t c memo united_states tax_court alice m beagles petitioner v commissioner of internal revenue respondent docket no filed date alice m beagles pro_se gary m slavett for respondent memorandum findings_of_fact and opinion cohen judge the petition in this case was filed in response to a notice of final_determination granting in part and denying in part petitioner’s claim to abate interest on income_tax liabilities for and pursuant to sec_6404 after concessions the sole issue for decision is whether the - - failure to abate the balance of the interest was an abuse_of_discretion unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in pacific palisades california at the time that she filed her petition during and petitioner and her husband robert beagles the beagles were limited partners in jackson associates jackson the beagles purchased their limited_partnership_interest in jackson for dollar_figure in jackson was a limited_partner in wilshire west associates wilshire west during and wilshire west was one of approximately coal programs that were sponsored by swanton corp a delaware corporation and were structured identically as either joint ventures or limited_partnerships both jackson and wilshire west were partnerships subject_to the procedures of the tax equity fiscal responsibility act of publaw_97_248 96_stat_324 tefra provisions found in internal_revenue_code sections - the beagles jointly filed form sec_1040 u s individual_income_tax_return for and on the return for schedule e supplemental income schedule the beagles deducted a net_loss of dollar_figure relating to jackson the schedule_k-1 partner’s share of income credits deductions etc from jackson for however was not received by the beagles until after they had filed their return for the schedule_k-1 from jackson to the beagles reported an ordinary_loss of dollar_figure for that amount was claimed by the beagles on a form 1040x amended u s individual_income_tax_return for filed in date donald j kuehne kuehne was the tax_matters_partner tmp for wilshire west for and john r jackson was the tmp for jackson for and sometime prior to date the internal_revenue_service irs began an examination of wilshire west for under the tefra_audit procedures and sometime prior to date the irs began an examination of wilshire west for forms 872-p consent to extend the time to assess tax attributable to items of a partnership for wilshire west for and were duly executed by kuehne for wilshire west at about the time that the beagles invested in jackson programs promoted by norman swanton swanton were being investigated by the irs although some civil investigation of q4e- these programs had commenced this investigation was suspended pending a criminal investigation of swanton ultimately the department of justice declined prosecution thirty partnerships that were involved in the swanton programs were formed prior to and including wilshire west were formed subsequent to the effective date of tehfra test cases for litigation of the swanton coal programs in the tax_court were selected in two cases docketed in trial commenced on date a second trial began in date an opinion on the merits of the swanton coal programs for years prior to the years in issue was filed date both the trial and the trial involved pre-tefra cases after the trial was concluded irs lawyers began processing the tefra cases involving the swanton coal programs on date the irs sent to wilshire west and its tmp kuehne a notice of final_partnership_administrative_adjustment fpaa a petition was filed in response to the fpaa by kuehne and was docketed in the tax_court as no as of the time of this opinion decision still has not been entered in the wilshire west case because one or more of the partners has pursued the litigation however on date a closing_agreement was entered into on behalf of jackson the closing_agreement provided in part the portion of the taxpayer’s deficiency for the taxable years and attributable to the claimed partnership losses is a substantial_underpayment attributable to tax_motivated_transactions under sec_6621 accordingly the annual rate of interest payable on the taxpayer’s income_tax for the taxable years and shall be percent of the adjusted rate established under sec_6621 the percent interest rate applies to interest accruing after date the taxpayer is not liable for any additions to tax pursuant to sec_6653 a or a for the portion of the taxpayer’s deficiencies which are based on the disallowances of the partnership’s losses and credits in any taxable years the taxpayer is not liable for any other penalties or additions to tax in any taxable_year with respect to its interest on date the irs mailed a letter with enclosures to the beagles explaining how the adjustments that were made during the examination of wilshire west affected their individual tax returns for and on date the irs assessed a deficiency of dollar_figure for and dollar_figure for against the beagles resulting from the adjustments made to wilshire west that passed through to jackson and then to the beagles the deficiencies resulted from disallowance of losses claimed by the beagles from jackson in excess of dollar_figure the dollar_figure amount was allowed as a deduction in equal to one-half of the beagles’ cash investment on date the beagles requested abatement of the interest of dollar_figure that had accrued on their tax_liability for and at that time robert beagles was terminally -- - ill on date the irs appeals_office sent to petitioner a letter of partial allowance--final determination that determination stated our final_determination is to allow part of your request for an abatement of interest we can allow an abatement for the period from date to date we regret that we have to deny the balance of your abatement of interest request for the reason s stated below we did not find any errors or delays on our part that merit the abatement of interest in our review of available records and other information for the period from date to date opinion sec_6404 provides in pertinent part that the commissioner may abate the assessment of interest on any deficiency if the interest is attributable to an error or delay by an officer_or_employee of the irs acting in his official capacity in performing a ministerial_act amendments to sec_6404 in do not apply to this case because they apply only to interest accruing with respect to deficiencies or payments for tax years beginning after date this court may order abatement where the commissioner abuses his discretion by failing to abate interest sec_6404 in order to prevail a taxpayer must prove that the commissioner exercised this discretion arbitrarily capriciously or without - jj - sound basis in fact or law woodral v commissioner t1t c in view of the partial allowance of petitioner’s claim_for_abatement it is necessary to address only those periods in which interest accrued between date and date and subseguent to date an understanding of the earlier period however requires an explanation of other events occurring during the period for which abatement was allowed by the appeals_office the period from date to date is explained by the chronology in our findings_of_fact and petitioner has not argued that unnecessary or unexplained delay occurred during that period petitioner is concerned primarily by the failure of the irs to notify her and her husband of the deficiencies in tax for and during the time that tefra proceedings were pursued through the tmps of jackson and wilshire west in that regard it is necessary to understand the parameters of litigation over swanton coal shelter programs much of the background was explained by the testimony of moira sullivan an attorney for the irs charged with responsibility for the litigation documents concerning the swanton cases were lost as a result of the destruction of the world trade center on date other explanations are found in two opinions of this court rendered in swanton coal program cases --- - processing of the many civil partnership cases arising out of the coal programs in which the beagles invested was initially delayed during a criminal investigation of the promoter swanton as we said in 113_tc_206 affd 9_fedappx_700 9th cir it has long been the policy of the i r s to defer civil assessment and collection until the completion of criminal proceedings 693_f2d_298 3d cir affd 464_us_386 this policy is predicated on various considerations the often-cited reason is potential conflict between avenues of civil and criminal discovery if parallel civil and criminal cases proceed compare 307_f2d_478 5th cir with 252_f2d_268 6th cir affg tcmemo_1956_187 but there are other considerations such as where a party or witness may be put in a situation of testifying when the testimony