tcmemo_1997_566 united_states tax_court gerald hickman petitioner v commissioner of internal revenue respondent docket no filed date joseph falcone and brian h rolfe for petitioner meso t hammoud for respondent memorandum findings_of_fact and opinion laro judge in the statutory notice dated date respondent determined deficiencies and additions to petitioner's income_tax as follows additions to tax sec year deficiency a a a a a a b sec sec sec sec sec dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure --- --- --- --- --- --- --- dollar_figure --- --- --- --- dollar_figure big_number percent of the interest due on dollar_figure dollar_figure dollar_figure and dollar_figure respectively for through the determination is based on petitioner's failure_to_file federal_income_tax returns and report income earned in his capacity as an independent_contractor petitioner while a resident of clarkston michigan petitioned the court on date to redetermine respondent's determination of deficiencies and additions to tax petitioner concedes that he is liable for the tax deficiencies and additions to tax for the through tax years the through tax years remain in issue and we must decide the following whether respondent is collaterally estopped from asserting income_tax deficiencies against petitioner for the through tax years we hold that respondent is not collaterally estopped from litigating this issue and that petitioner is liable for the entire deficiency determination 1unless otherwise indicated section references are to the internal_revenue_code applicable to the years in issue rule references are to the tax_court rules_of_practice and procedure whether res_judicata bars respondent from asserting additions to tax for the through tax years we hold that it does not a whether petitioner is liable under sec_6651 for failing to file his through federal_income_tax returns we hold that he is b whether petitioner is liable under sec_6653 for the negligence addition_to_tax we hold that he is c whether petitioner is liable under sec_6654 for failing to pay estimated income_tax for through we hold that he is findings_of_fact the case was submitted to the court fully stipulated on date the stipulations of fact with accompanying exhibits are incorporated herein by reference during 2in his petition petitioner argues that expiration of the statutory period of limitations bars assessment and collection of deficiencies in income_tax for the years in issue respondent contends that petitioner failed to file returns for the through tax years and therefore the income_tax deficiencies for those years may be assessed at any time under sec_6501 generally assessment must be made within years after the filing of a return sec_6501 however in the case of failure_to_file a return the tax may be assessed at any time sec_6501 the parties have stipulated that petitioner did not file federal_income_tax returns for through consequently the period of limitations is not a consideration in this case 3respondent objects to petitioner's exhibit on the grounds of relevancy petitioner's exhibit is a copy of a release of continued through petitioner worked as a design engineer draftsman on an independent_contractor basis during petitioner worked for utica machine stellar engineering and bernal rotary and from them respectively received compensation in the amounts of dollar_figure dollar_figure and dollar_figure during petitioner worked for bernal rotary and received compensation in the amount of dollar_figure and during petitioner worked for bernal rotary and received compensation in the amount of dollar_figure petitioner did not file federal_income_tax returns for through on date petitioner pursuant to sec_7203 was indicted on three counts of willfully failing to file federal_income_tax returns for the tax years through count one of the indictment charged that petitioner received gross_income in the amount of dollar_figure during the tax_year and by reason of such income petitioner was required to file a federal_income_tax return for that year on or before date continued abstract of judgment which petitioner submits as proof that he fulfilled all conditions of the u s district_court for the eastern district of michigan's order of judgment including a restitution payment to the internal_revenue_service fed r evid a rule that applies to this court under rule a tax_court rules_of_practice and procedure provides broadly that evidence is relevant if it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence we find that exhibit is relevant and is therefore admissible see estate of scanlan v commissioner tcmemo_1996_331 affd without published opinion 116_f3d_1476 5th cir count two of the indictment charged that petitioner received gross_income in the amount of dollar_figure during and by reason of such income petitioner was required to file a federal_income_tax return for that year on or before date count three of the indictment charged that petitioner received gross_income in the amount of dollar_figure during and by reason of such income was required to file a federal_income_tax return for that year on or before date each count further charged that petitioner wilfully and knowingly failed to file these requisite returns on or around date petitioner was tried on all three counts before a jury in the u s district_court for the eastern district of michigan district_court during the trial a government witness testified that petitioner's gross_income for through respectively was dollar_figure dollar_figure and dollar_figure the witness further identified petitioner's corresponding tax_liabilities as dollar_figure dollar_figure and dollar_figure respectively the government also submitted into evidence exhibit 40b entitled computation of taxable_income and tax due for gerald r hickman which identified among other things petitioner's gross_income taxable_income and total_tax due for through on date petitioner was found guilty on all three counts on date the district_court entered an order of judgment against petitioner sentencing petitioner to community confinement and probation in addition the district court's order of judgment required petitioner to make immediate restitution to the internal_revenue_service in the total amount of dollar_figure the restitution amount is based on the government witness's testimony of petitioner's tax_liability for through on or around date petitioner paid the ordered restitution in full the judgment of the district_court is final subsequently respondent determined in the notice_of_deficiency that petitioner received income in the amounts of dollar_figure dollar_figure and dollar_figure respectively for through based on those amounts respondent's deficiency determinations for through are dollar_figure dollar_figure and dollar_figure respectively the total deficiency for all years is dollar_figure an dollar_figure difference from the tax_liability presented to the district_court and the district court's ordered restitution payment the difference in the tax_liability calculation submitted to the district_court and respondent's deficiency determination stems from respondent's disallowance of certain capital losses and itemized_deductions these disallowances result in positive adjustments to the taxable_income figures presented to the district_court opinion petitioner concedes that he had gross_income in the amounts determined by respondent for the years in issue petitioner alleges however that the doctrines of collateral_estoppel and res_judicata preclude respondent from seeking deficiencies in excess of those found by the district_court and additions in tax i collateral_estoppel and respondent's deficiency determination the primary issue in this case is whether the doctrine_of collateral_estoppel precludes respondent from asserting tax deficiencies for the through tax years petitioner argues that the district court's order of restitution is tantamount to a final_determination of petitioner's tax_liabilities thereby respondent is precluded from determining tax_liabilities in excess of those determined by the district_court what is at stake for petitioner is the payment of an additional dollar_figure in income taxes a collateral_estoppel respondent argues that the doctrine_of collateral_estoppel does not apply for the tax years through because the district_court did not decide the issue of petitioner's exact income_tax liabilities thereby respondent is not precluded from determining and assessing petitioner's income_tax liabilities respondent sets forth two arguments in support of this position first the indictment did not charge petitioner with any specific tax_liability amount instead it only charged petitioner with receiving specific amounts of income amounts which petitioner does not dispute second the district court's order for restitution was based upon the testimony of a government witness whose testimony was incidental to the issue of the specific amounts of income received by petitioner respondent contends that petitioner's tax_liability was not actually litigated and decided and that the evidence of petitioner's tax_liability was only introduced for the purpose of proving that petitioner was required to file federal_income_tax returns petitioner argues that the district_court determined his income_tax liabilities for through and that respondent is collaterally estopped from relitigating petitioner's tax_liability for those years in support petitioner contends that his tax_liability was actually determined actually litigated and essential to the judgment of the criminal conviction and restitution order as a result of the district court's judgment petitioner contends that his tax_liability for through is limited to the dollar_figure amount ordered by the district_court collateral_estoppel and the related doctrine_of res_judicata have the dual purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation 91_tc_273 issue preclusion or collateral_estoppel is defined in restatement judgment sec_2d sec_27 as follows when an issue of fact or law is actually litigated and determined by a valid and final judgment and the determination is essential to the judgment the determination is conclusive in a