f however petitioner presented no credible_evidence regarding her discussions with mr anderson or the advice he provided concerning the treatment of hqh as a business the record indicates that mr markley not petitioner provided mr anderson with a check register and bills and invoices that enabled mr anderson to prepare petitioner’s tax returns and create financial statements pertaining to hqh neither petitioner nor mr markley reviewed the financial statements for accuracy or used the statements to improve hqh’s performance on the basis of the record before us we are unable to conclude that petitioner provided mr anderson with necessary and accurate information regarding the treatment of hqh as a business or that mr anderson provided advice to petitioner that she relied on in good_faith accordingly we hold that petitioner is liable for the accuracy-related_penalties under sec_6662 for the taxable years for her underpayments of tax conclusion petitioner’s ownership and operation of hqh was an activity_not_engaged_in_for_profit within the meaning of sec_183 for the years in issue as a result the losses from hqh are not deductible under sec_162 or sec_212 for any of the years in issue we have also held that petitioner is liable for additions to tax under sec_6651 and for accuracy-related_penalties under sec_6662 in reaching our decision we have considered all arguments made by the parties to the extent not mentioned or addressed they are irrelevant or without merit to reflect the foregoing decisions will be entered under rule


internal_revenue_service number release date index number - --------------- -------------------------- ---------------------------------- -------------------------------- - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-165175-03 date feb ---------------------------------------------- -------------------------------------------- x y date legend ------------------------------------------------------------ ------------------------------------------------------------ dear -------------- state ----------------- ----------------- ---------------- ------------ country date this private_letter_ruling is in response to your request dated date on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 based on the information submitted and representations made within x is a country entity formed on date x represents that as of date x was eligible to make an election under sec_301_7701-3 to be disregarded as an entity separate from facts plr-165175-03 its owner for federal income purposes however the form_8832 entity classification election was inadvertently not timely filed x is one of several foreign entities that is indirectly owned by y a state law limited_partnership law and analysis under sec_301_9100-1 the commissioner may grant a reasonable sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 elections sec_301_9100-3 provides extensions for time for making elections that do not meet the requirements of sec_301_9100-2 provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a requests for relief under sec_301_9100-3 will be granted when the taxpayer sec_301_9100-2 provides automatic extensions of time for making certain sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be disregarded as an entity separate from its owner for federal tax purposes effective except as expressly provided herein no opinion is expressed or implied plr-165175-03 date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the internal_revenue_code provides that it may not be used or cited as precedent letter will be sent to the taxpayer this ruling is directed only to the taxpayer s requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this sincerely heather c maloy associate chief_counsel passthroughs special industries copy of this letter copy for sec_6110 purposes enclosures cc


internal_revenue_service number release date index number ------------------------------------------------ ------------------------------ ------------------------ ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number -------------------- refer reply to cc psi b01 plr-138489-16 date date legend x ------------------------------------------- ------------------------------ a ---------------------------- trust ------------------------------------------ ----------------------------------------------------- date ------------------------ date ------------------ date --------------------------- date ---------------------- date ---------------------- date --------------------------- year sec_1 ------------------------------ state ------------- dollar_figurea ------------------------------------------------------------------------- plr-138489-16 dear ----------------- this responds to a letter dated date and supplemental correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations within x was incorporated on date under the laws of state on date a was a shareholder of x a died on date at which time a’s estate became a shareholder of x effective date x elected to be taxed as an s_corporation on date a’s shares of x stock were transferred to trust pursuant to the terms of a’s will trust qualified under sec_1361 as an eligible shareholder for a two-year period beginning on the day the shares of x were transferred to it a timely election to treat trust as an electing_small_business_trust esbt was not made thus causing x’s s election to terminate on date x represents that trust has at all times met the requirements of an esbt within the meaning of sec_1361 except that the trustee of trust did not file a timely esbt election under sec_1361 x represents that trust made a distribution of the x stock on date x also represents that the failure_to_file an esbt election for trust was inadvertent and was not motivated by tax_avoidance or retroactive tax planning x represents that other than the failure of the trustee of trust to file a timely esbt election on date x has qualified as a small_business_corporation at all times since its election on date in addition x represents that it has filed its returns consistent with being an s_corporation x represents that its s_corporation_election termination was inadvertent and was not motivated by tax_avoidance or retroactive tax planning further x represents that x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided under sec_1362 of the code that may be required by the secretary law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an plr-138489-16 individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1362 an electing_small_business_trust esbt may be an s_corporation shareholder sec_1361 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that the term electing_small_business_trust shall not include i any qualified_subchapter_s_trust as defined in sec_1361 if an election under sec_1361 applies to any corporation the stock of which is held by such trust ii any trust exempt from tax under subtitle a and iii any charitable_remainder_annuity_trust or charitable_remainder_unitrust as defined in sec_664 sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1_1361-1 provides that the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 for filing a qsst election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken so that the corporation for which the election was made or termination occurred is a small_business_corporation and the corporation for which the election was made or termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the plr-138489-16 treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s election terminated on date because of the failure of the trustee to timely file an esbt election for trust we further conclude that the termination of x’s s election was inadvertent within the meaning of sec_1362 therefore x will be treated as an s_corporation effective date and thereafter provided x’s s_corporation_election is otherwise valid and not otherwise terminated under sec_1362 this letter_ruling is subject_to the following conditions being met within days from the date of this letter an adjustment payment in the amount of dollar_figurea and a copy of this letter must be sent to the following address internal_revenue_service cincinnati service_center west rivercenter blvd covington ky stop terri lackey manual deposit x x’s shareholders trust and trust’s beneficiary must file any original and amended returns for year sec_1 and make such adjustments that are both consistent with treating trust as an esbt and that are necessary to properly reflect the reporting of x’s items of s_corporation income and the trustee of trust filing an esbt election under sec_1361 with the appropriate service_center to treat trust as an esbt effective date a copy of this letter should be attached to the esbt election if these conditions are not met then this ruling is null and void furthermore if these conditions are not met x must send notification that its s election has terminated to the service_center with which x’s s election was filed except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation or trust’s eligibility to be an esbt 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 plr-138489-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-118049-02 date date legend purchaser parent target sellers date a date b state x state y company officials tax professional dear this letter responds to your authorized representative’s letter dated date submitted on behalf of purchaser and sellers requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and sellers are requesting an extension to plr-118049-02 file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below parent is a state x corporation and is the common parent of an affiliated_group of companies the parent group files a consolidated federal_income_tax return parent owns of purchaser purchaser is also a state x corporation target was a state y corporation and it was an s_corporation target had no subsidiaries and was unrelated to parent or any of its affiliates on date a purchaser and sellers entered into a stock purchase agreement for purchaser to acquire all of the target stock from sellers also on date a purchaser acquired all of the stock of target from sellers in exchange for cash it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and sellers intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser’s target’s or sellers’ taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic plr-118049-02 extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser company officials and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that purchaser and sellers reasonably relied on a qualified_tax professional who was aware of all relevant facts the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for purchaser and sellers to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' purchaser's consolidated group’s sellers’ and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 purchaser and sellers must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date on this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form purchaser and sellers must file or amend as applicable their returns to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year and to attach to the plr-118049-02 returns a copy of this letter and a copy of the election we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply purchaser must provide sellers with a copy of this letter this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives cc sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-141083-03 date aug legend x d1 dear this responds to your letter dated date requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-141083-03 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes