o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number date uil 36b conex-115672-15 the honorable derek kilmer member u s house of representatives 6th street suite bremerton wa attention dear congressman kilmer i am responding to your letter dated date on behalf of your constituent ------ wrote that following many problems enrolling in health --------------------- --------------- insurance through the exchange she and her husband must now repay all the advance_payments of the premium_tax_credit made on their behalf for coverage in she also asked about the calculation of advance credit payments for ------------------------------------- ---------------------- --- --- the premium_tax_credit is a refundable tax_credit for certain individuals who enroll or who have a family_member who enrolls in a health insurance plan offered through a health insurance marketplace marketplace and is intended to subsidize the cost of the insurance taxpayers claim the premium_tax_credit by filing form_8962 premium_tax_credit ptc with their federal_income_tax return the amount of a taxpayer’s premium_tax_credit for a year depends on the amount of the taxpayer’s household_income and his or her family size for the year for example a qualifying family of with household_income pincite percent of the federal poverty_line for the taxpayer’s family size will get a larger premium_tax_credit than a similarly-situated family with household_income pincite percent of the federal poverty_line taxpayers with household_income over percent of the federal poverty_line for their family size are not allowed a premium_tax_credit conex-115672-15 household_income is the modified_adjusted_gross_income modified agi of the taxpayer and the taxpayer’s spouse if filing a joint_return plus the modified agi of the taxpayer’s dependents who are required to file a tax_return modified agi is the taxpayer’s adjusted_gross_income plus his or her foreign_earned_income tax-exempt_interest and untaxed social_security payments the law allows qualifying taxpayers who enroll in marketplace health insurance to receive the benefit of advance_payments of the premium_tax_credit advance credit payments are made directly to the taxpayer’s health insurance_company and reduce the taxpayer’s share of the monthly premiums the marketplace estimates the taxpayer’s household_income and family size for the coverage year along with other factors to compute the taxpayer’s maximum amount of advance credit payments for the year the taxpayer then chooses to have all some or none of this maximum amount_paid on his or her behalf during the coverage year taxpayers who get the benefit of advance credit payments must when they file their tax_return for the year reconcile or compare the actual premium_tax_credit they are allowed to their advance credit payments if the actual premium_tax_credit is more than the advance credit payments made for the taxpayer the taxpayer reduces his or her tax_liability by the difference or gets a refund if a taxpayer’s advance credit payments are more than the premium_tax_credit the taxpayer is allowed the taxpayer must repay all or part of the excess when filing a tax_return for the year wrote that she and her husband must repay all of the advance credit the amount of the repayment may be limited for taxpayers with household_income of less than percent of the federal poverty_line for their family size for example the repayment amount for married taxpayers filing a joint_return is limited to dollar_figure if their household_income is at least percent and less than percent of the federal poverty_line for their family size taxpayers with household_income above percent of the federal poverty_line for their family size must repay all of their advance credit payments --------------- payments made on their family’s behalf in or about dollar_figure we do not have independent knowledge of the facts pertaining to the ----- ------- credit for perhaps because their household_income was more than percent of the federal poverty_line for their family size the law requires taxpayers to use the household_income reported on their tax_return to determine whether a premium_tax_credit is allowed and if so the amount of the credit the estimated household_income used to compute advance credit payments is not used to determine a taxpayer’s premium_tax_credit if the ’ household_income for is more than percent of the federal poverty_line for their family size they are not allowed a premium_tax_credit for nor are they allowed a repayment limitation for the advance credit payments made on their behalf were ineligible to claim a premium tax is correct it would seem that the ’ case however if --------- --------- ------- --- --- --- --- --- --- --- conex-115672-15 although they must repay the advance credit payments the irs has provided relief from penalties for taxpayers who owe taxes because of the repayments but could pay the tax by the due_date of their return or pay the correct estimated_taxes publication premium_tax_credit ptc provides more information on this penalty relief for this publication is available on our website on www irs gov --- also asked about her advance credit payments for the --------------- several things to reduce the likelihood they will have a large repayment liability when filing their tax_return in --------- --- --- --- can do they should be sure the projected household_income used to compute the --- advance credit payments is accurate if they qualify for advance credit payments for they could take less than the maximum amount the marketplace computed for them for if it is likely their household_income will be over percent of the poverty_line for their family size they should discontinue their advance credit payments --- --- --- i hope this information is helpful if you need further assistance please contact me a t ------------------- ------------------------- ------------------- ------------------ or or at - sincerely andrew j keyso associate chief_counsel income_tax and accounting


internal_revenue_service department of the treasury index no washington dc number info release date dear person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-112250-00 date date commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch


t c memo united_states tax_court george and kathleen knevelbaard et al petitioners v commissioner of internal revenue respondent docket nos filed date george and kathleen knevelbaard pro sese danny d brace jr for petitioners in docket no ronald w hillberg for petitioners in docket nos and cases of the following petitioners are consolidated herewith wilbur e gomes and irene r gomes docket no sam s kooistra and cynthia l kooistra docket no walter h brown and helen joan brown docket no arnold leroy souza and rosemary souza docket no vernon c christian and june c christian docket no and phillip a souza and llyn souza docket no kelly mulholland and andrew gottlieb for respondent memorandum findings_of_fact and opinion parr judge respondent determined the following deficiencies in petitioners’ federal_income_tax for the tax_year docket no petitioners deficiency george and kathleen knevelbaard wilbur e and irene r gomes sam s and cynthia l kooistra walter h and helen joan brown arnold leroy and rosemary souza vernon c and june c christian phillip a and llyn souza dollar_figure big_number big_number big_number big_number big_number big_number all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated the issue is whether payments received by petitioner dairy farmers from various bank defendants in settlement of a lawsuit are excludable from gross_income as compensation_for personal injuries under sec_104 we hold they are findings_of_fact some facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference when their petitions were filed all petitioners resided in california petitioners are dairy farmers milk producers who sold raw milk to knudsen dairy knudsen a large independent processor and distributor of dairy products in california the knevelbaards are members of the south valley milk producers cooperative and the christians are members of the cal-dari cooperative petitioners gomes kooistra and brown are independent producers the souzas are partners in p l souza dairy in early knudsen purchased foremost dairies foremost citicorp industrial credit inc citicorp along with security pacific business_credit inc wells fargo business_credit inc goldome bank and national bank of canada provided the financing for knudsen’s purchase of foremost collectively bank defendants as part of the financing agreement for knudsen’s purchase of foremost the bank defendants also refinanced knudsen's existing debt knudsen entered into long-term agreements with dairy farm_cooperatives and independent producers including petitioners for the purchase of raw milk the contracts required knudsen to buy all milk produced by the milk producers knudsen was required to pay for the raw milk twice per month the dairies were required to ship milk to knudsen on a daily basis on july and again on date knudsen failed to pay the milk producers about dollar_figure million for raw milk delivered to knudsen between june and date on july knudsen began to make daily payments for milk delivered the previous day however no payments were made on the dollar_figure million back debt when knudsen defaulted petitioners could not simply stop producing milk cows had to be milked and fed farmhands had to be paid grain had to be purchased the farmers were operating on very slim profit margins they faced the possibility of slaughtering their herds or pouring the milk onto the ground for years in some cases for more than one generation they had relied on the regularity of the milk payments unexpectedly they were faced with borrowing money depleting their savings and possible bankruptcy the uncertainty of their situation produced enormous stress which did not end on date the financial problems caused by losing payment for weeks' worth of milk persisted because the loss was not repaid even when knudsen began making daily payments there was no guarantee that the money would be according to the stipulation the contract required_payment on the 13th and 28th days of each month however petitioners testified that they received payment on the 15th and either the last day of the month or 1st day of the succeeding month the discrepancy is not material there from one day to the next petitioners had to rearrange their lives so they could be personally present when the milk was picked up in order to see the money before they released the milk the situation did not stabilize for months the personal experiences of three of petitioners illustrate the effects of these events phillip a souza souza was in partnership with his brother petitioner arnold leroy souza souza has been a dairy farmer for years at the time of the default he owned about cows which had to be milked every day unlike many of the milk producers souza was able to find another dairy to buy his milk within days of knudsen's default even so he lost about dollar_figure which forced him to borrow money from his father and a bank he suffered a stress-related heart attack in for which he take sec_11 pills daily george knevelbaard knevelbaard was born into the dairy industry and believed based on past experience that there would always be work there would always be bills and on the first and the 15th there was always a check in the mailbox this was as certain as the sun rising and setting his expenses were about percent of his revenue he was shocked to discover that the system on which he and his family had always depended was in jeopardy suddenly and continuing for months he could not as of date the money had not all been repaid predict from one day to the next whether a truck would come to pick up the milk or if it did whether he would be paid at the time of the default by knudsen wilbur gomes gomes had been in the dairy busine sec_29 years he grew up on a dairy farm and began his own operation in with cows by he had cows and calves each cow had to be milked twice a day the morning milking began pincite p m the prior evening and ended pincite a m the evening milking went from a m to p m this had to be done days a year gomes' operation required nine full-time farmhands working days per week gomes began selling his milk to borden dairy in and continued with knudsen when it acquired borden in for years the milk money always came twice a month his costs for feed and overhead were about percent of his revenue expense payments were geared to the milk payments for instance his employees were paid twice a month on the 1st and 15th gomes paid his grain dealer with the milk check that came the 15th of each month his grain bill ran between dollar_figure and dollar_figure per month when the first milk check did not arrive gomes used up all of his life savings to pay the grain bill gomes' major fear was that because of the dollar_figure daily overhead which he could no longer pay he would have to start slaughtering his herd of purebreds built up over years he received an appraisal that the slaughter price as meat would be only percent of the herd's value as dairy cows gomes frantically looked for another place to sell his milk going to daily meetings of dairymen's associations and cooperatives but all to no avail because everyone was in the same boat in date after knudsen sold its plant in hughson california gomes began shipping his milk to the new owners there despite their stress petitioners did not seek professional mental health assistance their reasons were varied some were cultural gomes was brought up in a small portuguese community of about big_number people he had been taught that an emotional problem was a sign of personal inadequacy and to seek professional help was a thing to be shunned knevelbaard's reasons for not seeking professional help were religious in times of stress he seeks consolation and encouragement through prayer and bible reading within months after knudsen defaulted on payments to the milk producers it filed a chapter petition in the u s bankruptcy court for the central district of california the milk producers were unsecured creditors all filed proofs of claim on date petitioners were among nearly big_number milk producers individually or through their cooperatives who also filed a complaint against the bank defendants in the action entitled in re milk producers v citicorp industrial credit inc milk producers action in the superior court of the state of california los angeles county by stipulation re amendment of exhibit a to the complaint filed date all petitioners herein were named as plaintiffs in their individual capacities the entities with which they were affiliated were also named the complaint alleged causes of action sounding in tort based upon the bank defendants' direct liability fraud misrepresentation negligent misrepresentation intentional interference with contractual relationship negligent interference with contractual relationship intentional interference with prospective economic advantage negligent interference with prospective economic advantage intentional infliction of emotional distress negligent infliction of emotional distress breach of fiduciary duty constructive fraud unjust enrichment and unjust enrichment as a result of good_faith belief induced by the bank defendants' behavior plaintiffs alleged eight additional causes of action the indirect causes of action based upon a theory of the bank defendants' alleged derivative liability through knudsen breach of contract breach of implied covenant fraud misrepresentation negligent misrepresentation intentional infliction of emotional distress negligent infliction of emotional distress breach of fiduciary duty and constructive fraud causes of action through and through allege that as a proximate result of the bank defendants' wrongful conduct individual milk producers have suffered anxiety humiliation worry mental anguish and emotional and physical distress and have been injured in mind and body all to their general damage other injuries alleged were that plaintiffs incurred medical_expenses were prevented from pursuing normal employment suffered a loss of income and business advantage and suffered loss of consortium in the prayer for relief plaintiffs sought damages for mental suffering emotional distress and loss of consortium in every cause of action except nos and they also sought damages for medical and related expenses and for lost earnings in every cause of action the alleged behavior giving rise to the complaint was that the bank defendants made risky loans to knudsen for the purchase of foremost knowing that both knudsen and foremost were highly leveraged and vulnerable as the direct lender citicorp took security interests in all of knudsen's assets thereby putting the other bank defendants were participants in the loan ie they bought parts of the loan after it was made and did not have direct security interests in jeopardy payment to plaintiffs and other creditors the complaint also alleged that the banks continued to give false assurances of knudsen's solvency inducing plaintiffs to continue to supply milk for a longer period than they otherwise would have so that the banks' security interests would be enhanced to the detriment of plaintiffs the indirect causes of action stem from the allegation that the financing arrangements were such that they gave the banks virtual control_over knudsen and were thus indirectly responsible for its actions the bank defendants denied the allegations the amounts claimed as general damages in exhibit a attached to the complaint are approximately equal to the milk losses the milk producers were represented by michael j bidart bidart of shernoff bidart darras william j f roll iii roll of shearman sterling represented the bank defendants the milk producers action was part of a larger coordinated proceeding entitled coordination no which involved the knudsen matter and included approximately different lawsuits against the bank defendants generally five groups or subsets of plaintiffs were represented one set was the milk producers litigation which eventually was resolved in a settlement that included plaintiffs from a separate suit filed by the danish the milk producers in fact lost payment for weeks' worth of raw milk worth about dollar_figure million before knudsen began paying on a daily c o d basis creamery association danish creamery another cooperative also represented by bidart the danish creamery plaintiffs are not petitioners in this case the coordinated proceedings included four other lawsuits one was a single suit brought by knudsen and certain affiliates and subsidiaries known at the time as k f dairies inc another was also a single action brought by parties known as the f d partners who had sold their stock in foremost to knudsen and had received security interests that were subordinated to those of the banks in addition citicorp filed separate cross-complaints against k f dairies inc and the f d partners for indemnification citicorp's suit against k f dairies was based on claims stemming from the loan and security_agreement between citicorp and knudsen its suit against the f d partners was not based on contract but on a theory of equitable indemnity the related suits were conditionally settled in an agreement dated date the settlement was subject_to various conditions and events in the future unlike the situation of the milk producers settlement of date this settlement required the approval of the bankruptcy court one contingency in the aug agreement was the banks' obtaining releases by the milk producer plaintiffs of their claims as unsecured creditors of the bankruptcy_estate in return for an assignment by knudsen of its causes of action for breach of fiduciary duty against its individual directors and officers the agreement called for a plan_of_reorganization of knudsen and its affiliates to be jointly proposed by all the various parties not including the milk producers reflecting an agreed division of the remaining assets in the estate when the continued all of the coordinated lawsuits were assigned to judge jack tenner the milk producers settlement on date judge tenner held a settlement hearing on the milk producers action the parties orally stipulated that all causes of action alleged in the milk producers complaint be dismissed except for negligent infliction of emotional distress the bank defendants would pay dollar_figure million as payment in full for that cause of action judge tenner specifically found on the record that the claims pending in the knudsen bankruptcy proceeding were for the production and delivery of milk which was not paid for and that the settlement in the milk producers action did not affect the rights of plaintiffs to receive payment elsewhere for the lost milk the judge then added the court has been with this litigation for some time and has read all of the allegations and finds that the negligent infliction of emotional distress is a much more serious claim as far as the individual farmers are concerned and therefore that would be the basis of the allocation plus my familiarity with file cabinets full of paper in this lawsuit judge tenner also stated his understanding that the settlement continued reorganization was finally confirmed and effected the lawsuits would be finally dismissed with prejudice the record does not reflect whether or when the cases were actually dismissed with prejudice applied to all plaintiffs who were attorney bidart's clients the judge stated he would approve the settlement which was to be reduced to writing and that negotiations on the language would begin the next night roll the banks' lawyer prepared the first draft of the settlement agreement the bank defendants' concern was twofold that all claims be released and that none of the money being paid could fairly be said to arise out of gross negligence or willful misconduct that was because the banks wanted to preserve a right to indemnification by knudsen now kf dairies set out in the loan and security agreements that financed the foremost purchase although knudsen was bankrupt the banks were secured creditors and hoped to recoup as much as possible of their payment to the milk producers this left nine possible causes of action on which to structure a settlement ie nos and roll was familiar with evidence in the form of depositions and answers to written interrogatories of particularized emotional distress suffered by several dozen milk producer plaintiffs in focusing on the emotional distress issue the bank defendants were also heavily influenced by an earlier off-the- record conversation with judge tenner who was actively involved in the settlement talks the banks' consistent position was that they were not liable for claims arising out of the contract between knudsen and the milk producers for delivered and unpaid raw milk judge tenner had seen the depositions and answers to interrogatories filed by dozens of dairy farmers he expressed strong views that a jury would not care about the technical details but would be very sympathetic to the milk producers' individual testimony about claimed distress the judge told the bank defendants' counsel that in front of a jury they could get killed because they were representing five large financial institutions and plaintiffs were a thousand dairy farmers around the state of california although the parties had indicated to judge tenner at the settlement hearing that the entire amount would be attributed to negligent infliction of emotional distress the final written_agreement attributed dollar_figure to that claim and dollar_figure to negligent interference with contractual relationship the fourth cause of action in the complaint which also sought both general damages and damages for mental suffering and emotional distress the parties wanted to be sure all plaintiffs including entities were covered by the settlement respondent objected to the admission of judge tenner's comments as hearsay those comments are received not for the truth of the matter asserted but for the effect of judge tenner's views on the chief negotiator for the bank defendants to accomplish these goals the settlement document did not require any specific allocation to specific plaintiffs but left allocation and distribution up to plaintiffs' counsel paragraph c of the settlement agreement provides as follows c without reference to and without affecting the allocation or distribution of the settlement payment among the various parties plaintiff the settlement payment dollar_figure million shall be attributed as follows i six hundred seventy-one thousand thirty-four dollars dollar_figure shall be attributed to the so-called direct cause of action in the milk producers complaint for negligent interference with contractual relationship the fourth cause of action and ii nineteen million three hundred twenty-eight thousand nine hundred sixty-six dollars dollar_figure shall be attributed to the so-called direct cause of action in the milk producers complaint for negligent infliction of emotional distress the eighth cause of action iii nothing shall be attributed to any of the other causes of action in the milk producers complaint or to any cause of action in the danish creamery complaint emphasis added neither the bank defendants nor the milk producers wanted to settle on any basis relating to the contracts between knudsen and the milk producers the banks consistently denied any liability on the contracts and plaintiffs wanted to retain their direct claims for nonpayment of milk against the bankruptcy_estate moreover such a settlement would have required the bankruptcy court's approval which was not necessary under the agreement reached on august and a settlement agreement was signed binding the bank defendants on one hand and the milk producers and danish creamery on the other the bank defendants agreed to pay a total of dollar_figure million in exchange for release of all of the milk producers and danish creamery claims funds were to be distributed among plaintiffs in both suits by plaintiffs' counsel the record is not clear exactly how the dollar_figure million was allocated among the plaintiffs while there seems to be some relationship between the amount recovered and the lost milk money there was not a pro_rata distribution based on an exact percentage for instance petitioners recovered the following amounts petitioners amount owed recovered percent knevelbaard dollar_figure dollar_figure gomes kooistra christian a l souza p a souza brown big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number 1petitioners gomes received dollar_figure of this amount in because both sides wished to retain their contract-based claims in other proceedings or against other parties paragraph of the settlement provided nothing in this settlement agreement in any way affects either directly or indirectly a the rights if any of the milk producers or danish creamery to assert their claims in the pending kf dairies bankruptcy proceedings or to receive distributions or other compensation in those proceedings in the event that any such distribution is received by the milk producers or danish creamery bank defendants shall not receive any credit for any distribution because the sums paid in connection with this settlement are not attributable to the contractual claims asserted by the milk producers and danish creamery in the bankruptcy proceedings b the rights if any of the milk producers or danish creamery to compromise those bankruptcy claims or to dispose_of them in any other way c the rights if any of the milk producers or danish creamery to participate in those bankruptcy proceedings as parties-in-interest d bank defendants' rights if any to assert claims for indemnity against any other entity or party and e the rights or liabilities if any of any other entities or parties in the coordinated proceedings or in the insolvency proceedings after the milk producers action settled petitioners and all other milk producers still had outstanding claims in the knudsen bankruptcy action for the value of the milk most of the milk producers released their bankruptcy claims in exchange for an assignment by knudsen of its causes of action for breach of fiduciary duty against its individual directors and officers they recovered small additional_amounts from the directors and their insurance_company for instance knevelbaard received dollar_figure on a dollar_figure loss gomes received dollar_figure of dollar_figure evidentiary matters opinion petitioners reserved several objections in the stipulation of facts one group of objections centers around the admission of documents or facts concerning lawsuits other than the milk producers action related to the knudsen default these concern for instance petitioners' release of claims in the bankruptcy action in exchange for an assignment of knudsen's claims against its directors and their insurer the banks' indemnification rights against knudsen and foremost and the danish creamery complaint we believe the exhibits in group sec_1 and are relevant to the parties' motivations in structuring the settlement the danish creamery complaint may have slight relevance since its plaintiffs were included in the milk producers settlement however since the complaint was dismissed in its entirety we give it little weight another group of disputed stipulations shows that petitioners did not receive treatment from mental or physical health care workers as a result of actions by the bank defendants petitioners also object to stipulations as to some of them concerning the absence of loss of consortium they contend these facts are irrelevant in proving whether they actually suffered emotional or physical distress we think this objection goes to the weight of the evidence not to its relevance certainly if petitioners had incurred such expenses the evidence would be admissible accordingly petitioners' objections are overruled paragraph sec_87 and of the stipulation in re the christians arnold leroy and rosemary souza and the browns state that petitioners admit that the actual division of settlement proceeds among all of the milk producer plaintiffs was made on the basis of the quantities of milk delivered by each of the milk producer plaintiffs and not on the amount of emotional distress suffered by them we believe the first half of the statement is relevant to show how the distribution was administered however as shown above all petitioners did not receive the same percentage of their lost revenue and even if the distribution was made using the lost revenue as an administratively convenient rule_of thumb it does not follow that the proceeds were awarded for something other than emotional distress the statement is relevant if read to mean only that no individualized assessment of emotional damage as to each of the big_number plaintiffs was separately made with that understanding the objection is overruled other disputed paragraphs seek to establish that petitioners' representatives in the milk producers action utilized tax_advice regarding the settlement since this may be relevant to the motivation of the parties in structuring the settlement we overrule the objection petitioners also object to paragraph and exhibit 21-u on the basis of rule of the federal rules of evidence the exhibit is a letter from plaintiffs' attorneys to the bank defendants' attorneys regarding an offer of settlement the letter is not admissible to show liability for or invalidity of the claim it is admissible to show other circumstances surrounding the negotiations however we note that the offer bears little or no relation to the final settlement either in amount or structure and we give it little weight finally we overrule petitioners' objection to exhibit ai stipulation re amendment of exhibit a to milk producer plaintiffs' third amended complaint it is an intrinsic part of exhibit 16-p the complaint which has been stipulated and forms an important part of the evidence exhibit 35-ai is received the settlement respondent contends the settlement payment was really for the lost milk under the contract between the milk producers and knudsen petitioners contend it was for emotional distress as delineated in the settlement agreement we agree with petitioners sec_61 provides a broad definition of gross_income except as otherwise provided in this subtitle gross_income means all income from whatever source derived thus petitioners' settlement proceeds constitute gross_income unless expressly excepted by another provision in the code 515_us_323 petitioners claim the settlement award falls within sec_104 which excludes from gross_income the amount of any damages received on account of personal injuries or sickness sec_1_104-1 income_tax regs provides sec_104 excludes from gross_income the amount of any damages received whether by suit or agreement on account of personal injuries or sickness the term damages received means an amount received other than workmen's_compensation through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution thus petitioners must meet two independent requirements to exclude the recovery under sec_104 first they must demonstrate that the underlying cause of action giving rise to the recovery is based upon tort or tort type rights and second they must show that the damages were received on account of personal injuries or sickness commissioner v schleier supra pincite respondent contends that petitioners have satisfied neither test respondent argues that the milk producers' recovery arose out of garden-variety breach of contract and economic-injury torts stemming from the breach further says respondent the proximate cause of the damages petitioners recovered was economic injury from knudsen's breach of its contractual duty to pay for delivered milk origin of the claims tort or tort type rights respondent contends that the primary focus of the milk producers complaint and the counts alleged therein was knudsen's contractual relationship with petitioners and the breach of that relationship we disagree the tax consequences of a settlement depend on the nature of the litigation and on the origin of the claim but not on the validity of that claim 397_us_572 372_us_39 thus the classification of a claim is extremely important in 504_us_229 the court defined a tort as 'a civil wrong other than a breach of contract for which the court will provide a remedy in the form of an action for damages ' id pincite quoting keeton et al prosser and keeton on the law of tort sec_2 the primary characteristic of an action based upon tort type rights is the availability of compensatory remedies commissioner v schleier supra pincite such remedies are intended to redress intangible elements of injury that are deemed important even though not pecuniary in their immediate consequences these injuries may include emotional distress pain and suffering impairment of reputation personal humiliation and mental anguish united_states v burke supra pincite here under of the causes of action alleged petitioners sought damages for mental suffering and emotional distress they also sought general damages and interest and in some causes of action exemplary and punitive_damages of the causes of action based upon the bank defendants' direct liability nos through are clearly torts or tortlike in fact of the causes of action direct and indirect at most nos and arguably do not sound in tort the origin of the milk producers' complaint against the banks was that they made risky loans to knudsen knowing that it was financially shaky under conditions which practically guaranteed they the banks would be repaid at the expense of the milk producers the complaint also alleged that the banks lied to the milk producers to induce them to continue to provide milk after the banks knew that knudsen was about to default thereby putting the plaintiffs in more jeopardy and causing foreseeable harm all to make themselves more secure this was a claim separate and apart from plaintiffs' contract claims against knudsen the origin of the claim for milk losses raised in the bankruptcy court and in claims against knudsen's directors was knudsen's breach of contract however the milk producers had no contract with the banks the origin of the claims in the milk producers action against the banks was the bank defendants' behavior we think it significant that the settlement agreement did not foreclose petitioners' rights to collect the full amount of milk proceeds in other arenas in fact they did eventually collect small amounts from the directors' insurance we hold that the milk producers action was based upon tort or tortlike rights personal injuries or sickness finally we examine whether the proceeds were paid on account of the emotional harm done respondent argues they were paid on account of knudsen's default and not on account of petitioners' emotional distress we disagree petitioners' see 81_f3d_874 9th cir where the court_of_appeals for the ninth circuit the court to which this case is appealable held that a claim against a union for breach of duty_of fair representation is tortlike and distinct from a claim against the employer for unjust discharge even though the settlement amount_paid by the union was based on an estimate of past and future wages unions do not pay wages to their members and what the union paid in settlement did not constitute wages id pincite but damages to compensate the taxpayer for its unfair and arbitrary treatment thus the claim against the union was tortlike here we might say banks don't buy milk claims against the banks were except for the derivative claims which were dismissed by agreement separate and apart from their claims against knudsen while petitioners undoubtedly suffered emotional harm from the default itself they alleged additional and separate harm caused by the banks' violation of duties owed to them moreover the settlement did not affect or limit their right to pursue any and all claims for lost milk money in bankruptcy or another forum petitioners must prove their recovery was received on account of personal injuries or sickness respondent points to the lack of bills for medical or psychiatric treatment and the lack of personalized proof of individual damages arguing that the recovery was simply payment for the lost milk not for emotional distress again we disagree personal injury within the meaning of sec_104 comprehends both tangible and intangible harms commissioner v schleier u s pincite n citing justice scalia's concurring opinion in united_states v burke supra pincite n acknowledging that personal injuries or sickness includes nonphysical injuries traditional harms associated with personal injury are pain and suffering emotional distress harm to reputation or other consequential damages united_states v burke supra pincite while the incurring of expenses for medical or psychiatric treatment would be relevant to show harm they are not required in order to prove that stress was endured petitioners' testimony convinces us that their experiences produced serious and prolonged stress proof of emotional distress is not limited to the presentation of medical bills nor do we think the fact that the damages were distributed in approximately proportionate shares of the defaulted milk payments proves that they were not received for emotional distress awards for personal injuries may be measured by lost income and still be excluded under sec_104 if a taxpayer receives a damage award for a physical injury which almost by definition is personal the entire award is excluded from income even if all or a part of the recovery is determined with reference to the income lost because of the injury 87_tc_1294 affd 848_f2d_81 6th cir see also 81_f3d_874 9th cir furthermore there were nearly big_number dairy farmer plaintiffs to have assessed the individualized emotional harm suffered by each would have been exceedingly time consuming and although souza suffered a stress-related heart attack in and undoubtedly incurred medical_expenses as one of big_number plaintiffs he was not asked for nor did he give a personal description of his medical situation to the lawyers for either side expensive if not administratively impossible resulting in a smaller recovery to each plaintiff the pro_rata distribution was a practical commonsense solution under the circumstances petitioners rely on 58_tc_32 there the taxpayer received a settlement of dollar_figure for breach of contract and personal injuries arising from embarrassing publicity the settlement allocated different amounts to the various plaintiffs for salary but identical amounts for personal injury a letter confirming the distribution of the settlement funds was signed by the principal negotiators from both sides the letter stated that the settlement consisted of salary dollar_figure for mr seay and additional sums to compensate the parties for personal embarrassment mental and physical strain and injury to health and personal reputation in the community id pincite we held that the letter helped to establish that the nature of the claim was for personal injuries the additional dollar_figure should be excluded from gross_income and only dollar_figure should be recognized as salary and ordinary_income here roll the banks' chief negotiator testified that the money was paid not for the value of milk but for the value if you will of the emotional distress claims asserted by these individual producer plaintiffs respondent points to the lack of an adversarial relationship between the bank defendants and petitioners in structuring the settlement petitioners' concern was in receiving as much money as possible the banks however were very concerned about which of petitioners' claims was the basis for the settlement agree- ment they wanted to avoid claims based on gross negligence or willful misconduct in order to protect their right to indemnity in 70_f3d_34 5th cir affg in part and revg in part on another ground 102_tc_116 the taxpayers obtained a dollar_figure million jury verdict against a bank for wrongful failure to release a lien the award included dollar_figure million for lost profits dollar_figure million for mental anguish and dollar_figure million in punitive_damages while the trial_court was considering the bank's motion for a new trial the taxpayers settled their claims against the bank for dollar_figure million in the final judgment reflecting the settlement which was drafted by the parties and signed by the trial judge percent of the settlement proceeds were allocated to mental anguish and percent were allocated to lost profits the taxpayers excluded the percent under sec_104 the court_of_appeals agreed with the tax court's finding that the allocation was not entered into in a bona_fide adversary proceeding and that the judgment was simply rubber stamped by the state court the testimony of the attorneys who represented the taxpayers in their suit against the bank supported this court's finding that the bank allowed the robinsons to allocate the settlement proceeds in any way they wished the circumstances surrounding the state court judge's entry of judgment also supported those findings in that the parties presented the final judgment to the judge at his home in the evening the meeting lasted no longer than hour and neither the final judgment nor the settlement agreement was discussed in detail during that meeting therefore the tax_court did not give conclusive effect to the state court judgment's allocation of settlement proceeds and instead allocated the proceeds on the basis of the jury verdict the best indication of the worth of the robinsons' claims robinson v commissioner supra pincite this case is distinguishable from robinson there the allocation had no relationship to the jury award and was not entered into by the parties in an adversarial context at arm's length here in contrast although the parties' interests were not directly adverse as to the structure of the settlement there was a bona_fide basis for it aside from the tax consequences first the emotional distress claim was not an afterthought percent of of the causes of action alleged in the complaint sought damages for emotional distress second the bank defendants' chief lawyer was familiar with dozens of depositions and answers to interrogatories of the plaintiffs alleging emotional harm and he believed the bank defendants were vulnerable on those claims third judge tenner was familiar with the testimony of the farmers and was influenced by itdollar_figure he did not rubber stamp the agreement but made specific findings on the record approving the settlement at the recorded hearing the judge specifically found that the claim of negligent infliction of emotional distress was the most serious claim and that the settlement based upon it was appropriate respondent also relies on every v irs aftr 2d ustc par big_number w d wash affd without published opinion 51_f3d_279 9th cir the taxpayers commercial salmon fishermen sought a refund for taxes paid as the result of a settlement against exxon for damages suffered as a result of the exxon valdez oil spill in cook inlet alaska the court held that while their claim sounded in tort it did not arise from an injury to the person in the traditional tort sense rather it was economic in nature to redress the loss of plaintiffs' livelihood from fishing the court drew an analogy to the loss a farmer might suffer whose crop is destroyed by a crop duster negligently using ddt the brief opinion of the district_court discloses the facts only in broad outline and the affirmance is by unpublished opinion here in contrast the agreement is unambiguous as to the reason for the payment petitioners claimed emotional distress in nearly every cause of action in the knevelbaard was one of the dairymen whose depositions were taken in the milk producers action complaint and the bank defendants were aware of the specific emotional harm done to dozens of the plaintiffs through their depositions and answers to interrogatories every is not controlling we therefore hold that the underlying claim giving rise to the recovery was based upon tort or tortlike rights and that the settlement proceeds were received on account of personal injuries the amounts recovered are excludable from income under sec_104 to reflect the foregoing decisions will be entered for petitioners


number release date id office uilc cca_2010032513183732 ----------------------------- from -------------------- sent thursday date pm to -------------------- cc --------------------------------------- subject re counsel assistance request greetings --------- the united_states has totalization agreements with the united kingdom and germany these agreements are designed to prevent individuals from having to pay social_security_taxes to two different nations based on the same employment in order to answer this question you will need to take a look at the totalization agreements they are available on the social_security administration's website -------------------- --------------------------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------- ----------------------


internal_revenue_service number release date index number 2032a ------------------------------------ ------------------ ---------------------------- department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-148630-06 date september re --------------------------------- re --------------------------------- legend decedent ----------------------- --------------------------------- executors ------------------------------------------- accountant ------------------------------------------ date ----------------- date -------------------------- date ------------------- dear -------------- this is in response to a letter from your authorized representative dated date requesting an extension of time under sec_301 of the procedure and administration regulations to perfect a protective_election under sec_2032a of the internal_revenue_code the facts and representations submitted are summarized as follows decedent died on date and the executors of decedent’s estate timely filed form_706 united_states estate and generation-skipping_transfer_tax return on date the executor hired accountant to prepare form_706 form_706 was prepared by accountant and a protective_election was made to value decedent’s timberland and farmland under sec_2032a the service issued a closing letter on date accountant failed to advise the estate that the protective_election must be perfected within 60-days from the date of the closing letter sec_2032a provides generally that if the decedent was at the time of his or her death a citizen or resident_of_the_united_states and the executor elects the application of this section and files the agreement referred to in sec_2032a then for plr-148630-06 purposes of chapter the value of qualified_real_property shall be its value for the use under which it qualifies under sec_2032a as qualified_real_property sec_20_2032a-8 of the estate_tax regulations provides in part that a sec_2032a provides that the election under sec_2032a shall be made on the return of tax imposed by sec_2001 such election shall be made in such manner as the secretary shall by regulations prescribe such election once made shall be irrevocable protective_election may be made to specially value qualified_real_property the availability of special_use_valuation pursuant to this election is contingent upon values as finally determined or agreed to following examination of a return meeting the requirements of sec_2032a the protective_election is to be made by a notice of election filed with a timely estate_tax_return stating that a protective_election under sec_2032a is being made pending final_determination of values if it is found that the estate qualifies for special_use_valuation based upon values as finally determined or agreed to following examination of a return an additional notice of election must be filed within days after the date of such determination time to make a regulatory election or statutory election but no more than 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 if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government 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 of time for making elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-1 the commissioner may grant a reasonable extension of sec_301_9100-2 provides automatic_extension of time for making certain sec_301_9100-1 through provide the standards the requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax plr-148630-06 professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently the executors are granted an extension of time of days from the date of this letter to make the alternate_valuation election under sec_2032a a copy of this letter should be forwarded to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh tax consequences of the transaction under the cited provisions or under any other provisions of the code except as specifically ruled herein we express or imply no opinion on the federal this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely enclosures copy for sec_6110 purposes copy of this letter william o’shea associate chief_counsel passthroughs and special industries


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 ita b02 plr-139546-07 date date ---------------------------- ------ ------------------ ------- ------- ------- -------------------------- ---- -------------- ty ----------------------- ty ----------------------- taxpayers taxpayer-husband year1 year2 year3 date1 x dollar_figurea dear ------------------------ this is in response to your letter dated date in your letter you requested an extension of time to make a late election on form_4952 investment_interest expense deduction under sec_163 and sec_163 of the internal_revenue_code for year1 year2 and year3 the request to make the late election is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayers timely filed form_1040 individual_income_tax_return for year1 year2 and year3 taxpayer-husband is x years of age and has always prepared their joint tax returns manually without the use of computer_software an examination of the year1 return was conducted on ------------------ the primary focus of the exam was investment_interest expense the exam resulted in a no change taxpayers were never made aware that they needed to include form_4952 investment_interest expense deduction plr-139546-07 an examination of the year2 return was conducted adjustments were made to short term capital_gains and itemized_deductions taxpayers disagreed with form_4549 income_tax examination changes taxpayers filed form_872 consent to extend the time to assess tax for tax_year ended date1 and requested the examination be forwarded to appeals the appeals officer made an adjustment allowing itemized_deductions that were disallowed on the original form_4549 however form_4952 investment_interest expense deduction was not considered since a timely election had not been made taxpayers presented to the appeals officer that they received conflicting information from the service the appeals officer suggested that due to the conflicting information provided by the service taxpayers may wish to file a private_letter_ruling requesting permission to make a late election on form_4952 taxpayers have paid the sum of dollar_figurea which represents the correct balance due based on adjustments to income and form_4952 applicable law sec_163 of the code provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest for any taxable_year shall not exceed the net_investment_income of the taxpayer for the taxable_year sec_163 of the code provides in pertinent part that investment_income means the sum of -- i gross_income from property_held_for_investment other than any gain taken into account under clause ii i ii the excess if any of -- i the net gain attributable to the disposition of property_held_for_investment over ii the net_capital_gain determined solely by taking into account gains and losses from dispositions of property_held_for_investment plus iii so much of the net_capital_gain referred to in clause ii ii or if lesser the net gain referred to in clause ii as the taxpayer elects to take into account under this clause sec_1_163_d_-1 b of the regulations provides that the election under plr-139546-07 sec_163 must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the net_capital_gain is recognized sec_1_163_d_-1 of the regulations provides that the election under sec_163 is revocable with the consent of the commissioner sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 of the regulations defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 of the regulations provides that 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 sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or plr-139546-07 v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election section b of the regulations provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy- related penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 of the regulations provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph c i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made conclusion taxpayers’ election is a regulatory election as defined under b because the due_date of the election is prescribed in the regulations under sec_1_163_d_-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayers establish that taxpayers acted reasonably and in good_faith with this request furthermore granting an extension will not prejudice the interests of the government it is represented that taxpayers will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the election in the appropriate amount at this time than taxpayers would have if the election were made in the appropriate amount by the original deadline for making the election accordingly taxpayers are granted an extension of time for making the election until days following the date of this ruling plr-139546-07 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 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 representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely thomas d moffitt_______ thomas d moffitt chief branch income_tax accounting cc


tcmemo_2007_223 united_states tax_court tae m young j kim petitioners v commissioner of internal revenue respondent docket no filed date tae m and young j kim pro sese michael t sargent for respondent memorandum opinion chiechi judge this matter is before the court on peti- tioners’ motion filed pursuant to rule for an award under sec_7430 of reasonable_litigation_costs petitioners’ mo- 1all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code code in effect at all relevant times tion neither party has requested a hearing and we conclude that a hearing is not necessary rule a based on the submissions of the parties we shall deny petitioners’ motion the record establishes and or the parties do not dispute the background following during petitioner young j kim ms kim was employed by fannie_mae at a time not disclosed by the record before date fannie_mae granted ms kim certain options fannie_mae options to buy fannie_mae stock under an employee_stock_purchase_plan fannie_mae espp pursuant to the fannie_mae espp on four dates in date ms kim exercised certain fannie_mae options and acquired certain shares of fannie_mae stock in order to have the money to pay the exercise price of the options exercised on the dates on which she exercised such options ms kim sold for certain gross_proceeds certain shares of fannie_mae stock acquired as a result of the exercise of such options fannie_mae issued to ms kim form_w-2 wage and tax state- ment fannie_mae form_w-2 for her taxable_year that form showed total wages tips and other compensation of dollar_figure 2we incorporate herein by reference the court’s memorandum findings_of_fact and opinion in kim v commissioner tcmemo_2007_14 court’s opinion and set forth the portions of that opinion that are relevant to our disposition of petitioners’ motion such total wages tips and other compensation included dollar_figure that was shown as espp in box of the fannie_mae form_w-2 fannie_mae also gave ms kim a document entitled gross wage analysis fannie_mae wage analysis that document showed inter alia dollar_figure as w2 wages such wages included dollar_figure that was shown as espp-cep and non-payroll earnings in the fannie_mae wage analysis petitioners timely filed form_1040 u s individual_income_tax_return for their taxable_year petitioners’ return in petitioners’ return petitioners showed inter alia on page one wages salaries tips etc of dollar_figure on line the dollar_figure of wages salaries tips etc included the dollar_figure that was shown as espp in box of the fannie_mae form_w-2 respondent issued to petitioners a notice_of_deficiency for their taxable_year notice in that notice respon- dent determined a deficiency in and an accuracy-related_penalty under sec_6662 sec_6662 determination on peti- tioners' federal_income_tax tax for that year of dollar_figure and dollar_figure respectively in making those determinations respondent determined to include in petitioners’ gross_income the following amounts dollar_figure of gross_proceeds from certain broker transactions dollar_figure gross_proceeds determination dollar_figure of interest_income from the united_states department of the treasury dollar_figure interest determination dollar_figure of income from the sale of certain stock of a company described as travelers prop dollar_figure travelers prop determination and dollar_figure of interest_income from washington savings bank dollar_figure wsb interest determination respondent indicated in the notice that in making the determinations in that notice to include such amounts in peti- tioners’ gross_income respondent used the information set forth in certain information returns that respondent required the payers of such amounts to provide to respondent and the taxpayer- payees in the notice respondent summarized the information in each such information_return pertaining to peti- tioner tae m kim mr kim or to ms kim and included the address of each payer and the account number for mr kim or ms kim shown by each payer in each such return in making the dollar_figure gross_proceeds determination in the notice respondent relied on four forms 1099-b proceeds from broker and barter_exchange transactions form 1099-b that equiserve inc equiserve provided inter alia to respondent equiserve forms 1099-b with respect to ms kim and that showed 3petitioners reported dollar_figure of interest_income from washington savings bank in schedule b-interest and ordinary dividends included as part of petitioners’ return 4the court takes judicial_notice that respondent requires certain payers to use form 1099-b in order to report inter alia gross_proceeds or gross_proceeds less commissions and option premiums from broker transactions a total of dollar_figure as gross_proceeds dollar_figure of gross pro- ceeds from broker transactions described as emp pln shrs sold petitioners timely filed a petition with the court with respect to the notice in the petition petitioners alleged in pertinent part the petitioners disagree with irs in the determination of the deficiency because it was based on the insufficient and inaccurate information on date respondent filed an answer in the answer respondent denied that the determinations in the notice were incorrect and requested that the relief sought in the petition be denied and that respondent’s determination as set forth in the notice_of_deficiency be in all respects ap- proved at various times not disclosed by the record after petition- ers filed the petition in this case respondent made requests to petitioners for information about the dollar_figure of gross_proceeds shown in the equiserve forms 1099-b petitioners did not provide any information or explanation in response to those requests as discussed above respondent included in the notice the address of each payer who provided respondent with an infor- mation return with respect to mr kim or ms kim including the address of equiserve shown in the equiserve forms 1099-b and the account number for ms kim shown in those forms nonetheless on date petitioners sent respondent a letter that stated in pertinent part we received your letter dated date concern- ing stipulation of facts in preparation of tax_court hearing in the case in order to respond accurately and diligently in the process we need the information and documents in relation to unreported investment_income dollar_figure including the follows - copies of all irs documents and reports indicating petitioners’ unreported investment_income dollar_figure - name and address of broker or agent who conducted the transaction for petitioners in generating the unre- ported investment_income dollar_figure since the required process has to be accomplished without delay we request your swift response in this matter we are unable to attend date con- ference with you since we need to contact the bro- ker agent and verify the investment_income of dollar_figure reproduced literally on date petitioners sent respondent another letter that stated in pertinent part we wrote a letter dated date to you requesting documents irs has in relation to the petitioners’ unreported investment_income dollar_figure and other we have not received them from you since we do not know what security stock generated investment_income dollar_figure and who was the agent broker for the sale or transaction in generating investment_income dollar_figure for petitioners we need copies of document and or report irs received from agent broker or any company as to petitioners’ investment_income dollar_figure we need agent broker’s name and mailing address to contact them to ask how the dollar_figure investment_income was generated in the case for petitioners reproduced literally on date petitioners sent respondent a third letter that stated in pertinent part we made written requests to you twice to receive copies of the documents as stated in the previous letters but we have not received any response from you we again request copies of the documents in relation to unreported investment_income if we do not hear from you very soon we may notify this matter to tax_court judge reproduced literally on date respondent sent petitioners a letter in which respondent restated the information shown in the equiserve form 1099-b’s that respondent had summarized in the notice including the address of equiserve and the account number of ms kim shown in such forms at a time not disclosed by the record after petitioners failed to provide any information or explanation in response to respondent’s requests to them for information about the dollar_figure of gross_proceeds shown in the equiserve forms 1099-b but before date respondent asked computershare formerly equiserve for information about such gross_proceeds shown in such forms respondent also asked fannie_mae for any relevant information on a date in date before december respondent received certain information from fannie_mae relevant to the dollar_figure gross_proceeds determination based upon that informa- tion respondent concluded that the total wages tips and other compensation shown in the fannie_mae form_w-2 included an amount of compensation ie dollar_figure resulting from ms kim’s exercise of certain fannie_mae options and that petitioners had included that amount in wages salaries tips etc in petitioners’ return based upon the information that fannie_mae provided to respondent in date respondent further concluded that the dollar_figure of gross_proceeds shown in the equiserve forms 1099-b constituted gross_proceeds from the sales of certain fannie_mae stock that ms kim acquired as a result of her exercise of certain fannie_mae options as a result of having received in date and analyzed certain information from fannie_mae on date before the trial in this case respondent conceded the dollar_figure gross_proceeds determination and the sec_6662 determination on date respondent received from petitioners form 1040x amended u s individual_income_tax_return with respect to their taxable_year petitioners’ amended_return in petitioners’ amended_return petitioners reduced by dollar_figure the adjusted_gross_income reported in petitioners’ return and claimed a refund of dollar_figure in support thereof petitioners gave the following explanation in petitioners’ amended_return excluding dollar_figure espp gain from w-2 including dollar_figure espp gain in capital_gains on 5respondent conceded the sec_6662 determination even though that determination was based on not only the dollar_figure gross_proceeds determination but also other determinations in the notice that the court ultimately resolved in favor of respondent schedule d petitioners included as part of petitioners’ amended_return a copy of schedule d capital_gains_and_losses schedule d that they included as part of petitioners’ return on which they made the following changes peti- tioners claimed short-term_capital_gains totaling dollar_figure from the sale of certain fannie_mae stock that ms kim acquired as a result of her exercise of the fannie_mae options and long-term_capital_losses totaling dollar_figure from the sale of certain stock of three companies in petitioners’ amended schedule d petitioners added the dollar_figure of additional long-term_capital_losses claimed in that amended schedule to the dollar_figure of long-term_capital_loss claimed in petitioners’ schedule d included as part of petitioners’ return and as a result claimed total long-term_capital_losses for their taxable_year totaling dollar_figure in petitioners’ amended schedule d petitioners netted the dollar_figure of short-term_capital_gains and the dollar_figure of long-term_capital_losses claimed in that amended schedule and as a result claimed a net_capital_loss of dollar_figure respondent did not accept as cor- 6we shall refer to the copy of the schedule d on which petitioners made certain changes as petitioners’ amended schedule d 7in petitioners’ return as prescribed by sec_1211 petitioners claimed as a deduction only dollar_figure of the dollar_figure net_capital_loss claimed in the schedule d included as part of that return thus the dollar_figure net_capital_loss claimed in continued rect petitioners’ amended_return in their pretrial memorandum during trial and on brief petitioners focused only on the increases in short-term_capital_gains and long-term_capital_losses of dollar_figure and dollar_figure respectively claimed in petitioners’ amended_return and not on any of the determinations in the notice that respon- dent did not concede including the dollar_figure wsb interest determina- tion we shall refer to the claimed respective increases in short-term_capital_gains and long-term_capital_losses as peti- tioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue respectively it was only when the court asked mr kim petitioners’ only witness at trial about the dollar_figure wsb interest determination that petitioners even addressed that determination the following exchange took place during mr kim’s direct testimony the court you also don’t have any informa- tion about the interest_income from washington savings bank the witness no no actually when we prepare the for i mean we diligently tried to get an information diligently tried to report every income we have even penny but i mean there may be i don’t know maybe some other matter but we still believe that what we reported is very very accurate and the continued petitioners’ amended schedule d did not entitle petitioners to a larger net_capital_loss deduction for however the increased net_capital_loss claimed in petitioners’ amended schedule d did affect the amount of petitioners’ claimed capital_loss_carryover to other taxable years we reported is actually that we reported more than we should that means that we overpaid that’s what we think transcript reproduced literally on cross-examination respondent’s counsel asked mr kim certain questions about the dollar_figure wsb interest determination that the court raised with mr kim during his direct testimony those questions and mr kim’s answers were q mr kim did you have an account with wash- ington savings bank in a i think in year probably yes q what type of account was it do you remem- ber a i don’t remember q a checking account a i mean that’s my guess but i do not want to -- probably saving but maybe -- the court he doesn’t know for sure the witness yeah i don’t know by ms baker q do you recall if any of those accounts earned interest a oh yes yes q do you know how much interest you earned on those accounts during a i don’t remember i just received the report from them and i reflected that one q do you have a copy of that report a at this time no transcript reproduced literally in the court’s opinion the court addressed the dollar_figure inter- est determination the dollar_figure travelers prop determination the dollar_figure wsb interest determination petitioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue in the court’s opinion the court held for respondent on all of the foregoing issues except the dollar_figure wsb interest determination in petitioners’ motion and the affidavit attached thereto petitioners claimed the following litigation costs claimed litigation costs tax_court filing fee dollar_figure mailing costs dollar_figure delivery fee dollar_figure consultation costs dollar_figure document preparation dollar_figure parking fee dollar_figure transportation dollar_figure telephone calls dollar_figure petitioners did not provide any additional information with respect to the claimed litigation costs discussion as pertinent here sec_7430 authorizes an award to the prevailing_party of reasonable_litigation_costs incurred in connection with a case brought in the court against the commis- sioner of internal revenue commissioner involving the determi- nation of any_tax interest or penalty under the code the term prevailing_party means in general any party who has substantially prevailed with respect to a the amount in contro- versy sec_7430 or b the most significant issue or set of issues presented sec_7430 and meets the net_worth requirements of u s c sec d b net_worth requirements sec_7430 in order to qualify for an award under sec_7430 the prevailing_party must have exhausted the available adminis- trative remedies sec_7430 and not have unreasonably protracted the court_proceeding sec_7430 the party moving for an award under sec_7430 has the burden of establishing that all of the foregoing criteria have been satis- fied and that the costs claimed are reasonable_litigation_costs incurred in connection with the court_proceeding under sec_7430 rule e see also 123_tc_202 there is an exception to the definition in sec_7430 of the term prevailing_party that exception is found in sec_7430 which provides a party shall not be treated as the prevailing_party in a proceeding if the united_states establishes that the position_of_the_united_states in the proceeding was substantially justified sec_7430 the position_of_the_united_states is substantially justified if it is one that is ‘justified to a degree that could satisfy a reasonable person’ or that has a ‘reasonable basis both in law and fact ’ 487_us_552 106_tc_76 a position has a reasonable basis in fact if there is relevant evidence that a reasonable mind might accept as adequate to support a conclusion see pierce v underwood supra pincite 115_tc_366 in determining whether the position of the commissioner was substantially justified we must consider the basis for respondent’s legal position and the manner in which the position was maintained 86_tc_962 the fact that the commissioner concedes an issue is not conclusive as to whether the commis- sioner’s position with respect to that issue was substantially justified see corkrey v commissioner supra 92_tc_760 wasie v commissioner supra pincite in respondent’s response to petitioners’ motion respondent indicates that petitioners have substantially prevailed with respect to the amount in controversy within the meaning of sec_7430 however respondent argues that respondent’s position was substantially justified with respect to the dollar_figure gross_proceeds determination the dollar_figure interest determination the dollar_figure travelers prop determination the sec_6662 determination petitioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue therefore accord- ing to respondent petitioners are not the prevailing_party within the meaning of sec_7430 with respect to any of those issues respondent does not maintain that respondent’s position with respect to the dollar_figure interest determination was substantially justified respondent concedes in respondent’s response to petitioners’ motion that petitioners have exhausted the available administra- tive remedies see sec_7430 and does not dispute that petitioners meet the net_worth requirements see sec_7430 however respondent argues that petitioners unreasonably protracted the proceeding see sec_7430 and that petitioners have not provided any information that estab- lishes that they incurred the claimed litigation costs the issue or issues to which such claimed costs relate the amount of such claimed costs incurred with respect to each such issue and that such claimed costs are reasonable see sec_7430 because respondent has taken an issue-by-issue approach in advancing respondent’s arguments in support of respondent’s position that the court should deny petitioners’ motion we shall do the same see swanson v commissioner supra pincite as pertinent here the position of respondent for purposes of sec_7430 with respect to an issue in this case is the position first taken by respondent with respect to that issue see 108_tc_430 with respect to the determinations in the notice respondent’s position for purposes of sec_7430 is that set forth in the answer see id with respect to petition- ers’ alleged capital_gain issue and petitioners’ alleged capital_loss issue respondent’s position for purposes of sec_7430 is that set forth in respondent’s pretrial memoran- dum we first address respondent’s position for purposes of sec_7430 with respect to the dollar_figure interest determi- nation the dollar_figure travelers prop determination petitioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue in the court’s opinion the court held in favor of respondent and against petitioners with respect to each of those matters on the record before us we find that respon- dent has met respondent’s burden under sec_7430 8petitioners did not raise petitioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue until date when respondent received petitioners’ amended_return as a result respondent was not able to take a position with respect to either of those issues in the answer that respondent filed on date in respondent’s pretrial memorandum respondent indicated that if the court were to rule that peti- tioners’ amended_return is admissible into evidence a trial would be necessary with respect to the issues raised therein however respondent did not elaborate further in respondent’s pretrial memorandum at trial respondent made clear that respondent disagreed with petitioners’ claims regarding petition- ers’ alleged capital_gain issue and petitioners’ alleged capital_loss issue however respondent did not elaborate further it was only on brief that respondent gave reasons in support of respondent’s position in respondent’s pretrial memorandum that petitioners are not entitled to the respective increases in short-term_capital_gains and long-term_capital_losses claimed in petitioners’ amended_return of establishing that respondent’s position was substantially justified and that petitioners are not the prevailing_party under sec_7430 with respect to each such matter we next address respondent’s position for purposes of sec_7430 with respect to the sec_6662 deter- mination to the extent that determination imposed an accuracy- related penalty on the respective portions of the underpayment for petitioners’ taxable_year underpayment that were attributable to the dollar_figure interest determination and the dollar_figure travelers prop determination for the reasons set forth above on the record before us we find that respondent has met respondent’s burden under sec_7430 of establish- ing that respondent’s position was substantially justified and that petitioners are not the prevailing_party under sec_7430 with respect to the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on such respective portions of the underpaymentdollar_figure we next address respondent’s position for purposes of sec_7430 with respect to the dollar_figure gross_proceeds determination the court has held that whenever there is a 9since we have found that petitioners are not the prevailing_party under sec_7430 we need not and shall not address any of the other requirements in sec_7430 that petitioners must satisfy in order to be entitled to litigation costs under sec_7430 10see supra note factual determination the commissioner is not obliged to concede a case until the commissioner receives the necessary documenta- tion to prove the taxpayer’s contentions corkrey v commis- sioner t c pincite n and that after the commissioner receives the proper documentation a reasonable period of time must be given to analyze the documents and make adjustments accordingly id on numerous occasions the court has found that in the absence of evidence undermining the reliability of information returns provided to the commissioner or otherwise substantiating a taxpayer’s contentions reliance by the commis- sioner on information returns is substantially justified see eg id in the instant case respondent relied on the equiserve forms 1099-b in making the dollar_figure gross_proceeds determination at various times respondent made requests to petitioners for information about such gross_proceeds petitioners did not provide any information or explanation in response to those requests it was only after respondent requested information from computershare formerly equiserve and fannie_mae and received in date relevant information from fannie_mae that respondent had any evidence showing that respondent’s dollar_figure gross_proceeds determination was incorrect on date shortly after having received that information from fannie_mae respondent conceded that determination on the record before us we find that respondent has met respon- dent’s burden under sec_7430 of establishing that respondent’s position was substantially justified and that petitioners are not the prevailing_party under sec_7430 with respect to the dollar_figure gross_proceeds determinationdollar_figure we next address respondent’s position for purposes of sec_7430 with respect to the sec_6662 deter- mination to the extent that determination imposed an accuracy- related penalty on the portion of the underpayment that was attributable to the dollar_figure gross_proceeds determination respondent conceded the sec_6662 determination at the time respondent conceded the dollar_figure gross_proceeds determination for the reasons set forth above on the record before us we find that respondent has met respondent’s burden under sec_7430 of establishing that respondent’s position was substantially justified and that petitioners are not the prevailing_party under sec_7430 with respect to the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on the portion of the underpayment that was attributable to the dollar_figure gross_proceeds determinationdollar_figure we now address whether petitioners are entitled to litiga- 11see supra note 12see supra note tion costs under sec_7430 in connection with the dollar_figure wsb interest determination and the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on the portion of the underpayment that was attributable to that determination as discussed above respondent does not maintain that respondent’s position with respect to the dollar_figure wsb interest determination was substantially justified under sec_7430 however according to respondent this issue did not require a large expenditure of time or resources the bulk of the trial and the expense of the proceeding related to the capital_gains issue raised by petitioners in their pretrial memorandum during trial and on brief petitioners focused only on petitioners’ alleged capital_gain issue and petitioners’ alleged capital_loss issue and not on inter alia the dollar_figure wsb interest determination it was only when the court asked mr kim during his direct testimony whether petitioners had any information bearing on the dollar_figure wsb interest determination that petitioners even addressed that determination on the record before us we find it difficult to believe that petitioners incurred any litigation costs before during or after trial with respect to the dollar_figure wsb interest determination or the sec_6662 determination to the extent that determina- tion imposed an accuracy-related_penalty on the portion of the underpayment that was attributable to that determinationdollar_figure on that record we find that petitioners have failed to carry their burden of establishing that they incurred any litigation costs with respect to those mattersdollar_figure based upon our examination of the entire record before us we find that petitioners have failed to carry their burden of establishing that they are entitled to litigation costs under sec_7430 we have considered all of petitioners’ contentions and 13as discussed above respondent conceded prior to trial the sec_6662 determination consequently petitioners should not have incurred any litigation costs with respect to that determination after that concession assuming arguendo that the record had established that petitioners incurred litigation costs with respect to the dollar_figure wsb interest determination and the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on the portion of the underpayment attributable to that determination on the record before us we find that petitioners have failed to carry their burden of establishing the respective amounts of litigation costs incurred with respect to the dollar_figure wsb determination and the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on the portion of the underpayment attributable to that determina- tion the nature of any such costs and the reasonableness of any such costs 14since we have found that petitioners failed to carry their burden of establishing that they incurred any litigation costs with respect to the dollar_figure wsb interest determination and the sec_6662 determination to the extent that determination imposed an accuracy-related_penalty on the portion of the underpayment that was attributable to that determination we need not and shall not address respondent’s argument that petitioners unrea- sonably protracted the proceeding see sec_7430 and therefore are not entitled to litigation costs under sec_7430 arguments that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing an order denying petitioners’ motion will be issued