subsequent action between the parties whether on the same or a different claim collateral_estoppel may be applied in civil trials to issues previously determined in a criminal conviction 832_f2d_1021 7th cir 711_f2d_267 d c cir 43_tc_50 affd 360_f2d_358 4th cir in 440_us_147 the supreme court established a three-prong test for applying collateral_estoppel first whether the issues presented in the subsequent litigation are in substance the same as those issues presented in the first case second whether controlling facts or legal principles have changed significantly since the first judgment and third whether other special circumstances warrant an exception to the normal rules of preclusion in 90_tc_162 affd 904_f2d_525 9th cir the court stated that the three-pronged rubric provided by the supreme court in the montana case embodies a number of detailed tests developed by the courts to test the appropriateness of collateral_estoppel in essentially factual contexts building on the supreme court's analysis in montana the court in peck identified five conditions that must be satisfied for collateral_estoppel to apply first the issue in the second suit must be identical in all respects with the one decided in the first suit second there must be a final judgment rendered by a court of competent jurisdiction third collateral_estoppel may only be invoked against parties and their privities to the prior judgment fourth the parties must have actually litigated the issue and the resolution of these issues must have been essential to the prior decision and fifth the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation id pincite see also 333_us_591 62_tc_607 the parties do not dispute that the judgment of the district_court is a final judgment by a court of competent jurisdiction that the same parties are involved in the two proceedings or that controlling facts and applicable legal rules have remained unchanged the arguments in this case concern whether or not the issue in the two cases is identical whether the parties actually litigated and decided the issue before the district_court and whether the district court's resolution of the issue was essential to its decision we believe that resolution of the issue of whether the district court's finding of petitioner's tax_liability was essential to its decision is dispositive thus we focus on this precondition to the application of collateral_estoppel respondent argues that the district_court was not required to find the amount of petitioner's specific tax_liability in finding him guilty in the criminal case and that a finding of his specific income_tax_liability was not essential to the district court's judgment petitioner argues that in order for the district_court to enter a judgment and impose a sentence against him it was necessary for the district_court to determine the amount of his income_tax lability for the years in issue we conclude that resolution of petitioner's tax_liability was not essential to the district court's judgment petitioner's specific tax_liability is not an element that the government must prove in order to secure a conviction under sec_7203 sec_7203 states that any person required under this title to make a return who willfully fails to make such return at the time or times required_by_law or regulations shall in addition to other penalties provided by law be guilty of a misdemeanor to sustain its burden_of_proof under sec_7203 the government must establish three elements that the defendant was required_by_law to file a tax_return for the year in issue that he or she failed to timely file such tax_return and that the failure was willful sec_7203 see also 371_f2d_729 4th cir in order to establish that petitioner was required_by_law to file a return it must be shown that he received at least the amount of gross_income specified by sec_6012 establishing petitioner's tax_liability is not an element of sec_7203 and consequently no specific income_tax_liability need be determined see cipparone v commissioner tcmemo_1985_234 cf johnson v commissioner tcmemo_1993_227 taxpayer precluded from disputing the amounts he received as embezzlement income where he was convicted in state court of theft in office and the specific amounts embezzled were under state law essential elements of each count in the indictment second the fact that the district court's order of restitution is discretionary also supports our conclusion that a finding of petitioner's tax_liability was not essential to the district court's judgment pursuant to u s c section the court may order in addition to or in the case of a misdemeanor in lieu of any other penalty authorized by law that the defendant make restitution to any victim of such offense emphasis added for the aforementioned reasons we find that an adjudication of petitioner's tax_liability was not essential to the district court's judgment and that this precondition to the application of collateral_estoppel is not satisfied we therefore find that respondent is not collaterally estopped from asserting tax deficiencies for the through tax years b respondent's deficiency determination respondent determined that petitioner underpaid his through income_tax by dollar_figure dollar_figure and dollar_figure respectively the underpayment is attributable to petitioner's failure_to_file his income_tax returns for through and report income earned in his capacity as a self-employed independent_contractor petitioner does not argue that respondent's determination of the deficiency is incorrect we therefore sustain respondent's determination ii res_judicata and the additions to tax as an initial matter petitioner argues that the doctrine_of res_judicata bars respondent from litigating petitioner's liability for any additions to tax petitioner contends that the government's failure to raise the issue of any additions to tax in the criminal proceeding precludes respondent from raising the issue before this court res_judicata claim preclusion precludes relitigation of issues that were or could have been raised regarding a cause of action 333_us_591 under the doctrine_of res_judicata when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action the parties to the suit and their privies are thereafter bound not only as to every matter which was offered and received to sustain or defeat the claim or demand but as to any other admissible matter which might have been offered for that purpose id pincite but where the second action between the same parties is upon a different cause or demand the judgment in the prior action has preclusive effect only as to those matters in issue or points controverted upon the determination of which the finding or verdict was rendered id pincite in 424_f2d_639 2d cir affg 52_tc_532 the court stated when a civil trial follows criminal proceedings which were based on the same facts a different cause of action is involved and the doctrine_of collateral_estoppel rather than that of res_judicata must be considered see also 303_us_391 10_f3d_1553 11th cir towe v commissioner tcmemo_1992_689 the doctrine_of res_judicata is therefore not applicable for reasons already explained it is obvious that ascertaining petitioner's liability for these additions to tax was not essential to the district court's judgment and the doctrine_of collateral_estoppel also has no preclusive effect a sec_6651 --failure to file respondent determined that petitioner is liable under sec_6651 for his failure_to_file returns for through in addition to the facts presented in this case respondent pleaded and relies upon the doctrine_of collateral_estoppel to establish petitioner's liability under sec_6651 this argument is based upon the fact that petitioner was convicted under sec_7203 of willful failure_to_file income_tax returns for through sec_6651 imposes a 5-percent addition_to_tax each month for failure_to_file a tax_return the addition is not to exceed percent in the aggregate a sec_6651 addition_to_tax is warranted where a taxpayer fails to file a timely return unless the taxpayer shows that his failure to do so was due to reasonable_cause and not due to willful neglect where the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time the delay is deemed due to reasonable_cause sec_301_6651-1 proc admin regs as previously noted the doctrine_of collateral_estoppel is intended to avoid repetitious litigation by precluding the relitigation of any issue of fact or law that was actually litigated and that culminated in a valid and final judgment montana v united_states u s pincite 86_tc_1253 the fact that was conclusively established by petitioner's conviction under sec_7203 was that he had willfully failed to file a return for each of the years through willful means the voluntary intentional violation of a known legal duty 429_us_10 petitioner's conviction under sec_7203 thus conclusively establishes that his failure_to_file was not due to reasonable_cause and was due to willful neglect and he is accordingly estopped from contending otherwise kotmair v commissioner supra pincite petitioner is therefore liable for the sec_6651 addition_to_tax b section 6653--negligence addition_to_tax respondent determined that petitioner is liable under sec_6653 for the negligence addition_to_tax as follows for the and tax years pursuant to sec_6653 and b for the tax_year pursuant to sec_6653 respondent argues that the doctrine_of collateral_estoppel also precludes petitioner from arguing against imposition of the negligence addition_to_tax respondent contends that petitioner's conviction under sec_7203 conclusively establishes that petitioner willfully failed to file his through returns and thereby petitioner is collaterally estopped from denying his liability for the negligence addition_to_tax a sec_6653 addition_to_tax is imposed if any part of the underpayment_of_tax is due to negligence for the and tax years if any part of an underpayment is due to negligence there shall be added to the tax an amount equal to the sum of percent of the underpayment and an amount equal to percent of the interest payable under sec_6601 with respect to the portion of such underpayment which is attributable to negligence sec_6653 and a b for the