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 b01 plr-130187-10 date date ty ------- ty ------- taxpayer u s city ----------------------------------------- -------- foreign parent -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ foreign_subsidiary ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ foreign_subsidiary --------------------------------- country -------- fund ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ settlement_date date final date dollar_figurex dollar_figurey year ---------------------------- ----------------------- --------------------- --------------------- ----------------------- ----------------------- ------- plr-130187-10 year a b ------- -- --- --- --- dear ---------------------------- this letter responds to a ruling_request dated july submitted by taxpayer taxpayer requests a determination that certain settlement payments are deductible under sec_162 of the internal_revenue_code facts taxpayer is an -------------corporation ------------------------------------------------------------ and engages solely in -------------------------------------------financial services taxpayer headquartered in u s city does not provide any services to u s persons is a calendar_year taxpayer and uses the accrual_method of accounting for u s tax purposes foreign parent headquartered in country is a bank foreign parent provides a full range of banking services to a diverse client base individual customer services include private banking services for high net_worth individuals taxpayer is part of foreign parent’s private banking division and taxpayer services high net_worth individuals of a specific geographic area in addition to traditional banking services taxpayer also provides asset management and investment advisory services in connection with its private banking business taxpayer made available to some of its clients the opportunity to invest in shares of several investment funds taxpayer’s clients were thus beneficial owners of shares of these funds ------------------------------------------------------------------------ ------------------ in year criminal actions were commenced against fund’s manager for his role in a fraud that resulted in the placement of fund into bankruptcy taxpayer’s clients who were invested in fund consequently suffered losses as a result of the criminally fraudulent activities of fund’s manager as a result of these loses four class action lawsuits were filed in year naming taxpayer as a defendant among others damages sought included the principal plr-130187-10 invested with fund profits that otherwise could have been earned from the funds invested with fund and interest thereon the claims alleged the following causes of action against the taxpayer a violation of b of the securities exchange act of and rule 10b-5 of the sec b negligent misrepresentation c breach of fiduciary duty d gross negligence and e unjust enrichment on date foreign parent announced that it would offer a settlement to its clients who had invested in fund and were therefore affected by the fraud the structure of the settlement was conceived to satisfy taxpayer’s regulatory requirements as well as its clients taxpayer participated in the settlement via a contribution to foreign_subsidiary foreign_subsidiary in turn would issue its own preferred securities directly to taxpayer’s clients who accepted the terms of the settlement foreign_subsidiary is a wholly owned subsidiary of foreign parent and is incorporated under the laws of country the preferred securities entitle the holder subject_to certain conditions to a a non-cumulative annual cash distribution and have a perpetual term annual distributions as well as liquidation and redemption payments are guaranteed by foreign parent the preferred securities are redeemable at the option of foreign_subsidiary in whole but not in part on any distribution date occurring on or after final date the preferred securities are listed on the --------------------------------- but not actively_traded the settlement in turn required taxpayer’s clients to transfer legal_title to the shares in the taxpayer funds including any causes of actions those funds may have against fund its manager and or any other third party to foreign_subsidiary which are held in a foreign_subsidiary account ---------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- in addition taxpayer’s clients were required to forgo any legal actions against the foreign parent and related subsidiaries included taxpayer for the clients’ investments in fund at the time of the settlement taxpayer did not obtain compensation from foreign_subsidiary in connection with funds’ securities because the value thereof was doubtful taxpayer represents that it does not stand to obtain any compensation in the future in connection with fund --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-130187-10 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- taxpayer did not receive any reimbursement from an insurance_company or similar compensation as a result of the taxpayer’s payment in connection with the settlement approximately b of taxpayer’s clients who invested in the taxpayer funds that invested through fund accepted the settlement and decided to continue doing business with taxpayer rather than pursue legal action against it on date year foreign_subsidiary issued preferred securities directly to taxpayer’s clients who accepted the settlement taxpayer did not hold in its own account or name any of the preferred securities for future settlements taxpayer did not hold the preferred securities for any period of time after issuance during which the value of the preferred securities could have fluctuated based on the number of taxpayer’s clients who accepted the settlement and the principal_amount of their investment in the funds taxpayer made a cash contribution of dollar_figurex to foreign_subsidiary taxpayer also represented that the preferred shares are the equivalent of cash taxpayer received a capital_contribution of approximately dollar_figurey from foreign parent in connection with taxpayer’s contribution to foreign_subsidiary representations taxpayer makes the following representations in connection with this ruling_request taxpayer adopted the settlement for commercial reasons aimed at preventing disruptions to taxpayer’s private banking business and not as a result of a pre- existing contractual obligation or other pre-existing arrangement to do so taxpayer did not receive payment or reimbursement from an insurance_company or similar compensation in connection with the payment made by taxpayer pursuant to the settlement rulings requested pursuant to the origin of the claim doctrine the potential liability if any released by taxpayer clients under the settlement originated from common and routine trade_or_business activities taxpayer’s payment under the settlement is deductible under sec_162 as an ordinary and necessary trade_or_business expense no portion of taxpayer’s payment will be characterized as a capital_expenditure under sec_263 or the regulations thereunder legal analysis plr-130187-10 sec_162 provides generally that there is allowed as a deduction all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_263 provides generally that no deduction is allowed for any amount_paid out for new buildings or for permanent improvements or betterments see sec_1 a - a see also a -2 a h a -4 of the income_tax regulations whether expenditures incurred in connection with a settlement are capital in nature depends on the origin of the claim that analysis requires that prior transactions be examined in order to determine if a cause of action originates from form an ordinary or capital event the origin of the claim the origin of the claim doctrine was established by u s v gilmore 372_us_39 in gilmore the court held that the origin and character of the claim with respect to which an expense was incurred rather than its potential consequences is the controlling basic test of whether the expense is business or personal id pincite a taxpayer’s motive is not determinative when classifying a payment as a capital_expenditure the class action complaints that were filed naming taxpayer as a defendant identify the types of claims that taxpayer’s clients who accepted the settlement could have raised against taxpayer such claims arise from services ordinarily rendered by taxpayer in connection with its private banking business the putative class action complaints alleged a violation of b of the securities exchange act of and rule 10b-5 of the sec b negligent misrepresentation c breach of fiduciary duty d gross negligence and e unjust enrichment ---------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------- the complaints allege that taxpayer was negligent as an investment manager due to its failure to properly manage and monitor its client’s assets breached its fiduciary duty and failed to comport with the securities settlement act of therefore the claims against the taxpayer arose from the conduct of taxpayer’s private banking business business deductions under sec_162 ordinary and necessary in order to be deductible under sec_162 an expenditure must be i paid_or_incurred during the taxable_year ii sustained in carrying_on_a_trade_or_business