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 plr-104440-15 date august legend date husband wife trust state state investment_trust child child --------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------ ------------ ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ----------- ---------------------------------------------------------------------------- ------------------------------------------------------------------------ plr-104440-15 child child trustee power_of_appointment committee individual individual state statute dear -------------- ---------------------------------------------------------------------------- ------------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------ ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- --- -------------------- ---------------------- -------------------------------------- this responds to a letter dated date and subsequent correspondence requesting rulings under the internal_revenue_code facts the information and representations submitted are as follows on date husband and wife grantors created trust an irrevocable_trust trust is sited in state and pursuant to the trust agreement is governed by the laws of state a corporate trustee trustee is the sole trustee of trust grantors reside in state a community_property_state grantors will transfer property to trust the trust agreement defines beneficiaries as the class consisting of the grantors’ issue and investment_trust the grantors’ issue is defined as the grantors’ children and the issue of the grantors’ children the grantors’ children are defined as child child child and child investment_trust is an irrevocable_trust created by husband and individual as grantors and governed under the laws of state the beneficiaries of investment_trust are the issue of husband and individual part i article second a of trust provides that until the death of the first to die of grantors the predeceased spouse at any time or times the trustee shall distribute to the beneficiaries the spouses of the grantors’ issue and or to either or both of the grantors such amounts of the net_income or principal including the whole thereof as plr-104440-15 the power_of_appointment committee committee appoints the current members of the committee are child child child child and investment_trust by its trustee individual from and after the death of the predeceased spouse and until the death of the surviving_spouse at any time or times the trustee shall distribute to the beneficiaries the spouses of the grantors’ issue and to the surviving_spouse such amounts of the net_income or principal including the whole thereof as the committee appoints while the committee is in existence the trustee shall make no distributions except as the committee appoints if and only if the committee ceases to exist then until the distribution date the disinterested trustee may pursuant to a written instrument at any time or times distribute to the beneficiaries such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion the distribution date is the date of the survivor’s death if and only if the committee ceases to exist then until the death of the predeceased spouse at any time or times the disinterested trustee may distribute to either or both of the grantors such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion if and only if the committee ceases to exist then from and after the death of the predeceased spouse and until the death of the surviving_spouse at any time or times the disinterested trustee may distribute to the surviving_spouse such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion part i article second b provides that each of the grantors have the power in a non- fiduciary capacity at any time and from time to time to appoint to any one or more of the grantors’ issue such amounts of the principal including the whole thereof as such grantor deems advisable to provide for the health maintenance support and education of the grantors’ issue grantor’s sole power under part ii article eleventh any appointment direction determination or action by the committee must be made given or taken in a writing either executed by either of the grantors or the survivor of them and by a majority of the other members of the committee grantor’s consent power or executed by all then serving members of the committee other than the grantors unanimous member power the members of the committee serve and act in a non-fiduciary capacity at any time the committee consists of two or more members other than grantors then all the members of the committee including the grantors may by unanimous vote add one or more members to the committee provided that such members are beneficiaries if at any time the committee is reduced to one member other than the grantors the committee shall immediately cease to exist in all events the committee shall cease to exist upon the surviving spouse’s death any net_income not distributed by trustee will be accumulated and added to principal plr-104440-15 part i article second e provides that upon the death of the predeceased spouse the predeceased spouse’s entire_interest in the property in trust shall be distributed to such person or persons or entity or entities other than the predeceased spouse the predeceased spouse’s estate the creditors of the predeceased spouse or the creditors of the estate of the predeceased spouse as the predeceased spouse may appoint by will predeceased grantor’s testamentary power part i article second f provides that upon the death of the predeceased spouse the balance of the predeceased spouse’s remaining interest in the property in trust which the predeceased spouse has not effectively appointed by will predeceased spouse balance shall be distributed as follows ten percent to investment_trust and the balance in further trust to grantors’ then living issue per stirpes the portion of the property remaining after the distribution of the predeceased spouse balance shall continue to be held and administered pursuant to the provisions of trust part i article second h provides that upon the death of the surviving_spouse the then remaining balance of trust shall be distributed to such person or persons or entity or entities other than the surviving_spouse the surviving spouse’s estate the creditors of the surviving_spouse or the creditors of the estate of the surviving_spouse as the surviving_spouse may appoint by will surviving grantor’s testamentary power upon the death of the surviving_spouse the balance of the surviving spouse’s remaining interest in the property in trust which the surviving_spouse has not effectively appointed by will shall be distributed as follows ten percent to investment_trust and the balance in further trust to grantors’ then living issue per stirpes part ii article seventh a provides that the grantors are married to one another the transferred property described in schedule a of trust is community_property and the grantors may hereafter either singly or jointly transfer to the trustee other_property which either is community_property or is being transmuted into community_property each of the grantors affirmatively and expressly intends that any and all property transferred to the trustee prior to the death of the predeceased spouse is and shall retain its character as community_property part ii article seventh c provides that any distribution pursuant to the terms of trust to either of them prior to the death of the predeceased spouse is and shall be a distribution of community_property part ii article seventh d provides that all distributions of the net_income or principal prior to the death of the predeceased spouse whether made by the committee the disinterested trustee or a grantor’s exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property part ii article seventh e provides that with respect to the power_of_appointment retained by the grantors prior to the death of the predeceased spouse any such appointment by a grantor of the principal shall be funded equally from each grantor’s plr-104440-15 share of