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 fip b01 plr-130198-14 date date legend taxpayer parent reit subsidiary reit tax_credit date date date date state year statute date agency ------------------------------------------- ----------------------------------------- -------------------------------- --------------------------------- ---------------------------------- -------------------------------------------------- ----------------- -------------------------- -------------------- -------------------------- ------------- ------ ------------------------------------------------------------------------ ----------------- -------------------------------------- plr-130198-14 ------------------------------------- agreement percentage return dear ------------------ ------------------------------------------- ------ ----------------------------------------------------------------------- --------------- this is in reply to a letter dated date requesting the following rulings the right of the parent reit and each subsidiary reit to receive a state franchise tax_refund attributable to tax_credit is a receivable for purposes of the asset test in sec_856 of the internal_revenue_code the code and the accrual by the parent reit and each subsidiary reit of the income attributable to tax_credit constitutes qualifying_income for purposes of the income tests in sec_856 and c of the code facts parent reit was formed on date and will elect to be treated as a real_estate_investment_trust reit under sec_856 of the code for its taxable_year ending on date parent reit is wholly owned by taxpayer parent reit organized the subsidiary reits each subsidiary reit was formed on date and will elect to be treated as a reit under sec_856 of the code for its taxable_year ending on date or date parent reit and each subsidiary reit will use the accrual_method and have a calendar tax_year the subsidiary reits were organized to own develop and operate a real_estate development project the project in state the project will include the development and construction of three separate buildings that will be residential rental apartments which will be developed in three phases parent reit was organized to develop and operate the project directly or indirectly through the subsidiary reits while it is currently contemplated that each building of the project will be developed by one of the subsidiary reits it is possible that a portion of the project will be developed by parent reit or another subsidiary of parent reit as such parent reit or such subsidiary may benefit from tax_credit the project will be constructed on land that is eligible for tax_credit associated with statute enacted in year to enhance private-sector cleanups of brownfields and plr-130198-14 reduce development pressure on greenfields for tax years beginning on or after date a state taxpayer participating in the program created by the statute who has entered into an agreement with agency may be eligible for tax_credit the amount of tax_credit is equal to percentage of costs incurred for site preparation cost of qualified_tangible_property that is used by the taxpayer for industrial commercial recreational or environmental purposes including the commercial development of residential housing and the cost of on-site groundwater remediation a greater percentage is allowed for sites that are cleaned up to a level that requires no restrictions on use sites located in designated environmental zones and sites located in brownfield opportunity areas generally any_tax credits that do not reduce the tax_liability of a taxpayer are refundable to the taxpayer without interest it is anticipated that the project site will be subdivided into three separate tax lots for each of the three expected phases of construction however subdivision will require governmental approvals such approval process cannot begin until demolition of the old buildings standing on the project site is completed the tax lots attributable to each phase will be contributed to a separate subsidiary reit the subsidiary reit to which the tax lot is attributable will then claim the tax_credit for that lot each subsidiary reit will make a reit election thus the subsidiary reits are not expected to incur a material amount of state tax_liabilities because of each subsidiary reit’s ability to claim a dividends_paid deduction for state tax purposes since the tax_credits are refundable to the extent that they exceed a taxpayer’s tax_liability the subsidiary reits are expected to seek a refund in an amount substantially equal to the tax_credits to which they are entitled these refund amounts will cause the subsidiary reits to realize a significant amount of taxable_income for federal tax purposes for the years in which the subsidiary reits receive refunds attributable to the refundable tax_credit it is expected that such refunds will exceed five percent of each subsidiary reit’s gross revenues taxpayer expects that substantially_all of the other income of the subsidiary reits including other income derived from the project will be qualifying_income for purposes of sec_856 it is anticipated that under the project the tax_credit claims will be considered assets that are receivables under generally_accepted_accounting_principles gaap and that the value of the refund claims if considered to be assets for purposes of sec_856 could exceed of the value of a subsidiary reit’s total assets law and analysis asset test plr-130198-14 sec_856 provides that at the close of each quarter of its tax_year at least percent of the value of a reit’s total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_1_856-2 of the income_tax regulations defines the term receivables for purposes of sec_856 to mean only those receivables which arise in the ordinary course of a reit’s operation and does not include receivables purchased from another person sec_1_856-2 provides that in determining the investment status of a reit the term total assets means the gross assets of the reit determined in accordance with gaap the right of the parent reit and each subsidiary reit to receive a state franchise tax_refund attributable to the tax_credits arises from the redevelopment of real_property in connection with the leasing business of the parent reit and the subsidiary reits parent reit and the subsidiary reits will own and lease the project for the purpose of generating qualifying rents_from_real_property under sec_856 and c the right of the parent reit and each subsidiary reit to receive the state franchise tax_refund attributable to the tax_credits constitutes a receivable that arises in the ordinary course of their operations within the meaning of sec_1 d iii therefore the right to receive the state franchise tax_refund attributable to the tax_credits qualifies as a receivable for purposes of sec_856 income tests sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation’s gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property and gain from the sale_or_other_disposition of stock securities and real_property other than property in which the corporation is a dealer abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees and gain from certain_sales or other dispositions of real_estate_assets sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation’s gross_income excluding gross_income from prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by real_property gain from the sale_or_other_disposition of real_property other than property in which the corporation is a dealer dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain plr-130198-14 from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which - i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business income attributable to the receipt of tax_credit constitutes gross_income that is not listed as derived from a qualifying_income source under sec_856 or c pursuant to sec_856 the secretary has the authority to determine that income either be considered as not constituting gross_income under sec_856 or c or as qualifying gross_income under those provisions taxpayer represents that the rental income generated by the project will qualify for purposes of sec_856 and c tax_credit does not interfere with or impede the objectives of congress in enacting sec_856 and c accordingly pursuant to sec_856 we rule that the income attributable to the receipt of tax_credit is considered qualifying_income for purposes of sec_856 and c conclusions based on the facts and representations submitted by taxpayer we rule that the right of the parent reit and each subsidiary reit to receive the state franchise tax_refund attributable to the tax_credits constitutes a receivable that arises in the ordinary course of their operations as owner and lessor of real_property within the meaning of sec_1_856-2 therefore the right to receive the state franchise tax_refund attributable to the tax_credits is a receivable for purposes of sec_856 pursuant to sec_856 the income attributable to the receipt of tax_credit is considered qualifying_income for purposes of sec_856 and c plr-130198-14 except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences related to the facts herein under any other provisions of the code specifically we do not rule whether taxpayer qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer under a penalties 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ___________________________ robert martin senior technician reviewer branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 5-plr-106490-00 date date re distributing controlled state n business a business b x y z a b we reply to your representative’s letter dated date in which rulings were requested as to the federal_income_tax consequences of a proposed transaction additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below distributing is a state n corporation engaged in business a and business b at two separate locations distributing has outstanding x shares of voting common_stock that are owned in equal parts by two brothers a and b plr-106490-00 controlled is a state n corporation formed to effectuate the proposed transaction controlled will have issued and outstanding y shares of voting common_stock all of which initially will be held by distributing financial information has been received which indicates that distributing has had gross_receipts and operating_expenses representative of the active_conduct of each of business a and business b for each of the past five years because of management disagreements a and b have decided to divide distributing’s business a and business b assets and go their separate ways accordingly they propose the following transaction i distributing will transfer to controlled all of the assets of business b distributing will borrow approximately dollar_figurez from an unrelated party this cash will be transferred to controlled in order to equalize values between the two corporations controlled will use the funds to acquire operating_assets in exchange distributing will receive all of the y issued and outstanding shares of controlled voting common_stock controlled will not be assuming any liabilities or receiving assets subject_to liabilities from distributing ii thereafter distributing will distribute the y shares of controlled stock to b in exchange for all of his shares of distributing stock the taxpayer has made the following representations in connection with the proposed transaction a b c d the fair_market_value of the stock of controlled received by b described in step ii above will approximately equal the fair_market_value of the distributing stock surrendered by b in the exchange no part of the consideration to be distributed by distributing is being received by a shareholder as a creditor employee or in any capacity other than as a shareholder of the corporation the five years of financial information submitted on behalf of distributing is representative of the corporation’s present operations and there have been no substantial operational changes since the date of the last financial statements submitted following the proposed transaction distributing and controlled will each continue independently and with their separate employees the active_conduct of the businesses previously conducted solely by distributing plr-106490-00 e f g h i j k l m n the distribution of the stock of controlled is carried out for the following corporate business purposes allows each shareholder the opportunity to pursue the part of the business in which he has the greatest interest and allows each shareholder to adopt his own management philosophy in terms of business risk and hours devoted to the business the distribution of stock of controlled is to be carried out for the above mentioned business purposes and is motivated solely for those purposes there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in distributing or controlled subsequent to the transaction there is no plan or intention by either distributing or controlled directly or through any subsidiary to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation subsequent to the transaction except in the ordinary course of business no investment_tax_credit determined under sec_46 of the internal_revenue_code has been or will be claimed with respect to the transfer of any property distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the proposed distribution any payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length there has not been nor is it contemplated that there will be any transactions between distributing controlled or the shareholders of each no two parties to the transaction are investment companies as defined in sec_368 and iv distributing is not an s_corporation within the meaning of sec_1361 and there is no plan or intention by either distributing or controlled to make an s_corporation_election pursuant to sec_1362 plr-106490-00 o the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distribution or controlled based solely on the information submitted and on the representatives set forth above we hold as follows the transfer by distributing to controlled of the assets and cash as described in step i above solely in exchange for all of the outstanding_stock of controlled followed by the distributing of the controlled stock by distributing to b in exchange for all of his distributing stock will be a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of assets and cash to controlled in exchange for controlled stock sec_361 controlled will recognize no gain_or_loss on the receipt of the assets and cash in exchange for the controlled stock sec_1032 controlled’s basis in the assets received will be the same as the basis of such assets in the hands of distributing immediately prior to the transaction sec_362 controlled’s holding_period for the assets received from distributing will include the period during which such assets were held by distributing sec_1223 distributing will recognize no gain_or_loss upon the distribution of all of its controlled stock to b in exchange for his distributing stock sec_361 b will recognize no gain_or_loss and no amount will be included in his income upon the receipt of the controlled stock in exchange for all of his shares of distributing stock sec_355 a b’s basis in the controlled stock after the distribution will be the same as his basis in the distributing stock surrendered in exchange therefor sec_358 plr-106490-00 b’s holding_period in the controlled stock received will include the holding_period of the distributing stock surrendered in exchange therefor provided that the distributing stock is held as a capital_asset by b on the date of the exchange sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 of the income_tax regulations 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 proposed transaction that are not specifically covered by the above rulings this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated pursuant to a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative sincerely yours assistant chief_counsel corporate by __ assistant to the chief branch __________


uniform issue list kbe as ue pp -- department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct 2fs or fe fe 2f sec_24s fe ofc oft fe fe fe oie 2c oie aie die fe sec_2a 2s oe te fe fe 2fe fe fe oft aft ok of ok fe fe dis fe fe fe fs fe aft 2h 2fe of 2fe fe a fe oie fe 2k 2s ok ok p ra tuy v legend individual a - ee fee a a ae ae fe ake broker b sai seseiea ie ira x ee re hc eae a a fe ae ooo ok ak oe amount c amount d amount e amount f si grr ae gp ae oe dear individual a this is in response to a request submitted on your behalf by your authorized representative by letter dated date for a ruling to waive the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representation have been submitted under penalties of perjury to support the ruling_request page in individual a suffered from a stroke that forced her into retirement and onto disability insurance maintaining a home with her disabilities became so burdensome she applied to an assisted living community and around date an apartment opened up a supporting schedule for individual a’s federal_income_tax return for shows that individual a withdrew amount c from ira x in and re- contributed amount d back into ira x within days amount e is an ira distribution and reported on her federal_income_tax return for individual a requests a waiver in order to rollover amount f into her ira individual a used amount e for the purposes of making a down payment on her apartment and for unexpected repairs to her home in order to prepare it for sale because individual a was disabled plus the turmoil caused by relocating and unexpected substantial repairs to her home she could not reasonably satisfy the 60-day rollover limitation based on the above facts you request a ruling that the service waive the day rollover requirement with respect to the portion of the distribution from ira x of amount f because the failure to waive such requirement would be against equity or good conscience under the provisions of sec_408 d of the code sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- 2s fe sec_24s 2fe 2k ie oie ae fe fe ofc oft page 2k oi aie fe ake i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii _ the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 ‘ sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where 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 lr b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to ‘complete a rollover due to death disability hospitalization incarceration page 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 it is represented that the 1-year rollover limitation under sec_408 of the code is not applicable in your case information presented demonstrates substantial hardship by reason of the turmoil caused by your wife’s injury and hospitalization and its impact upon your ability to timely deposit the amount you received into an ira the failure to waive the 60-day requirement would be against equity or good conscience therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of ira x of the amount d you are granted a period of days from the issuance of this ruling letter to contribute amount d in cash into another ira provided all other requirements of sec_408 of the code are satisfied except the 60-day requirement with respect to such contribution then this amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office page if you have any questions please contact at sincerely yours blau fhe - alan c pipkin jr manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