iii an expense iv a plr-130187-10 necessary expense and v an ordinary_expense 403_us_345 generally amounts paid in settlement of lawsuits are currently deductible if the acts which gave rise to the litigation were performed in the ordinary conduct of the taxpayer's business see eg 27_tc_960 allowing petitioner to deduct amounts paid in settlement of legal proceedings charging petitioner with mismanagement in the liquidation of assets revrul_80_211 1980_2_cb_57 allowing corporation to deduct amounts paid as punitive_damages that arose from a civil lawsuit against the corporation for breach of contract and fraud in connection with the ordinary conduct of its business activities revrul_79_208 1979_2_cb_79 permitting taxpayer to deduct payments to settle lawsuit and obtain a release from claims under a franchise agreement however in donovan v commissioner t c memo the tax_court disallowed a deduction for payments made by a financial advisor to disgruntled investors who suffered losses on investments made on their behalf the taxpayer alleged that payments were made to appease investors and prevent them from suing him the taxpayer wrote checks to the investors but required that the investors endorse the checks to another entity controlled by him and to assign their rights in the failed investment to the taxpayer the tax_court questioned whether the taxpayer could be considered to have made an expenditure given the circular transfer of the funds but found that even if the expenditure was made taxpayer did not establish that it was necessary reasoning that the investor’s reinvestment undermined the taxpayer’s assertion as to potential lawsuits taxpayer as a trusted financial advisor adopted the settlement to protect its reputation in the market place and maintain its current level of business the settlement was reasonable given the alleged damages sought in the class action lawsuits also the settlement resulted in a payment of value to taxpayer’s clients therefore the payment for the release of potential liability pursuant to the settlement was an ordinary_and_necessary_expense of taxpayer’s trade_or_business paid_or_incurred during the taxable_year sec_461 and sec_1_461-1 provide that an accrual_method taxpayer is considered to have incurred a liability in the taxable_year in which all events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability sec_1_461-4 sets forth when economic_performance is considered to have taken place and identifies certain liabilities for which payment to the person to whom the liability is owed is economic_performance sec_1_461-4 provides that such liabilities include settlement payments that arise from a dispute in which a tort breach of contract or violation of law is alleged plr-130187-10 for purposes of the economic_performance rules the term payment has the same meaning as is used when determining whether a taxpayer using the cash_receipts_and_disbursements_method of accounting has made a payment payment to a particular person is accomplished if a cash_basis taxpayer would be treated as having actually or constructively received the amount of the payment as gross_income under the principles of sec_451 sec_1_461-4 and sec_1_461-4 thus in order to satisfy the economic_performance requirement and treat the liability as incurred taxpayer’s clients must receive payment sec_1_461-4 ex addresses the application of the economic_performance rules to a tort liability and explains that if the taxpayer transfers ownership of an annuity_contract to the claimant an amount equal to the fair_market_value of the annuity on the date of transfer is incurred by the taxpayer in the taxable_year of the transfer in addition the transfer constitutes a transaction to which sec_1001 applies see also revrul_69_75 1969_1_cb_52 taxpayer entered into a settlement agreement with its clients who accepted the settlement during year also in year taxpayer made a contribution to foreign_subsidiary and on the same date foreign_subsidiary issued preferred securities directly to taxpayer’s clients who accepted the settlement taxpayer’s liability was fixed by the settlement agreement the amount of the liability is determinable with reasonable accuracy and economic_performance occurred upon the issuance of the foreign_subsidiary preferred securities to taxpayer’s clients to the extent of the fair_market_value of those shares accordingly taxpayer’s liability under the settlement was incurred in year sec_263 sec_263 provides that no deduction shall be allowed for the cost of permanent improvements or betterments made to increase the value of any property requiring the capitalization of such costs instead the supreme court has stated that determining whether expenditure is a current_expense or a capital_expenditure entails a facts and circumstances analysis with material distinctions being of degree and not of kind in lincoln savings 403_us_345 the court stated that a payment that serves to create or enhance a separate and distinct additional asset is a capital_expenditure accordingly the capitalization_rules were initially understood to require that expenditures be capitalized only if they resulted in separate and distinct assets however in 503_us_79 the court clarified lincoln savings by stating that the creation of a separate and distinct asset supports but is not a necessary condition to capitalizing an expenditure id pincite in indopco the court established the future benefit test whether a significant future benefit exists so as to require capitalization plr-130187-10 currently the capitalization of intangibles is generally governed by sec_1_263_a_-4 and sec_1_263_a_-5 sec_1_263_a_-4 provides that the term separate and distinct intangible asset means a property interest of ascertainable and measurable value in money's worth that is subject_to protection under applicable state federal or foreign law and the possession and control of which is intrinsically capable of being sold transferred or pledged ignoring any restrictions imposed on assignability separate and apart from a trade_or_business in addition for purposes of this section a fund or similar account is treated as a separate and distinct intangible asset of the taxpayer if amounts in the fund or account may revert to the taxpayer the determination of whether a payment creates a separate and distinct intangible asset is made based on all of the facts and circumstances existing during the taxable_year in which the payment is made sec_1_263_a_-4 requires that payments to create a financial interest be capitalized therefore a payment for preferred_stock must be capitalized however sec_1_263_a_-4 provides that an amount_paid to another party is not paid to create originate enter into renew or renegotiate a financial interest with that party if the payment is made with the mere hope or expectation of developing or maintaining a business relationship with that party and is not contingent on the origination renewal or renegotiation of a financial interest with that party sec_1_263_a_-4 provides that a taxpayer must capitalize amounts paid to another party to create originate enter into renew or renegotiate with that party an agreement providing the taxpayer the right to provide services sec_1_263_a_-4 provides an amount_paid to another party is not paid to create originate enter into renew or renegotiate an agreement with that party if the payment is made with the mere hope or expectation of developing or maintaining a business relationship with that party and is not contingent on the origination renewal or renegotiation of an agreement with that party sec_1_263_a_-4 provides that an agreement does not provide the taxpayer a right to provide or receive services if the agreement may be terminated at will by the other party in the first year an agreement is not terminable at will if the other party to the agreement is economically compelled not to terminate the agreement all of the facts and circumstances will be considered in determining whether the other party or parties to an agreement is economically compelled not to terminate the agreement an agreement also does not provide the taxpayer the right to provide services if the agreement merely provides that the taxpayer will stand ready to provide services if requested but places no obligation on another person to request or pay for the taxpayer's services plr-130187-10 taxpayer’s payment of preferred_stock to its settling clients for the release of liabilities and to maintain good business relations with its clients does not create a separate and distinct asset a financial interest or a significant future benefit ------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------- therefore the payment to taxpayer’s clients is not required to be capitalized by sec_1_263_a_-4 sec_1_263_a_-4 or sec_1 a - d conclusion based on the representations submitted we rule that pursuant to the origin of the claim doctrine the potential liability if any released by taxpayer’s clients under the settlement originated from common and routine trade_or_business activities taxpayer’s payment under the settlement is deductible under sec_162 as an ordinary and necessary trade_or_business expense no portion of taxpayer’s payment will be characterized as a capital_expenditure under sec_263 or the regulations thereunder 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 we express no opinion regarding the value of the preferred_stock distributed to the settling clients or whether under the terms of settlement those shares are a cash_equivalent we have however assumed that the value of the preferred_stock distributed to the settling clients is equal to the taxpayer’s contribution to foreign_subsidiary this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-130187-10 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely sean m dwyer assistant to the branch chief branch income_tax accounting


id office uilc cca_2013010912475937 ---------- number release date from ------------------- sent wednesday january pm to -------------------- cc ------------------------------ subject re tefra issues poa of second-tier tefra partnership which is investor of first-tier partnership form 872-p v please call me at -------------------- here is some background for our discussion sec_6221 through provide for unified partnership audit and litigation procedures the tefra partnership procedures sec_6501 provides the period of limitations for assessing any_tax imposed by title_26 of the united_states_code including tax attributable to partnership and affected items see 506_us_523 the supreme court in bufferd explained that the pass-thru_entity return does not start any period for assessment id as referenced in sec_6501 section merely extends each partner's sec_6501 period section a provides that each partner’s sec_6501 assessment_period for tax attributable to partnership and affected items shall not expire before the date that is three years after the later of the date on which the partnership return for the taxable_year was filed or the last day for filing the return for that year determined without regard to extensions 114_tc_533 579_f3d_391 5th cir 481_f3d_1351 fed cir 331_f3d_972 d c cir thus section operates only to extend a partner’s sec_6501 period id the period of assessing partnership items for any one partner can be extended by that partner by entering into a written_agreement with the irs or the period for assessing all partners can be extended by written_agreement between the irs and the tmp or any other person authorized by the partnership to enter into such an agreement i r c b sec_301_6229_b_-1 an extension under sec_6501 can only apply to partnership items if the agreement expressly provides that it applies to tax attributable to partnership items i r c b since the standard form_872 paragraph contains such language --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- congress subsequently codified this holding in the last section of sec_6501 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------


t c memo united_states tax_court harold wapnick petitioner v commissioner of internal revenue respondent docket no filed date harold wapnick pro_se monica eb koch and theresa g mcqueeney for respondent memorandum findings_of_fact and opinion colvin judge respondent determined deficiencies in petitioner’s federal_income_tax and additions to tax and penalties as follows additions to tax_year deficiency sec_6653 b sec_6661 sec_6654 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure plu sec_50 percent of the interest due on the portion of the underpayment due to fraud under sec_6653 for and sec_6653 b b for and the issues for decision are ' whether petitioner failed to report income of dollar_figure for dollar_figure for and dollar_figure for we hold that he did whether petitioner is liable for additions to tax under sec_6661 for substantial_understatement_of_income_tax of dollar_figure for and dollar_figure for we hold that he is whether petitioner is liable for the addition_to_tax under sec_6654 for failure to pay estimated_tax of dollar_figure for we hold that he is ' we previously held that petitioner is collaterally estopped from denying that he is liable for the addition_to_tax for fraud under sec_6653 for and because he was convicted of attempting to evade or defeat tax in violation of sec_7201 for those years wapnick v commissioner tcmemo_1997_133 see 60_f3d_948 2d cir in its opinion the u s court_of_appeals for the second circuit indicated that petitioner and his associates at one time prepared the tax returns for an estimated percent of new york city’s taxi drivers united_states v wapnick supra pincite - - section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure unless otherwise specified findings_of_fact some of the facts have been stipulated and are so found a petitioner petitioner resided in brooklyn new york when he filed his petition he operated an accounting business known as h wapnick sons in which he charged fees for accounting services preparing tax returns making loans and cashing checks petitioner’s clients made checks payable to petitioner h wapnick sons or cash petitioner’s office was in the basement of his home steven wolfson wolfson worked for petitioner there as did petitioner’s sons john wapnick and seth wapnick seth wapnick graduated from the wharton school at the university of pennsylvania wolfson graduated from college with a bachelor’s degree in accounting in he worked for petitioner from through the years in issue petitioner had about big_number corporate clients and a number of individual clients during the years in issue he charged each client dollar_figure per quarter to prepare tax returns seth wapnick kept records of the accounting tax_return preparation and - lending businesses by entering data on a personal computer in petitioner’s basement b petitioner’s corporations petitioner established the following corporations best medicare of brighton big john cab corp centurion taxi inc collie trans corp downey cab corp d s jewelry corp egret trans corp eleemosynary cab corp juice taxi co inc macar service corp oxus taxi inc poodle trans corp and tree top cab corp the corporations petitioner had accounts at republic national bank of new york republic bank for the corporations the mailing address for the corporations was petitioner’s home petitioner was a stockholder in and officer of all of them the corporations did not do business maintain books_and_records hold annual meetings issue financial statements pay salaries or dividends have employees or file federal or state corporate tax returns when petitioner established the corporations he used employer identification numbers eins of former clients or numbers that he created he did not obtain eins for the corporations from the federal government at the time of trial wolfson did not know the names of any of the corporations petitioner deposited amounts that he earned into the bank accounts for the corporations republic bank paid interest on - - the bank accounts totaling dollar_figure in dollar_figure in and dollar_figure in petitioner did not report the interest that republic bank paid to the corporations on his tax returns for and c check cashing activity petitioner received the following amounts of income for cashing checks for customers customer s z fashions corp dollar_figure dollar_figure dollar_figure lva corp dollar_figure mchugh divincent alessi inc dollar_figure dollar_figure dollar_figure be chirico inc dollar_figure call enterprises inc dollar_figure totals dollar_figure dollar_figure dollar_figure petitioner did not report the amounts that he received from check cashing on his tax returns d treasury notes petitioner bought a dollar_figure u s treasury note in the name of poodle trans corp and a dollar_figure u s treasury note in the name of big john cab corp on date he sold them on date for a gain of dollar_figure the u s government paid total interest on those notes of dollar_figure in and dollar_figure in to poodle trans corp and big john cab corp petitioner did not report these amounts on his and tax returns eb petitioner’s income_tax returns petitioner filed federal_income_tax returns for and but not for he did not report any income from lending or check cashing on those returns he reported the following amounts of income accounting taxable_year interest business income dollar_figure dollar_figure dollar_figure big_number big_number f seizure of petitioner’s records and respondent’s determination respondent’s agents obtained a search warrant and seized the computer and about boxes of records from petitioner’s office on date the u s attorney’s office for the eastern district of new york hired a computer expert who downloaded from the computer the records that seth wapnick kept respondent’s agents verified the accuracy of some of the computer records by comparing those records with information that respondent obtained from third parties respondent’s agents interviewed petitioner’s clients and reviewed bank statements canceled checks deposit slips and forms respondent prepared summaries of the computer records other business records that petitioner had and records from third parties by notice_of_deficiency issued on date respondent determined that petitioner had the following amounts of unreported income source_of_income accounting fees dollar_figure dollar_figure dollar_figure check cashing fees big_number big_number big_number interest from loans big_number big_number big_number interest from treasury notes big_number