oo department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b program name c population d geographic region e organization members f organization g community institutions m number n dollars samount p dollars dollar_figureamount dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your letter indicates you will operate a scholarship program called b and its purpose is to award need based educational scholarships for college university and vocational education to c located in d letter catalog number 58263t you benefit the c community by preserving and enhancing g you were formed by f whose shareholders are c or descendants or dependents of c you publicize the scholarship availability on-line through local d schools through university offices and in presentations scholarships are awarded on an objective non-discriminatory basis scholarships are not limited to employees of f and there is no limit on the number of those eligible all eligible applicants receive a scholarship if they fulfill these eligibility requirements scholarship recipients must be c who are also e a the student must be a high school graduate or have a completed ged b the student must be attending or have been accepted to a post-secondary or vocational education institution the institution must maintain a regular faculty established curriculum and organized body of students in attendance c the student shows a need for financial assistance by having a financial aid request completed by the school’s financial aid department d acompleted application is received in a timely fashion e two letters of reference are provided by the applicant student applicants will be required to submit a written_statement explaining how they intend to use their education to enhance g values and culture in addition applicants will be required to give an estimate of their expenses such as tuition books fees room and board travel laundry and similar expenses the selection committee is comprised of members of your board_of trustees all of the trustees have been involved in activities to preserve g as required in reg b the selection committee members are not in a position to derive a private benefit directly or indirectly no scholarships are awarded to disqualified persons or relatives of the selection committee scholarships are awarded on an objective and nondiscriminatory basis the number of scholarships awarded annually is approximately m recipients receive dollar_figuren dollars per term for full time academic schedules and dollar_figurep dollars per term for part-time schedules there is no maximum number of terms that a student can receive a scholarship as long as eligibility requirements are met the trustees may change the scholarship award amounts from time to time the amount of the scholarship will not exceed actual expenses scholarships are disbursed directly to the school letter catalog number 58263t to be eligible for scholarship renewal a student must a complete semester quarter with a grade point average or higher b maintain good standing in school c submit a copy of the official transcripts certificate for each prior semester or quarter you state you will maintain records and case history on all recipients copies of the official grade transcripts or certificate of completion must be submitted to you on completion of the semester or training period that the scholarship covers before additional scholarships are awarded if you learn that the funds have been diverted for other than the desired purpose an investigation will ensue and appropriate remedial actions will be taken if necessary infractions to the scholarship agreement will result in the student’s placement on academic probation for the next semester quarter and if not corrected the recipient will become ineligible for future funding basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 e e other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent e e e you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at letter catalog number 58263t internal_revenue_service exempt_organizations determinations p o box cincinnati oh e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


tcmemo_2005_183 united_states tax_court michael jack stephens petitioner v commissioner of internal revenue respondent docket no 9485-04l filed date michael jack stephens pro_se pamela l mable for respondent memorandum opinion wells judge this matter is before the court on respondent’s motion to dismiss for failure to state a claim upon which relief can be granted all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure background at the time of the filing of the petition petitioner resided in bloomingdale georgia on date respondent issued to petitioner a final notice - notice_of_intent_to_levy and notice of your right to a hearing for tax_year in response petitioner timely requested a hearing by filing form request for collection_due_process_hearing citing frivolous arguments in support of his request during the appeals process settlement officer powell had a telephone conversation with petitioner in which he requested a face-to-face hearing in savannah georgia respondent’s office of appeals had previously sent a letter to petitioner stating that petitioner would not receive a face-to-face hearing unless he had nonfrivolous issues to discuss but instead would receive a hearing by telephone and or correspondence when settlement officer powell asked what issues petitioner would discuss at a face-to-face hearing petitioner said he wanted to discuss the law that forces him to pay tax settlement officer powell informed petitioner that the issue was frivolous and he would therefore only receive a telephone or correspondence hearing petitioner then stated that if he did not receive a face-to-face hearing in savannah georgia he did not want a hearing settlement officer powell then verified that he had no prior involvement with the unpaid income_tax at issue that petitioner had an unpaid income_tax_liability for taxable_year and that respondent met the requirements of all applicable laws and administrative procedures settlement officer powell considered whether the proposed collection action balanced the need for the efficient collection_of_taxes with the concern of petitioner that any collection action be no more intrusive than necessary petitioner did not raise and consequently settlement officer powell did not consider any challenges to the appropriateness of the collection actions or offers of collection alternatives on date respondent issued a notice_of_determination sustaining the proposed levy in response petitioner timely petitioned this court the petition states in part the person involved in the determination has not answered any on my question i have exhausted my ability to keep asking when they the irs just acts like i am sheep they can run over i will not ask any more when they should have already answered my request i have called and called and i can’t even get a response other than one agent told me you owe this because my computer says you owe it one of the other agents i talked to told me i am the irs i can take your property anytime i want too well i guess this is where we are going we are going to see just how it works the rest of my research is on the other pages i wa sec_1petitioner incorrectly marked the area of the court’s standard petition form used to identify the type of action sought petitioner indicated that it was a petition for redetermination of a deficiency the court has treated this pleading as a petition for lien or levy action collection action denied a due process hearing all i got was a phone call and they made up the rest in the notice_of_determination petitioner attached five additional pages to the petition which include the following numerous citations to federal and supreme court cases quotes from various congressional proceedings including a senate hearing regarding formation of the un a quote from john maynard keynes about inflation and various code sections petitioner’s response to the instant motion and statements at the hearing on the motion contain similar arguments including the definition of frivolous quotes from thomas jefferson and george washington citations of various sections of the internal_revenue_code and the regulations an argument based on the sixth amendment a sec_861 argument often advanced by tax protesters and various religious statements discussion rule b requires that a petition in a levy action contain clear and concise assignments of each and every error which the petitioner alleges to have been committed in the notice_of_determination any issue not raised in the assignments of error shall be deemed to be conceded each assignment of error shall be separately lettered rule b further requires that the petition contain c lear and concise lettered statements of the facts on which the petitioner bases each assignment of error see 117_tc_183 114_tc_176 the petition in the instant case does not contain clear and concise assignments of any error that petitioner alleges to have been committed in the notice_of_determination likewise the petition does not contain clear and concise lettered statements of the facts on which petitioner bases an assignment of error instead petitioner argues only law and legal conclusions in the petition as evinced by the attachments to the petition the petition neither conforms to this court’s rules_of_practice and procedure nor states a claim upon which relief can be granted the absence in the petition of specific justiciable allegations of error and of supporting facts permits this court to grant respondent’s motion see goza v commissioner supra 2petitioner’s contention that he is entitled to a face-to- face hearing has no merit hearings conducted under sec_6330 are informal proceedings not formal adjudications 115_tc_329 115_tc_35 hearings may be held as face-to-face meetings and they may also be conducted by telephone or by correspondence katz v commissioner supra pincite sec_301_6330-1 q a-d6 and d7 proced admin regs in light of petitioner’s frivolous arguments a face-to-face hearing in this case would not be productive see 117_tc_183 we note that respondent offered a face-to-face hearing if petitioner raised any meaningful issue regarding his tax_liability or the proposed levy sec_6673 authorizes the court to require the taxpayer to pay a penalty not in excess of dollar_figure when it appears to the court that inter alia proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless in 115_tc_576 we issued a warning to taxpayers concerning the imposition of a penalty under sec_6673 on those taxpayers abusing the protections afforded by sec_6320 and sec_6330 through the bringing of dilatory or frivolous lien or levy actions the court has since repeatedly disposed of cases premised on arguments akin to those raised herein summarily and with imposition of the sec_6673 penalty see eg 119_tc_252 and cases cited therein respondent has not sought a sec_6673 penalty in this case and the court declines to impose such a penalty because the record contains no evidence that petitioner has been warned expressly that we may do so under the circumstances extant herein however petitioner is now so warned if petitioner insists on asserting frivolous and irrelevant arguments in the 3respondent did not move for a penalty under sec_6673 however the court considers this issue sua sponte future or instituting court proceedings primarily for the purpose of delaying collection penalties will be imposed to reflect the foregoing an appropriate order of dismissal and decision will be entered


internal_revenue_service number release date index number --------------------------------- ------------------------------ ------------------------ ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b03 plr-131319-06 date date ----------------------------------------------------- ---------------------------------- ------------------------------------ parent ----------------------------------------------------------------------------- ------------------------------------------------------------------------------------- holding ----------------------------------------------------------------------------- ------------------------------------------------------------------------------------- corporation b ---------------------------- ---------------------------------------------------------------------------------- subsidiary llc ----------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- state x state y date date date dear -------------- ----------------------------------------- --------------------------- ------------------- -------------- ------------- ---------- plr-131319-06 we respond to your date request for rulings on the federal_income_tax consequences of a proposed transaction under sec_332 of the internal_revenue_code you provided additional information on date the facts submitted for consideration are substantially as set forth below currently parent a state x corporation wholly owns all of the outstanding_stock of holding a state x corporation which in turn owns all of the outstanding membership interests in llc a state x limited_liability_company treated as disregarded as an entity separate from its owner for federal tax purposes parent and holding do not join in the filing of a consolidated federal_income_tax return the taxpayers in this case propose that under state x law holding will merge with and into llc with llc succeeding to all of holding's assets and liabilities a ruling has been requested that this merger be treated for federal_income_tax purposes as a complete_liquidation of holding under sec_332 holding a state x corporation was organized on date for the purpose of acquiring all of the outstanding_stock of corporation b a state y corporation and its wholly owned subsidiary subsidiary as part of that acquisition transaction corporation b was merged with and into subsidiary with subsidiary surviving on date subsidiary was converted into llc under state x law and has been treated as disregarded as an entity separate from its owner since that time parent was formed on date for the purpose of acquiring all of the outstanding_stock of holding parent has no independent operations from that of owning the stock of holding the taxpayers have made the following representations concerning the proposed transaction a parent on the date of adoption of the plan for merging holding into llc the merger plan and at all times thereafter until the merger plan is completed will be the owner of at least percent of the single outstanding class of holding stock no shares of holding stock will have been redeemed during the years preceding the adoption of the merger plan llc will not elect or claim to be treated as a corporation for federal_income_tax purposes the merger plan will be implemented and all transfers from holding to llc pursuant to the merger plan will take place within a single taxable_year of holding b c d e when the merger occurs the assets and liabilities of holding will pass by operation of state x law to llc and holding will cease to exist under plr-131319-06 state x law f g h i j k l holding will not retain any assets following the merger neither holding nor llc will have acquired any assets in any nontaxable_transaction except for acquisitions of assets in connection with transactions qualifying under sec_351 of the internal_revenue_code and acquisitions occurring more than years before the date of adoption of the merger plan no assets of holding or llc have been or will be disposed of by holding llc or parent except for dispositions in the ordinary course of business and dispositions occurring more than years before adoption of the merger plan the merger will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of holding or llc if persons holding directly or indirectly as determined under sec_318 as modified by sec_304 more than percent in value of the holding stock also hold directly or indirectly more than percent in value of the stock of the recipient corporation prior to the adoption of the merger plan no assets of holding or llc will have been distributed in_kind transferred or sold to parent except for i transactions that occurred in the normal course of business and ii transactions occurring more than years before the adoption of the merger plan holding will report all earned_income represented by assets that will be deemed distributed to parent such as receivables being reported on a cash_basis unfinished contracts commissions due etc the fair_market_value of the assets of holding and llc will exceed their liabilities both at the date of adoption of the merger plan and immediately prior to the time the merger occurs m at the time of the merger there will be no intercorporate debt existing between parent and either holding or llc and none has been cancelled forgiven or discounted except for transactions that occurred more than years prior to the date of adoption of the merger plan n neither parent nor holding is an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code plr-131319-06 based solely on the information submitted and the representations made we rule as follows for federal_income_tax purposes the transfer of all of the assets and liabilities of holding to llc and the conversion of the shares of holding into membership interests in llc pursuant to the merger will be treated as a distribution by