t c memo united_states tax_court joseph wages and jennifer g wages petitioners v commissioner of internal revenue respondent docket no filed date h operated bail bonding and towing businesses throughout tax years and in connection with his bail bonding business h made payments into a surety’s indemnity fund deductions for which r denied for tax years and r also changed ps’ accounting_method requiring the inclusion in income of the indemnity fund’s balance as of date with respect to h’s business activities ps also claimed deductions for tax years and which r denied for car and truck expenditures office expenditures insurance subcontractors cost_of_goods_sold depreciation and supplies r’s further adjustments to ps’ tax items for the and tax years are not in dispute held r’s adjustments are sustained because ps have failed to prove by a preponderance_of_the_evidence that the determinations in the notice_of_deficiency are incorrect james g mcgee jr and william h webb for petitioners edwin b cleverdon brooke w patterson john f driscoll and horace crump for respondent memorandum opinion laro judge this case arises out of respondent’s adjustments to petitioners’ returns for the and tax years the case was submitted fully stipulated for decision without trial see rule respondent determined deficiencies in petitioners’ federal_income_tax as well as additions to tax and penalties under sec_6651 and sec_6662 respectively for the taxable years and in the amounts as follows additions to tax penalties year deficiency sec_6651 sec_6662 dollar_figure big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioners have conceded all adjustments along with the general applicability of the additions to tax under sec_6651 and penalties under sec_6662 sec_1unless otherwise indicated section references are to the internal_revenue_code applicable for the years in issue rule references are to the tax_court rules_of_practice and procedure except that they dispute respondent’s change to their method_of_accounting and his disallowance of certain claimed deductions after petitioners’ concessions we decide these remaining issues whether petitioners may deduct for tax years and payments made to an indemnity fund maintained with respect to joseph wages’ bail bonding activity we hold that they may not whether respondent properly changed petitioners’ accounting_method with respect to mr wages’ indemnity fund related to his bail bonding activity resulting in additional income for tax_year we hold that he did whether petitioners have substantiated their claimed deductions for car and truck expenditures office expenditures insurance subcontractors cost_of_goods_sold depreciation and supplies for tax years and with respect to mr wages’ bail bonding activity we hold that they have not i overview background the parties submitted this case fully stipulated under rule the court subsequently ordered the parties to file simultaneous opening and answering briefs respondent filed two briefs petitioners opted to file only an opening brief the stipulations of facts and settled issues are incorporated herein petitioners are residents of mississippi this case is appealable to the court_of_appeals for the fifth circuit absent stipulation of the parties to the contrary ii mr wages’ business activities while the court left the record in this case open for a month and a half after the parties’ submission of their first stipulation of facts no supplemental stipulation of facts followed during that time one was filed later solely to introduce evidence of the petition’s timely mailing nor has either party moved to enter any substantive evidence beyond the agreed-upon statements in the first stipulation of facts and the stipulation of settled issues accordingly we must render our decision on the basis of the record before us limited as it may be the record shows that during the years at issue mr wages operated bail bonding and towing businesses to which respondent’s adjustments relate as part of his bail bonding business mr wages made certain payments to an indemnity fund furthermore he claims to have incurred various expenses which petitioners sought to deduct on their federal_income_tax returns and which to the extent they remain disputed are enumerated below in the course of his bail bonding and towing businesses iii petitioners’ tax returns petitioners admit that they neglected to file timely their federal_income_tax returns for the years in issue their return was due on date but was filed on date their return was due on date but was filed on date and their return was due on date but was filed on date petitioners’ tax returns have not been entered into the record nor have the parties stipulated the content thereof nonetheless from the pleadings we gather that petitioners filed schedules c profit or loss from business on which they claimed deductions for the various expenses at issue here mr wages aggregated the income and expenses for his two businesses on a single schedule c for each of the tax years and petitioners attached a separate schedule c for jennifer wages to their federal_income_tax return which they admit now to having been done in error iv respondent’s adjustments and petitioners’ concessions respondent on date issued a notice_of_deficiency to petitioners with respect to their income_tax liabilities for tax years and as we noted above petitioners have conceded some of respondent’s adjustments we concern ourselves with only those that remain disputed respondent determined that payments into an indemnity fund in connection with mr wages’ bail bonding business were not currently deductible thus respondent adjusted other income upward on mr wages’s schedule c by changing petitioners’ accounting_method and including in income the dollar_figure balance of the indemnity fund as of date thereby offsetting all previous deductions petitioners had claimed with respect to that indemnity fund furthermore respondent adjusted upward insurance on mr wages’ schedule c by dollar_figure other expenses on mr wages’ schedule c by dollar_figure and other expenses on mr wages’ schedule c by dollar_figure the parties agree that the amounts at issue are accurate but dispute the legal question of whether petitioners are entitled to claim current deductions for amounts paid to the indemnity fund in addition to his denial of a deduction for the indemnity fund payments respondent disallowed several of petitioners’ claimed schedule c expense deductions on the grounds that petitioners failed to establish that the amounts were ordinary and necessary business_expenses were expended for the purposes designated and were substantiated as required by sec_274 respondent also disallowed petitioners’ claimed depreciation_deductions on the grounds that petitioners failed to establish that any property was depreciable or used in a trade or business or that they had a cost or other basis in it thus respondent made the following disputed upward adjustments to the schedule c items for the tax years specified item car truck expenses office expenses insurance_contract labor cogs-- purchases depreciation supplies dollar_figure big_number -0- big_number -0- -0- -0- dollar_figure -0- big_number -0- big_number big_number -0- dollar_figure -0- big_number big_number -0- big_number big_number petitioners claim that although they do not have all the underlying records with respect to these expenses the stipulated documentation in this case is sufficient to support deductions for them the parties further agree that the adjustments in the notice_of_deficiency relating to self-employment_tax the deduction for self-employment_tax exemptions and the net_operating_loss carryforward are automatic and subject_to change based on the substantive adjustments in this case the parties concur that the penalties under sec_6662 and the additions to tax under sec_6651 apply as indicated in the notice_of_deficiency v timeliness of petition the last day for petitioners to file a petition with the court was date the petition signed by petitioners’ counsel and dated date was received and filed by the court in the morning of date the envelope in which the petition arrived bore stamps com postage and a certified mail sticker with a tracking number there was no postmark however and since the court received the petition after the date prescribed for filing it the court sua sponte raised the question of its jurisdiction under sec_6213 to decide the case unless petitioners could show that they timely mailed their petition they could not avail themselves of the sec_7502 mailbox rule which allows a timely mailed document to be treated as timely filed notwithstanding initial difficulties in finding evidence of their timely mailing of the petition petitioners eventually found a certified mail receipt and the corresponding return receipt each bearing a tracking number corresponding to that on the envelope in which the petition was mailed the certified mail receipt bore a u s postal service postmark dated date which under sec_301_7502-1 proced admin regs is treated as the postmark date of the mailed document the parties jointly stipulated the validity of the certified mail receipt and further stipulated that it shows that petitioners timely filed their petition thus we conclude that the petition was contained in a properly addressed envelope was deposited within the prescribed time in the mail in the united_states with sufficient postage prepaid and bore a constructive postmark as evidenced by the u s postal service postmark on the certified mail receipt see sec_301_7502-1 and proced admin regs accordingly petitioners have established the mailbox rule’s applicability to their case see sec_7502 and borne their burden of proving that we have jurisdiction thereover see 114_tc_268 aff’d 22_fedappx_837 9th cir i overview discussion generally the commissioner’s determination of a taxpayer’s liability for an income_tax deficiency is presumed to be correct and the taxpayer bears the burden of proving the determination improper by a preponderance_of_the_evidence see rule a 290_us_111 deductions are a matter of legislative grace and the taxpayer must prove his entitlement to any deductions claimed 503_us_79 taxpayers are obligated to maintain sufficient records to substantiate expenses underlying their claimed deductions sec_6001 ii petitioners’ proposed findings_of_fact petitioners have asserted a number of facts in their brief petitioners’ proposed findings_of_fact explain the indemnity fund arrangement between mr wages’ bail bonding business and the surety for which it was acting as an agent the proposed findings_of_fact further allege that an independent_contractor appointed by petitioners as their agent with respect to the bail bonding business who took over the daily operations of the business after mr wages suffered a stroke stole petitioners’ records and established a competing bail bonding business petitioners state that they have initiated a lawsuit against the former contractor in the circuit_court for rankin county mississippi respondent objects to most of petitioners’ proposed findings_of_fact on two grounds first that petitioners failed to comply with rule e which requires that each finding of fact cite the pages of the transcript or the exhibits or other sources relied upon to support the statement and second that the asserted facts are allegations not supported by the record before the court we agree with respondent the record in this case notwithstanding the court’s holding it open for a month and a half after the parties’ submission of their first stipulation of facts is barren whatever facts have been established we recite in the background section of this opinion petitioners’ remaining proposed findings_of_fact find no support in the record there are no stipulations exhibits or any other sources corroborating them outside unsworn statements made in petitioners’ petition pretrial memorandum and brief thus we must accept the limited record in this case as it stands and decide the disputed issues accordingly iii deductibility of payments to indemnity fund the parties agree that mr wages made payments to an indemnity fund in the course of his bail bonding business respondent disallowed the current deduction thereof in the amounts of dollar_figure for dollar_figure for and dollar_figure for a the parties’ arguments in support of his disallowance of petitioners’ deductions respondent cites 93_tc_220 in which this court held that payments by a bail bondsman into an indemnity fund maintained by the surety for which he is an agent are deposits to secure payment of future liabilities and are not deductible until the insurance_company draws from the account to satisfy a specific liability see also eg zweifel v commissioner tcmemo_2012_93 since the record in this case does not indicate that amounts paid into the indemnity fund have qualities or characteristics different from those in sebring respondent argues petitioners are unable to satisfy their burden_of_proof on this issue petitioners rest their argument on a different theory they contend that the indemnity fund is controlled by a third-party surety and mr wages’ bail bonding business has no right to funds within the indemnity account except insofar as a liability for which the business must indemnify the surety is discharged petitioners maintain that because the business has no control_over or access to the funds nor an expectation of their reacquisition the amounts remitted to the fund should be deductible when paid petitioners further argue that should mr wages’ bail bonding business reacquire any sums from the indemnity fund in the future those amounts should be recaptured in that year’s gross_receipts under the tax_benefit_rule codified in sec_111 respondent disagrees with petitioners’ theory first he points out that petitioners’ argument rests on allegations that are not part of the evidentiary record in the case and thus petitioners have not sustained their burden_of_proof second respondent argues that the tax_benefit_rule requires the inclusion in income only of a recovered amount for which the taxpayer had received a tax_benefit in a prior year see 460_us_370 and does not support a claim for any type of deduction sec_111 respondent