big_number interest from banks big_number big_number big_number capital_gains big_number totals dollar_figure dollar_figure dollar_figure opinion a burden_of_proof petitioner contends that respondent bears the burden_of_proof under sec_7491 and that respondent’s determination is arbitrary or invalid and thus is not presumed to be correct we disagree whether section applies under sec_7491 the burden_of_proof is placed on the secretary if several requirements are met sec_7491 and sec_7491 applies to court proceedings arising in connection with examinations beginning after date internal_revenue_service restructuring reform act of publaw_105_206 sec c 112_stat_727 petitioner contends that the examination began after date and he points out that he was incarcerated on that date the notice_of_deficiency issued in states that from records and information available it has been determined that you received additional income in the amount shown from the sources indicated it also states that the amounts determined - - are per audit we conclude that the examination commenced before date therefore sec_7491 does not apply here whether respondent’s determination is presumed to be correct petitioner contends that respondent’s determination should not be presumed to be correct and that as a result respondent bears the burden_of_proof we disagree he points out that in 116_f3d_1309 9th cir the u s court_of_appeals for the ninth circuit said that in an action to collect taxes the government bears the initial burden_of_proof however petitioner uses that quotation out of context in palmer the commissioner sought to enforce a tax_lien ina suit in federal district_court under sec_7401 through the court in palmer said that the government’s initial burden is satisfied if the commissioner’s determination is presumed to be correct and that the determination is presumed to be correct if it is supported by a minimal factual foundation id here respondent’s determination is more than adequately supported by computer and other records seized from petitioner’s office and information from third parties thus petitioner bears the burden of proving that the commissioner’s determination is incorrect id petitioner contends that respondent’s agents fabricated the records that respondent used to reconstruct petitioner’s income --- - we disagree there is no evidence that anyone fabricated the computer records petitioner cites 814_f2d_1363 9th cir revg 81_tc_855 and 814_f2d_1356 9th cir affg t cc for the proposition that the determination in this case is invalid we disagree the notice_of_determination was deemed invalid by the court_of_appeals in scar because it was clear from the notice_of_deficiency itself that the commissioner had determined a deficiency based on a partnership in which the taxpayers owned no interest scar v commissioner supra pincite here respondent’s determination was properly based on petitioner’s activities and records we lacked jurisdiction in abrams because the taxpayers filed petitions in the tax_court based on a letter that was not a notice_of_deficiency unlike abrams there was a notice_of_deficiency in this case thus neither scar nor abrams applies here petitioner contends that respondent’s determination is not presumed to be correct because respondent used information to reconstruct his income which would have been inadmissible under the federal rules of evidence if offered as evidence at trial we disagree first respondent used admissible evidence to reconstruct petitioner’s income see par b-2 below second the commissioner may determine a deficiency based on hearsay or -- - other inadmissible evidence 967_f2d_986 4th cir affg tcmemo_1990_618 883_f2d_1317 7th cir affg tcmemo_1988_142 73_tc_394 conclusion regarding burden_of_proof we conclude that respondent’s determination is presumed to be correct and petitioner has the burden of proving otherwise rule a 290_us_111 b petitioner’s evidentiary contention sec_1 whether the computer records are admissible petitioner contends that the computer records are hearsay and thus are inadmissible under rule of the federal rules of evidence we disagree because they are records of regularly conducted activity under rule of the federal rules of evidence fed r evid provides as follows records of regularly conducted activity a memorandum report record or data compilation in any form of acts events conditions opinions or diagnoses made at or near the time by or from information transmitted by a person with knowledge if kept in the course of a regularly conducted business activity and if it was the regular practice of that business activity to make the memorandum report record or data compilation all as shown by the testimony of the custodian or other qualified witness unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness the term business as used in this paragraph includes business institution association continued respondent called former special_agent mark gold gold and revenue_agent andrew rosenblatt rosenblatt to testify to establish that the foundation requirements of rule of the federal rules of evidence had been met petitioner contends that their testimony violated rule of the federal rules of evidence relating to expert testimony we disagree neither gold nor rosenblatt testified as experts petitioner contends that gold and rosenblatt were not qualified to provide foundation testimony under rule of the federal rules of evidence because they had no role in creating or maintaining the records we disagree for purposes of rule of the federal rules of evidence a federal agent may be gualified to establish that a taxpayer’s records were kept in the regular course of business 874_f2d_1136 7th cir drug enforcement agent 798_f2d_902 6th cir federal bureau of investigation agent 603_f2d_1187 5th cir bureau of alcohol_tobacco_and_firearms agent continued profession occupation and calling of every kind whether or not conducted for profit petitioner contends that rosenblatt’s testimony at the criminal trial violated fed r evid for expert testimony we need not here consider petitioner’s contentions about his criminal trial gold and rosenblatt testified that they verified the accuracy of the computer records by comparing petitioner’s copies of clients’ tax returns with the information in the computer records comparing the names of clients in the computer records to client names petitioner wrote on the bank deposit slips obtaining copies of clients’ canceled checks and comparing them to the computer records and contacting the clients and comparing their records to the computer records gold and rosenblatt verified the accuracy of the computer records for interest_income earned from petitioner’s lending activity by reviewing loan files forms ucc-1 financing statement confessions of judgment and checks they compared the checks deposited in the republic bank accounts with loan information in the computer records they compared loan repayment checks receipts and deposit slips with information in the computer records the computer records for the lending activity include the name of the client principal_amount of the loan the interest rate charged and the dates payments were due and made seth wapnick worked for petitioner and maintained the computer records we conclude that gold and rosenblatt properly provided foundation testimony related to the admissibility of the computer records see united_states v franco supra united_states v hathaway supra united_states v veytia-bravo supra petitioner contends that some of the computer records were fabricated because a witness at his criminal trial said that the type of computer that seth wapnick used was first sold to the public on date which is after most of the first year in issue we disagree first there is no evidence in our record to support petitioner’s contention second even if the date date is correct after seth wapnick obtained the computer he could have entered data relating to periods before he obtained the computer petitioner contends rosenblatt and gold’s testimony about the computer records was not credible we disagree rosenblatt and gold testified credibly and in detail in contrast petitioner’s testimony was vague and unconvincing on this point petitioner points out that a document entitled declaration of andrew rosenblatt an exhibit in his criminal case and attached as part of exhibit 44-p in this case had many handwritten markings on it we admitted another copy of the document without markings as exhibit 30-r rosenblatt did not know who made the handwritten markings on the attachment to exhibit 44-p and he could not explain why they were made petitioner contends that rosenblatt’s testimony on these points shows that his testimony is not credible we disagree rosenblatt’s inability to explain handwritten markings on petitioner’s exhibit does not show that his testimony was not credible petitioner contends that records that he kept by hand would show that the computer records are untrustworthy and not reliable there is no evidence to support petitioner’s contention petitioner did not offer any handwritten records into evidence we conclude that the computer records are admissible under rule of the federal rules of evidence whether summaries that respondent prepared are admissible respondent’s agents used data from the computer records and documents related to petitioner’s business to prepare summaries of income from interest from banks and loans check cashing fees and accounting fees petitioner contends that the summaries are inadmissible because respondent’s agents prepared them as evidence for use in the trial of this case we disagree summaries prepared for litigation are admissible if the underlying documents have been admitted into evidence or reasonably have been made available to the opposing party for inspection fed r evid the summaries are admissible because printed copies of the computer records and other underlying documents were admitted in evidence and were available to petitioner for inspection -- - petitioner points out that respondent has previously filed motions in this case requesting that facts be deemed established petitioner objected to those requests in part because he contended that the summaries did not comply with rule sec_803 and of the federal rules of evidence we did not grant respondent’s requests petitioner concludes from our denial of respondent’s motions that we agreed with his objections under rule sec_803 and of the federal rules of evidence he 1s incorrect we denied respondent’s requests that facts be deemed established because the case was not ready for trial we have not previously decided whether respondent’s summaries complied with rule sec_803 and of the federal rules of evidence petitioner relies on 38_f3d_627 2d cir for the proposition that respondent’s agents’ summaries are inadmissible because they were prepared for litigation the summary at issue in potamkin cadillac corp was not admitted because it was inaccurate it required significant interpretation of data and it was not simply a downloading of information previously computerized in the regular course of business id pincite potamkin cadillac does not support petitioner’s position we conclude that the summaries are admissible fed r evid -- - c whether petitioner had unreported income in the amounts determined by respondent bank and u s treasury note interest capital_gains and check cashing income petitioner does not dispute respondent’s determination of the amounts of the bank interest treasury note interest capital_gains and check cashing income instead he disputes to whom it is taxable petitioner contends that the unreported interest capital_gains and check cashing income are taxable to the corporations petitioner contends that interest and capital_gains earned with respect to the u s treasury notes are taxable to of those corporations namely poodle trans corp and big john cab corp we disagree a corporation is recognized for federal_income_tax purposes if it was formed for a legitimate business_purpose or if after formation it conducted legitimate business 319_us_436 60_f3d_948 n 2d cir 144_f2d_466 2d cir however a corporation is disregarded for federal_income_tax purposes if its owners move their own funds in and out of a corporate account without any regard for which funds belong to the corporation and which belong personally to the corporation’s owners united_states v wapnick supra holding that this statement of law was properly included in the jury instructions in petitioner’s criminal case for reasons discussed next we do not recognize the corporations for federal_income_tax purposes petitioner used false eins when forming the corporations the corporations did not follow any corporate formalities such as maintaining books_and_records issuing stock holding annual meetings electing officers or issuing financial statements they did not have employees they paid no salaries or dividends and they did not conduct any legitimate business they did not file tax returns petitioner did not treat the corporations as separate business entities he often lent money from one corporate account and deposited repayments for that loan in other corporate accounts petitioner contends that the corporations provided tax preparation money lending and check cashing services we disagree there are no documents in evidence that show there were any business transactions between a client and any of the corporations no checks payable to any of the corporations were produced at trial petitioner’s clients made checks for services payable to petitioner h wapnick sons or cash petitioner testified and contends that he did not own all of the stock of the corporations he contends that john wapnick and seth wapnick bought centurion taxi inc at the end of -- - he did not own macar service corp and ruth wapnick bought oxus taxi inc in we disagree there is no evidence corroborating his assertions he did not call his wife or sons as witnesses we conclude that the corporations were shams and we disregard them for tax purposes petitioner contends that the interest_income paid to oxus taxi inc is not taxable to him because his wife reported all of it we disagree after the criminal investigation began petitioner’s wife filed an income_tax return on which she reported a gain on the sale of oxus taxi inc stock there is no evidence that she reported any interest_income paid to oxus taxi inc in the years in issue petitioner has not carried his burden of proving that he is not taxable for income generated in the name of oxus taxi inc in the years in issue we conclude that petitioner is taxable on income that he received from cashing checks and on the interest and capital_gains with respect to the dollar_figure and dollar_figure u s treasury notes income from loans petitioner contends that he had no income from lending money because many of the loans he made were not repaid a taxpayer may deduct a bad_debt in the year it becomes wholly or partially worthless sec_166 and sec_1_166-2 income_tax regs petitioner contends that he had more than dollar_figure million in bad_debts in from the lending activity petitioner contends that he is entitled to carry back a net_operating_loss of dollar_figure from to and to carry forward a net_operating_loss of dollar_figure from to and later years we disagree petitioner’s vague testimony is the only evidence supporting his claim petitioner attached to his answering brief a document which states that a judgment was entered on date in the supreme court of the state of new york county of kings in favor of ruth wapnick against the estate of joseph elashvili in the amount of dollar_figure petitioner contends that this document shows that loans to the estate of joseph elashvili were worthless this document was not offered or admitted into evidence even if it had been admitted there is no evidence that the debt described in the document became worthless during the years in issue that the judgment is uncollectible or that the judgment related to a loan made by petitioner which is at issue in this case petitioner lent dollar_figure to alberto inc and contends that alberto inc repaid only dollar_figure petitioner contends that his loan to alberto inc resulted in a dollar_figure loss we are not convinced that petitioner lost dollar_figure as a result of his loan to - - alberto inc because petitioner’s only evidence supporting his contention was his vague and uncorroborated testimony petitioner contends that all of the bad_debts from the lending activity became totally worthless on date the date that the search warrant was executed and respondent took all of his documents we disagree the mere fact that notes and records which were evidence of the loans are not immediately available to petitioner does not show that the loans were worthless see perry v united_states aftr ustc par s d ga bad_debt deduction not allowed in year when lender’s business records and promissory notes were stolen petitioner offered no evidence that the debts were worthless we are not convinced that execution of the search warrant caused all of the debts to become worthless petitioner contends that respondent’s agents told the parties to whom he lent money to pay respondent instead of him there is no credible_evidence to support that contention petitioner contends that he received less income from loans than respondent determined however petitioner’s vague and uncorroborated testimony is less convincing than the documentary and other evidence provided by respondent we conclude that petitioner had unreported income from loans to third parties of dollar_figure in dollar_figure in and dollar_figure in - alleged brokerage account losses petitioner contends that respondent failed to account for margin charges and large losses that he allegedly sustained in his brown co brokerage account in and there is no evidence to support petitioner’s claim conclusion regarding unreported income we sustain respondent’s determination that petitioner had unreported income of dollar_figure for dollar_figure for and dollar_figure for d failure to pay estimated_tax under sec_6654 respondent determined that petitioner is liable for the addition_to_tax under sec_6654 for failure to pay estimated_tax for we have jurisdiction to review this determination because the taxpayer did not file a return for sec_6665 meyer v commissioner 97_tc_555 petitioner offered no evidence and made no argument on this issue we conclude that petitioner is liable for the addition_to_tax for failure to pay estimated_tax under sec_6654 for br whether