id office uilc cca-113144-09 -------------- number release date from ------------------ sent pm to --------------------- cc -------------- subject façade easement - appeals training materials the attached slides are the ones i sent you the end of november but they now have more on penalties per your request i think you were right -- they needed more on penalties the penalty slides were prepared by ------ please let us know if there is anything you want to discuss attachment charitable_contributions of façade easements sec_170 topics charitable_contributions in general charitable_contribution of a façade easement substantiation valuation penalties typical issues note all references to code sections are to the internal_revenue_code and all references to regulations are to the income_tax regulations charitable_contributions in general overarching sec_170 requirements to be deductible under sec_170 there must be - a transfer - of property or money - to a qualified donee - with charitable intent and without receipt of economic - of the donor’s entire_interest in property there are benefit exceptions to this rule - proper substantiation see pub charitable_contributions charitable_contribution of a façade easement what is an easement an easement is a non-possessory interest in the real_property of another not a mere contract right most conservation easements are negative easements in gross what is a façade easement a type of conservation_easement which may qualify as a charitable_contribution under sec_170 a restriction on making changes to the exterior of a historical structure a partial interest in property an exception to the sec_170 entire_interest rule sec_170 when is a façade easement deductible to be deductible a façade easement must be a qualified_conservation_contribution sec_170 qualified_conservation_contribution a contribution - -- of a qualified_real_property_interest -- to a qualified_organization -- exclusively for conservation purposes sec_170 sec_1_170a-14 qualified_real_property_interest a façade easement is a qualified_real_property_interest if it meets the conservation_purpose of - the preservation of a certified_historic_structure see sec_170 qualified_real_property_interest cont’d certified_historic_structure a certified_historic_structure means - any building structure or land area which is listed in the national register or any building which is located in a registered_historic_district as defined in sec_47 and is certified by the secretary of the interior to the secretary as being of historic significance to the district must be so designated at time of transfer or on due_date including extensions of return for taxable_year transfer is made sec_170 qualified_organization a qualified_organization or eligible donee must be- - governmental_unit - publicly-supported charity or - support organization described in sec_509 that is controlled by a governmental_unit or a publicly supported charitable_organization eligible donee must have the commitment to protect the conservation purposes and the resources to enforce the restrictions sec_170 sec_1_170a-14 pub provides list of exempt_organizations conservation_purpose historical preservation visual access by public - some visual access is required - if not visible from public way terms of easement must give public regular opportunities to view property - see sec_1_170a-14 v for factors and examples exclusively for conservation_purpose no inconsistent use - - no deduction if contribution would accomplish one conservation_purpose while permitting destruction of another significant conservation interest - however a destructive inconsistent use is allowed if the use is necessary for the protection of the conservation_purpose of the easement sec_1_170a-14 exclusively for conservation_purpose cont’d in perpetuity conservation_purpose must be protected in perpetuity sec_170 h any retained_interest in property by donor and or donor’s successor_in_interest must be subject_to legally enforceable restrictions - for example the deed of easement should be recorded in state land records the transfer must be complete under state law - language of deed must adequately protect the conservation_purpose and its exclusivity - remote future event does not defeat perpetuity requirement 170a-14 g deed must restrict donee transfers sec_1_170a-14 exclusively for conservation_purpose in perpetuity cont’d note that the in perpetuity requirement is in addition to the exclusively for conservation_purpose requirement see sec_170 sec_1_170a-14 g mortgagee must subordinate its rights in the property to the right of the donee organization to enforce the conservation_purpose in perpetuity sec_1_170a-14 extinguishment of easement conservation_purpose can still be protected in perpetuity if -- - extinguished by judicial proceeding and - sale proceeds used by donee org consistent with conservation_purpose - sec_1_170a-14 special rule for façade easements added by pension_protection_act ppa effective for contributions after façade easement not considered exclusively for conservation_purpose unless it -- includes a restriction that preserves the entire exterior of the building including the front sides rear and height of the building and prohibits any change inconsistent with historical character special rule for façade easements cont’d donor and donee must enter written_agreement certifying under penalty of perjury that donee -- - is qualified donee with a purpose of historic preservation and - has the resources to manage and enforce restriction and commitment to do so special rule for façade easements cont’d for contributions made in a tax_year beginning after t must include with tax_return - - qualified_appraisal within meaning of sec_170 - photos of entire exterior of building - description of all restrictions on development of building sec_170 special rule for façade easements cont’d dollar_figure filing fee no deduction allowed for charitable_contribution of façade easement if claimed deduction is more than dollar_figure unless t pays dollar_figure filing fee with the return effective for contributions made on or after date days after sec_170 substantiation substantiation deduction only if verified under regulations sec_170 specific requirements are set forth in f and sec_1_170a-13 deduction can be disallowed if not met proposed_regulations issued date incorporate recent legislative changes see reg-140029-07 2008_40_irb_828 see also pub charitable_contributions - substantiation and disclosure requirements substantiation requirements contemporaneous written acknowledgment cwa from the donee irs form_8283 qualified_appraisal qualified_appraiser content of cwa description but not value of donated property the façade easement whether the donee provided any goods or services in exchange for the donation and if so a description and good_faith estimate of the value of goods or services provided by the donee cwa cont’d contemporaneous cwa is contemporaneous if obtained by t on or before the date the t files a return for the year in which the contribution is made or the due_date including extensions of such return sec_170 sec_1_170a-13 form appraisal_summary if deduction is more than dollar_figure but not more than dollar_figure - form_8283 section a if deduction is more than dollar_figure - form_8283 section b appraisal_summary and - qualified_appraisal required if deduction is more than dollar_figure - form_8283 section b appraisal_summary - must also attach qualified_appraisal to return for contributions made after sec_170 c and d note that under the special rule for façade easements for façade easement contributions made in a taxable_year beginning after a qualified_appraisal must be attached to tax_return for any amount of deduction h b iii i see slide form_8283 cont’d appraisal_summary section b date of the contribution fair_market_value detailed description of property how and when obtained cost or other basis name address tin of appraiser donor donee declaration of appraiser signed and dated by donee and appraiser donee signature acknowledges - qualified_organization - receipt of property and date - form_8282 if disposition within years - unrelated use question qualified_appraisal timing appraisal must be made -- no earlier than days before contribution and no later than due_date including extensions of return sec_1_170a-13 qualified_appraisal content detailed description and physical condition of property date of contribution terms of any agreement or understanding related to use or disposition of property name and qualifications of appraiser prepared for income_tax purposes date property appraised appraised fair_market_value_method of valuation specific basis for valuation sec_1_170a-13 qualified_appraiser appraiser must declare on appraisal_summary that he or she -- - holds self out as appraiser or regularly performs appraisals - is qualified by experience education etc to value type of property being valued - understands sec_6701 civil penalty for aiding understatement_of_tax sec_1_170a-13 for returns filed after date the declaration required under sec_1_170a-13 must include an additional statement that the appraiser understands that a substantial or gross_valuation_misstatement resulting from an appraisal of the value of property that the appraiser knows or reasonably should have known would be used in connection with a return or claim_for_refund may subject the appraiser to a civil penalty under sec_6695a notice_2006_96 qualified_appraiser cont’d donor’s knowledge that appraisal exceeds fmv can disqualify appraiser for that donation sec_1_170a-13 appraiser cannot be donor donee person who sold or gave property to donor - cannot be agent related_person or employee - cannot be regularly used by donor must perform majority of appraisals for others fee cannot be based on percentage of appraised value sec_1_170a-13 pension_protection_act of applies to returns filed after new requirements for qualified_appraisal and qualified_appraiser - appraisal must be conducted by qualified_appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the secretary sec_170 ppa new requirements cont’d qualified_appraiser - has earned appraisal designation from recognized professional appraiser organization or has met requirements in regulations - regularly performs appraisals for compensation - must demonstrate verifiable education and experience in valuing the type of property subject_to the appraisal and - has not been prohibited from practicing before the irs any time in prior years sec_170 effective for returns or submissions filed after notice_2006_96 section dollar_figure - provides transitional guidance after ppa and before regulations issued - appraisal treated as qualified if it complies with existing regulations if consistent with ppa and - is conducted by qualified_appraiser in accordance with generally accepted appraisal standards - appraisal will be treated as satisfying generally accepted appraisal standards if for example appraisal is consistent with substance and principles of uspap notice_2006_96 cont’d sections dollar_figure dollar_figure qualified_appraiser treated as meeting new requirements of sec_170 if - appraisal designation awarded on basis of demonstrated competency in valuing type of property for which appraisal performed appraiser makes written declaration that background experience education and membership in professional associations qualifies him or her to appraise this type of property appraiser has minimum experience for appraisals of real_property if -- for returns filed on or before meets requirements of existing regulations for returns filed after is licensed or certified for type of property being appraised in state of property location penalty declaration for returns filed after appraiser must make written declaration of knowledge of new sec_6695a civil penalty additional ppa changes affecting façade easements deduction up to of t’s contribution_base carryover of deduction for up to years effective for contributions made after date through date sec_170 notice_2007_50 termination_date extended to by food conservation and energy act of valuation fair_market_value general_rule fmv is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_1_170a-1 if property is ltcg deduction is generally but not always fmv otherwise reduce by appreciation sec_170 see pub determining the value of donated property comparable façade easement sales if substantial record of sales of façade easements comparable to donated easement exists then fmv should be based on the sales prices of those easements sec_1_170a-14 before and after test if no record of façade easement sales use before and after test sec_1 170a- h i but test not applied mechanically s rept no 1980_2_cb_599 fmv of easement is difference between fmv of property before granting of restriction and fmv of property after granting of restriction two appraisals are required if donor receives a benefit from the transfer - may be no deduction - deduction only for excess if granting of restriction increases value of any other_property owned by donor or related_party as defined in sec_267 amount of deduction is reduced by that amount sec_1_170a-14 ii sec_1_170a-14 examples whitehouse v commissioner t c no date use of comparable sales_method before value highest_and_best_use value of the property before the contribution is based on the highest_and_best_use of the property in its current condition unrestricted by the easement highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future 292_us_246 before value must take into account such factors as -- - current use of the property - objective assessment of how immediate or remote the likelihood is that the property absent the restriction would be developed - any effect from zoning conservation or historic preservation laws that already restrict the property’s highest_and_best_use sec_1_170a-14 before value highest_and_best_use cont’d special suitability of property for a particular use may be relevant must be a reasonable probability that the property would be so used in the reasonably foreseeable future realistic objective potential uses must be determined not a fantasy test before value highest_and_best_use cont’d intent of the particular donor not at issue realistic assessment of what a reasonable owner would do with the property to put it to its best use schwab v commissioner tcmemo_1994_232 87_tc_389 after value parties often agree on after value in some cases the conservation_easement will have no material effect on value or may enhance rather than reduce value no deduction is allowable for an easement that has no value sec_1_170a-14 after value cont’d local ordinances often there are local ordinances restricting use and changes to façade compare easement to any existing restrictions on property read deed of easement carefully easement should be valued only to extent easement restriction is more stringent than other restrictions already on property sec_1_170a-14 ii no safe_harbor no percentage reduction some literature erroneously states that irs will accept reduction in value of property as facade easement valuation tax_court façade easement valuation cases during 1980’s often were in that range cca issued date irs will not accept appraisal to substantiate fmv of façade easement if the appraisal merely values entire fee before contribution and applies percentage reduction appraisal must do full valuation both before and after contribution there is no safe_harbor no percentage reduction fmv is facts and circumstances see nicoladis v commissioner tcmemo_1988_163 reduction in contribution amount for rehabilitation_credit added by ppa effective for contributions after if during preceding years t received a rehabilitation_credit under sec_47 for the building amount of deduction must be reduced by the following ratio -- sum of credits fmv of building on date of contribution sec_170 penaltie sec_47 potential civil penalties accuracy related penalty under sec_6662 tax_return_preparer penalties under sec_6694 appraiser penalties under sec_6695a aiding_and_abetting understatement_of_tax liability under sec_6701 notice_2004_41 accuracy related penalty sec_6662 taxpayers may be subject_to an accuracy-related_penalty if they have an underpayment_of_tax required to be shown on a return this penalty applies in relevant part to any portion of an underpayment that is attributable to -- negligence or disregard of rules or regulations -- any substantial_understatement_of_income_tax -- any substantial_valuation_misstatement under chapter -- any substantial estate or gift_tax valuation misstatement reasonable_cause exception sec_6664 special rule for certain valuation overstatements with respect to charitable_deduction_property the reasonable_cause and good_faith exception to the sec_6662 accuracy-related_penalty does not apply to any underpayment attributable to a substantial or gross_valuation_overstatement unless -- the taxpayer shows that the claimed value of the property was based on a qualified_appraisal made by a qualified_appraiser and in addition to getting the appraisal the taxpayer made a good_faith investigation of the value of the contributed_property sec_6664 whitehouse hotel ltd partnership v commissioner t c no date sec_6662 accuracy-related_penalty applied taxpayer-partnership’s valuation of façade easement was gross_valuation_misstatement sec_6664 reasonable_cause exception did not apply taxpayer had obtained qualified_appraisal by qualified_appraiser but taxpayer-partnership did not make good_faith investigation of value as required by c no taxpayer-partner with personal knowledge made any showing of investigation tax_return_preparer penalties sec_6694 a tax_return_preparer may be subject_to a penalty for understatement of taxpayer’s liability on a return or claim_for_refund due to an unreasonable position or willful or reckless conduct unreasonable position sec_6694 imposes a penalty on a tax_return_preparer who prepares a return or claim_for_refund reflecting an understatement_of_liability due to an unreasonable position if the tax_return_preparer knew or reasonably should have known of the position a position is unreasonable unless i there is or was substantial_authority for the position or ii the position was properly disclosed and had a reasonable basis no penalty is imposed however if it is shown that there is reasonable_cause for the understatement and the tax_return_preparer acted in good_faith tax_return_preparer penalties sec_6694 cont’d willful or reckless conduct -- sec_6694 imposes a penalty on a tax_return_preparer who prepares a return or claim_for_refund if any part of an understatement_of_liability was due to a willful attempt in any manner by an income_tax_return_preparer to understate the liability for tax on the return or claim or any reckless or intentional disregard of rules or regulations by a tax_return_preparer appraisers and sec_6694 an appraiser may be subject_to penalties under sec_6694 as a non- signing_tax_return_preparer if the appraisal is a substantial portion of the return or claim_for_refund and the applicable standards of care under sec_6694 are not met the irs has discretion to impose the sec_6694 and sec_6695a penalties in the alternative against an appraiser depending on the facts and circumstances of the appraiser’s conduct the irs however will not stack the penalties under sec_6694 and sec_6695a with respect to the same conduct a separate regulation will provide guidance under sec_6695a see preamble to tax_return_preparer penalty final regulations fed register appraiser penalties sec_6695a a penalty may be imposed under sec_6695a if -- a person prepares an appraisal of the value of property and such person knows or reasonably should have known that the appraisal would be used in connection with a return or a claim_for_refund and the claimed value of the property on a return or claim_for_refund which is based on such appraisal results in a substantial_valuation_misstatement a substantial_estate_or_gift_tax_valuation_understatement or a gross_valuation_misstatement effective for returns involving an appraisal of a façade easement ppa e aiding_and_abetting understatement_of_tax liability sec_6701 a penalty may be imposed under sec_6701 on any person -- who aids or assists in procures or advises with respect to the preparation or presentation of any portion of a return affidavit claim or other document who knows or has reason to believe that such portion will be used in connection with any material matter arising under the internal revenue laws and who knows that such portion if so used would result in an understatement of the liability for tax of another person notice_2004_41 in certain transactions involving conservation easements where taxpayers are improperly claiming charitable_contributions under sec_170 the service may -- impose penalties under sec_6662 disallow all or part of any improper deductions assess excise_taxes under sec_4958 against any disqualified_person who receives an excess_benefit from a conservation_easement transaction and against any organization_manager who knowingly participates in the transaction challenge the tax-exempt status of the organization review promoters of conservation_easement transactions promoters appraisers and other persons may be subject_to penalties under sec_6700 sec_6701 practical tips look for the following- - legally-required substantiation can disallow entire deduction if not properly substantiated - sec_170 statement cwa - properly completed form_8283 - is donee qualified commitment resources - qualified_appraisal qualified_appraiser - valued using before and after test - was the taxpayer’s use of the property already restricted by local ordinances - easement language in perpetuity inconsistent uses - is easement recorded - subordination by mortgagee - any quid pro quo received by donor


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa cbs b03 wdbrackett postf-115404-05 uilc date july to associate area_counsel - greensboro small_business self employed cc sb gbo from senior technician reviewer branch subject collection bankruptcy and summonses cc pa cbs interest on erroneous refunds this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issues whether the refunds were erroneous whether sec_6602 interest is assessable whether the irs has discretion to abate sec_6602 interest on refunds in excess of dollar_figure conclusions the refunds were erroneous sec_6602 interest is assessable postf-115404-05 the irs has discretion to abate sec_6602 interest on refunds in excess of dollar_figure facts employees were shifted among corporations that were members of a consolidated_group the corporations filed employment_tax returns which for the group in total agreed with the total of forms w-2 issued within the group but there were discrepancies between form sec_941 of individual corporations and the forms w-2 issued by those corporations the common parent on behalf of the member corporations sought by amended employment_tax returns to correct the discrepancies by rearranging the liabilities and reapplying payments producing reductions in liabilities for some of the corporations that were to be abated and increases for other corporations that were to be assessed the common parent submitted all of the amended returns as one pack age with the direction that they be processed together the common parent directed the irs to move the payments from the corporations whose liabilities were abated to the corporations whose liabilities were increased the irs however did not do so instead refunding the payments freed-up by the abatements the refund checks were cashed but shortly thereafter in response to bills for the assessments the refunds were fully repaid two of the refunds each exceeded dollar_figure law and analysis erroneous refunds the refunds were contrary to the common parent’s direction to apply the funds freed-up by the abatements to the assessments of increased liabilities the direction was clear made by an authorized person common parent and in regard to a designation of a credit originally received as a voluntary payment the irs should not have disregarded the direction note this response does not address the effective date to be given the application of each payment to the entity with the assessed liability for these reasons the refunds were erroneous the method of correction is to enter the funds on the accounts as the parent company directed that is move the funds from the account where they became an overpayment to the account with the assessments this will leave an erroneous refund on each account from which refunds originated the origination account will bear a transfer to the designated account and an erroneous refund both in the same amount sec_6602 interest assessable sec_6201 assessment authority in sec_6201 defines taxes which the secretary is required to assess to include interest also is in the same subchapter underpayment interest a sec_6601 and uses the same rates determined in consistent with these provisions sec_6404 states the secretary shall abate the assessment of all interest on any erroneous refund under sec_6602 based on the foregoing sec_6201 make sec_6602 interest assessable like a tax the period for the assessment of sec_6602 interest is limited by the erroneous refund_suit period of sec_6532 sec_6602 interest is collectable during the erroneous refund_suit period by suit voluntary postf-115404-05 repayment or offset in this context the function of the assessment is to put the liability for the interest on the service’s books to provide a liability to hold postings of payments in the account discretion to abate sec_6602 interest on refunds exceeding dollar_figure congress enacted sec_6404 to provide the service with flexibility in abating interest that accrued because of the service’s own errors or delays h_r rep no 99th cong 2d sess s rep no 99th cong 2d sess under sec_6404 interest under shall be abated until the demand for repayment is made unless the erroneous refund exceeds dollar_figure that mandatory abatement provision does not explicitly address discretion to abate interest on erroneous refunds that exceed dollar_figure the legislative_history cited above however states t he bill gives the irs authority to abate interest but does not mandate that it do so except that the irs must do so in cases of certain erroneous refunds of less than now dollar_figure see also h_r rep no id pincite s rep no id pincite conf_rep no 99th cong 2d sess ii-810 ii-811 on balance the limitations in sec_6404 only limit the erroneous refunds subject_to the mandatory interest abatement rule the legislative_history of sec_6404 evidences a desire to afford the service authority to abate interest accrued because of service errors or delays it would be inconsistent with the purposes underlying sec_6404 to read the limitations in sec_6404 as precluding the exercise of discretionary abatement where the amount of the erroneous refund exceeds dollar_figure the parameters of the service’s discretion are not defined in sec_6404 some facts and circumstances relevant to determining whether abatement would be consistent with the legislative intent are whether taxpayer failed to return the erroneous refund for a significant period of time after discovery of the error or after taxpayer reasonably should have discovered the error whether taxpayer returned the erroneous refund before the service notified the taxpayer of the error whether the taxpayer is sophisticated in tax or business matters and whether the taxpayer contributed to the error or delay this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br1-plr-135861-02 date date ty a date b country c date d dear this is in response to your letter dated date requesting a ruling that a’s renunciation of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a was born on date b in country c to a u s citizen a renounced his u s citizenship on date d a will be subject_to country c tax on his worldwide income on the date of a's expatriation his net_worth exceeded the applicable_amount set forth in sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the plr-135861-02 taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen or former u s long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because he became at birth a citizen_of_the_united_states and country c and he continues to be a citizen of country c a submitted all of the information required to be submitted by notice_97_19 as modified by notice_98_34 including additional information requested by the service after review of the submission accordingly based solely on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have had as one of his principal purposes for expatriating the avoidance of u s taxes we further conclude that a will not be treated under sec_877 as having had as one of his principal purposes for expatriating the avoidance of u s taxes plr-135861-02 because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle a or b of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a's u s tax_liability for the taxable years prior to or after his expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return 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 a power_of_attorney on file in this office a copy of this letter will be sent to a sincerely _______________ w edward williams senior technical reviewer cc intl br1


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-111433-03 date june x country date dear this letter responds to a letter dated date written on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x is a country entity x represents that as of date x converted into an entity that is eligible to elect under sec_301 c to be a partnership for federal_income_tax purposes however the form_8832 entity classification election inadvertently was not timely filed law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 plr-111433-03 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic_extension 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the election except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-111433-03 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the first and second listed authorized representatives sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury washington dc index number number release date person to contact telephone number refer reply to cc dom p si - plr-103035-00 date date x a b c d e d1 year year year year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x incorporated on d1 of year a b c and d the shareholders of x intended for x to be an s_corporation beginning in year its first taxable_year a represents that x relied on its attorney to file all the necessary forms for x to become an s_corporation in year however a form_2553 election by a small_business_corporation on behalf of x was not timely filed for year x’s corporate minutes reflect x’s intent to be an s_corporation for year year year and year x filed form_1120s u s income_tax return for an s_corporation and a b c d and e filed form_1040 u s individual_income_tax_return consistent with x being an s_corporation ms katherine l allen sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines acting branch chief branch office of the 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 third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ------------------- telephone number ---------------------- refer reply to cc ita b04 plr-119986-14 date date ty ------- legend taxpayer ----------------------------------------------- year year firm ------- ------- --------------------------------------- dear ------------------ this letter responds to your request for an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_108 of the internal_revenue_code specifically you have requested an extension of time to make an election under sec_108 and sec_1_108-5 of the income_tax regulations to exclude income resulting from the discharge of qualified_real_property_business_indebtedness and to reduce the basis of depreciable real_property effective for taxpayer’s year return facts taxpayer an individual uses the cash_method_of_accounting and has a calendar_year as an annual_accounting_period taxpayer is a partner in various real_estate partnerships partnerships which are calendar year-end partnerships that file their tax returns using the accrual_method of accounting taxpayer’s business operations involve the acquisition development construction sale leasing and management of commercial real_estate properties during year partnerships restructured debt the partnerships hired firm to prepare their tax returns for year after informing firm of the restructured debt firm plr-119986-14 concluded that partnerships realized cancellation of debt cod income firm prepared the federal_income_tax returns for the partnerships and reported the cod income on the partnerships’ tax returns and respective k-1 schedules for each of the affected partnerships taxpayer also hired firm to prepare taxpayer’s federal_income_tax return for year taxpayer reasonably relied on firm with the understanding firm also prepared the partnerships’ year tax returns taxpayer provided firm with partnerships’ schedule k-1s in order to prepare taxpayer’s federal_income_tax return for year firm did not file form_982 with taxpayer’s tax_return or advise taxpayer about the opportunity to exclude cod income reported on the k-1’s from the partnerships as qualified_real_property_business_indebtedness taxpayer timely filed the year federal_income_tax return taxpayer obtained different tax advisers in year these advisers indicated that taxpayer may have been able to exclude the cod income under sec_108 and advised taxpayer to file a request for an extension of time to make the election under sec_108 taxpayer terminated taxpayer’s relationship with firm and filed this request taxpayer represents that granting relief under sec_301_9100-3 will not result in a lower tax_liability in the aggregate for all years to which the election applies than the taxpayer would have had if the election had been timely made taxpayer also represents that the failure to make the election has not been discovered by the service applicable law sec_108 provides that gross_income does not include any amount that would be included in gross_income by reason of the discharge_of_indebtedness if in the case of a taxpayer other than a c_corporation the indebtedness discharged is qualified_real_property indebtedness sec_108 provides that the amount excluded from gross_income is applied to reduce basis of the depreciable real_property of the taxpayer sec_108 requires a taxpayer to make an election to have sec_108 apply sec_108 provides that in the case of a partnership sec_108 and sec_108 apply at the partner level sec_1_108-5 provides that the election under sec_108 is made on the timely-filed including extensions federal_income_tax return for the taxable_year in which the taxpayer has discharge_of_indebtedness income that is excluded from gross_income under sec_108 the election is made on a completed form_982 in accordance with that form and its instructions plr-119986-14 sec_301_9100-1 through sec_301_9100-3 provide the standards that the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic extensions covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the service or reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election a taxpayer will not be considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or aware of all the relevant facts under sec_301_9100-3 a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer- i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was fully informed of the required election and related tax consequences but chose not to file the election or 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 provides that the service will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief 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 sec_301_9100-3 provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable_year that would have been affected by the election had it been timely made are closed by the period of limitation on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section plr-119986-14 based on the information submitted by taxpayer we conclude that taxpayer acted reasonably and in good_faith under sec_301_9100-3 and the interests of the government will not be prejudiced by the granting of relief under sec_301_9100-3 conclusion accordingly based solely on the information submitted and the facts represented in the ruling_request and provided that the operating division director does not determine that taxpayer is subject_to an accuracy-related_penalty under sec_6662 we grant taxpayer an extension of days from the date of this letter_ruling to file an amended_return to make the election under sec_108 and sec_1_108-5 the election is to be made on form_982 the ruling contained in this letter is based upon the information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party although this office has not verified any of the material submitted in support of the request for the ruling that material is subject_to verification on examination 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 this letter does not rule on whether the income at issue is properly treated as cancellation_of_indebtedness_income under sec_61 except for the relief granted to make a late election this letter also does not rule on whether the income in fact qualifies for exclusion from income under any provision of sec_108 including sec_108 in addition 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 enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 if you have any questions concerning this matter please contact the individual whose name and telephone number appear at the beginning of the letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-119986-14 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing a return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court kevin e rushing petitioner v commissioner of internal revenue respondent docket no filed date p did not file income_tax returns for the and taxable years r prepared substitutes for returns determining that p had unreported income during those years and issued a notice_of_deficiency making certain determinations as to p’s income held r’s determinations are sustained because p has failed to prove by a preponderance_of_the_evidence that the determinations in the notice_of_deficiency are incorrect james g mcgee jr for petitioner edwin b cleverdon and horace crump for respondent memorandum opinion laro judge this case arises out of respondent’s determinations as to petitioner’s income for the and tax years the case was submitted fully stipulated for decision without trial see rule respondent determined deficiencies in petitioner’s federal_income_tax as well as additions to tax under sec_6651 and and for the taxable years and in the amounts as follows year deficiency sec_6651 sec_6651 sec_6654 additions to tax dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure undetermined1 dollar_figure big_number dollar_figure undetermined dollar_figure 1for the sec_6651 additions to tax for the and taxable years the notice_of_deficiency states computed at later date per the form 4549-a income_tax examination changes unagreed and excepted agreed accompanying the deficiency_notice as of date the sec_6651 additions to tax for and were dollar_figure and dollar_figure respectively we decide whether to sustain respondent’s determinations of unreported income in the notice_of_deficiency upon which this case is based as set forth in this opinion we uphold those determinations 1unless otherwise indicated section references are to the internal_revenue_code code in effect at all relevant times rule references are to the tax_court rules_of_practice and procedure background i overview the parties submitted this case fully stipulated under rule the stipulation of facts is incorporated herein petitioner is a resident of mississippi this case is appealable to the court_of_appeals for the fifth circuit absent stipulation of the parties to the contrary ii petitioner petitioner was married during each of the years at issue during the same period he was the sole member of rushing enterprises llc llc which was in the construction and insurance_business under the business name r e mortgage services he was a signatory on multiple bank accounts in the llc’s name with forum credit_union fcu and wells fargo wf iii petitioner’s undisputed income petitioner during sold a desk and a chair for dollar_figure he received wages from the u s army in and of dollar_figure and dollar_figure respectively he also received interest_income in and of dollar_figure and dollar_figure 2the parties have treated the llc as petitioner’s sole_proprietorship and thus a disregarded_entity see sec_301_7701-3 and b ii proced admin regs we follow that lead respectively he received taxable ira_distributions subject_to the additional tax under sec_72 in and of dollar_figure and dollar_figure respectively and during he received social_security_benefits of dollar_figure the taxable_amount of which is agreed by the parties to be computational petitioner had tax withholding for and of dollar_figure and dollar_figure respectively iv disputed income during and there were unexplained deposits with respect to the llc’s fcu and wf bank accounts totaling dollar_figure dollar_figure and dollar_figure respectively in the notice_of_deficiency respondent determined these amounts to be reportable as income from self-employment on petitioner’s schedule c profit or loss from business and subject_to income_tax petitioner disputes the inclusion of these amounts in his income 3we note that while respondent determined in the notice_of_deficiency that petitioner had dollar_figure of unreported interest_income for the parties agreed in their stipulation of facts that p etitioner received interest_income in of dollar_figure because the parties state in their stipulation that the statements contained therein may be accepted as facts in this case we take the dollar_figure amount as the correct statement of petitioner’s interest_income for the taxable_year see eg 102_tc_87 n aff’d 71_f3d_209 6th cir see also humberson v commissioner tcmemo_1995_470 70_tcm_886 nn during and there were also rental checks deposited into petitioner’s fcu bank accounts totaling dollar_figure dollar_figure and dollar_figure respectively in the notice_of_deficiency respondent determined that these amounts reflect income to petitioner reportable on schedule e supplemental income and loss petitioner disputes the inclusion of these amounts in his income v substitutes for returns notice_of_deficiency and petition petitioner failed to file federal_income_tax returns for any of the years at issue respondent on date prepared under sec_6020 substitutes for returns for these years in the absence of other records respondent relied on third-party reporting and petitioner’s bank_deposits and cash payments to determine his taxable_income on date respondent issued the notice_of_deficiency to petitioner with respect to his income_tax liabilities for the and taxable years petitioner’s last day to file a petition with this court was date the court received his petition on date but because it wa sec_4the notice_of_deficiency erroneously states that the last day for petitioner to file a petition with this court was date the deficiency_notice was issued on date after which petitioner had days to file his petition see sec_6213 this period expired on date which was not a saturday sunday or legal_holiday in the district of columbia respondent concedes this error and agrees that petitioner’s petition is timely mailed on date and bore a corresponding u s postal service postmark it is treated as timely filed see sec_7502 vi petitioner’s concessions beyond the undisputed items of income set forth above the parties agree that petitioner’s entitlement to the now-defunct sec_36a making_work_pay_credit for is computational they also agree that petitioner is entitled to claim the standard_deduction using a filing_status of married_filing_separately with a personal_exemption deduction for each of the years at issue finally the parties agree that the additions to tax under sec_6651 and and are applicable for each of the years at issue given the parties’ stipulated agreement as to various tax items including the parties’ stipulations that certain of those items are computational the only noncomputational determinations still outstanding are those as to all schedule e rents received for the three taxable years at issue all schedule c gross_receipts for the taxable years at issue and so much of the dollar_figure received by petitioner during the taxable_year for the sale of the desk and chair as exceeds his basis in that property although not addressed expressly by any of the parties’ stipulations but as we deduce from respondent’s computations accompanying the notice_of_deficiency the self-employment_tax and corollary self-employment_tax deduction are computational discussion i overview generally the commissioner’s determination of a taxpayer’s liability for an income_tax deficiency is presumed to be correct and the taxpayer bears the burden of proving the determination improper by a preponderance_of_the_evidence see rule a 290_us_111 in certain instances where a taxpayer has introduced credible_evidence with respect to any factual issue relevant to ascertaining his tax_liability the burden_of_proof shifts to the commissioner but only if the taxpayer has complied with substantiation requirements maintained all records required by the code and cooperated with the government’s reasonable requests for witnesses information documents meetings and interviews sec_7491 a case’s submission under rule does not alter the burden_of_proof or the requirements otherwise applicable with respect to adducing proof or the effect of a failure of proof rule b under sec_61 gross_income includes all income from whatever source derived all gains are covered except those specifically exempted 348_us_426 furthermore taxpayers are obligated to maintain records sufficient to establish their correct_tax liabilities sec_6001 where a taxpayer fails to do so or if his records do not clearly reflect income then the commissioner is authorized to reconstruct income in accordance with a method clearly reflecting the full amount of income received the reconstruction need only be reasonable in the light of all surrounding facts and circumstances 92_tc_661 see also sec_446 self-serving declarations generally are not a sufficient substitute for records weiss v commissioner tcmemo_1999_17 wl at ii the parties’ arguments a petitioner’s argument petitioner observes that respondent analyzed several bank accounts containing otherwise unexplained deposits attributed to the llc or to petitioner personally and concluded that those amounts represent earned but unreported income petitioner admits that respondent’s methodology appears on its face to provide a causal connection between the deposits and petitioner’s gross_income such that respondent has met his burden_of_proof in establishing the presumption of correctness see eg 144_tc_140 see also sec_6201 petitioner maintains however that because of events that alienated him from access to his bank accounts he was never able to realize or benefit from any of the deposits made into those accounts for the tax years at issue thus petitioner contends respondent’s determination of unreported income cannot be sustained on its face as correct petitioner argues that before this court can turn to the question of the existence and amounts of deficiencies in this case respondent must come forward with evidence of his determination’s reasonableness because petitioner has come forward with evidence supporting a finding that the determination was arbitrary and excessive see 967_f2d_986 4th cir aff’g tcmemo_1990_618 petitioner argues that during the tax years at issue he was listed a sec_80 disabled by the department of veterans affairs as a result of his active-duty military service from to petitioner maintains that he was unable to work and had applied for full disability benefits at the same time he asserts he had prepared and signed a durable_power_of_attorney naming his then wife as his guardian and representative and authorizing her to become the chief operating officer of the llc at some later point he submits he learned that his wife had been wrongfully spending income generated by the llc during the period of his disability while he never had access to those funds and did not realize any benefit from them thus he argues because his wife had had complete control of and access to the bank accounts upon which respondent relied in making his determination she was the only party in receipt of the gross_income for the tax years at issue petitioner does not believe that his being a signatory on those bank accounts is sufficient to establish his possession of those funds because petitioner had no access to the gross_income in question he argues respondent’s notice_of_deficiency is arbitrary and should not be sustained by this court petitioner maintains that no causal connection can be drawn between him and the gross_income attributed to him by respondent and that respondent has not established by a preponderance_of_the_evidence that his determination should be entitled to a presumption of correctness b respondent’s argument respondent denies that the underlying notice_of_deficiency was arbitrary and capricious and should not be afforded a presumption of correctness respondent points out that petitioner essentially is asking the court to look behind the deficiency_notice to examine the evidence respondent used to make his determination however respondent argues the court will look behind a notice_of_deficiency only in exceptional circumstances see mcdonald v commissioner tcmemo_1996_87 wl at citing 596_f2d_358 9th cir rev’g 67_tc_672 79_tc_185 73_tc_394 and 62_tc_324 aff’d in part and remanded in part on another issue 114_f3d_1194 9th cir as relevant here such circumstances generally are limited to those where the commissioner relied upon a ‘naked’ assessment without any foundation whatsoever 428_us_433 or introduced no predicate evidence of unreported income eg 83_tc_269 this is not one of those cases respondent believes because there is a link between petitioner and the income in question respondent argues that petitioner has stipulated facts suggesting a connection between him and the income determined by respondent to have been earned by him specifically petitioner has stipulated that he received wages interest ira_distributions social_security_benefits and proceeds from the sale of a desk and chair rental checks were deposited into his checking account and his wholly owned company had unexplained bank_deposits moreover respondent maintains the record in this case is devoid of evidence supporting petitioner’s contention that his former wife misappropriated the income at issue indeed respondent asserts his determination that petitioner had income was based on third-party information reporting and an examination of bank_deposits respondent notes that the bank_deposit_method for computing income by which it is assumed that all money deposited into a taxpayer’s bank account during a given period constitutes taxable_income adjusted for known exclusions or deductions has long been sanctioned by the courts see 102_tc_632 citing 96_tc_858 aff’d 959_f2d_16 2d cir respondent further notes that bank_deposits are prima facie evidence of income and the taxpayer has the burden of showing that the determination is incorrect id pincite citing 87_tc_74 and 64_tc_651 aff’d 566_f2d_2 6th cir as to the rental checks deposited into petitioner’s account respondent points out that petitioner has stipulated the fact of their deposit and has not introduced any countervailing evidence that those amounts should not be includible in income as to the dollar_figure of proceeds from the sale of a desk and chair respondent argues that there is nothing in the record to indicate that petitioner had any basis therein and so the full amount should be taxed as capital_gain cf sec_1001 sec_1011 sec_1012 and as to the unexplained deposits into bank accounts in the llc’s name respondent claims that petitioner has not introduced evidence or otherwise carried his burden of proving that the deposits are not includible in income ultimately respondent argues petitioner cannot rely on mere allegations unsupported by the record see wages v commissioner tcmemo_2017_103 at and his failure to introduce favorable evidence within his control supports an inference that such testimony or documentation would not support his position see 6_tc_1158 aff’d 162_f2d_513 10th cir iii petitioner’s burden_of_proof a clarifying which issues remain before the court as a preliminary matter we reiterate that the only noncomputational determinations not resolved by the parties’ stipulations are those as to all schedule e rents received for the taxable years at issue all schedule c gross_receipts for the taxable years at issue and so much of the dollar_figure received by petitioner during the taxable_year for the sale of the desk and chair as exceeds his basis in that property on brief petitioner has argued the first two determinations but not the third in other words petitioner has not disputed on brief respondent’s determination that the dollar_figure received as proceeds from the sale of a desk and chair in should be treated in its entirety as long-term_capital_gain nor has petitioner argued or presented evidence of his basis in those items because petitioner has not disputed the third determination he is deemed to have conceded it see thiessen v commissioner 146_tc_100 i ssues and arguments not advanced on brief are considered to be abandoned thus the only issues remaining before the court are the propriety of respondent’s determinations as to petitioner’s schedule e rents and schedule c gross_receipts b whether petitioner met his burden_of_proof this case ultimately hinges upon whether petitioner has satisfied his burden_of_proof petitioner contends that he has come forward with evidence supporting a finding that respondent’s determination in the notice_of_deficiency was arbitrary and excessive thereby shifting the burden to respondent of coming forward with evidence of his determination’s reasonableness respondent on the other hand argues that petitioner has not proffered any such evidence and that at any rate the court should not look behind the notice_of_deficiency we agree with respondent that petitioner has not borne his burden_of_proof as we observed above the burden is on the taxpayer to prove by a preponderance_of_the_evidence that the notice_of_deficiency is incorrect see rule a welch v helvering u s pincite as the short background section of this opinion attests the record in this case is sparse all that is before the court is a four-page stipulation of facts without any corresponding exhibits establishing that petitioner had received certain income during the tax years at issue that there were rental checks deposited into petitioner’s bank accounts and that there were unexplained deposits into the llc’s bank accounts over which petitioner had signature_authority while petitioner had sought to introduce as evidence certain exhibits attached to his seriatim reply brief we held by order that those exhibits were inappropriate for inclusion with the brief and were to be stricken from the record one of those exhibits petitioner’s affidavit could not have constituted evidence see rule c petitioner’s other exhibits while supporting some of his statements made on brief were not timely or appropriate and would not have been dispositive on the issues in contention even were they admissible the core of petitioner’s argument--that his former wife wrongfully gained access to the bank accounts in question and had exclusive dominion over them during the taxable years at issue--is unsupported by any evidence whether a stipulation or exhibit thereto or other appropriate source petitioner has advanced this argument several times in his petition in his pretrial memorandum and on brief however in the absence of evidence petitioner’s statements in his pleadings and filings cannot be treated as anything more than unsworn allegations see eg wages v commissioner at see also rule c as respondent points out petitioner’s case suffers from the same defect as that of the taxpayers in wages assertions made on brief that are not supported by the record had petitioner timely offered further stipulations of facts witness testimony or any other evidence we would have been able to consider the ways in which such evidence supported his contentions in its absence we can look no further than the facts stipulated by the parties and summarized in this opinion’s background section those facts do not controvert respondent’s determination in the notice_of_deficiency of petitioner’s tax_liabilities because petitioner has not adduced any evidence tending to show respondent’s determination of his tax_liabilities to be improper the burden_of_proof remains with him cf sec_7491 and because of his failure to present contradictory evidence petitioner necessarily cannot prove that determination improper by a preponderance_of_the_evidence accordingly the presumption of correctness attached to respondent’s determination as set forth in the notice_of_deficiency holds and we must sustain it iv conclusion petitioner’s claims proffer an unfortunate picture because of his disability as a result of his active-duty military service his former wife assumed control_over the llc and the bank accounts in question and misappropriated income therefrom however there is no evidence in the record before us to substantiate these claims thus we can go no further than to find that petitioner has failed to satisfy his burden of proving by a preponderance_of_the_evidence that the notice_of_deficiency is incorrect we sustain respondent’s determinations in principal part and direct the parties to submit computations under rule reflecting their stipulation that petitioner had dollar_figure of interest_income for the taxable_year instead of dollar_figure as determined in the notice_of_deficiency and the final computations if available of the sec_6651 additions to tax for the and taxable years we have considered all of the parties’ arguments and to the extent not discussed above conclude that those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal_revenue_service washington d c contact person se te eo ra t pe telephone number identification_number employer_identification_number number release date date date no third party contact uil legend b -- c-- d-- m-- n -- p-- q--- r - s- t--- v--- x-- y-- z -- dear ------------------ partnership units and related transactions that will occur upon the death of x will constitute acts of direct or indirect acts of self-dealing under sec_4941 of the code foundation under sec_509 the directors of m are x y and z m’s mission is to provide funds to certain charitable organizations that are tax exempt under sec_501 funds the primary unit holders of n are p b c and d p is a holding_company that is owned by x b and c are x’s sons n is a limited_partnership engaged in the management and distribution of publicly traded this is in response to your ruling_request as to whether the redemption of certain limited n manages and distributes certain publicly traded mutual funds known as r q holds a m is exempt from tax under sec_501 of the code and classified as a private x is the founder of n and serves as its senior research advisor and serves as the chairman x’s estate is expected to have sufficient assets other than p’s shares to fully fund the s provides that after x’s death after the payment of his debts administration_expenses general_partnership interest in n b serves as the chairman and ceo of q which is the general_partner of n c is the president of n approximately -----------of n limited_partner units are owned either directly or indirectly by x b and c p is a holding_company and has a ------------- interest in n and real_estate and ceo of p y is married to x x’s will provides that after the payment of debts administration_expenses and after certain bequests of tangible_personal_property and residential real_estate x’s residuary shall be paid to the trustee of a revocable_trust agreement with x as settlor and an unrelated individual as trustee and taxes the trust will be distributed to two marital trusts for the lifetime benefit of y if she survives x the marital trusts are designed to qualify for the estate_tax_marital_deduction under sec_2056 of the code upon y’s death and after payment of any applicable administration_expenses and taxes the remaining assets of the marital trusts up to a defined pecuniary amount will be divided into separate shares for the benefit of x’s living descendants all remaining trust assets in excess of the pecuniary bequests will be distributed outright to m a private_foundation formed and funded by x pecuniary bequests accordingly x’s estate plan should cause his p shares to pass to m after the deaths of x and y m would then indirectly own units in n through p by n x b and c are also concerned about the potential sec_4941 self dealing problems that might arise by m indirectly owning interests in n as well as the taxes imposed under sec_4943 of the code for excess_business_holdings accordingly n p and x have entered into a redemption agreement whereby the n units currently owned by p as well as any n units owned directly by x would be redeemed for fair_market_value upon x’s death binding on x’s estate and s the transactions under the redemption agreement will be completed before x’s estate is considered terminated for federal_income_tax purposes under sec_1_641_b_-3 of the regulations or before s is considered subject_to sec_4947 of the code the purchase_price of n units purchased under the redemption agreement would be the higher of the unit formula price provided under the n agreement or the finally determined estate_tax_value of the n units the formula price is based on a combination of n’s assets under management and a multiple of n’s adjusted earnings as measured at the time of purchase historically the unit formula price has been used in situations where a limited_partner is prohibited from assigning his or her n units under the terms of the n agreement and must sell the units back to either n or the general_partner in addition the formula price has been used in connection with n’s employee unit options and unit appreciation rights the formula price has also been used in recent sale transactions between the partners x’s estate and or s will receive an amount that equals or exceeds the fair_market_value of m’s interest or expectancy in x b and c desire to have all n units owned by members of x’s family or person employed under the terms of the redemption agreement the purchase and sale of the n units are the note will be payable in ten equal annual installments beginning one year after the the purchase_price of the n units purchased under the redemption agreement will be n units at the time of the transaction taking into account the terms of the redemption agreement paid at closing with a combination of cash and a promissory note note the executor of x’s estate and s trustee will seek approval from the probate_court having jurisdiction over the applicable entities or entity to sell the n units under the redemption agreement the cash will equal the lesser_of t or the purchase_price and the note will equal the purchase_price less the cash payment the formula price of the n units currently owned by p is v as of august ----- ------ the initial principal value of the note will be adjusted retroactively to reflect any increase in the value of the n units for federal estate_tax purposes at the time such values have been finally determined closing and can be pre-paid at any time the note will bear interest at the then effective applicable_federal_rate the note repayment is subject_to a debt service limitation the limitation provides that the total interest and principal payments due for any year under the note shall not exceed of the pro_rata cash_flow of the redeemed units pro_rata cash_flow is the percentage interest in n represented by the redeemed units times the amount of available cash as defined in the n agreement available cash is defined as of n’s net book income excluding death_benefits under key man life_insurance or such lesser amount as is approved by in interest of the general_partner and voting limited_partner units calculated on the basis of the four calendar quarters most recently ended prior to the date as of which the pro_rata cash_flow is determined payments deferred under the debt service limitation are due on the next payment_date again subject_to the debt service limitation notwithstanding the debt service limitation all interest or principal on the note must be paid no later than years after the redemption date time after y passes away or upon x’s death if he survives y the remaining balance on the note and any remaining repayment proceeds will be distributed to m after payment of the pecuniary bequests and any properly payable debts administration_expenses and taxes reasonable protections to the note holder specifically the note will become immediately due and payable at the option of the holder and the outstanding balance will bear a default interest rate equal to over the initial interest rate in addition during the term of any default n is prohibited from making any dividends distributions or loans to its partners as well as other restrictions listed in the redemption agreement and its net assets distributed to its shareholders according to their respective interests because x owns of p it is expected that the shareholder would be paid in cash from the sale and the estate’s share would consist of the note and any other remaining assets the note and its repayment proceeds will be distributed to the marital trusts during y’s life following the redemption of the n units from p it is expected that p would be liquidated if the note is in default the redemption agreement and note contain commercially you are seeking the following rulings the redemption of the n units and subsequent liquidation of p will not constitute acts of direct or indirect acts of self dealing under sec_4941 of the code to b c p and x the receipt holding collection and distribution of the note or the net_proceeds of the note by the estate s marital trusts or m will not cause the redemption or the holding of the note to become a direct or indirect act of self-dealing under sec_4941 of the code payments on the note while it is held by estate s marital trusts and or m will not result in direct or indirect acts of self dealing under sec_4941 of the code sec_4941 of the code imposes a tax on acts of self-dealing between a sec_4946 defines the term disqualified persons with respect to a private law disqualified_person as defined in sec_4946 and a private_foundation sec_4941 of the code provides in part that the term self dealing means any direct or indirect sale_or_exchange of property or the extension of credit between a foundation and a disqualified_person foundation as including a substantial_contributor to the foundation a foundation_manager and an owner of more than percent of the total combined voting power of a corporation which is a substantial_contributor to the foundation it also includes a member_of_the_family of any individual described above it also includes a corporation partnership trust or estate in which persons described above hold more than percent of the beneficial_interest therein trustee of a foundation or an individual having powers or responsibilities similar to those officers directors or trustees of the foundation sec_4946 states that the term family with respect to any individual that is a disqualified_person includes the spouse children of and grandchildren of the disqualified_person contributed or bequeathed an aggregate amount of more than dollar_figure to a private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution or bequest is received by the foundation from such person in the case of a_trust the term substantial_contributor also means the creator of the trust purposes of sec_4941 the term self-dealing means any direct or indirect transaction described in sec_53_4941_d_-2 of the regulations sec_53_4941_d_-1 of the regulations states that indirect self-dealing includes any transaction between a disqualified_person and an organization controlled by a private_foundation sec_53_4941_d_-1 of the foundation and excise_tax regulations provides that for the sec_4946 defines the term foundation_manager as including an officer director or sec_507 of the code defines a substantial_contributor as any person who sec_53_4941_d_-1 of the regulations provides that the term indirect self-dealing shall not include a transaction with respect to a private foundation’s interest or expectancy in property whether or not encumbered held by an estate or revocable_trust including a_trust which has become irrevocable on a grantor’s death regardless of when title to the property vest under local law if i the administrator or executor of an estate or trustee of a revocable_trust either a possess a power of sale with respect to the property b has the power to reallocate the property to another beneficiary or c is required to sell the property under the terms of any option subject_to which the property was acquired by the estate or revocable_trust ii iii iv such transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate_or_trust or over the private_foundation such transaction occurs before the estate is considered to be terminated for federal_income_tax purposes pursuant to paragraph a of sec_1_641_b_-3 of this chapter or in the case of a revocable_trust before it is considered to be subject_to sec_4947 the estate_or_trust receives an amount which equals or exceeds the fair market of the foundation’s interest or expectancy in such property at the time of the transaction taking into account the terms of any option to which the property was acquired by the estate_or_trust and v with respect to transactions occurring after date the transaction either- a results in the foundation receiving an interest or expectancy at least as liquid b results in the foundation receiving an asset related to the active carrying out of as the one it gave up its exempt purposes or trust c is required under the terms of any option which is binding on the estate or sec_53_4941_d_-2 of the regulations provides that the transfer of real or personal_property by a disqualified_person to a private_foundation shall be treated as a sale_or_exchange if the foundation assumes a mortgage or similar lien which was placed on the property prior to the transfer or takes subject_to a mortgage or similar lien which a disqualified_person placed on the property within the year period ending on the date of the transfer for purposes of this subparagraph term similar lien shall include but is not limited to deeds of trust and vendors’ liens but shall not include any other lien if such lien is insignificant in relation to the fair_market_value of the property transferred sec_4947 of the code provides that certain trusts which are not exempt under sec_53_4941_d_-2 of the regulations provides that the lending of money or other extension of credit between a private_foundation and a disqualified_person shall constitute an act of self-dealing thus for example an act of self dealing occurs where a third party purchases property and assumes a mortgage the mortgagee of which is a private_foundation and subsequently the third party transfers the property to a disqualified_person who either assumes a liability under the mortgage or takes the property subject_to a mortgage similarly except in the case of the receipt and holding of a note pursuant to a transaction described in sec_53_4941_d_-1 an act of self dealing occurs where a note the obligor of which is a disqualified_person is transferred by a third party to a private_foundation is transferred by a third party to a private_foundation which becomes the creditor under the note sec_501 of the code are treated as private_foundations and subject_to the excise_taxes imposed by chapter sec_4947 of the code provides that trusts which are not exempt under sec_501 not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 are subject_to the provisions of sec_507 sec_508 and to the extent applicable in the same manner as if such trusts were private_foundations sec_53_4947-1 of the regulations provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust for charitable beneficiaries or free of trust to such beneficiaries is considered terminated for federal_income_tax purposes under sec_1_641_b_-3 the estate will be treated as a charitable_trust under sec_4947 between the date on which the estate is considered terminated under sec_1_641_b_-3 and the date of the final distribution of all of the net assets is made to or for the benefit of the charitable beneficiaries interests are charitable_remainder interests and in which the charitable beneficiaries have become entitled to distribution of corpus in trust or free of trust shall continue to be treated as a split interest trust under sec_4947 until the date on which final distribution of all the net assets is made however if after the expiration of any intervening interests the trust is considered terminated for federal_income_tax purposes under sec_1_641_b_-3 the trust will be terminated as a charitable_trust under sec_4947 rather than as a split-interest trust under sec_4947 between the date on which such final distribution of all of the trust assets is made to or for the benefit of the charitable_remainder beneficiaries rationale x is a disqualified_person with respect to m as described in sec_4946 of the code by being a substantial_contributor to m as described in sec_507 of the code y is a disqualified_person with respect to m within the meaning of sec_4946 by being the wife of x b and c are disqualified persons with respect to m because they are the children of x n p s are disqualified persons with respect to m because more than of their beneficial sec_53_4947-1 provides that a split-interest trust in which all of the unexpired following the redemption of the units by p it will be liquidated and its net assets a transaction will not be subject_to the self-dealing rules described in sec_4941 if the the redemption agreement between n p and x would be considered a sale_or_exchange interests are being held by b c and x of property for purposes of sec_4941 because the transaction is between x a disqualified_person and p and n organizations that are disqualified persons with respect to m as described in sec_53_4941_d_-1 of the regulations distributed to its shareholder according to their respective interests m has an expectancy in p the redemption to p will be for a combination of cash and a note and ultimately distributed to m the potential holding of the note according to the terms of the redemption would be an act of self-dealing as described in sec_53_4941_d_-2 of the regulations unless it falls within the estate exception transaction involves situations that take place during the administration of an estate or revocable_trust as described in sec_53_4941_d_-1 of the regulations sec_53_4941_d_-1 has been satisfied in this situation because the executor of x’s estate and the s have a power of sale with respect to the p stock and n units and they will seek approval from the probate_court having jurisdiction over the applicable_entity or entities to sell n units under the redemption agreement the transactions under the redemption agreement will be completed before the x estate is considered terminated for federal_income_tax purposes under sec_1_641_b_-3 of the code or before s is considered subject_to sec_4947 of the code x’s estate and s will receive an amount that equals or exceeds fair_market_value of m’s interest or expectancy in the n units at the time of the transaction taking into account the terms of the redemption agreement and the sale of the n units under the redemption agreement is required under the terms of that agreement and that agreement will be legally binding on x’s estate and s or m in exchange for the n units is not considered an act of self dealing under sec_53_4941_d_-2 of the regulations because the note may be transferred to m during the administration of x’s estate based on the following we rule as follows furthermore the transfer of the note or the net_proceeds to the estate of x s marital trust sec_1 the redemption of the n units and subsequent liquidation of p will not constitute acts of direct or indirect acts of self dealing under sec_4941 of the code to b c p and x the receipt holding collection and distribution of the note or the net_proceeds of the note by the estate s marital trusts or m will not cause the redemption or the holding of the note to become a direct or indirect act of self-dealing under sec_4941 of the code payments on the note while it is held by estate s marital trusts and or m will not result in direct or indirect acts of self dealing under sec_4941 of the code this ruling will be made available for public inspection under sec_6110 of the code if you have any questions about this ruling please contact the person whose name and this ruling is directed only to the organization that requested it sec_6110 of the after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice code provides that it may not be used or cited by others as precedent telephone number are shown in the heading of this letter enclosure notice steven b grodnitzky acting manager exempt_organizations technical group sincerely


internal_revenue_service number release date index nos cc fip b01 - plr-103862-00 date date attention taxpayer parent date dear this is in reply to a request dated date submitted on behalf of taxpayer for an extension of time under sec_301_9100-3 of the procedure and administration regulations to complete its compliance with the requirements of revproc_85_8 1985_1_cb_495 revproc_85_8 provides an exclusive automatic procedure for financial institutions to follow in changing from the sec_166 specific_charge-off_method for bad_debts to the sec_593 reserve_method of accounting taxpayer is a savings bank that is a member_of_an_affiliated_group under sec_1504 and joins in the filing of a consolidated tax_return parent is the parent_corporation of the affiliated_group taxpayer used the specific_charge-off_method under sec_166 to account for its bad_debts in electing to change from the sec_166 specific_charge-off_method to the sec_593 reserve_method taxpayer complied with all but one requirement of revproc_85_8 its failure to comply with this requirement was an inadvertent error of the independent firm that prepared taxpayer’s federal_income_tax return taxpayer has requested an extension of time under sec_301_9100-3 to complete the compliance with revproc_85_8 sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all plr-103862-00 subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i of the regulations sets forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides special rules for accounting_method regulatory elections this section provides in relevant part that the interests of the government are deemed to be prejudiced by granting an extension of time except in unusual and compelling circumstances if the accounting_method regulatory election is subject_to the procedure described in sec_1_446-1 requiring the advance written consent of the commissioner or if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 based on the information provided and the representations made it is held that taxpayer is deemed to have acted reasonably and in good_faith and that granting an extension of time to allow taxpayer to complete its compliance with rev_proc would not prejudice the interests of the government under the provisions of sec_301_9100-3 accordingly taxpayer’s form_3115 filed on date with the national_office is accepted as timely filed pursuant to the requirements of rev_proc no opinion is expressed as to the tax treatment of the transaction under the provisions of any other sections of the code and regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically set forth by the above ruling further no opinion is expressed as to whether taxpayer's tax_liability is not lower in the aggregate for all years to which the regulatory election applies than taxpayer's tax_liability would have been if the election had been timely made plr-103862-00 taking into account the time_value_of_money upon an audit of the federal_income_tax returns involved the district director’s office will determine taxpayer’s tax_liability for the years involved if the district director’s office determines taxpayer’s liability is lower that office will determine the federal_income_tax effect a copy of this letter will be forwarded to the district_director this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representatives sincerely yours acting associate chief_counsel financial institutions products enclosure copy of this letter sec_6110 copy