department of the treasury internal_revenue_service washington d c tax exempt and ee intone aug uniform issue list -t ep ka ib t f attention legend employer a state m plan x dear this is in response to your letter dated date submitted by your authorized representative in which you requested rulings concerning the taxability of contributions made under a plan described in sec_403 of the internal_revenue_code the code letters dated date date and july supplemented the request employer a is a state m public school corporation and is an educational_organization described in sec_170 ii of the code employer a established plan x a tax- sheltered annuity plan described in sec_403 of the code plan x was effective date most recently plan x was amended and restated effective date plan x is funded exclusively through the purchase of annuity_contracts all contributions are funded by means of salary reduction agreements and are applied to individual annuities issued to each participant participation in plan x is limited to eligible employees of employer a sec_2 m of plan x defines an eligible_employee as any employee other than an employee who does not elect to contribute more than two -200345040 page hundred dollars annually to the plan under section dollar_figure of plan x such eligible employees will be permitted to make salary reduction contributions to plan x up to the limits imposed under sec_415 and sec_402 of the code section dollar_figure of plan x provides that an eligible_employee may contribute to plan x as a rollover_contribution a prior distribution from a plan described in sec_403 sec_457 governmental_plan of the code or a plan qualified under sec_401 a of the code section dollar_figure of plan x provides that a distributee who is eligible to receive an eligible_rollover_distribution under plan x may elect to have the distribution rolled over in a direct_rollover to an eligible_retirement_plan pursuant to sec_4 d of plan x salary reduction contributions and earnings thereon under plan x will be fully vested and nonforfeitable at all times under section dollar_figure of plan x a distribution of a participant's account balance may not be made before the earliest of the participant’s death severance of employment attainment of age disability or financial hardship section dollar_figure of plan x provides that all distributions will be determined and made in accordance with the income_tax regulations under sec_401 a of the code including the minimum distribution incidental benefit requirement of sec_1 a -2 of the regulations the entire_interest of a participant will be distributed to him or her in full or at least commence no later than the april 1st following the later of the calendar_year in which the participant retires or attains age section dollar_figure of plan x also provides that benefits thereunder shall not be subject_to alienation encumbrance the claims of creditors or legal process no person will have the power to transfer assign alienate or in any way encumber a participant's benefits based on the foregoing you request a ruling that plan x satisfies the requirements of the code as applicable to a sec_403 program and amounts contributed on behalf of employees of employer a shall be excluded from the employees’ gross_income in the year of contribution to the extent such amounts do not exceed the applicable limits described in the code sec_403 of the code as amended by the economic growth and tax relief and reconciliation act of egtrra and applicable for years beginning after date provides that amounts contributed by an employer to purchase an annuity_contract for an employee are excludable from the gross_income of the employee in the year contributed provided the employee performs services for an employer which is exempt from tax under sec_501 of the code as an organization described in sec_501 or the employee performs services for an educational_institution as defined in sec_170 of the code which is a state a political_subdivision of a state or an agency_or_instrumentality of any one or more of the foregoing the annuity_contract is not subject_to sec_403 of the code the employee's rights under the contract are nonforfeitable except for failure to pay future premiums such contract is purchased under a plan which meets the nondiscrimination requirements of paragraph except in the case of a contract purchased by a church and in the case of a contract purchased page under a plan which provides a salary reduction agreement the contract meets the requirements of sec_401 sec_403 of the code provides further that the employee shall include in his gross_income the amounts actually distributed under such contract in the year distributed as provided in sec_72 of the code sec_403 of the code requires that arrangements pursuant to sec_403 must satisfy requirements similar to the requirements of sec_401 a and similar to the incidental death_benefit requirements of sec_401 a with respect to benefits accruing after date in taxable years ending after such date in addition this section requires that the requirements of sec_401 regarding direct rollovers are met sec_401 of the code generally provides that the required_beginning_date for commencement of benefits is april of the calendar_year following the later of the calendar_year in which the employee attains age or the calendar_year in which the employee retires sec_401 specifies required_minimum_distribution rules for the payment of benefits from qualified_plans sec_403 of the code provides generally that sec_403 annuity_contract distributions attributable to contributions made pursuant to a salary reduction agreement within the meaning of sec_402 may be paid only when the employee attains age has a severance_from_employment dies becomes disabled within the meaning of sec_72 or in the case of hardship such contract may not provide for the distribution of any income attributable to such contributions in the case of hardship sec_401 of the code requires that the contract be nontransferable sec_403 of the code provides that in the case of a contract purchased under a plan which provides a salary reduction agreement the contract must meet the requirements of sec_401 sec_401 requires a sec_403 arrangement which provides for elective_deferrals to limit such deferrals under the arrangement in combination with any other qualified_plans or arrangements of an employer maintaining such plan providing for elective_deferrals to the limitation in effect under sec_402 for taxable years beginning in such calendar_year sec_402 of the code provides generally that the elective_deferrals of any individual for any taxable_year shall be included in such individual's gross_income to the extent the amount of such deferrals exceeds dollar_figure for calendar_year such amount is increased by an amount equal to dollar_figure for each year through sec_402 of the code provides that in the case of a qualified_employee of a qualified_organization with respect to employer contributions used to purchase an annuity_contract under sec_403 under a salary reduction agreement the limitation of sec_402 as modified by sec_402 for any taxable_year shall be increased by whichever of the following is the least i dollar_figure ii dollar_figure reduced by amounts not included in gross_income for prior taxable years by reason of this paragraph or iii the page excess of dollar_figure multiplied by the number of years_of_service of the employee with the qualified_organization over the employer contributions described in paragraph made by the organization on behalf of such employee for prior taxable years determined in the manner prescribed by the secretary a qualified_organization for these purposes means any educational_organization hospital home health service agency health and welfare service agency church_or_convention_or_association_of_churches and includes any organization described in sec_414 and a qualified_employee means any employee who has completed years_of_service with the qualified_organization sec_415 of the code provides in relevant part that an annuity_contract described in sec_403 shall not be considered described in sec_403 unless it satisfies the sec_415 limitations in the case of an annuity_contract described in sec_403 the preceding sentence applies only to the portion of the annuity_contract exceeding the sec_415 or sec_415 limitations all contributions and the earnings thereon are fully vested and nonforfeitable at all times plan x does not meet the requirements of a sec_403 annuity_contract the restrictions of transferability of annuity_contracts are present in plan x as required by sec_401 of the code plan x satisfies the limits under sec_403 of the code that amounts attributable to elective_deferrals shall not be distributable earlier than upon the attainment of age severance_from_employment death disability or hardship in addition plan x satisfies the sec_403 requirements and limits contributions in accordance with sec_402 and sec_415 of the code also the salary reduction agreement which each eligible_employee of employer a who becomes a participant in plan x may elect to enter into meets ail of the applicable_requirements of the code and regulations accordingly we conclude with respect to your ruling_request that plan x satisfies the requirements of the code as applicable to a sec_403 program and amounts contributed on behalf of employees of employer a shall be excluded from the employees’ gross_income in the year of contribution to the extent such amounts do not exceed the applicable limits described in the code this ruling is contingent upon the adoption of the amendments to plan x as stipulated in your correspondence dated date date and july and will have no effect unless such proposed amendments are adopted this