community_property held in trust each grantor consents to all such distributions by the other grantor part ii article seventh f provides that each of the grantors affirmatively agrees and confirms that upon any distribution other than to one of the grantors such property shall be funded equally from each grantor’s share of community_property held in trust and such property shall automatically and irrevocably be transmuted and shall cease to be community_property furthermore each of the grantors assigns transfers waives and releases irrevocably any community_property interest to which he or she may hereafter become entitled to with respect to such distribution and consents to all such distributions by the committee pursuant to part ii article eleventh part ii article fifth a provides that it is the grantors’ intention that no transfer by either of the grantors to any trust created hereunder shall be a completed_gift and it is also the grantors’ intention that during any period of time in which the committee is in existence but only during any such period neither of the grantors shall be treated as the owner of any portion of any trust created hereunder under sec_671 through of the internal_revenue_code code state statute provides that all property real or personal wherever situated acquired by a married_person during the marriage while domiciled in state is community_property you requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of husband wife or any members of the committee the contribution of property to trust by husband and wife will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the committee from trust to husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee any distribution_of_property by the committee other than husband and wife from trust to any beneficiary of trust other than husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee no member of the committee other than husband and wife upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust and plr-104440-15 the basis of all community_property in trust on the date of death of the predeceased spouse will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased spouse assuming that the committee is in existence at the time of the death of the predeceased spouse such that trust is not a grantor_trust as to either grantor ruling law and analysis sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the powers described in sec_674 regardless of whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the plr-104440-15 income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse held or accumulated for future distribution to the grantor or the grantor's spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause husband or wife to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the committee remains in existence because none of the members of committee has a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of husband or wife under sec_675 thus the circumstances attendant on the operation of trust will determine whether husband or wife will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which plr-104440-15 must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply plr-104440-15 sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25 b provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case husband and wife each retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom pursuant to article second paragraph f upon the predeceased spouse’s death the predeceased spouse’s remaining interest in trust ie one-half that the predeceased spouse did not effectively appoint pursuant to his or her limited testamentary_power_of_appointment predeceased spouse balance shall be distributed out of and shall no longer be subject_to the terms of trust consequently upon the death of the predeceased spouse the committee will no longer possess any powers over the property transferred to trust by the predeceased spouse under sec_25 b a coholder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate accordingly upon the predeceased spouse’s death the committee members would not be takers in plr-104440-15 default and do not have interests adverse to the predeceased spouse under sec_25 b and for purposes of sec_25_2511-2 they are merely coholders of the power at the time of the predeceased spouse’s death therefore the predeceased spouse is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power with respect to the predeceased spouse causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes likewise after the predeceased spouse’s death the surviving_spouse continues to retain the grantor’s consent power over the balance of the trust the committee members are not takers in default for purposes of sec_25_2514-3 they are merely coholders of the power the committee ceases to exist upon the death of the surviving_spouse accordingly upon the surviving spouse’s death the committee members do not have interests adverse to the predeceased spouse under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore the predeceased spouse is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power with respect to the surviving_spouse causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes husband and wife also each retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case the grantor’s sole power gives each of husband and wife the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further each of husband and wife retained the predeceased grantor’s testamentary power or surviving grantor’s testamentary power depending on the order of their deaths to appoint the property in trust to any person or persons or entity or entities other than each respective grantor’s estate grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the committee possesses the unanimous member power over income and principal this power is not a condition_precedent to husband’s or wife’s powers husband’s and wife’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent husband and wife retain dominion and control_over the income and principal of trust until the committee members exercise their unanimous member power accordingly this power does not cause the transfer of plr-104440-15 property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by husband and wife is not a completed_gift subject_to federal gift_tax part ii article seventh c provides that any distribution pursuant to the terms of trust to either of husband or wife prior to the death of the predeceased spouse is and shall be a distribution of community_property accordingly any distribution from trust to either grantor is merely a return of each grantor’s property therefore we conclude that any distribution_of_property by the committee from trust to husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee further upon the predeceased spouse’s death the fair_market_value of the predeceased spouse’s interest in trust is includible in the predeceased spouse’s gross_estate for federal estate_tax purposes moreover upon the surviving spouse’s death the fair_market_value of the balance in trust is includible in the surviving spouse’s gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest plr-104440-15 shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditor or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer or property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent - such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for plr-104440-15 example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creators husband or wife accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member powers are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantors pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by the grantors based upon the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than the grantors will not be a completed_gift subject_to federal gift_tax by any member of the committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantors will be a completed_gift by the grantors part ii article seventh d provides that all distributions of the net_income