t c memo united_states tax_court eric b benson et al petitioners v commissioner of internal revenue respondent docket nos filed date john m youngquist for petitioners michael e melone for respondent cases of the following petitioners are consolidated herewith brad d benson docket no mark d benson docket no eric b benson docket no and burton o and elizabeth c benson docket nos and this opinion supplements our previously filed opinion in benson v commissioner tcmemo_2004_272 supplemental memorandum opinion ruwe judge this case is before the court on petitioners’ motion for reconsideration of findings and opinion on date we issued a memorandum opinion holding that the bensons received constructive dividends in and benson v commissioner tcmemo_2004_272 in that memorandum opinion we stated the detailed facts of this case which we incorporate herein by this reference sec_6501 a generally bars the assessment of a deficiency after years from the date the return was filed sec_6501 provides for a 6-year period of limitations if the taxpayer omits more than percent of the gross_income stated in the return in our prior opinion we noted that the parties agreed in their briefs that our opinion on the merits would determine whether the sec_6501 exception to the period of limitations in sec_6501 allows assessment of the deficiencies for and as we noted in our prior opinion sec_6501 provides that in determining the amount omitted from gross_income there shall not be taken into account any amount omitted if such amount is disclosed in the return or in a statement unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure attached to the return in a manner adequate to apprise the secretary of the nature and amount of such item in the briefs submitted before our opinion at tcmemo_2004_272 was filed neither party raised the issue of adequate_disclosure under sec_6501 after our opinion at tcmemo_2004_272 petitioners filed a motion for reconsideration petitioners now for the first time argue that the prior opinion did not provide a basis to resolve the question of whether petitioners burton o and elizabeth c benson the bensons disclosed the understatements of gross_income on their returns petitioners argue that their failure to make this argument before our previous opinion was due to the complexities of the way the case was presented and briefed on date we granted petitioners’ motion for reconsideration of findings and opinion pursuant to rule with respect to the application of sec_6501 in benson v commissioner supra we found that the bensons received items of gross_income in and that were not reported on their form sec_1040 u s individual income_tax returns as follows description tax_year erg-recreation acct erg transfers to npi alice lane prop taxes alice ln check ref carroll automobile deductions -- dollar_figure dollar_figure dollar_figure -- big_number big_number 1dollar_figure -- -- big_number -- big_number -- big_number big_number -- big_number -- big_number -- big_number -- big_number -- -- -- big_number big_number big_number big_number big_number big_number big_number -- big_number charitable deduction big_number big_number excess rent--stanford big_number big_number rent--lowell big_number big_number director’s fees big_number -- townsend check big_number -- travel_expenses big_number -- legal expenses big_number -- life_insurance payments big_number big_number education payment sec_586 royalty income big_number franklin dividend income forgiveness of debt income -- big_number employee relations expenses -- -- -- big_number big_number total -- -- -- -- big_number big_number big_number -- -- -- -- -- -- -- all figures are rounded to the nearest dollar respondent conceded that the bensons are entitled to a deduction of dollar_figure in with respect to legal expenses the parties agree that the normal 3-year period of limitations in sec_6501 would bar assessment of deficiencies for these years unless the exception in sec_6501 applies thus we must decide whether the 6-year period of limitations provided by sec_6501 applies to the bensons’ and returns respondent argues that sec_6501 extended the period of limitations to years because the bensons omitted gross_income in excess of percent of their reported gross_income in and respondent has the burden of proving that the bensons omitted more than percent of gross_income see 116_tc_31 respondent had also argued that the exception to the statute_of_limitations for fraud applied see sec_6501 in benson v commissioner tcmemo_2004_272 we found that respondent did not satisfy his burden of proving fraud by clear_and_convincing evidence sec_6501 a provides that the commissioner shall assess any_tax due within years after the taxpayer files a return sec_6501 a provides an exception to the general specifically sec_6501 provides the amount of any_tax imposed by this title shall be assessed within years after the return was filed whether or not such return was filed on or after the date prescribed and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period sec_6501 provides in pertinent part sec_6501 substantial omission of items -- except as otherwise provided in subsection c -- income taxes --in the case of any_tax imposed by subtitle a-- a general_rule --if the taxpayer omits_from_gross_income an amount properly includible therein which is in excess of percent of the amount of gross_income stated in the return the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time within years after the return was filed for purposes of this subparagraph-- i in the case of a trade_or_business the term gross_income means the total of the amounts received or accrued from the sale_of_goods or services if such amounts are required to be shown on the return prior to diminution by the cost of such sales or services and ii in determining the amount omitted from gross_income there shall not be taken into account any amount continued year period of limitations prescribed by sec_6501 sec_6501 extends the period of limitations to years when the taxpayer omits amounts properly includable in gross_income and the omitted amounts exceed percent of the reported gross_income the test for the extended limitations_period under sec_6501 may be expressed as a fraction harlan v commissioner supra pincite in that fraction the numerator is the amount properly includable in gross_income that the taxpayer omitted from the return the denominator is the amount of gross_income stated in the taxpayer’s return see sec_6501 harlan v commissioner supra this court has found that the sec_61 definition of gross_income generally applies to sec_6501 e g 119_tc_140 84_tc_203 in the case of a trade_or_business however sec_6501 modifies the term gross_income to mean the total of the amounts received or accrued from the sale_of_goods or services if such amounts are continued which is omitted from gross_income stated in the return if such amount is disclosed in the return or in a statement attached to the return in a manner adequate to apprise the secretary of the nature and amount of such item required to be shown on the return prior to diminution by the cost of such sales or services for a taxpayer who owns an interest in a partnership or an s_corporation gross_income under sec_6501 includes the taxpayer’s share of the entity’s reported gross_income w e have interpreted sec_6501 as requiring that a taxpayer’s gross_income include her share of the partnership’s gross_receipts from the sale_of_goods or services hoffman v commissioner supra pincite citing harlan v commissioner supra accord 63_tc_585 n affd 537_f2d_701 2d cir with respect to s_corporations sec_1366 provides in any case where it is necessary to determine the gross_income of a shareholder for purposes of this title such gross_income shall include the shareholder’s pro_rata share of the gross_income of the corporation when calculating reported gross_income under sec_6501 taxpayers include their portion of an s corporation’s gross_income 398_f2d_132 8th cir 44_tc_80 gmelin v commissioner tcmemo_1988_338 affd without published opinion 891_f2d_280 3d cir furthermore sec_6501 provides that any amount disclosed in the return or in a statement attached to the return shall not be considered as omitted gross_income these disclosures must adequately apprise the commissioner of the nature and amount of the relevant item sec_6501 the question of whether the taxpayer adequately disclosed an item on the return is a factual question 90_tc_702 the purpose of extending the period of limitations under sec_6501 is to level the playing field when the taxpayer’s omission_of_income places the commissioner at a disadvantage in discovering errors 357_us_28 interpreting a prior version of sec_6501 the supreme court stated that congress extended the period of limitations to allow the commissioner additional time to investigate tax returns in cases where because of a taxpayer’s omission to report some taxable item the commissioner is at a special disadvantage in detecting errors in such instances the return on its face provides no clue to the existence of the omitted item id to adequately apprise the commissioner the statement must be sufficiently detailed to alert the commissioner and his agents as to the nature of the transaction so that the decision as to whether to select the return for audit may be a reasonably informed one 88_tc_1020 while a taxpayer’s disclosure must be more substantial than supplying the commissioner with a ‘clue’ which would be sufficient to intrigue a sherlock holmes the disclosure need not recite every underlying fact quick’s trust v commissioner 54_tc_1336 affd 444_f2d_90 8th cir although a misleading statement may provide a clue to omitted gross_income it does not adequately apprise the commissioner of the nature and amount of an item 392_f2d_680 5th cir estate