petitioner is liable for the addition_to_tax for substantial_understatement of income petitioner contended in the petition that he is not liable for the addition_to_tax for substantial_understatement_of_income_tax under sec_6661 for and sec_6661 a imposes an addition_to_tax of percent of the amount of any underpayment attributable to a substantial_understatement of - income_tax petitioner bears the burden of proving that he is not liable for the addition_to_tax under sec_6661 rule a he offered no evidence or argument that he is not liable for the addition_to_tax under sec_6661 we conclude that petitioner is liable for the sec_6661 addition_to_tax for and f petitioner’s procedural contention sec_1 whether time to assess taxes had expired petitioner contends that the time to assess the taxes at issue expired before respondent issued the notice_of_deficiency we disagree the commissioner may assess tax at any time if the taxpayer files a fraudulent return or fails to file a return sec_6501 petitioner filed fraudulent_returns for and wapnick v commissioner tcmemo_1997_133 and did not file a return for thus respondent’s notice_of_deficiency is timely summary_judgment petitioner contends that he is entitled to summary_judgment based on his contention that the corporations are not shams that he had more than dollar_figure million in bad_debts in and that he was wrongly convicted in his criminal case we disagree summary_judgment is not appropriate here because material facts are in dispute we have found that petitioner’s corporations - - are shams and that he did not show that he had bad_debts in petitioner’s arguments for summary_judgment lack merit review jeopardy assessments petitioner in essence asks us to reconsider orders of this court dated june and date denying his motions to review respondent’s jeopardy assessments petitioner contends that the jeopardy assessments are invalid because to make them respondent used data which would have been inadmissible under the federal rules of evidence if offered as evidence at trial we disagree for reasons stated at paragraphs a-2 and b-2 above reconsideration of order deeming matters stipulated under rule f in his posttrial brief petitioner requested that we reconsider our pretrial order deeming certain documents and facts stipulated respondent had moved to compel stipulation of facts under rule f on date respondent requested that we should deem stipulated copies of the notice_of_deficiency petitioner’s income_tax returns for and documents from the u s treasury and republic bank schedules showing petitioner’s income from accounting services loans and check cashing based on the computer records on petitioner’s other records and on records from third parties and the judgment from petitioner’s criminal case respondent also requested that we deem stipulated that petitioner did not file an income_tax return for the corporations did not file federal or state -- - corporate tax returns and petitioner used false eins for the corporations we ruled on respondent’s motion following a pretrial hearing at the hearing respondent showed sources reasons and bases for facts and exhibits that we deemed stipulated and showed that petitioner had reasonable access to those sources or bases for stipulation petitioner did not show any sources reasons or bases for refusing to stipulate to those exhibits and facts we granted respondent’s motion in large part but we denied it to the extent that respondent had not produced underlying documents relating to summaries summaries not deemed stipulated were later admitted at trial after respondent provided those underlying documents see paragraph b-2 above petitioner contends that we should reconsider our order partially granting respondent’s motion_to_compel_stipulation of facts under rule f we disagree petitioner’s reasons to oppose stipulation are the same as those that he raised in his request for summary_judgment and review of the jeopardy_assessment and in his post-trial briefs we rejected those arguments in paragraphs f-2 and f-3 above we conclude that reconsideration is not warranted here conform pleadings to evidence petitioner contends that the pleadings in this case should be conformed to the evidence under rule b - - however petitioner does not state how the pleadings should be changed or state what evidence supports his request see rule petitioner’s request to conform pleadings to the evidence lacks merit petitioner’s request for admissions petitioner contends that respondent did not respond to his request for admissions we do not address this contention further because there is no evidence that petitioner served respondent with a request for admissions under rule for the foregoing reasons we sustain respondent’s determination to reflect the foregoing decision will be entered for respondent


- department of the treasury internal_revenue_service washington d0 c tax exempt ando government entities division aug uniform issue list ter ra ti legend taxpayer a financial_institution b ira x amount amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by correspondence dated may may and date from you and your authorized representative in which you have asked for a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penaity of perjury in support of the ruling requested taxpayer a who was years old at the time of the distribution of amount from ira x asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to erroneous advice given to taxpayer a by a representative of financial_institution b which led to amount being distributed from ira x and placed into three non-ira savings accounts taxpayer a further asserts that amount has not been used for any other purpose taxpayer a represents that he was the owner of ira x a qualified_individual retirement arrangement ira established and maintained at financial_institution b under the rules of sec_408 of the code taxpayer a represents that when he attained age he was contacted by a representative of financial_institution b to discuss the required_minimum_distribution rules as they pertained to ira x taxpayer a represents that this was not the representative he usually dealt with at financial_institution b taxpayer a further represents that based upon his discussion with the representative -2- he believed he was required to distribute all of the funds contained in ira x taxpayer a further represents that based on this conversation with the representative at financial_institution b taxpayer a withdrew amount from ira x on date in addition to his normal required_minimum_distribution of amount and deposited it into three separate non-ira savings accounts at financial_institution b documentation submitted indicates that taxpayer a speaks english as a second language and because of a hearing loss sometimes has trouble understanding english on date taxpayer a met with his usual representative at financial_institution b to discuss setting up a minimum distribution for another ira which was accomplished at that time the prior date transactions with ira x was not discussed at this meeting taxpayer a represents that he did not become aware that the funds were not required to have been distributed from ira x until he received form 1099-r the following year and was informed of the problem by his accountant taxpayer a represents that he was subsequently told by the manager of financial_institution b that he had been misinformed by the representative and that amount was not required to have been distributed from ira x taxpayer a further represents that amount remains in the three accounts at financial_institution b and has not been used for any purpose based on the above facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code 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 occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances 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 the information presented and the documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover of amount was due to the misrepresentation by a representative of financial_institution b that all of the funds in ira x including amount were required to be distributed from ira x when taxpayer a attained age therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira x pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter_ruling to make a rollover_contribution of an amount equal to amount to an ira or iras described in sec_408 of the code provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of sec_408 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 does not authorize the rollover of amounts that are required to be distributed ‘by sec_401 of the code 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact xx xxxxxx xxxxxx government identification_number xx-xxxxx by phone at xxx xxx-xxxx or by fax at xxx xxx-xxxx please address all correspondence to se t ep ra t1 sincerely coltrs a wetthoy carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


9uv520030 tax_exempt_and_government_entities_division department of the treasury internal_revenue_service commerce street mc dailas tx date iw he dollar_figure -o y taxpayer_identification_number organization form tax a ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely betty a mcclernan acting director eo examinations enclosures publication publication report of examination letter catalog number 34809f


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil legend trust dear contact person identification_number telephone number employer_identification_number we have considered your ruling_request dated date and subsequent submissions concerning the federal income and excise_tax consequences under sec_4941 of the internal_revenue_code_of_1986 as amended code related to a proposed reformation of a charitable_remainder_unitrust in the manner and for the purposes described below our office is responding to your ruling_request originally numbered two on your submission the other ruling will be dealt with separately by another office facts the information submitted shows that you are the trustee and charitable_beneficiary of the trust which qualifies as a charitable_remainder_unitrust under sec_664 of the code the donor of the trust intended to establish the non-charitable interest of the trust for the lives of donor and donor’s spouse or for a twenty-year term whichever was longer and that in the event that donor or donor’s spouse did not survive the entire twenty-year term the income_interest during the remainder of the term would be payable to donor’s issue by right of representation you report that because of a scrivener’s error the trust was executed with a provision that established the non-charitable interest of the trust only for the lives of donor and donor’s spouse as trustee you seek reformation of the trust to conform to donor’s intentions you have submitted the following documents in support of your ruling_request these documents include the following the original trust executed by donor evidencing the current provision that is sought to be reformed a copy of the new trust evidencing the reformed provision your sworn petition for reformation filed with the appropriate court giving a detailed account as to donor’s intent the scrivener’s error and how donor executed the trust without noticing the error donor’s signed affidavit clearly evidencing donor's intent to establish a_trust under the reformed provision which affidavit was filed in conjunction with the above referenced petition and a signed order from the appropriate court evidencing that the court found by clear_and_convincing evidence that i due to a mistake in the expression of donor's intent the trust failed to accurately implement donors intent ii that you as both trustee and charitable_beneficiary of the trust consent to the reformation of the trust iii that the state’s attorney_general consents to the reformation of the trust and iv that donor and her spouse as successor beneficiary under the trust consent to the reformation the court granted the requested relief of trust reformation contingent upon you receiving a favorable private_letter_ruling from the internal_revenue_service you have requested the following ruling reformation of the unitrust to provide that the unitrust period extends for the longer of the lifetimes of the donor and her spouse or twenty years from the date of execution and that during that term the unitrust payments shall be made to the donor then to her spouse if he survives her then to her issue by right or representation is not a prohibited self-dealing transaction between a disqualified_person and a foundation_manager within the meaning of sec_4941 law sec_4941 of the code imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code generally imposes a tax on the participation of a foundation_manager in an act of self-dealing sec_4941 of the code provides that the term self-dealing includes any direct or indirect transfer to or the use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 of the code provides the term disqualified_person with respect to a private_foundation includes a substantial_contributor to the foundation including the creator of a_trust a family_member of a substantial_contributor including children and a foundation_manager including a trustee under sec_4946 the term family members includes spouses sec_4947 of the code provides generally that split-interest_trusts are subject_to the provisions of sec_4941 in the same manner as if such trusts were private_foundations but under sec_4947 not with respect to any amounts payable under the terms of such trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 sec_53_4947-1 of the foundation and similar excise_taxes regulations provides that under sec_4947 of the code sec_4941 does not apply to any amounts payable under the terms of a split-interest trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 with respect to the income_interest of any such beneficiary analysis the issue is whether judicial reformation of the trust from its inception will be considered an act of self-dealing between the trust and donor donor’s spouse and donor’s issue as disqualified persons under sec_4941 of the code as a charitable_remainder_unitrust under sec_664 of the code the trust is a split-interest trust described in sec_4947 and therefore subject_to sec_4941 which imposes an excise_tax on acts of self-dealing under sec_4947 the self-dealing rules of sec_4941 do not apply to any amounts payable under the terms of the split-interest trust to income beneficiaries as long as no deduction was allowed for such income_interest under sec_170 sec_2055 or sec_2522 the donor of the trust is considered a substantial_contributor to the trust and as such the donor the donor's spouse and the donor’s issue are each disqualified persons with respect to the trust under sec_4946 of the code judicial reformation of the trust may have the effect of increasing the annual amount payable to donor donors spouse and donor's issue and may be considered a transfer to or use by or for the benefit of disqualified persons of the income or assets of a private_foundation under sec_4941 review of the facts presented does not reveal any act of self-dealing the facts clearly show that donor never intended to create a charitable_remainder_unitrust with the provision that established the non-charitable interest of the trust only for the lives of donor and donor’s spouse certain evidence supports this intent your sworn petition for reformation filed with the appropriate court giving a detailed account as to donor's intent the scrivener’s error and how the donor executed the trust without noticing the error donor’s signed affidavit clearly evidencing donor’s intent to establish a_trust under the reformed provision which affidavit was filed in conjunction with the above referenced petition a signed order from the appropriate court evidencing that the court found by clear_and_convincing evidence that due to a mistake the trust failed to accurately implement donors intent and the state’s attorney general's consent to the reformation we conclude that the judicial reformation of the trust will not be an act of self-dealing under sec_4941 of the code ruling accordingly based upon the information submitted in your ruling_request we rule that the proposed reformation of the trust will not be an act of self-dealing under sec_4941 of the code this ruling will be made available for public inspection under sec_6110 of the code 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 this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described specifically no opinion is expressed concerning whether trust as reformed qualify as a charitable_remainder_unitrust under sec_664 of the code because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records and if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number ------------------------------ ------------------------------ ------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-137402-07 date date ------ ---------------------- ---------------------- ------------------------- ------------------------------------------ ------------------------------ legend x y country d1 d2 dear -------------- this is in response to your letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that x was formed in country on d1 as an entity eligible to make a classification election x is wholly owned by y x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x intended to be classified as a disregarded_entity for federal tax purposes however a form_8832 entity classification election for x to elect to be treated as a disregarded_entity effective d2 was not timely filed plr-137402-07 law and analysis sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 further provides that an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request 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 plr-137402-07 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective d2 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely enclosures william p o’shea associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes


internal_revenue_service index no number release date cc dom p si - plr-110825-99 date x ein a date year dear this is in reply to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x first had shareholders on date a as x's secretary represents that it was a’s intent that x elect to be an s_corporation effective for year x's first taxable_year a represents further that a form_2553 election by a small_business_corporation was prepared and that the form was sent to the internal_revenue_service but the service_center has no record of this 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 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 the 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 senior technician reviewer 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 intl b06 plr-130862-13 date date legend ------------- ----------------------------------------- taxpayer accounting firm ---------------------------------------------------- company individual a individual b individual c individual d individual e year date date month month ------------- --------------------- ------------------ ----------------- ------------------------ ---------------------- ------- ------------------- -------------------- ----------------------- ----------------- dear --------------- this responds to a letter dated date submitted by accounting firm requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accounting firm and accompanied by affidavits and penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination plr-130862-13 facts taxpayer is a domestic_corporation wholly owned by individuals a b and c taxpayer was formed for the sole purpose of qualifying and operating as an interest charge domestic_international_sales_corporation ic-disc and operates under a commission arrangement with company individuals a b and c also own percent of the outstanding_stock of company individuals d and e own the remaining percent of the outstanding_stock of company in year accounting firm and individuals b and d discussed forming an ic-disc after the shareholders of company decided to form an ic-disc accounting firm engaged a local attorney to complete and file the documents necessary to incorporate taxpayer taxpayer was incorporated on date and began operating as an ic-disc in month individual b was appointed as taxpayer’s treasurer individual b was unaware that a shareholder signed election form was required to be filed with the service to elect ic-disc treatment individual b also believed that accounting firm filed all of the documents needed for taxpayer to operate as an ic- disc in month an employee of company prepared and filed the form 1120-ic-disc tax_return for taxpayer several weeks later taxpayer received a letter dated date from the service stating that the service had no record that a form 4876-a had been filed after discovering that the form 4876-a had not been filed taxpayer requested a ruling granting an extension of time to file form 4876-a for its first taxable_year law and analysis sec_992 provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election as used in this letter the terms ic-disc and disc have the same meaning plr-130862-13 temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i treasury regulation b provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its federal_income_tax return for the taxable years to which this letter applies 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 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 plr-130862-13 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________________ joseph p dewald senior technical reviewer branch office of associate chief_counsel international


department of the treasury internal_revenue_service washington d c cc dom fs p si tl-n-5808-98 uilc number release date date internal_revenue_service national_office field_service_advice memorandum for attn from associate chief_counsel field service cc dom fs subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend city w x y z year year dollar_figurex dollar_figurey dollar_figurez issue dollar_figure dollar_figure dollar_figure whether the service can adjust the eligible_basis in the taxpayer’s first open_year thereby requiring recapture of the accelerated amount of low-income_housing_credit pursuant to sec_42 in that year conclusion an adjustment to eligible_basis must be made in the year the eligible_basis is initially determined rather than in the first open_year accordingly the taxpayer is not required to recapture the accelerated amount of low-income_housing_credit on account of such adjustment facts w owned and operated low-income_housing apartment buildings in city from december of year through august of year w renovated the apartment buildings x a limited_partnership was formed on july of year by y and z for the purpose of purchasing the apartment buildings y a non-profit corporation was the general_partner and held a one percent interest in x z a corporation was the limited_partner and held the remaining percent interest in x effective august of year x agreed to buy the apartment buildings exclusive of the underlying land from w for dollar_figurex the rehabilitated buildings were placed_in_service by x in october of year x leased the apartments to y and y leased the apartments to low-income tenants on the partnership returns x reported the lease payments from y as income and deducted the interest_paid to w and real_property_taxes and depreciation with respect to the apartment buildings x also claimed dollar_figurey annually in low-income_housing credits law and analysis a low-income_housing_credit is allowed against the tax imposed for the taxable_year sec_38 b the amount of the low-income_housing_credit is equal to the applicable_percentage of the qualified_basis of each qualified low- income building sec_42 the qualified_basis of any qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction of the eligible_basis sec_42 the eligible_basis of a new_building is its adjusted_basis as of the close of the first taxable_year of the credit_period sec_42 rehabilitation_expenditures paid_or_incurred by the taxpayer with respect to any building are treated as a separate new_building sec_42 the credit_period is the period of ten years beginning with the taxable_year in which the building is placed_in_service or at the election of the taxpayer the succeeding taxable_year sec_42 if as of the close of any taxable_year in the compliance_period the amount of the qualified_basis of any building is less than the amount of such basis as of the close of the preceding_taxable_year then the taxpayer’s tax shall be increased by the credit recapture_amount sec_42 under the present facts the eligible_basis in the apartment buildings is the cost of the existing buildings and the cost of the rehabilitation as of the first taxable_year of the credit_period sec_42 e because x did not make an election the credit_period begins in year the revenue_agent is proposing a reduction of dollar_figurez in the amount of allowable rehabilitation costs the reduction in allowable rehabilitation costs will reduce the eligible_basis of the property which will reduce the qualified_basis the issue is in what year should the reduction be made the first taxable_year of the credit_period or the first open_year the resolution of this issue determines whether x is subject_to the recapture provision of sec_42 in general the correct_tax liability for a year not in issue whether or not an assessment for a deficiency for that year is barred by the statute_of_limitations can be computed when necessary to determine the correct_tax liability for a year that is in issue 61_tc_436 in addition facts in a later year can be used as part of the process of recomputing the tax_liability for an earlier barred year in order to arrive at the correct_tax liability for the open_year lone manor farms inc t c pincite see also 56_tc_910 the above principles should be utilized under the present facts to determine x’s correct_tax liability for an open_year the correct_tax liability for the previous years even though an assessment for such years may be barred by the statute_of_limitations must be computed a proposed_adjustment to the eligible_basis will affect the basis in year and all subsequent years once this proposed_adjustment to the basis has been made for all such years the eligible_basis in the open_year will not be less than the amount of the basis as of the close of the preceding_taxable_year accordingly no recapture will be required pursuant to sec_42 on account of the adjustment to the eligible_basis we express no opinion regarding the proposed_adjustment case development hazards and other considerations to adjust the eligible_basis in a year other than the first taxable_year of the credit_period and require a recapture under sec_42 the service would have to take inconsistent positions the service would agree with the taxpayer’s representation of the amount of eligible_basis in a closed_year while simultaneously arguing against the taxpayer’s representation of the amount of eligible_basis in an open_year this approach requires an inconsistent application of the law for the purpose of maximizing the taxpayer’s tax_liability it is also worthy of note that if the first taxable_year of the credit_period and all subsequent years were open the service would take the position that the eligible_basis should be adjusted from the first taxable_year of the credit_period forward no rationale has been provided for why this position should change solely because some years are closed assistant chief_counsel field service by harve m lewis chief passthroughs special industries branch field service division