may be incriminating see 397_us_1 there is also the confusion inherent in two cases that are proceeding concurrently it is for these reasons that generally the courts have held the civil_action in abeyance while the criminal prosecution goes forth see id pincite n see also united_states v bight thousand bight hundred and fifty dollars dollar_figure in 461_us_555 where the supreme court held that the delay by the united_states in instituting a civil forfeiture action pending resolution of criminal charges was reasonable here after the criminal investigation was concluded without an indictment trial commenced in unfortunately the litigation process was disrupted because the testimony of swanton was stricken for violation of rule dealing with exclusion of witnesses see 92_tc_1349 --- - different test cases were agreed to and were the subject of the trial in and an opinion was rendered in in kelley v commissioner tcmemo_1993_495 the court found in those cases that the taxpayers were not entitled to deductions that had been claimed in through in relation to the swanton coal programs and were liable for increased interest rates under sec_6621 as well as for penalties for negligence petitioner is concerned because she was unaware of the litigation that was going on in this court petitioner argues that respondent’s failure to notify her about the deficiency resulted in her incurring extraordinary interest under sec_6621 under the tefra procedures however the tmp is responsible for giving various notices to the limited partners see sec_6223 section f expressly states sec f failure of tax_matters_partner etc to fulfill responsibility does not affect applicability of proceeding --the failure of the tax_matters_partner a pass-thru_partner the representative of a notice_group or any other representative of a partner to provide any notice or perform any act required under this subchapter or under regulations prescribed under this subchapter on behalf of such partner does not affect the applicability of any proceeding or adjustment under this subchapter to such partner petitioner was not a person entitled to notice under any special statutory provision see eg taylor v commissioner tcmemo_1992_219 pass through partners in a partnership that is a partner in another entity are not entitled to receive copies of -- - partnership proceeding notices from the irs the failure to give such notices therefore is not an error requiring abatement of interest although it may provide no comfort to petitioner the delays experienced in processing her case were not unusual during the period from to a large number of tax_shelter cases were filed in this court during the late 1970s and early 1980s as a result of tax_shelter programs such as those promoted by swanton the large number of cases led to specialized responses by the irs by the court and by congress the response of congress included the increased rate of interest accruing under former sec_6621 applicable to deficiencies attributable to tax-motivated transactions as explained in h rept pincite c b vol the provision is effective with respect to interest accruing after date regardless of the date the return was filed the conferees note that a number of the provisions of recent legislation have been designed in whole or in part to deal with the tax_court backlog examples of these provisions are the increased damages assessable for instituting or maintaining tax_court proceedings primarily for delay or that are frivolous or groundless sec_6673 the adjustment of interest rates sec_6621 the valuation_overstatement and substantial_understatement penalties sec_6659 and sec_6661 and the tax straddle rules sec_1092 and sec_1256 the conferees believe that with this amendment the congress has given the tax_court sufficient tools to manage its docket and that the responsibility for effectively managing that docket and reducing the backlog now lies with the tax_court the positive response that the court has made to several recent gao recommendations is encouraging and the conferees expect the court to implement swiftly these and other appropriate management initiatives the conferees also note favorably the steps the court has begun to take in consolidating similar tax_shelter cases and dispensing with lengthy opinions in routine tax protestor cases the court should take further action in these two areas as well as to assert without hesitancy in appropriate instances the penalties that the congress has provided the internal_revenue_service also has significant responsibilities in reducing the tax_court backlog the service’s settlement policy should be fair and flexible and only appropriate cases should be litigated although in the recent past the service has offered to settle many tax_shelter cases by permitting taxpayers to deduct out of pocket expenses the service no longer routinely offers this as a settlement this is a constructive change in policy in that a taxpayer should not expect to be able to deduct out of pocket expenses regardless of the circumstances of his case the service should assert without hesitancy in appropriate circumstances the penalties that the congress has provided in particular the negligence and fraud penalties are not currently being applied in a large number of cases where their application is fully justified the conferees note with approval the steps the service has recently taken to eliminate the backlog in the appeals_division the court’s practice of selecting test cases and holding other cases in abeyance pending the resolution of the test cases was among the management tools adopted to deal with the large number of cases it was not feasible to litigate simultaneously hundreds of cases involving substantially_similar issues here respondent’s counsel turned to the group of tefra cases including petitioner’s partnership as soon as the trial of the swanton test cases concluded in prior to that time the delays are explained by the complexities and burdens of managing the cases in circumstances comparable to those here in 113_tc_145 the court stated the mere passage of time in the litigation phase of a tax dispute does not establish error or delay by the commissioner in performing a ministerial_act the length of time required to resolve the case was a result of the government’s litigation strategy to dispose_of the criminal indictments first and the court’s disposition of the parties’ procedural motions respondent’s decision on how to proceed in the litigation phase of the case necessarily required the exercise of judgment and thus cannot be a ministerial_act we therefore conclude that the passage of years in the litigation phase of the case at bar is not attributable to error or delay in performing a ministerial_act fn ref omitted see also jacobs v commissioner tcmemo_2000_123 in consideration of the events that were occurring from date to trial of the kelley cases in we cannot conclude that the passage of time is attributable to error or delay in performing a ministerial_act the appeals officer’s partial allowance of petitioner’s claim gave petitioner relief of amounts accruing for approximately years from date to date although that result is not satisfactory to petitioner we have found no basis for further relief under the circumstances to reflect the foregoing decision will be entered for respondent


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc corp tl-n-3635-00 uilc internal_revenue_service national_office field_service_advice memorandum for jody tancer associate area_counsel financial services and healthcare cc lm fsh brk from jasper l cummings associate chief_counsel corporate cc corp subject this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend parent acquiror merger sub sub sub new parent business x state w country x year year year year corporate officer date a date b date c date d tl-n-3635-00 issue sec_1 whether the service should deal directly with a split-off subsidiary in connection with an audit of the taxpayer which was the common parent of an affiliated_group_of_corporations that filed a consolidated_income_tax_return for the years under audit whether the requirements of sec_7602 apply when a subsidiary ceases to be a member of a consolidated_group conclusion sec_1 the service should not deal directly with the split-off subsidiary in this case in connection with an audit of the taxpayer the service need not address the issue of whether the requirements of sec_7602 apply when a subsidiary ceases to be a member of the consolidated_group because the taxpayer authorized the contact in question facts parent was incorporated in state w as the successor to a business founded in year parent was the common parent of an affiliated_group_of_corporations filing a consolidated_return