t c memo united_states tax_court i c hemmings and sue b hemmings et al petitioners v commissioner of internal revenue respondent docket nos filed date lawrence william sherlock and robert i white for petitioners bruce leonard locke for petitioner sue b hemmings john p jankowski and joseph t ferrick for respondent cases of the following petitioners are consolidated herewith claude p brown and estate of mary stroud brown deceased claude p brown executor docket no i c hemmings and sue b hemmings docket no isaac c hemmings and mary sue hemmings docket no the names isaac c hemmings and mary sue hemmings refer to the same individuals as the names i c hemmings and sue b hemmings respectively memorandum opinion dawson judge these consolidated cases were assigned to special_trial_judge carleton d powell pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with and adopts the opinion of the special_trial_judge that is set forth below opinion of the special_trial_judge powell special_trial_judge respondent determined deficiencies and additions to tax in petitioners' federal income taxes as follows i c hemmings and sue b hemmings additions to tax docket no year deficiency sec_6653 sec_6653 sec_6661 dollar_figure dollar_figure -- -- big_number big_number -- -- big_number big_number -- -- big_number big_number -- big_number big_number dollar_figure big_number big_number big_number percent of the interest due on dollar_figure percent of the interest due on dollar_figure percent of the interest due on dollar_figure unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure claude p brown and estate of mary stroud brown deceased claude p brown executor addition_to_tax docket no year deficiency sec_6653 dollar_figure dollar_figure respondent also determined with respect to petitioners i c hemmings and sue b hemmings that the entire deficiency amounts for and and dollar_figure of the deficiency for are substantial underpayments due to tax-motivated transactions under sec_6621 and that the increased rate of interest under sec_6621 is applicable petitioner i c hemmings mr hemmings and petitioner sue b hemmings mrs hemmings collectively the hemmingses resided in florida at the time their petitions were filed in docket nos and petitioner claude p brown mr brown resided in florida at the time the petition was filed in docket no pursuant to an order of this court dated date these cases were consolidated for purposes of briefing and opinion after concessions the issues are whether mrs hemmings is entitled to relief under the so-called innocent spouse provisions of sec_6013 for any of the taxable years or whether mr brown and or the hemmingses made a valid election pursuant to sec_508 and or of the economic_recovery_tax_act_of_1981 erta publaw_97_34 95_stat_172 with respect to their commodity trading activities for the taxable_year and the fair_market_value on the date of contribution of boxes of gemstones donated by mr hemmings to the gospel fellowship association in background mr brown is the father of mrs hemmings and at one time was the sole owner of brown transport corp brown transport a trucking company mrs hemmings a former school teacher obtained a b a in education from emory university and a master's degree in early childhood education mrs hemmings married mr hemmings in at which time she resigned from teaching and afterwards devoted her time to being a mother and housewife after service with the u s marine corps mr hemmings performed various jobs in the trucking industry including loading and driving trucks he attended woodrow wilson law college at night mr hemmings graduated in and soon thereafter obtained employment at brown transport he never practiced law or passed the bar around mr hemmings became president and chief_executive_officer of brown transport through the years mr hemmings incrementally purchased stock in brown transport brown transport grew rapidly and the hemmingses profited as a result by the hemmingses collectively owned assets worth in excess of dollar_figure million including a 30-percent interest in brown transport valued at dollar_figure million truck stops residences an airplane a boat and an ownership_interest in a manufacturing plant and construction company by the mid-1980's brown transport was the ninth largest trucking company in the united_states mrs hemmings' net_worth was dollar_figure to dollar_figure million and consisted of real_estate between and mr hemmings speculated in commodity and treasury bill futures through various brokers and investment advisers including e f hutton co merrill lynch acli government securities inc acli and elms management services inc elms some of these transactions and for our discussion here primarily the acli4 and elms transactions were straddles that purportedly produced substantial ordinary or short-term_capital_losses in earlier years and in subsequent years produced capital_gains the validity of these losses was challenged by the commissioner and notices of deficiency were issued to the hemmingses and mr brown for each year from to acli and elms transactions the only shareholders of brown transport were messrs brown and hemmings the expansion of brown transport required enormous amounts of capital brown transport was a so-called sec_3 as we understand index inc acted as an adviser or broker to messrs hemmings and brown on trading conducted through acli and elms played a similar role on trading conducted through pershing co the name index inc also is used this is another name for the acli transactions mr brown did not receive a notice_of_deficiency for the taxable_year corporation taxable under sec_1371 to the undistributed_taxable_income was included in the gross_income of the shareholders sec_1373 while brown transport generated a large amount of income income taxes on its shareholders substantially reduced the amount of capital they could invest and the needed capital was in part generated from the purported deferral of income_tax generated from the acli and elms transactions accordingly the tax_deferral efforts focused on the tax labilities of messrs brown and hemmings both of whom had transactions with acli and elms the parties have not suggested that there were material differences between the acli and elms programs and consistent with this approach we treat the programs as being substantially_similar in all relevant aspects w paul harris mr harris a certified_public_accountant for brown transport mr brown and the hemmingses primarily handled the acli and elms transactions the acli transactions involved purported straddles of forward contracts for securities issued by the government national mortgage association commonly called ginnie mae the sides of the straddles involved commitments to purchase millions of dollars of these securities the loss legs of the contract straddles would be canceled purportedly giving rise to an ordinary_loss rather than a capital_loss the elms transactions were similar but the underlying securities were treasury bills and the purported trades were transacted with arbitrage management investment co mr hemmings did not understand how the trading programs worked the starting point of these transactions was determining the amount of losses that needed to be generated in order to substantially reduce or eliminate the hemmingses' taxable_income mr harris supplied these figures to acli and or elms mr hemmings was told that he would not make a profit from these transactions and that in return for the fees paid losses would be produced to defer taxes followed by the realization of capital_gains in future years in amounts commensurate with the losses the purpose of the transactions was to shelter income unlike other commodities or financial_instrument transactions mr hemmings was not required to maintain a margin_account and other than the initial fees paid for the program there was no risk of loss from the purported trading also unlike other futures transactions mr hemmings was not consulted when changes were made in these accounts changes in the programs were made under a power_of_attorney held by the sponsor of the programs the hemmingses settled most of the issues involving the taxable years to they conceded the losses claimed from the acli and elms transactions and paid approximately dollar_figure in taxes and interest in deciding to settle the tax issues arising from the acli and elms transactions mr hemmings became convinced that the purported transactions never took place the hemmingses' prosperous days and hard times prior to and during the late 1970's and early 1980's the hemmingses were at least on paper wealthy mr hemmings' salary from brown transport was approximately dollar_figure and he owned stock in brown transport and other assets mrs hemmings owned several parcels of real_property that had a value of approximately dollar_figure the annual income from these properties was between dollar_figure and dollar_figure these properties had been given to her by her father and or inherited from her mother in the hemmingses sold their residence in atlanta for dollar_figure and purchased a residence in north palm beach florida for approximately dollar_figure including remodeling mr hemmings was essentially a workaholic for brown transport mrs hemmings was a housewife and knew nothing about brown transport mr hemmings did not generally discuss financial affairs in detail with her mrs hemmings was aware however that he had investments in other businesses and traded commodities the incomes of both mr and mrs hemmings were deposited into one account from that account mrs hemmings received approximately dollar_figure per month for personal and household expenses if she needed further funds generally they would be deposited in the household account given the wealth of the hemmingses their lifestyle was not lavish and that lifestyle did not change during the acli and elms years as already mentioned the expansion of brown transport required large amounts of money and the funds from mr hemmings' account were used to satisfy that need in part the hemmingses' federal_income_tax returns were prepared by mr harris whose firm was in atlanta mr harris was also the accountant for brown transport and for mrs hemmings' father if mrs hemmings was not available when the returns were due mr hemmings would sign the returns for her with her consent at some time during this period mr hemmings explained that the acli and elms losses were to defer