tax_year if any part of an underpayment is due to negligence there shall be added to the tax an amount equal to percent of the underpayment sec_6653 negligence includes any failure to make a reasonable attempt to comply with the provisions of the code sec_6653 furthermore negligence is the failure to do what a reasonable and ordinarily prudent person would do under the circumstances petitioner's conviction under sec_7203 for willful failure_to_file returns for through conclusively establishes the following that petitioner had the duty to file such returns that he he failed to do so and that his failure to do so was willful ie that he intentionally disregarded applicable rules or regulations requiring the filing of returns we therefore find that petitioner is collaterally for the time-sensitive interest component of the negligence_penalty was eliminated estopped from contesting his liability for the negligence addition_to_tax and uphold respondent's determination on this issue kotmair v commissioner supra pincite4 c section 6654--failure to pay estimated_tax respondent determined an addition_to_tax under sec_6654 for through based on petitioner's failure to pay estimated income_tax sec_6654 provides for an addition_to_tax in the case of any underpayment of estimated_tax by an individual estimated income_tax payments are used to provide for current payment of income taxes not collected through withholding this addition_to_tax is in addition to any applicable criminal penalties and is imposed whether or not there was reasonable_cause for the underpayment sec_1_6654-1 income_tax regs moreover an addition_to_tax under sec_6654 is mandatory absent the application of one of the exceptions contained in that section in re sanford 979_f2d_1511 11th cir 99_tc_202 91_tc_874 66_tc_817 remanded on other grounds 603_f2d_491 5th cir petitioner does not argue that any of the exceptions contained in sec_6654 apply nor does he argue that respondent erred in determining an addition_to_tax under sec_6654 accordingly we sustain respondent's determination and find petitioner liable under sec_6654 for his failure to make estimated_tax payments for through we have considered all other arguments made by the parties and found them to be either 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 psi b02 plr-154804-07 date date legend x a country d1 d2 ---------------------------------------- ---------------- -------------------------- ---------------- -------------------------- -------------------------- dear ------------- this is in response to a letter dated date submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that x is wholly owned by a and was converted under the laws of country to an entity eligible to make a classification election on d1 x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x intended to be classified as a disregarded_entity for federal tax purposes effective d2 however a form_8832 entity classification election for x to elect to be treated as a disregarded_entity effective d2 was not timely filed plr-154804-07 law and analysis sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed 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 code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request 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 plr-154804-07 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective d2 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 internal_revenue_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 will be sent to x’s authorized representative sincerely william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------------- ------------------------- -------------------------------------- re ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ---------------- telephone number -------------------- refer reply to cc psi plr-127116-16 date date --------------------------------- ----------------- ------------------ ----------------------------------- ----------------- ------------------ legend decedent date spouse date dear ---- -------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-127116-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-127116-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-127116-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-127116-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by melissa c liquerman melissa c liquerman chief branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


t c summary opinion united_states tax_court geralyn m randich petitioner v commissioner of internal revenue respondent steven m randich petitioner v commissioner of internal revenue respondent docket nos 2641-03s 21861-03s filed date geralyn m and steven m randich pro sese sean r gannon for respondent goldberg special_trial_judge these consolidated cases were heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time each petition was filed the decisions to be entered are not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure in separate notices of deficiency respondent determined that petitioners are liable for the following deficiencies in federal income taxes docket no 2641-03s taxable_year geralyn m randich deficiency dollar_figure docket no 21861-03s steven m randich taxable_year deficiency dollar_figure the issues for decision are whether dollar_figure received by petitioner geralyn m randich pursuant to a judgment for dissolution of marriage is includable in her income under sec_71 as alimony income and whether petitioner steven m randich may deduct as alimony pursuant to sec_215 dollar_figure that he paid to petitioner geralyn m randich pursuant to the judgment for dissolution of marriage background 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 the respective petitions were filed petitioners resided in new lenox illinois during taxable_year petitioner geralyn m randich ms randich was gainfully_employed in student services for the year in issue ms randich reported wage income of dollar_figure during taxable_year petitioner steven m randich mr randich was gainfully_employed as a union pipefitter for the year in issue mr randich reported wage income of dollar_figure from his employment with the union and some part-time jobs petitioners were married on date during their relationship petitioners together had four children cr born in lr born in sr born in and ar born in before date mr randich filed a petition with the circuit_court of the twelfth judicial circuit will county illinois circuit_court to commence divorce proceedings on date an order for temporary maintenance and support temporary order was entered by the circuit_court with respect to petitioners’ divorce case the temporary order provides in pertinent part 1the caption of this matter was in re the marriage of steven m randich plaintiff and geralyn m randich defendant case no d it is ordered mr randich shall pay by agreement for unallocated temporary maintenance and support by order for support the sum of dollar_figure per month petitioners were legally divorced in a judgment for dissolution of marriage pertaining to petitioners’ divorce was entered in the circuit_court on date the judgment for dissolution of marriage provides in pertinent part the respondent ms randich shall be the residential custodian of the three children of the parties cr ar and sr it is hereby ordered a custody of lr the custody of minor child lr is at issue in this cause the court considered the criteria set forth in section of the illinois marriage and dissolution of marriage act the court acknowledges that both parents wish to have custody of the child the court conducted an in_camera interview of the child and her siblings and took into consideration lr’s request to remain with her father mr randich the court further considered the the sic relationship and interaction of lr with her siblings and her parents the court finds that the minor children get along with each other very well and they love and care for each other the court considered the relationship between the parents and finds that the mother was the primary care giver for a great period of time and was lr’s care giver until september lr has ended up residing with her father as a result of her running away a couple of times and she has lived with him since september therefore after weighing all the considerations it is in the best interest of the minor child lr that she be placed in the custody of her mother ms randich respondent ms randich is awarded unallocated family support in the amount of dollar_figure per paycheck said unallocated family support shall commence immediately upon entry of the judgment for dissolution and shall be reviewable at the end of two years petitioner’s mr randich’s obligation to pay unallocated family support terminates upon respondent’s ms randich’s death her remarriage or cohabitation with another person on a resident continuing conjugal basis respondent ms randich shall be entitled to claim the children as her tax exemptions as long as she is receiving unallocated family support thereafter the issue of tax exemptions shall be presented to the court on date a separate order for the modification of maintenance and support was entered by the circuit_court with respect to petitioners’ divorce case this order for the modification of maintenance and support gave credit to mr randich for the sum of dollar_figure to offset an obligation for a joint furnace bill and left a balance of dollar_figure this offset was the result of petitioners’ daughter lr staying with mr randich for several months the offset was to compensate for an amount previously provided to ms randich from mr randich for the support of their daughter lr during these months in which lr was supposed to be residing with ms randich on or about date mr randich filed a motion for modification of support with the circuit_court the motion for modification of support states in pertinent part that pursuant to the judgment for dissolution of marriage petitioner mr randich was ordered to pay respondent ms randich the sum of dollar_figure per paycheck equivalent to dollar_figure per month as unallocated support that subsequent to the entry of the judgment for dissolution of marriage there has been a substantial change_of circumstances in a that the eldest child cr is emancipated that there has been a change_of custody from b respondent ms randich to petitioner mr randich as to the minor child lr pursuant to an order entered date wherefore petitioner mr randich and by his attorney bruce d falk respectfully request this honorable court as follows for an order modifying the unallocated support a obligation commensurate with the change_of circumstances of the parties for such other and further relief as the court may d deem appropriate on date an order relating to the date motion for modification of support was entered by the circuit_court in this order the circuit_court found that the change_of custody of minor child lr constitutes a change_of circumstances regarding support however the circuit_court did not modify the unallocated family support in this order on date mr randich filed with the circuit_court a letter addressed to the judge presiding over petitioners’ divorce case and a brief and argument on behalf of petitioner steven randich in support of the date motion for modification of support the brief states in pertinent part petitioner mr randich has filed a motion for modification of child_support respondent ms randich has filed a motion concerning payment of college expenses the underlying factual situation involved in this case is that the eldest child attends college the next eldest resides with petitioner mr randich and that the two youngest reside with respondent ms randich the court has ordered that the petitioner mr randich pay to respondent ms randich one-half of the loan obligation she incurred on behalf of the minor child cr for college expenses it should be noted that the listed college expenses for the child include all costs associated with education being not only room board tuition and fees but also transportation and living_expenses respondent’s ms randich’s loans are based upon a cost of attendance for the minor child at illinois state university not merely the cost of room board and tuition it is petitioner’s mr randich’s position that since by assuming one-half of the parental cost for the child’s attendance at college as opposed to one-half of the costs merely for tuition room and board that petitioner mr randich should no longer have to pay any additional expenses on behalf of the minor child petitioner mr randich further notes that he still maintains health insurance for the benefit of the child and that respondent ms randich has submitted no specific expenses for the child other than those associated with attendance at college in summary it is petitioner’s mr randich’s position that child_support pursuant to the statutory guidelines can include only three children since the eldest is now emancipated and attending college it is within the trial court’s discretion to order the monies paid for education expenses for the eldest child since the educational expenses sought by respondent ms randich included living_expenses for which the parties are equally sharing the costs petitioner mr randich requests that no further support be ordered concerning the eldest child as to the remaining three children considering the split-custody situation and the fact that both parties are employed on a full-time basis petitioner mr randich requests that the award be based on petitioner mr randich paying of his net_income to respondent ms randich after reducing that amount by of respondent’s ms randich’s net_income that would be paid to petitioner mr randich on date ms randich filed with the circuit_court a response to brief and argument on behalf of petitioner steven randich the response states in pertinent part in response to mr falk’s mr randich’s attorney petition for modification of child_support i must first address mr falk’s statement in his brief that the listed college expenses for the child include all costs associated with education being not only room board tuition and fees but also transportation and living_expenses your honor this assertion is false i am including a copy of illinois state university’s award letter from the financial aid office which clearly states that the student’s financial aid package is based on the academic year at the university also the financial package is to quote financial aid based on tuition and fees and on- campus room and board costs set by the university’s board_of trustees the financial aid office explains further regarding off-campus students stating that the cost of attendance is based on off-campus room and board book transportation and miscellaneous costs determined from a survey of average student expenses and adjusted for class standing living arrangement and if appropriate family size in any case cr is a full-time on- campus student the second crucial fact to note is that the academic year at isu began date and will end date this is approximately 8½ months it must also be noted that there is a week fall break and week christmas break which brings the school year down to a total of approximately months in length this does not count the numerous weekends that cr returns home therefore you can see that my son is indeed not emancipated and still needs a home and support for the months remaining in the year again not counting the weekends he is at home it is my position your honor that the educational expenses most certainly do not include living_expenses for my eldest child cr and that his father should continue to contribute to his support for the time of approximately months and also the numerous weekends that cr resides at his home with me and his siblings the next issue which the court must address is the issue of the change_of support which is currently paid to me for our second child lr who is currently years old and will turn years of age in and one-half months first i make it clear your honor that i am now receiving unallocated family support and although both your honor and mr falk referred several times to the figure of for child_support i do not even receive that percentage from my former husband i receive which judge kuhar based on mr randich’s w-2 income of dollar_figure plus his side-job earnings from heating and air-conditioning jobs of dollar_figure which totals dollar_figure in earnings it is agreed on all of our parts that the temporary change_of custody of lr constitutes a change_of circumstances regarding support i stated in court your honor that year ago in date after our divorce judgment was entered mr falk also asked for a modification of support due to the fact that lr had been staying with mr randich for about months it was ordered that i reimburse mr randich for this time on date a decision was entered by the circuit_court with respect to the date motion for modification of support the decision provides in pertinent part this cause coming on to be heard on the defendant’s mr randich’s petition for reduction of unallocated support due to the change_of physical custody of lr and the attendance at college of cr and the court having considered the facts affidavits and arguments finds that a substantial change_of circumstances has occurred warranting a review of unallocated family support therefore the court orders that unallocated family support be reduced from its current level to dollar_figure per year retroactive to date the court further allocates the dependent deductions as follows beginning in the year ms randich will claim the deduction for cr sr and ar mr randich will claim the deduction for lr if allowable under the tax code it is further ordered that any credits due mr randich because of retroactivity of this order is to be offset against the sum of dollar_figure which is currently due to ms randich and the net balance is to be paid in six equal installments with the first to be paid on date and the first of each succeeding month until paid on or about date an affidavit for wage deduction order and interrogatories answer to wage deduction proceedings was filed with the circuit_court on date mr randich filed with the circuit_court a motion to adjust child_support and a notice of motion on date mr randich filed with the circuit_court a motion to adjust child_support and to address non payment issues and a notice of motion on date mr randich filed with the circuit_court a motion for modification of support on date mr randich again filed with the circuit_court a motion to adjust child_support and a notice of motion on date an order relating to mr randich’s motion to adjust child_support was entered by the circuit_court the order provides in pertinent part this matter coming before the court on motion of petitioner mr randich to set child_support and the court hearing arguments and representations and being fully advised in the premises and based on the court’s finding of petitioner’s mr randich’s gross_income of approximately dollar_figure it is hereby ordered as follows that child_support is set in the sum of dollar_figure bi- weekly as of date on date an order with respect to a petition for rule to show cause was entered by the circuit_court the order provides in pertinent part that this matter coming on to be heard on the petition for rule to show cause previously entered against geralyn m randich on date for failure to include unallocated support on her tax_return as ordered in the judgment for dissolution of marriage petitioner mr randich present and represented by counsel and respondent geralyn m randich appearing pro_se the court finds that geralyn m randich is found to be in indirect civil contempt for failure to characterize the unallocated support as maintenance on her federal and state tax_return as ordered by the court on date in the judgment for dissolution of marriage that geralyn m randich shall have the opportunity to purge herself from contempt by filing an appropriate amended federal and state tax_return for properly characterizing the payments received in as maintenance or unallocated support that sentencing is stayed for days pending the filing of the amended federal and state tax returns 2ms randich objects to this document’s being entered into evidence on the grounds of relevance in that the information contained therein is not related to the matter at issue is unfair