ruling is limited to the form of plan x excluding any form defects which may violate the nondiscrimination requirements of sec_403 of the code this ruling does not extend to any operational violations of sec_403 of the code by plan x now or in the future this ruling is directed only to the taxpayer who requested it sec_61 k of the code provides that this ruling may not be used or cited by others as precedent any questions concerning this ruling should be addressed to _at not a toll free number page pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours frances v sloan manager tax_exempt_and_government_entities_division enclosures notice deleted copy of ruling letter cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division aug uniform issue list tep kakt1 legend taxpayer a ira b financial_institution c amount dear this letter is in response to your request dated date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution from ira b of amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by code sec_408 was due to his reliance on incorrect information given him concerning the 60-day period by a representative of financial_institution c his financial advisor at financial_institution c provided incorrect information taxpayer a maintained ira b an individual_retirement_account under sec_408 of the code on date taxpayer a took amount from ira b regarding how long taxpayer a had to repay the money to ira b or another ira based on this information taxpayer a wrote a check on date and hand- delivered it to the office of financial_institution c in aiken sc no checks are deposited in the office of financial_institution c in aiken sc but are sent to the office of financial_institution c in augusta ga the following day and deposited through that office the check was deposited on date in ira b the ruling_request is accompanied by a letter from financial_institution c which admits that taxpayer a was given incorrect information about how long he had to repay amount into ira b based on the above facts and representations you request 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 of the code 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 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 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408i of the code 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 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code 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 and sec_402 of the code 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 his reliance on misinformation given him by financial_institution c concerning the 60-day period 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 b provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect to taxpayer a’s contribution of amount into ra b on date such contribution will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by 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 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 a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling please contact d se t ep ra t1 at if you wish to inquire about kak kee sincerely yours c0 tt a bl lhd carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date uil ----------------------------------- --------------------- -------------------------------------- attention dear ------------- ------------------------------ cc ita genin-127446-18 this letter responds to your request for information dated date relating to amounts paid_by business taxpayers pursuant to a state tax_credit program in your state that provides credits against business taxes such as insurance premium tax direct pay sales and use_tax corporate_income_tax alcoholic beverage excise_tax oil and or gas production tax and state sales_tax due on rent or license fee payments specifically you requested information regarding the potential effect of notice of proposed rulemaking nprm reg-112176-18 fr issued by the treasury_department and internal_revenue_service irs and published in the federal_register on date the nprm provides proposed rules regarding the availability of a charitable_contribution_deduction under sec_170 of the internal_revenue_code irc when the taxpayer receives or expects to receive a corresponding state_or_local_tax credit generally sec_170 allows as a deduction any charitable_contribution paid within the taxable_year subsection c of sec_170 provides that the term charitable_contribution means a contribution or gift to or for_the_use_of one of the types of entities listed in that subsection including a state or political_subdivision of a state corporation trust community chest fund or foundation that is organized and operated exclusively for religious charitable literary scientific or educational_purposes and that is otherwise qualified under the nprm a taxpayer that makes a payment or transfers property to an entity described in sec_170 must reduce its charitable_contribution_deduction by the amount of any state_or_local_tax credit the taxpayer receives or expects to receive the nprm addresses whether certain amounts may be deducted as charitable_contributions under sec_170 or sec_642 if the payments are made by a_trust or decedent’s estate and the regulations thereunder and does not propose to change existing tax treatment under any other provisions of the irc or the treasury regulations thus the nprm does not impact a business taxpayer’s payments made as part of your state’s genin-127446-18 tax_credit program described above that are deductible under a code section other than sec_170 we welcome your written comments on the nprm and your participation in the public hearing scheduled for date feel free to address any issues that you believe should be addressed in the final regulations this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see section dollar_figure of revproc_2018_1 2018_1_irb_1 we hope you find this letter helpful if you have any additional questions please contact me at -------------------- sincerely scott dinwiddie associate chief_counsel income_tax accounting


t c memo united_states tax_court fred and yvonne michael petitioners v commissioner of internal revenue respondent docket no filed date ted h merriam and david a sprecace for petitioners richard d d'estrada for respondent memorandum opinion fay judge by notice_of_deficiency dated date respondent determined a deficiency in petitioners' federal_income_tax return in the amount of dollar_figure and an addition_to_tax and a penalty under sec_1 a and a in the 1all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the continued amounts of dollar_figure and dollar_figure respectively after concessions the sole issue for decision is whether petitioners are entitled to an interest_deduction for interest they paid to the internal_revenue_service the service during on tax deficiencies for earlier years background this case was submitted fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference and the facts contained therein are found accordingly at the time the petition was filed petitioners resided in thornton colorado during the year in issue fred michael petitioner was unemployed petitioner yvonne michael's principal business was running four sisters an indian art retail store continued tax_court rules_of_practice and procedure unless otherwise indicated 2petitioners concede that they are liable for an addition_to_tax under sec_6651 equal to percent of any deficiency determined herein 3on their joint federal_income_tax return petitioners deducted dollar_figure on schedule a as legal fees respondent concedes that dollar_figure is an allowable deduction for legal fees under sec_212 but is subject_to the percent of adjusted_gross_income limitation on schedule a petitioners concede that the remaining dollar_figure claimed as legal fees is not an allowable deduction respondent concedes that petitioners are not liable for an accuracy-related_penalty under the provisions of sec_6662 prior to the year in issue during the and taxable years petitioner worked as a furniture lumper a lumper is a laborer employed to handle freight or cargo on their and federal_income_tax returns petitioners claimed withholdings were made on petitioner's behalf in the amounts of dollar_figure and dollar_figure respectively following an audit the commissioner determined that these amounts which were claimed as withholding for the taxable years and were never withheld or paid to the service during the taxable years and the commissioner further determined that petitioner was an indepen- dent contractor during the and taxable years in which he worked as a furniture lumper the commissioner determined that as an independent_contractor petitioner was liable for self-employment_tax in the amounts of dollar_figure and dollar_figure for the tax years and respectively petitioners paid dollar_figure in interest in to the service on account of their tax_liabilities arising from the overstatement of credits for with- holding and the failure to pay self-employment_tax during the and tax years on schedule c of their federal_income_tax return petitioners claimed this interest_expense as a business_expense respondent disallowed the entire dollar_figure deduction as a schedule c interest_expense discussion petitioners assert that the interest_expense is attributable to petitioner's trade as a furniture lumper and therefore deduct- ible as an ordinary_and_necessary_expense of a trade_or_business under sec_162 respondent argues that petitioners are not entitled to an interest_deduction under sec_1_163-9t temporary income_tax regs fed reg date which treats interest incurred on a federal individual income_tax deficiency as nondeductible personal_interest under sec_163 sec_163 provides in part sec_163 disallowance