holding of all its assets including the assets of llc to parent in complete_liquidation of holding under sec_332 see sec_1_332-2 of the income_tax regulations no gain_or_loss will be recognized by parent on the deemed receipt of the assets and liabilities of holding including the assets and liabilities of llc as a result of the merger sec_332 no gain_or_loss will be recognized by holding on the deemed_distribution of its assets and liabilities including the assets and liabilities of llc to parent sec_337 and sec_336 the basis of each asset of holding including the assets of llc deemed received by parent will equal the basis of that asset in the hands of holding or llc immediately before the transaction sec_334 the holding_period of each asset of holding including the assets of llc deemed received by parent will include the period during which holding or llc held such asset sec_1223 parent will succeed to and take into account the items of holding described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 parent will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of holding as of the date of the merger sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of parent or holding will be used only to offset earnings_and_profits accumulated after the date of the merger sec_381 we express no opinion about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings the rulings contained in this letter are based upon the facts and representations submitted by the taxpayers and accompanied by a penalty of perjury statement plr-131319-06 executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process see sections dollar_figure and dollar_figure of revproc_2006_1 i r b which discuss in greater detail the revocation or modification of ruling letters however when the criteria in section dollar_figure of revproc_2006_1 i r b pincite are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 returns that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely ________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number -------------------------------- ------------- ----------------------------------------------- ----------------------------------------- ------------------------------- - ----------------------- department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc ita b04 plr-132892-04 date date ---------------------- year date -------------------------- date ----------------------- date ------------------- dear ----------------- this is in reference to a form_3115 application_for change in accounting_method submitted on behalf of the above-named taxpayer requesting permission to change its method_of_accounting for long-term_contracts beginning with the tax_year beginning year the taxpayer has requested that the form_3115 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer’s prior accountant did not have the necessary knowledge of the construction industry required for the taxpayer’s growing business seeking an accountant with more knowledge of the construction industry the taxpayer contacted its present accountants on date and signed an engagement letter with them on date on date the taxpayer submitted its form_3115 sec_5 of revproc_97_27 1997_21_cb_680 provides that a form_3115 must be filed during the year_of_change as provided in sec_1_446-1t c i of the income_tax regulations if the taxable_year is a short_period the form_3115 must be filed no later than the last day of the short taxable_year a taxpayer that fails to file a form_3115 during the year_of_change as provided in sec_5 of this revproc_97_27 will not be granted an extension of time to file under sec_301 of the procedure and administration regulations except in unusual and compelling circumstances see sec_301_9100-3 you have not demonstrated unusual and compelling circumstances for filing the application beyond its due_date further granting the requested relief would prejudice plr-132892-04 the interests of the government therefore your request for an extension of time to file form_3115 is denied 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 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 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 michael j montemurro senior technical reviewer branch income_tax accounting


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 b07 plr-148661-04 date date ---------------------------------------------- ----------------------- ----------------------------------------- ------- -------------------------- legend corporation a b c dear ------------------ this letter responds to a letter from your authorized representative dated date requesting permission for corporation to revoke its election under ' c of the internal_revenue_code the represented facts are as follows corporation is an accrual_method taxpayer with each taxable_year ending on a all members of corporation’s sec_41 controlled_group are included on a single consolidated federal_income_tax return for its b taxable_year corporation on behalf of itself and the members of its controlled_group elected to compute the credit_for_increasing_research_activities research_credit utilizing the alternative_incremental_research_credit airc rules of sec_41 prior to the due_date including extensions for corporation’s income_tax return for the taxable_year ending on c_corporation on behalf of itself and members of its controlled_group requested permission to revoke its sec_41 election for the taxable_year ending on c and all subsequent years for taxable years beginning after date taxpayers may elect to determine their research_credit under the airc rules of ' c sec_41 provides that any election under ' c a shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary plr-148661-04 based solely on the facts submitted and representations made we grant permission for corporation to revoke its election to determine its research_credit under the airc rules of ' c for qualified_research_expenses paid_or_incurred during the taxable_year ending on c_corporation should compute the research_credit for the taxable_year ending on c and all succeeding taxable years using the general_rule of ' a provided that neither corporation nor any member of its controlled_group makes a new election to determine its research_credit under the airc rules of ' c in a later year except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures corporation or any member of its controlled_group treated as qualified_research_expenses this ruling is directed only to the taxpayer requesting it sec_6110 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 a copy of this letter must be attached to any income_tax return to which it is relevant 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 s brenda m stewart senior counsel branch passthroughs special industries cc


id office uilc cca-122032-11 ------------ number release date from ---------------------- -------------------------------------------------------------------- sent tuesday date pm to ----------------- --------------------------------------------------------------------------------------------------------- cc subject -------------------------- this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue whether sec_263 requires the capitalization of taxpayer's otherwise deductible payments or accruals including interest and original_issue_discount on its issued indebtedness if taxpayer has identified the indebtedness as the item being hedged by taxpayer's derivative law sec_263 provides that no deduction is allowed for interest_and_carrying_charges properly allocable to personal_property which is part of a straddle within the meaning of sec_1092 any amount disallowed under sec_263 is capitalized sec_263 defines interest_and_carrying_charges to mean interest on indebtedness incurred or continued to purchase or carry the personal_property and certain other_amounts paid_or_incurred to carry the personal_property net of certain receipts with respect to the personal_property sec_263 carves out from the scope of sec_263 any hedging_transaction defined in sec_1256 sec_1256 generally defines a hedging_transaction as any hedging_transaction as defined in sec_1221 provided the taxpayer clearly identifies such transaction as being a hedging_transaction before the close of the day on which such transaction was entered into or such earlier time as the secretary prescribes in regulations sec_1221 defines a hedging_transaction as a transaction entered into by the taxpayer in the normal course of business primarily to manage risk of interest rate price changes or currency fluctuations with respect to ordinary_property ordinary obligations or borrowings of the taxpayer conclusion because taxpayer’s derivative manages currency fluctuations with respect to taxpayer’s indebtedness and was identified as a hedge of taxpayer’s indebtedness taxpayer's payments or accruals as described in sec_263 are not subject_to sec_263


t c memo united_states tax_court elizabeth j prater petitioner v commissioner of internal revenue respondent charles b prater petitioner v commissioner of internal revenue respondent docket nos filed date david de coursey aughtry and george b abney for petitioners brianna b taylor for respondent memorandum findings_of_fact and opinion goeke judge respondent determined deficiencies in petitioners’ federal_income_tax and penalties as follows year deficiency dollar_figure big_number big_number penalties sec_6663 dollar_figure dollar_figure dollar_figure after concession sec_1 the issues for decision are whether petitioners failed to report income of dollar_figure dollar_figure and dollar_figure for and respectively related to a trucking business of which mr prater was part owner and whether mr prater is liable for section civil_fraud penalties of dollar_figure dollar_figure and dollar_figure for years and respectively some of the facts have been stipulated and are so found the record in this case also includes a lengthy trial record and voluminous exhibits many of these exhibits had previously been admitted in a criminal prosecution of mr prater and other defendants but much of the evidence was first admitted in the present case both this case and the prior criminal case against mr prater center on his activities as coowner and manager of 1respondent concedes that mrs prater is not liable for the sec_6663 i r c fraud_penalty mrs prater concedes her sec_6015 i r c innocent spouse claim 2section references are to the internal_revenue_code in effect for the years at issue and rule references are to the tax_court rules_of_practice and procedure carpet transport inc cti there is no doubt that mr prater caused receipts from cti’s business to be omitted from cti’s books_and_records and also from cti’s income_tax returns what mr prater caused to happen to the cash is factually complex and the extent to which he is deemed the recipient of the income is determined herein on the record before us we also determine that mr prater is subject_to the 75-percent fraud_penalty findings_of_fact at the time of filing their petitions petitioners resided in georgia mr prater served as a member of the city council in plainville georgia for years he also served as mayor of plainville georgia for years mr prater operated a number of businesses before cti including a dump truck business and a used car business he is an intelligent and hard-working businessman carpet transport inc in mr prater acquired a one-third ownership_interest in cti the company had approximately trucks and big_number employees by the early 1990s cti was headquartered in calhoun georgia cti operated as a common carrier providing motor freight transportation through the states of the continental_united_states cti’s primary cargo was carpet mr prater acquired a one-third interest in cti in date with lynwood s warmack mr warmack and gary owens mr owens in the early 1990s mr owens passed away and mr prater and mr warmack purchased mr owens’ interest and became the sole owners of cti a cti backhaul after cti completed a delivery from its headquarters to another destination cti would try to arrange a backhaul trip a backhaul is the delivery of cargo from as close to the first delivery as possible to as close to cti’s headquarters in calhoun georgia as possible the goal of a backhaul is to avoid having a truck travel long distances without any cargo mr prater arranged all backhaul trips for cti the checks received for backhauls were given to mr prater by the drivers when they returned from their trips the checks would be paper clipped to the outside of the trip envelopes and mr prater would then pay the driver sec_25 percent of the backhaul amounts mr prater would place the freight bills that were attached to the backhaul checks in garbage bags he would then endorse the checks and take control_over them generally mr prater would give the checks to cti employees to have the checks cashed and the cash distributed as he directed from to backhaul checks totaling dollar_figure were not deposited into cti’s bank accounts specifically dollar_figure dollar_figure and dollar_figure in backhaul checks were not deposited into cti’s bank accounts in and respectively a portion of the cash from the backhaul checks was used to pay the drivers and large amounts were provided to w j plemons insurance inc pi and held in a prepaid insurance account in cti’s name b cti department of transportation regulations the department of transportation dot regulated and limited the number of hours that truck drivers could drive the dot required truck drivers to keep logs which were then inspected by dot the logs would provide the driver’s departure time when the driver stopped and for how long a driver would be off- log if he drove miles or hours not recorded as required the dot would then compare the drivers’ logs for consistency against other documents such as toll or gas receipts which often had a timestamp the dot shut down cti at least once for having too many drivers driving off-log the dot also fined cti several times with penalties as high as dollar_figure c cti off-log hours and expenses legally truck drivers could work only hours per week mr prater would pay the drivers in cash for work beyond hours per week mr prater did not require the workers to sign any documentation when he gave them cash payments and he did not appear to keep any record of the cash payments made cti kept two sets of timecards and separately recorded work done by a driver when he worked over hours a week a driver submitted a trip envelope at the end of each trip listing expenses for the trip on the outside of the envelope and placing the receipts from the trip inside the envelope if a driver had either fuel or toll tickets that did not match the dot logs mr prater would give the driver cash for those receipts in lieu of having the driver submit the expense in the trip envelope mr prater claims that he paid these expenses in cash to conceal from the dot the off-log driving mr prater would then take the receipts for which he had paid cash and place them into a garbage bag which was taken to storage sometimes the dates on the receipts were changed to avoid discovery of the violation of the dot regulations the receipts retrieved from the garbage bags in storage totaled dollar_figure dollar_figure and dollar_figure for tax years and respectively d cti cashing of advance and payroll checks for drivers by mr prater cti provided drivers pretyped advance checks of dollar_figure before they departed on deliveries this allowed the drivers to get started right away without having to stop somewhere to cash their advance checks the checks were drawn on a cti special account and were pretyped so the dispatchers could not write the checks for different amounts the dispatchers cashed these checks for the drivers mr prater also cashed advance checks for the drivers and sometimes cashed the drivers’ paychecks for them many of the first endorsements on the cti special and payroll checks were not made by the payees many of the checks were cashed by the drivers’ wives or roommates while drivers were out of town driving for cti because the drivers were not available to sign the checks e cti other cash payments mr prater would sometimes reimburse drivers for expenses after trips with cash mr prater would also pay cash bonuses to drivers for hot loads which were shipments that needed to be shipped as soon as possible no record of such cash bonuses was maintained further cti employees such as dispatchers were paid in cash on occasion for example mr wright a full-time dispatcher was originally paid dollar_figure weekly by check and dollar_figure in cash mr prater told mr wright not to worry about being paid in cash because everyone cheats the irs mr prater testified that he paid the drivers in cash as an incentive to keep them with cti he further explained that the drivers wanted to be paid in cash often the drivers drove more hours than the dot allowed and cash payments concealed these violations f cti other cash income or cash to pay expenses mr prater would arrange trips for cti clients who paid for exclusive-use loads whereby the client would have use of a whole trailer the clients would pay for this service in cash which was given to mr prater as a result of these cash dealings there were occasions when a substantial amount of cash was lying around mr prater’s office g side business cti had a side business of selling carpet if a cargo of carpet was damaged in shipment the carpet retailer might not accept it as a result cti would often have to absorb the cost of the damaged carpet and sold the excess carpet to wholesalers or smaller companies w j plemons insurance william j plemons owned pi an insurance agency working primarily with freight carriers pi customers would pay pi and pi in turn would pay the insurance carriers after deducting commissions pi wrote insurance policies for cti and personal insurance policies for mr prater pi provided various insurance policies for cti including automobile and truck liability insurance cargo insurance workers compensation insurance and terminal coverage insurance pi would set up multiple accounts for larger clients like cti cti paid fees for liability and cargo insurance based upon gross miles driven or gross_receipts the premiums_paid were based on estimates since cti operated hundreds of trucks a number of claims could arise and consequently pi arranged to hold funds for cti to pay the deductibles as accidents or as insured incidents arose this reserve_account was also used to hold large amounts of off-book receipts of cti on occasion mr prater and cti borrowed money against the cti reserve accounts on deposit with pi to borrow money mr prater would contact mr plemons who would then require mr prater to sign a note if the note was paid off pi employees would document in pi’s books_and_records that it had been paid pi third-party checks and backhaul deposits in addition to insurance for cti pi also handled personal insurance for mr prater and chris frix mr prater’s stepson mr frix worked for pfw a real_estate company created in late that rented apartments built houses and developed land pfw was owned one-third each by mr prater mr frix and bill walraven mr prater and mr frix had client account numbers at pi distinct from the corporate accounts for cti mr frix and mr walraven managed pfw’s day-to-day operations pfw rented housing to cti employees if a cti employee owed pfw rent cti would write an advance check payable to the employee mr frix would then pick up the check from cti as payment to pfw for the employee’s rent typically while a driver was on the road cti would issue a check in the driver’s name and give the check to mr frix other companies mr prater coowned a p transportation a p and chase truck brokers ctb a truck brokerage company that brokered freight in addition he cofounded cpcf inc to purchase a gold’s gym mr prater’s criminal conviction mr prater was a defendant in a criminal tax case in the u s district_court for the northern district of georgia beginning in and ending in on date a grand jury indicted mr prater on multiple felony counts some of mr prater’s associates were also indicted by the grand jury the charges were based upon the assertion that more than dollar_figure million of backhaul and other checks payable to cti was diverted and not reflected on cti’s records a portion of the dollar_figure million was cashed and another portion was funneled through pi cti’s insurance_company on march the indictment was redacted counts and of the redacted indictment all related to charges of violation of sec_7201 the evasion of personal income_tax for through the same years as are here in issue on date a jury found mr prater guilty on count sec_1 through and count of the redacted indictment which included the tax_evasion counts the jury found mr prater not guilty on count sec_23 through of the redacted indictment which related to charges of obstruction of justice mr prater’s defense against the individual tax offenses was that there was no underpayment of income_tax because although the backhaul checks were unreported income the money derived from these checks was used to fund corporate expenses on date the district_court overturned the jury’s convictions on count sec_1 through which were embezzlement charges on date the court entered its judgment pursuant to the verdict mr prater appealed the remaining convictions to the court_of_appeals for the eleventh circuit on date the court_of_appeals in an unpublished opinion overturned the jury’s verdicts on counts through mr prater filed a motion for a hearing en_banc before the court_of_appeals this motion was denied on date on date mr prater filed a petition for a writ of certiorari with the u s supreme court which was denied on date the district_court amended its judgment pursuant to the court of appeals’ findings after all appeals were exhausted mr prater’s conviction for evasion of his individual income_tax for each of the years through remained the present case lance lobar mr lobar cti’s primary outside accountant prepared mr and mrs prater’s personal income_tax returns mr lobar worked primarily with mr warmack in gathering the necessary information for their returns in early mr lobar was diagnosed with multiple sclerosis which resulted in his inability to continue working as an accountant in addition mr warmack became semiretired as of mr prater asked his accountants to include an additional dollar_figure of income on his personal income_tax return respondent accounted for the dollar_figure in calculating petitioners’ deficiency for the notices of deficiency determined that petitioners failed to report income of dollar_figure dollar_figure and dollar_figure for the years at issue respondent classified this unreported income into three broad categories checks written from pi schedule adjustments other transactions schedule adjustments and deposits of cti payroll and other checks schedule adjustments the amounts by reference to schedule sec_1 and in the notices are as follows other income checks written from pi sch dollar_figure dollar_figure other transactions sch dollar_figure dollar_figure deposits of cti payroll and other checks sch dollar_figure dollar_figure dollar_figure schedule check dtd payable to chris frix check dtd for loan to billie bearden check dtd for loan to billie bearden check dtd for loan to pfw properties check dtd for purchase of building in dalton from rbg properties inc dollar_figure big_number dollar_figure dollar_figure dollar_figure check dtd to charles prater used to purchase gold’s gym less a p check included in notes rec stockholder acct less a p check included in notes rec stockholder acct dollar_figure -dollar_figure -dollar_figure total dollar_figure dollar_figure schedule wright cti installment_sale payment to pfw paid in capital gb t deposit on acct blaize cti installment_sale payment to gb t personal acct on wable cti installment_sale payment to calhoun fnb personal acct on hudson cti installment_sale payment to pfw paid in capital first union deposit on acct loan to check-it-out using checks payable to cti frick’s furniture payments total dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number schedule - - deposits of cti payroll and other checks into pfw properties bank acct at gb t deposits of cti payroll and other checks into pfw properties bank acct at first union less deposit amounts not shown as paid in capital less deposit amounts not shown as paid in capital deposits of cti income checks into pfw bank accounts deposits of cti income checks into prater’s acct at gb t dollar_figure dollar_figure dollar_figure dollar_figure -dollar_figure -dollar_figure dollar_figure total big_number dollar_figure dollar_figure i the parties’ basic arguments opinion mr prater designed and directed a scheme which caused receipts of over dollar_figure million from cti the trucking business in which he was a part owner to be left off the books of the company over the years at issue mr prater controlled the cash generated by this scheme and diverted the funds for various purposes many of which were related to cti’s business but some of which were personal to him with the help of cti’s insurance agent w j plemons he caused over dollar_figure million to be held in a prepaid insurance account for cti and he directed the use of the account for loans to individuals or entities he selected he also used large amounts of the diverted cti cash to provide unrecorded cash payments to cti’s drivers ostensibly to conceal excess hours of driving from the dot but actually also to hide such payments to the drivers from the irs this scheme resulted in a criminal case against mr prater and several others with multiple counts including tax_fraud and ultimately he was convicted of three counts of income_tax evasion under sec_7201 regarding the joint federal_income_tax returns he filed with his spouse for and respondent would now have us sustain the civil_fraud penalty for all years and also include roughly dollar_figure million of the amounts diverted as mr prater’s taxable_income subject_to the 75-percent penalty respondent maintains that the amounts included in income are based upon specific items petitioners’ representatives counter that mr prater received no additional income as a result of the diversions and that any amounts he did receive are offset by payments he made on behalf of cti before we address the parties arguments we will explain the procedural posture of this case ii procedural history after the criminal case and the expiration of the 3-year and 6-year periods of limitation respondent issued a separate notice_of_deficiency to each petitioner these notices of deficiency collectively the notices were identical in the amounts determined the notices relied heavily upon information developed in the criminal case more specifically upon a schedule used to track the money diverted from cti’s books which was introduced as an exhibit in the criminal case however the explanation of the adjustments in the notices was cryptic at best it read it is determined that you received additional income from w j plemons insurance agency for services rendered and such income represents taxable_income realized by you as shown in exhibit a this statement was augmented by affirmative allegations in the answer which more fully described respondent’s assertions regarding the money flowing through pi nevertheless the explanation in the notices is not accurate regarding the nature of the flow of funds which originated in the operations of cti we find that respondent has the burden_of_proof regarding the affirmative allegations and the question of how much income mr prater received before trial respondent filed a motion for partial summary_judgment based upon mr prater’s criminal conviction of income_tax evasion for through mr prater opposed that motion arguing that he was denied access to witnesses during the criminal trial because the prosecution placed potentially favorable witnesses under threat of prosecution preventing their testifying on his behalf we ruled in date that arguments challenging the criminal conviction which could have been raised on appeal of the criminal case cannot be the basis for disputing the application of collateral_estoppel in the civil case see wapnick v commissioner tcmemo_1997_133 lilley v commissioner tcmemo_1989_602 klein v commissioner tcmemo_1984_392 affd 880_f2d_260 10th cir accordingly we placed the burden_of_proof on mr prater to show by a preponderance_of_the_evidence what portions of the underpayments of tax if any were established are not attributable to fraud however respondent retained the burden to show that there were underpayments of tax in accord with the affirmative allegations in the answer on brief mr prater’s representatives revisit the significance of the criminal conviction and argue that changes in the law of criminal procedure raise questions about the use of the conviction for collateral_estoppel we do not address these arguments because we analyze the fraud issue hereinafter upon the evidence at trial without considering the criminal conviction iii civil_fraud the penalty in cases of fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer’s fraud 303_us_391 under sec_6663 that part of the underpayment_of_tax which is due to fraud is subject_to a 75-percent addition_to_tax in applying the penalty under sec_6663 we consider the same elements or long-recognized badges_of_fraud discussed in cases applying sec_6651 and former sec_6653 102_tc_632 see 99_tc_202 fraud may be proved by circumstantial evidence and the taxpayer’s entire course of conduct may establish the requisite fraudulent intent 80_tc_1111 the existence of fraud is a question of fact to be resolved upon consideration of the entire record 96_tc_858 affd 959_f2d_16 2d cir since direct evidence of fraud is rarely available fraud may be proved by circumstantial evidence and reasonable inferences from the facts 92_tc_661 courts have developed a nonexclusive list of factors or badges_of_fraud that demonstrate fraudulent intent niedringhaus v commissioner supra pincite these badges_of_fraud include understatement of income inadequate records implausible or inconsistent explanations of behavior concealment of income or assets failure to cooperate with tax authorities filing false documents failure to make estimated_tax payments dealing in cash engaging in illegal activities and engaging in a pattern of behavior that indicates an intent to mislead vogt v commissioner tcmemo_2007_209 affd 336_fedappx_758 9th cir no single factor is necessarily sufficient to establish fraud however a combination of several of these factors may constitute persuasive evidence of fraud niedringhaus v commissioner supra pincite mr prater intentionally caused funds to be unreported on the books_and_records of cti these actions were fraudulent and meet the traditional elements of fraud such as concealment and dealing in cash the issue presented is whether mr prater’s fraud only affected cti’s income or whether it also resulted in his fraudulently underreporting his personal income by concealing funds he diverted from cti for his own use the answer to this question requires an analysis of the facts surrounding each of the adjustments in the notices issued to him iv respondent’s specific adjustments a schedule adjustments respondent determined that checks totaling dollar_figure in and dollar_figure in should be included in mr prater’s income the insurance agency characterized these checks as loans from an advance premium account of cti mr plemons and mr prater conspired to have cti backhaul checks deposited with pi however the evidence does not support respondent’s position that all the diversions were income to mr prater rather cti was credited with the funds on pi’s books although mr prater may have influenced who received the funds as loans from the cti advance premium account he repaid the funds he himself borrowed and with one exception did not personally benefit from the loans the record simply does not support a finding that mr prater took dominion and control_over all these funds for his own use or that he diverted all these funds to himself from cti rather while the funds were not shown on cti’s corporate accounting_records they were with one exception reflected as credited to cti by pi mr prater’s actions were generally consistent with the treatment as advance premium payments by cti and the subsequent checks being loans from the cti credited account at pi the exception to the treatment of funds as property of cti is the dollar_figure check to purchase a building in dalton georgia for the company mr prater coowned with his stepson and pfw this amount was the subject of a loan agreement mr prater signed but this loan was not repaid the record does not support characterizing this amount as a loan mr prater intended to repay a similar check to buy real_estate for a gold’s gym was repaid by mr prater but according to his testimony the purchase of the building in dalton for use as a carpet warehouse was for cti’s business however he had title to the building in dalton placed with pfw despite his testimony we find that mr prater’s arrangement of pfw as the building’s owner was intentional mr prater’s business decisions were not haphazard but rather careful and calculated he alone directed that funds in the cti advance premium account at pi be used to buy property for a different entity in which he and his stepson held a controlling_interest therefore we find that respondent has established that the check for dollar_figure was income to mr prater in but has failed to establish the other schedule amounts were mr prater’s income b schedule adjustments--other transactions the second_phase of respondent’s income adjustments includes a dollar_figure and dollar_figure of payments for furniture in and respectively b four checks deposited in into pfw accounts or mr prater’s personal accounts totaling dollar_figure which related to sales of cti vehicles and c a payment of dollar_figure to a check-cashing business called check-it-out cio which was made with cti funds we will first address the dollar_figure item mr prater maintains this was a loan by cti whether the cio payment was a loan or a payment to facilitate the conversion of cti checks to cash the payment was not made on behalf of mr prater personally but rather for cti even if the payment was made for the illegal purpose of facilitating the concealment of cti income it was not paid for the primary benefit of mr prater and thus is not his income the payments for furniture however were made on behalf of pfw the business in which mr prater had an interest with his stepson respondent has also established a sufficient connection between the dollar_figure of deposits and the proceeds of the sales of vehicles to carry the burden of proving that these deposits were also income to mr prater the record establishes that the vehicles were not mr prater’s property but rather belonged to cti two of the payments for vehicles were made to pfw accounts but were credited as paid-in capital of mr prater accordingly the items apart from the dollar_figure payment to cio are income to mr prater c schedule adjustments--deposits to pfw accounts and mr prater’s personal account the first group of deposits in respondent’s last schedule of adjustments to income is dollar_figure of cti income checks which was deposited into mr prater’s personal account in the record establishes the deposits of cti checks were made to the personal account and therefore we uphold this income adjustment respondent also determined that a group of cti-related checks totaling over dollar_figure deposited into pfw accounts in and is mr prater’s income respondent offsets these adjustments by roughly dollar_figure in for deposit amounts not shown as paid-in capital to mr prater in pfw however the lion’s share of respondent’s adjustment in was not reflected as paid-in capital on the pfw books until many years after and pfw had business relationships with cti providing rental properties to cti truckers and was often paid directly by cti accordingly we find that respondent has not carried the burden of proving that the items in question are mr prater’s income as opposed to the income of pfw v the offset claim mr prater established that cti expenses in excess of respondent’s income adjustments to mr prater’s income were paid during the years at issue in cash through his representatives mr prater reasons that these cash payments should offset all of the income adjustments and he should prevail the record does not reflect however a loan or account receivable arrangement between cti and mr prater regarding the cash funds flowing between cti and mr prater and because of the success of mr prater’s efforts to hide the flow of cti’s receipts converted to cash there is not a specific record to track the source of the cash used to make the payments to drivers that are offered to support the claimed offsets regardless of mr prater’s scheme to cause cti receipts to be off the books and to be reduced to cash in his control we do not accept that he is the source of all the cash payments for cti we have presumed that cti is a separate_entity that must be respected in determining the amounts of income mr prater received likewise mr prater’s calculated efforts to reduce cti’s unrecorded receipts to his unfettered control should not work to his advantage accordingly mr prater has failed to establish that the income adjustments sustained should be offset by the cash used to pay cti’s expenses vi whether the civil_fraud penalty is applicable dealing in cash and hiding receipts are clearly badges_of_fraud and it is difficult to imagine a record with greater evidence of such activities the income adjustments to mr prater are among the cti receipts he sought to shield from the irs and other regulatory agencies the fact that he did not receive all of the unrecorded cti receipts he caused to be converted to cash does not relieve him of the fraud_penalty for the amounts he did receive or use for his personal benefit accordingly mr prater is subject_to the fraud_penalty for each of the years at issue vii mrs prater mrs prater is jointly liable for the deficiencies in income_tax which result from our analysis but by agreement she is not liable for the fraud_penalty to reflect the foregoing decisions will be entered under rule


internal_revenue_service number release date index numbers -------------------------- ------------------------------------- ----------------------------------- ------------------------ department of the treasury washington dc person to contact ---------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-132109-17 date date legend y ---------------------------------------------------------- ----------------------------- a ------------------------------------------------------------- --------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------- country d1 d2 dear -------------- ------------ ------------------------ --------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of y requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes plr-132109-17 facts the information submitted discloses that y was formed on d1 under the laws of country y represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes as of d2 however y failed to timely file form_8832 entity classification election to be classified as a disregarded_entity for federal tax purposes effective d2 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 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 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 except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 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 effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_7701-3 provides that if an eligible_entity classified as an association elects under sec_301_7701-3 to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association plr-132109-17 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register 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 regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under 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 the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that y has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently y is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a disregarded_entity effective d2 y must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached this ruling is contingent on y and its owner a filing within days of the date of this letter all required federal_income_tax and information returns including amended returns for all open years consistent with the requested relief including the application of sec_301_7701-3 these returns must include but are not limited to form_8858 information_return of u s persons with respect to foreign disregarded entities and form_5471 information_return of u s persons with respect to certain foreign_corporations such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns plr-132109-17 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to y’s authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs 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 corp b02 plr-131889-18 date may legend distributing shareholder a shareholder b shareholder c shareholder d a b c d state a date --------------------------------------------------------------------------------- -------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------ --------------------------------------------------------------------------------- ------------------------------------------ --------------------------------------------------------------------------------- -------------------------------- --------------------------------------------------------------------------------- ------------------------------------------ ------------ ------------ ------------ ------------ -------------- ----------------- plr-131889-18 business a controlled assets controlled assets controlled assets --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- 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------------------------------------------------------------ --------------------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------------------- controlled assets segment of business a segment of business a segment of business a segment of business a dear ------------ plr-131889-18 this letter responds to your letter dated date submitted by your authorized representative requesting rulings on certain u s federal_income_tax consequences of a proposed transaction described below the proposed transaction the information provided in that request and in later correspondence is summarized below this letter is issued pursuant to revproc_2017_52 2017_42_irb_283 as amplified and modified by revproc_2018_53 2018_43_irb_667 regarding one or more covered transactions under sec_355 of the internal_revenue_code the code this office expresses no opinion as to any issue not specifically addressed by the rulings below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this office has made no determination regarding whether any of the distributions as defined below i satisfies the business_purpose requirement of sec_1 b ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation or any predecessor or successor of the distributing_corporation or the controlled_corporation within the meaning of sec_1_355-8t see sec_355 and sec_1_355-7 summary of facts distributing is a state a corporation that was formed on date and made an election under sec_1362 to be an s_corporation effective as of date distributing has a single class of common_stock that is owned as follows shareholder a owns a shareholder b owns b shareholder c owns c and shareholder d owns d collectively shareholder a shareholder b shareholder c and shareholder d are referred to as the shareholders shareholder a shareholder b shareholder c and shareholder d are siblings shareholder a is the president of distributing shareholder b is the treasurer and a director of distributing the shareholders manage distributing distributing is a calendar_year taxpayer and uses the cash_method_of_accounting distributing is directly engaged in business a the financial information submitted by plr-131889-18 distributing indicates that distributing has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction the shareholders have serious disagreements about how to best manage business a and desire to split the assets and operate separate portions of business a independently therefore distributing has proposed the following transactions i ii iii iv v distributing will form controlled controlled controlled and controlled each a controlled as state a corporations each controlled will have one class of stock outstanding voting common_stock distributing will transfer the controlled assets which include assets used to conduct segment of business a to controlled in exchange for all of the controlled stock and the assumption by controlled of the liabilities associated with the transferred assets contribution distributing will transfer the controlled assets which include assets used to conduct segment of business a to controlled in exchange for all of the controlled stock and the assumption by controlled of the liabilities associated with the transferred assets contribution distributing will transfer the controlled assets which include assets used to conduct segment of business a to controlled in exchange for all of the controlled stock and the assumption by controlled of the liabilities associated with the transferred assets contribution distributing will transfer the controlled assets the remaining portion of its business a assets which include assets used to conduct segment of business a to controlled in exchange for all of the controlled stock and the assumption by controlled of the liabilities associated with the transferred assets contribution contribution contribution contribution and contribution are collectively described as the contributions vi immediately after the contributions distributing will liquidate by making the following distributions in redemption of all of the distributing stock held by the shareholders the distributions distributing will distribute all of the stock of controlled to shareholder a in exchange for all of shareholder a’s stock in distributing distribution a plr-131889-18 b c d distributing will distribute all of the stock of controlled to shareholder b in exchange for all of shareholder b’s stock in distributing stock_distribution distributing will distribute all of the stock of controlled to shareholder c in exchange for all of shareholder c’s stock in distributing distribution distributing will distribute all of the stock of controlled to shareholder d in exchange for all of shareholder d’s stock in distributing distribution distribution distribution distribution and distribution are collectively described as the distributions immediately after the distributions distributing will dissolve vii immediately after the distributions controlled controlled controlled and controlled will each make an election under sec_1362 to be treated as a subchapter_s_corporation and will have one class of stock outstanding voting common_stock each controlled will use the cash_method_of_accounting representations with respect to each of the contributions and distributions distributing has made all of the representations in sec_3 of the appendix to revproc_2017_52 except as set forth below distributing has made the following alternative representations set forth in sec_3 of the appendix to rev_proc representation sec_3 a a b a b distributing has not made the following representations which do not apply to the proposed transaction representation sec_4 distributing makes no modified representations other than to the extent necessary to take into account the definitions in sections dollar_figure and dollar_figure of the appendix to revproc_2017_52 additionally with respect to each of the contributions and distributions distributing has made each of the representations under section dollar_figure of revproc_2018_53 except for the following representations which do not apply to the proposed transaction the standard representations in and in and the additional representation in plr-131889-18 rulings based solely on the information and representations submitted we rule as follows on each of the contributions and distributions each contribution followed by its respective distribution will qualify as a reorganization within the meaning of sec_368 distributing controlled controlled controlled and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will not recognize gain_or_loss on the contributions sec_361 and sec_357 no controlled will recognize gain_or_loss on its respective contribution sec_1032 the basis in each asset received from distributing by the controlleds in the contributions will equal the basis of that asset in the hands of distributing immediately before the respective contribution sec_362 each controlled’s holding_period in each asset received from distributing in the respective contribution will include the period during which distributing held that asset sec_1223 distributing will not recognize any gain_or_loss on the distributions sec_361 the shareholders will not recognize gain_or_loss and no amount will be otherwise included in income upon the receipt of the controlled stock sec_355 the aggregate basis of the controlled stock received by each shareholder immediately after the distribution will equal the shareholder’s aggregate basis in the distributing stock surrendered in the distribution allocated in the manner described in sec_1_358-2 see sec_358 and b the holding_period of the controlled stock received by each shareholder will include the holding_period of the distributing stock with respect to which the distribution of the controlled stock is made provided that the distributing stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits if any will be allocated between distributing and each controlled in accordance with sec_312 and sec_1_312-10 plr-131889-18 distributing’s accumulated adjustment account immediately before the transaction will be allocated between distributing and each controlled in a manner similar to the manner in which earnings_and_profits are allocated under sec_312 in accordance with sec_1_1368-2 sec_1_312-10 and sec_1_1368-2 distributing’s momentary ownership of the stock of each controlled as part of a reorganization under sec_368 will not cause such controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if a controlled meets the requirements of sec_1361 it will be eligible to make an election under sec_1362 to be treated as an s_corporation for its first taxable_year provided such election is made effective immediately after the distribution of the stock of the controlled caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transactions that are not specifically addressed by this letter in particular no opinion is expressed regarding i ii whether the distribution satisfies the business_purpose requirement of sec_1_355-2 whether the distribution is used principally as a device for the distribution of earnings_and_profits of distributing or controlled or both iii whether the distribution and an acquisition or acquisitions are part of a plan or a series of related transactions under sec_355 iv whether distributing is a valid s_corporation and v whether any of the controlleds is otherwise eligible to be an s_corporation procedural matters this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to the federal_income_tax return of each party involved in the proposed transaction for the taxable_year in which the proposed transaction is completed alternatively taxpayers filing their returns electronically may plr-131889-18 satisfy this requirement by attaching a statement to their returns that provides the date and control number plr-131889-18 of this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely j p stemwedel assistant to the branch chief branch office of associate chief_counsel corporate cc