and prejudicial and promotes confusion of the matter at issue a ruling on ms randich’s objection was delayed for consideration this document will be received into evidence subject_to ms randich’s objection noted in the record on date an order with respect to a petition for rule for contempt of court was entered by the circuit_court the order provides in pertinent part this matter coming on to be heard on the petition for rule for contempt of court previously entered against geralyn randich on date and the purge of that contempt geralyn randich appearing in open court and producing her amended federal and state_income_tax return filed with the internal_revenue_service on date the court being fully advised in the matter it is hereby ordered that geralyn randich having filed the amended federal and state tax_return the contempt of court previously entered is hereby held for naught that geralyn randich is ordered to pay dollar_figure as and for attorney’s fees to theresa m malysa in monthly installments as follows date dollar_figure to be paid and thereafter on the first day of the month dollar_figure until the balance is paid in full and judgment is entered against geralyn randich in said amount on date ms randich timely filed her federal_income_tax return for taxable_year on her return ms randich did not report as income the dollar_figure in payments made to her by mr randich pursuant to the judgment for dissolution of marriage in petitioners’ divorce because she considered the full amount to be nontaxable child_support 3ms randich objects to this document’s being entered into evidence on the grounds of relevance in that the information contained therein is not related to the matter at issue is unfair and prejudicial and promotes confusion of the matter at issue a ruling on ms randich’s objection was delayed for consideration this document will be received into evidence subject_to ms randich’s objection noted in the record on date mr randich timely filed his federal_income_tax return for taxable_year on his return mr randich claimed a deduction of dollar_figure as alimony paid during tax_year to his former spouse ms randich pursuant to the judgment for dissolution of marriage in petitioners’ divorce following the examination by the internal_revenue_service irs of ms randich’s and mr randich’s federal_income_tax returns ms randich took the position that the payments made by her former spouse mr randich to her are nondeductible child_support for the taxable_year and are not includable in her income pursuant to sec_71 mr randich however took the position that the payments made to his former spouse ms randich constitute alimony paid during taxable_year which he is entitled to deduct pursuant to sec_215 and which is taxable to ms randich pursuant to sec_71 as a result respondent issued notices of deficiency to both ms randich and mr randich to avoid the possibility of being in a whipsaw_position on date respondent issued ms randich a notice_of_deficiency for taxable_year in the notice_of_deficiency respondent determined ms randich had unreported alimony income of dollar_figure and was liable for a deficiency of dollar_figure on date respondent issued mr randich a notice_of_deficiency for taxable_year in the notice_of_deficiency respondent disallowed mr randich’s claimed deduction of dollar_figure for alimony paid during tax_year determining that the payments were nondeductible child_support and that mr randich was liable for a tax_deficiency of dollar_figure discussion4 in the present circumstance respondent is caught in a potential whipsaw_position a whipsaw occurs when different taxpayers treat the same transaction involving the same items inconsistently thus creating the possibility that income could go untaxed or two unrelated parties could deduct the same expenses on their separate returns in such circumstances the commissioner is fully entitled to defend against inconsistent results by determining in notices of deficiency that both parties to the transaction are liable for the deficiency estate of dooley v commissioner tcmemo_1992_557 moore v commissioner tcmemo_1989_306 the deductibility of alimony is governed by sec_71 and sec_215 the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_795 applicable to divorce instruments executed after date amended both sections the parties have stipulated that the judgment for dissolution of marriage was entered by the circuit_court on date 4we decide the issues in this case without regard to the burden_of_proof accordingly we need not decide whether the general_rule of sec_7491 is applicable in this case see 116_tc_438 consequently sec_71 and sec_215 as amended by defra govern the payments in issue sec_215 allows an individual in computing adjusted_gross_income to deduct amounts paid during the year if those amounts are includable in the gross_income of the recipient under sec_71 sec_215 provides in relevant part sec_215 alimony etc payments a general_rule --in the case of an individual there shall be allowed as a deduction an amount equal to the alimony or separate_maintenance payments paid during such individual’s taxable_year b alimony or separate_maintenance payments defined -- for purposes of this section the term alimony_or_separate_maintenance_payment means any alimony_or_separate_maintenance_payment as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 therefore any disqualification from inclusion by the recipient spouse under sec_71 will automatically preclude deduction by the payor under sec_215 consequently the recipient of alimony payments must include those payments when calculating his or her gross_income sec_61 however payments to support children generally are not deductible sec_71 therefore a determination that a payment is or is not alimony is also a determination of who must shoulder the tax burden of that payment sec_71 provides that gross_income includes amounts received as alimony or separate_maintenance payments as previously stated alimony or separate_maintenance payments are defined by sec_71 which provides in part sec_71 alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse it is clear that in this case both the temporary order for maintenance and support and the judgment for dissolution meet the criteria of sec_71 and payments made therefore are alimony however sec_71 provides that sec_71 shall not apply to that part of any payment which the terms of the divorce_or_separation_instrument fix as a sum which is payable for the support of children of the payor spouse in general child_support cannot be inferred from intent surrounding circumstances or other subjective criteria for purposes of sec_71 rather the statutory directive that child_support payments be fixed is taken literally the inflexibility of this requirement was recognized by the supreme court in 366_us_299 in that case the court refused to find by inference that the statutory requirement was met where the parties’ agreement provided for percentage reduction of payments by a husband to a wife upon the marriage emancipation or death of any of their three children the court examined the legislative_history of the statutory predecessor of sec_71 and quoted from the report of the office of the legislative counsel to the senate committee which said if an amount is specified in the decree of divorce attributable to the support of minor children that amount is not income of the wife if however that amount_paid the wife includes the support of children but no amount is specified for the support of the children the entire amount goes into the income of the wife commissioner v lester supra pincite quoting hearings before senate committee on finance on h_r 77th cong 2d sess emphasis supplied the court went on to conclude this language leaves no room for doubt the agreement must expressly specify or fix a sum certain or percentage of the payment for child_support before any of the payment is excluded from the wife’s income the statutory requirement is strict and carefully worded it does not say that a sufficiently clear purpose on the part of the parties is sufficient to shift the tax it says that the written instrument must fix that portion of the payment which is to go to the support of the children otherwise the wife must pay the tax on the whole payment we are obliged to enforce this mandate of the congress id consequently in the case of unallocated or undifferentiated support for a wife and children none of the amount is treated as child_support under sec_71 in applying the principle of lester this court has repeatedly refused to allow inference intent or other nonspecific designations of payments as child_support to override the clear rule_of sec_71 see eg 81_tc_112 78_tc_963 63_tc_462 46_tc_674 defra changed the portion of the lester decision that held that no amount would be considered child_support unless it was specifically designated as such in the divorce or separation agreement under the current statute if any amount specified in the instrument will be reduced upon the happening of a contingency related to a child of the payor or at a time which can clearly be associated with such a contingency then the amount of the specified reduction will be treated as child_support rather than alimony sec_71 the above principle was recognized in berry v commissioner tcmemo_2005_91 where we stated while the exception to the general_rule of inclusion for amounts fixed as child_support remained essentially unchanged see sec_71 congress did overturn the result in commissioner v lester supra see sec_71 reduction in support that is clearly associated with a contingency specified in the divorce_or_separation_instrument that relates to a child will be treated as an amount fixed as payable for child_support lester continues however to stand for the proposition that subject_to sec_71 amounts will not be treated as child_support for purposes of sec_71 unless specifically designated as such in the governing divorce document we must decide therefore whether the support terms of the temporary order and the judgment for dissolution of marriage under which ms randich received the payments at issue for the taxable_year fixed a sum as payable for the support of petitioners’ minor children neither the temporary order entered on date nor the judgment for dissolution of marriage entered on date provided for a fixed amount payable for the support of petitioners’ children ms randich was awarded unallocated family support of dollar_figure per paycheck or dollar_figure per month furthermore the provision for unallocated family support did not contain any of the contingencies set forth in sec_71 therefore normally we would hold that all of the dollar_figure annual payment made by mr randich to ms randich would be considered alimony deductible by mr randich the payor and taxable to ms randich the payee however in date mr randich filed a motion for modification of support the grounds for his motion were that after the divorce judgment entered on date the oldest son cr became emancipated and there was a change_of custody for a minor child lr from ms randich to mr randich the circuit_court having jurisdiction over this matter entered an order on date finding that the change_of custody of the minor child cr constitutes a change_of circumstances regarding support at that time the circuit_court did not modify the amount of the unallocated family support set forth in the date judgment of divorce the circuit_court on date entered a decision and order with respect to the motion for modification of support and found that after consideration of the facts affidavits and arguments of the parties a substantial change_of circumstances had occurred warranting a review of unallocated family support the circuit_court ordered that unallocated family support be reduced from its then-current level of dollar_figure to dollar_figure per year retroactive to date the monthly amount was reduced to dollar_figure because of the retroactive effect of the order mr randich was due an offset of dollar_figure because of the circuit court’s order of date retroactively reducing the unallocated family support to dollar_figure effective date we hold that for the taxable_year ms randich must include dollar_figure months x dollar_figure dollar_figure months x dollar_figure dollar_figure as alimony income under sec_71 and mr randich is entitled to a deduction for alimony pursuant to sec_215 in the like amount reviewed and adopted as the report of the small_tax_case division decisions will be entered under rule


t c summary opinion united_states tax_court jana renea henson petitioner v commissioner of internal revenue respondent docket no 3205-11s filed date jana renea henson pro_se beth a nunnink for respondent summary opinion thornton chief_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by all other section references are to the internal_revenue_code code in continued any other court and this opinion shall not be treated as precedent for any other case respondent determined deficiencies in petitioner’s and federal_income_tax of dollar_figure and dollar_figure respectively respondent further determined penalties pursuant to sec_6662 of dollar_figure and dollar_figure for tax years and respectively after the parties’ concessions which are discussed more fully below the issues for decision are whether petitioner underreported gross_receipts from her cellular telephone business whether petitioner is entitled to deductions for returns and allowances greater than respondent has allowed whether petitioner had alimony income in and whether petitioner is liable for the accuracy- related penalty pursuant to sec_6662 for her tax_year background the parties have stipulated some facts which we find accordingly when she petitioned the court petitioner resided in kentucky continued effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure monetary amounts have been rounded to the nearest dollar petitioner’s divorce petitioner and michael henson married on date and separated on date on date petitioner and mr henson entered into a settlement agreement and judgment settlement agreement to conclude their divorce proceedings in the settlement agreement mr henson agreed to pay petitioner dollar_figure of equalization of property payments in three separate installments dollar_figure within days of the date of the execution of the divorce settlement agreement dollar_figure by date and dollar_figure by date also in the settlement agreement mr henson agreed to pay petitioner dollar_figure of maintenance payments to be paid in installments of dollar_figure per month for months beginning date and then dollar_figure per month for the next months the maintenance payments would terminate upon petitioner’s death or cohabitation or remarriage the settlement agreement did not address the tax treatment of the maintenance payments for either petitioner or mr henson in date petitioner received from mr henson the dollar_figure equalization of property payment that was due by date and deposited it into her bank account ending in from january through october of mr henson made a dollar_figure-per-month maintenance payment to petitioner --for a total of dollar_figure--but failed to make any payment in november or date in early petitioner filed suit in a tennessee state court against mr henson for his failure to make the required maintenance payments in november and date pursuant to the settlement agreement petitioner’s cellular telephone business in petitioner invested funds that she received from the settlement agreement in disney mobile kidz talk too petitioner’s business a business which generated income through sales of cellular telephones cellular accessories and cellular telephone contracts a former friend of petitioner’s ran and operated petitioner’s cellular telephone business and petitioner was not involved in the day-to-day operations of this business as part of its business agreement with cellular telephone_companies petitioner’s business would often receive advances or commissions for signing up new customers she deposited these advances or commissions variously into three bank accounts with account numbers ending in and over which the record does not show whether petitioner received the additional dollar_figure equalization of property payment due to her by date she had control if the new customers failed to fulfill and complete their contracts petitioner’s business was required to repay the cellular telephone_companies portions of the advances or commissions petitioner’s business ultimately proved unsuccessful and in she filed for bankruptcy petitioner’s bank_deposits during and petitioner deposited income she received from her business into three bank accounts in she deposited dollar_figure dollar_figure and dollar_figure into her and bank accounts respectively in she deposited dollar_figure and dollar_figure into her and bank accounts respectively petitioner’s tax returns petitioner timely filed her and federal_income_tax returns on schedules c profit or loss from business sole_proprietorship attached to those returns she reported gross_receipts of dollar_figure for and dollar_figure for she reported no deductions for returns and allowances on her return petitioner also reported as taxable_income dollar_figure of alimony received respondent’s notice_of_deficiency discussed infra determined that petitioner had dollar_figure of total deposits into her account in petitioner has stipulated however that she deposited dollar_figure into this account in respondent’s determinations respondent selected petitioner’s and income_tax returns for examination because petitioner was unable to provide records with respect to her business respondent’s examining agent used petitioner’s and bank account statements to reconstruct her income respondent’s agent determined petitioner’s gross_receipts for the years in issue by adding up deposits to these accounts and then subtracting the deposits that he was able to identify as nontaxable such as loan proceeds equalization of property payments and transfers from petitioner’s other bank accounts the following tables summarize respondent’s determinations taxable_year total deposits taxable deposits nontaxable deposits dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number account no total in arriving at his determination that petitioner had failed to report dollar_figure in taxable_income on her return respondent’s examining agent did not include the dollar_figure in maintenance payments petitioner had self-reported on her return or the dollar_figure in equalization of property payments petitioner received in date that were deposited into her bank account ending in taxable_year account no total total deposits --- dollar_figure big_number big_number taxable deposits nontaxable deposits --- dollar_figure big_number big_number --- dollar_figure big_number big_number in the notice_of_deficiency respondent determined that petitioner had unreported taxable receipts of dollar_figure for and dollar_figure for the notice_of_deficiency shows that for respondent calculated the dollar_figure of taxable receipts on the basis of dollar_figure of deposits minus dollar_figure in alimony that petitioner reported on her return and minus dollar_figure of gross_receipts that petitioner reported on her schedule c the notice_of_deficiency does not show how respondent determined the dollar_figure of unreported taxable receipts for the amounts of deposits remaining in dispute after the parties’ stipulations and concessions are summarized below taxable_year total account no deposits agreed taxable agreed nontaxable remaining in dispute dollar_figure total big_number big_number big_number dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number --- dollar_figure big_number big_number taxable_year total account no deposits agreed taxable agreed nontaxable remaining in dispute total --- dollar_figure big_number big_number --- dollar_figure big_number big_number --- dollar_figure big_number big_number --- dollar_figure big_number big_number a burden_of_proof discussion the burden_of_proof is generally upon the taxpayer except as may be otherwise provided by statute or determined by the court see rule a the court_of_appeals for the sixth circuit to which an appeal of this case would ordinarily lie if this case were appealable has held that the commissioner’s determination of unreported income must be