of deduction for personal_interest in general in the case of a taxpayer other than a corporation no deduction shall be allowed under this chapter for personal_interest paid_or_accrued during the taxable_year personal_interest for purposes of this subsection the term personal_interest means any interest allowable as a deduction under this chapter other than-- a interest_paid or accrued on indebtedness properly allocable to a trade_or_business other than the trade_or_business of performing services as an employee sec_162 provides in part there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business petitioners however contend that sec_1 9t b i a temporary income_tax regs supra is invalid because it is not a reasonable interpretation of the legislative definition of personal_interest contained in sec_163 in support of this contention petitioners rely on our recent decision in 106_tc_31 in which we held that under the facts presented in that case sec_1_163-9t temporary income_tax regs supra was invalid and that the interest on the deficiency in that case constituted an ordinary_and_necessary_expense of a trade_or_business and accordingly was deductible petitioners' reliance on redlark v commissioner supra is misplaced we noted in redlark v commissioner supra pincite that there are situations where deficiency_interest will not constitute an ordinary and necessary business_expense allocable within the meaning of sec_163 therefore we begin our analy- sis with whether the interest_expense involved herein is an ordinary_and_necessary_expense sufficiently connected to the business of petitioner so as to satisfy the properly allocable to a trade_or_business exception of sec_163 the case herein is appealable to the court_of_appeals for the tenth circuit which in 276_f2d_601 10th cir affg 31_tc_412 affirmed our decision that interest on an income_tax deficiency arising out of inven- tory valuation corrections was a deductible business_expense for purposes of calculating a net_operating_loss_carryover accord- ing to the court_of_appeals an item of expense is not deduct- ible as a business_expense merely because it arose in connection with the taxpayer's business and was proximately related thereto to be deductible it must be an ordinary_and_necessary_expense incurred in the operation of the business id pincite the court of appeals' view of the type of situations in which interest on a deficiency may be deducted as an ordinary_and_necessary_expense arising out of the operation of a business is reflected in the following statement unless it can be said that the failure to properly evaluate inventories which form a part of a taxpayer's return arises because of the nature of the business and is ordinarily and necessarily to be expected interest on a deficiency assessment does not arise out of the ordinary operation of the business and may not be deducted fn ref omitted id pincite this court in redlark v commissioner supra pincite noted that the above-quoted language might have been intended to narrow the types of situations where the ordinary and necessary business_expense requirement of sec_162 has been satisfied in redlark however we indicated that the court_of_appeals for the tenth circuit's test was met under the specific facts presented we must now decide whether the facts of the present case also meet the court of appeals' test failure to pay self-employment_tax petitioner believed that for the tax years and he was an employee and therefore not liable for self-employment_tax the commissioner determined that petitioner was not an employee during and but was instead an independent_contractor following this determination by the commissioner petitioner paid in deficiencies in self-employment_tax for and and interest on those liabilities as indicated above the court_of_appeals for the tenth circuit to which an appeal in this case would lie held in commissioner v polk supra that interest_paid by an individual taxpayer on an income_tax deficiency was deductible as an ordinary_and_necessary_expense where the deficiency resulted from the taxpayer's understatement of his business income however the facts of polk are distinguishable from the facts herein the taxpayer in polk raised and produced livestock and used an inven- tory accounting_method that required him to value his livestock yearly the court_of_appeals stated that because properly valuing livestock is not an exact science the taxpayer's under- reporting of income arose because of the nature of his business and is ordinarily and necessarily to be expected commissioner v polk supra pincite thus the interest on the deficiency was held to be an ordinary and necessary business_expense id unlike the taxpayer in polk here petitioner has not made a showing that the part of the and income_tax deficien- cies resulting from his failure to pay self-employment_tax and on which he paid interest arose as a normal or usual incident of his business as a furniture lumper petitioners argue that it is very difficult for a lumper to determine his status as either an employee or an independent_contractor petitioners cite several cases which have addressed this issue some of which conclude the lumper was an employee while others conclude the lumper was an independent_contractor 389_f2d_337 6th cir 349_f2d_644 9th cir 347_f2d_671 4th cir 255_fsupp_870 w d pa petitioners' argument is not persuasive petitioners were put on notice of a possible problem with petitioner's status as an employee because peti- tioner never received a form_w-2 from any of the persons or entities he worked for petitioners included with each of their and income_tax returns a temporary handwritten form_w-2 which petitioner prepared himself petitioners give no indica- tion that they investigated why no form_w-2 was issued to petitioner or whether the amounts they claimed as withholdings were in fact withheld the record contains no evidence that petitioner given a good_faith effort would not have been able to correctly file as an independent_contractor indeed there is no probative evidence regarding the principal's control_over the details of his work or in regard to any other factor commonly taken into account to distinguish an employee from an independent_contractor see eg 101_tc_537 thus petitioner did not show that his failure to pay self-employment taxes was a normal or usual incident of his business as was the case in commissioner v polk supra past cases have required a stronger connection between the adjustments creating the deficiency and the taxpayer's business see 31_tc_412 holding that adjustment arising from revaluations of taxpayer's inventory was sufficiently connected and proximately related to taxpayer's business 28_tc_789 holding that adjustment arising from accounting errors in taxpayer's business was proximately related to taxpayer's business affd 259_f2d_450 4th cir therefore we find that no part of the deficiencies arising because of petitioner's failure to pay self-employment taxes during the and taxable years was attributable to petitioner's trade_or_business overstated withholding by petitioner petitioners claimed on their and federal_income_tax returns credits for withholding in the amounts of dollar_figure and dollar_figure respectively these amounts were never in fact withheld or paid over to the service a portion of the interest_expense deducted by petitioners on their federal_income_tax return represents interest on the unpaid tax_liabilities arising from the overstatement of credits for withholding that interest was paid during the taxable_year petitioners have failed to prove that the interest_paid on the tax_liabilities resulting from their overstated withholding qualifies as interest accrued on indebtedness properly allocable to a trade_or_business of their own see rose v commissioner tcmemo_1995_75 in rose the taxpayers paid interest on a deficiency that arose from underpayment of estimated_tax and late payment of their tax this was not produced by any adjustment to their income but instead resulted solely from the taxpayers' late payment of their tax_liabilities we concluded that that interest was not attributable to a trade_or_business in the case at bar petitioners' deficiencies for and resulted in part from a failure to remit taxes reported as withheld on petitioner's form_w-2 as noted earlier the form_w-2 was prepared by petitioner himself he did not receive a form_w-2 from any individual or entity he may have worked for during or thus he has not demonstrated any basis much less the good_faith basis contemplated by 276_f2d_601 10th cir for believing that any_tax was withheld from his compensation and paid over to the service on his behalf petitioners have failed to show that interest on their deficiencies insofar as attributable to their overstate- ment of withholding credits arose as a natural usual or unavoidable consequence of petitioner's business petitioners therefore have failed to carry their burden of showing that the interest imposed on their income_tax deficiencies due to their overstated credits for withholding was allocable to a trade_or_business or deductible as an ordinary and necessary business_expense see id pincite conclusion petitioners have failed to carry their burden of proving that the interest_expense_deduction they took for interest_paid to the service on their tax deficiencies was allocable to a trade_or_business within the meaning of sec_163 to reflect the foregoing and concessions by the parties decision will be entered under rule


t c summary opinion united_states tax_court george saadian petitioner v commissioner of internal revenue respondent docket no 14369-10s filed date william m samoska for petitioner michael e washburn for respondent summary opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 pursuant to sec_7463 the decision to be 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended in effect for the relevant period rule references are to the tax_court rules_of_practice and procedure entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case in a notice_of_deficiency dated date notice respondent determined a dollar_figure deficiency in and a dollar_figure sec_6662 accuracy-related_penalty with respect to petitioner’s federal_income_tax respondent now agrees that petitioner is not liable for the accuracy-related_penalty the issue for decision is whether petitioner is entitled to the dollar_figure nonbusiness_bad_debt deduction claimed on his federal_income_tax return return background some of the facts have been stipulated and are so found at the time the petition was filed petitioner resided in california petitioner and nedjat simantob mr simantob both members of what petitioner describes as the persian jewish community community are related in a manner described by petitioner as distant relatives at some point in mr simantob who at the time owned and operated several businesses including a real_estate development company approached petitioner and petitioner’s mother parvindokht toufer saadian mrs toufer for a loan the proceeds of the loan were intended to be used in connection with a real_estate development project being considered by mr simantob apparently he was not able to secure commercial financing for the project according to petitioner mr simantob enjoyed a very good reputation within the community as an honest and successful businessman relying heavily on mr simantob’s reputation within the community petitioner and his mother agreed to jointly lend dollar_figure to mr simantob loan nothing in the record suggests that petitioner or mrs toufer was in the trade_or_business of lending money during the year in issue the loan is evidenced by a promissory note dated date payable to petitioner and mrs toufer the note shows an annual interest rate of payable monthly with the principal due on or before date as it turned out things did not go as planned mr simantob did not begin to make monthly payments as required under the promissory note until some point in from through mr simantob made partial interest payments that ranged from dollar_figure to dollar_figure per year petitioner contacted mr simantob for the first time around date and then several times between and to inquire as to why the interest payments were not being made as required by the terms of the note the record is unclear as to whether mr simantob made any payments during and mr simantob made a dollar_figure interest payment to mrs toufer in which was the last payment made on the promissory note by letter dated date petitioner’s attorney william m samoska demanded payment from mr simantob by date of the principal and interest due on the note the letter includes the following statement if this sum is not received then we will follow our clients’ instructions and immediately take legal action mr simantob did not pay nonetheless neither petitioner nor mrs toufer pursued any legal action in an attempt to collect the balance of the loan according to petitioner the decision not to sue mr simantob was made because of concern over the negative social implications that might arise if one member of the community sued another member in order to recover a debt mr simantob died in date after mr simantob’s death petitioner met on several occasions with mr simantob’s sons both of whom were involved in mr simantob’s businesses at the time one of mr simantob’s sons was a plaintiff in a lawsuit to recover money owed to him by other members of the community the plan was to use any recovery from that lawsuit to satisfy mr 2the reference to clients in mr samoska’s date letter to mr simantob obviously is to petitioner and mrs toufer even though petitioner claims that mrs toufer had made a gift of her interest in the note to him earlier that year simantob’s debt to petitioner apparently that plan did not go so well either in his last meeting with one or both of mr simantob’s sons which took place in petitioner was advised that he should not plan to receive the unpaid balance due on the note that plan went as expected no further payments were received petitioner’s return includes a schedule d capital_gains_and_losses that schedule shows a long-term_capital_gain of dollar_figure offset by a dollar_figure nonbusiness_bad_debt deduction related to the loan the disallowance of that deduction in the notice results in a dollar-for-dollar increase in petitioner’s long-term_capital_gain which in turn results in the deficiency here in dispute according to the notice petitioner failed to establish that the debt was worthless or otherwise qualified as a bad_debt discussion as has been observed by this and other federal courts in opinions too numerous to count deductions are a matter of legislative grace and the taxpayer bears the burden_of_proof regarding the taxpayer’s entitlement to any deductions claimed rule a see also 503_us_79 3petitioner does not claim that the provisions of sec_7491 are applicable and we proceed as though they are not 308_us_488 292_us_435 according to petitioner the deduction here in dispute is attributable to a worthless nonbusiness_bad_debt deductible pursuant to sec_166 that section provides that a deduction shall be allowed for any bad_debt that becomes worthless within the taxable_year the term nonbusiness_debt is defined as a debt other than a debt created or acquired in connection with the taxpayer’s trade_or_business or a loss from the worthlessness of a debt that is incurred in the taxpayer’s trade_or_business see sec_166 the loss from a nonbusiness_bad_debt that becomes wholly worthless within the year is treated as a loss arising from the sale_or_exchange of a capital_asset held for less than one year and is deductible subject_to certain limitations see sec_166 sec_1_166-5 income_tax regs the allowance of a deduction under sec_166 requires that the debt to which the deduction relates was a valid debt and that the taxpayer claiming the deduction was the creditor respondent does not necessarily agree that petitioner 4the record is less than clear with respect to whether petitioner or mrs toufer provided the funds for the loan or if both did how much either contributed the record shows that interest payments were being made to mrs toufer has satisfied either requirement here but assuming without finding that both requirements have been satisfied we turn our attention to petitioner’s claim that the debt became worthless during there is no standard test for determining worthlessness whether and when a debt becomes worthless depends on all the facts and circumstances see 77_tc_582 in general the year of worthlessness must be fixed by identifiable events that constitute reasonable grounds for a creditor to abandon any prospect of recovery id the creditor’s decision must be made in the exercise of sound business judgment using information that is as complete as is reasonably obtainable see 54_tc_239 however a debt is not worthless for purposes of a sec_166 deduction merely because it might be difficult or uncomfortable to collect see 40_fedclaims_737 petitioner’s decision not to enforce collection of the debt for personal rather than financial reasons in and of itself operates to deny him the deduction here in dispute furthermore we question the timing of the deduction the note matured in six years before the year in which petitioner claims the debt to have become worthless although there is evidence that petitioner pursued collection of the debt with mr simantob’s heirs after the death of mr simantob there is no showing that any formal claim against mr simantob’s estate was made or that mr simantob’s sons had any legal_obligation to satisfy the debt if the debt became worthless it would seem that it did so before the year in issue see 27_tc_330 aff’d 253_f2d_928 3d cir accordingly petitioner is not entitled to a dollar_figure nonbusiness_bad_debt deduction for and respondent’s determination to that effect is sustained to reflect the foregoing decision will be entered for respondent


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b07 ----------- postf-152391-06 uilc 263a date february to connie s fish team manager lmsb fs from grant d anderson senior counsel branch income_tax accounting subject capitalization of costs of x publishers under sec_263a this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer ----------------------- x y --------------------------------- -------------- issue sec_1 is the taxpayer required to use inventories to account for x that it publishes under sec_471 of the internal_revenue_code is the publication of x a production activity under sec_263a are book publication costs incurred by the taxpayer in publishing x required to be capitalized to inventory under sec_263a conclusion sec_1 the taxpayer is required under sec_471 to use inventories to account for x it publishes postf-152391-06 the publication of x is a production activity under sec_263a book publication costs incurred by the taxpayer in publishing x are required to be capitalized to inventory under sec_263a facts the taxpayer produces publishes and distributes x revenue is generated from selling advertising space in the x the taxpayer consults on the best type and the placement of the advertisements it also helps design and create the advertisements the taxpayer’s business cycle for each x is generally months the taxpayer begins soliciting advertising contracts approximately months prior to publication of the x approximately months prior to publication the production and printing stage occurs finally the x is distributed to y subscribers at no charge to them in the geographic area covered by the x a x generally has a month life a contract is entered into with a customer for an advertisement to be placed in a x scheduled to be published by the taxpayer for financial_accounting purposes the transaction is not recorded until the date of publication when the full value of the contracts written for the x is recorded as deferred revenue customers are billed and revenue is recognized ratably over the life of the x generally a month period the costs incurred related to the publication of the x are capitalized and deferred until the date of publication and are then amortized over the life of the book generally months these publication costs include sales commissions production printing paper and delivery for tax purposes the taxpayer recognizes income when the selling_price is billed to the customer generally over the month life of the x the related publication costs are deducted as incurred which is generally prior to publication law and analysi sec_1 is the taxpayer required under sec_471 to use inventories to account for x that it publishes sec_471 requires the use of inventories whenever inventories are necessary in order clearly to determine the income of the taxpayer inventories are to be taken on the basis the secretary prescribes so as to conform as nearly as may be to the best_accounting_practice in the trade_or_business and as most clearly reflecting the income sec_1_471-1 of the income_tax regulations specifies that in order to reflect taxable_income correctly inventories at the beginning and end of each tax_year are necessary in every case in which the production purchase or sale of merchandise is an income-producing factor postf-152391-06 sec_471 and the regulations thereunder require the use of inventories whenever the production purchase or sale of merchandise is an income-producing factor the term merchandise is not defined in the code or regulations however in 420_f2d_352 1st cir aff'g tcmemo_1969_39 the first circuit after reviewing the relevant authorities defined merchandise as personal_property held_for_sale following wilkinson-beane other courts have recognized that merchandise generally is goods held_for_sale see eg thompson electric inc v commissioner tcmemo_1995_292 j p sheahan and assoc v commissioner tcmemo_1992_239 the term sale has been defined as a revenue transaction where goods or services are delivered to a customer in return for cash or a contractual obligation to pay the t erm comprehends transfer of property from one party to another for valuable recompense black's law dictionary 6th ed p west publishing see u c c a 'sale' consists in the passing of title from the seller to the buyer for a price we believe that sec_1_471-1 should be broadly interpreted and that a sale of merchandise for purposes of sec_1_471-1 includes any exchange of tangible_personal_property for payment the term is not limited to a transfer of property between a single seller and a single buyer thus the term sale is broad enough to encompass a transaction wherein the payment for the sale of advertising space in a x is received from the purchaser and the x is delivered to the purchaser’s potential customers the reason why the taxpayer can give the x to the y subscribers without charge is because the profit from the transfer of the merchandise is derived through the sale of the advertising space the effect is the same as if the advertisers were buying the x and having them distributed by the taxpayer to potential customers the need for a taxpayer to use inventories is not affected by the fact that the taxpayer's revenues are primarily received from entities other than those who receive the taxpayer's merchandise see for example 743_f2d_781 11th cir revrul_81_272 1981_2_cb_116 situation thus the x containing the advertising space sold to the taxpayer’s customer but delivered to the purchaser’s potential customers are held_for_sale by the taxpayer and are merchandise for the purposes of sec_1_471-1 in addition sec_1_471-1 does not specifically limit the requirement to use inventories to when the sale of merchandise is an income-producing factor the use of inventories is also required whenever the production of merchandise is an income-producing factor here the taxpayer publishes x and earns revenue by selling advertising space in the x although the taxpayer’s revenue is nominally derived from the sale of the advertising space the production publishing and distribution of the x is an intrinsic and indispensable part of the sale of the advertising space without producing the x the taxpayer could not realize income from the sale of the advertising space in the x thus the production of the x is an income-producing factor for the purposes of sec_1_471-1 as a result under sec_471 and the regulations thereunder inventories are necessary in order clearly to determine the income of the taxpayer is the publication of x a production activity under sec_263a postf-152391-06 sec_1_263a-1 provides that under sec_263a taxpayers must capitalize their direct costs and a properly allocable share of their indirect_costs to tangible_personal_property produced_by_the_taxpayer sec_263a provides that tangible_personal_property includes a film sound_recording video tape book or similar_property see also sec_1_263a-2 sec_263a defines the term produce to include construct build install manufacture develop or improve see also sec_1_263a-2 sec_263a of the code and the regulations thereunder provide uniform rules for capitalization of costs properly allocable to property produced by a taxpayer under those rules the taxpayer is producing property within the meaning of sec_263a when it publishes its x the x are tangible_personal_property and the taxpayer creates them sec_263a and g there is no specific exemption listed in either the code or the regulations that exempts book publishers such as the taxpayer from having to capitalize costs under sec_263a accordingly the taxpayer is required to capitalize the direct costs and indirect_costs that directly benefit or are incurred by reason of the production of the x are book publication costs incurred by the taxpayer in the production of x indirect_costs required to be capitalized to inventory under sec_263a sec_263a provides that the direct and indirect_costs properly allocable to property that is inventory in the hands of the taxpayer are included in inventory costs sec_1_263a-1 provides that to determine these capitalizable costs taxpayers must allocate or apportion costs to various activities including production activities once costs are allocated to production activities the costs generally are allocated to the items of property produced during the taxable_year and capitalized to the items that remain on hand at the end of the taxable_year sec_1_263a-1 provides that producers must capitalize direct_material_costs and direct_labor_costs under sec_1_263a-1 direct_material_costs include the cost of those materials that become an integral part of specific property produced and those materials that are consumed in the ordinary course of production and that can be identified or associated with particular units or groups of units of property produced under sec_1_263a-1 direct_labor_costs include the costs of labor that can be identified or associated with particular units or groups of units of specific property produced sec_1_263a-1 provides in part that indirect_costs are defined as all costs other than direct_material_costs and direct_labor_costs and are properly allocable to property produced when the costs directly benefit or are incurred by reason of the performance of production activities sec_1_263a-1 lists selling and distribution costs as examples of indirect_costs are not required to be capitalized under sec_263a these costs are postf-152391-06 described as marketing selling advertising and distribution costs see also sec_1 c iv a sec_1_263a-2 provides that generally producers must capitalize direct and indirect_costs properly allocable to property produced under sec_263a without regard to whether those costs are incurred before during or after production the taxpayer is producing tangible_personal_property within the meaning of sec_263a when it publishes its x see sec_263a and g 263a-2 a and 263a-2 a therefore the taxpayer is required to capitalize all direct_material_costs direct_labor_costs and indirect_costs properly allocable to its x see sec_1_263a-1 and sec_1_263a-1 among the costs incurred by the taxpayer are those related to the publication of its x book publication costs these costs are sales commissions production printing paper and delivery costs whether any of the taxpayer’s book publication costs are capitalizable depends on whether under all the facts and circumstances the particular cost is properly allocable to the taxpayer’s production activities under sec_1 c book publishers sell a printed product it begins with an idea which is transformed by some combination of processes to a completed printed product which could be in the form of a business card a book a calendar a poster or other item see market_segment_specialization_program guideline commercial printing date wl i r s inventory for a printing company usually includes materials such as film plates chemicals typesetting film masking sheets paper envelopes ink and glue the paper and printing costs incurred by the taxpayer are usually direct materials since they become an integral part of specific property produced or direct labor since they can be identified or associated with particular units or groups of units of property produced see sec_1_263a-1 likewise the costs identified as production_costs usually would include direct materials and direct labor as well as those indirect_costs that are allocable to the property being produced and would be capitalizable see sec_1_263a-1 and sec_1_263a-1 in contrast under sec_1_263a-1 delivery costs that are distribution costs would not be capitalizable similarly costs described as sales commissions usually would be incurred in selling the taxpayer’s finished products and as a selling expense would not be capitalizable under sec_1 263a- e iii a however in this case because of the nature of the taxpayer’s production activities the sales commissions are capitalizable as production labor costs the question of capitalization under sec_263a does not turn on how costs are labeled rather the principle focus should be on whether the costs directly benefit or are incurred by reason of a production activity or a selling or distribution activity the answer depends on the activity for which the commission was paid is the employee engaged in selling and distribution activities or production activities as discussed above the sale of advertising space in a x obligates the taxpayer to provide advertising space in the x and to deliver the x to the y subscribers the potential customers of the purchaser however the primary thrust of the employee’s activity is to generate an advertisement for inclusion in the x as much as the paper and ink the advertisements are raw materials used in the production of the x in postf-152391-06 essence the advertising sales commissions are not incurred to sell or distribute a finished product to a customer but to acquire the material needed to produce the product thus under sec_1_263a-1 the sales commissions are properly allocable to the taxpayer’s production activities and are capitalizable to the inventory produced during the taxable_year the costs are incurred further if the commissions can be identified or associated with particular units of specific x produced the costs would be properly capitalizable as direct_labor_costs under sec_1_263a-1 if the commissions cannot be so identified or associated with a specific x the advertising sales commissions are properly capitalizable as indirect labor costs under sec_1 263a- e i case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call --------------------- if you have any further questions


douglas p snow and deborah j snow petitioners v commissioner of internal revenue respondent douglas p snow petitioner v commissioner of internal revenue respondent docket nos filed date in r mailed notices of deficiency regarding ps’ and tax years in ps filed petitions with the court ps moved to dismiss for lack of jurisdiction alleging that the verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports notices of deficiency had not been mailed to ps’ last_known_address and were therefore invalid r also moved to dismiss for lack of jurisdiction because the petitions were untimely these cases were assigned to a special_trial_judge who wrote an initial report granting ps’ motions to dismiss because of the amounts in issue the decisions in these cases were required by statute to be made by a regular judge after the special_trial_judge submitted his initial report for review the report was rewritten to grant r’s motions to dismiss rather than ps’ motions a regular judge adopted the rewritten report and then entered orders dismissing for lack of jurisdic- tion on date see snow v commissioner tcmemo_1996_457 the orders which are treated as decisions became final on date in date the court informed ps that the initial report of the special_trial_judge had proposed to grant ps’ motions the court sent ps a copy of the initial report this notification was in reaction to 544_us_40 on date ps filed motions for leave to file motions to vacate the orders of dismissal that had become final on date held as a general_rule the finality of a tax_court decision is absolute the recognized exceptions are when there has been a fraud on the court or when the decision was void because the court did not have jurisdiction to enter the decision here there was no fraud on the court and the court clearly had jurisdiction to decide whether we had jurisdiction to redetermine the deficiencies involved ps’ motions will be denied jonathan p decatorsmith for petitioners george w bezold for respondent opinion ruwe judge the matter before us concerns petitioners’ motions for leave to file motions to vacate orders of dis- missal the motions were filed on date the orders of dismissal that petitioners’ motions seek to vacate were entered on date pursuant to our opinion in snow v commissioner tcmemo_1996_457 background the petitions in these cases were filed in regarding notices of deficiency for the taxable years and the notices of deficiency had been mailed in date proposed motions to vacate were embodied in petitioners’ motions for leave to file verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner shortly after the petitions were filed the parties each moved to dismiss for lack of jurisdiction petitioners alleged that the notices of deficiency were invalid because they had not been sent to petitioners’ last_known_address as required by sec_6212 respondent alleged that the notices of defi- ciency had been sent to petitioners’ last_known_address and were valid but that the petitions had not been filed within the 90-day period following the dates on which the notices of deficiency had been mailed as required by sec_6213 the court granted respondent’s motions to dismiss holding that the notices of deficiency were valid and the petitions were untimely sec_7459 provides that if the tax_court dismisses a proceeding for lack of jurisdiction an order to that effect shall be entered in the records of the tax_court and the decision of the tax_court shall be held to be rendered upon the date of such entry a n order of dismissal for lack of jurisdiction is treated as the court’s decision 127_tc_109 sec_7481 provides that the decision of the tax_court becomes final upon the expiration of the time allowed for filing an appeal sec_7483 provides that a notice of appeal must be filed within days after the decision of the tax_court is entered petitioners did not appeal and the court’s decisions became final on date petitioners’ motions for leave to file motions to vacate come over years after the decisions in these cases became final petitioners however argue that special circumstances war- rant vacating these decisions these circumstances require some explanation the decisions in these cases were entered by judge daw- son and were based on an opinion of special_trial_judge goldberg with which judge dawson agreed see snow v commissioner tcmemo_1996_457 pursuant to sec_7443a the chief_judge may assign certain types of cases to be heard by a special_trial_judge in cases such as peti- unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules of prac- tice and procedure applicable to the relevant events the tax_court is composed of judges appointed by the president and several special trial judges appointed from time to time by the tax court’s chief_judge judge dawson was appointed by the president verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports tioners’ which involved disputed deficiencies exceeding dollar_figure sec_7443a required a presidentially appointed judge hereinafter regular judge to make the decision see rule sec_180 sec_181 and sec_183 as they existed prior to amendment in at the time the instant cases were decided it was the practice of the court to have the report of a special_trial_judge in such a case submitted to the chief_judge who would then assign it to a regular judge for review adoption and entry of decision if upon review the regular judge dis- agreed with the special trial judge’s report the two would confer and changes might be made through a collaborative process see 544_us_40 the special trial judge’s initial report in these cases which was submitted to the chief_judge pursuant to rule b had proposed to grant petitioners’ motions to dismiss for lack of jurisdiction because the notices of deficiency had not been properly sent to petitioners’ last_known_address in arriving at this conclusion the initial report emphasized cer- tain facts and circumstances that occurred after the mailing of the notices of deficiency after the special_trial_judge submitted his initial report to the chief_judge the report was rewritten the rewritten report explained that the appropriate test for deciding whether the notices were properly addressed was whether at the time the notices of deficiency were mailed the internal_revenue_service irs knew or should have known that peti- tioners had moved to a new address see 907_f2d_517 5th cir rev’g 92_tc_949 864_f2d_1191 5th cir 93_tc_22 using this anal- ysis the revised report considered facts occurring after the mailing of the notices of deficiency to be irrelevant and held that the notices of deficiency had been mailed to petitioners’ last_known_address as a result the revised report held that the notices of deficiency were valid and that respondent’s motions to dismiss should be granted because the petitions were untimely judge dawson then adopted the revised report which appears at tcmemo_1996_457 and on date entered the orders decisions granting respondent’s motions to dismiss for lack of jurisdiction the amount is now dollar_figure see sec_7443a c verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner in accordance with rule in effect from to it was the tax court’s practice to treat a special trial judge’s initial report submitted to the chief_judge for adop- tion and decision by a regular judge as an internal docu- ment therefore special trial judges’ initial reports were not made available to the parties only the adopted reports and the decisions were served on the parties see ballard v commissioner u s pincite years later in a case handled under rule as it existed from to was heard by the united_states supreme court in ballard the supreme court held that for purposes of appealing a tax_court decision the parties were entitled to have access to a copy of the special trial judge’s initial report the supreme court held that this was required because an appellate court could not otherwise review whether the regular judge had properly followed rule which required that the regular judge give due regard to the fact that the special_trial_judge had the opportunity to evaluate the credibility of witnesses and give the special trial judge’s findings_of_fact the presumption of correctness neither ballard nor rule required the reviewing judge to always accept the findings of the special_trial_judge rule permitted the reviewing judge to modify or reject the special trial judge’s report in whole or in part after giving it due regard and the presumption of correctness in reaction to the ballard opinion the tax_court revised its rules so as to prospectively provide the parties a copy of the initial report of the special_trial_judge and allow them to comment on that report before it was reviewed by a regular judge see rule effective date and amendments to rules_of_practice and procedure of the united_states tax_court with explanatory notes 125_tc_339 the court also attempted to find initial copies of special trial judges’ reports that had previously been sub- mitted for review and adoption the initial reports which could be found were then served on the parties the initial report of special_trial_judge goldberg was served on peti- tioners by an order dated date the date order stated the supreme court decided in ballard v commissioner u s ll continued verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports petitioners’ motions that are now under consideration were filed almost years after petitioners first learned of the spe- cial trial judge’s initial report and over years after the decisions had become final petitioners allege that after receiving the special trial judge’s initial report in date they began exploring all options to obtain representa- tion for the purpose of vacating the decisions that had been entered in petitioners state that they contacted numerous attorneys foundations senators and congress- men in their effort but to no avail they allege that it was not until late in that they were able to obtain their cur- rent counsel who filed the motions now under consideration in date respondent opposes petitioners’ motions on the grounds that the court is without jurisdiction to grant petitioners’ motions to vacate the decisions that have long been final and that the opinion of the court reported at tcmemo_1996_457 is a correct application of the law to the facts discussion rule provides that any motion to vacate a decision shall be filed within days after the decision is entered unless the court otherwise permits petitioners’ motions were not filed within days in order for petitioners’ pro- that draft opinions submitted to the chief_judge by special trial judges under rule b of the court’s rules_of_practice and procedure should have been available to the parties from until issuance of the supreme court’s opinion in ballard this court did not file the draft opinions of special trial judges submitted under rule b in retro- spect and considering the supreme court’s holding draft opinions would have been filed and included in the public file accordingly the court has decided that retained special_trial_judge draft opinions will be filed and thereafter made publicly available the court recently conducted a search for retained copies of initial draft opinions submitted by special trial judges to the chief_judge under rule b a draft opinion was retained in the above-captioned cases in which a special trial judge’s draft opinion was adopted under the procedures of rule b the foregoing considered it is ordered that the clerk of the court file a copy of the special trial judge’s draft opinion submitted to the chief_judge under rule b and serve the same on the parties to these cases and it is further ordered that the decisions in these cases are final under sec_7481 and remain in full force and effect verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner posed motions to vacate to be considered rule required petitioners to file motions for leave to file their motions to vacate the granting of such motions lies within the sound discretion of the court stewart v commissioner t c pincite see also 113_f3d_670 7th cir aff ’g tcmemo_1995_209 but before we can exercise any discretion we must have jurisdiction when jurisdiction is in issue it is clear that we have juris- diction to decide whether we have jurisdiction stewart v commissioner t c pincite thus we must first deter- mine whether we have jurisdiction to grant the requested relief as we stated in stewart in order for us to consider the substantive merits of petitioner’s motion for leave we must still have jurisdiction except for very limited excep- tions none of which applies here this court lacks jurisdiction once a decision becomes final within the meaning of sec_7481 859_f2d_115 9th cir affg 86_tc_1319 235_f2d_97 9th cir affd 352_us_1027 as relevant here a decision of the tax_court becomes final upon the expiration of the time allowed for filing a notice of appeal if no such notice has been duly filed within such time sec_7481 sec_7483 provides that a notice of appeal may be filed within days after a decision is entered as previously explained an order of dismissal for lack of jurisdiction is treated as the court’s deci- sion id fn ref omitted sec_7481 provides for the finality of a tax_court decision upon the expiration of the time for appeal there were no appeals in these cases our jurisdiction in a case where our previous decision has become final is severely limited by both statute and caselaw as a general_rule the finality of a decision is absolute see abatti v commissioner t c pincite there are very few exceptions 122_tc_264 aff ’d 412_f3d_366 2d cir one exception is where there was a fraud on the court see 441_f2d_930 9th cir vacating 52_tc_295 387_f2d_689 7th cir cinema ‘84 v commissioner t c pincite 64_tc_741 aff ’d without pub- lished opinion 538_f2d_314 2d cir see also 511_f2d_929 2d cir we have also vacated an otherwise final_decision in a situa- verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports tion where the court had never acquired jurisdiction to make a decision see 90_tc_103 accord 723_f3d_857 7th cir vacating and remanding 136_tc_539 868_f2d_1081 9th cir 69_tc_999 we may also cor- rect a final_decision where a clerical_error in the decision is discovered after the decision has become final 144_f3d_495 7th cir aff ’g tcmemo_1995_294 here it is clear that there was neither fraud on the court nor clerical_error and that we had jurisdiction for purposes of deciding whether to dismiss petitioners’ cases for lack of jurisdiction petitioners make no argument to the con- trary in cinema ’84 we noted that the court_of_appeals for the sixth circuit had previously held that a final_decision of the tax_court could be vacated in situations involving mutual mistake see 219_f2d_610 6th cir but that in a more recent case 51_f3d_618 6th cir the court_of_appeals for the sixth circuit held that reo motors inc was overruled by the supreme court in 352_us_1027 and that the court would no longer fol- low the rationale of reo motors inc cinema ’84 v commis- sioner t c pincite in 365_f3d_131 2d cir the court explained the finality of tax_court decisions stating s ection of the internal_revenue_code provides that a decision of the tax_court becomes final u pon the expiration of the time allowed for filing a petition for certiorari if the decision of the tax_court has been affirmed or the appeal dismissed by the united_states court_of_appeals and no petition for certiorari has been duly filed sec_7481 in considering the predecessor to sec_7481 the supreme court ruled that after an order of the tax_court has become final the statute deprives us of jurisdiction over the case 321_us_225 see also 235_f2d_97 9th cir the court recognized that the usual rules of law applicable in court procedure must be changed to achieve the finality needed in the realm of tax decisions see simpson u s pincite verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner the rule_of finality can result in either the taxpayer or the commissioner receiving a benefit that would not have been available had an error been corrected before a decision became final we do not have equitable power to expand our jurisdiction see 484_us_3 113_f3d_670 7th cir 92_tc_776 as we stated in cinema ’84 v commissioner t c pincite finally movant alleges that the court’s affirmance of respondent’s determinations created a whipsaw that is patently unreasonable unfair unjust and inequitable we are willing to assume that this is also correct but the fact is that none of these allegations standing alone or together constitute a fraud on the court or other valid reason for vacating a final_decision of this court fn ref omitted when a tax_court decision becomes final and there is no jurisdiction in any other federal court lack of jurisdiction trumps equity for example in 494_us_596 the taxpayer who had been the administra- trix of her former employer’s estate received substantial pay- ments from the deceased employer’s brother those payments were reported on a federal gift_tax_return and the gift_tax was paid_by the taxpayer subsequently the irs examined the taxpayer’s income_tax return for the year in which she received the payments and determined that the payments were taxable_income rather than gifts the taxpayer peti- tioned this court and we decided that the payments were taxable_income subsequently the taxpayer filed a claim_for_refund of the gift_tax the irs denied the claim in subse- quent litigation over the erroneously paid gift_tax the united_states supreme court held that the statute deprived the dis- trict court of jurisdiction over the action for refund of the gift_tax noting that dalm does not seek to invoke equitable_recoupment in determining her income_tax_liability she has already litigated that liability in the tax_court without raising a claim of equitable_recoupment and is foreclosed from relitigating it now dalm u s pincite here as in for a discussion of the hardships that can result from the rules gov- erning finality see 81_tc_949 ndollar_figure verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports dalm our decisions have become final as a result we do not have jurisdiction to modify the decisions recently the court_of_appeals for the seventh circuit addressed the issue of our jurisdiction to vacate decisions that had become final where the decisions contained clerical errors in 723_f3d_857 7th cir the court_of_appeals held that the tax_court had no jurisdiction to vacate an incorrect decision that had become final stating our case law makes it clear that absent a fraud that infected the tax court’s decision the tax_court cannot vacate a decision that has become final here the tax_court issued its decisions on june and those decisions became final on date the commissioner does not contend that the june decisions were the result of fraud con- sequently the tax_court did not have the authority to vacate those decisions instead as was done in michaels the tax_court should have corrected the initial decisions without vacating them finally both petitioners and respondent rely on an unre- ported case decided by the court_of_appeals for the fifth cir- cuit to which these cases are appealable see 237_fedappx_932 5th cir in denying hilal’s motion to vacate a tax_court decision where the motion was filed almost two years after the decision became final the court_of_appeals stated as a general_rule once a decision of the tax_court becomes final the tax_court lacks jurisdiction to vacate that decision see eg 220_f3d_1255 11th cir courts have made exceptions to the finality rule in only three situa- tions id these exceptions to the general_rule must be construed nar- rowly so that the finality of judgments is preserved id the first excep- tion to the finality rule is when the tax_court may have originally lacked jurisdiction to enter a final_decision 868_f2d_1081 9th cir the rationale for this exception is that it would border on absurdity to prevent the tax_court on jurisdictional grounds from vacating a decision it lacked jurisdiction to enter in the first place id pincite some circuits also allow an exception to the finality rule when there is a fraud upon the court see eg 113_f3d_670 7th cir the third possible exception to the finality rule is for mutual mistake where the tax_court decision was predicated on the parties’ stipulation and both the government and fifth cir r provides that except under limited circumstances not relevant here unpublished opinions issued on or after date are not precedent however an unpublished opinion issued after date may be cited pursuant to fed r app p a verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner the taxpayer concede they mistakenly entered into the stipulation 859_f2d_115 9th cir the validity of this third exception is questionable see eg harbold f 3d pincite 122_f2d_324 9th cir the tax_court lacks juris- diction to vacate its decision on other grounds including newly discov- ered evidence an intervening change in the law and excusable neglect 387_f2d_689 7th cir 441_f2d_930 9th cir hilal v commissioner fed appx pincite none of the recognized exceptions to finality is present here we had jurisdiction in to decide the question of our jurisdiction and to grant respondent’s original motions to dismiss for lack of jurisdiction indeed dismissal for lack of jurisdiction was also the remedy petitioners sought albeit for different reasons than respondent there is no allegation or evidence of fraud on the court finally there is no allegation or evidence of mutual mistake or clerical_error petitioners nevertheless argue that we should override the above precedents by applying rule b of the federal rules of civil procedure specifically rule b and paragraph c requires that motions pursuant to paragraph b and shall be made within a reasonable_time our rule b provides that where there is no applicable rule we may give weight to the federal rules of civil procedure to the extent that they are suitably adaptable to govern the matter at hand rule b of the federal rules of civil procedure allows for relief from a judgment that is void a judgment that was fed r civ p b provides in part b grounds for relief from a final judgment order or proceeding on motion and just terms the court may relieve a party or its legal rep- resentative from a final judgment order or proceeding for the fol- lowing reasons mistake inadvertence surprise or excusable neglect newly discovered evidence that with reasonable diligence could not have been discovered in time to move for a new trial under rule b fraud whether previously called intrinsic or extrinsic misrepre- sentation or misconduct by an opposing party the judgment is void the judgment has been satisfied released or discharged it is based on an earlier judgment that has been reversed or vacated or applying it prospectively is no longer equitable or any other reason that justifies relief verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie united_states tax_court reports made by a court that was without jurisdiction is a void judg- ment see 868_f2d_1081 9th cir 90_tc_103 as previously explained a tax_court decision is considered void when the court lacked jurisdiction to make the decision such a void decision can be vacated however as also pre- viously explained because petitioners filed petitions we had jurisdiction to decide our jurisdiction which is what we did in dismissing these cases in petitioners also allege that because they did not receive notice of the special trial judge’s initial report in time to timely appeal they were deprived of due process and the decisions are void petitioners cite no cases where an alleged due process violation was grounds for vacating a final tax_court decision indeed a long line of previously cited cases severely restricts our jurisdiction to vacate a final_decision to the narrow circumstances previously stated rule b of the federal rules of civil procedure allows relief for any other reason that justifies relief from the operation of the judgment however the previously cited authorities narrowly restrict the reasons that can be used petitioners cite no cases that have held that the failure to provide the initial special trial judge’s report was a violation of due process in this regard we note that our decision in snow v commissioner tcmemo_1996_457 did not deprive petitioners of a forum in which to contest their tax_liabilities in that opinion we advised petitioners as follows petitioners are not without_recourse because they paid the defi- ciencies interest and penalties in full on date the time for filing a claim_for_refund has not yet run sec_6511 if a timely refund claim is disallowed by respondent petitioners could file a suit_for_refund in the u s district_court or the u s court of federal claims and thus litigate the merits of their tax_liabilities for the years in question id slip op pincite n as far as we know from the record petitioners have not filed claims for refund it therefore appears that petitioners may now be barred by sec_6511 from obtaining any refunds for the years and regard- less of whether we were to grant their current motions see sec_6511 as the supreme court stated in 494_us_596 unless a claim_for_refund of a tax has been filed within the time limits imposed by sec_6511 a suit_for_refund regardless of whether the tax is alleged to have been ‘erroneously ’ ‘illegally ’ or ‘wrongfully collected ’ sec_1346 sec_7422 may not be maintained in any court verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie snow v commissioner to override the finality of tax_court decisions and none of those reasons exists here finally even if we had jurisdiction to exercise discretion to vacate under paragraph b or paragraph c requires that such motions be made within a reasonable_time peti- tioners’ motions were made almost years after petitioners received our date order and a copy of the special trial judge’s initial report while petitioners allege that they immediately began seeking assistance from various quarters we find this explanation insufficient to establish that their motions were filed within a reasonable_time as required by paragraph c for the foregoing reasons we will deny petitioners’ motions for leave to file motions to vacate appropriate orders will be issued f as explained supra note the passage of time can prove fatal to relief even if taxes were erroneously collected in petitioners’ proposed motions to vacate they ask this court to order the refund of the tax deficiencies that they paid on date we have held that we have no jurisdiction over the deficiency determinations in these cases indeed we would have lacked jurisdiction even if we had granted petitioners’ motions to dismiss for lack of jurisdiction lacking ju- risdiction over the deficiencies we have no power to order a refund see sec_6213 which provides in pertinent part the tax_court shall have no jurisdiction to enjoin any_action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition verdate mar apr jkt po frm fmt sfmt v files boundv wit bv864a snow jamie