income to a later period mrs hemmings had faith in mr harris and she did not question the tax returns mr hemmings did not explain to her the mechanics of the transactions because he did not understand the mechanics of the transactions himself prior to messrs brown and hemmings had traded with e f hutton co in approximately they opened discretionary trading accounts with conticommodities inc conti mr hemmings traded with conti until when conti liquidated their accounts creating substantial losses in conti sued messrs brown and hemmings and they counterclaimed against conti between and the hemmingses paid approximately dollar_figure in litigation fees in connection with the conti litigation the conti litigation was ultimately settled in the terms of the settlement were placed under seal and cannot be publicly disclosed but as a result of the settlement mrs hemmings received dollar_figure that was immediately transferred to mr hemmings and used to pay his other debts until funds to support the conti litigation came in large part from brown transport in that year however brown transport suffered severe losses and was placed in bankruptcy ultimately the assets of brown transport were liquidated in order to sustain the conti litigation and to pay other debts mr hemmings borrowed money and mr and mrs hemmings sold almost all of their assets they sold their house their furniture the luxury cars the boat the airplane and some jewelry as of the time of the trial mrs hemmings owned one piece of real_estate that had a value of approximately dollar_figure when the residence and mrs hemmings' other properties were sold mr hemmings borrowed the proceeds from mrs hemmings and the proceeds were used to pay debts of mr hemmings and costs of the conti litigation mr hemmings has a negative net_worth erta sec_508 and sec_509 elections during both messrs brown and hemmings maintained accounts at e f hutton co and conti for trading regulated commodity futures accounts some contracts were entered into prior to date and others after that date sec_501 to of the economic_recovery_tax_act_of_1981 erta publaw_97_34 95_stat_172 made certain changes in the taxation of straddle and regulated_futures_contract transactions that were generally applicable to property acquired or positions established after date erta sec_503 sec_508 95_stat_327 however under erta sec_508 95_stat_333 a taxpayer could elect to have the provisions of erta sections stat apply to all regulated_futures_contracts or positions held by the taxpayer on date under erta sec_509 95_stat_333 a taxpayer could elect to have all regulated_futures_contracts held by the taxpayer during a taxable_year that included date marked to market and taxed under erta sec_509 the elections under erta sec_508 and sec_509 are referred to as the transitional rule elections in preparing messrs brown and hemmings' returns for mr harris their accountant was aware of the changes made by erta and the transitional rule elections mr harris however was informed by conti that the trading with conti resulted in losses that precluded any benefit from use of the transitional rule elections as a result messrs brown and hemmings did not make any transitional rule elections on their returns upon examination of the returns respondent disallowed the losses from the conti transactions on the grounds that the transactions were preconceived shams lacking economic_substance further the transactions and losses did not occur or occur in the manner claimed further recognition of the claimed deductions income gains and losses would distort the economic reality of the entire transaction no genuine loss occurred the alleged losses were but one step in a series of integrated transactions and the entire transaction lacked economic reality additionally the claimed deductions and losses are disallowed because of the lack of any profit_motive moreover the claimed deductions and losses are disallowed because they do not clearly reflect income the parties have stipulated that messrs brown and hemmings are not entitled to the losses claimed with respect to the conti transactions since the conti losses have been disallowed messrs brown and hemmings believe that it is now beneficial to invoke either of the transitional rule elections in their petitions messrs brown and hemmings seek to make an election under erta sec_509 by amended petitions filed date messrs brown and hemmings purported to supply information required by erta sec_509 by amendments to the amended petitions filed date messrs brown and hemmings in the alternative seek to make an election under erta sec_508 respondent takes the position that these elections are untimely and invalid charitable_contribution_deduction in mr hemmings owned a 37-foot italian speedboat the boat that he docked at a yacht club in west palm beach florida a boat broker referred to only as don maintained an office at the yacht club don approached mr hemmings on behalf of an unidentified individual the buyer who had expressed an interest in purchasing the boat mr hemmings initially refused to consider any offer don and the buyer persisted in their efforts to obtain the boat and mr hemmings decided to sell don then informed mr hemmings that the buyer wanted to trade boxes of gemstones the gemstones for the boat mr hemmings told don that if don bought the boat and traded it for the gemstones mr hemmings would buy the gemstones from him this course of action eventually was followed at mr hemmings' request don provided an appraisal that indicated a value of approximately dollar_figure for the stones mr hemmings subsequently purchased the gemstones with a dollar_figure cashier's check from citizens southern national bank soon thereafter mr hemmings concerned that he might have been swindled obtained his own appraisal of the value of the gemstones that appraisal was consistent with the other appraisal mr hemmings attempted to sell the gemstones but found no buyers mr hemmings did find dealers willing to sell the gemstones on consignment but he was uncomfortable with this arrangement and instead donated the gemstones to the gospel fellowship association gospel fellowship in on their federal_income_tax return the hemmingses claimed a deduction for a charitable_contribution in the amount of dollar_figure reflecting the alleged value of the gemstones when donated in the notice_of_deficiency issued to the hemmingses for respondent determined that they were not entitled to the claimed charitable_contribution_deduction because they did not establish that they actually acquired the gemstones they had any basis in the gemstones or the gemstones had any value at trial respondent stipulated that the gospel fellowship received the gemstones from petitioner the hemmingses have abandoned their claim that the value of the gemstones was dollar_figure but now contend that the value was dollar_figure innocent spouse discussion the parties agree that mr and mrs hemmings are not entitled to claim the losses resulting from the acli and elms transactions mrs hemmings contends however that she is entitled to relief as a so-called innocent spouse under sec_6013 for the taxable years and for mrs hemmings to prevail she has the burden of establishing that a joint_return was made that there was a substantial_understatement of tax and that the understatement was due to grossly_erroneous_items attributable to mr hemmings that in signing the returns she did not know or have reason to know of the substantial_understatement and taking into account prior to its amendment in sec_6013 only granted innocent spouse relief in cases where the understatement was attributable to omissions of income e g vesco v commissioner tcmemo_1979_374 the years before the court here are and sec_424 of the tax_reform_act_of_1984 division a of the deficit_reduction_act_of_1984 publaw_98_369 98_stat_494 amended sec_6013 to extend to cases where an understatement of income results from a disallowed deduction the amendment applies retroactively to all open years to which the internal_revenue_code of applies all the facts and circumstances it would be inequitable to hold her liable for the deficiencies sec_6013 through d in addition the understatement must exceed percent of her adjusted_gross_income for the preadjustment year sec_6013 respondent concedes that there were joint returns filed that there were substantial understatements attributable to mr hemmings and that the requirements of sec_6013 are met we therefore are faced with the questions whether the acli and elms deductions are grossly_erroneous_items whether mrs hemmings knew or had reason to know of the substantial understatements and whether it would be inequitable to hold her liable for the resulting deficiencies a grossly_erroneous_items not all disallowed deductions are grossly_erroneous_items 86_tc_758 the phrase includes any claim of a deduction in an amount for which there is no basis in fact or law sec_6013 a deduction has no basis in fact where the transaction never took place and has no basis in law where no substantial legal argument can be made to support its deductibility douglas v commissioner supra pincite mr and mrs hemmings claimed deductions for losses and respondent disallowed the deductions in this case on the grounds inter alia that they had no basis in fact and no basis in law the transactions were shams and or were not bona_fide mr and mrs hemmings filed petitions in which it is alleged that the transactions were not shams and were bona_fide in the answers respondent denied these allegations once sec_6013 was raised the positions of the parties underwent a radical metamorphosis on one hand mrs hemmings argues that these transactions are similar to those encountered in 89_tc_849 affd 904_f2d_1011 5th cir affd on other issues 501_us_868 where the court determined that transactions involving straddles of ginnie maes and other financial instruments were illusory fictitious and not bona_fide respondent on the other hand does not seek to characterize the transactions but rather takes the position that mrs hemmings has not shown that the transactions are of the nature of those discussed in freytag in freytag the court found that the first western government securities first western trading program involving straddles of forward contracts was not bona_fide this finding was based on a number of gremlins in the program among the more salient gremlins were the following the customers' out-of-pocket losses were limited to the amounts paid the amounts paid to the so- called margin_account determined the fees paid the starting point for the alleged trading program was the amount of tax losses that were requested by the customer the lack of communication between first western and the customer and the closings of the legs were done by cancellations and assignments of the contracts freytag v commissioner t c pincite we also determined that even if the transactions were bona_fide the primary motivation for entering into the transactions was not for economic profit id pincite the testimony of messrs hemmings and harris reveals many of the same gremlins in the acli and elms programs furthermore mr hemmings testified that the sole reason for entering into the transactions was to defer the bites of income taxes while mr harris suggested that there were other economic reasons for entering into the transactions he could not explain how apart from the purported tax_deferral the programs were economically viable mrs hemmings has the burden of establishing that the transactions were grossly erroneous while that burden never shifts at this point it seems to us that she has established a prima facie case that the transactions were not bona_fide and would not be recognized and the burden of going forward is on respondent see 85_tc_535 respondent introduced no evidence to suggest that either the gremlins were not present or that the transactions were primarily driven by economic motives given the state of these records on brief respondent argues that the testimony of david aughtry was insufficient to establish the nature of these we conclude that the acli and elms transactions in this case were not bona_fide and that the primary motive for entering into the transactions was not for economic profit but rather for tax purposes as such the transactions had no basis in fact or law and fall within the ambit of being grossly_erroneous_items in reaching this conclusion we recognize that in stoller v commissioner tcmemo_1990_659 affd in part and revd in part 994_f2d_855 d c cir supplemented 3_f3d_1576 d c cir the court recognized certain straddle transactions wherein some of the same considerations or gremlins were present it is important to note however that respondent's expert in that case conceded that the transactions were bona_fide mrs hemmings has made no such concession respondent also argues that this case is controlled by 98_tc_28 in russo this court denied petitioner wife's motion to amend the petition to raise the sec_6013 innocent spouse defense the deficiency resulted transactions to a great extent we agree but we have not based our conclusion on mr aughtry's testimony rather we focus on the facts concerning the transactions testified to by messrs hemmings and harris these testimonies are not controverted respondent contends that since mr and mrs hemmings were allowed deductions for some of the acli and elms transactions in the settlement the transactions must have had substance we do not know the considerations that brought forth the settlement agreement but to a certain extent in complex and multi-issue cases such as these there is a certain amount of horse trading that may produce peculiar results this is particularly true where the acli and elms transactions are not the only issues from straddle transactions losses discussed in 87_tc_1087 in disallowing those losses we assumed that the commodity options and futures contracts which petitioners entered into were actual contracts thus we are here focusing our attention on a question of law id pincite consistent with this in russo we held inter alia that the losses claimed were not grossly_erroneous_items because they were not without basis in law or fact but rather the losses claimed were not 'intended' by the relevant code sections and were not allowable under the rationale of 293_us_465 russo v commissioner supra pincite that situation is distinctly different from here where the evidence indicates that these transactions were not bona_fide and had no basis in fact b lack of knowledge and or reason to know mrs hemmings must establish that she did not know and had no reason to know that the deductions gave rise to the 87_tc_1087 was affd sub nom 945_f2d_344 10th cir affd sub nom 897_f2d_915 8th cir affd sub nom 884_f2d_959 7th cir affd sub nom 870_f2d_21 1st cir affd sub nom freidman v commissioner 869_f2d_785 4th cir affd sub nom 865_f2d_1088 9th cir affd sub nom 865_f2d_97 6th cir affd sub nom 864_f2d_1214 5th cir affd sub nom 862_f2d_1486 11th cir affd sub nom 861_f2d_494 7th cir affd sub nom 854_f2d_755 5th cir substantial understatements of tax sec_6013 it does not seem disputed that mrs hemmings did not know of the substantial understatements rather the dispute focuses on whether she had reason to know in 18_f3d_1521 11th cir revg tcmemo_1991_463 the court_of_appeals for the eleventh circuit to which an appeal in this case would lie observed a spouse has reason to know if a reasonably prudent taxpayer under the circumstances of the spouse at the time of signing the return could be expected to know that the tax_liability stated was erroneous or that further investigation was warranted the courts have recognized several factors that are relevant in determining the reason to know including the alleged innocent spouse's level of education the spouse's involvement in the family's business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family's past levels of income standard of income and spending patterns and the culpable spouse's evasiveness and deceit concerning the couple's finances see also 53_f3d_523 2d cir affg in part and revg and remanding in part tcmemo_1993_ jacoby v commissioner tcmemo_1996_477 while mrs hemmings does have a college education there was nothing in her education that would or should have alerted her to the pitfalls of this situation she was not educated in any financial or business disciplines there were no major differences--before during or after the period in which these deductions were claimed--in the hemmingses' lifestyle for people with their wealth their lifestyle was comfortable but not exorbitant more important mrs hemmings played no role in the family's business and or investments she did not even control the income from her assets while she was not subject_to any abuse it is obvious that mr hemmings totally dominated the financial side of the marriage it is true that mr hemmings did not attempt to deceive her and told her that the losses were part of a tax_deferral strategy but she also relied on mr harris who was a certified_public_accountant and had prepared the hemmingses' and mr brown's tax returns in the past in this regard we note that the hemmingses' tax returns are extremely complex in which large gains and losses were reported for other trading activities considering all of the circumstances concerning these returns we do not believe that mrs hemmings had any reason to know that there were substantial understatements of tax on these returns c equitable considerations the final question is whether taking into account the facts and circumstances it would be inequitable to hold mrs hemmings liable for deficiencies attributable to the substantial understatements sec_6013 we are primarily concerned whether mrs hemmings significantly benefited from the erroneous items 93_tc_434 see also sec_1 b income_tax regs normal support measured by the circumstances of the parties is not a significant benefit 93_tc_672 sec_1 b income_tax regs unusual support and receipt of property however would constitute a significant benefit see s rept pincite 1971_1_cb_606 in the instant cases there is no evidence that mrs hemmings derived any benefits from the understatements generated by the acli and elms transactions the benefits such as they were inured to mr hemmings mr brown and brown transport when we look at the bottom line mrs hemmings has suffered a severe financial hemorrhage prior to and during the acli and elms period she had assets valued at approximately dollar_figure none of these assets were derived from the tax savings currently she has assets valued at approximately dollar_figure it may be that she also has notes from her husband totaling dollar_figure million for moneys lent to him her husband however has a negative net_worth and while the notes may not be valueless their value is highly suspect we conclude that it would be inequitable to hold mrs hemmings liable for the underpayments attributable to the acli and elms transactions in sum we find that mrs hemmings satisfies the requirements of sec_6013 and qualifies as an innocent spouse erta sec_508 and sec_509 sec_1256 was enacted by erta sec_508 and sec_509 95_stat_333 sec_1256 generally provides inter alia that regulated_futures_contracts must be marked to market on the last business_day of the taxable_year and any gain_or_loss on those contracts shall be treated as a 40-percent short-term_capital_gain or loss and a 60-percent long-term_capital_gain or loss sec_1256 applies to all positions acquired after date erta sec_508 95_stat_333 unless an election was made under sec_508 or sec_509 of erta collectively the transitional rule elections the law in effect prior to the enactment of sec_1256 applied to all regulated_futures_contracts acquired on or before date pre-june contracts sec_5c and 5c temporary income_tax regs fed reg date dollar_figure the deadline for an election under sec_509 of erta was established by congress in erta sec_509 95_stat_334 congress deferred to the secretary_of_the_treasury the secretary to set the time limit on the exercise of an elective choice under erta sec_508 95_stat_333 and the secretary established the time limit in sec_5c b temporary income_tax regs fed reg date both transitional rule elections were required to be made by the due_date including extensions of the taxpayer's federal_income_tax return for the taxable_year that included date sec_5c and 5c temporary income_tax regs fed reg date remain in effect until superseded by final regulations on this subject t d 1982_2_cb_196 no final regulations have been issued after considering the merits of the transitional rule elections mr brown and mr hemmings collectively petitioners filed their federal_income_tax returns without making either of the elections the reporting of the pre-june positions reflected that choice petitioners by amended petitions now seek to alter that choice long after the deadline for filing such elections contained in the statutes and regulations where congress has set an explicit time limit for making an election extending the time beyond the limits prescribed is a legislative not a 311_us_55 see also 314_us_459 585_f2d_436 10th cir vacating and remanding 65_tc_1034 44_tc_485 affd 375_f2d_662 6th cir taylor v commissioner tcmemo_1987_399 welsh v united_states cl_ct accordingly petitioners' untimely elections under erta sec_509 cannot be given effect and we turn to petitioners' untimely elections under erta sec_508 in contrast to the deference afforded congressionally created time limits the adherence to administratively created time limits is not always mandated even where that time limit is created pursuant to a congressional delegation of authority see 60_tc_917 petitioners assert that their untimely elections should be respected because their original failure to make the elections was based on a material mistake of fact and their untimely elections should be recognized petitioners rely on 200_f2d_592 5th cir revg 15_tc_850 and 97_tc_632 dollar_figure plumb v commissioner supra is inapposite in plumb this court held that a taxpayer who attempted to make an election that was not available under the law had made no election and should be treated as such petitioners originally chose between two legally available alternatives thus plumb does not provide a basis for disregarding their original decision not to make elections under erta sec_508 cf 99_f3d_1042 11th cir 17_f3d_805 5th cir in 15_tc_850 revd 200_f2d_592 5th cir the parties stipulated that taxpayers have been allowed to make an election that did not literally comply with certain procedural requirements governing the time provided for making the election see eg 67_tc_1071 60_tc_917 such decisions generally conclude that the elections were timely relying on substantial compliance with the procedural requirements within the time limit for making the election an expression of intent to make the election within the time limit or at least a lack of an election against or conduct that is inconsistent with the position the taxpayer ultimately did adopt see eg 81_tc_709 taylor v commissioner supra dougherty v commissioner supra petitioners do not assert that their elections were timely under this line of cases the taxpayers relied on an understated corporate earned surplus figure as shown by an audit of certified public accountants in making an election to liquidate under sec_112 of the internal_revenue_code_of_1939 and the actual earned surplus figure was more than times the figure relied on under these circumstances the court_of_appeals for the fifth circuit held that the election could be withdrawn on the ground that it was based on a material mistake of fact meyer's estate v commissioner f 2d pincite while this court has not adopted the reasoning of meyer's estate v commissioner f 2d pincite see johnson v commissioner tcmemo_1991_645 affd without published opinion 989_f2d_484 1st cir an appeal in this case lies to the court_of_appeals for the eleventh circuit in which meyer's estate is precedentdollar_figure nonetheless if petitioners are to be allowed to make elections at this time in reliance upon meyer's estate they must establish that their original elections were based upon a material mistake of fact and not a mistake of law rule a 643_f2d_234 5th cir it is one thing to allege simply that there was a mistake in regarding the conti losses a sec_12 as expressed in 661_f2d_1206 11th cir the court_of_appeals for the eleventh circuit follows precedent of those cases decided by the court_of_appeals for the fifth circuit prior to date deductible it is not clear however whether this mistake was based on an erroneous conclusion of fact or law for example if the conti transactions never took place ie they were factual shams it is arguable the mistake was predicated on an erroneous factual conclusion on the other hand if the transactions did take place but would not be recognized because they were not entered into primarily for profit the mistake was not one of fact but of the legal consequences of the facts see eg 904_f2d_1011 5th cir affd on other issues 501_us_868 affg 89_tc_849 364_f2d_734 2d cir affg 44_tc_284 with the records that we have petitioners concede that the conti transactions have no effect for tax purposes and petitioners will not recognize any gains losses income or expenses arising from transactions in non-regulated government securities traded by conti but we do not know the basis of this concession petitioners have consistently maintained that a great number of the conti transactions actually took place further while petitioners' cases in the multi-district litigation involving conti were settled the court there found that petitioners could not identify so-called bad or sham transactions in re conticommodity services 733_fsupp_1555 n d ill revd on other issues sub nom 976_f2d_1104 7th cir petitioners here face some of the same problems that mrs hemmings faced with respect to the acli and elms transactions but we note that mr hemmings testified that his trading with e f hutton co and conti was distinctly different from his trading with acli and elms as discussed supra moreover there is no evidence in this record that the conti trading suffered from the same gremlins that were present in the acli and elms alleged trading cf freytag v commissioner supra we conclude that petitioners have not shown that their elections when the returns were filed were based on a material mistake of fact and accordingly they are not entitled to abandon their original choice and make untimely elections under erta sec_508 or sec_509 we apply the general_rule that a taxpayer who makes an elective choice is bound by that choice 78_tc_1093 charitable_contribution although this is a tale seemingly scripted by the ghost of damon runyon respondent concedes that the gemstones exist and were donated to the gospel mission while the tale seems farfetched there are some gems of truth with which we must deal in our findings_of_fact we have outlined the rather bizarre genesis of acquiring the gems and while that genesis is bizarre mr hemmings' testimony to that effect corroborated by other evidence appeared to be trustworthy thus we proceed to determine the value of the gemstones sec_1_170a-1 income_tax regs states that except for certain adjustments not relevant here a charitable_contribution of property is to be valued at the fair_market_value of the property at the time of the contribution fair_market_value is defined as the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having a reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs a sale of the same property within a short_period of time prior to the valuation_date has been described as reliable evidence of value 84_tc_722 39_f2d_159 d kan respondent argues that mr hemmings has not established the fair_market_value of the gemstones on the date of contribution mr hemmings does not rely on either of the appraisals other than to corroborate the facts concerning his acquiring the gems in determining the amount of a charitable_contribution of property the fair_market_value of the property must be reduced by inter alia the amount of gain which would not have been long-term_capital_gain if the property contributed had been sold by the taxpayer at its fair_market_value at the time of contribution sec_170 sec_1_170a-1 income_tax regs the hemmingses do not assert that the fair_market_value of the gemstones at the time of contribution exceeded their basis dollar_figure to the extent the fair_market_value did exceed basis such excess would have no impact on the amount of the allowable charitable_contribution_deduction because of the aforementioned rule rather he contends that he has established the cost and that the cost approximates the fair_market_value on the date of contribution mr hemmings' merrill lynch cash management account shows a check written on date to c s national bank14 for dollar_figure for a cashier's check used to purchase the gemstones the statement indicates that his check cleared days later the two appraisals introduced into evidence bore dates shortly before the date purchase and shortly after that date and are consistent with mr hemmings' testimony we conclude that mr hemmings paid dollar_figure for the purchase of the gemstones on date and are left to decide whether this figure should be accepted as the fair_market_value of the gemstones on the date of contribution respondent agrees that a sale of the same property within a short_period of time before the date of contribution may constitute the best evidence of the fair_market_value respondent contends however that the purchase of the gems from don was not an arm's-length_transaction noting the disparity in value between the appraisals and the purchase_price and that the purchase of the property did not occur within the requisite temporal proximity to adequately establish the fair_market_value of the gemstones on the date of contribution the transcript refers to the cns national bank this is a typographical error respondent's contention that the purchase of the gemstones was not an arm's-length_transaction is not supported by the record mr hemmings and don were no more than business acquaintances and there is no reason to believe that either intended to confer any benefit on the other by paying more or less than the fair consideration in the exchange turning to the proximity of the purchase date to the date of gift in 337_f2d_432 7th cir affg tcmemo_1963_244 the court found that the purchase_price of jewelry over years prior to the contribution was sufficient to establish the fair_market_value of the jewelry on the date of contribution in the absence of convincing evidence to the contrary in 294_f2d_808 5th cir the court found that the purchase_price of land years prior to its condemnation was evidence of its fair_market_value on the date of condemnation similarly in 336_f2d_646 6th cir the court held that a comparable sale of land in constituted evidence of the fair_market_value of the land condemned in respondent has not introduced any evidence of the fair_market_value of the gemstones on the date of contribution nor put forth any reason to believe the value of the gemstones diminished between the date of purchase and the date of contribution gemstones are durable assets not easily susceptible to diminution in value due to wear_and_tear in the absence of any evidence to the contrary we conclude that the fair_market_value of the gemstones on the date of contribution was dollar_figure the purchase_price of the gemstones to reflect our conclusions and the concessions of the parties decisions will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date ooi 2a s i n employer_identification_number contact person identification_number telephone number t- bl u o w l o l z l f l s i n w o t dear sir or madam this is in reply to your recent ruling_request in which you requested a modification of letter_ruling letter_ruling the ruling involved tragic events which caused the public transportation system of the v metropolitan area to be severely damaged the transportation authorities in the area urged that commuters seek alternative public transportation routes ferries were recommended as one alternative form in an effort to help alleviate this transportation emergency pending restoration of the area's damaged public transportation system o conducted a ferry service in the n from date through date o had to abandon its efforts in date due to its prior commitments of helping further its exempt purposes by conducting whale watching tours in the t even though the transportation system had not yet been restored in letter_ruling we ruled that providing ferry service from date to date in the manner and for the purposes described in your ruling_request would not constitute an unrelated_trade_or_business within the meaning of sec_513 of the code you now request that letter_ruling be modified to permit o to conduct the ferry service in the n until date you represent and have submitted materials substantiating that the public transportation system of the v area in existence before the tragic events has yet to be restored you have been asked again by the m to assist in providing alternative transportation in the form of ferry transportation you represent that your board_of directors will exercise due diligence to assure the continued need for this emergency ferry service during the ruling period accordingly based on all the facts and circumstances in your ruling_request and the supplemental information you have provided letter ruing is hereby modified to extend the time for you to conduct the ferry service as described until date if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed marvin friedlander marvin friedlander manager exempt_organizations technical group


department of the treasury internal_revenue_service teige eo examinations commerce street mc dal dalias tx tax_exempt_and_government_entities_division number release date uil date apr person to contact identification_number contact telephone number in reply refer to te_ge review staff ein certified mail - return receipt requested dear a final revocation letter as to your exempt status under sec_501 of the ‘this is internal_revenue_code ‘the internal revenue service’s recognition of your organization as an organization described in sec_501 is heteby revoked effective july we have made this determination for the following reasons you have failed to produce documents to establish that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 and that no part of your net_earnings inures to the benefit of private shareholders or individuals you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by lr c sec_6001 sec_6033 and revrul_59_95 1959_1_cb_627 as such you failed fo meet the requirements of lr c sec_501 and treasury regulation scetion c -1 d in that you failed to establish that you are operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 ‘these returns should be filed with the appropriate service_center for the year ending june and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code _ if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses united_states tax_court second street nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc an irs employee you may call the irs telephone number listed in your local directory there may be able to help you but the contact person at the address shown on this letter is you may also call the internal_revenue_service taxpayer most familiar with your case advocate the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number ate shown in the heading of this letter sincerely yours uae qeoke maria hooke director eo examinations enclosure publication fi department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations pale ctober ‘fication taxpayer_identification_number number form tax_year s ended person to contact 1d number employee id contact numbers telephone fax manager’s name id number employee id manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 after we issue the final revocation letter we’ll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years letter rev catalog number 34809f what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate letter rev catalog number 34809f for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely maria hooke director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f form 886-a date name of taxpayer department of the treasury - internal_revenue_service senet number tax identification_number last digits year period ended explanations of items june 20xx issue whether internal_revenue_code as a public charity after failure to provide requested information _ continues to qualify for exemption under sec_501 of the facts __ was incorporated in state on september 20xx the purposes stated in their certificate of incorporation is to bring cultural awareness to the city of surrounding areas while revitalizing the historic arts and educational programs using the as a venue for the productions by presenting theatre and promoting and on 20xx the agent assigned to examine the 20xx form_990 mailed letter initial contact letter with an information_document_request idr form_4564 requesting an appointment the agent began examination of books_and_records on xx at the organization’s address as listed on the form_990 after the initial review of books_and_records additional information was still needed to determine whether the organization’s expenditures and contractual agreements furthered the organization's exempt purposes and did not serve the private interests of the organization’s officers cancelled checks cast member contracts invoices loan agreements and a copier agreement on xx the agent mailed idr to the organization's address as listed on the return on xx a 2-week extension was granted at the officer’s request several calls were made to the officer including a call from group manager regarding idr all calls were left unanswered with no return calls agent then issued a letter 5077-d delinquency_notice on xx regarding the missing information due to lack of response to letter 5077-d agent issued letter 5077-a pre-summons notice on xx after several attempts by mail and phone revenue service correspondence for the tax period ended june 20xx a summons was completed and services of the summons was attempted on xx at the address of record the local agent who attempted to serve the summons was unable to service the summons because the building was locked and appeared unoccupied failed to respond to the internal form_990 for the tax_year ending 20xx in a prior audit of received an agreed inadequate records notice after the examination an inadequate records notice places taxpayers on notice that their record keeping practices are deficient and must be improved to meet the requirements of law the issuance of an inadequate records notice may result in a follow-up audit or compliance check this is a tool to enforce compliance with the requirement to keep adequate books_and_records catalog number 20810w page www irs gov form 886-a rev form 886-a date name of taxpayer department of the treasury - internal_revenue_service explanations of items scheaue number tax identification_number last digits year period ended june 20xx law sec_501 exempts from federal_income_tax organizations which are organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office tax reg sec_1_501_c_3_-1 states that an organization may be exempt as an organization described in c if purposes religious charitable scientific testing for public safety literary educational or prevention of cruelty to children or animals it is organized and operated exclusively for one or more of the following tax reg sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section tax reg sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 internal_revenue_code sec_6001 provides that every person liable for any_tax imposed by the internal_revenue_code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe internal_revenue_code sec_6033 provides that every organization_exempt_from_taxation under sec_501 shail file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purpose of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe federal tax regulations sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law catalog number 0w page www irs gov form 886-a rev department of the treasury - internal_revenue_service senet number explanations of items tax identification_number last digits year period ended form 886-a date name of taxpayer june 20xx federal tax regulations sec_1_6033-2 provides that every organization which is exempt from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt status and administering the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 of the code revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of internal_revenue_code sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 as well as the revenue_ruling organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax government’s position the purpose of this examination as noted in appointment letter was to ensure compliance with federal tax requirements we were unable to determine whether the organization was operated exclusively for exempt purposes and that no assets of the organization inured to the benefit of insiders because information requested was not supplied it appears that the organization has ceased operating the above cited internal_revenue_code and federal tax regulations make it clear that an organization must maintain adequate books_and_records for inspection by authorized internal revenue officers or employees adequate books_and_records shall be retained so long as the contents thereof may become material in the administration of any internal revenue law revrul_59_95 held that failure or inability to file the required information_return or otherwise to comply with the provisions of code sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt because the organization has not established that it is observing the conditions required for the continuation of an exempt status accordingly failure to demonstrate that they are organized and operated exclusively for exempt purposes as described in code sec_501 failure to provide the requested information constitutes failure should result in the loss of its exempt status catalog number 20810w page www irs gov form 886-a rev department of the treasury form 886-a date name of taxpayer tax identification_number last digits year period ended explanations of items june 20xx internal_revenue_service schedule number or exhibit - i conclusions it is the position of the internal_revenue_service that the organization failed to demonstrate it continues to operate exclusively for sec_501 purposes by not supplying pertinent information required by sec_6001 and sec_6033 we were unable to determine whether was operating for exempt purposes accordingly we are proposing that the organization's exempt status be revoked effective july 20xx catalog number 20810w page www irs gov form 886-a rev


cca_2017052610323318 id uilc number release date from sent friday date am to cc bcc subject availability of sec_6404 or e abatement for the interest accruing on sec_6201 restitution-based assessments you asked about whether under sec_6404 the irs had the authority to abate interest that had accrued on a restitution-base assessment rba made under sec_6201 the short answer is that sec_6404 does not apply to any interest on an rba because an rba is not a deficiency or a tax described in sec_6212 sec_6404 provides the irs statutory authorization to abate interest in certain cases where the assessment of interest is attributable to unreasonable errors or delay by the irs however it is not a blanket authorization for abatement of interest on any and all taxes sec_6404 limits the irs’s ability to abate interest to a particular set of reasons namely based on delay caused by a ministerial or managerial act by an officer_or_employee of the irs sec_6404 interest abatement authority is also however based on the type of tax to which the interest relates the tax to which that interest relates must also be a deficiency sec_6404 or any payment of any_tax described in sec_6212 sec_6404 as explained in irm c the types of taxes referred to in sec_6404 and b are income estate_and_gift_taxes as well as certain excise_taxes rbas on the other hand are not deficiencies or any other tax described in sec_6212 restitution is assessed under sec_6201 and based on the amount ordered as restitution by a federal court although restitution in a criminal tax case is calculated based on harm to the government determined from the defendant’s failure to pay a tax it is itself not a determination of tax sec_6201 authorizes the irs to assess an amount of restitution ordered for failure to pay any_tax in the same manner as if such amount were such tax sec_6213 provides that this rba is not subject_to deficiency procedures because an rba is not a tax subject_to deficiency procedures as described in sec_6212 interest running on an rba may not be abated under the limited authority of sec_6404 the only statutory authorization potentially available to the irs to abate interest accruing on an rba is the general abatement authority under sec_6404 that authority however is also narrow sec_6404 authorizes the irs to abate any unpaid portion of an assessment that is excessive in amount assessed after the expiration of the period of limitation properly applicable thereto or erroneously or illegally assessed with respect to interest accruing on an rba whether the interest accruing on an rba is excessive is a mathematical calculation based on the proper interest accrual formula as provided in the underlying regulations excessive in amount means in excess of the correct_tax liability sec_301 a see also 829_f3d_795 7th cir sec_6501 provides that the assessment of an rba may be made at any time so there is no statute_of_limitations expiration that applies here lastly since the legal authority to assess restitution ordered for the failure to pay a tax is provided under sec_6201 there does not appear to be a question about whether the rba was itself proper therefore if the amount of restitution was properly assessed and the interest on the rba under sec_6601 was properly calculated there does not appear to be any authority for the irs to abate interest on an rba under sec_6404 either


internal_revenue_service department of the index no attn legend washington oc contact person telephone number in reference to date t ep ra t1 dec bankk cccccssecscsseseseeesessescecseessesecseenseeereseaessenseaes decedent ccccsccsscescercessersesssrseecsnessessesseseessesees dear mr this is in response to a letter dated date as supplemented by letter dated date submitted on your behalf by your authorized representative requesting rulings regarding the tax treatment of the transaction described below submitted in support of your request the following facts and representations were decedent died on date at the time of decedent’s death he owned ira a and designated his surviving_spouse as the beneficiary of ira a the surviving_spouse withdrew the assets in the ira on date and redeposited into ira a a portion of the assets on date less than days after the day of withdrawal based on the facts and representations submitted you request the following rulings that the surviving_spouse was the distributee of ira a as that terms is used in sec_408 of the internal_revenue_code the code ira a is not an inherited ira under sec_408 the withdraw and redeposit of the assets in ira a constituted a partial spousal_rollover under code sec_408 and d and neither the estate of the decedent nor the surviving_spouse is required to include in gross_income for the year of the withdrawal the portion of the proceeds of ira a which was timely rolled over into ira a with respect to your ruling requests sec_408 of the code provides that except as otherwise provided any amount_paid or distributed from an ira is includible in gross_income by the distributee sec_408 of the code provides that paragraph does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received is paid into an ira for the benefit of such individual not later than the day after the day on which the payment is received sec_408 of the code provides that in the case of an inherited ira the rollover provisions of sec_408 do not apply to any amount received by a beneficiary from such an jra account sec_408 of the code further provides that an ira is treated as inherited if the individual for whose benefit the ira is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual sec_408 of the code provides that a portion of the amount received from an ira may be paid into an ira if the requirements of sec_408 are otherwise satisfied in this case the sole beneficiary of ira a was the surviving_spouse of the decedent in the surviving_spouse received a distribution of the ira a account balance and within days of the date of withdrawal rolled over into ira a a portion of her distribution since code sec_408 does not preclude a rollover of an ira distribution into the same ira from which the distribution was made we conclude as follows the surviving_spouse was the distributee of ira a as that term is used in code sec_408 ira a is not an inherited ira under sec_408 the redeposit of a portion of the proceeds into ira a within days from the day of withdrawal constituted a partial spousal_rollover under sec_408 and d and neither the estate of the decedent nor the surviving_spouse is required to include in gross_income in the year of the withdrawal the portion of the proceeds from ira a that was timely rolled over into ira a the above rulings are based on the assumption that ira a is a valid ira under sec_408 of the code at all times relevant to the transaction the above rulings are directed only to the taxpayer who requested them sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed john swirca john swieca manager employee_plans technical group enclosures deleted copy of letter_ruling notice ce