based on a minimal evidentiary petitioner has not claimed and the record does not indicate that sec_7491 applies to shift the burden_of_proof to respondent with respect to any factual issue foundation linking the taxpayer to the tax-generating activity or the receipt of funds in order for the presumption of correctness to attach 909_f2d_915 6th cir see also richardson v commissioner tcmemo_2006_69 aff’d 509_f3d_736 6th cir once the commissioner meets his initial burden of production taxpayers bear the burden of producing credible_evidence that they did not earn the taxable_income attributed to them or of presenting an argument that the irs deficiency calculations were not grounded on a minimal evidentiary foundation walton f 2d pincite see also olmos v commissioner tcmemo_2007_82 the parties’ stipulations establish the requisite evidentiary foundation with respect to the unreported income b schedule c gross_receipts sec_61 provides that gross_income includes all income from whatever source derived including gross_income derived from business generally cash_basis taxpayers are required to recognize the amount of an item_of_gross_income in the taxable_year in which they receive it sec_451 taxpayers are required to maintain books_and_records that are sufficient to enable the commissioner to determine their gross_income and their correct_tax liability sec_1_6001-1 income_tax regs if a taxpayer fails to keep adequate_records the commissioner may reconstruct the taxpayer’s income by any reasonable method that clearly reflects income sec_446 see 348_us_121 one acceptable method is the bank_deposits method 102_tc_632 96_tc_858 aff’d 959_f2d_16 2d cir bevan v commissioner tcmemo_1971_312 aff’d 472_f2d_1381 6th cir this method assumes that if a taxpayer is engaged in an income-producing activity and makes deposits to bank accounts then those deposits less amounts identified as nontaxable items constitute taxable_income see clayton v commissioner t c pincite where the commissioner has used the bank_deposits method to determine deficiencies the taxpayer generally bears the burden of showing that the bank_deposits were derived from nontaxable sources see dileo v commissioner t c pincite bevan v commissioner tcmemo_1971_312 after the parties’ concessions and stipulations there remain in dispute only dollar_figure of deposits in and dollar_figure of deposits in collectively referred to hereinafter as disputed deposits petitioner does not deny making the disputed deposits rather she contends that certain of them were from nontaxable sources petitioner contends that certain of the disputed deposits represent nontaxable loan proceeds petitioner failed however to produce any documentation or other evidence to substantiate this claim when questioned at trial about certain deposits she claimed were loan proceeds she was unable to offer any specific details about them petitioner has failed to establish what amount if any of the disputed deposits represents loan proceeds petitioner also contends that certain of the disputed deposits represent advance_payments or commissions and are only partially taxable because her business would sometimes have to repay some of these amounts petitioner has failed to establish that these advance_payments or commissions are nontaxable pursuant to sec_61 gross_income includes all income from whatever source derived and includes all accessions to wealth clearly realized and over which a taxpayer has complete dominion 348_us_426 whether a taxpayer enjoys complete dominion over an accession to wealth depends upon whether the taxpayer has petitioner testified that her original records had been displaced because she moved three times and that she was unable to procure replacement records from her creditors because of their adverse interests having been parties to her bankruptcy proceeding petitioner’s alleged loss of records does not relieve her of the burden of proving the deposits derived from sources that were nontaxable see irving v commissioner tcmemo_2006_169 kelly v commissioner tcmemo_1987_352 aff’d without published opinion 858_f2d_743 11th cir some guarantee that the taxpayer will be allowed to keep the money 493_us_203 the funds in question were deposited into petitioner’s various bank accounts and were available for her use at any time without restriction apart from petitioner’s vague testimony there is no evidence of the amounts of funds that were returned to the cellular telephone_companies and no basis upon which we might reliably estimate the amounts petitioner has provided the court with no evidence that would show the terms of any arrangements between petitioner’s business and these cellular telephone_companies we sustain respondent’s determination that the disputed deposits are taxable_income to petitioner see 343_us_130 price v commissioner tcmemo_2004_103 unless the nontaxable nature of deposits is established gross_income includes deposits to bank accounts where the taxpayer has dominion and control of the funds woods v commissioner tcmemo_1989_611 aff’d without published opinion 929_f2d_702 6th cir c schedule c returns and allowances petitioner argues that she is entitled to deduct allowances on her and schedules c even though she claimed no such deductions on her and returns respondent has conceded that petitioner is entitled to deduct dollar_figure and dollar_figure of returns and allowances on her schedules c for and respectively petitioner introduced no evidence to substantiate her claim for deductions for returns and allowances greater than respondent has allowed petitioner is not entitled to deductions for returns and allowances greater than respondent has allowed see olagunju v commissioner tcmemo_2012_119 sherrer v commissioner tcmemo_2011_198 d alimony received at trial petitioner asserted that the dollar_figure of alimony she reported on her tax_return should be nontaxable petitioner argues that her divorce decree even states that it’s not alimony it’s just separating marital property and my husband’s and my money generally property_settlements incident_to_divorce are nontaxable sec_1041 112_tc_317 aff’d without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir on the other hand amounts received as alimony or separate_maintenance payments are taxable to the recipient sec_61 sec_71 sec_215 the phrase alimony_or_separate_maintenance_payment is defined in sec_71 as any cash payment satisfying these four requirements a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse petitioner received and reported on her return dollar_figure in payments from mr henson on the basis of the evidence in the record we have found that petitioner received dollar_figure in maintenance payments in after all her lawsuit in state court was predicated on mr henson’s failing to make only monthly maintenance payments in from which we infer that he did in fact make the other monthly maintenance payments totaling dollar_figure as reported on petitioner’s return the settlement agreement does not designate the maintenance payments as not includible in petitioner’s gross_income and not allowable as a deduction to mr henson petitioner and mr henson were not members of the same household at the time the payments were made and under the settlement agreement mr henson does not have to make any additional maintenance payments to petitioner after her death on the record before us we hold consistent with petitioner’s reporting position on her return that the dollar_figure she received from mr henson in was alimony and taxable pursuant to sec_71 e accuracy-related_penalties respondent contends that petitioner is liable for an accuracy-related_penalty for her tax_year sec_6662 and b and imposes a accuracy-related_penalty on any portion of a tax underpayment that is attributable to among other things negligence negligence includes any failure to make a reasonable attempt to comply with the provisions of the code and also includes any failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs under sec_7491 the commissioner bears the burden of production with respect to the sec_6662 penalty generally this means he must come forward with sufficient evidence indicating that it is appropriate to impose the penalty see 116_tc_438 respondent has respondent concedes that petitioner is not liable for the sec_6662 accuracy-related_penalty for her tax_year met this burden of production because he has provided evidence that for petitioner’s tax_year she failed to comply with recordkeeping requirements and failed to substantiate certain items on her tax_return the accuracy-related_penalty does not apply with respect to any portion of an underpayment if it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 the burden_of_proof is on the taxpayer to establish reasonable_cause see rule a higbee v commissioner t c pincite- 58_tc_757 petitioner testified that she relied on a certified_public_accountant c p a to complete her income_tax returns reliance on a professional tax adviser’s advice may demonstrate reasonable_cause and good_faith if taking into account all the facts and circumstances the reliance was reasonable and the taxpayer acted in good_faith sec_1_6664-4 c income_tax regs reliance on a tax adviser may be reasonable and in good_faith if the taxpayer establishes the adviser was a competent professional with sufficient expertise to justify reliance the taxpayer provided necessary and accurate information and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 aff’d 299_f3d_221 3d cir petitioner conceded that she never really looked at her tax returns and that the only involvement that she had in the tax_return preparation process was to take stuff down to her c p a moreover petitioner testified that the figures her c p a used in preparing her returns were derived from quickbooks printouts that she provided to her c p a petitioner has failed to show that she provided her c p a necessary and accurate information or that she reasonably and in good_faith relied on her tax adviser we sustain respondent’s determination to impose the sec_6662 accuracy-related_penalty for negligence for petitioner’s tax_year see schneller v commissioner 129_f3d_1265 6th cir aff’g without published opinion tcmemo_1996_62 to reflect the foregoing and the parties’ concessions decision will be entered under rule