of fry v commissioner supra when taxpayers’ individual returns contain references to other documents or returns those references provide a clue or serve as notice to the commissioner reuter v commissioner tcmemo_1985_607 specifically when a return includes a reference to a partnership return partnership returns are considered together with individual returns to determine the amount omitted from gross_income 991_f2d_657 10th cir affg tcmemo_1991_552 see also hoffman v commissioner supra pincite similarly when taxpayers’ returns include a reference to an s_corporation the corporate information_return on form 1120-s must be considered along with taxpayers’ individual returns in resolving the issue of adequate_disclosure benderoff v united_states supra pincite see also roschuni v commissioner supra in sec_6501 the word return does not include amended returns see 38_tc_486 20_tc_79 interpreting similar language in sec_275 the predecessor to sec_6501 the period of limitations starts to run with the filing of the original return and the filing of an amended_return does not affect the period of limitations insulglass corp v commissioner t c pincite goldring v commissioner supra pincite i disclosures under sec_6501 erg was a subchapter_c_corporation that was a taxable entity npi was a subchapter_s_corporation and as such was a passthrough_entity that was not taxable burton benson controlled the operations of both of these entities the bensons first argue that the determinations sustained in our prior opinion were not omissions of gross_income but reallocations of reported corporate income and expenses to burton benson as the controlling shareholder of erg in particular the bensons argue that npi’s forms 1120s u s income_tax return for an s_corporation including amended forms 1120s disclosed royalties engineering services and rents7 that npi received in our prior opinion we found that transfers made by erg to npi of dollar_figure in dollar_figure million in and dollar_figure in constituted constructive dividends to the bensons benson v commissioner tcmemo_2004_272 in our prior opinion we held that the bensons received constructive_dividend income of dollar_figure in dollar_figure in and dollar_figure in from excess rent paid_by erg for its use of the stanford plant id we also held that the bensons received constructive_dividend income of dollar_figure in dollar_figure in continued from erg that we found to be constructive dividends to the bensons the bensons also assert that erg’s forms disclosed deductions for payments which were found to be constructive dividends to the bensons respondent argues that the returns of npi did not adequately disclose the nature and amount of the bensons’ constructive_dividend income respondent also argues that disclosures on amended returns are not relevant to the question of adequate_disclosure respondent also argues that the corporate returns of erg are not relevant to whether the bensons made adequate disclosures on their individual tax returns because erg was a taxable entity a disclosures on amended returns and erg corporate tax returns are not relevant to the application of sec_6501 the bensons argue that the amended returns of npi disclose items of gross_income for purposes of sec_6501 amended returns do not correct the omission_of_income from an original return houston v commissioner supra goldring v commissioner supra sec_6501 requires respondent to examine only the bensons’ original returns and the original returns of the passthrough entities listed on their returns any clues to omitted gross_income on the amended continued dollar_figure in and dollar_figure in from erg’s so-called rent payments for the lowell plant id returns of npi will not prevent the 6-year period of limitations of sec_6501 from applying to the bensons’ and tax years neither sec_6501 nor the caselaw interpreting that section requires respondent to examine the corporate returns of erg in search of clues that disclose income the bensons have not cited any authority to support their contention that the returns of a taxable subchapter_c_corporation serve as an adjunct to an individual taxpayer’s return for purposes of sec_6501 instead the bensons rely on 398_f2d_132 8th cir and 44_tc_80 which involve the returns of subchapter_s_corporations this court has explained that the returns of subchapter_s_corporations and partnerships should be examined in conjunction with the individual taxpayer’s return because these entities are passthrough entities see harlan v commissioner t c pincite when the taxpayers’ tax returns stated taxable_income from partnerships or s_corporations we declared that the information returns of these pass-through entities would be treated as adjuncts to and part of the taxpayers’ tax returns roschuni v commissioner supra pincite as a subchapter_c_corporation erg is a taxable entity it does not have the passthrough aspects of an s_corporation and it files income_tax returns not information returns therefore the rationale for treating the returns of passthrough entities as adjuncts to an individual’s returns is not present in the case of a subchapter_c corporation’s income_tax return respondent was not required to examine the returns of erg a subchapter_c_corporation to determine whether the bensons disclosed items of gross_income b disclosures on returns were not adequate to apprise the secretary of the nature and amount of omitted income royalties and engineering services the bensons argue that the returns of npi disclosed royalty and engineering service payments from erg that we previously found to be constructive dividends to the bensons quoting 357_us_28 the bensons argue that respondent had no ‘special disadvantage in detecting errors’ because these items were disclosed on the corporate returns respondent argues that the returns do not adequately disclose the transfers and mischaracterized the transfers a misleading disclosure on a return is insufficient to apprise the commissioner of the nature and amount of an item for purposes of sec_6501 88_tc_1020 in our prior opinion we stated on or about date burton executed as president of both npi and erg a document entitled agreement of sale and exclusive license exclusive license agreement the document had a retroactive effective date of date and a 40-year term the document purports to sell certain patent rights owned by erg to npi and simultaneously grants erg an exclusive license to use the patent rights transferred benson v commissioner tcmemo_2004_272 fn refs omitted we found that the exclusive licensing agreement was merely a tax planning tool completely lacking in economic_substance as the arbitrators found the pattern of payment demonstrates that burton benson was merely funneling erg’s profits to npi id we find that the disclosures of royalties on npi’s returns were misleading the returns of npi failed to disclose that it received the royalties from a related corporation erg or that burton benson acted on behalf of both corporations involved in the transaction the returns of npi failed to disclose that erg sold patent rights to npi and simultaneously licensed those rights back from npi in the exclusive licensing agreement also the royalties label listed on the returns of npi was misleading and inadequate to apprise respondent that the transactions constituted a tax planning tool completely lacking in economic_substance because the royalties disclosures in the returns of npi were misleading they fail to satisfy sec_6501 with respect to the royalty payments burton benson prepared invoices in response to a meeting with a revenue agent-- these invoices were not created contemporaneously with payment and or the receipt of services benson v commissioner tcmemo_2004_272 similarly the bensons argue that the npi returns disclosed engineering services paid_by erg to npi in our prior opinion we found erg transferred millions of dollars to npi for payment of supposed engineering services however there is no evidence of what services burton performed on behalf of npi other than his testimony that he provided erg with engineering know how no third party testified as to what burton specifically did there is no evidence of how much time he devoted to this endeavor and whether the amounts charged were reasonable and customary in fact we infer from the evidence that in conjunction with the exclusive licensing agreement the label engineering services was created to achieve burton’s goal of having erg show a consistent paper profit of approximately dollar_figure after reviewing the npi returns we find that these returns lack any specific reference to engineering services additionally like the royalties that npi purportedly received from erg we find that any characterization of the erg transfers to npi as payments for engineering services was misleading burton benson caused erg to make these transfers to npi for the purpose of maintaining erg’s profits at dollar_figure he used the engineering services explanation to justify these payments we find that like the royalty invoices the invoices for engineering services were not created contemporaneously with the alleged performance of these services burton admitted that these invoices were created shortly before an audit meeting with a revenue_agent benson v commissioner supra this label does not reflect the true nature of these transfers for purposes of sec_6501 we hold that the npi returns failed to adequately disclose the nature and amounts of these transfers rental income the bensons also argue that the returns of npi disclose the rents received by npi and that the bensons’ constructive dividends related to the lowell and stanford plants were adequately disclosed on their returns respondent contends that the disclosures of gross rental income reported on the returns of npi did not give