t c memo united_states tax_court randall g van vlaenderen petitioner v commissioner of internal revenue respondent docket no 15164-02l filed date randall g van vlaenderen pro_se monica j miller for respondent memorandum opinion cohen judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or the notice_of_determination sustained a proposed levy with respect to petitioner’s unpaid taxes for and the issue for decision is whether the appeals officer’s rejection of petitioner’s form_656 offer_in_compromise was an abuse_of_discretion unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue background most of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in florida at the time that his petition was filed petitioner is self-employed and works in the real_estate business he filed federal_income_tax returns for and reflecting unpaid balances due the balances were duly assessed and with penalties and accrued interest the total unpaid liabilities exceed dollar_figure petitioner did not submit a timely federal_income_tax return for and did not file any return for that year prior to date petitioner’s federal_income_tax returns for and were filed during the pendency of this dispute on date two forms of final notice - notice_of_intent_to_levy and notice of your right to a hearing were sent to petitioner one notice related to his liability for and in the total amount of dollar_figure and a second notice related to his liability for and totaling dollar_figure petitioner submitted a request for a collection_due_process_hearing in which he asserted that an installment_agreement had been inappropriately terminated that his prior spouse might be partially liable and that he had requested an offer_in_compromise by letter dated date appeals officer beverly a henry appeals officer henry notified petitioner that she had scheduled a conference for date and that the hearing that he had requested could be conducted by telephone or correspondence on date appeals officer henry conducted a telephone conference in which petitioner indicated his intention to submit an offer_in_compromise on date petitioner submitted an offer_in_compromise relating to the above liabilities proposing that the sum of dollar_figure be paid in more than days but within months from written notice of acceptance of the offer on date appeals officer henry sent a letter to petitioner in which she stated you have requested consideration of certain issues that require the expertise of the investigative functions of the service while the office of appeals will maintain jurisdiction of your case we have requested further assistance to research and verify the information you have provided it may be necessary for a revenue_officer to contact you for information necessary to expedite this review the revenue_officer may need to contact third parties to verify some of this information the information we have requested is needed to help us reach a resolution of your appeal if you have any questions please contact me at the telephone number shown above the appeals officer transmitted the documents for an offer_in_compromise investigation to irs collections group on date the offer_in_compromise was returned to the appeals officer with the statement that the form 433-a collection information statement for wage earners and self- employed individuals financial information was not verified petitioner had not filed his return for and that the total unpaid liability was over dollar_figure on date the appeals officer notified petitioner that the offer_in_compromise could not be considered because petitioner had not complied with the filing_requirements with respect to his return on date the appeals officer again wrote to petitioner as follows this is to follow-up on your offer_in_compromise submitted for consideration our records indicate that this tax_return has not been processed i need an original signature in order to process please sign the return and return to me by date the law requires you to be in compliance with all filing_requirements this includes filing all federal tax returns and making estimated_tax payments if required the record indicates that you have filed an extension for the year tax_return and you are not making estimated_tax payments based on the above an offer_in_compromise cannot be considered at this time because you are not in compliance with the filing_requirements please contact me so that we can discuss this further petitioner subsequently submitted the documentation requested by the appeals officer and in a memorandum dated date the appeals officer concluded that petitioner was then in compliance with the filing_requirements thus the revenue_officer proceeded to consider petitioner’s offer_in_compromise the revenue_officer to whom petitioner’s offer_in_compromise was referred by the appeals officer considered the financial information that petitioner had submitted including bank records the information submitted by petitioner claimed that his total monthly income was dollar_figure and that his total monthly living_expenses were dollar_figure reflecting a monthly financial deficit the revenue_officer concluded that the income shown by petitioner was not consistent with the bank_deposits reflected on his monthly statements and that the net business income reported by petitioner was not reliable because the claimed business_expenses were commingled in the bank account with personal expenses the revenue_officer calculated petitioner’s ability to pay based on the value of his vehicle and his average monthly bank_deposits less necessary living_expenses and concluded that the amount of dollar_figure was the reasonable collection potential based on cash offer shown by the information petitioner had submitted on date the appeals officer again wrote to petitioner as follows the revenue_officer has completed the investigation of your offer_in_compromise submitted as a collection alternative the investigation reveals that your offer in the amount of dollar_figure is not adequate the financial analysis indicates that your offer should be increased to at least dollar_figure i have attached copies of the asset equity table aet and income expense table iet to support this determination i have also enclosed form_656 offer_in_compromise for you to submit an amended offer for dollar_figure if this is acceptable to you if you have any questions or wish to discuss further please contact me at the telephone number shown above if i do not receive a response from you i will assume that you no longer wish to pursue this matter i will issue my determination based on the available information in your case file petitioner did not contact the appeals officer by telephone as she had suggested by letter dated date mailed date and received by the appeals_office on date petitioner submitted an amended offer_in_compromise in the amount of dollar_figure petitioner’s transmittal letter indicated that he believed that his options were to appeal within days to the office of appeals or to submit another offer based on instructions in the form_656 package petitioner also suggested that the revenue officer’s method of calculating income did not consider the expenses of running his business as reflected on his tax returns for and on date appeals officer henry signed a memorandum in which she recommended that the notice_of_intent_to_levy should not be withdrawn the memorandum was approved by the appeals_office team manager on date the attachment to the appeals_office memorandum concluded that the levy was no more intrusive than necessary the taxpayer’s offer was not adequate and there is no evidence to indicate that the taxpayer would voluntarily pay the liability if the notice_of_intent_to_levy were removed the proposed levy action balances the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary on date appeals officer henry notified petitioner that the appeals_office had issued a determination_letter she enclosed another form_656 package to be completed and sent to the appropriate office for your area discussion neither the amount of petitioner’s liability nor the procedural facts in this case are in dispute petitioner contends that there was an abuse_of_discretion because he was not provided information on how to appeal appeals officer henry’s determination that the levy proposed in date would not be withdrawn and because the appeals officer relied on erroneous calculations by the revenue_officer with respect to petitioner’s monthly income respondent argues that because the matter was already being considered by the office of appeals pursuant to petitioner’s request for a sec_6330 hearing the form_656 instructions concerning appeals from rejections of offers in compromise do not apply to this case respondent also argues that there is no requirement that the appeals_office wait a particular period of time after requesting an amended offer in any event respondent argues that petitioner’s amended offer was inadequate and would not have changed the appeals officer’s determination finally respondent contends that because the appeals officer relied on a financial analysis and articulated reasons for her determination there was no abuse_of_discretion sec_7122 authorizes compromise of a taxpayer’s federal_income_tax liability grounds for compromise include doubt as to liability doubt as to collectibility or promotion of effective tax_administration sec_301_7122-1t b temporary proced admin regs fed reg date see sec_7122 the record reflects that doubt as to collectibility exists but there is disagreement as to the collectible amount there is no indication in the record that collection of the full liability would create economic hardship or affect voluntary compliance by taxpayers see sec_301 1t b temporary proced admin regs supra we approach the dispute in this case in the context of review of a hearing conducted under sec_6330 under sec_6330 a taxpayer is entitled to one hearing in which he may propose alternatives to collection such as the levy action proposed by respondent on date see sec_6330 c and d where as here liability is not an issue the appeals officer’s determination is reviewed for abuse_of_discretion 114_tc_176 generally we consider only issues raised at the hearing before the appeals_office 118_tc_488 thus we do not conduct an independent review of what would be an acceptable offer_in_compromise we review only whether the appeals officer’s refusal to accept the offer_in_compromise made by petitioner was arbitrary capricious or without sound basis in fact or law see 112_tc_19 it is possible as petitioner contends that the revenue officer’s financial analysis based on the information that petitioner had provided was flawed we cannot however conclude that the information that petitioner provided was reliable or that consideration of his amended offer_in_compromise of dollar_figure would have changed the determination the appeals officer’s determination was based on analysis of the information that petitioner submitted the appeals officer adopted the revenue officer’s conclusion that petitioner could pay dollar_figure in compromise of unpaid liabilities for years exceeding dollar_figure the determination also indicated that the proposed levy was necessary to induce payment which was not an unreasonable conclusion in view of petitioner’s long history of delinquency based on the information considered by the appeals officer we cannot conclude that rejection of petitioner’s initial offer was an abuse_of_discretion or that rejection of petitioner’s amended offer would be an abuse_of_discretion see crisan v commissioner tcmemo_2003_318 willis v commissioner tcmemo_2003_302 o’brien v commisioner tcmemo_2003_290 schulman v commissioner tcmemo_2002_129 to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------------- --------------------------------------- --------------------------- ---------------------------------- legend 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-120360-11 date date x ------------------------------------------ ------------------------------------------ d1 d2 ---------------------- ---------------------- state ---------------- dear ------------------ this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d1 under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d2 but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the plr-120360-11 first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d2 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representative made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d2 if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------------- ---------------------------------- ------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number ------- ------------ refer reply to cc psi plr-131162-14 date date legend x -------------------------------------------- ------------------------------------ state date a year ----------- ------------------ ------------------------ ------ -- dear ------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code facts according to the information provided x was formed as a limited_liability_company under the laws of state and treated as a partnership for federal tax purposes on date a a member of x died x relied on its tax advisor to make a timely sec_754 election for year however the tax advisor inadvertently failed to timely make the election with x’s return for its taxable_year ending in year law and analysis plr-131162-14 sec_754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution_of_property or a transfer of a partnership_interest an election under sec_754 applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership must be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions therefore for filing the return for the taxable_year under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for the year taxable_year and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with x’s year tax_return a copy of this letter should be attached to the election plr-131162-14 except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of the facts of this case under any other provision of the code and the regulations thereunder 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 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination 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 associate chief_counsel passthroughs and special industries by _______________ holly a porter chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


tcmemo_2007_224 united_states tax_court douglas a gibson petitioner v commissioner of internal revenue respondent docket no filed date dwight m montgomery for petitioner laura a mckenna for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in petitioner’ sec_2002 federal_income_tax and a dollar_figure sec_6662 penalty for after a concession the issues remaining for decision are whether dollar_figure petitioner received during in connection with a settlement of a lawsuit is excludable from gross_income pursuant to sec_104 and whether petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed the petition petitioner resided in sun city california in petitioner’s wife inherited a home in sun city california the sun city residence in the county of riverside the county in late petitioner his wife and their children the gibsons moved into the sun city residence the sun city residence was in an area zoned as a senior citizen development scd by the county a county ordinance provided that an scd zoning restriction placed a certain age- related residency restriction the restriction on person sec_1 unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure petitioner conceded that the social_security_benefits he received during are taxable occupying dwelling units within the scd the gibsons did not satisfy the restriction in the sun city civic association reported the gibsons’ restriction violation to county code enforcement authorities cce authorities the cce authorities contacted the gibsons several times with regard to the restriction on the first occasion cce authorities served notice on the gibsons informing them of the restriction and that they were in violation of the restriction later cce authorities issued the gibsons a citation stating that they should comply immediately with the restriction by restricting the occupancy of the home to persons satisfying the restriction cce authorities advised the gibsons that continued violation of the restriction might result in fines and imprisonment also cce authorities issued petitioner a notice to appear in court alleging a criminal violation of the ordinance that imposed the restriction the county later dropped the charge and petitioner did not have to appear in court other sun city residents harassed and physically and verbally threatened the gibsons because of their violation of the restriction in date the gibsons and other plaintiffs initiated a class action lawsuit against the county and certain other county officials in the u s district_court for the central district of california in the class’s first amended complaint the class set forth claims violation of the federal fair housing act violation of the california fair employment and housing act violation of the unruh civil rights act violation of federal substantive due process violation of california substantive due process violation of federal equal protection laws violation of california equal protection laws violation of california procedural due process violation of california privacy laws violation of federal freedom of association laws violation of california freedom of association laws california inverse condemnation california estoppel by nonconforming use rights and california estoppel by exceeding zoning authority the plaintiff class incorporated into each of the above-referenced claims between and paragraphs of additional material paragraph of that additional material alleged bodily injury among nine other losses suffered by petitioner and members of petitioner’s class paragraph states by reason of defendant’s unlawful acts or practices plaintiffs and members of plaintiff class have suffered loss of housing violation of their civil rights monetary damages humiliation and bodily injury including but not limited to physical and emotional distress plaintiffs and members of the plaintiff class have also suffered the loss of the important social business economic and political benefits of associations that arise from living in communities integrated with families and children in date the district_court entered a consent decree in petitioner’s class action lawsuit the consent decree granted declaratory injunctive and monetary relief to petitioner and the other named plaintiffs petitioner his wife’s estate and his children received a total of dollar_figure in monetary relief to be allocated as agreed among them the consent decree also established a fund for the purpose of making distributions to unnamed plaintiffs who submitted qualified claims pursuant to the decree six factors are to be considered in determining the amount of compensation due to unnamed qualified claimants those six factors are the number of citations or threats received the degree of coercion expressed in the citation or threat or other communication from the county to the claimant whether the claimant left the dwelling in question because of the citation or threat the nature and degree of emotional distress suffered including whether the claimant provided evidence of any physical symptoms of emotional distress or other special circumstances which increased the emotional distress whether the claimant provided evidence of any increased costs resulting from the loss of housing including but not limited to increased cost of alternative housing wages and other income lost during the time spent looking for petitioner’s wife died in and her estate was substituted as a party in