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-104185-18 date date legend grantor grantor spouse trust trust date date date date year year year accountant ---------------------------- ----------------------------------------------------- ------------------------------------------------------ -------------------------------------- ----------------------------------------- ---------------------------- -------------------------- --------------------------- ---------------------- ------- ------- ------- ------------------------- dear --------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301 of the procedure and administration regulations to allocate grantor’s and spouse’s generation-skipping tax gst_exemption to two trusts plr-104185-18 facts the facts and representations submitted are as follows on date in year grantor created trust for the benefit of his issue and his brother’s issue and transferred property to trust on date grantor transferred property to trust on date grantor established trust and funded trust on date date sec_2 and date are dates prior to date accountant prepared and filed form sec_709 united_states gift and generation-skipping_transfer_tax returns for grantor 2’s gifts to trust and trust in which grantor and spouse elected to split the gift under sec_2513 however accountant failed to allocate grantor and spouse’s respective gst_exemption to the date and date transfers the failure to make the election was discovered in year grantor and spouse request an extension of time pursuant to sec_2642 and sec_301_9100-1 and sec_301_9100-3 to allocate their gst_exemption to the date sec_2 and transfers to trust and trust law and analysis sec_2513 provides that a gift made by one spouse to any person other than his spouse shall be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states under sec_2513 paragraph a only applies if both spouses have signified their consent to the application of paragraph a in the case of all such gifts made during the calendar_year by either while married to the other sec_2601 imposes a tax on every generation-skipping_transfer gst a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate with respect to any gst transfer as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that the inclusion_ratio with respect to any property transferred in a gst is the excess if any of over the applicable_fraction with respect to a gst that is not a direct_skip sec_2642 provides that the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced by the sum of any federal estate_tax or state death_tax plr-104185-18 actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2631 as in effect for year and provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2652 and sec_26_2652-1 provide that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of the individual then for purposes of the gst tax each spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 sec_2642 provides in part that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 and such allocation shall be effective on and after the date of such transfer sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining plr-104185-18 whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except in subtitles e g h and i sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or to advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor and spouse are granted an extension of time of days from the date of this letter to allocate their available gst_exemption to the date transfer to trust and the date transfers to trust the allocations will be effective as of the date of the transfer and the value of the transfer to the trusts as determined for federal gift_tax purposes will be used in determining the amount of grantor’s and spouse’s gst_exemption to be plr-104185-18 allocated to the trust the allocations should be made on form sec_709 for year and year and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each form_709 a copy of this letter is enclosed for this purpose 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 moreover no opinion is expressed or implied concerning the tax consequences of any modification of trusts after date or date respectively this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court allen b miller petitioner v commissioner of internal revenue respondent docket no 7126-14l filed date alvin s brown for petitioner marissa j savit for respondent memorandum findings_of_fact and opinion colvin judge in this collection_due_process cdp case under sec_6330 petitioner contests the determination made by the internal revenue unless otherwise indicated section references are to the internal_revenue_code in effect at all relevant times we round monetary amounts to the nearest dollar service irs office of appeals irs appeals to sustain a notice_of_intent_to_levy to collect a sec_6651 addition_to_tax for failure to timely pay tax for tax_year the sole issue for decision is whether petitioner is liable for that addition_to_tax we hold that he is some of the facts have been stipulated and are so found findings_of_fact petitioner resided in florida when he filed the petition in this case a petitioner’s tax_return for tax_year petitioner made estimated_tax payments for tax_year of dollar_figure on date and dollar_figure on date petitioner had income_tax_withholding for tax_year of dollar_figure thus as of date the due_date for payment of petitioner’s income_tax petitioner had made payments for totaling dollar_figure petitioner retained james barr to prepare his federal_income_tax return for tax_year before date mr barr’s accounting firm had prepared a completed federal_income_tax return for tax_year which stated that petitioner’s income_tax_liability was dollar_figure on the basis of conversations with mr barr petitioner believed the tax_return was incorrect mr barr said that one of his employees had prepared the return that mr barr also believed that it was wrong and that he would personally revise the return petitioner never filed that draft of his return petitioner asked mr barr to reconsider the correctness of the draft return on date on the basis of mr barr’s estimate that he would owe an additional dollar_figure in tax petitioner made an additional tax payment of dollar_figure petitioner and his wife called and emailed mr barr repeatedly concerning their return but mr barr did not respond to their inquiries provide petitioner with a modified tax_return or further explain the return that his employee had previously prepared in date petitioner abandoned efforts to reach mr barr and hired another accountant robert f cohen to prepare his tax_return after hiring mr cohen petitioner retained an attorney john flannigan to send a letter to mr barr requesting a refund and petitioner’s data and documents so that mr cohen could prepare the return on date mr cohen provided petitioner with a completed tax_return for on date petitioner signed the tax_return that mr cohen had prepared petitioner filed that return which respondent received on date on that return petitioner reported a tax_liability of dollar_figure petitioner submitted a payment of dollar_figure with that return respondent assessed tax of dollar_figure for tax_year on date respondent also assessed the following additions to tax dollar_figure under sec_6654 for failure to make sufficient estimated_tax payments dollar_figure under sec_6651 for failure to timely file and dollar_figure under sec_6651 for failure to timely pay tax owed respondent also assessed dollar_figure of interest for tax_year petitioner did not make further payments for tax_year this case was referred to the irs collection unit b collection of unpaid tax on date respondent issued petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing with respect to petitioner’s unpaid liability for tax_year petitioner’s counsel timely mailed a form request for a collection_due_process or equivalent_hearing to respondent petitioner sought an installment_agreement on date respondent abated tax of dollar_figure which is the difference between the amount that respondent assessed dollar_figure and the amount that petitioner reported dollar_figure only the sec_6651 addition_to_tax is at issue in this case on date petitioner’s counsel sent a letter to the irs brookhaven centralized offer_in_compromise unit and submitted form 656-l offer_in_compromise and form_843 claim_for_refund and request for abatement requesting abatement of interest under sec_6601 subsequently on date petitioner withdrew the offer-in-compromise on date irs appeals settlement officer stephan r harding so harding told petitioner’s counsel he would abate the addition_to_tax under sec_6651 petitioner’s counsel contended that petitioner had relied on his tax_return_preparer and thus was not liable for additions to tax under sec_6651 and sec_6654 on or about date petitioner’s counsel submitted additional case citations to so harding in support of petitioner’s position on date so harding issued a notice_of_determination concerning collection action sustaining the issuance of the notice_of_intent_to_levy in the notice_of_determination so harding determined that petitioner failed to establish reasonable_cause to allow the additions to tax at issue to be abated so harding sustained the proposed levy action because no collection alternative was submitted during the cdp hearing opinion the issue for decision is whether petitioner is liable for an addition_to_tax under sec_6651 because petitioner’s liability is properly at issue we will review the matter de novo see 129_tc_107 114_tc_604 respondent assessed an addition_to_tax of dollar_figure under sec_6651 for petitioner’s failure to timely pay his income_tax_liability sec_6651 imposes an addition_to_tax of up to of the tax shown on a return for failure to make timely payment thereof unless it is shown that such failure is due to reasonable_cause and not due to willful neglect respondent bears the burden of production with respect to this addition_to_tax see sec_7491 in order to carry that burden respondent must produce sufficient evidence to establish that it is appropriate to impose the addition see 116_tc_438 once respondent satisfies that burden petitioner bears the burden of proving that he is not liable for the addition_to_tax see id pincite respondent provided an account transcript for tax_year which shows that petitioner made two payments of dollar_figure toward income_tax owed for and had income_tax_withholding of dollar_figure for which was deemed paid on date before the date deadline to pay his income_tax those payments totaling dollar_figure were his only payments towards the total income_tax_liability of dollar_figure reported on the return that he filed in date respondent has satisfied the burden of production under sec_7491 see 138_tc_228 thus the burden_of_proof is on petitioner to show that he is not liable for the addition_to_tax petitioner contends that his failure_to_pay_tax was due to reasonable_cause and not willful neglect because he relied on a tax_return_preparer who made multiple errors when preparing his tax_return petitioner testified that he did not wish to fully pay his income_tax until the errors were fixed a taxpayer has reasonable_cause for failure to timely pay tax if the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax_liability and was nevertheless either unable to pay the tax or would suffer an undue_hardship if he paid on the due_date sec_301_6651-1 proced admin regs see also 118_tc_22 petitioner argues that he satisfied the reasonable_cause standard in sec_301_6651-1 proced admin regs because he exercised ordinary business care and prudence by refusing to file an incorrectly prepared tax_return based on an erroneous method_of_accounting petitioner points out that both he and his wife repeatedly attempted to contact mr barr to have him fix the return but that he was unresponsive to their requests in date petitioner hired an attorney to help him obtain his tax data from mr barr petitioner acknowledges that as early as date he believed the return prepared by mr barr to be inaccurate yet he waited almost months before hiring mr cohen to prepare another return using the proper method_of_accounting while we understand the difficulty petitioner experienced trying to secure cooperation from the initial return preparer petitioner’s delay of months before hiring a lawyer to secure the return of his tax data and a second return preparer to prepare a correct return was unreasonable and represented a failure to exercise ordinary business care and prudence petitioner also contends his failure to timely pay his income_tax was due to his reliance on his tax_return_preparer however petitioner’s reliance on his tax_return_preparer is not sufficient to show his failure to timely pay his income_tax was due to reasonable_cause the supreme court has said that w hen an accountant or attorney advises a taxpayer on a matter of tax law such as whether a liability exists it is reasonable for the taxpayer to rely on that advice 469_us_241 however the supreme court has also said that one does not have to be a tax expert to know that taxes must be paid when they are due id though boyle involved a sec_6651 addition_to_tax for failure to timely file courts considering the issue have held that the determination of reasonable_cause under paragraph should receive analysis similar to that under paragraph see e wind indus inc v united_states 196_f3d_499 n 3d cir 164_f3d_814 n 2d cir 90_f3d_1190 n 6th cir petitioner’s reliance on his tax_return_preparer is not a reasonable_cause for failure to timely pay his income_tax sec_6151 provides that payment of tax is due at the time fixed for filing the corresponding tax_return determined without regard to any extension of time for filing the return sec_6072 provides that for individuals tax returns shall be filed on or before the 15th day of april following the close of the calendar_year thus petitioner’s tax was due on date the taxpayer’s duty to timely file a return and pay tax is nondelegable see boyle u s pincite see also 979_f2d_66 5th cir holding that the duty to timely file a tax_return is a nondelegable duty that is not excused by reliance on an agent and such reliance is not a reasonable_cause for late filing under sec_6651 aff’g t c memo corum v united_states no 80-0387-cv-w-7 wl w d mo date rejecting executor’s argument that he relied on an attorney to prepare and file the estate_tax_return as reasonable_cause for his failure to timely pay thom v united_states no wl at d or date as a general_rule the duty to file returns and deposit and pay taxes is personal to the taxpayer and cannot be excused by delegation to others meyco prods inc v united_states no 76c wl e d n y date rejecting the taxpayer’s argument that it relied on its attorneys and accountants to comply with its legal obligations to request an extension of time to file and holding that it was not reasonable_cause under sec_6651 because a taxpayer may not delegate its duty to comply with the law we hold petitioner has not established that his failure to timely pay his income_tax_liability was due to reasonable_cause we sustain respondent’s determination of an addition_to_tax under sec_6651 for petitioner’s failure to timely pay his income_tax decision will be entered for respondent


department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-136065-04 date january internal_revenue_service number release date index number ---------------------------------------- ------------------------ ----------------------- -------------------- ----------------------- - - company ----------------------- ----------------------- ----------------------------------- ----------------------------------- ----------------------------- subsidiary -------------------------------------------------- shareholders ---------------------------------------------------- ---------------------------------------------------- state a b c d ---------------------- ------------------- --------- -------------------------- --------------------------- dear ----------------- this letter responds to a letter from your authorized representative dated date as well as additional correspondence requesting rulings for company under sec_1362 of the internal_revenue_code regarding a late s_corporation_election and a concomitant fiscal_year election under sec_444 and sec_301_9100-1 of the procedure company was incorporated under the laws of state on a and first had plr-136065-04 and administration regulations regarding a late qualified_subchapter_s_subsidiary qsub election shareholders on b company formed to serve solely as a stock holding_company of subsidiary acquired all of subsidiary’s outstanding_stock and certain of its assets on c company had no assets or revenues before this date shareholders intended company to be treated as an s_corporation beginning b the first day of its first tax_year with a tax_year ending d and they intended subsidiary to be treated as a qsub however form_2553 election by a small_business_corporation form_8716 election to have a tax_year other than a required tax_year and form_8869 qualified_subchapter_s_subsidiary election inadvertently were not filed timely with the internal_revenue_service company has filed form_1120s u s income_tax return for an s_corporation for each of its tax years since c and shareholders have filed their individual income_tax returns for the same period consistent with company’s intended status as an s_corporation and subsidiary’s intended status as a qsub sec_1362 provides in general that an election by a small_business_corporation under sec_1362 to be an s_corporation may be made for any_tax year a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any_tax year and b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if a an election under sec_1362 is made for any_tax year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and sec_1362 shall not apply sec_1361 defines a qsub as a domestic_corporation that is not an ineligible_corporation as defined in sec_1361 if percent of the stock of such corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_444 provides that except as otherwise provided in sec_444 a partnership s_corporation or personal_service_corporation may elect to have a tax_year other than the required tax_year plr-136065-04 sec_1_444-3t of the income_tax regulations provides that a sec_444 election shall be made by filing a properly prepared form_8716 with the service_center indicated by the instructions to the form except as provided in sec_1_444-3t and form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election a taxpayer makes a qsub election with respect to a subsidiary by filing form_8869 with the appropriate service_center sec_1_1361-3 of the income_tax regulations provides that the qsub election will be effective on the date specified on the election form or on the date the election is filed if no date is specified the effective date specified on the election form cannot be more than two months and days prior to the date of filing and cannot be more than months after the date of filing under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election with a due_date prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based on the facts and representations submitted we conclude that there was reasonable_cause for company’s failure to make a timely s_corporation_election under sec_1362 and that company has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 regarding a late qsub election consequently-- plr-136065-04 company's late election under sec_1362 is to be treated under sec_1362 as filed timely for its tax_year beginning b this ruling is contingent on company filing form_2553 to be effective on b with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 company is granted an extension of days from the date of this letter for electing under sec_1361 to treat subsidiary as a qsub effective c company must file form_8869 within the extension period with the appropriate service_center a copy of this letter should be attached to the form_8869 company if qualified may elect under sec_444 to have a fiscal_year ending d by indicating that intention on form_2553 and attaching a completed form_8716 for each year that a sec_444 election is in effect company must file a return on form_8752 required_payment or refund under sec_7519 as provided by sec_1_7519-2t of the temporary income_tax regulations and make any payments required by sec_1_7519-2t except for the specific rulings above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion on whether company otherwise qualifies to be an s_corporation is eligible to make a sec_444 election or is liable for any penalties or interest accruing because of its failure to make timely required_payments under sec_7519 in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer on whose behalf it was requested according to sec_6110 this ruling may not be used or cited as precedent enclosures copies of this letter copy for sec_6110 purposes sincerely heather c maloy associate chief_counsel passthroughs and special industries


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s div i s i o n contact person telephone number identification_number number release date se t eo ra t date ein legend f b c d e x y dear ------------------ this is in reference to your representative’s letter of date requesting advance approval of your grant procedures under sec_4945 of the internal_revenue_code the information submitted shows that the grants will be administered by f a publicly_supported_organization under its b program organizations operating under the b program may elect the c and or the d option for purposes of the c scholarship awards option f selects individual scholarship recipients in the b program through a competition the initial phase of the competition is the x test which is given annually in participating high schools by high school officials after the test f identifies and honors students scoring in a group that represents the top two percent of graduating high school seniors nationwide and designates a number that represents less than one percent of the graduating high school seniors in each state as semifinalists the semifinalists then take a second test y to confirm their earlier performance those who repeat their prior performance who demonstrate high academic standing in high school and who meet other standard requirements are designated as finalists f's selection procedures in its d scholarship awards option generally parallel those applied in the c option however eligibility in the d option is limited to the top-scoring black students semifinalists in the d option are designated in at least four geographic regions each consisting of several states according to the distribution of the black population throughout the united_states you have entered into an agreement with f whereby you have agreed to sponsor a specific number of scholarships each year to be awarded to children and or relatives of employees of e under the b program f may award scholarships only to students who are designated as finalists the actual number of b scholarships to be supported by you will not exceed the number of employees' children who qualify as finalists in their respective competitions after the list of finalists is obtained f reviews the finalist group to determine which students are eligible for grants under an employer related scholarship program no application is required from the students to enter the b program therefore neither you nor f can determine the number of eligible applicants if there is an insufficient number of employees' children who qualify as finalists the total number of scholarships to be awarded in a particular year is automatically reduced or some foundations may permit scholarships to be offered to finalists who are not children of employees f monitors participating employers to ensure a sufficiently large base of employees' children from which at least one or more b finalists would ordinarily be expected to emerge this is necessary since fewer than one out of one hundred seventy-five students in a senior class achieves the b finalist level the selection of individual grant recipients is made by selection committees designated by f the members of the selection committee are totally independent and separate from you f confirms the individual scholarship recipient's enrollment at the educational_institution makes payment of the award through the appropriate financial aid office of the educational_institution and supervises and investigates the use of the grant funds by the recipients in their educational program the scholarships will not be used as a means of inducement to recruit employees nor will a grant be terminated if an employee parent leaves the company scholarships will only be awarded to students who plan to enroll in an institution that meets the requirements of sec_170 of the code and which may further be limited by f after the scholarship is awarded the recipient will not be restricted in his her course of study in rare cases sponsors may ask f to give preference in selection to individuals who propose to study in certain broad fields f will supply statistical information to you which will enable you to maintain the records required by rev_proc 1976_2_cb_670 sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant subject_to the provisions of sec_117 if a private foundation's program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in sec_4 the service will assume the grant will be subject_to the provisions of sec_117 section dollar_figure of revproc_76_47 provides a percentage_test guideline it states that in the case of a program that awards grants to children of employees of a particular employer the program meets the percentage_test if the number of grants awarded under that program in any year to such children does not exceed percent of the number of employees' children who i were eligible ii were applicants for such grants and iii were considered by the selection committee in selecting the recipients of grants in that year or percent of the number of employees' children who can be shown to be eligible for grants whether or not they submitted an application in that year as stated in sec_4 of revproc_76_47 if a sponsor's program satisfies the seven conditions set forth in sections dollar_figure through but does not meet the percentage_test of section dollar_figure applicable to grants to employees' children the question whether the grants are scholarship or fellowship grants subject_to the provisions of sec_117 of the code will be resolved on the basis of all the facts and circumstances in making this determination the service will consider as a substitute for the percentage_test of section dollar_figure all the relevant facts and circumstances to determine whether the primary purpose of the program is to provide extra compensation or other employment incentive or whether the primary purpose is to educate recipients in their individual capacities these facts and circumstances will be considered in the context of the probability that a grant will be available to any eligible applicant such relevant facts and circumstances could include the history of the program such as the source of the program's funding the courses of study for which the grants are available any eligibility requirements imposed by the program other than employment of the applicants or their parents and the age and grade level prerequisites for the studies for which the grants are available the publicity given the grant program the degree of independence of the selection committee the particular standards used for selection the specific means used to determine whether those standards have been met the precise nature of the employee limitation or preference the number of grants available the number of employees or their children who would be eligible for them the percentage of eligible employees or their children applying for grants who normally eg on an average basis receive grants under the program and whether and how many grants are awarded to individuals who do not qualify as employees or children of employees in this instance the following facts and circumstances are considered relevant aside from the employment preference f a public charity operates its private_foundation sponsored b program in a substantially_similar manner to its nationwide college scholarship program for academically talented high school students no application is required individuals must achieve finalist status in their respective competitions recipients are chosen by selection committees totally independent of the private_foundation or the employer involved no limitations are placed on the recipients' choice of course of study after the grant is awarded the number of actual grants made may not exceed the number of employees' children who qualify as finalists in f provided an average of one scholarship for every big_number employees children in its programs under the facts and circumstances as stated above there is only an insignificant probability that any particular employee's child will be selected and thus the grant's primary purpose is not one of providing extra compensation or other employment incentive and the facts_and_circumstances_test of revproc_76_47 sec_4 is met accordingly based upon the information presented and assuming your scholarship program will be conducted as proposed with a view to providing objectivity and non-discrimination in the awarding of scholarship grants we rule that your grants to f for the awarding of scholarship grants to children of employees of e comply with the requirements of sec_4945 of the code thus such expenditures made in accordance with those procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code the recipient of the scholarship is responsible for determining whether all or part of the scholarship is includible in gross_income under sec_117 of the code we understand that f will advise the recipient that amounts granted are taxable_income if the aggregate scholarship amounts received by the recipient exceed tuition and fees not including room and board required for enrollment or attendance at the educational_institution and fees books supplies and equipment required for courses of instruction this ruling will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of revproc_76_47 please note that this ruling is only applicable to grants awarded under the b program before you enter into any other scholarship or educational loan program you should submit a request for advance approval of that program your procedures for awarding grants under the b program are considered to satisfy the facts_and_circumstances_test of revproc_76_47 and therefore will not be counted in determining whether the percentage_test of revproc_76_47 is met with respect to any other such program for which prior approval has been granted we are informing the ohio te_ge office of this ruling please keep a copy of this ruling with your organization's permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely jane baniewicz manager exempt_organizations technical group


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-103418-01 cc psi b7 district_director taxpayer’s name taxpayer’s identification no years involved date of conference no conference held legend reservoir state a a b project b c project c d e f tam-103418-01 issue does the vaporization of oil in the apex and expanded gas cap regions of the reservoir constitute a qualified tertiary_recovery_method for purposes of sec_43 of the internal_revenue_code conclusion the vaporization of relict oil and condensate in the apex and immobile oil and condensate in the portion of the expanded gas cap unswept by the cyclic gas injection is a qualified tertiary_recovery_method not described in sec_1_43-2 of the income_tax regulations or in a revenue_ruling accordingly the vaporization project is a qualified tertiary recovery project because it otherwise meets the requirements of sec_43 and the regulations thereunder because however project c is used to implement more than one qualified_enhanced_oil_recovery_project the vaporization project and the miscible injection projects and also is used for other activities the waterflood project and the cyclic gas injection project any costs paid_or_incurred during a taxable_year for project c are required under sec_1_43-4 first to be allocated among the qualified projects and the other activities to determine the qualified_enhanced_oil_recovery_costs for the taxable_year the qualified_enhanced_oil_recovery_costs then must be allocated among the qualified projects to determine the qualified_enhanced_oil_recovery_costs for each project for the taxable_year any reasonable allocation method may be used facts taxpayer is engaged in the production of oil_and_gas from the reservoir which is located in state the gas cap of the reservoir at the time of discovery contained gas relict oil and condensate in the gaseous state as gas migrated to the apex and oil drained downward the gas cap of the reservoir expanded relict oil remained in the gas cap at the apex of the reservoir prior to a taxpayer initiated several projects to maximize the recovery_of oil from the reservoir since production began taxpayer has re-injected gas recovered from the crude_oil into the expanded gas cap to maintain pressure cyclic gas injection a waterflood project also was initiated in those areas of the reservoir that lacked sufficient gas cap pressure support in addition several miscible gas injection projects have been implemented as the gas oil ratio increased in the produced oil taxpayer needed additional gas handling facilities a was initiated in b project b was initiated in c to increase the gas handling capability of the surface facilities project c which is the subject of this ruling was approved in c and was fully commissioned in d project c involves the tam-103418-01 acquisition of tangible_property and well drilling activities that may relate to all of the projects implemented by taxpayer taxpayer uses project c to process gas for re-injection in connection with its cyclic gas injection project its miscible gas injection projects and its waterflood project taxpayer’s miscible gas injection projects are qualified enhanced oil recovery projects since e taxpayer has injected processed lean gas from project c into the reservoir to vaporize relict oil and condensate in the apex and immobile oil and condensate in the portion of the expanded gas cap unswept by the cyclic gas injection the vaporization project vaporization of oil is one of the benefits of the cyclic gas injection consequently some vaporization of oil has been occurring in the reservoir since production began the incidental vaporization of oil that occurs as a result of cyclic gas injection is separate and distinct however from vaporization of oil as an enhanced oil recovery method as an enhanced oil recovery method vaporization of oil involves the injection of lean hydrocarbon or nonhydrocarbon gas into the reservoir the injected gas is undersaturated at reservoir conditions as the gas migrates through the reservoir from the injection wells to the producing wells it remains in constant contact with a residual hydrocarbon liquid phase ie oil fluids in the original and expanded gas caps the injected gas will have a tendency toward thermodynamic equilibrium with the residual hydrocarbon liquids with which it comes into contact this is a continuous process as the gas cycles through the reservoir the net result of this equilibrium reaction is to enrich the cycled gas by vaporization of intermediate and heavier hydrocarbons from the liquid phase into a vapor phase taxpayer represents that the vaporization project is expected to result in the recovery_of more than d barrels of oil which otherwise would not have been recovered law and analysis sec_43 provides a credit in an amount equal to percent of certain costs paid_or_incurred by a taxpayer in connection with a qualified_enhanced_oil_recovery_project sec_43 defines the term qualified_enhanced_oil_recovery_project to mean any project that involves the application in accordance with sound engineering principles of one or more qualified tertiary recovery methods as defined in sec_193 that reasonably can be expected to result in a more than insignificant increase in the amount of crude_oil that ultimately will be recovered is located within the united_states within the meaning of sec_638 and with respect to which the first injection of liquids gases or other matter commences after date sec_1_43-2 defines the term qualified tertiary_recovery_method to mean any one or combination of the tertiary recovery methods described in sec_1_43-2 or a method not described in sec_1_43-2 which has been determined by revenue_ruling to be a qualified tertiary_recovery_method a taxpayer may request tam-103418-01 a private_letter_ruling that a method not described in sec_1_43-2 or in a revenue_ruling is a qualified tertiary_recovery_method generally the methods identified in revenue rulings or private letter rulings will be limited to those methods that involve the displacement of oil from the reservoir rock by means of modifying the properties of the fluids in the reservoir or providing the energy and drive mechanism to force the oil to flow to a production well sec_1_43-2 provides that the term qualified tertiary_recovery_method does not include the increase or maintenance of pressure by injection of hydrocarbon gas into the reservoir from which it was originally produced sec_1_43-4 provides that any cost paid_or_incurred during the taxable_year for an asset which is used to implement more than one qualified_enhanced_oil_recovery_project is allocated among the projects in determining the qualified_enhanced_oil_recovery_costs for each qualified_project for the taxable_year similarly any cost paid_or_incurred during the taxable_year for an asset which is used to implement a qualified_enhanced_oil_recovery_project and which also is used for other activities for example an enhanced oil recovery project that is not a qualified_enhanced_oil_recovery_project is allocated among the qualified_enhanced_oil_recovery_project and the other activities to determine the qualified_enhanced_oil_recovery_costs for the taxable_year see sec_1_613-5 any reasonable allocation method may be used a method that allocates costs based on the anticipated use in a project or activity is a reasonable method sec_1_613a-7 provides that a secondary or tertiary process is a process applied for the recovery_of hydrocarbons in which liquids gases or other matter is injected into the reservoir to supplement or augment the natural forces required to move the hydrocarbons through the reservoir however no process that must be introduced early in the productive life of the mineral_property in order to be reasonably effective such as cycling of gas in the case of a condensate reservoir is a secondary or tertiary process enhanced oil recovery methods also referred to as tertiary recovery methods are generally applied to increase or maintain production from mature oil fields the regulations under sec_43 provide that cyclic gas injection that is the maintenance of pressure by injection of hydrocarbon gas into the reservoir from which it was originally produced is not a qualified enhanced oil recovery method similarly in describing secondary and tertiary production the regulations under sec_613a state that any process that must be introduced early in the productive life of the reservoir to be reasonably effective is not a secondary or tertiary process the petroleum engineering handbook howard b bradley editor-in-chief edition society of petroleum engineers in its references to gas injection pressure maintenance see chapter sec_36 sec_42 sec_43 and sec_44 concludes that generally the optimal time to begin pressure maintenance is early in the life of the reservoir tam-103418-01 since production began taxpayer has re-injected gas recovered from the crude_oil into the expanded gas cap to maintain pressure some vaporization of oil has occurred as a result of this cyclic gas injection and will continue to occur for the life of the cyclic gas injection project the incidental vaporization of oil that has occurred or will occur in the future as a result of the cyclic gas injection is not a qualified tertiary_recovery_method however because cyclic gas injection is not a qualified tertiary_recovery_method on the other hand the vaporization project in this case targets relict oil and condensate in the apex and immobile oil and condensate in the portion of the expanded gas cap unswept by the cyclic gas injection the injection of lean gas into the unswept portion of the reservoir causes the relict oil the condensate and immobile oil to vaporize the movement of the gas to the production wells provides the energy and drive mechanism thus although vaporization of oil is not a tertiary_recovery_method specifically listed in sec_1_43-2 it is a qualified tertiary_recovery_method because it involves the displacement of oil from the reservoir rock by means of modifying the properties of the fluids in the reservoir as well as providing the energy and drive mechanism to force the oil to flow to a production well the vaporization project is a qualified_enhanced_oil_recovery_project within the meaning of sec_43 because it involves the application in accordance with sound engineering principles of one or more qualified tertiary recovery methods that reasonably can be expected to result in a more than insignificant increase in the amount of crude_oil that ultimately will be recovered it is located within the united_states and the first injection of liquids gases or other matter commenced after date in accordance with sec_1_43-3 a petroleum engineer must certify under penalties of perjury that the vaporization project meets the requirement of sec_43 the petroleum engineer’s certification must include an adequate delineation of the portions of the reservoir that were not swept and will not be swept by the cyclic gas injection project and the waterflood project because project c is used in connection with the cyclic gas injection project and the waterflood project neither of which is a qualified_enhanced_oil_recovery_project as well as the miscible injection projects and the vaporization project all of which are qualified enhanced oil recovery projects sec_1_43-4 requires that costs associated with project c for a taxable_year first must be allocated among the qualified projects the miscible injection projects and the vaporization project and the other activities the cyclic gas injection project and the waterflood project to determine the qualified_enhanced_oil_recovery_costs for the taxable_year the qualified_enhanced_oil_recovery_costs then must be allocated among the qualified projects to determine the qualified_enhanced_oil_recovery_costs for each project for the taxable_year caveat s tam-103418-01 a copy of this technical_advice_memorandum is to be given to taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number 468a ------------------- -------------------------- ----------------------------------------------- ----------------------------------- --------------------------------------- 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 b06 plr-109688-15 date september legend taxpayer parent state industry director plant location commission a commission b order study method date date date date date a b c d e f g year year year year year year ----------------------------------------------------------------------- -------------------------------------------------- ------------ -------------------------------------------------------------------------------------- --------------------------------------------------------------------------- -------------------------------------------------------------- ----------------------- ------------------------------------------------- ----------------------------------------------------- -------------------------- ----------------------------------------------------- ----------------------- ---------- ---------------- ------------ ------------------ ---------------- -------------------------- --- ------ ------ ---------------- ------ ---------------- --------------- ------ ------ ------ ------ ------ ------ plr-109688-15 year fund ------ ------------------------------------------ dear ------------- this letter responds to your request dated date for an elective revised schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1_468a-3 of the income_tax regulations taxpayer was previously granted revised schedules of ruling amounts most recently on date taxpayer submitted supplemental information by letters dated date and date pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer a state corporation is a public_utility operating in state taxpayer engages in electricity and natural_gas distribution electricity generation procurement and transmission and natural_gas procurement transportation and storage taxpayer files a consolidated federal_income_tax return with its parent on a calendar_year basis using the accrual_method of accounting and is under the audit jurisdiction of the industry director taxpayer is the sole owner of the plant the plant is situated at location the plant was declared commercially operable on date and initially had an expected service life of a years the plant was shut down on date on date taxpayer announced its decision to decommission the plant with respect to the decommissioning costs related to the plant that are included in the taxpayer’s cost of service for ratemaking purposes the taxpayer is subject_to regulation by commission a and commission b commission a in order issued date established the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes for year through year the order relies upon assumptions provided in the study the proposed method of decommissioning the plant is method based on the assumptions adopted by commission a in order it is estimated that fund assets will earn an after-tax rate of return that ranges from b percent to c percent for year through year commission approved rates for taxpayer containing a decommissioning cost component based upon an estimated cost of dollar_figured in year dollars as a base cost for decommissioning the plant this base cost for decommissioning the plant was escalated at the rate of e percent annually to the year that costs are incurred resulting in total estimated future decommissioning costs for taxpayer’s interest in the plant of approximately dollar_figuref in year through year dollars plr-109688-15 substantial decommissioning costs were first incurred in year and it is estimated that decommissioning will be substantially complete at the end of year sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2 does not apply to any special transfer permitted under sec_1_468a-8 plr-109688-15 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and plr-109688-15 ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment deadline for the taxable_year that includes the date on which the license extension is granted plr-109688-15 sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of an interest in the plant has calculated its decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in a study that taxpayer has represented is a standard type used in the industry in addition the same underlying assumptions were used by commission a in order to calculate the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts plr-109688-15 approved schedule of ruling amounts years each year year - year commission dollar_figureg if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which this schedule of ruling amounts is received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular while we have approved the proposed schedule of ruling amounts based on cost estimates contained in the study we make no ruling express or implied whether any particular item contained in that study constitutes a nuclear decommissioning cost within the meaning of sec_1_468a-1 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries cc


t c memo united_states tax_court tower loan of mississippi inc petitioner v commissioner of internal revenue respondent docket no filed date leonard d van slyke jr and denise f schreiber specially recognized for petitioner thomas r ascher and kim a palmerino for respondent memorandum findings_of_fact and opinion parr judge respondent determined deficiencies in petitioner’s federal_income_tax for and of dollar_figure and dollar_figure respectively the issues for decision are whether certain commission income should be reallocated to petitioner from petitioner’s wholly owned subsidiary pursuant to sec_482 we hold that it should not whether petitioner can take a bad_debt deduction pursuant to sec_166 for the tax_year we hold that it cannot findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts filed by the parties and its accompanying exhibits are incorporated herein by this reference at the time the petition was filed herein petitioner tower loan of mississippi inc had its principal_place_of_business in jackson mississippi petitioner is engaged in the business of making small consumer loans ranging from dollar_figure to dollar_figure petitioner is not a bank or a savings and loan association petitioner was incorporated in as a business corporation under the mississippi business corporation act petitioner used the accrual_method of accounting during the years in issue in date petitioner organized two wholly owned subsidiary insurance_companies the american federated life_insurance co aflic and the american federated insurance co afic in addition to providing financing to its customers petitioner makes available credit life_insurance to it sec_1 all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise stated customers prior to its organization of aflic and afic in petitioner had received and retained a portion of the premium payments from the sale of the credit life_insurance however petitioner was sued by several customers who claimed that because petitioner received insurance commissions effectively the loans were usurious and unenforceable other finance companies were being sued on this theory as well the primary purpose for the formation of the insurance_companies was to avoid the legal problems associated with petitioner’s charging and receiving premiums from the sale of credit life_insurance afic is in the business of providing property and casualty insurance afic files consolidated_returns with petitioner aflic is primarily in the business of providing credit life and disability insurance aflic files its returns separately from petitioner afic and aflic continued to exist as wholly owned subsidiaries of petitioner during the years in issue petitioner gives its customers the option of purchasing credit insurance for their loans credit insurance policies offer protection to the creditor and debtor by providing for payment of the loan in the event of certain occurrences such as death or pursuant to sec_1504 aflic is not an includable_corporation and therefore is not eligible to file in the consolidated_returns petitioner also offers property insurance we will not discuss property insurance policies as they are not relevant to the issues in this case disability of the debtor depending on the type of policy prior to the formation of aflic petitioner employed licensed insurance agents who sold insurance policies underwritten by outside insurance_companies petitioner was not and never has been licensed under mississippi law as an insurance agent it has always employed licensed agents who sold the insurance some portion of the premiums from these sales was remitted to petitioner as commissions after the formation of aflic petitioner offered only aflic credit insurance to its customers petitioner required all of its branch managers to acquire a license to sell the insurance if a customer chose to purchase insurance then the premiums were added to the amount of the loan petitioner would then remit the entire premium amount to aflic aflic would not pay the licensed branch managers or petitioner commissions or other compensation_for selling aflic insurance petitioner however would pay bonuses to its licensed branch managers based on the amount of insurance each manager sold aflic sells credit insurance to debtors of other creditors besides petitioner through agents who are not employees of petitioner aflic pays these other agents sales commissions usually between and percent of the premium aflic has no employees or offices it does not advertise it pays another company to do its tax returns compute its reserves and do its actuarial work on its amended and u s life_insurance_company income_tax returns forms 1120l aflic respectively reported dollar_figure and dollar_figure in gross premiums and respectively took deductions for commissions paid in the amounts of dollar_figure and dollar_figure respondent sent petitioner a notice_of_deficiency dated date which included increases to petitioner’s gross_income in the amounts of dollar_figure and dollar_figure for the years and respectively to clearly reflect commission income from the sale of credit insurance during and on or about date matheney ford inc matheney ford executed a loan agreement and promissory note the loan agreement whereby aflic and afic agreed to and did lend matheney ford dollar_figure the president of matheney ford was george o cooper jr cooper afic and aflic were granted a security_interest in matheney ford’s used cars and certain accounts cooper executed a guaranty for matheney ford’s debt as security for his guaranty cooper and his wife executed a deed_of_trust on their residence in favor of aflic and afic the deed_of_trust was subordinate to a first deed_of_trust held by trustmark national bank trustmark as security for promissory aflic’s commission deductions include the commission income allocated to petitioner under sec_482 the commission deductions were claimed on the amended_return to preserve the deduction in the event respondent prevailed on the proposed sec_482 adjustment notes that cooper executed to trustmark the trustmark notes the loan agreement further provided for the assignment to afic and aflic of life_insurance policies issued by lamar life_insurance co the lamar policies on cooper’s life in date mrs cooper the owner of the lamar policies so assigned the lamar policies matheney ford defaulted on the loan leaving cooper indebted to aflic in the amount of dollar_figure hereinafter sometimes referred to as the cooper debt on date the coopers and aflic executed a second loan agreement the second loan agreement under the second loan agreement aflic agreed to purchase the outstanding trustmark notes and the trustmark deed_of_trust for dollar_figure and to renew cooper’s dollar_figure indebtedness in exchange for new promissory notes from the coopers in accordance with the second loan agreement the coopers executed the following with aflic as payee a promissory note in the amount of dollar_figure and a nonrecourse promissory note in the amount of dollar_figure the second loan agreement provided that the lamar policies remained assigned to aflic aflic foreclosed on the deed_of_trust purchased the cooper residence and subsequently sold it applying the proceeds to reduce the coopers’ debt on or about date cooper and aflic entered into a third loan agreement the third loan agreement whereby they agreed to refinance the coopers’ indebtedness by having cooper execute a new promissory note to aflic for the balance of the debt dollar_figure payable in installments beginning date the third loan agreement further provided that mrs cooper would be released from liability but that the lamar policies would remain assigned to aflic on or about date aflic assigned all its interest in the third loan agreement to afic cooper was sent to prison sometime in as of date the lamar policies had a total cash_value of dollar_figure on its federal_income_tax return petitioner claimed a bad_debt deduction in the amount of dollar_figure relating to the debts of afic issue sec_482 issue opinion petitioner sold credit insurance policies written by aflic its wholly owned subsidiary to its customers petitioner remitted all the premiums to aflic and in turn received no commissions or payments for selling the insurance respondent pursuant to sec_482 reallocated percent of the premiums as commission income to petitioner sec_482 provides in pertinent part as follows of the disallowed dollar_figure dollar_figure stems from the cooper debt respondent disallowed the balance dollar_figure because petitioner failed to establish that a debt existed or became worthless during petitioner fails to address the dollar_figure we therefore assume that petitioner concedes that amount and we so find rule e and 92_tc_661 89_tc_46 in any case of two or more organizations trades_or_businesses owned or controlled directly or indirectly by the same interests the secretary may distribute apportion or allocate gross_income deductions credits or allowances between or among such organizations trades_or_businesses if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations trades_or_businesses sec_1_482-1 income_tax regs explains the purpose of sec_482 as follows the purpose of sec_482 is to place a controlled_taxpayer on a tax parity with an uncontrolled taxpayer by determining according to the standard of an uncontrolled taxpayer the true_taxable_income from the property and business of a controlled_taxpayer generally put sec_482 is designed to prevent artificial distorting of the true net incomes of commonly controlled entities the commissioner has broad discretionary power to allocate income and a heavier than normal burden is placed on the taxpayer to prove that the allocation is arbitrary or unreasonable 95_tc_323 affd 961_f2d_1255 6th cir in meeting its burden petitioner must show that it did not improperly utilize its control to shift income id petitioner concedes that it and aflic are under common_control petitioner however argues that it did not improperly utilize its control_over itself and aflic to shift commission income from itself to aflic because under mississippi law it would have been illegal for petitioner during the years in issue to receive the commission income petitioner in this regard relies primarily on the supreme court’s decision in 405_us_394 a case whose facts are strikingly similar to those now before us in first security two banks wholly owned subsidiaries of a holding_company offered credit insurance to their borrowers the premiums would be forwarded to an independent insurer which would then reinsure the policies with an insurance_company which was also wholly owned by the holding_company the subsidiary insurance_company would receive percent of the premiums and the outside insurance_company which furnished actuarial and accounting services kept the remaining percent the banks received no commissions or payments for selling the insurance the commissioner pursuant to sec_482 determined that a percentage of the premiums was allocable to the banks to properly reflect commission income the supreme court set_aside the commissioner’s allocation the court emphasized that under federal_law the banks were prohibited from receiving commissions id pincite since the banks could not have legally received that income the court determined that the holding_company did not improperly utilize its control_over its subsidiaries to distort income id pincite- in its analysis the court found no decision of the supreme court wherein a person had been found to have taxable_income that he did not receive and that he was prohibited from receiving id pincite moreover in cases dealing with the concept of income it has been assumed that the person to whom the income was attributed could have received it id the underlying assumption always has been that in order to be taxed for income a taxpayer must have complete dominion over it id citing 281_us_376 we understand the supreme court’s opinion to forbid allocation of income to a taxpayer when restrictions imposed by law prohibit the taxpayer from receiving such income see procter gamble co v commissioner supra pincite see also 613_f2d_650 6th cir 540_fsupp_219 w d la thus if we find that mississippi law made it illegal for petitioner to receive commissions during the years in issue we must hold for petitioner see procter gamble co v commissioner supra pincite petitioner argues that miss code ann secs and prohibited it from receiving commissions during the years in issue for those years miss code ann sec states in pertinent part no insurer or agent doing business in this state shall pay directly or indirectly any commission or any other valuable consideration to any person for services as an agent within this state unless such person shall hold a currently valid license and certificate of authority to act as an agent as required by the laws of such state nor shall any person other than a duly licensed agent accept any such commission or other valuable consideration miss code ann sec likewise states it shall be unlawful for any insurance_company or any insurance agent to pay directly or indirectly any commission brokerage or other valuable consideration on account of any policy or policies written on risks in this state to any person agent firm or corporation not duly licensed as an insurance agent in this state these statutes seem to forbid commission payments to petitioner as petitioner is not a duly licensed agent respondent however cites miss code ann sec which states as follows no one shall pay accrue credit or otherwise allow either directly or indirectly any compensation to any creditor person partnership corporation association or other entity in connection with any policy certificate or other contract of credit life_insurance or credit disability insurance which exceeds forty-five percent of the premium rates approved for such policy certificate or contract a similar regulation limiting the amount allowable as compensation to any creditor or agent for the sale of credit life_insurance was in place during the years in issue mississippi insurance department reg no la h the supreme court of mississippi addressed this apparent conflict provides miss ins dept reg no la h sec vii no insurance_company shall pay credit or otherwise allow any compensation or other valuable consideration either directly or indirectly to any creditor or agent for the sale of any policy certificate or other contract of credit insurance which exceeds fifty percent of the premium rates specified for such policy certificate or contract among the statutes in tew v dixieland finance inc so 2d miss tew involved a small loan company which like petitioner sold credit life_insurance through licensed employees like petitioner the loan company itself was not licensed to sell insurance the loan company brought suit against a borrower who had defaulted on his loan the borrower counterclaimed asserting that the loan company’s receipt of commissions on his purchase of credit life_insurance from the loan company was in violation of miss code ann sec 83-17-105--as the loan company was not a licensed agent--and in violation of miss code ann sec in tew before deciding the issue of whether the loan company violated section the court noted that it was common practice in the industry for unlicensed creditors to receive commissions for the sale of credit insurance id pincite furthermore the court cited miss code ann sec and ins dept reg as evidence that the mississippi legislature and department of insurance have recognized that unlicensed creditors may receive commissions id pincite however the court emphasized that these regulations ignore the inconsistency of these provisions with miss code ann supp which prohibits the payment of any commission to any person who is not a licensed agent id pincite accordingly the court held that the receiving of the commission by dixieland ie the loan company from its sale of insurance is in violation of the miss code ann section id because of the reliance placed on the department of insurance regulations the court made its ruling prohibiting an unlicensed agent from collecting commissions prospective to cases arising on and after date id pincite the court chose a prospective date to allow the legislature and executive departments to deal with the inconsistencies noted id petitioner argues that the prospective language in tew relates only to the private cause of action asserted by the defendant against the loan company not to the legality of the loan company’s actions thus petitioner argues it would have been illegal for it to receive commissions even prior to date we agree the mississippi supreme court clearly held that the receiving of commissions by the loan company from the sale of credit insurance was in violation of miss code ann sec which required it to be a licensed agent to receive commissions id neither party disputes the rule_of 405_us_394 wherein the supreme court held that the commissioner’s allocation of income to a taxpayer the statutes in question were not amended after tew v dixieland finance inc so 2d miss however on date the department of insurance promulgated ins dept reg to specifically allow an unlicensed creditor which sells credit insurance through its licensed employees to receive commissions pursuant to sec_482 was inappropriate when the taxpayer’s receipt of such income was prohibited by local law the court concluded that sec_1_482-1 income_tax regs contemplated that the controlling_interest ie the holding_company must have complete power to shift income among its subsidiaries id pincite sec_1_482-1 income_tax regs provides in pertinent part as follows the interests controlling a group of controlled taxpayers are assumed to have complete power to cause each controlled_taxpayer so to conduct its affairs that its transactions and accounting_records truly reflect the taxable_income_from_the_property and business of each of the controlled taxpayers thus the court continued it is only when this power exists and has been used to understate the controlled taxpayer’s true income that the commissioner is authorized to reallocate income under sec_482 id the court concluded that the holding_company did not have the complete power to shift income between its controlled interests unless it violated the federal banking laws moreover the court concluded that the complete power referred to in the regulations hardly includes the power to force a subsidiary to violate the law id pincite applying the same type of analysis we hold that petitioner could not have received commission income from aflic without violating mississippi state law as provided in miss code ann secs and and as construed by the mississippi supreme court in tew v dixieland finance inc supra see estate of bosch v 387_us_456 petitioner has not utilized its control_over aflic so as to improperly shift income rather there has been a deflection of income by operation of mississippi state law see procter gamble co v commissioner t c pincite accordingly we hold that an allocation under sec_482 is unwarranted and an abuse of the respondent’s discretion issue bad_debt deduction petitioner took a deduction under sec_166 for the cooper debt which aflic assigned to afic in date sec_166 provides a deduction for any debt which becomes worthless during the taxable_year the amount of the deduction for a bad_debt is limited to the taxpayer’s adjusted_basis in the debt as provided in sec_1011 sec_166 92_tc_470 affd without published opinion 912_f2d_1466 5th cir whether and when a debt becomes worthless is determined by looking at all the facts and circumstances including the value of the collateral if any securing the debt and the financial condition of the debtor sec_1_166-2 income_tax regs generally a since afic was a member of the affiliated_group with petitioner afic’s operations were included in the consolidated filing sec_1_1502-76 income_tax regs the common parent shall be the sole agent for each subsidiary in the group sec_1_1502-77 income_tax regs as common parent petitioner is authorized to petition and conduct proceedings before the court on behalf of all members of the group id debt will be considered worthless only when it can be reasonably expected that the debt is without possibility of future payment and legal action to enforce the debt would not result in satisfaction 20_tc_1069 petitioner bears the burden_of_proof rule a and must show that the debt had value at the beginning of the taxable_year in question--in this case 1989--and that it became worthless during and prior to the end of that year 46_tc_751 affd 387_f2d_420 8th cir we have found the amount of the debt as assigned to afic in to be dollar_figure of that amount petitioner concedes that dollar_figure the cash_value of the lamar policies is not deductible as a bad_debt petitioner proposes no findings_of_fact and makes no arguments supporting its position that the debt became worthless in other than that cooper began serving a prison sentence during the only evidence submitted by petitioner pertaining to the worthlessness of the debt is jack lee’s subjective testimony on the matter lee testified as follows well prior to his going to prison what effort q did you make -- after the business went defunct what efforts did you make to collect on the loan we went through a long history of george trying to a collect he went from -- after the thing -- after cooper ford went broke then he bought the restaurant lee is chairman chief_executive_officer and part owner of petitioner on highway i forget the name of it and he didn’t make it with the restaurant trustmark had a lien on his house and i had a buyer for the house so i went up there and got trustmark to sell me their position and we subsequently foreclosed on that house and i did make some money which reduced the debt some on the settlement of that house and after that occurred what happened to make you q finally conclude that the loan was uncollectible well since that time -- since he lost -- it was a fisherman’s wharf was the restaurant -- since he lost that restaurant and he went to prison in my knowledge george has never worked since then we assume that the loan that lee was referring to was the original loan in which was refinanced in and again in the parties have treated the note as merely a continuation of the debt which was refinanced in by aflic and we see no difference in result by doing the same assuming the note was a continuation of the earlier debt without anything more than lee’s testimony we are not persuaded that the debt was worthless the only evidence that petitioner or aflic attempted to collect on the debt was the purchase of the coopers’ home in the foreclosure sale petitioner has not shown that cooper was without any other assets which could have provided payment in an action to collect on the debt moreover even if the debt was worthless the record does not establish that it became worthless in matheney ford became insolvent no later than aflic foreclosed on the coopers’ house and sold it in accordingly petitioner has failed to meet its burden_of_proof we add that if the note is viewed as a separate debt from the earlier debt petitioner has failed to show that such debt had value when created or when acquired by aflic without that showing a deduction is not permitted see eg 39_tc_316 finally petitioner has failed to prove afic’s basis in the note which is required in order to take a sec_166 deduction sec_166 normally for sec_166 purposes a taxpayer’s basis in property is the cost of such property sec_1011 and sec_1012 the assignment agreement stated that the assignment was for a valuable consideration the receipt and sufficiency of which is hereby acknowledged lee testified that afic reimbursed aflic for the amount of the debt ie that aflic furnished consideration for the debt however we have found no evidence of any such payments and would not therefore be able to determine the amount allowable as a deduction under sec_166 accordingly we sustain respondent’s disallowance of petitioner’s bad_debt deduction decision will be entered under rule


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number info release date conex-142668-09 uil the honorable john f tierney member u s house of representatives peabody square peabody ma attention ------------------------------ dear congressman tierney this letter is in response to your inquiry dated date on behalf of your constituent ---------------------------------------------------- he wrote about the status of a refund claim for medicare_tax paid on remuneration for services performed by thirteen employees of the -------------------------------------------------------- while in general we cannot discuss the specific facts of taxpayers tax_liabilities the materials ----------------submitted suggest that the refund claim for medicare_tax is based on a court opinion that is not yet final 421_fsupp2d_319 d mass that case involves refund claims based on sec_3121 of the internal_revenue_code also known as the continuing employment exception to medicare under the continuing employment exception to medicare wages paid to certain state and local_government employees hired before date are not subject_to medicare_tax as long as the employees remain continuously employed by the same government employer the court in regan rejected the government’s argument that the abolition of the county governments in massachusetts and subsequent transfer of the county employees to state employment interrupted the continuity of employment so as to render the continuing employment exception to medicare inapplicable to the transferred employees who were eligible for the exception before the transfer therefore the court held that those employees did not need to pay medicare_tax on their wages in general when tax_liabilities are the subject of litigation the ultimate resolution occurs after the court enters final judgment and any decision with respect to possible appeal finalized while we certainly understand your constituent’s frustration as to the conex-142668-09 passage of time our understanding is that the district_court in regan has not yet entered a final judgment in the case for this reason issuing refunds of tax is premature i hope this information is helpful if you have any questions please contact me at -------- --------------------------------------------------------------------------------------------------------------------- --------------or --------------------at --------------------- sincerely nancy j marks division counsel associate chief_counsel tax exempt government entities