asserts ensures only that the liability resulting from the tax_benefit_rule does not exceed the benefit received in a prior year it authorizes no deduction b petitioners’ burden_of_proof we agree with respondent that petitioners have failed to satisfy their burden_of_proof as we observed above the burden is on the taxpayer to prove by a preponderance_of_the_evidence that the notice_of_deficiency is incorrect see rule a welch v helvering u s pincite petitioners have adduced no evidence in support of their theory that respondent improperly denied their deductions for payments into an indemnity fund in and they have introduced nothing into the record that would allow the court to scrutinize the arrangement between mr wages’ bail bonding business and the third-party surety or the nature of the indemnity fund to which the payments were remitted since petitioners have failed to satisfy their burden_of_proof we need not reach the substantive legal question of the timing of deductions for payments by a bail bonding agent to an indemnity fund because we are unable to conclude that respondent’s denial of petitioners’ deductions for the indemnity fund payments was improper we sustain his determination iv change_of petitioners’ accounting_method in the notice_of_deficiency respondent changed petitioners’ accounting_method to include in income the dollar_figure balance of the indemnity fund as of date this change offset previous deductions petitioners had claimed with respect to payments remitted to the indemnity fund a the parties’ arguments respondent points out that he has the authority under sec_446 and sec_481 to change a taxpayer’s method_of_accounting he also cites rankin v commissioner tcmemo_1996_350 aff’d 138_f3d_1286 9th cir for the proposition that the change in treatment of amounts accumulated in a bail bond indemnity fund before the years in issue in that case was a proper change in method_of_accounting because the change affected only the timing of inclusion and not its ultimate fact see also firetag v commissioner tcmemo_1999_ aff’d without published opinion 232_f3d_887 4th cir since the record in this case includes no indication that the indemnity fund had any characteristics different from those of the fund in rankin respondent contends petitioners are unable to satisfy their burden_of_proof on this issue petitioners in their petition asserted that because respondent’s audit and resultant notice_of_deficiency pertained only to tax years and and the limitations periods for previous tax years had expired the change in accounting_method violated petitioners’ procedural due process rights and was an attempt by respondent to circumvent the statute_of_limitations however petitioners failed to advance any argument on the accounting_method change in their pretrial memorandum or their brief b petitioners’ burden_of_proof from petitioners’ failure in their pretrial memorandum and brief to argue the accounting_method change separately from respondent’s disallowance of their claimed deductions for the indemnity fund remittances we infer that they have abandoned their due process and statute_of_limitations theories since petitioners have abandoned their separate arguments on the change_of_accounting_method and since they have adduced no evidence with respect to it we find that they have failed to carry their burden_of_proof with respect to this adjustment see rule a welch v helvering u s pincite accordingly we sustain respondent’s change_of petitioners’ accounting_method v deductions for claimed expenses respondent disallowed the deduction for tax years and of certain expenses for car and truck office insurance subcontractors cost of goods sold depreciation and supplies the denied deductions totaled dollar_figure for tax_year dollar_figure for tax_year and dollar_figure for tax_year a the parties’ arguments respondent argues that while sec_162 generally allows for the deduction of ordinary and necessary trade_or_business_expenses and while sec_167 generally provides a depreciation deduction for the exhaustion wear_and_tear of property used in a trade_or_business petitioners have failed to substantiate their expenses in this case respondent points out that taxpayers are required to maintain sufficient records to establish their tax_liability see sec_6001 65_tc_87 aff’d 540_f2d_821 5th cir and that self-serving declarations generally are not a sufficient substitute for records weiss v commissioner tcmemo_1999_17 wl at respondent also draws the court’s attention to sec_274 which imposes strict substantiation rules for certain trade_or_business_expenses including those for_the_use_of most motor vehicles in sum respondent contends that the record in this case contains no documentation or substantiation of petitioners’ claimed expenses or depreciation_deductions and that petitioners therefore are unable to satisfy their burden_of_proof on this issue for their part petitioners assert that through no fault of theirs a third party took their records and that this entitles them to reconstruct their records to substantiate the deductions claimed petitioners point to sec_1_274-5t temporary income_tax regs fed reg date which allows taxpayers to substantiate deductions by reasonable reconstruction w here the taxpayer establishes that the failure to produce adequate_records is due to the loss of such records through circumstances beyond the taxpayer’s control such as destruction by fire flood earthquake or other_casualty petitioners further argue that under 39_f2d_540 2d cir taxpayers when unable to produce records of actual expenditures may rely on reasonable estimates provided that there is some factual basis therefor petitioners assert that during examination they provided reconstructed records to respondent that should amply satisfy their burden to substantiate their claimed deductions respondent in his answering brief points out that the cohan_rule allows the court to approximate the amount of an allowable deduction where a taxpayer has established that he paid_or_incurred a deductible business_expense but does not establish its amount however the rule applies only where there is sufficient evidence in the record to provide a basis for the estimate see 85_tc_731 and while sec_1 5t c temporary income_tax regs supra allows taxpayers to substantiate deductions by reasonable reconstruction respondent urges that the cohan_rule does not apply to the items required to be substantiated under sec_274 respondent argues that the record contains no evidence supporting the claimed deductions it is irrelevant what documentation petitioners provided to respondent during the underlying examination respondent contends because under 62_tc_324 the court considers issues de novo on the basis of the record immediately before it b substantiation of petitioners’ deductions we agree with respondent and find that petitioners have not substantiated their reported expenses as we took pains to note above the record in this case is sparse petitioners have presented nothing to the court to establish either the fact of their payment of the expenses in question or the amounts thereof petitioners urge us to apply the cohan_rule to find in their favor it is true that under cohan v commissioner f 2d pincite if a taxpayer claims a deduction or tax_credit but cannot fully substantiate the underlying expense the court may approximate the allowable_amount bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of his own making however the court must have some basis upon which to make its estimate else the allowance would amount to unguided largesse green gas del statutory tr v commissioner 147_tc_1 citing 245_f2d_559 5th cir and vanicek v commissioner t c pincite petitioners claim to have provided voluminous reconstructed records to respondent during examination yet none of these records have been provided to the court as respondent correctly noted this court does not look behind a notice_of_deficiency to examine the evidence used proceedings herein are de novo and based on the merits of the case and not on any previous record developed at the administrative level greenberg’s express inc v commissioner t c pincite- whether petitioners provided any substantiating documents to respondent at the examination stage is immaterial to the extent they wished us to consider their records be they original or reconstructed petitioners should have sought to enter them into the record before this court they had ample time but failed to do so in the absence of any evidence before us we cannot apply cohan to estimate petitioners’ expenses because we have no basis upon which to make such an approximation all we have before us are petitioners’ unsubstantiated claims in their petition brief and other filings that they incurred certain expenses these unsupported statements are insufficient to justify even the roughest estimate of petitioners’ true expenses we therefore agree with respondent that petitioners have failed to satisfy their burden_of_proof see rule a welch v helvering u s pincite and sustain his deficiency determinations vi additions to tax and penalties sec_6651 imposes an addition_to_tax for failure_to_file a required return unless such failure was due to reasonable_cause and not willful neglect sec_6662 imposes a accuracy-related_penalty on underpayments of tax by reason of negligence or disregard of rules or regulations a substantial_understatement_of_income_tax or a substantial_valuation_misstatement among other grounds specified in sec_6662 in addition to deficiencies for tax years and respondent determined an addition_to_tax under sec_6651 and a penalty under sec_6662 for each of those years the parties stipulated that t he penalties under sec_6651 and sec_6662 as indicated in the notice_of_deficiency are applicable petitioners on brief argued that because their claimed deductions were proper the court should abate the accuracy-related_penalties determined against them under sec_6662 we infer from the parties’ stipulation that in the event we hold against petitioners on their claimed deductions they concur that the additions to tax and the penalties were imposed correctly we have held respondent’s determinations of petitioners’ deficiencies for each of the tax years at issue to be correct accordingly the additions to tax and penalties under sec_6651 and sec_6662 respectively apply vii conclusion petitioners’ claims that mr wages suffered a stroke and his former associate purloined his records if true paint a tragic tale regrettably there is no evidence in the record before us to substantiate either these claims or petitioners’ claimed expense deductions nor is there sufficient evidence to justify petitioners’ claimed deductions of indemnity fund contributions thus we must find that petitioners have failed to satisfy their burden of proving by a preponderance_of_the_evidence that the notice_of_deficiency is incorrect we have considered all of the parties’ arguments and to the extent not discussed above conclude that those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index numbers ----------------------- -------------------------------------- --------------------------------------- ----------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no -------------- telephone number ---------------------- refer reply to cc corp b06 plr-138582-15 date date legend x ---------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------ gp1 -------------------- ------------------------------------------------- ------------------------ gp2 -------------------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------- lp1 ------------------------------------------------------------------------------ ------------------------------------------------------------ -------------------------------------------- lp2 ------------------------------------------------------------------------------ ------------------------------------------------------------ --------------------------------------------- lp3 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------ -------------------- plr-138582-15 target mlp ------------------------------------------------------------------------------ ------------------------------------------------------------ --------------------------------- new lp ------------------------------------------------------------------------------ ------------------------------------------------------------ --------------------------------------- business a ------------------------------------------------------------------ a ---- dear --------------------- this letter responds to your date letter requesting a significant issue ruling with regard to a proposed transaction the proposed transaction the material information submitted in that letter and subsequent correspondence is summarized below the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request_for_ruling verification of the information representations and other data may be required as part of the audit process this letter is issued pursuant to dollar_figure of revproc_2016_1 2016_1_irb_1 regarding one or more significant issues under sec_332 sec_351 sec_355 sec_368 or sec_1036 the ruling contained in this letter only addresses one or more discrete legal issues involved in the transaction this office expresses no opinion in this letter as to the overall tax consequences of the transaction described in this letter or as to any issue not specifically addressed by the ruling below summary of facts x is a publicly-traded limited_partnership gp1 a limited_liability_company is x’s general_partner x owns the general_partner interest incentive distribution rights idrs and a portion of the publicly traded limited_partner interests in lp1 additionally x owns a special class of lp1 partnership interests that track a percent of the economic attributes of the general_partner interest and idrs of lp2 a limited_partnership plr-138582-15 in addition to its ownership interests in lp2 lp1 also owns the general_partner interest idrs and limited_partner interests in lp3 a publicly traded limited_partnership lp1 lp2 and lp3 are publicly_traded_partnerships within the meaning of sec_7704 and are directly involved in business a proposed transaction x has been engaged in acquisition discussions with gp2 the corporate general_partner of target mlp an unrelated publicly traded limited_partnership engaged in business a x proposes in part to undertake the following transaction i ii iii the members of gp1 will form a new limited_partnership new lp which will elect to be taxed as a corporation for federal_income_tax purposes gp2 will merge into new lp with new lp surviving the merger new lp will contribute its newly acquired interests in target mlp to x in exchange for limited_partner interests of x the exchange x makes the following representations representations a immediately_after_the_exchange the total value of x’s direct ownership interests in target mlp will be more than percent of the total value of all equity interests outstanding in target mlp b at the time of the exchange there will be no plan in existence pursuant to which the total value of x’s direct ownership interests in target mlp will become less than percent of the total value of all equity interests outstanding in target mlp ruling based solely on the information submitted and representations set forth above we rule as follows provided that immediately_after_the_exchange x’s direct ownership interests in target mlp will represent percent or more of the total value of all target mlp equity interests x’s target mlp equity interests will be disregarded and x will be deemed to own its ratable share of target mlp’s assets for purposes of determining whether x is an investment_company under sec_351 plr-138582-15 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above ruling in particular no opinion is expressed on i the merger described in step ii above ii whether x’s ownership interests in target mlp will represent percent or more of the total value of all target mlp equity interests immediately_after_the_exchange and iii whether a plan exists at the time of the exchange pursuant to which x’s direct ownership interests in target mlp will represent less than percent of the total value of all of target mlp’s equity interests procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this letter may not be used or cited as precedent a copy of this letter must be attached to any federal information and income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the powers of attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _richard k passales__ richard k passales senior counsel branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ------------------------------------------ -------------------------------- ------------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-101217-07 date january --------------- ------------------------------------------------------ --------------------------------- legend taxpayer ----------------------------------------------------------- intermediate parent ------------------------------------------------------------ state commission act amount permanent rules order a order b director ----------------------------------------------------------------------------------- ---------- --------------------------------------------- -------------------- ------------- -------------------------------------------------------------- ----------------------------------- ----------------------------------- -------------------------------------------------------------------------------- ------------------------------------------------- dear --------------- this letter responds to the request dated date of taxpayer for a ruling on whether a rulemaking procedure in state under the act is consistent with the normalization rules under former sec_167 and sec_46 of the internal_revenue_code state in addition to other states taxpayer is an indirect subsidiary of intermediate and files a consolidated_return with parent the retail operations in state are subject_to the jurisdiction of commission with respect to rates and other conditions of service taxpayer is a vertically-integrated electric company serving retail customers in the representations set out in your letter follow state enacted the act providing for determining the tax element of cost of plr-101217-07 taxpayer’s rates are determined using a cost of service basis that allow taxpayer to earn a reasonable rate of return on rate base rate base is determined generally by reference to the original cost of the asset net of accumulated depreciation and adjusted for deferred taxes and other items the assets included in the rate base calculation are subject_to the depreciation and investment_tax_credit itc normalization rules set forth in sec_168 and former sec_167 and sec_46 service under a new method ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------- commission established permanent rules for implementing the act including procedures for determining what taxes were properly attributable to the regulated operations the methodology for calculating the amount of taxes authorized to be collected was set forth by commission in order a in general using data from the most recent rate case --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------- the determination of taxes properly attributed to the regulated operations is determined by ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-101217-07 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------- law and analysis sec_168 of the code provides that the depreciation deduction determined under sec_168 shall not apply to any public_utility_property within the meaning of sec_168 if the taxpayer does not use a normalization method_of_accounting in order to use a normalization method_of_accounting sec_168 of the code requires the taxpayer in computing its tax expense for establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account to use a method_of_depreciation with respect to public_utility_property that is the same as and a depreciation period for such property that is not shorter than the method and period used to compute its depreciation expense for such purposes under sec_168 if the amount allowable as a deduction under sec_168 differs from the amount that-would be allowable as a deduction under sec_167 using the method period first and last year convention and salvage_value used to compute regulated tax expense under sec_168 the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference sec_168 of the code provides that one way the requirements of sec_168 will not be satisfied is if the taxpayer for ratemaking purposes uses a procedure or adjustment which is inconsistent with such requirements under sec_168 such inconsistent procedures and adjustments include the use of an estimate or projection of the taxpayer's tax expense depreciation expense or reserve for deferred taxes under sec_168 unless such estimate or projection is also used for ratemaking purposes with respect to all three of these items and with respect to the rate base plr-101217-07 former sec_167 of the code generally provided that public_utilities were entitled to use accelerated methods for depreciation if they used a normalization method_of_accounting a normalization method_of_accounting was defined in former sec_167 in a manner consistent with that found in sec_168 sec_1 -1 a of the income_tax regulations provides that the normalization requirements for public_utility_property pertain only to the deferral of federal_income_tax liability resulting from the use of an accelerated method_of_depreciation for computing the allowance for depreciation under sec_167 and the use of straight-line_depreciation for computing tax expense and depreciation expense for purposes of establishing cost of services and for reflecting operating results in regulated books of account these regulations do not pertain to other book-tax timing differences with respect to state income taxes f i c a taxes construction costs or any other taxes and items sec_1_167_l_-1 of the regulations provides that the reserve established for public_utility_property should reflect the total amount of the deferral of federal_income_tax liability resulting from the taxpayer's use of different depreciation methods for tax and ratemaking purposes sec_1 -1 h iii of the regulations provides that the amount of federal_income_tax liability deferred as a result of the use of different depreciation methods for tax and ratemaking purposes is the excess computed without regard to credits of the amount the tax_liability would have been had the depreciation method for ratemaking purposes been used over the amount of the actual tax_liability this amount shall be taken into account for the taxable_year in which the different methods of depreciation are used sec_1 -1 h i of the regulations provides that the taxpayer must credit this amount of deferred taxes to a reserve for deferred taxes a depreciation_reserve or other reserve_account this regulation further provides that the aggregate amount allocable to deferred taxes may be reduced to reflect the amount for any taxable_year by which federal income taxes are greater by reason of the prior use of different methods of depreciation under sec_1 -1 h i or to reflect asset retirements or the expiration of the period for depreciation used for determining the allowance for depreciation under sec_167 former sec_46 of the code provides an election for ratable flow through under which an elector may flow through the investment_tax_credit to cost of service however former f a provides that no investment_tax_credit is available if the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by more than a ratable portion of the credit determined under former a and allowable by sec_38 also under former sec_46 no investment_tax_credit is available if the base to which the taxpayer's rate of return for ratemaking plr-101217-07 purposes is applied is reduced by reason of any portion of the credit determined under former a and allowable by sec_38 former sec_46 of the code provides that for purposes of determining ratable portions under former sec_46 the period of time used in computing depreciation expense for purposes of reflecting operating results in the taxpayer's regulated books of account shall be used under sec_1_46-6 of the regulations ratable for purposes of former sec_46 of the code is determined by considering the period of time actually used in computing the taxpayer's regulated depreciation expense for the property for which a credit is allowed regulated depreciation expense is the depreciation expense for the property used by a regulatory body for purposes of establishing the taxpayer's cost of service for ratemaking purposes such period of time shall be expressed in units of years or shorter periods units of production or machine hours and shall be determined in accordance with the individual useful_life or composite or other group asset account system actually used in computing the taxpayer's regulated expense a method of reducing is ratable if the amount to reduce cost of service is allocated ratable in proportion to the number of such units thus for example assume that the regulated depreciation expense is computed under the straight_line method by applying a composite annual percentage rate to original cost as defined for purposes of computing depreciation expense if cost of service is reduced annually by an amount computed by applying a composite annual percentage rate to the amount of the credit cost of service is reduced by a ratable portion if such composite annual percentage rate were revised for purposes of computing depreciation expense beginning with a particular accounting_period the computation of ratable portion must also be revised beginning with such period a composite annual percentage rate is determined solely by reference to the period of time actually used by the taxpayer in computing its regulated depreciation expense without reduction for salvage or other items such as over and under accruals the method prescribed by sec_1_46-6 of the regulations for determining whether the taxpayer's cost of service for ratemaking is reduced by more than a ratable portion of the investment_tax_credit depends upon correlating the credit with the regulatory depreciable useful_life actually used for the property that generated the credit that the correlation must remain constant and current is illustrated by the requirement that the ratable portion must be adjusted to reflect correspondingly any revision to the composite annual percentage rate applied for purposes of computing regulated depreciation expense ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-101217-07 --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------- is also consistent with the normalization requirements of sec_168 and former sec_167 and sec_46 because it simply adjust rates based on the calculations described above we note that this ruling is based on representations of the anticipated effects of the isolating provisions of the permanent rules and theoretical examples of how the provisions discussed herein are expected to apply thus its applicability is limited to situations in which the effects of accelerated_depreciation and itc-related tax benefits are isolated to ensure that the effects of these tax benefits on current and deferred taxes is consistent with the normalization requirements as represented while it appears that the act and permanent rules are designed to preclude violation of the normalization provisions this ruling does not hold that in its application no normalization violation is possible for any utility operating in state under these provisions this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter_ruling to the director sincerely peter c friedman senior technican reviewer branch passthroughs special industries cc


internal_revenue_service number release date index number --------------------------------- ------------------------------ ------------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number -------------------- refer reply to cc psi b01 plr-107684-10 date june legend x --------------------------------- -------------------------------- y ----------------------------------------------- -------------------------------- state ---------- d1 -------------------------- d2 --------------------- d3 ---------------------- dear ------------- this responds to the letter dated date and subsequent information submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code code for x to elect to be an s_corporation and requesting relief pursuant to sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to elect to treat y as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the code the information submitted states that x was incorporated under the laws of state on d1 x acquired all of the stock of y on d3 x represents that it intended to elect to be treated as an s_corporation for federal tax purposes on d2 and then elect to treat y its wholly owned subsidiary as a qsub effective d3 however due to inadvertence plr-107684-10 neither form_2553 election by a small_business_corporation nor form_8869 qualified_subchapter_s_subsidiary election was timely filed sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides that if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year sec_1361 provides that a qsub shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines a qsub as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qualified_subchapter_s_subsidiary sec_1_1361-3 of the income_tax regulations provides the time and manner for making a qsub election a taxpayer makes a qsub election with respect to a subsidiary by filing a form_8869 with the appropriate service_center sec_1 a provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the plr-107684-10 commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the facts and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be recognized as an s_corporation effective d2 a form_2553 along with a copy of this letter must be forwarded to the appropriate service_center within days from the date of this letter in addition based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to elect to treat y as a qsub effective d3 the election should be made by filing form_8869 with the appropriate service_center and a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion concerning whether x is in fact an s_corporation or whether y is eligible to be a qsub this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------------- --------------------- ------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- - telephone number ---------------------- refer reply to cc psi b04 plr-111624-19 date date in re ------------------------------------- legend decedent date spouse dear -------------- ------------------------ -------------------------- -------------------------- -------------------------- -------------------------- this letter responds to a letter dated date submitted on behalf of decedent’s estate requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election decedent’s estate is requesting to make an election under sec_2010 of the internal_revenue_code a portability election to allow a decedent’s surviving_spouse to take into account decedent’s deceased spousal unused exclusion dsue amount the information submitted for consideration is summarized below decedent died on date survived by spouse it is represented that based on the value of decedent’s gross_estate and taking into account any taxable_gifts decedent’s estate is not required under sec_6018 to file an estate_tax_return form_706 united_states estate and generation-skipping_transfer_tax return it is further represented that there is an unused portion of decedent’s applicable_exclusion_amount and that a portability election is required to allow spouse to take into account that amount the plr-111624-19 dsue amount a portability election is made upon the timely filing of a complete and properly prepared estate_tax_return unless the requirements for opting out are satisfied see sec_20_2010-2 of the estate_tax regulations for various reasons an estate_tax_return was not timely filed and a portability election was not made after discovery of this decedent’s estate submitted this request for an extension of time under sec_301_9100-3 to make a portability election law and analysis 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_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 provides the basic exclusion amount available to the estate of every decedent an amount to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-111624-19 sec_20_2010-2 provides that the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been obtained under sec_20_2010-2 an extension of time under sec_301_9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate_tax_return under sec_6018 as determined solely based on the value of the gross_estate and any adjusted_taxable_gifts and without regard to sec_20_2010-2 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards the commissioner will use 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 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 in this case based on the representation as to the value of the gross_estate and any adjusted_taxable_gifts the time for filing the portability election is fixed by the regulations therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for decedent’s estate to elect portability provided decedent’s estate establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted on behalf of decedent’s estate explain the circumstances that resulted in the failure to timely file a valid election based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied therefore we grant an extension of time of days from the date of this letter in which to make the portability election the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter with the kansas city service_center at the following address department of the treasury internal_revenue_service center kansas city mo for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to plr-111624-19 grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void see sec_20_2010-2 we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion as to the dsue amount to be potentially taken into account by spouse any claimed dsue amount will be included in the applicable_exclusion_amount of spouse only to the extent that spouse can substantiate such amount and will be subject_to determination by the director’s office upon audit of relevant federal gift or estate_tax returns see sec_20_2010-3 and d 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives sincerely associate chief_counsel passthroughs and special industries karlene m lesho by karlene m lesho senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service number release date index number ---------------------------------- ------------------------------------------------ ----------------------------------------- ----------------------------- ----------------------- --------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc ita b04 plr-135580-11 date date legend legend ----------------------------------------------------------------------------------------------- ------- ------- taxpayer year year partnership ------------------------------------- llc1 llc2 date date date date x facility dollar_figurey dollar_figurez firm a b ------------------------------------------ ---------------------------------------------------------- ---------------------- --------------------------- ------------------ ---------------------- ------ ------------------------------------------------------------------------- ------------------- ----------------- ------------------------- ---------------------- -------------------- dear --------------- this letter responds to your letter requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_108 of the internal_revenue_code specifically you have requested an extension of time to make an election under sec_108 and sec_1_108-5 of the income_tax regulations to exclude income resulting from the discharge of qualified_real_property business plr-135580-11 indebtedness and to reduce the basis of depreciable real_property effective for taxpayer’s year tax_return facts taxpayer uses the cash_method_of_accounting and has a calendar_year as an annual_accounting_period taxpayer is a member of partnership which is a calendar year-end partnership that files its tax returns using the accrual_method of accounting partnership was organized in date llc1 a wholly-owned subsidiary of partnership owns a x membership interest in llc2 which was organized on date to construct own lease and operate a facility llc1 issued bonds to fund the construction of the facility and secured the bonds with an interest in its construction in date partnership entered a transaction to purchase dollar_figurey of bonds held by a bondholder for dollar_figurez transaction partnership hired firm to prepare its tax_return for year in year partnership informed firm of the transaction and firm concluded that partnership realized cancellation of indebtedness cod income in conjunction with the year partnership return a partnership’s accountant at the firm filed form_982 reduction of tax_attributes due to discharge_of_indebtedness and sec_1082 basis_adjustment with the service making the election under sec_108 to exclude the cod income and to reduce the basis of depreciable real_property a however did not report the amount of the cod income on the year schedules k-1 partner’s share of income deductions credits etc which was issued to taxpayer taxpayer hired b from firm to prepare taxpayer’s federal_income_tax return for year with the understanding that the firm also prepared the partnership’s year tax_return b who did not participate in preparing partnership’s return relied upon the schedule k- issued to taxpayer for the year taxable_year the year schedule_k-1 did not include any cod income and consequently b did not file form_982 with taxpayer’s tax_return taxpayer timely filed the year federal_income_tax return on date the irs agent examining partnership’s return advised that the sec_108 election is an election to be made at the partner level prior to the discovery of the error by the irs agent a did not discuss with b that partnership realized cod income in year or inform b that a form_982 was filed with partnership’s year tax_return the partners’ schedule k-1s included a partner footnote reporting that each partner’s tax basis had been reduced due to a discharge of real_property business indebtedness plr-135580-11 taxpayer represents it understood that partnership entered into transaction and that its accountants would ensure the transaction resulted in the most tax efficient treatment to partnership and its members the most efficient approach would have been for taxpayer to make a sec_108 election the relevant real_property was placed into service in year and accordingly taxpayer represents that tax depreciation related to the facility will pass through to taxpayer for year if an extension of time to file an election is granted pursuant to sec_301_9100-3 partnership’s year tax_return will reflect that the tax basis of depreciable real_property related to the facility was reduced pursuant to sec_1_1017-1 by the cod income in addition the year schedule_k-1 that partnership issues to taxpayer will reflect the cod income as a reduction in tax basis taxpayer represents that granting relief under sec_301_9100-3 will not result in a lower tax_liability in the aggregate for all years to which the election applies than each partner would have had if the election had been timely made law and analysis sec_108 provides that gross_income does not include any amount that would be includible in gross_income by reason of the discharge_of_indebtedness if in the case of a taxpayer other than a c_corporation the indebtedness discharged is qualified_real_property_business_indebtedness sec_108 requires a taxpayer to make an election to exclude cod income under sec_108 sec_108 provides that in the case of a partnership sec_108 and sec_108 are applied at the partner level sec_1_108-5 provides that the election under sec_108 is made on the timely filed including extensions federal_income_tax return for the taxable_year in which the taxpayer has discharge_of_indebtedness income that is excludible from gross_income under sec_108 the election is made on a completed form_982 in accordance with that form and its instructions sec_301_9100-1 through sec_301_9100-3 provide the standards that the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that request for extension of time for regulatory elections other than automatic extensions covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-135580-11 under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election however a taxpayer is not considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or was not aware of all relevant facts in addition sec_301_9100-3 provides that a taxpayer is deemed not to have acted reasonably and in good_faith if the taxpayer- i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was informed in all requests of the required election and related consequences but chose not to make the election or uses hindsight in requesting relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money similarly if the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made sec_301_9100-3 provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable_year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section under the facts submitted by taxpayer we conclude that taxpayer has acted reasonably and in good_faith under sec_301_9100-3 in addition we conclude that granting relief will not prejudice the interests of the government under sec_301_9100-3 conclusion based solely on the information submitted and the facts as represented in the ruling_request we grant taxpayer an extension of days from the date of this letter to file an plr-135580-11 amended_return to make the election under sec_108 and sec_1_108-5 the election is to be made on form_982 except as expressly provided in the preceding paragraph we do not express or imply an opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically this letter does not rule on whether the income at issue is properly treated as cancellation_of_indebtedness_income under sec_61 in addition except for the relief granted to make a late election this letter also does not rule on whether the income in fact qualifies for exclusion from income under any provision of sec_108 including sec_108 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting cc