parent was engaged in three businesses one of which was business x on date a parent entered into an agreement and plan of merger with acquiror a country x corporation engaged in one of the same businesses as parent acquiror established merger sub merger sub merged into parent which continued its corporate existence as a state w corporation and wholly owned subsidiary of acquiror merger sub ceased to exist as a condition of the merger and prior to the merger parent transferred business x to sub a wholly owned state w subsidiary of parent business x was then split-off into a separate publicly owned company sub was renamed sub the split-off occurred on date b on date c sub submitted a letter to the internal_revenue_service notifying the service of the split-off appointing corporate officer as its representative with regard to any audit issues related to parent’s operation of business x and requesting that the service discuss any potential audit matters with corporate officer tl-n-3635-00 as of date d new parent was the common parent of an affiliated_group that includes parent on date d an officer of new parent submitted a letter to the service ratifying and endorsing the date c letter parent filed a consolidated_return for the taxable years under audit which are year sec_2 and the examining agent wishes to communicate directly with corporate officer law and analysis issue parent filed a consolidated_return for the taxable years at issue by joining in the filing of a consolidated_return the members of the consolidated_group consent to be bound by the consolidated_return_regulations sec_1501 84_tc_466 citing ilfeld v hernandez 292_us_62 pursuant to sec_1_1502-77 the common parent shall be the sole agent for each subsidiary in the group and may act in its own name in all matters relating to the tax_liability for the consolidated_return_year the common parent remains the agent for the consolidated_return_year whether or not one or more of its subsidiaries have ceased to be members of the consolidated_group sub 2's date c letter notifying the service of the split-off did not terminate the agency relationship between parent and sub for the taxable years at issue sec_1_1502-77 craigie v commisisoner supra sub 2's notification of its separation from the consolidated_group entitles sub upon its request to a copy of a notice_of_deficiency and a copy of a notice for demand for payment of such deficiency for any_tax due for the consolidated_return years under audit sec_1_1502-77 expressly provides that a subsidiary’s written notification to the service that it has ceased to be a member of the group does not limit the scope of the common parent’s agency and that a district director’s failure to comply with a written request for the statutory notice does not have the effect of limiting the tax_liability of the former member provided for in sec_1_1502-6 accordingly sub 2's notification to the service of the split-off does not affect parent’s status as agent for sub parent remains the authorized agent of sub for the consolidated_return years under audit even though sub has ceased to be a member of the consolidated_group the service has the option of dealing directly with sub however sec_1_1502-77 authorizes the service to deal directly with any member of the consolidated_group with respect to the member’s tax_liability provided that the service notifies the common parent of its decision in such a case the member tl-n-3635-00 has full authority to act for itself see ini inc v commissioner tcmemo_1995_112 the examining agent in this case wishes to terminate the agency relationship and deal directly with sub through prior business dealings the agent has developed a good working relationship with sub 2’s representative the agent believes that terminating parent’s agency would serve the purpose of administrative convenience while it is clear that the regulations authorize the service to deal directly with sub we are unconvinced that it is in the service’s interest to exercise this authority sec_1_1502-6 provides that each member of a consolidated_group shall be severally liable for the group’s tax for a consolidated_return_year parent and the other members of the consolidated_group thus remain severally liable for any deficiency in the years under audit see also 88_tc_145 concluding that the several_liability of group members justified the tax court’s jurisdiction over the consolidated liability of members of the affiliated_group not identified in the service’s notice_of_deficiency if the service terminates the agency relationship between parent and sub the service still must deal with parent as the agent for the remaining members of the group in determining the several_liability of the group’s other members post-audit complexities also could arise as a result of dealing separately with sub2 and the remainder of the consolidated_group for example determining the proper parties for collection or refund might prove more troublesome terminating the agency relationship therefore does not appear to reduce the administrative burden of examination in this case and may in fact increase the burden accordingly we do not find the agent’s reason for terminating agency sufficiently compelling to outweigh the potential administrative difficulties of doing so issue under sec_7602 an officer_or_employee of the service may not contact any person other than the taxpayer with respect to the determination or collection of the tax_liability of such taxpayer without providing reasonable notice in advance to the taxpayer the statute also requires the service to provide the taxpayer with a record of persons contacted both periodically and upon the taxpayer’s request sec_7602 the congressional intent behind these requirements is to provide taxpayers with the opportunity to come forward with information before third parties are contacted and the means to address any business or reputational concerns arising from such contacts without impeding the ability of the service to make those contacts that are necessary to enforce the internal revenue laws with this intent in mind an interpretative approach to tl-n-3635-00 sec_7602 has been adopted that balances taxpayers’ business and reputational interests with third parties’ privacy interests and the service’s responsibility to administer the revenue laws effectively sec_7602 excepts contacts that are authorized by the taxpayer from the requirements of the statute because sub appointed corporate officer as its representative with regard to any audit issues relating to the business x and an officer of acquiror ratified the appointment contacts with corporate officer that are within the scope of this appointment are not subject_to the requirements of sec_7602 accordingly there is no need to address whether contacts with a member of the consolidated_group are sec_7602 contacts with respect to the parent when the member ceases to be a part of the consolidated_group case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call marie byrne at if you have any further questions jasper l cummings associate chief_counsel corporate by michael j wilder senior technician reviewer cc corp


internal_revenue_service number release date index number ---------------------- ------------- ------------------ ----------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp bo6 plr-156719-06 date date ------------------ ---------- ---------- distributing --------------------------------------------------------------------- ------------------------------------------------------------------------------ controlled --------------------------------------------------------------------------- state business a ------------------------------------------------- ------------------- ------------- ----------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------- business b ----------------------------------------------------------------------- -------------------------------------------------------------------------- ---------- --------------------------------------------------------------------------------------------------------- --------------------------------------------------------- x shareholder a shareholder b key_employee a ----------------- ----------------- ----------------- -------------------- plr-156719-06 key_employee b dear -------------- this ruling is in reply to your representative’s letter dated date for moreover no information provided by the taxpayer has been reviewed and no rulings concerning the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated january february april may and date the material information submitted for consideration is substantially as set forth below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process determination has been made regarding whether the transaction as proposed i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 and has one class of common_stock that has been issued to two shareholders financial information has been received which indicates that distributing has had receipts and operating_expenses representative of the active_conduct of business a and business b for each of the past five years proposed the following transaction distributing is a state corporation that is engaged in business a and business b for what has been represented as valid business purposes the taxpayer has i distributing will form controlled as a state corporation and contribute the operating_assets relating to business b to controlled in exchange for all of the stock of controlled and the assumption by controlled of certain of the liabilities related to the assets transferred the contribution ii distributing will distribute all the outstanding shares of controlled to shareholder a and shareholder b pro_rata the distribution plr-156719-06 iii within days after the distribution key_employee a and key_employee b will purchase newly-issued treasury shares in distributing representing a total of x of the outstanding_stock in distributing the following representations have been made in connection with the proposed transaction a b c d e f g h no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of distributing is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees except that distributing and controlled will share the services of shareholders a and b distributing and controlled will each pay shareholders a and b directly for the value of their services the distribution of the stock of controlled is carried out for the following corporate business purposes separation of business a from business b in order to reduce risk to the assets of business b and to enable key_employee a and key_employee b to obtain an equity_interest in business a the distribution of stock is motivated in whole or in substantial part by one or more of these corporate business purposes the proposed transaction is not used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation the controlled_corporation or both the total fair_market_value of the assets transferred to controlled by distributing will equal or exceed the aggregate adjusted_basis of the transferred assets the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred the total adjusted bases of the assets transferred to controlled by distributing will equal or exceed the sum of a the total liabilities assumed within the meaning of sec_357 by controlled and b the total of any plr-156719-06 money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization the total fair_market_value of the assets transferred to controlled by distributing will exceed the sum of a the amount of liabilities assumed within the meaning of sec_357 by controlled in connection with the exchange b the amount of liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and c the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the stock of controlled payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length i j k l m no two parties to the transaction are investment companies as defined in sec_368 and iv n o p immediately after the transaction as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period plr-156719-06 determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution based solely on the information and representations set forth herein we rule as the contribution followed by the distribution will be a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer to controlled of those assets relating to business b in exchange for controlled stock and the assumption by controlled of liabilities related to the assets transferred sec_361 and sec_357 controlled will recognize no gain_or_loss on the receipt of the assets relating to business b in exchange for controlled stock sec_1032 the basis of each asset received by controlled will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period of each asset received by controlled will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of any shareholder of distributing on the distribution sec_355 q follows plr-156719-06 the aggregate basis of controlled stock and distributing stock in the hands of the shareholders will equal the aggregate basis of the distributing stock held immediately prior to the transaction allocated between the controlled and distributing stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 and sec_358 of the code the holding_period of the controlled stock received by the shareholders of distributing will include the period during which the distributing stock was held sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_1_312-10 no opinion is expressed about the tax treatment of the proposed transactions this ruling is directed on to the taxpayer requesting it sec_6110 of the under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of earnings_and_profits of the distributing_corporation the controlled_corporation or both see sec_355 and sec_1_355-2 and iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 code provides that it may not be used or cited as precedent is relevant letter is being sent to your authorized representative alfred c bishop_____________________ branch chief branch in accordance with the power_of_attorney on file with this office a copy of this a copy of this letter must be attached to any federal_income_tax return to which it alfred c bishop corporate sincerely


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-102422-00 date date legend trust a p x y z state d1 d2 d3 d4 this responds to your request dated date together with subsequent correspondence that p be given an extension of time in which to elect to treat its plr-102422-00 subsidiaries as qualified subchapter_s subsidiaries qsubs under sec_1361 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on d1 and elected subchapter_s status effective d2 y was incorporated under state law on d3 and elected subchapter_s status effective d3 prior to d4 the sole shareholder of x and y was trust p represents that trust is a grantor_trust all of which is treated as owned wholly by a under sec_671 through to consolidate business operations trust incorporated p on d4 and contributed all of its x and y stock to p in exchange for p common_stock in addition p incorporated z on d4 and filed a valid qsub election for z effective d4 p intended to treat x and y as qsubs effective d4 however p inadvertently failed to file an election to treat x and y as qsubs p later submitted a private_letter_ruling request asking for an extension of time in which to elect to treat x and y as qsubs effective d4 under sec_301_9100-1 through of the procedure and administration regulations law and analysis sec_1361 defines the term qualified_subchapter_s_subsidiary qsub as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1361 provides that generally a qsub shall not be treated as a separate corporation and that all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items of the s_corporation sec_1_1361-3 of the income_tax regulations provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing a completed form to be prescribed by the service sec_1_1361-3 provides guidance on when a qsub election will be effective on date the service published notice_97_4 1997_1_cb_351 providing a temporary procedure for making a qsub election under notice_97_4 a taxpayer makes a qsub election with respect to a subsidiary by filing a form_966 subject_to certain modifications with the appropriate service_center t d 2000_6_irb_498 provides that taxpayers should continue to follow notice_97_4 when making a qsub election until the qsub election form is published plr-102422-00 sec_301_9100-1 gives the commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of sec_301_9100-2 and sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a notice published in the internal_revenue_bulletin sec_301_9100-3 sets forth the standards which the commissioner uses to determine whether to grant a discretionary extension of time these standards indicate that the commissioner should grant relief when the taxpayer provides evidence proving 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 government conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly p is granted an extension of time of sixty days from the date of this letter to elect to treat x and y as qsubs effective d4 the election should be made by following the procedure set forth in notice_97_4 a copy of this letter should be attached to the election 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 specifically no opinion is expressed concerning whether p is an s_corporation or whether x y or z is a qsub for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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 fip b02 plr-113752-07 date date -------------------- -------------------------------- ---------------------------------------------- ---------------------------------------------------------- legend trust fund a ----------------------------------------------------- fund b ----------------------------------------------------- state a state b v w x y z index ----------------------------------------------------------------------------------------------------------- --------------------------------------------------- --------------- ------------ --- --- -- ---------------------------------------------------------------------------------------- plr-113752-07 dear ----------------- correspondence dated date submitted by your authorized representative on behalf of fund a and fund b collectively the funds funds request that the internal_revenue_service rule that income and gain arising from the commodities-linked note described in this letter will constitute qualifying_income to funds under sec_851 of the internal_revenue_code_of_1986 as amended the code this responds to the request dated date and supplemental facts fund a is organized as a series of trust a_trust organized under the laws of state a fund b is a corporation organized under the laws of state b each fund qualifies as a regulated_investment_company ric under sec_851 of the code fund a is a series of an open-end management investment_company registered under the investment_company act of as amended the act fund b is a closed-end management investment_company registered under the act both funds invest primarily in equity securities of corporations involved in various commodity-related industries both funds have an investment objective that focuses on commodities-related securities each fund is authorized to invest in commodities- linked notes having the terms and conditions of the following structured note note the note will be issued to fund at par_value of dollar_figurev its payout formula will be determined with reference to index its term will be one year and one day fund as holder of the note has the right to put the note to the issuer at the calculated redemption price based upon the closing index value as of the end of the next business_day after notification to the issuer or as of the same day closing value if notice is made by am new york time in addition if the daily close of the index falls to a level that is equal to or more than w below the beginning index value on any day the note will knockout and automatically redeem at the calculated redemption price based upon the closing index as of the next business_day the repayment obligation upon early redemption knockout or at maturity is equal to i the face_amount of the note plus ii the face_amount of the note multiplied by a monthly coupon rate of x plus iii the face_amount of the note multiplied by a leverage factor of y multiplied by percent change in the index from the issuance date to the end of the applicable_date minus iv a leverage factor of y multiplied by the face_amount of the note multiplied by an annual fee charge of z basis points and v a reversal of the interest factor included in the index note substantially contemporaneously with the delivery of the note the issuer of the note will receive payment in full of the purchase_price of the funds make the following representations with respect to this note a fund while holding the note will not be required to make any payment to plr-113752-07 the issuer of the note in addition to the purchase_price paid for the note whether as margin settlement payment or otherwise during the life of the note or at maturity to-market margining requirements of the commodities exchange act u s c as amended cea and delivery or option on such a contract subject_to the cea the note is not marketed as a contract of sale of a commodity for future the issuer of the note is not subject by the terms of the instrument to mark- law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources sec_851 defines qualifying_income in relevant part as- dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric’s business of investing in such stock securities or currencies sec_2 of the act defines the term security as- any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing plr-113752-07 instrument that is predominantly a security sec_2 of the cea provides that a hybrid instrument shall be considered to be predominantly a security if- sec_2 of the cea provides that the cea is not applicable to a hybrid a the issuer of the hybrid instrument receives payment in full of the purchase_price of the hybrid instrument substantially contemporaneously with the delivery of the hybrid instrument b the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase_price paid under subparagraph a whether as margin settlement payment or otherwise during the life of the hybrid instrument or at maturity c the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements and d the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea sec_2 of the cea provides in part that for purposes of sec_2 of the cea mark-to-market margining requirements do not include the obligation of an issuer of a secured debt_instrument to increase the amount of collateral held in pledge for the benefit of the purchaser of the secured debt_instrument to secure the repayment obligations of the issuer under the secured debt_instrument conclusion based on the facts as represented we rule that income and gain arising from the note constitute qualifying_income to funds under sec_851 of the code this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely susan thompson baker susan thompson baker assistant to the branch chief branch office of the associate chief_counsel financial institutions products


t c memo united_states tax_court kenneth d shepherd and martha a gregory petitioners v commissioner of internal revenue respondent docket no filed date kenneth d shepherd and martha a gregory pro_se cathleen a jones for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioners' federal income taxes an addition_to_tax and penalties as follows year deficiency sec_6651 sec_6662 sec_6663 addition_to_tax penalties dollar_figure big_number --- dollar_figure dollar_figure dollar_figure big_number after concessions the issues for decision are whether petitioners are entitled to claim trade_or_business deductions whether petitioners are entitled to claim a bad_debt deduction whether petitioners are liable for the sec_6651 addition_to_tax for whether petitioners are liable for the sec_6663 penalty for fraud and whether petitioners are liable for the sec_6662 accuracy-related_penalty for negligence some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioners resided in tulsa oklahoma on the date the petition was filed in this case petitioner wife worked full time as a librarian at the tulsa city county library after her regular work hours petitioner wife performed limited research services for her brother and at in their petition petitioners failed to addre sec_2 respondent's determinations that they received and failed to report capital_gain on the sale of a mutual_fund in taxable_year interest_income in taxable_year and a state_income_tax refund in taxable_year we deem petitioners to have conceded these items rule b least one other person petitioner husband's claimed training is in the area of chemical engineering and electronics prior to their marriage petitioner husband was involved in developing a golf club cleaning machine made by ree-born industries inc specifically petitioner husband worked on formulating the chemical solution used to clean golf clubs he also negotiated with ree-born industries inc for the rights to market the machine to potential purchasers such as country clubs petitioner husband experienced some financial difficulties in his efforts to market the golf club cleaning machine on date he signed a promissory note in the amount of dollar_figure payable to his current wife martha gregory the promissory note states that the entire debt was to be paid in a lump sum on date together with interest computed at a variable rate no payments were made on the moneys if any advanced to petitioner husband nor did petitioner wife ever request any such payments petitioners were married on date and filed joint federal_income_tax returns for and on those returns petitioners claimed schedule c deductions for alleged losses resulting from their activity in information brokering products services operated under the name of mgo information services petitioners also claimed a capital_loss deduction in the amount of dollar_figure on their return the deduction was claimed as a carry forward of a capital_loss resulting from the write-off by petitioner wife of petitioner husband's alleged indebtedness to her the first issue for decision is whether petitioners are entitled to claim trade_or_business deductions on their and returns for expenses allegedly incurred in their research activities in the notice_of_deficiency respondent disallowed the claimed schedule c deductions upon the grounds that petitioners' research activities were not engaged in for profit and that with the exception of certain expenses for interest and taxes petitioners failed to substantiate the claimed deductions respondent's determinations are presumed to be correct and petitioners bear the burden of proving otherwise rule a 290_us_111 furthermore deductions are strictly a matter of legislative grace and petitioners must demonstrate their entitlement to any deductions claimed rule a 503_us_79 292_us_435 this includes the requirement that petitioners substantiate any deductions claimed 65_tc_87 affd 540_f2d_821 5th cir sec_162 allows a taxpayer to deduct the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business whether an activity constitutes the taxpayer's trade_or_business within the meaning of sec_162 generally depends upon whether the taxpayer's purpose for engaging in the activity is for income or profit and whether the activity is conducted with continuity and regularity 480_us_23 sec_183 disallows any deductions attributable to activities not engaged in for profit except as provided in sec_183 respondent argues that petitioners' research activity was not engaged in for profit and any claimed deductions are subject_to the limitations of sec_183 furthermore respondent contends that petitioners must substantiate any deductions claimed rule a whether a taxpayer engaged in an activity with the primary purpose of making a profit is a question of fact 78_tc_642 affd without published opinion 702_f2d_1205 d c cir sec_1 a income_tax regs while a reasonable expectation of profit is not required taxpayer's profit objective must be bona_fide 88_tc_464 in making this determination the court gives more weight to objective facts than to a taxpayer's mere statement of intent dreicer v commissioner supra pincite sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs provides a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit the factors include the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and whether elements of personal pleasure or recreation are involved petitioners failed to produce books_or_records supporting the existence of a profit-seeking business aside from two personal planning diaries that contained vague notations in addition their income from this activity was sporadic and unsubstantiated at trial petitioner husband was able to recall only three clients during and aside from petitioner wife's brother petitioner husband testified that they received dollar_figure from their research activity from these clients although it was possible that dollar_figure of that amount may have been received during in addition one of the alleged clients did not pay petitioners for services rendered no records were offered to substantiate the billing of these clients or the receipt of payments we are not required to accept the self-serving testimony of taxpayers without further corroborating evidence 87_tc_74 in addition we are particularly troubled by the failure of petitioner wife to testify about the research activity as a full-time librarian for many years petitioner wife likely possessed significant expertise in the field of information retrieval in fact ms helen page the revenue_agent assigned to audit petitioners' returns testified that petitioner husband made several representations that his wife was the sole participant in the research activity although present at trial petitioner wife did not testify in support of petitioners' claim that they operated a research business for profit it may be presumed that her testimony if given would have been unfavorable to petitioners 101_tc_374 ndollar_figure affd without published opinion 40_f3d_385 5th cir 6_tc_1158 affd 162_f2d_513 10th cir after considering the above factors we find that petitioners have failed to prove that they engaged in the research activity with the requisite profit objective necessary to support deductions under sec_162 we hold that petitioners are not entitled to deduct expenses related to their research activity as trade_or_business_expenses under sec_162 because such activity was not engaged in for profit but that such expenditures may be deducted to the extent allowed by the disputed deductions under sec_212 our finding on this point likewise precludes claiming sec_183 where there is no profit objective sec_183 allows only deductions which are allowable independent of profit objective and sec_183 allows other deductions only to the extent that they do not exceed gross_income derived from the activity reduced by the deductions allowable under sec_183 any deductions allowable under sec_183 are to be deducted from adjusted_gross_income in computing taxable_income 66_tc_312 these deductions may be taken only if the taxpayer itemizes his deductions revrul_75_14 1975_1_cb_90 respondent concedes that petitioners have substantiated their house-related expenses for interest and taxes and has allowed petitioners itemized_deductions for the interest and taxes in lieu of the smaller standard deductions claimed by them on their returns petitioners' and schedules c showed gross_income from their research activity in the amounts of dollar_figure and dollar_figure respectively for such taxable years the itemized_deductions in the amounts of dollar_figure and dollar_figure respectively allowed under sec_163 sec_164 and sec_183 exceed the gross_income claimed from petitioners' research activity therefore petitioners are precluded from taking any further deductions for expenses related to such activity even if substantiated sec_183 we therefore sustain respondent's determination on this issue the second issue for decision is whether petitioners are entitled to claim a bad_debt deduction for in the notice_of_deficiency respondent disallowed the claimed bad_debt deduction upon the grounds that petitioners did not establish that a debtor-creditor relationship was intended by the alleged loan and even if such relationship existed petitioners did not establish that the debt was worthless or that any attempt was made to collect the loan as a general_rule sec_166 allows a deduction for any bad_debt that becomes worthless during the taxable_year sec_166 however distinguishes business bad_debts from nonbusiness bad_debts nonbusiness bad_debts may be deducted in the same manner as short-term_capital_losses subject_to the limitations on capital losses as provided in sec_1211 sec_166 sec_1_166-5 income_tax regs nonbusiness_bad_debt means a debt other than a debt created or acquired in connection with a trade_or_business of the taxpayer or a debt the loss from the worthlessness of which is incurred in the taxpayer's trade_or_business sec_166 the use of the borrowed funds by the borrower is of no consequence in making the determination of worthlessness sec_1_166-5 income_tax regs in this case the alleged debt would have been nonbusiness_debt created outside petitioner wife's trade as a librarian the funds were allegedly advanced so petitioner husband would be able to further market the golf club cleaning machine at no time did petitioner wife have any business_interest in the debt a loss from a nonbusiness_debt shall be treated as sustained only if and when the debt becomes totally worthless and no deduction shall be allowed for a nonbusiness_debt which is recoverable in part during the taxable_year sec_1_166-5 income_tax regs whether and when a debt becomes worthless is a question of fact in which all relevant evidence is considered including the full value of the collateral if any securing the debt and the financial condition of the debtor sec_1_166-2 income_tax regs the taxpayer must show that she intended to enforce collection of the debt but some event occurred during the taxable_year in which the deduction is sought that rendered the debt uncollectible 88_tc_122 affd 866_f2d_852 6th cir although the taxpayer need not resort to legal action she must show that the debt became worthless in the year the debt is claimed sec_1_166-2 income_tax regs respondent argues that the date promissory note did not create a bona_fide debt since there is no evidence that anything of value was received by petitioner husband in consideration of his promise to pay in the alternative respondent contends that if there was a bona_fide debt petitioners have not shown that such debt became wholly worthless in or after considering all of the relevant facts we find that regardless of whether the promissory note signed by petitioner husband created a bona_fide debt petitioners have not shown that the debt became totally worthless in or the record contains no evidence of any attempts by petitioner wife to enforce repayment of the loan although petitioners were not married at the time petitioner husband signed the loan agreement their marriage only months after the debt's repayment date indicates that petitioner wife decided not to collect an otherwise collectible debt from her new husband see 54_tc_170 in the absence of any credible proof supporting a finding that the loan became uncollectible in or we find that petitioners failed to carry their burden in that respect petitioner husband testified that the loan was incurred to finance his marketing of the golf club cleaning machine and his failure to sell any of these units foreclosed any chance that he would be able to repay the loan thus making it worthless there we note that the original claim for a bad_debt deduction was in a taxable_year not before the court this case concerns only petitioners' claimed bad_debt deduction in our decision controls the deductibility of the debt in regardless of whether the debt first became worthless in or is no evidence in the record to support this contention and we reject it we sustain respondent's determination on this issue the third issue for decision is whether petitioners are liable for the sec_6651 addition_to_tax for failure to timely file their federal_income_tax return sec_6651 imposes an addition_to_tax for the failure to timely file a return unless the taxpayer establishes the failure did not result from willful neglect and the failure was due to reasonable_cause willful neglect has been interpreted to mean a conscious intentional failure or reckless indifference 469_us_241 reasonable_cause requires the taxpayer to demonstrate that he exercised ordinary business care and prudence and was nonetheless unable to file a return within the prescribed time united_states v boyle supra pincite the addition_to_tax equal sec_5 percent of the tax required to be shown on the return for the first month with an additional percent for each additional month or fraction of a month during which the failure_to_file continues not to exceed a maximum of percent sec_6651 petitioner husband claims that petitioners timely filed their federal_income_tax return because of the extensions approved by respondent petitioners' return was filed with respondent on date petitioners' form_2688 attached to their return shows that respondent approved an extension only until date petitioners have offered no evidence that they were granted any further extension of time since no explanation for the lateness of their filing was offered we hold that petitioners have not proved that their failure to timely file was due to reasonable_cause rather than willful neglect accordingly we sustain respondent on this issue the fourth issue for decision is whether petitioners are liable for the sec_6663 penalty for fraud for each of the years in issue respondent determined that petitioners were liable for the fraud_penalty for underpayments attributable to disallowed deductions for household-related business_expenses sec_6663 provides that if respondent establishes that any part of any underpayment_of_tax required to be shown on a return is due to fraud the entire underpayment shall be treated as attributable to fraud and subjected to a percent penalty unless the taxpayer establishes by the preponderance_of_the_evidence that some part of the underpayment is not attributable to fraud respondent must establish by clear_and_convincing evidence an underpayment_of_tax by the taxpayer and that some part of the underpayment is due to fraud section we note that in the notice_of_deficiency respondent determined that only the portion of each underpayment resulting from the disallowed household expenses is attributable to fraud therefore we need consider the fraud issue only with regard to that portion of each underpayment a rule b 102_tc_632 98_tc_511 since we have already decided that petitioners underpaid their federal income taxes in and we need only address the issue of whether a part of that underpayment is due to fraud fraud is established by proving that a taxpayer intended to evade tax believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection of such tax clayton v commissioner supra pincite direct evidence of the requisite fraudulent intent is seldom available but fraud may be proved by examining circumstantial evidence indicative of the taxpayer's motives 91_tc_874 over the years courts have developed various factors or badges which tend to establish the existence of fraud see clayton v commissioner supra pincite respondent contends that petitioners fraudulently attempted to evade the payment of tax by misrepresenting that their personal_residence pincite zunis avenue was a property used exclusively for business purposes petitioners maintain that although petitioner wife did live at that residence at one time she and petitioner husband moved out of that house prior to the taxable years in issue we find that respondent has clearly and convincingly proven that petitioners fraudulently claimed zunis avenue as business property in an attempt to evade paying income_tax mr bryan kinney owner of the garage apartment that petitioners claimed as their personal_residence testified that petitioners never lived in such apartment in addition when initially asked by ms page respondent's auditing agent petitioner wife refused to answer the simple question of where she lived finally both petitioner wife's and forms w-2 show her home address as zunis avenue these factors among others convince us that petitioners did use such address as a personal_residence petitioners have presented no credible_evidence refuting this finding we therefore sustain respondent's determination that petitioners are liable for the fraud_penalty for that portion of the underpayment attributable to disallowed household-related expenses which petitioners claimed as business deductions the fifth issue for decision is whether petitioners are liable for the sec_6662 accuracy-related_penalty for negligence respondent's determination of negligence is presumed to be correct and petitioners bear the burden of proving that the penalty does not apply rule a 290_us_111 58_tc_757 sec_6662 imposes a 20-percent penalty on the portion of the underpayment attributable to any one of various factors one of which is negligence or disregard of rules or regulations sec_6662 respondent determined that petitioners are liable for the accuracy-related_penalty imposed by sec_6662 for the portion of the underpayment not related to the house-related expenses and that such portion of the underpayment_of_tax was due to negligence or disregard of rules or regulations negligence includes a failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax_return sec_6662 sec_1_6662-3 income_tax regs disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 sec_1_6662-3 income_tax regs however sec_6664 provides that the penalty under sec_6662 shall not apply to any portion of an underpayment if it is shown that there was reasonable_cause for the taxpayer's position with respect to that portion and that the taxpayer acted in good_faith with respect to that portion the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer's effort to assess his proper tax_liability for the year id based on the record we find that petitioners have not proved that any part of the underpayment for either of the years in issue was due to reasonable_cause or that they acted in good_faith accordingly we hold that petitioners are liable for the sec_6662 accuracy-related_penalty as determined by respondent to reflect the foregoing decision will be entered for respondent


internal_revenue_service p o box cincinnati oh number release date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil x scholarship program y scholarship program public school district z dollar amount u v quantity w quantity x z dollar amount dollar amount dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 your letter indicates that you will operate two grant making program x and y the purpose of x is to award scholarships to students who will attend college a university or vocational school after graduating from high school in z you will award scholarships to eligible recipients who without financial help would find it extremely difficult or would be unable to attend a higher learning institute to be eligible for x applicants must have attended a school in z for their entire senior year of high school as either a full-time_student or a part-time student if they are also taking college classes the applicants must also maintain a grade point average of and if requested submit copies of both their income_tax returns and those of their parents moreover they may be requested to submit a list of personal and parental assets and liabilities because more than of students in z qualify for free reduced lunches z qualifies as a title poverty level school therefore the financial need of the applicants is not an issue that has needed to be addressed as all applicants have financial need you reserve the right to use student parent tax returns along with lists of liabilities and assets to determine which applicants would have the greatest financial need to apply for x students must complete an application form submit a certified academic transcript submit three letters of recommendation from current or recent teachers or professors and provide a written_statement explaining why you should grant them the scholarship you will give out scholarship announcements and scholarship applications to each member of the senior class you will also distribute announcements through the office of the school counselor and through the office of the superintendent the selection committee for x will consist of three retired individuals who are supporters of both public education and higher education if a relative of the selection committee applies for a scholarship the committee member will abstain from the decision-making process pertaining to that particular applicant the criteria for selecting scholarship grant recipients is based strictly on academic needs and advancements the individual applicant's desire to further his her education the recipient's personal narrative and overall academic record all scholarships are awarded on an objective and non-discriminatory basis the amount of each of x’s scholarship award is dollar_figureu per year approximately v will be eligible to apply and approximately w scholarships will be awarded the selection committee will receive verification of enrollment for each scholarship recipient from the college university vocational school the student will attend before any funds are disbursed scholarship funds will be made payable jointly to the institution of higher learning and the student to insure that funds are used appropriately one-half the scholarship award is paid in the first semester in order to use the second semester funds a student must maintain a gpa for the first semester of college or the first half of training in a vocational field basis per semester rather than long term it is easier to follow-up on award recipients if the committee discovers a misuse of award funds further funding will be withheld from the recipient under certain circumstances recipients maybe asked to repay a portion of the scholarship funds received because scholarships are disbursed on a short-term the purpose of the other grant making program y is to award scholarships to teachers employed by z who wish to pursue a masters or doctorate degree to be eligible to apply for y the applicants must be currently employed by z and have been employed by z for a minimum of years before applying for the scholarship the applicants must submit an application along with a written_statement explaining why you should grant them the scholarship and explaining how the scholarship would benefit the students of z the applicants must also submit three letters of recommendation from their current employer co-workers or professors and a certified copy of their most recent academic transcript moreover the applicants must provide a current statement of assets and liabilities in addition the applicants may be requested to submit a copy of their most recent tax_return the selection committee for y will also consist of three retired individuals who are supporters of both public education and higher education if a relative of the selection committee applies for a scholarship the committee member abstains from the decision- making process pertaining to that particular applicant all scholarships are awarded on an objective and non-discriminatory basis the determination of the scholarship will be based on the applicants’ written explanations the applicants’ statements of need and availability of funds the annual scholarship award for y is x one-half of this amount will be paid in the first semester in order to use the second semester funds a recipient must maintain a gpa provide an updated official transcript at the end of each semester and provide proof of enrollment at the beginning of each semester in addition the maximum amount of funds a recipient may receive during a four-year period is z the maximum amount reimbursed for a master’s or doctorate degree will be z furthermore scholarship funds are made payable jointly to the institution of higher learning and the recipient insuring that funds are used appropriately in addition scholarships are disbursed on a short-term basis per semester rather than long term so it is easier to follow-up on award recipients if the committee discovers a misuse of award funds further funding will be withheld from the recipient under certain circumstances recipients may be asked to repay a portion of the scholarship funds received for both x and y you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the scholarship was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other scholarship funds held by a grantee are used for their intended purposes and withhold further payments to grantees until they obtain assurance that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you also agree to maintain records that include the following i ii identification and qualifications of potential grantees all recipient reports and other follow-up data obtained in administering x and y sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii iii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records if you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois lerner director exempt_organizations


significant index no department of the treasury internal_revenue_service washington d c - tax_exempt_and_government_entities_division nov get ep real re substitute mortality_table ruling taxpayer plan this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for the plan has been granted with respect to the populations specified in this letter effective for a period of plan years beginning with the plan_year commencing january your request has been granted in accordance with sec_430 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 e e - dear specifically this approval applies to the following populations male annuitants including disabled participants female annuitants including disabled participants male nonannuitants female nonannuitants - calculations under sec_430 of the code e e in granting this approval we have only considered whether the substitute mortality rates were developed correctly in accordance with sec_1_430_h_3_-2 of the income_tax regulations the regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request based on the information you provided the following populations do not have credible mortality experience and therefore the standard mortality tables will be used for permission is hereby granted to use the substitute mortality rates shown in the tables below for the plan approved for use beginning with the plan_year commencing january substitute mortality tables base_year male female _annuitants annuitants age male female annuitants annuitants age male age annuitants female annuitants male female age annuitants annuitants through december the above rates were developed based on an experience study period from january calculated by adjusting the applicable standard mortality tables in sec_1 h - d of the regulations indicated in the table below using the mortality ratio and credibility weighting factor determined by aggregating male and female experience as shown in the table below with a base_year of the rates were male annuitants female annuitants mortality ratio credibility weighting factor the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were correctly developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of sec_1_430_h_3_-2 of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under sec_430 of the code and sec_1_430_h_3_-1 of the regulations other than annual updates to the static mortality tables issued pursuant to sec_1_430_h_3_-1 of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have sent a copy of this letter to your authorized representatives pursuant to a power_of_attorney on file in this office and to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contact id at sincerely cc david m ziegler manager employee_plans actuarial group