or principal prior to the death of the predeceased spouse whether made by the committee the disinterested trustee or a grantor’s exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property accordingly distributions to beneficiaries other than grantors will be gifts made one-half by each grantor finally we conclude that the powers held by the committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the committee members will not cause trust property to be includible in any committee member’s gross_estate under sec_2041 ruling sec_1014 provides in part that except as otherwise provided in this section the basis_of_property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent will if not sold exchanged or otherwise_disposed_of before the decedent’s death by such person be the fair_market_value of the property at the date of the decedent’s death sec_1014 provides that in the case of decedents dying after date property which represents the surviving spouse’s one-half share of community_property held by the decedent and the surviving_spouse under the community_property plr-104440-15 laws of any state is considered for purposes of sec_1014 to have been acquired from or to have passed_from_the_decedent if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross_estate sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death grantors were married and reside in state a community_property_state part ii article seventh a provides that all transferred property to trust is community_property or is being transmuted into community_property moreover any and all property transferred to trust prior to the death of the predeceased spouse is and shall retain its character as community_property pursuant to part ii article seventh c any distribution to either of husband or wife prior to the death of the predeceased spouse is and shall be a distribution of community_property husband and wife each retained the grantor’s sole power and the predeceased spouse retains the predeceased grantor’s testamentary power as concluded above upon the death of each grantor his or her respective interest in trust as either the predeceased spouse or the survivor spouse will be includible in their respective gross estates for federal estate_tax purposes accordingly based upon the facts submitted and representations made we conclude that the basis of all community_property in trust on the date of death of the predeceased spouse will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased spouse assuming that the committee is in existence at the time of the death of the predeceased spouse such that trust is not a grantor_trust as to either grantor plr-104440-15 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on trust provisions permitting the trustee to distribute income or principal to trustees of qualified trusts 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 copies of this letter are being sent to the taxpayer's authorized representative sincerely faith p colson faith p colson senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number info release date uil cor-115795-00 date the honorable dana rohrabacher u s house of representatives washington d c dear mr rohrabacher thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options cid substantiate actual cost by keeping records or by other_sufficient_evidence cid use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure


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-126727-16 date february ------------------------------------------------------------------------------------------------------------------ --------------------------------------------- ------------------ ------- ------- trust x year year dear --------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of trust by its authorized representative requesting that the service grant trust an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_642 of the internal_revenue_code facts trustee of trust made charitable_contributions in the total amount of dollar_figurex the contributions during year and intended to have the contributions considered to be paid in year as permitted under sec_642 however due to inadvertence the sec_642 election was not timely filed law and analysis sec_642 provides that in the case of an estate_or_trust there shall be allowed as a deduction in computing its taxable_income in lieu of the deduction allowed by sec_170 relating to the deduction for charitable etc contributions and gifts any plr-126727-16 amount of the gross_income without limitation which pursuant to the terms of the governing instrument is during the taxable_year paid for a purpose specified in sec_170 determined without regard to sec_170 if a charitable_contribution is paid after the close of such taxable_year and on or before the last day of the year following the close of such taxable_year then the trustee may elect to treat such contribution as paid during such taxable_year the election shall be made at such time and in such manner as the secretary prescribes by regulation sec_1_642_c_-1 provides that for purposes of determining the deduction allowed under sec_1_642_c_-1 the fiduciary as defined in sec_7701 of an estate_or_trust may elect under sec_642 to treat as paid during the taxable_year whether or not such year begins before date any amount of gross_income received during such taxable_year or any preceding_taxable_year which is otherwise deductible under such taxable_year or any preceding_taxable_year and which is paid after the close of such taxable_year but on or before the last day of the next succeeding taxable_year of the estate_or_trust the preceding sentence applies only in the case of payments actually made in a taxable_year which is a taxable_year beginning after date no election shall be made however in respect of any amount which was deducted for any previous taxable_year or which is deducted for the taxable_year in which such amount is paid sec_1_642_c_-1 provides that the election under sec_1_642_c_-1 shall be made not later than the time including extensions thereof prescribed by law for filing the income_tax return for the succeeding taxable_year such election shall except as provided in sec_1_642_c_-1 become irrevocable after the last day prescribed for making it having made the election for any taxable_year the fiduciary may within the time prescribed for making it revoke the election without the consent of the commissioner sec_1_642_c_-1 provides that the election shall be made by filing with the income_tax return or amended_return for the taxable_year in which the contribution is treated as paid a statement which states the name and address of the fiduciary ii identifies the estate_or_trust for which the fiduciary is acting iii indicates that the fiduciary is making an election under sec_642 in respect of contributions treated as paid during such taxable_year iv gives the name and address of each organization to which any contribution is paid and v states the amount of each contribution and date of actual payment or if applicable the total amount of contributions paid to each organization during the succeeding taxable_year to be treated as paid in the preceding_taxable_year sec_301_9100-1 provides that the commissioner may 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 not more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g plr-126727-16 h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register 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 sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that trust has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly trust is granted an extension of time of days from the date of this letter to file an election under sec_642 to claim a deduction in trust’s year taxable_year for charitable_contributions made in year the election should be made by filing with the appropriate service_center amended income_tax returns for year and year as necessary to include the election and properly report the tax consequences of the charitable_contribution_deduction in a manner consistent with the election having been made a copy of this letter should be attached to the returns except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code 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-126727-16 in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to trust's authorized representative sincerely faith colson faith colson senior counsel branch office of the associate chief_counsel 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 b01 plr-102614-18 date date legend x trust trust trust trust trust state date date date ------------------------------------------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------------ ----------------- ------------------------------------------------------------------------------------------------------------ --------------------------------- ------------------------------------------------------------------------------------------------------------ --------------------------------- ------------------------------------------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------------------------------------------ ----------------------------- ------------ ------------------------ --------------------- -------------------------- plr-102614-18 dear----------------- this responds to a letter dated date and subsequent information submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated under the laws of state on date and elected to be treated as an s_corporation effective date on date shares of x stock were transferred to trust trust trust trust and trust ineligible s_corporation shareholders x represents that trust trust trust trust and trust each meet the requirements to be treated as an electing small_business trusts esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust trust trust trust and trust as esbts effective date x represents that x and its shareholders have treated x as an s_corporation at all relevant times x further represents that trust trust trust trust and trust have each filed their income_tax returns consistent with being an esbt x represents that the failure_to_file esbt elections for trust trust trust trust and trust was inadvertent and was not motivated by tax_avoidance or retroactive tax planning further x represents that x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation that may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1361 an esbt may be an s_corporation shareholder plr-102614-18 sec_1361 provides that an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an esbt does not include i any qualified_subchapter_s_trust as defined in sec_1361 if an election under sec_1361 applies to any corporation the stock of which is held by such trust ii any trust exempt from tax under subtitle a and iii any charitable_remainder_annuity_trust or charitable_remainder_unitrust as defined in sec_664 sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1_1361-1 provides that the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 for filing a qsst election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representation made we conclude x’s s election terminated on date upon the failure to timely file esbt elections for trust plr-102614-18 trust trust trust and trust we further conclude that the termination was inadvertent within the meaning of sec_1362 accordingly under sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s s election is valid and not otherwise terminated under sec_1362 this letter_ruling is subject_to the condition that within days from the date of this letter an election to treat each trust trust trust trust and trust as an esbt effective date must be made with the appropriate service_center a copy of this letter should be attached to the esbt election if this condition is not met then this ruling is null and void except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically we express or imply no opinion regarding whether x is otherwise eligible to be an s_corporation or whether trust trust trust trust and trust are eligible to be treated as esbts this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court peter szanto petitioner v commissioner of internal revenue respondent susan szanto and peter szanto petitioners v commissioner of internal revenue respondent docket nos filed date peter szanto and susan szanto pro sese sandy hwang and hans famularo for respondent memorandum findings_of_fact and opinion cohen judge respondent determined a dollar_figure deficiency a dollar_figure addition_to_tax under sec_6651 and a dollar_figure penalty under sec_6662 with respect to petitioners’ federal_income_tax for the notice_of_deficiency for was addressed to both petitioners who had filed a joint_return for that year all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure susan szanto filed a petition with respect to that was assigned docket no peter szanto petitioner filed a petition in bankruptcy and did not join in the case at docket no but later filed the petition in the case at docket no contesting his liability for after his bankruptcy proceeding was dismissed in the answer in the case at docket no respondent alleges that the case at docket no resulted in no deficiency because peter and susan szanto had sufficient foreign tax_credits for the year that decreased much of the deficiency in the related case they substantiated some of the adjustments and appeals conceded a small amount of adjustments for settlement purposes on date this court issued an order and decision in the related case docket no where the court ordered and decided that there is no deficiency in income_tax due from nor overpayment due to susan szanto for the taxable_year t he related case is identical to this case in that both cases involve the same joint_return same year same notice same issues and peter szanto although not a named party was actively involved in the resolution of the related case respondent thus conceded that there was no deficiency due from petitioner for petitioner claims an overpayment for attempting to reopen issues decided in the case at docket no petitioners filed the petition in the case at docket no in response to a notice_of_deficiency for which determined a dollar_figure deficiency a dollar_figure addition_to_tax under sec_6651 and a dollar_figure penalty under sec_6662 the issues for decision are whether petitioners are entitled to deductions not previously allowed including a loss claimed on rental of their residence and whether they are liable for the addition_to_tax and penalty for findings_of_fact none of the facts have been stipulated in the petition in the case at docket no dated date petitioner provided a mailing address in california but represented that his state of legal residence was nevada in the petition in the case at docket no dated date petitioners represented that their state of legal residence was california although this disparity does not affect venue for any appeal from our decisions in these cases it is significant for reasons related to petitioner’s credibility as discussed below petitioners’ personal_residence during and was in newport beach california although that fully furnished residence was rented to others from time to time including for six months during personal_property including artwork was left in the residence and petitioner operated a jewelry repair business out of the residence petitioner maintained a real_estate broker’s license during the years in issue on their returns for and petitioners reported income from renting their personal_residence to others but deducted expenses far in excess of the rental income reported the rental loss deduction claimed for was not adjudicated in the case at docket no for reasons set forth below petitioners reported rental income of dollar_figure for six months in and claimed a rental loss deduction with respect to the newport beach property totaling dollar_figure they did not substantiate any rental expenses other than a dollar_figure mortgage interest_expense and dollar_figure in real_property_taxes both for which respondent has allowed deductions because the total from allocating of those items dollar_figure dollar_figure dollar_figure exceeds the dollar_figure of rental income reported sec_280a precludes deduction of any additional expenses even if substantiated respondent allowed the balance of the substantiated mortgage interest and real_property_taxes on schedule a itemized_deductions on their return for petitioners also claimed and deducted dollar_figure in losses including dollar_figure in depreciation expense in relation to residential property in miami florida which they did not own during they claimed deductions on three vehicles for actual expenses and depreciation as well as mileage at a standard rate petitioner did not maintain a reliable log showing the time place and business_purpose of travel relating to specific vehicles or other records satisfying the requirements of sec_274 to support a deduction for travel_expenses claimed in relation to his jewelry repair business petitioners’ return for was filed in date and their return for was filed in date petitioners later filed amended returns for each year on which they admitted receipt of income not reported on the returns originally filed on an amended_return for they omitted the claimed loss deduction from renting their newport beach residence the newport beach address was used as petitioners’ address on the returns filed for the years in issue petitioner has legal training although he is not a member of any bar he has frequently engaged in litigation with his son his brothers and others petitioner was the plaintiff in the u s district_court for the central district of california in case no 15-cv-00241-ag-dfm district_court case on date days before the instant cases were set for trial he filed in the district_court case a document entitled plaintiff’s preliminary response to court’s order regarding jurisdiction and vexatious litigant osc and request for additional time further to respond in that document he misrepresented the status and the subject matter of these cases as a reason for his request for additional time in the same document he represented to the district_court that he had not resided in california since opinion petitioners bear the burden of proving entitlement to the deductions that they claim see rule a 292_us_435 512_f2d_882 9th cir aff’g tcmemo_1972_133 a court is not bound to accept improbable unreasonable or questionable testimony at face value 449_f2d_311 9th cir aff’g tcmemo_1969_48 440_f2d_688 9th cir aff’g per curiam tcmemo_1969_159 112_tc_183 87_tc_74 petitioners have not satisfied any of the conditions for shifting the burden_of_proof under sec_7491 and b for purposes of impeachment respondent’s counsel asked petitioner during trial about the document filed in the district_court case petitioner noted that the document was not under oath his explanation at trial was that t here is a methodology in legal writing where like it or not you cull the chaff that yes you’ve caught me in a lie no question about it you’ve caught me in a lie that in whatever dates i reference what we referenced in i told you i was a resident of california yes that is true it seems at variance with my representation here but i assure you it is not it is merely the fact that a person can reside in one place today and reside in another place tomorrow and reside in the same place on the third day so--the same place as on the first day so you know while i enjoy your semantical juggernaut i think that it has very very little relevancy to taxes in in other words petitioner evaded addressing material facts and was not a straightforward candid or reliable witness for the reasons discussed further below petitioner’s bald assertions during trial and in his posttrial filings unsupported by corroborating evidence are unreliable since these cases were commenced petitioner has adopted a strategy of attacking the internal_revenue_service irs auditor the appeals representative and respondent’s counsel rather than presenting substantiation of the expenses underlying the disallowed deductions in issue he made multiple pretrial and posttrial motions that lacked merit and were denied he has persisted before during and after trial in arguing about collection efforts relating to although the court clearly lacks jurisdiction over that year he was repeatedly advised that the court conducts a trial de novo and that what occurred during the audit would not be considered see 62_tc_324 the results of audits for other years are also irrelevant see rosemann v commissioner tcmemo_2009_185 slip op pincite e ach taxable_year stands alone and the commissioner may challenge in a succeeding year what was condoned or agreed to in a previous year during and after trial petitioner persisted in arguing about the process of the audit despite the court’s warnings that his tax returns are not self-proving see 440_f2d_688 yet he relies on forms and schedules that he prepared and submitted during the course of the audit or after the trial record was closed petitioner did not produce substantiation for the various expenses underlying the claimed deductions or testify credibly about facts supporting the items in dispute thus the findings_of_fact set out above are sparse and lack specificity about petitioners’ rental activities or other business dealings or expenses actually paid_by petitioners during trial petitioner asserted various questionable legal theories to support his implausible explanations of events as a result the court ordered seriatim briefs as follows the court all right well frankly i did not expect to order briefs in this case but i am so puzzled by the parties’ respective legal positions that i need memoranda stating what they are mr szanto you’ve referred to multiple rules in title_26 but you’ve never shown me any rule that supports your legal theory about proportionality and percent allowance and anything like that so i really don’t know what you’re talking about and as far as respondent’s concerned i don’t understand why this case--maybe you can tell me now why your case doesn’t represent a situation under 280a what’s--is mr szanto correct that there’s an exception to 280a for people in the real_estate business ms hwang your honor may i ask if you’re going to be ordering briefs can we have seriatim briefs with mr szanto going first the court that would make sense because i don’t understand his legal theories but mr szanto don’t talk about what the audit showed talk about what you proved in this court with the few documents that you presented and what the applicable law is mr szanto yes your honor petitioner requested and was granted an extension of time to file his opening brief however the court declined to extend the time for respondent’s brief because of the uncertainty of whether petitioner would file a meaningful brief in a timely manner and the desirability of obtaining respondent’s then position on the rental issues for when petitioner’s brief was finally filed it did not comply with the court’s direction to discuss the evidence quoted above and did not comply with rule e particularly paragraph e which provides in part that proposed findings_of_fact shall be based on the evidence and shall include references to the pages of the transcript or the exhibits or other sources relied upon instead petitioner made innumerable factual statements for which no evidence was in the record and attached close to pages of materials including hearsay and other items not in the evidentiary record from the trial some of the documents were created after the trial of these cases petitioner refers to his documents and to his tax reporting positions as part of his attack on the auditor and the irs generally although he has been warned repeatedly that such tactics do not advance his burden_of_proof the attachments to his brief were stricken from the record and respondent was ordered to file a reply brief addressing the proposed findings and legal arguments in the body of petitioner’s brief petitioner complains about unfairness and represents himself to be a victim but he continues to disregard the rules and orders of the court rental losses as to the rental loss deductions claimed on petitioners’ returns the notice_of_deficiency stated it is determined that you used your home as your personal_residence while it was rented therefore your expense deductions are limited to the income you received as rent you may not deduct a loss from these rentals accordingly taxable_income is increased dollar_figure for tax_year ended date the rental income and allowed deductions were moved by the auditing agent from schedule e supplemental income and loss to lines for other income and mortgage interest and real_estate_taxes respondent now concedes that the items should have remained on schedule e sec_280a provides that a taxpayer is not entitled to deductions with respect to a dwelling_unit that the taxpayer uses as a residence the taxpayer uses a dwelling_unit as a residence if the taxpayer uses it for personal purposes for a number of days that exceeds the greater of days or of the number of days during the year for which the unit was rented at a fair rental value sec_280a see generally 125_tc_271 82_tc_919 however the taxpayer may still deduct the allocable portion of mortgage interest and taxes otherwise deductible as itemized expenses see sec_280a at trial petitioner commenced his opening statement by saying i want to put the case in context and as to why we’re here and the majority reason of why we’re here has to do with the schedule e rental of my house during the tax years and as to that issue and others petitioner concentrated on his disputes with the auditing agent but failed to address the material facts notwithstanding constant reminders by the court the transcript reflects the following mr szanto now looking back to the schedule e we had two rental properties so however you slice it--and the truth of course is that during the time that we received rental we didn’t live in these homes but the truth which is--should be evident from the fact is that certainly we couldn’t be living in two places at once you know irrespective of what the auditor says and so if we’re living at one we certainly can’t be living at the other so again it’s more of the tactics used by respondent that you know slash and burn tactics and-- the court well you better tell me about how long you lived in miami how many days spent in the house as your residence same thing with newport beach that’s what the law requires mr szanto and this was--this is in the--it should be in the --it was attached to the worksheet as to-- the court i want your testimony under oath-- mr szanto it was approximately--i believe it was six months for the newport beach property that it was rented to others and in the case of the miami beach property it was one month petitioner identified the persons renting the newport beach residence as business acquaintances of his father and himself who used the home in newport beach to escape brutal winters in budapest the residence was rented fully furnished the record does not disclose where petitioners lived while the residence was rented at no point did petitioner specifically or credibly address the number of days during that petitioners occupied either residence and the reasonable inference is that they did so during the periods when it was not rented that is a total of six months during for the newport beach residence which is of the days the residence was rented to others see sec_280a thus they may deduct expenses to offset only the reported rental income and may deduct any additional mortgage interest or real_estate_taxes allocable to their personal_use see sec_280a petitioners’ brief simply ignores sec_280a petitioner claims to be a real_estate_professional and asserted at trial that sec_280a does not apply to him he apparently has a real_estate license but there is no other evidence that he acted as a real_estate_professional during or engaged in any real_estate activities other than rental of his residence or sublease of the miami beach property for a portion of a year sec_469 which limits passive_activity_losses such as these from a rental_activity creates an exception for taxpayers in a real_property business but such taxpayers must establish the number of hours devoted to the activity among other things sec_469 petitioner invokes sec_469 which defines and limits passive_activity_losses with certain exceptions and allowances and claims that he is entitled to an additional dollar_figure deduction that section has no application to the facts of these cases there is no applicable exception to the limits of sec_280a petitioner claims to have paid mortgage interest in addition to that on his primary mortgage but failed during the audit or at trial to show that the disputed item was qualified_residence_interest under sec_163 he relies on a form received from chase bank while acknowledging that the form is erroneous he also refers to a privately placed straight note but he produced no evidence and did not even testify that the note was secured_by his residence petitioners have been allowed deductions for mortgage interest and real_property_taxes to the extent substantiated and they have not proven their entitlement to any additional_amounts as set forth in our findings allocation of of the substantiated amounts of mortgage interest and taxes exceeds the rental income reported for the six months that the newport beach property was rented thus any additional claimed rental expenses even if substantiated would not affect the result such additional expenses have not been identified much less proven other than by petitioner’s references to his filed returns see 440_f2d_688 petitioner claimed a loss deduction including depreciation for the miami beach property the record does not disclose whether petitioners used that property as a residence petitioner produced only a lease agreement with an option to purchase for a term beginning date and he argues that he may deduct depreciation relating back to the initiation of the option there is no evidence that petitioners ever owned the property and petitioner testified that as of the time of trial in date ownership was being litigated in any event he has not proven a depreciable basis for the miami beach property thus no loss deduction may be allowed on that property other deductions petitioner also asserts questionable legal theories about deductions of costs of goods sold under sec_162 inventory_accounting and capitalization of items under sec_263a but he has not established that he incurred costs attributable to goods sold during he presented a single invoice for purchase of three items of jewelry but he failed to show that sale of those items was included in reported sales of the jewelry repair business from the face of the invoice it is unlikely that the items were used in repairs and he did not testify that they were so used he claims that he may deduct against dividend income expenses_incurred to maintain short positions in stock but he has cited no authorities supporting that claim and we have found none petitioner attacked the auditing agent for not agreeing with petitioner’s erroneous interpretation of statutes but regardless of theory he failed to provide substantiation of deductible expenses actually incurred petitioners did not present evidence concerning disallowed deductions not discussed here although they included arguments concerning them in their brief petitioner has failed to prove entitlement to any additional deductions for or that the amount claimed as an overpayment was ever paid for petitioners have not established any carryover amounts from other years they merely cite the various returns and schedules petitioner prepared without corroborating evidence see 440_f2d_688 nothing in the record establishes permissible deductions not previously allowed by respondent additions to tax and penalties because respondent has conceded that there is no deficiency for the addition_to_tax and penalty for that year do not apply respondent has the burden of going forward with respect to the addition_to_tax and penalty that remain in issue for see sec_7491 sec_6651 provides an addition_to_tax for late filing of a return unless it is shown that such failure is due to reasonable_cause and not due to willful neglect respondent’s burden of going forward on that issue has been met because petitioners’ return for was not filed until date see 116_tc_438 petitioner has referred to various family crises but nothing in evidence constitutes reasonable_cause for late filing the return was belatedly filed in date as of that time the return might have been subject_to an extension of time for filing however petitioners provided no explanation of why the return could not have been filed contemporaneously with the return we therefore sustain the late-filing addition for sec_6662 and b imposes an accuracy-related_penalty for negligence or disregard of rules or regulations sec_6662 defines negligence as including any failure to make a reasonable attempt to comply with the provisions of internal_revenue_code and the term ‘disregard’ includes any careless reckless or intentional disregard in the amended returns petitioners admitted omission_of_income on the returns originally filed and duplication of vehicle expense deductions those admissions standing alone satisfy respondent’s burden of production as far as the record reflects petitioners failed to keep required records they certainly did not produce any petitioner asserted untenable constructions of applicable statutes the penalty for negligence or disregard of rules and regulations is entirely appropriate in these circumstances see eg argyle v commissioner tcmemo_2009_218 aff’d 397_fedappx_823 3d cir petitioners have argued only that they are not liable for the penalty because there is no deficiency and they have not shown reasonable_cause or good_faith or any other defense to the penalty under sec_6664 we therefore sustain the accuracy-related_penalty for we have considered the other arguments of the parties they are moot immaterial or otherwise without merit to reflect the foregoing decisions will be entered reflecting no deficiency addition_to_tax penalty or overpayment for and for respondent for


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b04 ------------ preno-120941-08 uilc 6050p date date third party communication none date of communication not applicable to julie garcia director office of stakeholder partnerships education and communication spec from michael j montemurro chief branch office of associate chief_counsel income_tax accounting subject non-imposition of early termination charges under the servicemembers civil relief act you have inquired whether lessors of motor vehicles lessors are required to issue forms 1099-c cancellation of debt when members of the military exercise their option under the servicemembers civil relief act to terminate a motor_vehicle lease this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent sec_61 of the internal_revenue_code provides that gross_income includes all income from whatever source derived including income_from_discharge_of_indebtedness see sec_61 in addition if a taxpayer is released from an obligation to pay under the terms of an instrument that imposed the obligation to pay the taxpayer realizes an accession of wealth and thus income although it is not income_from_discharge_of_indebtedness see 499_us_573 sec_6050p requires that any applicable_entity that discharges in whole or in part the indebtedness of any person during any calendar_year shall make a return setting forth certain information including the name address and tin of each person whose indebtedness was discharged during such calendar_year the date of the discharge and the amount of the indebtedness discharged this information is provided on a form 1099-c cancellation of debt preno-120941-08 it is our understanding that generally a motor_vehicle lease requires lessees who terminate the lease early to pay an early termination charge you have inquired as to the tax treatment of this early termination charge with respect to termination of motor_vehicle leases by members of the military under the servicemembers civil relief act sec_305 of the servicemembers civil relief act scra pub_l_no 117_stat_2848 u s c app sec_535 allows a lessee on a lease described in sec_305 of a motor_vehicle to terminate the lease at any time after i the lessee’s entry into military service or ii the date of the lessee’s military orders described in sec_305 for example if a lessee while in military service executes a motor_vehicle lease and thereafter receives military orders to deploy with a military unit for a period of not less than days the lessee may terminate the lease under the scra the rents or lease amounts unpaid for the period preceding the effective date of the lease termination must be paid on a prorated basis however the scra also specifically provides that in the case of a motor_vehicle lease a lessor may not impose an early termination charge thus if a member of the military servicemember exercises his or her option to terminate a motor_vehicle lease in accordance with the scra then the lessor cannot impose an early termination charge because the lessor cannot impose the early termination charge on the servicemember under the scra in the first instance the servicemember owes nothing to the lessor due to the early termination of the motor_vehicle lease consequently servicemembers who exercise their option under the scra to terminate a motor_vehicle lease early do not have discharge_of_indebtedness income under sec_61 or any other form of income with respect to the early termination charge they are not required to pay therefore applicable entities should not issue forms 1099-c in these circumstances this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions sec_305 of the scra u s c app sec_535 states rents or lease amounts unpaid for the period preceding the effective date of the lease termination shall be paid on a prorated basis in the case of a lease of a motor_vehicle lease the lessor may not impose an early termination charge but any taxes summonses and title and registration fees and any other obligation and liability of the lessee in accordance with the terms of the lease including reasonable charges to the lessee for excess wear use and mileage that are due and unpaid at the time of termination of the lease shall be paid_by the lessee italics added


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 7-plr-111361-99 date date legend decedent trust a b company state a c b d e f g h c i shareholders dear in a letter dated date and a supplemental letter dated date you requested several rulings under sec_2031 of the internal_revenue_code this letter responds to your request the information submitted and the representations made are summarized as follows on the date of decedent’s death decedent owned through the trust a of the b outstanding shares of the company a the company’s principal asset contains about c acres of ranchland in b in d the company acquired from state a tract of approximately e acres at the northern end of a when the company acquired the e acre tract from state state reserved the right to conduct extractions activities on the site over a period of years beginning in f the company donated a series of g separate conservation easements on various portions of a at decedent’s death all except an h parcel of a and the e acres with respect to which state retained extraction rights was restricted by conservation easements c was at the date of decedent’s death and is now the holder of all of the conservation easements it is represented that c is a qualified_organization under sec_170 although the conservation easements prohibit most residential development all industrial activities and most commercial activities the land subject_to the conservation easements can be subdivided into a number of separate parcels subject_to the terms of the easements in addition the terms of the easement documents do not expressly prohibit certain commercial activities including commercial recreational activities in order to carry out decedent’s goal of restricting the land subject_to the easements against all but the most minimal residential development and expressly to prohibit any commercial recreational activity and any subdivision of the land subject_to the easements into more than one ownership all of the shareholders of the company on i executed an agreement to extinguish retained development rights under sec_2031 the agreement it is represented that the agreement was executed on or before the due_date for filing decedent’s form_706 paragraph of the agreement provides that the agreement is made pursuant to the provisions of sec_2031 by and among the company and its shareholders paragraph of the agreement identifies a as the company’s only asset and describes the conservation easements paragraph describes the retained development rights to be extinguished pursuant to the agreement as follows i any right to subdivide the land subject_to the conservation easements into more than one ownership and ii any right to use any part of the land subject_to the conservation easements for any commercial purpose that is not subordinate to and directly supportive of the use of the land as a farm for farming_purposes within the meaning of sec_2031 and sec_2032a paragraph of the agreement provides that the company and the shareholders unconditionally covenant and agree that it is the expressed intention of the company and the shareholders i to take whatever action is necessary to extinguish permanently the retained development rights identified in paragraph and ii that the company shall be liable for additional taxes under sec_2031 if the agreement is not implemented by the earlier of a the date that i sec_2 years after the date of decedent’s death or b the date of sale of the land subject_to the qualified conservation easements paragraph of the agreement provides that in the event the agreement is not timely implemented the company will report the additional tax on whatever return is required by the internal_revenue_service and will file the return and pay the additional tax by the last day of the sixth month following the applicable_date described in paragraph paragraph of the agreement provides that any general_rule of construction notwithstanding the agreement is to be liberally construed in favor of the intention of the company to comply with the provisions of sec_2031 if any provisions in the agreement are found to be ambiguous an interpretation consistent with the purpose of the agreement that would render the provision valid is to be favored over any interpretation that would render it invalid the company and the shareholders may amend the agreement to comply with any rules that may be prescribed by the secretary_of_the_treasury you have requested the following rulings the retained rights under the existing conservation easements to i subdivide the land subject_to the easement into more than one parcel in different ownership and ii conduct unspecified non-prohibited commercial activity are retained development rights defined in sec_2031 that can be terminated pursuant to sec_2031 the agreement to extinguish permanently i any right to subdivide the land subject_to the easement into more than one ownership and ii any right to use any part of the land subject_to the easement for any commercial purpose that is not subordinate to and directly supportive of the use of the land as a farm for farming_purposes within the meaning of sec_2031 and sec_2032a executed on or before the due_date for filing the form_706 and filed with the form_706 will satisfy the requirements of sec_2031 if the existing conservation easements constitute qualified conservation contributions as defined in sec_170 as modified by the termination of the retained development rights they will constitute qualified conservation easements as defined in sec_2031 sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen_of_the_united_states sec_2031 a provides that the value of the gross_estate of a decedent shall be determined by including to the extent provided for in this part the value at the time of his death of all property real or personal tangible or intangible wherever situated sec_2031 provides that if the executor makes the election described in sec_2031 then except as otherwise provided in sec_2031 there shall be excluded from the gross_estate the lesser of--- a the applicable_percentage of the value of land_subject_to_a_qualified_conservation_easement reduced by the amount of any deduction under sec_2055 with respect to the land or b the exclusion_limitation sec_2031 provides that sec_2031 does not apply to the value of any development_right retained by the donor in the conveyance of a qualified_conservation_easement sec_2031 provides that if every person in being who has an interest whether or not in possession in the land executes an agreement to extinguish permanently some or all of any development rights as defined in sec_2031 retained by the donor on or before the date for filing the return of the tax imposed by sec_2001 then any_tax imposed by sec_2001 shall be reduced accordingly such agreement shall be filed with the return of the tax imposed by sec_2001 the agreement shall be in such form as the secretary shall prescribe sec_2031 provides that any failure to implement the agreement described in c b not later than the earlier of- i the date that i sec_2 years after the date of the decedent’s death or ii the date of the sale of the land subject_to the qualified_conservation_easement shall result in the imposition of an additional tax in the amount of the tax that would have been due on the retained development rights subject_to the agreement the additional tax shall be due and payable on the last day of the 6th month following such date sec_2031 d provides that for purposes of sec_2031 the term development_right means any right to use the land subject_to the qualified easement in which such right is retained for any commercial purposes which is not subordinate to and directly supportive of the use of such land as a farm for farming_purposes within the meaning of sec_2032a sec_2031 defines the term qualified_conservation_easement to mean a qualified_conservation_contribution as defined in sec_170 of a qualified_real_property_interest as defined in sec_170 except that clause iv of sec_170 shall not apply and the restriction on the use of such interest described in sec_170 shall include a prohibition on more than a de_minimis use for a commercial recreational activity based on the information submitted and the representations made we conclude as follows the retained rights under the existing conservation easements to i subdivide the land subject_to the easement into more than one parcel in different ownership and ii conduct unspecified non-prohibited commercial activity are retained development rights defined in sec_2031 that can be terminated pursuant to sec_2031 the agreement to extinguish permanently i any right to subdivide the land subject_to the easement into more than one ownership and ii any right to use any part of the land subject_to the easement for any commercial purpose that is not subordinate to and directly supportive of the use of the land as a farm for farming_purposes within the meaning of sec_2031 and sec_2032a executed on or before the due_date for filing the form_706 and filed with the form_706 satisfies the requirements of sec_2031 if the existing conservation easements constitute qualified conservation contributions as defined in sec_170 as modified by the termination of the retained development rights they will constitute qualified conservation easements as defined in sec_2031 except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code in particular we express or imply no opinion whether the existing conservation easements constitute qualified conservation contributions as defined in sec_170 this letter is based on the facts presented and the applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours for joseph h makurath christine e ellison chief branch office of the assistant chief_counsel passthroughs and special industries