respondent a clue as to the nature and amounts of these payments that we found to be constructive dividends we agree with respondent the returns of npi reported gross rental income from mfg facilities however these returns do not specifically identify the properties that generated the rental income the stanford and lowell plants were identified only in npi’s depreciation schedules with respect to the lowell plant in our prior opinion we stated erg had no contractual obligation to pay aker’s rent obligations indeed it was as the arbitrators concluded aker’s responsibility to pay npi for_the_use_of the lowell plant which glendon ultimately paid_by virtue of the final arbitration decision this of course is in accord with what the brothers agreed in the unbundling agreement given that these funds were transferred to npi which the bensons used for their personal benefit we find and hold that the bensons received constructive dividends in the amounts of the excess rents that erg paid benson v commissioner supra we found that the lowell rent payments constituted constructive dividends to the bensons because erg made payments that it had no contractual obligation to make we further found that the payment of rents by erg constituted constructive dividends to the bensons the returns of npi do not provide any clues that suggest that erg’s payments for the lowell plant exceeded erg’s legal_obligation to make those payments these disclosures did not adequately reveal the nature of these transfers therefore we hold that the bensons failed to disclose the constructive dividends received in the form of purported rent payments for the lowell plant while the returns of npi disclosed the receipt of rent for the stanford plant these disclosures were misleading because they did not inform respondent that the payments exceeded erg’s contractual rent obligation in benson v commissioner supra we stated the maximum monthly lease amount listed in the unbundling agreement apparently reflected the product of an arm’s-length negotiation between the two warring brothers under these circumstances this is the best indication of the intent of the parties and the value of the use of the property at that time fn ref omitted the actual payments exceeded the monthly lease payments as agreed upon in the unbundling agreement we think that the disclosure of the rental payments is misleading because an examiner would expect that these payments reflected the monthly payments agreed to during the arm’s-length negotiation nothing in the returns of npi informed respondent that npi received rent payments from erg that exceeded the amounts that the parties agreed upon in the unbundling agreement we hold that the bensons did not adequately apprise respondent of the nature of these transactions for purposes of sec_6501 we hold that the amended returns of npi and the corporate returns of erg are not adjunct returns for purposes of sec_6501 we also hold that the bensons did not adequately apprise respondent of the nature and amount of the transfers from erg to npidollar_figure ii sec_6501 e --substantial omissions in light of our holding on petitioners’ first argument the bensons concede that the 6-year period of limitations applies to the and tax years the bensons argue that they did not omit in excess of percent of reported income in the and taxable years the bensons and respondent each offered calculations for the amounts of gross_income omitted and reported on the bensons’ returns even if we considered the amended returns of npi and the erg returns we would draw the same conclusion since the characterizations of the payments from erg to npi were misleading for the same reasons a - - the parties calculated the bensons’ omitted gross_income as follows items of omitted gross_income amounts asserted amounts asserted by the bensons by respondent -- dollar_figure big_number big_number payments from erg to npi -- check ref carroll automobile expenses life_insurance erg payment related to lowell plant director’s fees franklin dividends interest dividend npi royalty income reverse royalty income recharacterized as constructive dividends reverse npi rental income recharacterized as constructive dividends big_number big_number -- -- total -- dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number this amount represents a negative number respondent appears to have reduced the dollar_figure payment from erg to npi by the amount of npi’s royalty income reported by the bensons on their return this amount represents a negative number npi’s form_1120s reported its income from gross rental_real_estate_activities and listed burton o benson as a 7-percent shareholder respondent appears to have reduced the dollar_figure of omitted gross_income from the lowell plant rent by the bensons’ pro_rata share of the lowell plant rent dollar_figure x big_number the parties assert that the bensons reported gross_income in as follows items of gross_income amounts asserted by the bensons amounts asserted by respondent wages interest dollar_figure big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number -- -- -- big_number -- -- -- -- -- -- -- big_number big_number big_number rents lucile arroyo ivy total gross rents royalties occidental permain texaco phillips exxon walter l johnson npi total royalties other income npi evelyn c hermsmeir partnership 1120-s return of npi erg hercules payment gross rents total baden spiel haus partnership total big_number big_number big_number -- big_number -- big_number big_number big_number the parties calculated the percentage of omitted gross_income in as follows the bensons’ respondent’s calculation calculation omitted gross_income dollar_figure reported gross_income dollar_figure percent understated dollar_figure dollar_figure dollar_figure omitted gross_income the parties agree that the bensons omitted gross_income of dollar_figure which consists of constructive dividends of dollar_figure from erg’s payment of legal expenses check ref carroll constructive dividends of dollar_figure from automobile expenses paid_by erg constructive dividends of dollar_figure from life_insurance payments made by erg constructive dividends of dollar_figure from director’s fees franklin dividends of dollar_figure and royalty income of dollar_figure the parties dispute whether the payments of dollar_figure from erg to npi hercules payment constitute omitted gross_income on their original return the bensons reported royalty income of dollar_figure received from npi benson v commissioner tcmemo_2004_272 in our prior opinion we stated on or about date hercules and erg entered into a memorandum of agreement moa whereby hercules agreed to pay dollar_figure as an add-on cost to increase production of the baffle sets delivered by erg the moa was unique because it called for hercules to facilitize or fund erg’s plant and equipment the cost of which is normally paid for by the owner of the plant and equipment attached to the moa is schedule which lists the equipment and their associated prices as contemplated by the moa id fn ref omitted we also stated that burton testified that the ‘engineering services’ for which erg compensated npi were consulting design services that he performed to make the hercules contract ‘work’ id however the bensons’ return does not refer to the hercules payment the bensons assert that the hercules payment is disclosed on the amended_return of npi as we held supra the amended_return of npi is not to be considered as a it appears that respondent has factored this disclosure into his calculation as the reverse royalty income recharacterized as constructive dividends disclosure for purposes of sec_6501 therefore we find that the hercules payment is omitted gross_income for purposes of sec_6501 the parties also dispute whether the bensons omitted from their income_tax return dollar_figure in constructive dividends from the erg payments related to the lowell plant as we found supra the return of npi provided a misleading disclosure because the return did not reveal that npi paid rent for the lowell plant even though it did not have a contractual obligation to make any rent payments npi’s return failed to adequately apprise respondent of the nature of this income for purposes of sec_6501 therefore the dollar_figure of constructive dividends is omitted gross incomedollar_figure respondent’s calculation of the bensons’ omitted gross_income included interest dividend npi income of dollar_figure in his brief respondent failed to explain why this amount constituted omitted gross_income we will not include the dollar_figure of interest dividend npi income in our calculation of the bensons’ omitted gross_income for purposes of applying sec_6501 we hold that the bensons omitted gross_income of dollar_figure itemized as follows in the reverse rental income recharacterized as constructive dividends it appears that respondent reduced the omitted gross_income in an amount equal to the bensons’ pro_rata share of the lowell plant rent items of omitted gross_income payments from erg to npi check ref carroll automobile expenses life_insurance erg payment related to lowell plant director’s fees franklin dividends royalty income reverse royalty income recharacterized as constructive dividends reverse npi rental income recharacterized as constructive dividends total_amounts omitted by the bensons dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number this amount represents a negative number reported gross_income the parties agree that the bensons reported gross_income of dollar_figure which consists of wages of dollar_figure interest_income of dollar_figure rental income totaling dollar_figure royalty income totaling dollar_figure other income from npi of dollar_figure and income from the evelyn c hermsmeir partnership of dollar_figure additionally respondent concedes that the bensons reported income of dollar_figure from the baden spiel haus partnership the bensons assert that their return reported income of dollar_figure from the evelyn c hermsmeir partnership respondent argues that the bensons reported dollar_figure on their return from the evelyn c hermsmeir partnership we will calculate the bensons’ reported gross_income using respondent’s figure as it is more favorable to the bensons than their own calculation the parties disagree as to the amount of the bensons’ reported gross_income from npi’s form_1120s the bensons argue that the hercules payment of dollar_figure was reported on npi’s amended form_1120s and that the entire dollar_figure of gross rental income reported on the return of npi should be included in the bensons’ reported gross_income respondent argues the bensons reported only their pro_rata share of npi’s reported gross_income on its original return as we found supra the hercules payment was disclosed only on the amended_return of npi not the original return because return in sec_6501 does not include amended returns see houston v commissioner t c pincite goldring v commissioner t c pincite the hercules payment is not included in the bensons’ reported gross_income we also disagree with the bensons that the entire dollar_figure of npi’s reported income from real_estate activities is included in their reported gross_income for purposes of sec_6501 taxpayers’ reported gross_income includes their pro_rata share of gross_income from passthrough entities such as an s_corporation benderoff v united_states f 2d pincite roschuni v commissioner t c pincite on its original form 1120-s npi reported gross_income from real_estate activities of dollar_figure and listed burton o benson as a percent shareholder of npi therefore we find that the bensons’ reported gross_income includes their pro_rata share of npi’s reported gross_income which equals dollar_figure percent of dollar_figure for purposes of applying sec_6501 we hold that the bensons’ reported gross_income of dollar_figure on their return which is itemized as follows items of gross_income amounts reported by the bensons wages dollar_figure interest big_number rental income big_number royalties big_number other income npi salary big_number evelyn c hermsmeir big_number partnership 1120-s return of npi baden spiel haus partnership total big_number big_number 25-percent omission we hold that the bensons omitted percent14 of their reported gross_income in therefore the 6-year period of limitations applies to their tax_year as provided by sec_6501 b the parties contend that the bensons omitted gross_income in as follows dollar_figure dollar_figure equal sec_71 percent items of omitted gross_income amounts asserted 1amounts asserted by the bensons by respondent dollar_figure erg recreation account alice lane--property taxes big_number automobile expenses big_number director’s fees big_number big_number esther benson check big_number townsend check travel_expenses big_number legal expenses big_number employee relation’s fund big_number education expenses big_number life_insurance big_number additional dividend sec_586 big_number total -- -- -- -- -- -- -- -- -- -- -- -- dollar_figure on brief respondent failed to itemize the bensons’ omitted gross_income and provided only the total amount of the bensons’ omitted gross_income in benson v commissioner tcmemo_2004_272 we held that burton benson received constructive_dividend income of dollar_figure from travel_expenses we will use this amount to calculate the bensons’ omitted gross_income in benson v commissioner supra we held that burton benson received constructive_dividend income of dollar_figure from legal expenses paid_by erg we will use this amount to calculate the bensons’ omitted gross_income in benson v commissioner supra we held that the bensons received constructive_dividend income of dollar_figure from amounts paid_by erg for the employee relation fund we will use this amount to calculate the bensons’ omitted gross_income the parties argue that the bensons reported gross_income in as follows items of gross_income amounts asserted by the bensons amounts asserted by respondent dollar_figure big_number wages interest less baden spiel haus flowthrough interest less hermsmeir partnership flowthrough interest dividends big_number less npi flowthrough -- -- -- dollar_figure big_number big_number big_number -- -- -- -- big_number dividend income capital_gain distributions taxable refunds rents lucile arroyo elsie drive total rents royalties -- occidental -- sun -- scurlock total royalties big_number other income npi salary big_number evelyn hermsmeir big_number partnership 1120-s return of npi gross_sales royalties gross rents dividends total npi income bensons’ share of npi income bensons’ share of -- baden spiel haus partnership total -- big_number big_number -- big_number big_number -- big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number this amount represents a negative number this amount includes royalties received from npi the parties calculated the percentage of omitted gross_income in as follows omitted gross_income reported gross_income percent understated the bensons’ respondent’s calculation calculation dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure omitted gross_income we disagree with the bensons’ calculation of omitted gross_income the bensons concede that they omitted gross_income of dollar_figure from their return for the reasons discussed supra we also find that the bensons’ omitted gross_income includes the dollar_figure transferred from erg to npi the excess rent of dollar_figure received for the stanford plant and the rent of dollar_figure received for the lowell plant respondent provided only the total figure for the bensons’ omitted gross_income in in his calculations of omitted gross_income in and respondent reduced the total omitted gross_income by amounts described as reverse income recharacterized as constructive dividends in our calculation we credit the bensons with a reverse of the payment from erg to npi that is recharacterized as constructive dividends of dollar_figure because the bensons reported this amount on their return the return of npi included gross rents of dollar_figure because the return does not itemize the properties that generated this income we assume that the rents received from the lowell and stanford plants are included in npi’s total gross rents in calculating omitted gross_income we will credit or reverse the bensons’ pro_rata shares of rental income from the lowell and stanford plants in other words the reverse ensures that the rental income recharacterized as constructive dividends counts as omitted gross_income of the bensons only to the extent that this income exceeds their pro_rata share which was disclosed on the bensons’ return we credit the bensons with a reverse of dollar_figure for the lowell plant rent15 and dollar_figure for the stanford plant rent16 that has been recharacterized as a constructive_dividend in our prior opinion we held that the bensons had cancellation_of_indebtedness_income of dollar_figure in benson v commissioner tcmemo_2004_272 on brief the bensons make no argument that this cancellation_of_indebtedness_income was disclosed on their return furthermore in our examination of the bensons’ return we have not found any statement that provides a clue to or discloses the cancellation of indebtedness for purposes of sec_6501 we find that the cancellation_of_indebtedness_income of dollar_figure constitutes omitted gross_income to the bensons in next we find that the bensons omitted from gross_income constructive dividends of dollar_figure received from the franklin account in our prior opinion we stated that on his return the bensons’ son eric reported dividend income from franklin account of dollar_figure benson v commissioner supra dollar_figure x dollar_figure dollar_figure x dollar_figure we held that the bensons received additional dividend income of dollar_figure in because despite the fact that eric reported the amount credited on his return the dividends are clearly attributable to the bensons and should have been reported by them id we find that the disclosure of the franklin dividend on the return of eric benson the bensons’ son does not satisfy the disclosure requirement of sec_6501 see greenway v commissioner tcmemo_1987_4 reporting of that income on their children’s returns and petitioners payment of taxes owed on it does not satisfy the sec_6501 requirement that the omission be ‘disclosed in the return or in a statement attached to the return in a manner adequate to apprise the secretary of the nature and amount of such item ’ for purposes of applying sec_6501 we hold that the bensons’ omitted gross_income in equals dollar_figure which is itemized as follows items of omitted gross_income amounts omitted by the bensons dollar_figure erg recreation fund payments big_number alice lane--property taxes big_number automobile expenses big_number director’s fees big_number esther benson check big_number townsend check big_number travel_expenses big_number legal expenses employee relation’s expenses big_number big_number education expenses life_insurance big_number additional dividends erg transfers to npi reverse of payments from erg to npi income recharacterized as constructive dividends erg payment related to lowell plant reverse lowell plant rental income recharacterized as a constructive_dividend erg payment related to stanford plant reverse stanford plant rental income recharacterized as a constructive_dividend cancellation_of_indebtedness_income franklin account total big_number big_number big_number big_number big_number big_number big_number big_number big_number this amount represents a negative number reported gross_income and 25-percent omission the parties agree that the bensons reported gross_income of dollar_figure in which consists of wages of dollar_figure capital_gain distributions of dollar_figure rental income of dollar_figure dollar_figure of other income or salary from npi and income of dollar_figure from the evelyn hermsmeir partnership in addition respondent concedes that the bensons’ reported a taxable refund of dollar_figure and dollar_figure from their share of baden spiel haus partnership income the parties dispute the following items of reported gross_income interest_income dividend income royalty income and npi income the parties agree that the bensons reported interest_income of dollar_figure on their return however respondent’s calculation of the bensons’ interest_income reduces the total interest_income by dollar_figure of interest received from baden spiel haus and dollar_figure of interest received from the evelyn hermsmeir partnership we agree with respondent’s calculation the bensons’ reported gross_income includes income that they received from the baden spiel haus and evelyn hermsmeir partnerships if their interest_income were not reduced by the amount of interest_income received from these two partnerships the bensons’ reported gross_income would include this interest_income twice we find that the bensons’ reported interest_income of dollar_figure for on brief the bensons assert that they reported dividend income of dollar_figure in dollar_figure respondent calculated the bensons’ reported dividend income as totaling dollar_figure and reduced this amount by dollar_figure which represents the amount of dividend income that the bensons received from npi because their share of npi income will be calculated separately including the npi dividend income as a portion of the bensons’ dividend income would include this item twice we agree with respondent and find that the bensons reported dividend income of dollar_figure in as with the dividend income the parties dispute the bensons’ reported royalty income the bensons calculated their the bensons’ return reports a taxable refund of dollar_figure it appears that they mistakenly listed the reported taxable refund as a dividend reported royalty income as dollar_figure which includes dollar_figure of royalties received from npi respondent asserted that the bensons reported royalty income of dollar_figure the calculation does not include the royalties received from npi as with the dividend income we agree that the npi royalties should not be included in the bensons’ royalty income to avoid the inclusion of this income twice we find that the bensons reported royalty income of dollar_figure in with respect to the bensons’ share of npi income we agree with respondent’s calculation as we discussed supra the bensons’ reported gross_income includes their pro_rata share of gross_income from npi the return of npi reports total income of dollar_figure which consists of gross_receipts or sales of dollar_figure royalties of dollar_figure gross rents of dollar_figure and dividend income of dollar_figure that return also lists burton o benson as a 50-percent_shareholder therefore we agree with respondent that the bensons’ reported gross_income includes their share of npi’s income which is dollar_figure for purposes of applying sec_6501 we hold that the bensons reported gross_income of dollar_figure in which is itemized as follows items of reported gross_income amount of reported gross_income wages interest_income dividends dollar_figure big_number - - capital_gain distributions taxable refunds rents royalties other income npi salary evelyn hermsmeir partnership bensons’ share of npi income bensons’ share of baden spiel haus partnership total big_number big_number big_number big_number big_number big_number big_number the bensons have omitted more than percent of their reported gross_income in dollar_figure even assuming that the bensons correctly calculated the amount of reported gross_income as dollar_figure they have omitted more than percent of the reported gross_income in dollar_figure we hold that the 6-year period of limitations applies to the bensons’ tax_year as provided by sec_6501 iii conclusion in conclusion we hold that the bensons omitted from gross_income amounts that exceed percent of their reported gross dollar_figure dollar_figure equal sec_41 percent dollar_figure dollar_figure equal sec_33 percent income in and therefore the 6-year period of limitations provided by sec_6501 applies in each of these years to reflect the foregoing decisions will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom fip 2-plr-118800-98 date date legend trust operating partnership state x state y date date date b c d dear this responds to your date letter and your subsequent correspondence submitted on behalf of trust requesting a ruling that amounts derived from parking facilities operated by independent contractors will qualify as rents_from_real_property within the meaning of sec_856 of the internal_revenue_code plr facts trust will file an election under sec_856 of the code to be treated as a real_estate_investment_trust reit for federal_income_tax purposes with its tax_return for the year ended date trust was formed as a state y corporation on date and recognized as a state x corporation on date trust principally owns all of its assets and conducts all of its operations through operating partnership a state x limited_partnership trust is the sole general_partner of operating partnership and owns a general_partnership interest of approximately b percent and a limited_partnership_interest of approximately c percent through operating partnership trust owns a portfolio of commercial properties the buildings operating partnership owns buildings through sub-tier partnerships limited_partnerships and limited_liability companies the sub-tiers formed to own and operate rental real_estate in most cases operating partnership owns directly and indirectly at least d percent of the economic interests in each sub-tier certain of the buildings have related parking facilities that are located in the building itself in other cases the parking facility for the building is situated adjacent to the building in still other cases the parking facility is part of the same overall complex as the building but is neither in nor adjacent to the building itself the operating partnership is not involved in the management or operation of the parking facilities located in adjacent to or as part of the same complex as the buildings the parking facilities except as described below operating partnership has entered into leases parking leases with one or more third parties whereby lessee operates and manages the parking facilities retains the net_income therefrom and bears any loss in some cases the operating partnership has entered into an operating_agreement with an affiliate of the lessee and then assigned its rights and obligations under such agreement to the lessee in order to simplify business operations the operating partnership intends to enter into exclusive license agreements each a parking management_contract with third parties each a service company to operate and manage one or more of the parking facilities trust has represented that each service company will be an independent_contractor within the meaning of sec_856 of the code and neither trust nor operating partnership will derive any income from the service companies plr each parking management_contract will grant to a service company the exclusive right to operate the parking facility that is the subject of the contract the parking management_contract will require all personnel to be employees of the service company and not the trust or operating partnership each service company will provide and be directly responsible for all salary benefits labor administration and supervision of employees in the parking facilities that it operates in addition each service company will be responsible for establishing all major policies with respect to the parking facilities that it operates subject_to the approval of the operating partnership however in some cases the service company together with the operating partnership will establish parking rates and policies in order to maintain the reputation and quality of business relations of the related building further the service company may be required to consult with the operating partnership regarding staffing levels and rules and regulations operating partnership may also have the ability to request the removal of a specific employee of the service company from the parking facility if the employee’s continued presence is not in the best interests of the operation of that parking facility or the related building trust has represented that the relationship with each service company will be at arm’s length the service companies will not be employees of the trust or subject_to the direct control of the trust and that the service companies will be adequately compensated in some cases the compensation may be a fixed dollar amount in other cases the service company’s compensation may be a fixed dollar amount plus a percentage of the parking facility’s net or gross revenues in still other cases the service company’s compensation may be a percentage of net or gross revenues plus an additional fixed dollar amount_paid only in certain circumstances finally the compensation only may be a percentage of net or gross revenues the tenants of the buildings their employees customers and guests as well as members of the general_public generally will pay parking fees directly to the service companies the service company will remit net_revenues to the operating partnership net_revenues will be based on revenues received and amounts deemed to be received as a result of possible tenant discounts less the service company’s compensation and the operating_expenses of the parking facilities in some cases however operating partnership may directly collect parking revenues from tenants and remit them to the service company these revenues will be treated in exactly the same manner as revenues collected directly by the service company plr estimated operating_expenses staffing needs and proposed parking rates will be presented by the service company to the operating partnership in an annual budget that will be subject_to the reasonable approval of operating partnership however the service company may be required to obtain prior consent from the operating partnership in advance of undertaking purchases exceeding certain thresholds throughout the year operating partnership will receive periodic accounting statements from the service company in addition there typically may be periodic meetings between the service company and representatives of operating partnership or trust to review the results of operations from the parking facility either the service company operating partnership or trust can call a special meeting if it believes that the parking rates should be changed from the amount set forth in the approved budget in some parking facilities parking spaces will be exclusively for_the_use_of the tenants of the related building either on a reserved or unreserved basis in other parking facilities parking spaces also may be available to the general_public on an hourly daily weekly or monthly unreserved basis or on a weekly or monthly reserved basis in some cases discounted parking is made available to the tenants operating partnership may provide basic customary maintenance cleaning lighting and repairs for some of the parking facilities although those services generally will be provided through the service company all other services will be performed by the service company in some cases the service company may provide tire repair and towing some parking facilities may be operated on a self-park basis in which patrons park their own vehicles other parking facilities will have attendant parking any and all services provided by the operating partnership or service company will be customary in parking facilities related to buildings of a similar class to the buildings in the geographic markets in which the buildings are located at certain parking facilities an independent third party car service provider may offer routine car maintenance services car washing services or car rental services which are not customarily furnished in connection with the rental of real_property in such cases the parking facility patrons will contract directly with the car service provider trust has represented that the car service provider will be an independent_contractor within the meaning of sec_856 of the code and neither the service company nor operating partnership will receive any fees or income from the car service provider plr further the cost of the services will be borne by the car service provider separate charges will be made for the services the amount of the separate charges will be received and retained by the car service provider and the car service provider will be adequately compensated for the providing the services law and analysis sec_856 of the code provides that at least percent of a reit’s gross_income must be derived from among other sources rents_from_real_property sec_856 of the code provides that rents_from_real_property include subject_to the exclusions in sec_856 i rents from interests_in_real_property ii charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and iii rent attributable to personal_property which is leased under or in connection with a lease of real_property but only if the rent attributable to such personal_property for the taxable_year does not exceed percent of the total rent for the year attributable to both the real and personal_property leased under or in connection with the lease definition of rents_from_real_property any impermissible_tenant_service_income as defined in sec_856 sec_856 of the code excludes from the sec_856 of the code provides that impermissible tenant service incomes means with respect to any real or personal_property any amount received or accrued directly or indirectly by a reit for furnishing or rendering services to the tenants of such property or managing or operating such property sec_856 of the code provides that if the amount of impermissible_tenant_service_income with respect to a property for any taxable_year exceeds one percent of all amounts received or accrued directly or indirectly by the reit with respect to such property the impermissible_tenant_service_income of the reit with respect to the property shall include all such amounts sec_856 of the code excludes from the definition of impermissible_tenant_service_income amounts received for services furnished or rendered or management or operation provided through an independent_contractor from whom the reit itself does not derive or receive any income additionally sec_856 excludes from the definition of impermissible_tenant_service_income any amount which would be excluded from unrelated_business_taxable_income under sec_512 if received by an organization described plr in sec_511 trust has represented that the service companies constitute independent contractors from whom the trust does not receive any income in the cases where the service company collects the parking revenues and remits them to the operating partnership net of its fees and operating_expenses the service company is functioning as a conduit for delivering the revenues to the operating partnership consequently under these circumstances the operating partnership and trust will not be treated as deriving or receiving income from the service companies the limited activities described above that are directly performed by operating partnership are not services for purposes of sec_856 of the code that are required to be performed by an independent_contractor the services furnished by the service companies with respect to the parking facilities will not generate impermissible_tenant_service_income for purposes of sec_856 of the code because they are being performed by independent contractors under sec_1_856-3 of the income_tax regulations a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 of the code the interest of a partner in the partnership’s assets will be determined in accordance with the partner’s capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership will retain the same character in the hands of the partners for all purposes of sec_856 of the code accordingly trust’s allocable share of amounts received by operating partnership from the parking facilities that are operated by the service companies pursuant to the arrangements described above will qualify as rents_from_real_property within the meaning of sec_856 of the code conclusions based on the facts submitted and representations made we rule that trust’s allocable share of amounts received by operating partnership from the parking facilities that are operated by the service companies pursuant to the parking management contracts qualify as rents_from_real_property within the meaning of sec_856 of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any plr transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether trust qualifies as a real_estate_investment_trust under sec_856 of the code this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel financial institutions and products by william coppersmith william coppersmith chief branch


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 plr-140391-09 date date in re ----------------------------------------------------------- legend act ----------------------------------------------------------------------------------------- agency ---------------------------------------------------- agreement ---------------------------------------- b ---------------------------------------- court ------------------------------------------------------------------------------- department ---------------------------------------------------------------------------- entity1 -------------------------------------------------------- entity2 ---------------------------------- entity2 claimants ------------------- plr-140391-09 incident ------------------------------------------------------------------------------------------------------- ------- t -------------------------------------- z ------------------------------------------------ c ------- date -------------------- date ---------------------- year ------- year ------- year ------- f ----------------------- dollar_figureq dollar_figure--------------- dollar_figurer dollar_figure--------------- dollar_figuret dollar_figure-------------------- dollar_figurev dollar_figure------------------- w ----- dollar_figurey dollar_figure---------------- dear ------------------- this is in reply to your request for a ruling that any payment you receive from department for the wrongful death of b your c is excludable from your gross_income under sec_104 of the internal_revenue_code facts your c was one of w individuals killed in incident in year the estates of those killed and their survivors including you entered into a joint prosecution agreement jpa to pursue claims for damages against entity1 and its officials who were responsible for plr-140391-09 incident the jpa sets forth how the plaintiffs will divide any amounts they recover in litigation or settlement of their claims initial litigation the estates of those killed and their survivors initially sued entity1 in court in year the causes of action included claims for survivorship wrongful death and intentional infliction of severe emotional distress you sought recovery for intentional infliction of severe emotional distress caused by the death of your c in year court granted summary_judgment for plaintiffs on the issue of liability in year court awarded the plaintiffs an aggregate recovery_of dollar_figurev for compensatory_damages prejudgment_interest and punitive_damages you were awarded an aggregate of dollar_figurey dollar_figurer against t and dollar_figureq against z legislative settlement subsequently on date entity2 passed the act to provide fair compensation to all entity2 claimants who have f claims for wrongful death and physical injury including claims for emotional distress against entity1 through a comprehensive settlement of those claims upon entity1’s payment to entity2 the act voided all prior court proceedings and judgments for f claims by entity2 claimants against entity1 or its officials and permanently precluded entity2 claimants from asserting f claims against entity1 or its officials on date entity1 and entity2 entered into the agreement to resolve all f claims against entity1 entity1 then transferred dollar_figuret to entity2 which will be paid to claimants covered by the agreement thus pursuant to the act court award of damages to the plaintiffs was voided and has been vacated agency has established procedures to compensate victims pursuant to the agreement as a survivor of an individual killed in incident you must file a claim with department to recover damages for claims of wrongful death based on the death of your c you represent that department’s payment will not include interest or punitive_damages law and analysis sec_104 provides in general that gross_income does not include the amount of any damages received whether by suit or agreement on account of personal physical injuries or physical sickness sec_1_104-1 of the income_tax regulations provides that the term damages received whether by suit or agreement means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution section of the small_business job protection act of limits the exclusion_from_gross_income provided by sec_104 to amounts received on account of personal physical injuries or physical sickness subject_to one exception in h_r conf_rep no pincite congress expressed its intent concerning the treatment of plr-140391-09 wrongful death damages and emotional distress damages attributable to a physical injury d amages other than punitive_damages received on account of a claim of wrongful death continue to be excludable from taxable_income as under present law because all damages received on account of physical injury or physical sickness are excludable from gross_income the exclusion_from_gross_income applies to any damages received based on a claim of emotional distress that is attributable to physical injury or physical sickness the action you brought in court and the claim you file with department each seek recovery_of damages for emotional distress attributable to a personal physical injury these claims are based in tort under sec_1_104-1 under the act any recovery_of compensatory_damages that department awards you is for the wrongful death of your c this wrongful death recovery as adjusted by the jpa is excludable from your income under sec_104 conclusion based strictly on the information submitted and the representations made we conclude that the amount you receive from department as adjusted by the jpa for the wrongful death of your c is excludable from your gross_income under sec_104 we do not express or imply an opinion on the federal tax consequences of any aspect of these transactions other than those expressed in the conclusion above this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations that you submitted under penalties of perjury 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 you must attach to any income_tax return to which it is relevant a copy of this letter or if you file your returns electronically a statement providing the date and control number of this letter_ruling plr-140391-09 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service washington d c tax exempt and overnment entities oct uil no 408a ce tv ep’ rath legend taxpayer a taxpayer b custodian m amount a amount b year year ira x ira y dear this is in response to your letter dated supplemented by correspondence dated submitted on your behalf by your authorized representative in which you request relief under sec_301_9100-3 of the procedure and administrative regulations the regulations such relief is requested regarding the recharacterization of amounts rolled over to a roth individual_retirement_arrangement ira for taxable years in which taxpayer a was ineligible to contribute to a roth_ira the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a and taxpayer b hereinafter referred to as the taxpayers are married the taxpayers filed form_1040 u s individual_income_tax_return jointly for tax_year sec_1 and taxpayer a owned ira x a traditional_ira described in sec_408 of the internal_revenue_code the code and maintained by custodian m in december of year custodian m at taxpayer a’s request transferred amount a from ira x to ira y a roth_ira described in sec_408a of the code as a roth_ira_conversion in december of year at taxpayer a’s request custodian m converted amount b the remaining balance in ira x to ira y the taxpayers reported amounts a and b as taxable_income on their form sec_1040 for tax_year sec_1 and respectively the taxpayers prepared their own form sec_1040 using a tax preparation software form_1040 taxpayer a program for tax_year sec_1 and while preparing the represents that he discovered that the tax preparation software calculated an excise_tax on form_5329 additional taxes on qualified_plans upon review of the form sec_1040 for tax_year sec_1 and taxpayer a discovered that an excise_tax was also calculated in connection with the preparation of the tax returns after discovering the excise_tax calculations taxpayer a consulted with an accountant to determine the reason for the calculation of the excise_tax taxpayer a was advised by the accountant that he was ineligible to make the conversions because his modified_adjusted_gross_income magi exceeded dollar_figure in year sec_1 and and of his ability to seek relief as described in sec_301_9100-3 of the regulations the taxpayers represent further that at the time of the conversions they were unaware of the requirement that their magi be below dollar_figure for the year of each conversion the taxpayers have not filed their federal tax_return for tax_year and have applied for an automatic six-month extension of time to file until october eek taxpayer a's request for relief under sec_301 of the regulations was filed with the internal_revenue_service the service prior to the service discovering that taxpayer a was not eligible to convert amounts a and b to ira y and prior to the service discovering that taxpayer a had not timely elected to recharacterize amounts a and b back to a traditional_ira the statute_of_limitations with respect to the taxpayers’ federal_income_tax return for year sec_1 and remains open based on the foregoing facts and representations the taxpayers request a ruling that pursuant to sec_301_9100-1 and sec_301_9100-3 the taxpayers be granted a period not to exceed six months from the date of any ruling letter issued to recharacterize amounts converted in year and year including earnings related to the recharacterized amounts back to a traditional_ira by way of a trustee-to-trustee transfer with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the code and sec_1_408a-5 of the income_tax t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a of the code and sec_1_408a-5 of the i t regulations this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax return for the year of contribution sec_1_408a-5 q a-6 of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_408a of the code and sec_1_408a-4 q a-2 of the income_tax i t regulations provide in relevant part that an individual with adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that a married individual must file a joint_return in order to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for the taxable_year is the modified_adjusted_gross_income derived from the joint_return using the couple's combined income sec_408a provides that a conversion of a traditional_ira to a roth_ira is treated as a rollover from the traditional_ira to the roth_ira sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section in this case the taxpayers timely filed their joint form sec_1040 for tax_year sec_1 and when they filed their form sec_1040 the taxpayers were not aware that taxpayer a was ineligible to make conversions from his traditional_ira x to roth_ira y because they were unaware of the requirement that their magi income must be below dollar_figure for the year of each conversion the taxpayers did not become aware that taxpayer a's aforementioned conversions did not comply with the requirements of sec_408a of the code and interpreting regulations until they were preparing their form_1040 for tax_year that point the time period prescribed by sec_408a of the code had expired therefore it is necessary to determine if the taxpayers are eligible for relief under sec_301_9100-3 of the regulations at the taxpayers filed this request for relief under sec_301 of the regulations shortly after discovering that taxpayer a was ineligible to convert his traditional_ira x to roth_ira x because their magi exceeded the permissible limits thus with respect to the taxpayer's request for relief we believe that based on the information and the representations submitted by the taxpayers the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and the taxpayers acted reasonably and in good_faith with respect to requesting an extension of time in order to recharacterize roth_ira y as a traditional_ira specifically we conclude beet that the taxpayers have met the requirements of clauses i and iii of sec_301_9100-3 of the regulations additionally because the statute_of_limitations is still open under sec_301 c ii of the regulations granting relief will not prejudice the interests of the government accordingly the taxpayers are granted an extension of time not to exceed days as measured from the date of this letter_ruling to recharacterize amounts a and b held in roth_ira y plus earnings attributable thereto as a traditional_ira __ no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file with this office if you wish to inquire about this ruling please contact d no at or fax please address all correspondence to se t ep ra t4 sincerely yours donzell h littlejohn manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-111925-01 date date number release date index number company shareholders corp state a b c address dear this letter responds to a letter dated date from your authorized representative as well as subsequent correspondence requesting an extension of time for company to elect under sec_1361 of the internal_revenue_code to treat corp as a qualified_subchapter_s_subsidiary qsub according to the information submitted company was incorporated on a under the laws of state it elected under sec_1362 to be treated as an s_corporation corp was incorporated on b also under the laws of state the shareholders intended corp to be treated as a qsub as of its incorporation date but the qsub election had an incorrect effective date and was not filed timely sec_1361 provides that for purposes of sec_1361 treatment of certain wholly owned subsidiaries the term qualified_subchapter_s_subsidiary means any domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if- i percent of the stock of such corporation is held by the s_corporation and ii the s_corporation elects to treat such corporation as a qsub under sec_301_9100-1 of the procedure and administration regulations 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 plr-111925-01 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based on the facts submitted and the representations made company has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently company is granted an extension of days from the date of this letter for electing under sec_1361 to treat corp as a qsub within the extension period company must file the election with the chief planning and special programs area at address for association with company’s return for c a copy of this letter should be attached to the election statement the ruling_request indicates that the forms 1120s filed by company and corp for f reflect inaccurate ownership information these returns must be amended accordingly except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer on whose behalf it was requested according to sec_6110 this ruling may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely paul f kugler associate chief_counsel passthroughs and special industries


te government entities division department of the treasury internal_revenue_service washington d c u i l jul onoy set ep iat legend taxpayer a bank b company f amount d account c dear this is in response to your letter dated date as supplemented by correspondence dated date in which you request a waiver of the 60-day rollover requirement contained in c a of the internal_revenue_code the code the following facts and circumstance have been submitted under penalties of perjury in support of the ruling_request _ taxpayer a’s employer discontinued its code sec_401 in february plan and requested the participants to instruct it as to where they desired to have their account balances distributed taxpayer a states that she contacted bank b and bank b agreed to accept her plan account balance as a rollover_contribution taxpayer a states that she informed her employer that she wanted to make a direct_rollover of her plan account balance into an individual_retirement_arrangement ira at bank b i --200443040 in the amount of amount d was issued by a check dated february company f and made payable to bank b for the benefit of taxpayer a a representative of bank b called taxpayer a and informed her that the check in the amount of amount d had been received by bank b and asked taxpayer a what she intended to do with the check understanding was that bank b was asking about the type of investment of amount d and she asked the bank b representative if she could put the money into general savings until she made a decision with respect to investment options taxpayer a asserts that the bank b representative informed her that depositing amount d into a savings account would be sufficient taxpayer a endorsed the check and it was deposited into account c on march supported by the account statement submitted with this ruling_request taxpayer a asserts that her as taxpayer a was informed by her accountant that account c was in march not an ira and that amount d did not constitute a rollover_contribution because it had not been rolled over to an ira within days taxpayer a asserts that up until this time she was not aware that amount d was not in an ira and assumed that a rollover had been completed in accordance with her instructions to her employer taxpayer a asserts that she has never used amount d since it has been in account c and has submitted a recent account statement supporting this assertion further taxpayer a states that it has been her intention from the beginning of this process to preserve amount d as part of her retirement savings based on these facts and representations you request that the service waive the’ 60-day rollover requirement with respect to the distribution of amount d sec_402 of the code provides that except as otherwise provided in this section any amount actually distributed to any distributee by any employees’ trust described in sec_401 a of the code which is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 relating to annuities sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras sec_402 of the code provides generally that if any portion of an eligible_rollover_distribution from a qualified_trust is paid to the employee in an eligible_rollover_distribution and the employee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code provides that the maximum amount of an eligible_rollover_distribution to which paragraph applies shall not exceed the portion of such distribution which is includible in gross_income determined without regard to paragraph sec_402 defines eligible_rollover_distribution as any distribution to the employee of all or a portion of the balance_to_the_credit of the employee in a qualified_trust except that such term shall not include a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made- i for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and the employee's designated_beneficiary or ii for a specified period of years or more b any distribution to the extent such distribution is required under sec_401 and c any distribution which is made upon hardship of the employee code sec_402 defines eligible_retirement_plan as i an individual_retirement_account described in sec_408 ii an individual_retirement_annuity described in sec_408 other than an endowment_contract iii a qualified_trust iv an annuity plan described in sec_403 v an eligible_deferred_compensation_plan described in sec_457 maintained by an eligible_employer as described in sec_457 and vi an annuity_contract described in sec_403 code sec_402 provides that sec_402 shall not apply to any transfer of a distribution made after the day following the day on which the distributee received the property distributed sec_402 of the code provides that the secretary may waive the day rollover requirement under subparagraph a where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_402 revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a wavier of the 60-day rollover requirement pursuant to sec_402 of o f the code the service will consider all relevant facts and circumstance including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred documentation submitted in this case indicates that a check in the amount of amount d was issued by company fon february bank b for the benefit of taxpayer a taxpayer a deposited amount d into as supported by the account statement submitted account c on march with this request for a ruling taxpayer a thought that amount d had been rolled over to an ira as requested taxpayer a asserts that she has never used amount d since it has been in account c and that it has been her intention since her employer terminated its sec_401 plan to preserve amount d retirement savings further taxpayer a submitted a recent account statement for account c to support that amount d continues to be held in account c and made payable to for her therefore assuming that the distribution of amount d qualifies as an eligible_rollover_distribution under code sec_402 pursuant to sec_402 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from taxpayer a’s employer's code sec_401 plan taxpayer a is granted a period of days from the date of this ruling to contribute amount d to an ira provided all other requirements of sec_402 of the code except the 60-day requirement are met with respect to the contribution this amount will be considered a rollover_contribution within the meaning of sec_402 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling assumes that taxpayer a’s employer code sec_401 plan satisfied the requirements of code sec_401 at all times relevant to this transaction no opinion is expressed as whether the distribution of amount d qualifies as an eligible_rollover_distribution under code sec_402 this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact se t ep ra t2 sincerely yours signed dotcr b floyd joyce e floyd manager employee_plans technical group