the class action lawsuit alternative housing moving storage or packing costs temporary housing costs any costs of commuting to and from work in excess of those that would have been incurred commuting to and from the denied housing and whether the claimant provided evidence of any other compensable loss petitioner received dollar_figure of the dollar_figure awarded to him his wife’s estate and his children petitioner engaged an experienced tax attorney who met with the class action attorneys to obtain all the pertinent facts and circumstances after reviewing the information the tax attorney advised petitioner to report dollar_figure of the dollar_figure as other income and to label it damages on petitioner’ sec_2002 form_1040 u s individual_income_tax_return petitioner took his tax attorney’s advice and reported on hi sec_2002 return dollar_figure of the dollar_figure in damages he received in the notice_of_deficiency respondent determined that the entire amount of the settlement was includable in petitioner’s gross_income additionally respondent determined an accuracy- related penalty of dollar_figure related to petitioner’s failure to report dollar_figure of the settlement proceeds opinion i deficiency a burden_of_proof the commissioner’s determinations generally are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 70_f3d_548 9th cir the u s court_of_appeals for the ninth circuit to which an appeal of this case would lie has held that in order for the presumption of correctness to attach to the notice_of_deficiency in unreported income cases the commissioner must establish some evidentiary foundation linking the taxpayer to the income-producing activity 596_f2d_358 9th cir revg 67_tc_672 or demonstrating that the taxpayer received unreported income 680_f2d_1268 9th cir see also 774_f2d_932 9th cir once there is evidence of actual receipt of funds by the taxpayer the taxpayer has the burden of proving that all or part of those funds are not taxable tokarski v although 596_f2d_358 9th cir revg 67_tc_672 was an unreported income case regarding illegal source income the u s court_of_appeals for the ninth circuit applies the weimerskirch rule in all cases involving the receipt of unreported income see 680_f2d_1268 9th cir 92_tc_661 commissioner 87_tc_74 accordingly petitioner bears the burden_of_proof see rule a b sec_104 it is well established that pursuant to sec_61 gross_income includes all income from whatever source derived unless otherwise excluded by the internal_revenue_code see 348_us_426 exclusions from gross_income are construed narrowly 515_us_323 as relevant here sec_104 provides sec_104 compensation_for injuries or sickness a in general --except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include-- the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness for the first time in the opening brief petitioner raises the issue of respondent’s bearing the burden_of_proof pursuant to sec_7491 as amended generally we will not consider an issue that is raised for the first time on brief see 92_tc_376 affd 920_f2d_1196 5th cir 64_tc_989 for purposes of paragraph emotional distress shall not be treated as a physical injury or physical sickness damages received mean amounts received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1_104-1 income_tax regs in evaluating whether amounts received pursuant to a settlement agreement are excludable from income pursuant to sec_104 we look to the written terms of the settlement agreement to determine the origin and allocation of the settlement proceeds see 88_tc_834 affd without published opinion 845_f2d_1013 3d cir jacobs v commissioner tcmemo_2000_59 affd sub nom 22_fedappx_967 10th cir petitioner settled his claims against the county the parties entered into a settlement agreement via a consent decree entered by the district_court in that consent decree the district_court granted petitioner declaratory injunctive and monetary relief petitioner received dollar_figure of the dollar_figure awarded to the gibsons pursuant to the consent decree the sec_104 was amended by the small_business job protection act of publaw_104_188 sec 110_stat_1838 to provide effective for amounts received after date that the personal_injury_or_sickness for which the damages are received must be physical district_court did not allocate the proceeds among petitioner’s claims if a settlement agreement lacks express language stating what the settlement amount was paid to settle we look to the intent of the payor on the basis of all the facts and circumstances of the case including the complaint filed and details surrounding the litigation 504_us_229 102_tc_116 affd in part and revd in part on another issue 70_f3d_34 5th cir knuckles v commissioner tcmemo_1964_33 affd 349_f2d_610 10th cir a key question to ask is ‘in lieu of what were the damages awarded ’ robinson v commissioner supra pincite quoting 144_f2d_110 1st cir affg 1_tc_952 accordingly the court must determine the intent of the payor upon the basis of the facts and circumstances including petitioner’s complaint in the class action lawsuit petitioner argues that the first amended complaint includes a cause of action and remedy for bodily injury and physical distress petitioner testified that he was verbally and physically harassed by other residents of sun city according to petitioner this harassment and the stress of the lawsuit caused him to suffer numerous headaches stomach aches and breathing problems petitioner testified that he visited a doctor for both stomach aches and breathing problems petitioner failed to show how the county or any of the individuals involved in the class action lawsuit caused his alleged personal physical injury or physical sickness additionally petitioner failed to produce any documentary_evidence from his alleged doctor visits if a party fails to introduce evidence within that party’s possession we may presume in some circumstances that if produced the evidence would be unfavorable to that party 6_tc_1158 affd 162_f2d_513 10th cir this is true where the party that does not produce the evidence has the burden_of_proof or the other party has established a prima facie case id furthermore we have previously held that stomach problems and headaches such as those suffered by petitioner are symptoms of emotional distress see hawkins v commissioner tcmemo_2005_149 explaining that emotional distress includes symptoms such as headaches and stomach disorders petitioner produced no receipts prescriptions or other evidence to corroborate his testimony of his alleged breathing problems we are not required to and do not accept petitioner’s self-serving testimony regarding his alleged personal physical injuries or physical sickness without corroborating evidence see 440_f2d_688 9th cir affg per curiam tcmemo_1969_ lerch v commissioner tcmemo_1987_295 affd 877_f2d_624 7th cir petitioner argues that because the consent decree entered in the class action lawsuit provided payments for physical injuries and physical sickness some share of petitioner’s settlement proceeds consist of damages received on account of personal physical injury or physical sickness petitioner argues that because he was a named member of the certified plaintiff class his claims are typical of the claims of the plaintiff class petitioner argues that since unnamed plaintiffs must satisfy one of the six factors set forth in the consent decree discussed supra to qualify for compensation petitioner must also satisfy at least one of the six factors petitioner claims that the only factor he satisfies is whether claimant provided evidence of any other compensable loss petitioner contends that this demonstrates that he sustained physical injury and physical sickness we reject this argument the six factors referred to by petitioner are relevant to determining the amount of compensation due to unnamed claimants assuming arguendo that we accept petitioner’s self-serving and uncorroborated testimony it appears that petitioner qualified for at least three of the six factors cited none of which consists of personal physical injuries or physical sickness additionally factor six for which petitioner claims he qualifies refers to any other compensable loss and does not necessarily include personal physical injury and physical sickness apart from petitioner’s self-serving and uncorroborated testimony the record does not establish that petitioner received a portion of his dollar_figure total settlement proceeds on account of personal physical injury or physical sickness accordingly we sustain respondent’s determination that the settlement proceeds petitioner received in are includable in his gross_income see geiger v commissioner supra lerch v commissioner supra ii accuracy-related_penalty a sec_6662 penalty respondent determined an accuracy-related_penalty under sec_6662 of dollar_figure respondent determined that the entire underpayment_of_tax for was attributable to negligence or disregard of rules or regulations and or a substantial_understatement_of_income_tax pursuant to sec_6662 a taxpayer may be liable for a penalty of percent of the portion of an underpayment_of_tax petitioner qualified for factor because he received a citation he qualified for factor because the cce authorities told the gibsons they would have to move also the citation threatened fines and imprisonment additionally petitioner was served with a notice to appear in court to face possible criminal charges he qualified for factor because of the emotional distress he suffered due to negligence or disregard of rules or regulations or attributable to any substantial_understatement_of_income_tax sec_6662 the term understatement means the excess of the amount of tax required to be shown on a return over the amount of tax imposed which is shown on the return reduced by any rebate within the meaning of sec_6211 sec_6662 generally an understatement is a substantial_understatement when the understatement exceeds the greater of dollar_figure or percent of the amount of tax required to be shown on the return sec_6662 the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the internal_revenue_code and any failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 the term disregard includes any careless reckless or intentional disregard sec_6662 b burden of production the commissioner has the burden of production with respect to the accuracy-related_penalty sec_7491 to meet this burden the commissioner must produce sufficient evidence indicating that it is appropriate to impose the penalty see 116_tc_438 once the commissioner meets this burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect rule a see higbee v commissioner supra the taxpayer may meet this burden by proving that he or she acted with reasonable_cause and in good_faith see sec_6664 see also higbee v commissioner supra sec_1_6664-4 income_tax regs c analysis respondent met his burden of production pursuant to sec_7491 petitioner’ sec_2002 income_tax return contains an understatement of income_tax greater than dollar_figure see sec_6662 accordingly petitioner bears the burden of proving that the accuracy-related_penalty should not be imposed with respect to any portion of the underpayment for which he acted with reasonable_cause and in good_faith see sec_6664 higbee v commissioner supra pincite relevant factors include the taxpayer’s efforts to assess his proper tax_liability including the taxpayer’s reasonable and good_faith reliance on the advice of a professional sec_1_6664-4 income_tax regs petitioner has no relevant tax education sophistication or business experience petitioner engaged an experienced tax attorney to determine the proper tax treatment of petitioner’s settlement award after discussing the relevant facts and circumstances of the class action lawsuit with the class action attorneys the tax attorney advised petitioner to report dollar_figure of the dollar_figure settlement as taxable_income on the basis of that advice petitioner reported dollar_figure on hi sec_2002 tax_return accordingly petitioner is not liable for the accuracy-related_penalty in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number -------------------------- ------------------------ ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc ita b03 plr-134371-09 date date legend -------------------------- taxpayer tax_return_preparer ------------------ year year year dollar_figurea dollar_figureb dollar_figurec dollar_figured ------- ------- ------- --------- ----------- --------- ----------- dear ----------------- this responds to your letter dated date requesting an extension of time under sec_301_9100-1 and -301 of the procedure and administration regulations for you to make a late election to treat qualified_dividend_income and net capital_gains as investment_income pursuant to sec_163 and sec_163 of the internal_revenue_code the code for year and year facts taxpayer is an individual taxpayer on her federal_income_tax return for year taxpayer reported qualified dividends in the amount of dollar_figurea and capital_gains in the amount of dollar_figureb on her federal_income_tax return for year taxpayer reported qualified dividends in the amount of dollar_figurec and capital_gains in the amount of dollar_figured to prepare those federal_income_tax returns for the year and year taxable years taxpayer engaged tax_return_preparer and relied on tax_return preparer’s plr-134371-09 experience and background with respect to all tax matters tax_return_preparer was not aware of the election that can be made under sec_163 of the code to consider some or all of qualified dividends and net capital_gains as investment_income for purposes of computing the allowable investment_interest deduction as a result such an election was not made on taxpayer’s tax returns for year and year taxpayer was not aware of the implications of this election until her tax preparer called this matter to her attention in year law sec_163 of the code provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest for any taxable_year shall not exceed the net_investment_income of the taxpayer for the taxable_year sec_163 of the code provides in pertinent part that investment_income means the sum of -- i gross_income from property_held_for_investment other than any gain taken into account under clause ii i ii the excess if any of -- i the net gain attributable to the disposition of property_held_for_investment over ii the net_capital_gain determined by only taking into account gains and losses from dispositions of property_held_for_investment plus iii so much of the net_capital_gain referred to in clause ii ii or if lesser the net gain referred to in clause ii i as the taxpayer elects to take into account under this clause such term shall include qualified_dividend_income as defined in sec_1 only to the extent the taxpayer elects to treat such income as investment_income for purposes of this subsection sec_1_163_d_-1 of the income_tax regulations provides that the election for net_capital_gain and qualified_dividend_income must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the net_capital_gain is recognized or the qualified_dividend_income is received sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election for this purpose sec_301_9100-1 defines the term regulatory election as an election whose due_date is plr-134371-09 prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief plr-134371-09 sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph c i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made under paragraph c ii the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section analysis in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations have been satisfied taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_163_d_-1 the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith with this request taxpayer requested relief before the failure to make the regulatory election is discovered by the service taxpayer reasonably relied on a qualified_tax professional and that tax professional failed to make or advise taxpayer to make an election under sec_163 these facts indicate taxpayer acted reasonably and in good_faith further based on the facts provided the interests of the government will not be prejudiced by granting relief in this case taxpayer will not have a lower tax_liability in the aggregate for the year and year taxable years affected by the election if given permission to make the election at this time than taxpayer would have had if the election had been timely made in addition the year and year taxable years in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under sec_6501 before taxpayer’s receipt of the ruling granting an extension of time to make a late election ruling because she acted reasonably and in good_faith and granting relief will not prejudice the interests of the government taxpayer has met the requirements for an extension under sec_301_9100-3 for making the sec_163 election for the year and year taxable years accordingly taxpayer is granted an extension of time for making the election until days from the date of this ruling the election should be made by filing a form plr-134371-09 investment_interest expense deduction and by including a copy of this ruling letter with amended returns for year and year caveats the above extension of time for making the election is conditioned on the receipt of the sec_6501 consent form signed by taxpayer to extend the period of limitations on assessment under sec_6501 by one year for the year taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by the appropriate parties while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the code sincerely christopher f kane branch chief branch office of associate chief_counsel income_tax accounting enclosure 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 corp b1 plr-109429-17 date date legend bankruptcy court ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------- --------------------------------------------------------------------------------------- bankruptcy court order ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ----------------------------------------------- business ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------ ----------------------------------------------------- cla sec_1 shares ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------- -------------------- cla sec_2 shares ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------- -------------------- plr-109429-17 company ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --- ------------------------------------------------------------------------ -------------------------------------------------------------------- credit bid ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------- ------------------------------------------------------------------------ ------------------------------------------ creditor ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------ ------------------------------------- debt ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------- ------------------------------------------------------------------------ -------------------------- debt agreement ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------ debt ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----- ------------------------------------------------------------------------ ------------------- plr-109429-17 debt ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------- junior creditors ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------- ------------------------------------------------------------------------ ------------------------------------------------ letters of credit ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ---------------------------------------- letters of credit debt --------------------------- lossco ----------------------------------------------------------------------- ------------------------------------------------------------------------ ----------------------------------------------------- ----------------------------------------------------------- mere change ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------------- non-5 creditor ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ plr-109429-17 ------------------------------------------------------------------------ ------------- obligation ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------- obligation nominee ---------------------------------------------------------- ------------------ ----------------------------------------------------------------------- note --------------------------------------------------------------------------------------------------------------------- ---- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ---------------------------- ----------------------------------------------------------------------- note --------------------------------------------------------------------------------------------------------------------- ---- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------- permits ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------ plr-109429-17 surety bonds ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------------------------------------------------- transaction ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ----------- date date date date date date a b c d e f g h ------------------ ---------------------------- ------------------- ---------------------- ----------------------- -------------------------- ----------------------------------- ------------------------------ ----------------------------------- ----------------- ----------------------------------- ----------------------------------- -------------------------------- ----------------------------------- plr-109429-17 i j ----------------------------------- ------------------------------ dear --------------- this letter responds to your authorized representatives’ letter dated date requesting rulings under sec_382 of the internal_revenue_code the code the relevant information provided in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts lossco a publicly traded domestic_corporation was the parent of an affiliated_group_of_corporations the lossco group that filed a consolidated_return for u s federal_income_tax purposes prior to date members of the lossco group operated business which required permits to obtain permits members of the lossco group were required to obtain and submit the surety bonds to provide financial assurance to secure the performance and satisfaction of obligation in addition as part of the conduct of business members of lossco group incurred obligation and obtained surety bonds to provide financial assurance to secure the performance and satisfaction of obligation the issuers of the surety bonds required the relevant lossco group members to provide the letters of credit as security before issuing the surety bonds on date a date more than months prior to date lossco entered into the debt agreement with certain creditors and issued debt pursuant to the debt agreement a facility under the debt agreement provided for the issuance of the letters of credit and the letters of credit debt was incurred under this facility on date a date more than months prior to date lossco issued debt to certain creditors subsequently and less than months prior to date lossco issued debt to certain creditors debt was properly treated as part of the same issuance as debt under sec_1_1275-2 debt and debt collectively the qualified reopening debt were evidenced by note and note respectively note and note were in the form of promissory notes made out for the aggregate plr-109429-17 amount of the debt were made payable to the order of nominee or its assigns and were identified with the same cusip number on date lossco and members of the lossco group filed voluntary petitions for protection under chapter title united_states_code on date the bankruptcy court issued the bankruptcy court order authorizing the transaction on date the transaction was implemented pursuant to which members of the lossco group transferred assets to company and to entities disregarded as separate from company the creditors provided the credit bid the creditors received a of company’s cla sec_1 shares and the junior creditors received b a de_minimis amount of company’s cla sec_1 shares thereafter on date the bankruptcy court entered an order converting the lossco group bankruptcy proceedings to cases under chapter title united_states_code in the transaction in addition to the cla sec_1 shares company distributed rights to the creditors permitting them to purchase an aggregate of c of the company’s cla sec_2 shares the rights offering in the rights offering creditors were provided with non-certificated rights to purchase a proportionate amount of an aggregate of c cla sec_2 shares and irrevocably commit to purchase a proportionate amount of up to an aggregate of d of the company’s cla sec_1 shares upon the company’s demand the rights offering was allocated among the creditors based on their relative holdings of the aggregate amount of debt debt debt and letters of credit debt collectively the senior debt and creditors could choose to exercise all some or none of their respective rights certain creditors the backstop parties agreed to backstop the rights offering on a fully committed basis by agreeing to i exercise in full the rights they received in the rights offering and ii allow the company the option to require them to purchase additional cla sec_2 shares the backstop shares that were not otherwise purchased in the rights offering each creditor agreeing to act as a backstop party committed to purchase its proportionate amount of the backstop shares with the proportion based on the amount of senior debt held by the creditor relative to the aggregate amount of senior debt held by the backstop parties creditors were the only persons that could act as a backstop party on date in the rights offering company issued e cla sec_2 shares as part of the initial offering and f cla sec_2 shares as backstop shares collectively the rights offering shares as of the close of date the date of the transaction and thus the date of the ownership_change h of the company’s stock by value was owned by non-5 creditors who constituted a public_group within the meaning of sec_1_382-2t and the remaining i of company’s stock by value was owned by persons who were not non-5 creditors less than months prior to date and prior to date draws under the letters of credit were made by the issuers of the surety bonds certain creditors made payments to these issuers in response to these draws thus giving rise to the letters of plr-109429-17 credit debt under the debt agreement company issued j cla sec_1 shares being a portion of the a cla sec_1 shares issued on date to these creditors with respect to the letters of credit debt representations the taxpayer has made the following representations a prior to and at the time of the transaction lossco was a loss_corporation within the meaning of sec_382 and sec_1_382-2 and the lossco group was a loss group within the meaning of sec_1_1502-91 b lossco was under_the_jurisdiction_of_the_bankruptcy_court immediately prior to and at the time of the transaction c the transaction qualified as one or more reorganizations within the meaning of sec_368 in which the requirements of sec_354 were met d company succeeded to consolidated_net_operating_loss carryovers of the lossco group as a result of the transaction e no election pursuant to sec_1_382-9 was made to elect out of sec_382 f obligation and obligation arose in connection with the normal usual or customary conduct of business within the meaning of sec_1 d iv g none of the senior debt was beneficially owned by a non-5 creditor whose participation in formulating a plan_of_reorganization made it evident to company that the non-5 creditor had not owned the indebtedness for a period of months or more as of date h taking all facts and circumstances into account it is mathematically possible that the non-5 creditors held a sufficient amount of debt such that in combination with the amount of debt and letters of credit debt held by such creditors non-5 creditors received in the aggregate an amount of equity in company that satisfied the test in sec_382 and sec_382 rulings based on the information provided and the representations set forth above we rule as follows plr-109429-17 company may treat the qualified reopening debt owned by the non-5 creditors as having been owned by such creditors since date for purposes of meeting the 18-month requirement of sec_382 and sec_1_382-9 company may treat the rights offering shares acquired by non-5 creditors as having been acquired in full or partial satisfaction of qualified indebtedness under sec_1_382-9 company may treat the letters of credit debt as having arisen in the ordinary course of the trade_or_business within the meaning of sec_382 and sec_1_382-9 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transactions that is not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _______________________ mark s jennings senior technician reviewer branch office of associate chief_counsel corporate


t c memo united_states tax_court gary g and linda j hart petitioners v commissioner of internal revenue respondent docket no filed date gary r matthews for petitioners aubrey c brown for respondent memorandum findings_of_fact and opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in continued respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure after concessions by the parties ’ the issues for decision are as follows whether petitioners' tobacco barn is sec_179 property and what is the applicable_recovery_period for petitioners' tobacco barn findings_of_fact some of the facts have been stipulated and they are so found petitioners resided in richmond kentucky at the time that their petition was filed with the court petitioners own a 187-acre farm on which they grow burley tobacco and raise beef cattle in addition petitioners grow a continued issue and all rule references are to the tax_court rules_of_practice and procedure petitioners concede an adjustment regarding the applicable_depreciation_method recovery_period and convention with respect to a concrete septic tank further petitioners concede an adjustment for schedule f mortgage interest in the amount of dollar_figure respondent concedes that petitioners are entitled to schedule a deductions for state and local_taxes in the amount of dollar_figure home mortgage interest in the amount of dollar_figure medical_expenses in the amount of dollar_figure to the extent such amount exceeds percent of adjusted_gross_income and charitable_contributions in the amount of dollar_figure finally the parties agree that the earned_income_credit adjustment is purely computational limited amount of corn and hay to feed their cattle during the year in issue petitioners grew approximately big_number pounds of tobacco on their farm petitioners also purchase and make ready for market tobacco crop from tobacco farmers who do not themselves process the tobacco to make their tobacco ready for market petitioners process the tobacco in the following manner petitioners generally harvest their tobacco crop at the end of july the cut tobacco is then mounted over approximately 4-foot-long sticks six to eight plants on a single stick the tobacco is then left in the field for a few days for field curing ie drying thereafter the tobacco is loaded onto wagons and transported to a tobacco barn in the tobacco barn the tobacco sticks are hung on stringers and left to cure for several months generally until october petitioners hire a few employees for about weeks to assist them with the aforementioned tasks after curing their tobacco petitioners strip the tobacco leaves from the stalk and grade them into to different gualities stripping and grading of the tobacco leaves are essential parts of petitioners' tobacco business finally petitioners bale the graded tobacco leaves put them into boxes and transport them to another location where they are eventually shipped to the market petitioners hire a few employees generally for about months to assist them with the stripping grading baling and boxing of the tobacco leaves petitioners acquired a new tobacco barn in the tobacco barn the tobacco barn is an enclosed structure consisting of wooden walls a high a-type ceiling and a dirt floor it i sec_36 feet wide and feet long it ha sec_3 doors on each of two opposite sides large enough to admit large pieces of machinery or farming equipment the tobacco barn is constructed with support beams four across and thirteen deep set on concrete piers there are drop rails running north to south and east to west at a 90-degree angle to the support beams the drop rails are set at three different heights and are used to hang the tobacco sticks the tobacco barn is not foundationally strong and could not for example house cattle however the tobacco barn could be structurally strengthened with relative ease the tobacco barn was constructed to provide for ventilation through the roof side walls and side doors on each of the two opposite sides of the barn there are approximately seven ventilator doors about feet wide used to control air flow there are also cracks between the boards on the sides of the barn due to the cracks in the walls large quantities of grain cannot be stored in the tobacco barn the tobacco barn is equipped with minimal electrical wiring and lighting fixtures it is not insulated nor does it have heating or plumbing the tobacco barn was not completed until date and petitioners did not cure tobacco in the tobacco barn during after its completion petitioners used the tobacco barn for stripping grading and baling the tobacco leaves since petitioners have used the tobacco barn in a substantial part of their tobacco business including the curing stripping grading baling and boxing of the tobacco leaves during curing season petitioners use the tobacco barn mainly as a curing facility during that season all of the work performed in the tobacco barn is related to the curing of the tobacco for example the tobacco barn is not equipped with a cable hoist system and tobacco is hung manually by petitioners and their employees after the curing season petitioners use the tobacco barn for about months of the year for stripping grading and baling and boxing of the tobacco leaves in what is commonly referred to as a stripping room a good stripping room is essential to tobacco producers for preparation of the tobacco for market a stripping room need not be located inside a tobacco barn in fact it is preferable to haul the unstripped tobacco to a more suitable location however smaller producers suffice by temporarily enclosing a portion of their barn with plastic and using a foldup bench and portable heat petitioners chose this latter option the stripping room or more appropriately in petitioners' case the stripping area is located in the center of the tobacco barn it i sec_12 feet wide and feet long it consists of plywood stacked to form a work bench a small machine used to strip tobacco and a hydraulic press used to bale tobacco the stripping area is not always enclosed only in cold weather do petitioners enclose the stripping area using plastic sheeting and plywood to provide shelter it takes about a day to enclose the stripping area the tobacco barn is generally not used in petitioners' tobacco business between march and july however in some years a limited amount of tobacco may remain hanging in the tobacco barn beyond february ---for example when petitioners produce tobacco in excess of their sales quota petitioners occasionally use the tobacco barn to store farm equipment petitioners own two other barns these other barns are referred to by petitioners as combination barns combination barns are of a sturdier design than the tobacco barn and may be used to cure and process tobacco as well as house cattle or store grain on their federal_income_tax return petitioners reported the cost of the tobacco barn as dollar_figure and elected to deduct dollar_figure of that amount under sec_179 petitioners claimed depreciation for the balance of the cost of the tobacco barn using the midquarter_convention the 150-percent declining balance method and a 10-year recovery_period in the notice_of_deficiency respondent determined that the dollar_figure cost consisted of the cost of two separate assets the tobacco barn and a concrete septic tank respondent determined that the tobacco barn was not entitled to sec_179 treatment and that the applicable recovery for the tobacco barn is years opinion issue deduction under sec_179 sec_179 allows a taxpayer to deduct rather than capitalize the cost of certain property up to specified dollar limits as specified in sec_179 the deduction is allowable for the entire cost or a portion of the cost of the property see sec_1_179-1 income_tax regs as pertinent here sec_179 property is any tangible_property that is sec_1245 property as defined in sec_1245 see sec_179 sec_1245 property is defined by sec_1245 as inter alia a personal_property b other_property not including a building or its structural_components but only if such other_property is tangible and as previously mentioned petitioners have conceded the adjustment regarding the concrete septic tank was used as an integral part of manufacturing production or extraction or constituted a facility used in connection with any of the activities referred to in clause for the bulk storage of fungible commodities or d a single_purpose_agricultural_or_horticultural_structure as defined in sec_168 sec_1_1245-3 income_tax regs provides that language used to describe property in sec_1245 b shall have the same meaning as when used in paragraph a of sec_1_48-1 income_tax regs and the terms building and structural_components shall have the meanings assigned to those terms in paragraph e of sec_1_48-1 income_tax regs in 109_tc_21 we held that in deciding whether a property is sec_1245 property congress intended the same tests to be used as were applied for purposes of deciding whether property was sec_38 property for purposes of the investment_tax_credit under sec_48 prior to the amendment of sec_48 in the omnibus budget reconciliation act of obra publaw_101_ sec a stat effective with respect to property placed_in_service after date ’ henceforth all references to sec_48 are to that section previous to its amendment by the omnibus budget reconciliation act of publaw_101_508 sec a stat prior to its amendment sec_48 provided as follows in general -- the term sec_38 property means-- a tangible_personal_property or b other tangible_property not including a building and its structural_components but only if such property-- is used as an integral part of manufacturing production or extraction x kk or constitutes a facility used in connection with any of the activities referred to in clause i for the bulk storage of fungible commodities or d single purpose agricultural or horticultural structures sec_48 defined the term single_purpose_horticultural_structure as follows a a greenhouse specifically designed constructed and used for the commercial production of plants and b a structure specifically designed constructed and used for the commercial production of mushrooms continued petitioners contend that the tobacco barn qualifies as sec_1245 property as the term in defined under both sec_1245 a b and sec_1245 d a sec_1245 8b petitioners' first contention is that the tobacco barn is a structure other than a building used as an integral part of manufacturing or production of tobacco and meets the requirements of sec_1245 b alternatively petitioners contend that the tobacco barn is a structure other than a building used as a facility in connection with the manufacturing or production of tobacco for the bulk storage of tobacco and meets the requirements of sec_1245 b respondent argues that the tobacco barn is a building within continued further sec_48 provided structures which include work space --an enclosure or structure which provides work space shall be treated as a single_purpose_horticultural_structure only if such work space is solely for-- a the stocking caring for or collecting of plants or their produce b the maintenance of the enclosure or structure and c the maintenance or replacement of the equipment or stock enclosed or housed therein the meaning of the exclusion of sec_1245 b we agree with respondent the term building as used in sec_48 and therefore as applicable to our discussion has caused much consternation among taxpayers and has produced a correspondingly large amount of litigation see 74_tc_137 as a result the term building has become a term of art see id in this regard it has long been established that used in the context of sec_48 congress intended that the term building be given its commonly accepted meaning that is a structure or edifice enclosing a space within its walls and usually covered by a roof h rept 87th cong 2d sess 1962_3_cb_405 s rept 87th cong 2d sess 1962_3_cb_707 see eg 538_f2d_790 8th cir 87_tc_463 affd 849_f2d_1398 11th cir 76_tc_609 73_tc_1059 62_tc_413 in the alternative respondent argues that the tobacco barn does not meet a number of the other requirements of sec_1245 a b however because we agree with respondent that the tobacco barn is a building we need not consider these alternative arguments sec_1 48-l1 e income_tax regs defines the term building as follows the term building generally means any structure or edifice enclosing a space within its walls and usually covered by a roof the purpose of which is for example to provide shelter or housing or to provide working office parking display or sales space the term includes for example structures such as apartment houses factory and office buildings warehouses barns garages railway or bus stations and stores the term building does not include such structures as oil_and_gas storage tanks grain storage bins silos fractionating towers blast furnaces basic oxygen furnaces coke-ovens brick kilns and coal tipples this regulation has been interpreted to establish a two-part test that considers both appearance and function in determining whether a particular structure is a building the appearance test as its name implies considers whether the structure has the appearance of a building in the ordinary sense see yellow freight sys inc v united_states supra pincite cf a c monk co v united st686_f2d_1058 4th cir the testimony and photographs in the record clearly show that the tobacco barn resembles a building in appearance thus the tobacco barn would be considered a building under the appearance test of sec_1 48-l1 e income_tax regs the scope of the term building is limited to structures used for purposes or functions similar to those enumerated in sec_1 48-l1 e income_tax regs see munford inc v commissioner supra pincite 50_tc_306 thus the functional test is described as one that inguires whether the purpose of the structure at issue is a purpose ejusdem generis to the purposes described by example in sec_1 48-l1 e income_tax regs and whether the structure performs a function similar to those structures enumerated in sec_1_48-1 income_tax regs as buildings ie apartment houses factory and office buildings warehouses barns garages railway or bus stations and stores see 74_tc_768 affd in part and revd in part on another issue 708_f2d_1385 9th cir thus the court must consider whether the structure functions like a building ie does it 'provide shelter or furnish working space or exist for another purpose that could be listed with the enumerated purposes without violating the constraining rules of ejusdem generis ' see 708_f2d_1385 9th cir affg in part and revg in part on another issue 74_tc_768 in applying the functional test one of the major focuses of inquiry is whether the structure provides working space for employees that is more than merely incidental to the primary function of the structure see eg 499_f2d_1263 munford inc v commissioner supra pincite scott paper co v commissioner supra pincite valmont indus inc v commissioner supra pincite catron v commissioner supra pincite 369_fsupp_1283 w d ky affd per curiam 491_f2d_1258 6th cir in this regard it 1s appropriate to consider both the quantity and guality of the human activity within the structure see 620_f2d_862 munford inc v commissioner supra pincite consolidated freightways inc v commissioner t c pincite satrum v commissioner supra pincite if the nature of work performed within the structure is merely supportive and ancillary to the function of the structure then the structure is not considered as providing working space see valmont indus inc v commissioner supra pincite in valmont indus inc v commissioner supra pincite we considered whether a structure provided working space considering the guantity and the nature of the employee activity performed in two galvanizing facilities we stated the proper inquiry is whether a substantial number of employees were frequently and regularly occupied in the facility this determination will necessarily depend upon the nature of the business venture housed within that structure citation omitted we went on to hold that in the context of that taxpayer's galvanizing operation work performed by to employees within the structure on a regular basis was substantial in gquantity and nature therefore the galvanizing structure was held to be a building petitioners contend that the tobacco barn was designed and constructed as a curing facility they assert that as a curing facility the tobacco barn is not similar to those structures enumerated in sec_1_48-1 income_tax regs as buildings there is no dispute that petitioners and their employees performed many chores in the tobacco barn the type of chores performed in the tobacco barn was twofold first petitioners and their employees spent about weeks transporting tobacco from the field to the tobacco barn and hanging the tobacco sticks therein we are satisfied that this activity would not lead to the conclusion that the tobacco barn provided working space however the tobacco barn provided working space beyond that ancillary to the function of the structure as a curing facility for about months of the year petitioners and certain employees used the tobacco barn on a full-time basis to prepare the tobacco for sale by stripping grading baling and boxing the tobacco given the nature of petitioners' tobacco manufacturing business human activity in stripping grading baling and boxing the tobacco was regular and frequent and exceeded the amount of human activity required in the curing process thus the tobacco barn provided working space that was more than merely incidental to the function of the structure as a curing facility petitioners rely heavily on brown williamson tobacco corp v united_states supra petitioners' reliance on this case is misplaced in brown williamson tobacco corp v united_states f_supp pincite the district_court specifically relied on the fact that the tobacco shed did not provide working space other than bringing in and out of the tobacco hogsheads and their placement in the racks created for them and their removal therefrom to hold that the tobacco shed in issue did not constitute a building the district_court indicated that the work involved in lifting tobacco hogsheads to storage racks was ancillary to the function of the structure as a storage_facility obviously petitioners' case is distinguishable from brown williamson tobacco corp v united_states supra in that the tobacco barn provided frequent and regular work space in the context of petitioners' tobacco manufacturing business in a number of cases this court has considered a discrete area of a larger structure to be a structure other than a building while holding other discrete areas of the same structure to be a building see eg munford inc v commission er t c pincite each of three distinct areas a truck loading platform a rail-loading platform anda refrigerated area were considered separately under the functional test 58_tc_365 sweet rooms of permanent construction that were closed off from the remainder of the plant by a floor-to-ceiling wall were considered separately 50_tc_306 cold-storage room sealed off from rest of structure by a floor-to-ceiling wall was considered separately petitioners' case however is factually distinguishable from the above-mentioned cases because the stripping area in the tobacco barn is not a distinct nor permanent structure during good weather the area is not partitioned by any material in cold weather petitioners put up a temporary room by hanging plastic sheeting and plywood to wood beams providing structural support for the tobacco barn under these circumstance the stripping area cannot be considered distinct from the rest of the tobacco barn and the work performed in that area must be considered work performed in the tobacco barn based on the foregoing the tobacco barn is a building and therefore is not sec_1245 property within the meaning of sec_1245 b b sec_1245 d alternatively petitioners contend that the tobacco barn is a single_purpose_horticultural_structure as defined in sec_1245 a d respondent contends that the tobacco barn is a general purpose structure we agree with respondent sec_168 b defines a single_purpose_horticultural_structure as i a greenhouse specifically designed constructed and used for the commercial production of plants and ii a structure specifically designed constructed and used for the commercial production of mushrooms in addition sec_168 b provides an enclosure or structure which provides work space shall be treated as a single_purpose_horticultural_structure only if such work space is solely for-- i the stocking caring for or collecting of livestock or plants as the case may be or their produce ii the maintenance of the enclosure or structure and iii the maintenance or replacement of the equipment or stock enclosed or housed therein thus in essence sec_168 b requires that in order to be a horticultural structure an asset must meet three tests first the structure must be specifically designed and constructed for permissible purposes e the specific design test see sec_1_48-10 income_tax regs the only permissible purposes for a single_purpose_horticultural_structure are the commercial production of plants including plant products such as flowers vegetables or fruit in a qreenhouse or the commercial production of mushrooms sec_1_48-10 income_tax regs emphasis added it is clear that the tobacco barn was not specifically designed and constructed for either of these permissible purposes the tobacco barn is not a greenhouse in which plants or plant products such as flowers vegetables or fruits are commercially produced see sec_1_48-10 income_tax regs neither is it a structure used in the commercial production of mushrooms see sec_1_48-10 income_tax regs the tobacco barn therefore does not meet the specific design test second a horticultural structure must be exclusively used for ie the exclusive use test the above-enumerated purposes see sec_1_48-10 income_tax regs under although not dispositive we find petitioners' characterization of the tobacco barn as a barn to be probative in evaluating the function of the structure legislative_history and case law indicate that general purpose agricultural structures such as barns and other farm structures which can be adapted to a variety of uses do not constitute single purpose horticultural structures s rept pincite 1978_3_cb_315 see sherwood v commissioner tcmemo_1988_544 petitioners stored farm equipment in the tobacco barn although not clear at what financial cost the tobacco barn could also be made foundationally stronger and could thereafter house cattle thus even though we do not base our holding on this issue these facts suggest that the tobacco barn could be adapted to a variety of uses and therefore is a general purpose structure the exclusive use test using the structure to process or market the product is nonpermissible see oregon trail mushroom co v commissioner tcmemo_1992_293 sec_1_48-10 a income_tax regs sec_1_48-10 iv income_tax regs provides that a horticultural structure that contains an area for processing plants or plant products will fail the exclusive use test because there is a nonpermissible use to decide whether the tobacco barn meets the exclusive use test we must therefore consider whether the curing stripping grading baling and boxing of the tobacco leaves constitute production activities or whether any is a nonpermissible use of that structure in oregon trail mushroom co v commissioner t c memo supra the issue was whether certain structures were used for the commercial production of mushrooms in that case we held that a structure used in the production of mushrooms is not merely a structure where mushrooms actually grow rather we held that a structure used to pasteurize compost ie to kill all organisms so that only mushrooms will grow constituted a structure used in the production of mushrooms we held that the pasteurization step was a necessary step and to eliminate that step would reduce or destroy the mushroom crop see id although in oregon trail mushroom co v commissioner supra we gave broad interpretation to the term production facility we cannot define that term as broadly in the context of petitioner's tobacco barn the distinction lies in the fact that the tobacco barn was not used in the production of mushrooms congress chose that in the context of mushroom production a single_purpose_horticultural_structure would be any structure specifically designed and constructed for that purpose whereas in the context of plant production a single_purpose_horticultural_structure would be any greenhouse specifically designed and constructed for that purpose see sec_168 b by using the word greenhouse we think that congress intended that only plant production activities of the type performed in a greenhouse would qualify as plant production activities thus petitioners' tobacco barn a structure other than a greenhouse used in the curing stripping grading baling and boxing of tobacco-- activities which we think constitute market preparation----does not meet the exclusive use test in addition the tobacco barn was extensively used in making the tobacco ready for market as mentioned work space ina single_purpose_horticultural_structure must be limited to that necessary to stock care for or collect plants or their products see sec_168 b as provided by sec_1_48-10 income_tax regs the term stocking caring for or collecting plants includes ancillary postproduction activities however the curing stripping grading baling and boxing of the tobacco leaves are not ancillary post-production activities see sec_1_48-10 income_tax regs although gathering sorting loading and packing activities when carried on in conjunction with and ancillary to other permissible purposes do not disqualify a structure as a single purpose agricultural structure they cannot constitute the sum total of the activities performed in the structure id because we are not persuaded that any of the activities performed in the tobacco barn ie the curing stripping grading baling and boxing of the tobacco leaves constitute the commercial production of plants in a greenhouse we cannot hold that such activities simply constitute ancillary post production activities see id third for a structure to be a single_purpose_horticultural_structure it must satisfy an actual use test see sec_1_48-10 income_tax regs however because we have held that the tobacco barn does not meet the specific design or the exclusive use test we need not consider whether it meets the actual use test based on the foregoing we hold that the tobacco barn is not a single_purpose_horticultural_structure it therefore follows that the tobacco barn is not sec_179 property - - issue recovery_period we must decide the applicable_recovery_period for the tobacco barn respondent determined that the tobacco barn is year property petitioners contend that the tobacco barn is year or in the alternative 15-year_property we agree with respondent the applicable_recovery_period is an element in the calculation of the deduction for depreciation allowed by sec_167 as pertinent here sec_168 provides the following applicable recovery periods type of property applicable_recovery_period 10-year_property years 15-year_property years 20-year_property years sec_168 generally defines 10-year_property as property having a class_life of years or more but less than years 15-year_property as property having a class_life of years or more but less than years and 20-year_property as property having a class_life of or more years class_life as defined by sec_168 1i is determined by reference to former sec_167 as in effect prior to its repeal by the obra sec a stat sec_167 provided for a depreciation allowance based upon the class_life prescribed by the secretary_of_the_treasury or_his_delegate the class lives of depreciable assets can be found in a series of revenue procedures issued by the commissioner see sec_1 a --11 b income_tax regs the revenue_procedure in effect for the years in issue in this case is revproc_87_56 1987_2_cb_674 as pertinent here revproc_87_ 1987_2_cb_677 provides the following asset guideline classes land improvements includes improvements directly to or added to land whether such improvements are sec_1245 property or sec_1250 property provided such improvements are depreciable examples of such assets might include sidewalks roads canals waterways drainage facilities sewers wharves and docks bridges fences landscaping shrubbery or radio and television transmitting towers does not include land improvements that are explicitly included in any other class and buildings and structural_components as defined in sec_1 48-l e of the regulations farm buildings except structures included in class single purpose agricultural or horticultural structures within the meaning of sec_48 of the code assets includable in class have a class_life of years and by virtue of sec_168 are 15-year_property with an applicable_recovery_period of years see sec_168 assets includable in class have a class_life of years and by virtue of sec_168 are 20-year_property with an applicable_recovery_period of years see id finally single purpose agricultural or horticultural structures are by virtue of sec_168 d 10-year_property with an applicable_recovery_period of years see id respondent contends that the tobacco barn is a farm building a class asset and therefore has a recovery life of years petitioners contend that the tobacco barn has a recovery_period of years because it is a single_purpose_horticultural_structure as discussed above the tobacco barn is not a single_purpose_horticultural_structure and therefore does not have a 10-year recovery_period as prescribed under sec_168 e d in the alternative petitioners contend that the tobacco barn is a land improvement a class asset and therefore has a recovery_period of years as discussed above the tobacco barn is a building as defined under sec_1_48-1l1 e income_tax regs class specifically excludes buildings therefore the tobacco barn does not have a 15-year recovery_period by virtue of being includable in class petitioners have not asserted that the tobacco barn is 10-year or 15-year_property by virtue of being includable in any other class of assets we therefore sustain respondent on this issue to reflect our disposition of the disputed issues as well as the parties' concessions decision will be entered under rule