department of the treasury internal_revenue_service washington d c date uil cc intl br02 cor-126804-01 number info release date dear this letter is in response to your correspondence received by our office on date requesting an informational letter clarifying whether your client is required to file forms and td f form td f is not within the jurisdiction of the internal_revenue_service but within the jurisdiction of the financial_crimes_enforcement_network division of the department of the treasury with respect to form_5471 your request does not include the necessary information or user_fee required to issue a ruling however after a review of your letter we are providing the following general information form_5471 information_return of u s persons with respect to certain foreign_corporations is required to be filed by certain united_states persons who are officers directors or shareholders in certain foreign_corporations form_5471 instructions for these purposes the term united_states_person includes a citizen or resident_of_the_united_states form_5471 instructions sec_7701 of the code defines resident and nonresident_alien for purposes of title_26 other than subtitle b the statutory authority for the filing of the form_5471 is sec_6035 and sec_6038 which are under subtitle f chapter 61a part iiia see also sec_951 and sec_957 under subtitle a chapter 1n part iiif which defines a united_states_shareholder of a cfc to include a u s citizen or resident sec_7701 provides that an alien individual shall be treated as a resident_of_the_united_states with respect to any calendar_year if such individual meets the substantial_presence_test of sec_7701 from your submission your client having met the substantial_presence_test for and will be considered a resident_of_the_united_states and a u s shareholder of a cfc for purposes of form_5471 your client is required to file form_5471 for the years in question because your client is a united_states_resident who owns percent of a foreign_corporation and thus is a u s shareholder of a cfc moreover your client is a category four and category five filer for form_5471 purposes and fails to qualify for any of the several filing exceptions listed in the instructions to the form further there are no exceptions statutory or otherwise that would eliminate the annual filing requirement for a u s shareholder of a cfc based upon the character or the amount of the cfc’s income should your client continue to meet the substantial_presence_test for or any other future tax_year your client will continue to be considered a resident_of_the_united_states and will be required to file the annual informational form in question this is a general information_letter and not a ruling or determination if you desire further guidance from the internal_revenue_service with respect to the filing of form_5471 in the form of a letter_ruling you will need to comply with the requirements set forth in revproc_2001_1 2001_1_irb_1 date generally your ruling_request must include the following a complete statement of facts and other information a statement of supporting authorities a statement about whether the issue is under audit a statement identifying information to be deleted from a copy of the letter_ruling for public inspection penalties of perjury statement user_fee see sec_15 and appendix a of revproc_2001_1 for the fee schedule as previously stated the department of treasury has jurisdiction over the filing of form td f any questions regarding the filing of td f should be directed to the financial_crimes_enforcement_network office of regulatory compliance attn franklin court building chain bridge road suite vienna va if you have any further questions please contact jonathan a sambur at sincerely phyllis e marcus branch chief branch office of the associate chief_counsel international


internal_revenue_service number release date index number ---------------------------------------------- ------------------------------------ ---------------------------- ----------------------------------------- ------------------------------------------------------ - department of the treasury washington dc person to contact ---------------- id no -------------- telephone number --------------------- refer reply to cc tege eb hw plr-102435-04 date date ------------------------------------------------------------------------------------------------ ----------------------------------------------------------------- legend fund statute -------------------------------------------------------------------------------------------------------------- dear ------------------ this is in reply to your letter dated date requesting a ruling on behalf of the fund concerning whether certain disability benefits received under the statute are excludable from gross_income under sec_104 of the internal_revenue_code section g of the statute provides the board shall review on a case-by-case basis existing benefit payments to members and to survivors of deceased members who retired as a result of disability with or more years_of_service under a provision of any predecessor statute previously governing the fund the review will determine whether the member’s disability was an on-duty disability that satisfies the requirements of subsection b or c of this section a determination that a member’s disability was on on-duty disability as described above will apply only on a prospective basis beginning with january of the calendar_year in which the determination is made and will not affect the amount of the member’s or survivor’s benefits the board shall make its review and determination under this subsection on the basis of the medical evidence and any other relevant non-testimonial evidence that was previously submitted in connection with plr-102435-04 the prior application_for benefits except that if the board finds that the historical file is insufficient to make the determination supplemental evidence of a probative nature may be added and accepted to help make the determination sec_61 provides that except as otherwise provided by law gross_income means all income from whatever source derived including compensation_for services sec_104 provides that gross_income does not include amounts received under workmen's_compensation acts as compensation_for personal injuries or sickness sec_1_104-1 of the income_tax regulations states that sec_104 excludes from gross_income amounts received by an employee under a workmen's_compensation_act or under a statute in the nature of a workmen's_compensation_act that provides compensation to the employee for personal_injury_or_sickness incurred in the course of employment sec_104 also applies to compensation which is paid under a workmen's_compensation_act to the survivor or survivors of deceased employees sec_104 does not apply to a retirement pension or annuity to the extent it is determined by reference to the employee's age or length of service or the employee's prior contributions even though the employee's retirement is occasioned by an occupational injury or sickness sec_104 also does not apply to amounts which are received as compensation_for a non-occupational injury or sickness nor to amounts received as compensation_for an occupational injury or sickness to the extent that they are in excess of the amount provided in the applicable workmen's_compensation_act or acts taxpayer received benefits under a statute that did not limit benefits to work-related injuries subsequently the statute was retroactively amended to provide a separate benefit for work-related personal_injury_or_sickness the taxpayer argued that the statute as amended allowed taxable benefits previously received by the taxpayer to be retroactively redesignated as payments for work-related personal_injury_or_sickness and thus excludable from gross_income under sec_104 for recertification and redesignation of disability benefits was to afford favorable treatment for federal_income_tax purposes the court held that the provision as amended did not grant retroactive effect for federal tax purposes to the benefits petitioner had previously received nontaxable payments taxable benefits previously received for injuries or sickness but only applies prospectively after the disability is determined to be work-related we conclude as follows based on the information submitted representations made and authorities cited the court determined that the sole purpose of amending the provision to allow in gabriel v commissioner t c memo date the unlike the statute in gabriel the statute here does not recharacterize as benefit payments to members who retired as a result of disability with years or plr-102435-04 more of service under a provision of any predecessor statute that are determined pursuant to section g of the statute to be on account of an on-duty disability that meets the requirements of sections b or c of the statute or to the survivors of deceased members are received pursuant to a statute in the nature of a workmen’s compensation act accordingly after the date of the determination that the members’ disability was an on-duty disability under section g of the statute benefits paid to such members or their beneficiaries will be excludable from gross_income under sec_104 but only on a prospective basis and only to the extent provided in ltr date the federal tax consequences of the transaction under any provision of the code the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 of except as specifically ruled above no opinion is expressed or implied concerning sincerely harry beker branch chief health welfare branch office of division counsel associate chief_counsel tax exempt government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-126462-00 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 in year a as the treasurer of x represents that x was intended to be an s_corporation beginning year its first taxable_year however based on misinformation x did not file a form_2553 election by a small_business_corporation with the internal_revenue_service sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes