t c memo united_states tax_court charles y and jin y choi petitioners v commissioner of internal revenue respondent docket no filed date a jerry busby for petitioners rick v holser for respondent memorandum findings_of_fact and opinion gerber judge respondent determined deficiencies in additions to and penalties on petitioners’ federal_income_tax as follows -- - charles y choi addition_to_tax year deficiency sec_6663 dollar_figure dollar_figure charles y and jin yi choi additions to tax and penalties year deficiency sec_6651 a sec_6663 dollar_figure -- dollar_figure big_number dollar_figure big_number the issues remaining for our consideration are whether charles y choi petitioner understated income for the taxable_year whether petitioners understated income for the taxable_year whether petitioner is liable for the civil_fraud penalty under sec_6663' for the taxable years whether petitioners are liable for an addition_to_tax for delinguent filing of their return for whether petitioners are liable for self-employment_tax on their earnings from gene’s modern market and whether petitioners provided over one-half of the support of james choi during and so as to be entitled to claim him as a dependent findings_of_fact petitioner and jin y choi were married in and resided in california at the time their petition was filed during through petitioner was the sole_proprietor of gene’s modern unless otherwise indicated all section references are to the internal_revenue_code for the years in issue and all rule references are to the tax_court rules_of_practice and procedure market gene’s a full-service grocery store petitioner reported gene’s income and expenses using the cash_basis method_of_accounting gene’s was open for business monday through sunday from a m to p m petitioners along with petitioner’s brother father and mother worked at gene’s in addition to selling grocery items gene’s cashed payroll checks personal checks and third-party checks for a fee of percent of the face_amount of the check or dollar_figure for checks under dollar_figure gene’s did not charge a check-cashing fee if cash was returned in connection with the purchase of groceries the cash petitioners used for check cashing was from sales of merchandise fees from cashing checks and the proceeds of checks drawn on gene’s deposit account two cash registers were available and used at gene’s although petitioner retained the cash register tapes he did not report sales based on them or reconcile the amount of cash in the register at the end of a day’s operations instead petitioner fabricated daily sales summary sheets for gene’s which were used to reflect the gross_receipts for gene’s the fabrication of gross_receipts was accomplished by marking up the cost of inventory and the cost of purchases by percent petitioner did not physically account for gene’s inventory during the years in issue petitioner did not provide his bookkeeper michael kim with information about cash purchases or cash sales of q4e- gene’s petitioner provided the daily summary sheets to mr kim every month petitioner knew that the amounts of gross_receipts provided to mr kim were less than the actual gross_receipts for gene’s as an example the cash register tapes for date totaled dollar_figure whereas petitioner’s summary sheets given to mr kim reflected total sales of dollar_figure mr kim prepared yearly summaries based on the daily summary sheets received from petitioner and used the summaries to prepare the schedules c profit or loss from business for gene’s that were included with petitioners’ federal_income_tax returns petitioner did not provide mr kim with the register tapes from gene’s in addition mr kim was provided with inaccurate understated records of cash inventory purchases petitioner’s method_of_accounting for gene’s receipts and expenditures caused the omission and understatement of income for the years in issue during the examination of petitioners’ federal_income_tax returns petitioner estimated and represented to respondent’s agent that he had understated gene’s gross_receipts by approximately dollar_figure per month petitioner on the basis of the actual cash register receipts determined that gene’s gross_receipts during and were dollar_figure to dollar_figure per month or dollar_figure to dollar_figure per year respectively on the schedules c of the and income_tax returns gross - - receipts of approximately dollar_figure and dollar_figure respectively were reported the cash used in the operation of gene’s was maintained ina safe and petitioner counted the cash daily no record of the cash transactions or cash on hand was maintained and the cash received from customers of gene’s was not deposited in the bank accounts maintained for gene’s some of the cash receipts from the operation of gene’s were used to pay petitioners’ and their family’s household and other living_expenses during the and tax years petitioner maintained two checking accounts in the name of gene’s petitioner was the only person with access to the two business accounts the first account no the deposit account was used for deposits of third-party payroll and personal checks food stamps and wic vouchers that were received in gene’s grocery business no cash deposits were made with respect to the deposit account during or the second account no the operating account was used for gene’s operating expenditures petitioner’s practice was to fund the operating account by making withdrawals from the deposit account during petitioner drafted checks made out to cash from the deposit account in the total amount of dollar_figure dollar_figure of which was deposited into the operating account during petitioner drafted checks made out to - - cash from the deposit account in the total amount of dollar_figure dollar_figure of which was deposited into the operating account in petitioner purchased a house in glendale arizona for dollar_figure a downpayment of dollar_figure was made on the home petitioner applied for a loan to finance the purchase he reflected on the loan application that the net_worth of gene’s was dollar_figure and that his monthly income from gene’s was dollar_figure in petitioner sold gene’s for dollar_figure on their and income_tax returns petitioners reported net profit from gene’s of dollar_figure dollar_figure and dollar_figure respectively on the and returns petitioners claimed petitioner’s parents and brother as dependents petitioner knew that the gross_receipts reported for through were understated he omitted some gross_receipts in order to avoid tax so that he would have more retained cash respondent conducted a civil examination of petitioners’ income_tax returns and petitioners did not provide the internal revenue_agent with the cash register tapes invoices for purchases by check were presented but no invoices were provided for cash purchases during the examination petitioner stated that he was the sole source of support of his parents - jj - because of the inadequacy of petitioners’ records and accounting practices respondent reconstructed petitioners’ income using an indirect method using the bank_deposits and cash_expenditures_method respondent determined that petitioner’s unreported income for was as follows bank deposit and expenditures reconstruction for bank deposit summary acct no bus deposit acct acct no bus operating acct acct no personal checking acct total gross bank_deposits add personal cash expenditures business cash expenditures subtotal subtract checks written to cash deposited into operating account dollar_figure amount of checks not deposited big_number subtotal big_number nontaxable income business gross_receipts per audit per return unreported income dollar_figure big_number big_number dollar_figure big_number dollar_figure big_number dollar_figure big_number big_number all of the amounts used by respondent in the bank_deposits reconstruction for and are supported by facts in the record of this case --- - respondent determined that petitioners’ unreported income for using the bank_deposits and cash_expenditures_method was as follows bank deposit and expenditures reconstruction for bank deposit summary acct no dollar_figure bus deposit acct acct no big_number bus operating acct acct no big_number personal checking acct total gross bank_deposits big_number add personal cash expenditure sec_2 business cash expenditures big_number subtotal big_number subtract checks written to cash deposited into operating account dollar_figure amount of checks not deposited subtotal big_number dollar_figure nontaxable deposits business gross_receipts big_number per audit dollar_figure per return unreported income big_number during date respondent began a criminal investigation of petitioner and on date petitioner waived indictment and pleaded guilty to criminal_tax_evasion - under sec_7201 for in the process of his plea agreement petitioner averred that he and his spouse had a substantial income_tax due and owing to the united_states for the year he evaded tax by filing and causing to be filed with the internal_revenue_service a false and fraudulent form_1040 u s individual_income_tax_return for the calendar_year in which he substantially underreported gross_receipts he acted willfully with intent to defraud the government of the tax on the additional unreported income petitioner was sentenced to months in prison and required to pay a dollar_figure fine petitioner’s father obtained a favorable judgment from a civil court in korea on date which was appealed and the appeal was dismissed on date the payment of the judgment was not available to petitioner’s father and mother until some time during or sec_7201 provides any person who willfully attempts in any manner to evade or defeat any_tax imposed by this title or the payment thereof shall in addition to other penalties provided by law be guilty of a felony and upon conviction thereof shall be fined not more than dollar_figure dollar_figure in the case of a corporation or imprisoned not more than years or both together with the cost of prosecution - lo - opinion although we consider several issues in this case the two primary issues involve the reconstruction of petitioners’ income for and and whether any part of the underpayment_of_tax is attributable to fraud the main thrust of petitioners’ attack focuses on respondent’s use of a bank_deposits analysis to reconstruct petitioners’ income taxpayers are required to maintain records sufficient to show whether they are liable for federal income taxes see sec_6001 96_tc_858 affd 959_f2d_16 2d cir if a taxpayer fails to keep records the commissioner may reconstruct the taxpayer’s income see sec_446 348_us_121 94_tc_654 the records petitioner maintained for purposes of reporting the income and deductions of gene’s were inadequate petitioners do not argue that the books_and_records were accurate or adequate ’ petitioner admitted that he understated the gross in a date order respondent’s motion for partial summary_judgment was granted and it was held that petitioner charles y choi is estopped from denying that he is liable for a fraud_penalty under sec_6663 i r c to the extent that there is any deficiency finally determined to which a fraud_penalty would be applicable for the taxable_year petitioners have attempted to discredit respondent’s bank_deposits reconstruction_of_income by offering their own reconstruction using the percentage markup method the continued receipts on the daily sales summaries in an interview with a revenue_agent petitioner estimated that he could have understated the gross_receipts for gene’s by as much as dollar_figure per month as of the time of trial petitioner was not able to produce most of the cash register tapes for gene’s and no records of cash balances cash receipts cash expenditures or inventories were maintained except for a few invoices for cash purchases of inventory because the records for gene’s could not be reconciled with petitioners’ income_tax returns respondent reconstructed the gross_receipts of gene’s by means of the bank_deposits method coupled with the cash_expenditures_method the bank_deposits and cash expenditures methods are acknowledged methods of reconstructing income see parks v commissioner supra nicholas v commissioner t c respondent’s bank_deposits analysis reflects that petitioners had substantial unreported income from gene’s business operations during and gene’s was petitioners’ only source of business income respondent’s agent examined petitioners’ records and also performed an analysis of bank_deposits for the years in issue the bank_deposits analysis was accomplished by totaling the deposits made to petitioners’ continued percentage markup method of reconstruction is one whereby an established base such as cost_of_goods_sold is marked up to reconstruct gross_sales or gross_receipts three bank accounts respondent then added petitioners’ identified cash expenditures_for personal and business purposes to the total bank_deposits the total of the bank_deposits and expenditures was next reduced by the total amount of nontaxable deposits to arrive at petitioners’ annual income from gene’s finally the annual income was reduced by the income reported on petitioners’ returns to arrive at respondent’s determination of petitioners’ unreported income of dollar_figure and dollar_figure for and respectively the items included in respondent’s reduction for nontaxable items included deposits from the deposit account to the operating account transfers from other accounts gifts and loans made to the business or petitioners the cash for gene’s check cashing came from business operations some of the cash was from cash sales of groceries and some was obtained from the deposit account respondent did not attempt to separately determine the amount of gross_receipts from cash sales of groceries in addition respondent considered the entire amount of cash withdrawn from the deposit account to be nontaxable accordingly respondent’s approach to reconstructing petitioners’ income was conservative allowing petitioners the benefit of the doubt in addition some of the cash from cash grocery sales was maintained in a safe at gene’s and was used by petitioner and his family for personal expenses petitioners argue that additional bank_deposits should be eliminated as nontaxable because they represent cash gifts from petitioner’s parents petitioner his parents and several close relatives testified that petitioner’s parents received cash from korea and that cash gifts were made to petitioner by his parents the record reflects that petitioner’s father had instituted a lawsuit in korea and that he had won a judgment in his favor the record also reveals that the judgment was appealed and that petitioner’s father was successful on appeal but the appeal did not conclude until date respondent points out that under the laws of korea petitioner’s parents were not entitled to expatriate the proceeds of the judgment from korea to the united_states there is also evidence in the record that certain american express traveler’s checks did not become available to petitioner’s parents until sometime during in an attempt to show that petitioner’s parents had the means to make gifts petitioners offered the testimony of close relatives uncles aunts etc each of whom testified that on specific dates in and they received large amounts of cash dollar_figure to dollar_figure on behalf of petitioner’s parents the witnesses each stated that they received the cash in stacks of dollar_figure bills from unknown individuals who had traveled to the united_states from korea we note at the outset that intrafamily transactions are subjected to closer scrutiny 549_f2d_1155 8th cir affg tcmemo_1975_319 92_tc_470 affd 912_f2d_1466 5th cir the witnesses’ stories were strikingly similar and curiously none of the witnesses knew the person who gave them the alleged currency we also find it curious that the alleged deliveries of relatively large amounts of currency were given to different family intermediaries of petitioner’s parents and that no deliveries were made directly to petitioner’s parents finally there is no documentary_evidence of the existence of the alleged cash that petitioners argue was infused into the operation of gene’s in particular the three bank accounts in this record do not reflect the deposit of any cash with respect to petitioners’ cash gift argument respondent notes that the alleged cash was not available from the choi families’ korean lawsuit at very least until whereas all of the witnesses testified to receiving the money during and because this case involves a reconstruction for and it is imperative that petitioners show the infusion of cash the deposit account received check deposits from gene’s and the operating account received transfers from the deposit account -- - in those years to reduce the amount of the deposits that would be deemed income significantly respondent points out that his bank_deposits reconstruction represents only check deposits because no cash was deposited into the deposit account for gene’s petitioners attempt to convince us that some of the cash that was used to cash checks came from petitioner’s parents as opposed to cash from the sale of groceries admittedly by intentionally not relying on the cash register tapes petitioner omitted cash sales of groceries from the income reported to respondent respondent by including all checks that were deposited into deposit accounts included some checks that were exchanged by gene’s customers for cash only or cash and groceries respondent however by eliminating all of the transfers to the operating account gave petitioners the benefit of the doubt by allowing all of petitioners’ expenditures including expenses of gene’s cash for check cashing and also personal expenses of petitioners and their family considering respondent’s conservative approach it is likely that respondent’s reconstruction did not capture some portion of the income derived from the cash sales of groceries in connection with respondent’s bank_deposits analysis however some income from cash sales may have been included in the cashed checks deposited in the deposit account respondent’s eliminations from -- - the bank_deposits analysis would have likely addressed any such inclusion to the extent any cash from check cashing was a part of the bank_deposits analysis it is unlikely that it is attributable to cash gifts from petitioner’s parents we find the testimony offered on this point by petitioners and their relatives to be self-serving vague and uncorroborated petitioner’s parents could not recall the incremental amounts dates or total amount allegedly given to petitioners and or infused into gene’s operation no gift_tax returns were filed by petitioner’s parents and no record exists of the alleged transfers additionally during the years under consideration petitioner supported his father and mother both of whom worked at gene’s and lived under petitioners’ roof in the absence of persuasive evidence and reliable corroboration we are not required to accept the self-serving testimony of interested parties see 87_tc_74 petitioners in an attempt to discredit respondent’s reconstruction offered their own reconstruction_of_income using the percentage markup method they maintain that the percentage markup method of reconstructing income would more accurately reflect petitioners’ income for the years in issue in particular petitioners argue that a large percentage of the checks deposited and included in respondent’s bank_deposits reconstruction was attributable to check cashing and not to the sale of merchandise petitioners called patrick schindele as an expert witness to provide a report and to testify in support of their argument mr schindele’s report contained a reconstruction of gene’s gross_receipts using the percentage markup method his approach however was flawed in several respects because of petitioners’ inadequate records mr schindele’s report in large part is based on assumptions many critical assumptions were based on information provided by petitioners and not developed by mr schindele’s independent analysis mr schindele had to make numerous assumptions in order to reconstruct the amount that he believed represented gene’s gross_receipts the amounts used however could not be supported or verified he also assumed that only a small portion of customers’ checks was for the purchase of merchandise conversely he assumed that either most checks were cashed at face value or that nominal amounts of grocery purchases were involved in the transactions because of petitioners’ lack of records the register tapes in particular there is no way to know whether mr schindele’s assumption is correct we find mr schindele’s assumption that the majority of customers who paid_by check bought only nominal amounts of groceries and merely went to gene’s for cash to be highly -- - unlikely we also note that gene’s did not receive a check- cashing fee if cash was returned in connection with the purchase of groceries on the basis of the record this assumption is at best highly speculative mr schindele also assumed that the cash from these check purchases described above was used to cash payroll checks or for cash purchases of inventory in that way mr schindele attempted to neutralize the possibility of income reposing in customers’ cashed checks here again such assumptions are purely speculative and unverified we note that the lack of records to support such assumptions was of petitioner’s own making and was intended to conceal the true amount of reportable income because petitioner did not account for gene’s inventory either at the beginning or at the end of a taxable_year and inadequate records were kept of cash purchases it is not possible to determine gene’s cost of goods sold--the base on which mr schindele employed the percentage markup method mr schindele’s report was also flawed in connection with the amount of the percentage markup used in that regard his trial testimony conflicted with his written report the report contains the statement that mr schindele determined the percentage markup through interviews of petitioners and of some of the vendors of gene’s market mr schindele later testified that he did not interview any of gene’s vendors to establish the - - markup of inventory and thus he based the amount of the percentage markup entirely on interviews with petitioners because of those flaws and weaknesses we place no reliance on petitioners’ expert’s opinion moreover respondent’s bank_deposits analysis was properly and conservatively used therefore petitioners have not shown that the percentage markup method they used would more accurately reflects gene’s gross_receipts for the years in issue accordingly respondent’s determinations with regard to petitioners’ understatements of income is upheld for and having decided that there was unreported income for and we now consider for whether the understatement was due to fraud within the meaning of sec_6663 ’ respondent determined that petitioner fraudulently and with intent to evade income_tax understated his income by omitting dollar_figure and dollar_figure of gross_receipts for and respectively fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing 829_f2d_828 9th cir affg tcmemo_1986_223 respondent bears the burden of proving fraud by clear_and_convincing evidence rule b in order to prove fraud the commissioner must show the ’ respondent has conceded that petitioner jin y choi is not liable for the fraud_penalty for the tax_year - - existence of an underpayment and that the taxpayer intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes parks v commissioner t c pincite in this case respondent has shown the existence of underpayments for and the existence of fraud is a question of fact to be resolved upon consideration of the entire record dibleo v commissioner t c pincite fraud is never presumed and must be established by independent evidence of fraudulent intent edelson v commissioner supra fraud may be shown by circumstantial evidence because direct evidence of the taxpayer’s fraudulent intent is seldom available 67_tc_181 affd without published opinion 578_f2d_1383 8th cir the taxpayer’s entire course of conduct may establish the reguisite fraudulent intent 56_tc_213 to decide whether the fraud_penalty is applicable courts have considered various indicia or badges_of_fraud which include understatement of income inadequate books_and_records failure_to_file tax returns implausible or inconsistent explanations of behavior concealment of assets failure to cooperate with tax authorities engaging in illegal activities lack of credibility of the taxpayer’s testimony and dealing in cash 796_f2d_303 9th cir affg tcmemo_1984_601 91_tc_874 this list is nonexclusive although no single factor is necessarily sufficient to establish fraud the combination of a number of factors constitutes persuasive evidence of fraud 732_f2d_1459 6th cir affg per curiam tcmemo_1982_603 94_tc_316 the record in this case supports our holding that petitioner fraudulently intended to evade and income_tax petitioner was receiving the proceeds from gene’s and he intentionally and consistently understated that income his testimony wass evasive and to some extent not credible petitioner fabricated records of income and intentionally discarded cash register tapes which would have shown the true sales of gene’s he concealed income by fabricating his daily sales summary sheets and admitted to respondent’s agents that he underreported the sales income of gene’s by approximately dollar_figure per month petitioner dealt in cash and did not maintain records of his cash transactions involving the purchase of inventory petitioner pleaded guilty to and was convicted of criminal income_tax evasion under sec_7201 for the year in that regard we have already held that petitioner is collaterally estopped from denying that part of the underpayment for is -- - due to fraud within the meaning of sec_6663 see dileo v commissioner supra pincite 43_tc_50 affd 360_f2d_358 4th cir respondent has shown by clear_and_convincing evidence that petitioner fraudulently understated income for the classic indicia of fraud have been shown in this case respondent has shown a pattern of fraudulent activity concealment and large consecutive understatements of income in addition we have considered the fact that petitioner pleaded guilty to criminal_tax_evasion for a year in which the pattern of activity and gravity of the understatement were essentially the same as in respondent also determined that petitioners were liable for self-employment_tax under sec_1402 on the earnings from gene’s earnings from self-employment are income derived by an individual from any trade_or_business carried on by the individual petitioners did not brief this issue and there is nothing in the record showing respondent’s determination to be in error accordingly petitioners are liable for self-employment_tax on the earnings from gene’s with respect to the final two issue discussed in this opinion petitioners failed to present argument reply to respondent’s argument or otherwise discuss the issues in their briefs failure to discuss an argument on brief has been held to constitute an abandonment of the controversy see 91_tc_524 ndollar_figure - - finally respondent disallowed a dependency_exemption that petitioners claimed for petitioner’s brother james choi respondent determined that petitioners were not entitled to claim the exemption because they had not shown that they provided more than one-half of the support for james choi as required under sec_151 and sec_152 petitioners must show that they provided more than percent of the support to be entitled to claim the dependency_exemption for and see morrison v commissioner tcmemo_1975_73 johnson v commissioner tcmemo_1974_150 respondent contends that the evidence shows that james choi worked full time in gene’s in exchange for the payment of his living_expenses petitioners did not brief this issue and have not shown that they provided more than one-half of james choi’s support accordingly we hold that petitioners are not entitled to the claimed dependency_exemption to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number and washington dc person to contact tetephone number refer reply to cc dom corp plr-104542-99 ate date distributing controlled sub sub sub foreign sub foreign sub llc business a business b t i ide plr-104542-99 business bi business b2 business c business d date a date b c year l i this letter responds to your date request for rulings on certain aspects of the proposed transactions described below the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalty of perjury executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of the audit process summary of facts publicly traded distributing is the common parent of a consolidated_group that engages in business a business b business c and business d distributing directly conducts business a and business b which consists of business b1 and business b2 but may sell part or all of business a distributing wholly owns sub sub sub and foreign sub sub wholly owns foreign sub sub conducts business c directly and business d through wholly owned llc we have received financial information indicating that business d which will be conducted by distributing and business b which will be conducted by controlled had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years ue plr-104542-99 business c and business d the related businesses’ differ significantly from business b in the nature of customers served product type and development and business regulation because these competing differences have forced management continually to weigh the needs of the related businesses against those of business b neither business has been able to realize its full potential accordingly distributing proposes to separate the related businesses from business b and by doing so allow the management of each to fully focus on the policies and practices appropriate to its business proposed transactions to accomplish this separation distributing has undertaken the following series of transactions the proposed transactions or the transactions’ i effective date b sub transferred the assets of business d to llc in exchange for the lone ownership_interest in llc ii sub will transfer its interest in llc to distributing either as a dividend or in exchange for other_property iii sub will transfer the foreign sub stock to distributing iv distributing will transfer business b consisting of business b1 and business b2 and including the stock of sub foreign sub and foreign sub to newly formed controlled in exchange for all of the controlled stock and the assumption by controlled of related liabilities v controlled will borrow approximately dollars in cash from one or more unrelated lenders and immediately use this amount to pay down outstanding debt owed by distributing to one or more unrelated creditors step iv and v together the contribution vi distributing will distribute all of the controlled stock to its shareholders pro_rata the distribution cash will be distributed in lieu of any fractional share interests after the proposed transactions controlled will engage directly in business b and distributing will engage directly in business d and indirectly in business c representations distributing makes the following representations concerning the proposed transactions plr-104542-99 a any indebtedness owed by controlled to distributing after the distribution will not constitute stock_or_securities b no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted on behalf of distributing’s business b and sub 1's business d represents in each case the corporation’s present operation of such business and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted d following the transactions distributing and controlled each will continue the active_conduct of its business independently and with its separate employees e the distribution is being carried out to permit the management of the related businesses and the management of business b each to focus on the policies and practices appropriate to its business the distribution is motivated in whole or substantial part by this and other corporate business purposes f there is no plan or intention by any shareholder who owns five percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the transactions g there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transactions other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 h 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 after the transactions except in the ordinary course of business i the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing equals or exceeds in each case the sum of i the liabilities assumed by controlled ii any liabilities to which the transferred assets are subject and iii the fair_market_value of any property including money received by distributing from controlled and distributed by distributing to its shareholders or creditors in plr-104542-99 pursuance of the plan_of_reorganization j the liabilities assumed in the transactions and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred k except for short-term indebtedness incurred in the ordinary course of business and short-term indebtedness arising from the transactions described above no intercorporate debt will exist between distributing and controlled at the time of or after the distribution immediately before the distribution any items of income gain foss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 of the income_tax regulations and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account distributing may have in the stock of controlled will be included in the income of distributing immediately before the distribution as required by the applicable regulations see sec_1_1502-19 m payments made in any continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arms’ length n no two parties to the transactions are investment companies as defined in sec_368 and iv of the internal_revenue_code the payment of cash in lieu of fractional shares of controlled will be solely for the purpose of avoiding the expense and inconvenience to controlled of issuing fractional shares and does not represent separately bargained-for consideration the total cash consideration to be paid in lieu of fractional shares of controlled stock will not exceed one percent of the total consideration that will be issued in the transactions to distributing shareholders the fractional share interests of each distributing shareholder will be aggregated and no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of controlled stock p 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 entitled to vote or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled plr-104542-99 q both before and after the transactions no foreign_person will own a five percent or greater interest in distributing rulings based solely on the information submitted and the representations set forth above we rule as follows on the proposed transactions the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled each will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_357 sec_361 and sec_361 no gain_or_loss will be recognized by controlied on the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period of each asset received by controlled in the contribution will include the period during which that asset was held by distributing sec_1223 no gain or joss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of any shareholder of distributing on receipt of controlled stock in the distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of each distributing shareholder after the distribution including any fractional share interests to which the shareholder is entitled will equal the aggregate basis of the distributing stock held by such shareholder immediately before the distribution allocated between the distributing and controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled stock received by each shareholder of distributing will include the period during which the distributing shareholder has held the distributing shares on which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 and b plr-104542-99 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 if cash is received by a distributing shareholder in lieu of a fractional share of controlled stock distributing will be treated as distributing the fractional share to the shareholder and the shareholder will be treated as selling the fractional share sec_1001 the shareholder's gain_or_loss will be measured by the difference between the basis of the fractional share as determined in ruling above and the amount of cash received if the controlled stock qualifies as a capital_asset in the hands of the shareholder the gain_or_loss will be a capital_gain or loss subject_to the provisions and limitations of subchapter_p of chapter of the code provided that i distributing satisfies the requirements of sec_1_367_e_-1t c i of the temporary income_tax regulations and the reporting requirement described in sec_1_367_e_-1t c iii and ii distributing does not know or have reason to know that any shareholder of distributing who is not a qualified u_s_person as defined in sec_1_367_e_-1t b i is a five_percent_shareholder as described in sec_1_367_e_-1t c ii no gain will be recognized by distributing under sec_367 with respect to the distribution the earnings_and_profits of foreign sub to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of such foreign_corporation beginning after date during the period distributing held the foreign sub stock or was considered as holding it by reason of the application of sec_1223 while foreign sub was a controlled_foreign_corporation shall be attributable to the foreign sub stock in the hands of controlled sec_1_1248-1 the earnings_and_profits of foreign sub to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of such foreign_corporation beginning after date during the period distributing held the foreign sub stock or was considered as holding it by reason of the application of sec_1223 while foreign sub was a controlled_foreign_corporation shalt be attributable to the foreign sub stock in the hands of controlled sec_1_1248-1 caveats no opinion is expressed about the tax treatment of the transactions 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 transactions that are not specifically covered by the above rulings in particular no opinion is expressed about the tax treatment of a the llc formation described above in step i b the llc transfer plr-104542-99 described above in step ii or c the transfer of foreign sub by sub described above in step iii see sec_1_1248-1 for rules on gain recognition from a sale_or_exchange of stock of certain foreign_corporations this ruling has no effect on any earlier documents and is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transactions must attach a copy of this ruling letter to the taxpayer's federal_income_tax return for the taxable_year in which the transactions are completed under a power_of_attorney on file in this office a copy of this ruling letter will be sent to the taxpayer sincerely yours assistant chief_counsel corporate by wayne d murrow wayne t murray senior technician reviewer branch dfo ae


internal_revenue_service number release date index number 2032a ----------------------------------- ------------------------ ----------------------------- re ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ----------------- telephone number --------------------- refer reply to cc psi plr-102173-12 date date legend decedent date revocable_trust executor law firm law firm date successor executor date dear -------------- -------------------------------------------------- ------------------- ----------------------------------------------------------------- -------------------------------------------------------------- ---------------------- ------------------------- ---------------------------------- ---------------------- ---------------------- --------------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time under sec_301 of the procedure and administration regulations to elect to specially value farmland under sec_2032a of the internal_revenue_code the facts submitted and representations made are summarized as follows decedent died on date decedent’s estate included farmland executor hired law firm to prepare decedent’s form_706 united_states estate and generation-skipping_transfer_tax return on date executor timely filed form_706 however executor failed to elect to specially value the farmland under sec_2032a after form_706 was filed successor executor was appointed successor executor engaged law firm to review the form_706 it was at that time that the failure to make the election under sec_2032a was first discovered on date successor executor filed a supplemental form_706 and elected to specially value the farmland under sec_2032a successor executor now requests an extension of time to date to make the sec_2032a election plr-102173-12 sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2032a provides generally that if the decedent was at the time of his or her death a citizen or resident_of_the_united_states and the executor elects the application of this section and files the agreement referred to in sec_2032a then for purposes of chapter the value of qualified_real_property shall be its value for the use under which it qualifies under sec_2032a as qualified_real_property sec_2032a provides that the election under sec_2032a shall be made on the return of tax imposed by sec_2001 such election shall be made in such manner as the secretary shall by regulations prescribe such election once made shall be irrevocable under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly an extension of time to date is granted to elect to specially value the farmland under sec_2032a except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion on whether the estate qualifies for special_use_valuation under sec_2032a this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-102173-12 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures cc


internal_revenue_service number release date index number ------------------------------------------------------ ---------------------------------- ------------------------------------ in re ----------------------- ------------------------ ---------------------------------- ------------------------------------ department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi - plr-139915-03 date date re request for extension of time to file application_for certification of historic status taxpayer --------------------------------------------------------------------------------------------- ----------------------------------------- property --------------------------------------------------------------------------------------------- -------------- ------------------- ---------------------- ---- ----------- -------------- ------------------------------------------------- ------------------------------------------------------ ----------------------- -------------------------- -------------------------- ---------------------- -------------------------- ------- ------------------------------------------------------------- b c d e f g h i j k l m n sb_se official dear ----------------------------------------------------- this letter responds to a letter dated date requesting an extension of time pursuant to ' of the procedure and administration regulations for taxpayer to file an application_for certification of historic status with the united_states department of interior according to the information submitted taxpayers jointly own property the property is located in a district that has been certified by the secretary of the interior as meeting substantially_all of the requirements for listing of districts in the national register and is therefore a registered_historic_district under ' d ii b of the income_tax regulations taxpayers purchased the property on b on c taxpayers began an anticipated d-month rehabilitation of the property resulting in total expenditures of e in f taxpayers attended a lecture sponsored by the g to learn about tax_credit programs involving restoration of historic structures that are both private homes and income-producing properties subsequently taxpayers contacted h and asked whether taxpayers rehabilitation of the property qualified for a tax_credit taxpayers consulted with various persons familiar with the rehabilitation_credit including state preservation officials preservation architects and accountants no one informed taxpayers of the requirement to file the application_for certification of historic status hereinafter application with the department of interior national park service anps before the properties were placed_in_service as required by ' d taxpayers completed the rehabilitation and placed the property in service on i on j the state historic preservation office accepted taxpayer s application by letter dated k the nps notified taxpayers that it had received the application but that it had been filed late under irs regulations taxpayers intended to claim historic_rehabilitation_credit attributable to the rehabilitation when they commenced the rehabilitation project however as previously discussed taxpayers inadvertently failed to timely file the application law and analysis sec_47 of the internal_revenue_code provides that the rehabilitation_credit for any taxable_year includes an amount equal to of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_47 provides that the term certified_historic_structure means any building listed in the national register of historic places or located in a registered_historic_district and certified by the secretary of the interior as being of historic significance to the district sec_1_48-12 of the regulations provides that a building shall be considered to be a certified_historic_structure at the time it is placed_in_service if the taxpayer reasonably believes on that date the building will be determined to be a certified_historic_structure and has requested on or before that date a determination from the u s department of the interior that such a building is a certified_historic_structure within the meaning of the historic_rehabilitation_credit provisions and the u s department of interior later determines that the building is a certified_historic_structure sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in and to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term election includes an application_for relief in respect of tax sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' a request for relief under ' will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of and have been satisfied accordingly taxpayer's application with the state historic preservation office that resulted in notification from the nps will be considered a timely filed application_for purposes of ' d a copy of this letter should be attached to taxpayer’s amended n tax_return or sent to the appropriate service_center with a request that it be attached to taxpayer's amended n tax_return as appropriate a copy is enclosed for that purpose please note that sec_1_48-12 of the regulations provides that if the final certification of completed work has not been issued by the secretary of the interior at the time the tax_return is filed claiming rehabilitation_credit a copy of the first page of the historic preservation certification application--part 2--description of rehabilitation with an indication it has been received by the department of the interior or its designate together with proof that the building is a certified_historic_structure or that such status has been requested must be attached to the form_3468 filed with the return except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code we are sending a copy of this letter to the sb_se official this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date scholarship scholarship legend b c d ___ busine sec_1 busine sec_2 g number u dollar amount v _ dollar amount w dollar amount x dollar amount y dollar amount z dear you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request the information submitted indicates that scholarships are funded by you but will be administered supervised and paid out by g the name of your employer-related scholarship programs are b and c letter catalog number 58264e the purpose of b is to grant to deserving employees of d scholarships that will enable such individuals to commence or continue their studies at educational institutions you will award scholarships on an objective and nondiscriminatory basis applicants must - be active regular full-time or part-time employees of d with at least six months of service prior to the application deadline date for the quarter for which the scholarship is to be awarded - be employed in the us or its territories - have a high school diploma or a ged equivalency certificate - plan to take college credit courses through a two or four year accredited college university approved by you and the us department of education - bea us citizen or permanent legal resident - complete and submit an online application - prove financial need based on required documents such as supporting tax documents - list participation in a volunteer activity approximately u individuals are eligible to apply annually but you expect far fewer applications than the number of d employees the number of scholarships awarded is roughly or fewer of the eligible applicants considered by the selection committee as described in revproc_76_47 each recipient may receive between v and w dollars per school year but no more than x dollars over a six year period scholarship amounts fluctuate based on the number of recipient’s credit hours scholarships are renewable on a quarterly basis upon showing proof by the recipient of continued eligibility and good standing at the institution applicants will qualify for an initial first semester scholarship only if they are eligible as defined above you will select recipients based on financial need and community involvement and determine financial need by applying the estimated family contributor efc definition used in the free application_for federal student aid fafsa applicants with a score of zero efc rank as first choices then by score on their community involvement and responses in the application the purpose of c is to grant to deserving dependent_children of d employees scholarships that will enable such individuals to commence or continue their studies at educational institutions you will award scholarships on an objective and nondiscriminatory basis applicants must - be dependent_children eg claimed by employee of federal tax_return of active regular full-time or part-time d employees with at least six months of service prior to march of the year in which the scholarship is to be awarded must be employed within the us and its territories letter catalog number 58264e - be either seniors those graduating high school those receiving a home school diploma or those receiving a ged equivalency - have plans to attend a two or four year accredited college or university approved by you and the us department of education - have a cumulative high school grade point average of or higher - demonstrate financial need by required documents such as tax documents - be a us citizen or permanent legal resident of the us - complete and submit and online application - submit high school transcripts showing grades and grade point average through first half of senior year along with t a federal student aid report sar government military academies and college courses taken for high school credit are not eligible for this award scholarships will be y dollars per school year and no recipient may receive more than z dollars over a four year period scholarships under this program are for a fixed amount and do not vary scholarships are renewable on a semi-annual basis upon showing proof by the recipient of continued eligibility and good standing at the institution you will award scholarships to or fewer of the eligible applicants considered by the selection committee as described in revproc_76_47 applicants will qualify for an initial first semester scholarship only if they are eligible as defined above and you will select recipients based on prior academic performance and financial need demonstrated by required documents you measure financial need by applying the estimated family contributor efc definition used in the free application_for federal student aid fafsa and will rank applicants with zero efc then by grade point average you will publicize your programs through a variety of media including the following internal company magazine home_office and store signage saturday morning meetings your website newsletters internal communications to market and regional managers and major scholarship websites persons serving as an officer or director of g or an officer or director of you and all family members of any such person are not eligible to apply for or receive a scholarship under the terms of an agreement for both programs you will make payments to g to fund scholarships for the employees and children of the employees of d g will - prepare and furnish application forms - receive all applications - determine the recipients and amount to be awarded when applicable - notify non-winners and winners of the award - confirm enrollment in an educational_institution - make payment of the award directly to the institute - supervise and investigate the use and any misuse of the grant funds letter catalog number 58264e g will select recipients utilizing the selection criteria provided by you whereby each candidate is evaluated based on the criteria for each program described above g has the authority to decrease but not increase the number or awards granted you will have access to the online application report portal for standard reports in addition g will issue the following reports to you - scholar spreadsheet prior to when scholars are notified - scholar spreadsheet of winners to d’s program managers - winner spreadsheet for publication to d facilities - monthly reconciliation report - occasional reports on items such as student retention you will assume responsibility for the following - specification of the eligibility guidelines - providing database of d facility information and updates as needed - promoting the programs - providing corporate style guidelines you represent that through g you will complete the following - arrange to receive and review reports annually and upon completion of the selection process - investigate diversion of funds from their intended purposes - take all reasonable and appropriate steps to recover the diverted funds and ensure other funds held are used for their intended purposes - withhold further payments until you obtain assurances that future diversions will not occur and that recipients will take extraordinary precautions to prevent future diversion from occurring you represent that through g you will maintain the following all records relating to individual scholarships including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of scholarships described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii catalog number 58264e letter revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that e e e the number of awards to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible were applicants and were considered by the selection committee or the number of awards to employees’ children in any year won’t exceed percent of the number of employees’ children who were eligible whether or not they submitted an application or the number of awards to employees in any year will not exceed percent of the number of employees who were eligible were applicants and were considered by the selection committee you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 when applying the percent test applicable to employees’ children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written_statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular e e e an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures do not differ significantly from those described in your original request letter catalog number 58264e e e e e e e this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you and cannot be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals are made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we have sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58264e


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list sec_408 - iras jan - legend taxpayer a company m company n amount p ira x roth_ira y roth_ira z dear ms this is in response to a ruling_request dated date as supplemented by additional correspondence dated date in which you request relief under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations regulations the following facts and representations have been submitted taxpayer a maintained a traditional individual_retirement_account ira x with company m on iam to a roth_ira ira y maintained with company m at the time of the she converted ira x with a value of amount p conversion taxpayer a was married and expected to have a modified_adjusted_gross_income in of the internal_revenue_code code and to file a joint tax_return with her spouse of taxpayer a transferred roth_ira y to roth_ira z with company n jlimit specified in sec_408a below the eee during the preparation of taxpayer a'siammm federal_income_tax return it was decided that she should file married_filing_separately as a result of filing married_filing_separately taxpayer a was informed by her tax preparer that she was not eligible to convert her traditional_ira to a roth_ira taxpayer a immediately contacted a representative of company n and began the recharacterization process due to the fact that neither taxpayer a nor the representative of company n knew of thei deadline to recharacterize roth_ira z back to a traditional_ira the recharacterization did not occur as of the date of this request to the best of taxpayer a’s knowledge the internal_revenue_service service has not discovered taxpayer a’s failure to make the election to recharacterize roth_ira z to a traditional_ira based on the foregoing facts and representations you have requested the following ruling that pursuant to sec_301_9100-1 and sec_301_9100-3 of the regulations taxpayer a is granted a period not to exceed days from the date of this ruling letter to make an election under sec_1_408a-5 of the federal_income_tax regulations i t regulations to recharacterize taxpayer a’s roth_ira z to a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations code sec_408a and sec_1_408a-5 of the i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira ina recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax return for the year of contributions sec_1_408a-5 question and answer-6 of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer - code sec_408a provides in relevant part that a married individual filing a separate_return is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the t regulations provides in summary that if an individual is married he or she is permitted to convert an amount to a roth_ira during a taxable_year only if the individual and the individual’s spouse file a joint tax_return during that taxable_year sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if the taxpayer's request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section sec_301_9100-3 of the regulations indicates that the interests of the government are prejudiced if granting relief will result in a taxpayer or taxpayers if more than one taxpayer is affected by the tax consequences of the election having a lower tax_liability in the aggregate for all years to which the election applies than the taxpayer or taxpayers if more than one is affected would have had if the election had been made on a timely basis when a taxpayer is unable to meet the requirements of sec_301_9100-2 of the regulations for an automatic_extension of time to make an election as is the case here sec_301_9100-3 indicates that relief will be granted if the taxpayer provides evidence establishing that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government in this case taxpayer a was ineligible to convert her traditional_ira x to roth_ira y ini since she was married and did not file a joint tax_return for taxpayer a's decision to file married_filing_separately was not made until after taxpayer a converted ira x to roth_ira y taxpayer a was unaware of the filed this requirements of sec_1_408a-5 of the i t regulations taxpayer a request for sec_301 relief after timely filing her tax_return finally prior to taxpayer a filing this request for relief under sec_301_9100-1 and sec_301_9100-3 the service had not discovered taxpayer a's ineligibility to convert ira x to roth_ira y federal income with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to in addition we believe that recharacterize your roth_ira as a traditional_ira granting relief will not prejudice the interests of the government specifically the service has concluded that you have met the requirements of clause i of sec_301_9100-3 of the regulations therefore you are granted a period of days from the date of the issuance of this letter_ruling to recharacterize your roth_ira z as a traditional_ira no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is based on the assumption that ira x and roth iras y and z meet the requirements code sec_408 and sec_408a where applicable respectively at all relevant times this ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited by others as precedent should you have any questions concerning this letter_ruling please contact se t ep ra t1 at sincerely yours carlton a watkins manager employee_plans technical group enclosures deleted copy of the ruling notice


internal_revenue_service number release date index number -------------------- ----------------------------- --------------------------------------- ---------------------------------------- re -------------------------------------- legend department of the treasury washington dc person to contact -------------------------- id ------------- telephone number --------------------- refer reply to cc psi b09 - plr-157475-03 date date ------------------------------------------------------------------------ ------------------- ---------------------- ----------------------------- ------------------------------ ------------------------- ------------------------- ---------------------------- taxpayer taxpayer date trust ----------------------------------------------------------------------------------------------------------------- stock x daughter son-in-law year date year date trust ------------------------------------------------------------------------------------------------------------- son daughter-in-law date -------------------------------- ----------------------------- -------------------------- ---------------------- ---------------------- ------- ------- ------------------------------------------------------------------------ plr-157475-03 year date year date dear ---- -------------- ------- ------------------ ------- -------------------------- this is in response to your letter of date and subsequent correspondence requesting an extension of time under ' of the procedure and administration regulations and ' g of the internal_revenue_code to make allocations of taxpayer’s generation-skipping_transfer gst tax exemption the facts and representations submitted are summarized as follows on date taxpayer established trust a grantor_retained_income_trust on the same day taxpayer transferred shares of stock x to the trust no other additions were made to trust after date article ii paragraph of trust provides in part that during the period that ends on the date of taxpayer’s death or five years after the date of execution of the trust agreement whichever occurs first the trustee shall pay to taxpayer the entire net_income of the trust fund article ii paragraph provides in part that in the event taxpayer dies prior to the expiration of five years after the execution of the trust the trustee shall distribute the then remaining principal and accrued income of the trust to the personal representative of taxpayer’s estate to be administered as a part thereof article ii paragraph provides in part that in the event that that taxpayer is living five years after the date of execution of the trust agreement the trustee shall on such date set apart the then remaining principal of the trust fund to constitute a separate trust for the primary benefit of daughter and son-in-law until the death of the survivor of daughter and son-in-law the trustee shall pay the entire net_income of the trust to daughter and son-in-law in equal shares or if only one is surviving to the survivor of them provided however that the trustee may withhold all or any part of the net_income and may either distribute the withheld income among daughter’s children in such proportions as the trustee deems advisable or accumulate the withheld income and add it to principal the trustee shall also pay to any of daughter son-in-law and daughter’s children so much of the principal of the trust as the trustee deems advisable upon the death of the survivor of daughter and son-in-law the then remaining principal and accrued income of the trust shall be allocated among the then surviving issue of daughter per stirpes or if none to taxpayer’s then surviving issue per stirpes plr-157475-03 taxpayer filed a form_709 united_states gift and generation-skipping_transfer_tax return for year on the form_709 which was prepared and filed by taxpayer’s tax advisors taxpayer reported the date transfer to trust however taxpayer’s tax advisors inadvertently failed to allocate any of taxpayer’s gst_exemption to that transfer taxpayer’s interest in trust terminated on date taxpayer did not file a form_709 for year or otherwise allocate any of her gst_exemption to trust on date taxpayer created trust an irrevocable_trust for the benefit of son and his descendants article iv of trust provides in part that son and his children shall have the right to withdraw from the trust during each calendar_year in which a contribution is made to the trust an amount determined by dividing the amount of contribution by three provided however that the amount of withdrawal by son or any of his children during any calendar_year shall not exceed the amount of ten thousand dollars article v provides in part that during son’s lifetime the trustee shall pay to son the entire net_income of the trust provided however that the trustee may withhold all or any part of the net_income and may either distribute the withheld income among son’s children in such proportions as the trustee deems advisable or accumulate the withheld income and add it to principal the trustee shall also pay to any of son and son’s children such portion of principal as the trustee deems advisable upon son’s death the then remaining principal and accrued income of the trust shall be allocated among the then surviving issue of son per stirpes or if none to daughter-in-law if she is then surviving or if she is not then surviving to taxpayer’s then surviving issue per stirpes in date taxpayer transferred shares of stock x to trust taxpayer filed a form_709 for year on the form_709 which was prepared and filed by taxpayer’s tax advisors taxpayer reported the date transfer to trust however taxpayer’s tax advisors inadvertently failed to allocate any of taxpayer’s gst_exemption to that transfer in date taxpayer transferred additional shares of stock x to trust no additions were made to trust after date taxpayer’s tax advisors prepared and filed a year form_709 on which the date transfer to trust was reported however taxpayer’s tax advisors inadvertently failed to allocate any of taxpayer’s gst_exemption to that transfer taxpayer died on date taxpayer’s estate now requests an extension of time under sec_2642 and sec_301_9100-3 to make allocations of taxpayer’s gst_exemption to the transfers made to trust and trust during taxpayer’s lifetime plr-157475-03 sec_2601 imposes a tax on every generation-skipping_transfer a generation- skipping transfer is defined under ' a as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under ' c that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst_exemption under ' a may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in ' f if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by ' b or is deemed to be made under ' b or c the value of such property for purposes of ' a shall be its value as finally determined for purposes of chapter within the meaning of ' f or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period etip its value at the time of the close of the etip and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an etip on and after the close of such etip sec_2642 provides generally that except as provided in regulations for purposes of determining the inclusion_ratio if an individual makes an inter_vivos transfer of property and the value of such property would be includible in the gross_estate of such individual under chapter if such individual died immediately after making such transfer other than by reason of sec_2035 any allocation of gst_exemption to such property shall not be made before the close of the etip and the value of such property shall be determined under sec_2642 sec_2642 provides that in the case of any property to which sec_2642 applies the value of such property shall be its value for purposes of chapter if such property is includible in the gross_estate of the transferor other than by reason of sec_2035 or if such property is not includible in the gross_estate of the transferor its value as of the close of the etip or if any allocation of gst_exemption to such property is not made on a timely filed gift_tax_return for the calendar_year in which such period ends its value as of the time such allocation is filed with the secretary sec_2642 provides that for purposes of sec_2642 the term estate_tax_inclusion_period means any period after the transfer described in sec_2642 during which the value of the property involved in such transfer would be includible in the gross_estate of the transferor under chapter if he died such period shall in no event plr-157475-03 extend beyond the earlier of the date on which there is a generation-skipping_transfer with respect to such property or the date of the death of the transferor sec_26_2632-1 provides in part that where an allocation has not been made prior to the termination of the etip an allocation is effective at the termination of the etip during the transferor’s lifetime if made by the due_date for filing a form_709 that would apply to a taxable gift occurring at the time the etip terminates timely etip return sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in ' b or and an election under ' b or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of ' g which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under ' g b the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in ' b or b or an election described in ' b or c under the provisions of ' sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under ' b a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with ' g b and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in ' b or b or an election described in ' b or c under the provisions of ' plr-157475-03 requests for relief under ' will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied therefore the personal representative of taxpayer’s estate is granted an extension of time of days from the date of this letter to make allocations of taxpayer s gst_exemption with respect to the transfers to trust and trust the allocation to trust will be effective as of date the time of the close of the etip and the value of trust on date will be used in determining the amount of gst_exemption to be allocated to trust the allocations to trust will be effective as of the dates of the transfers and the gift_tax values of the transfers to trust will be used in determining the amount of gst_exemption to be allocated to trust except as specifically ruled herein we express or imply no opinion on the federal the allocation to trust should be made on a form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh the allocations to trust should be made on supplemental form sec_709 and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to each form_709 and supplemental form_709 copies of the letter are enclosed for this purpose tax consequences of the transaction under the cited provisions or under any other provisions of the code letter is being sent to the taxpayer provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer requesting it sec_6110 the rulings contained in this letter are based upon information and plr-157475-03 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of letter copy for purposes


sel tep rat department of the treasury internal_revenue_service tax_exempt_and_government_entities_division washington d c jun uniform issue list legend taxpayer a plan b ira c bank d amount amount amount amount amount amount dear this letter is in response to a request for a in which you request a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code code regarding the distribution of amount from plan c letter_ruling dated date the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution of amount from plan b taxpayers a asserts that her failure to accomplish a rollover of amount within the 60-day period prescribed by sec_402 was due to her medical_condition and incarceration taxpayer a further represents that with the exception of amount amount has not been used for any purpose taxpayer a became divorced from her husband in august taxpayer a’s divorce settlement provided that she would receive amount approximately of her husband's account balance in the plan b on date taxpayer a received a disbursement of amount from plan b federal taxes of amount were withheld from amount resulting in a check for amount taxpayer a’s 60-day rollover period was date to date taxpayer a used amount for the filing expense related to the waiver request on date taxpayer a deposited amount d into ira c with bank coinciding with the payment of amount taxpayer a experienced a fragile mental state due to depression injuries suffered in an automobile accident and excess alcohol on six separate occasions between november and january taxpayer a was hospitalized for severe depression and alcohol abuse in addition taxpayer a committed a crime and was incarcerated for days from january through date during the rollover period she was unable to manage her financial affairs after the rollover period taxpayer a is incarcerated for more days beginning on date the ruling_request is accompanied by documentation of her medical problems and incarceration based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_402 of the code with respect to the distribution of amount sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account ira constitutes one form of eligible_retirement_plan sec_402 of the code provides that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 and sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount was due to her medical problems and incarceration which interfered with the management of her financial affairs therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from plan c provided all other requirements of sec_402 of the code except the 60-day requirement were met with respect to taxpayer a's contribution of amount into ira c on date such contribution will be considered a rollover_contribution within the meaning of sec_402 of the code in addition taxpayer a is granted a period of days from the issuance of this letter_ruling to transfer amount into a rollover ira provided all other requirements of sec_402 of the code except the 60-day requirement are met with respect to such contribution the contribution will be considered a rollover_contribution within the meaning of sec_402 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact i d at or sincerely yours manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice