internal_revenue_service number release date index number --------------------------------------------------- -------------------- ------------------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number -------------------- refer reply to cc ita b05 plr-126228-08 date date entity entity ---------------------------------------------- --------------------------------------------------- dear ---------------------- this is in response to your request for a private_letter_ruling dated date you have asked for a ruling that for purposes of exchanges of property under sec_1031 of the internal_revenue_code the acquisition of a partnership_interest under the facts below by entity is not inconsistent with such entity’s status as an exchange accommodation titleholder eat as defined by revproc_2000_37 2000_2_cb_308 facts entity acts as an eat in safe_harbor parking arrangements under revproc_2000_37 for exchanges of property intended to qualify for nonrecognition_of_gain_or_loss under sec_1031 entity is an affiliate of entity entity will enter into a qualified_exchange_accommodation_agreement qeaa as defined by revproc_2000_37 with a taxpayer who will engage in a sec_1031 exchange pursuant to the qeaa entity will acquire from a person unrelated to the taxpayer a percent interest in a partnership whose only asset is real_estate the other percent interest in the partnership is already owned by the taxpayer entity will be a partner in the partnership during the period of time that entity owns the partnership_interest the qeaa states that entity is acting as the agent of the taxpayer for all purposes other than federal_income_tax purposes within days after the acquisition of the partnership_interest by entity the taxpayer will identify within the meaning of rev_proc relinquished_property the plr-126228-08 taxpayer will enter into a contract to sell the relinquished_property to an unrelated third party the taxpayer will enter into an exchange_agreement with entity which will act as a qualified_intermediary within the meaning of sec_1_1031_k_-1 of the income_tax regulations entity then will enter into a contract with entity for the purchase of the partnership_interest within days after the acquisition of the partnership_interest by entity the taxpayer will assign all rights in the contract for the sale of the relinquished_property to entity also within days the relinquished_property will be transferred to the unrelated third party buyer through entity and the partnership_interest will be transferred to the taxpayer through entity legal_title to both the relinquished_property and the partnership_interest will be transferred by direct deed law and analysis sec_1031 generally provides for the deferral of gain_or_loss on the exchange of property held for productive use in a trade_or_business or for investment if such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment sec_1031 precludes the exchange of a partnership_interest from sec_1031 treatment revproc_2000_37 provides a safe_harbor under sec_1031 for an exchange where the taxpayer acquires the replacement_property before transferring the relinquished_property sec_4 of revproc_2000_37 sets forth certain requirements that must be met in order for an entity to qualify as an eat and in order for the agreement between the eat and the taxpayer in the sec_1031 exchange to qualify as a qeaa sec_4 of revproc_2000_37 provides in part that at the time the qualified indicia of ownership of the property is transferred to the eat it is the taxpayer’s bona_fide intent that the property held by the eat represent replacement_property in a sec_1031 exchange in revrul_99_6 1999_1_cb_432 situation a and b are equal partners in the ab partnership a sold a’s entire_interest in the ab partnership to b b’s purchase of a’s interest in the ab partnership resulted in a termination of the partnership under sec_708 for purposes of determining the tax consequences to b ab partnership is deemed to have made a liquidating_distribution of all its assets equally to a and b and following this distribution b is treated as acquiring the assets deemed to have been distributed to a in liquidation of a’s partnership_interest as a result b holds all the assets formerly held by the ab partnership accordingly b is not treated as acquiring a’s partnership_interest in the exchange conclusion plr-126228-08 the acquisition of the partnership_interest by entity in the facts described above is not inconsistent with entity 1’s status as an eat where the remaining partnership_interest is already owned by the taxpayer in the sec_1031 exchange the ruling contained in this letter is based upon information and representations submitted by entity 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 it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to entity this is not a ruling with respect to any particular partnership partner or taxpayer engaged in a sec_1031 exchange sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely amy j pfalzgraf senior counsel branch office_of_chief_counsel income_tax accounting cc


t c memo united_states tax_court w morgan parker and linda m parker petitioners v commissioner of internal revenue respondent docket no filed date w morgan parker and linda m parker pro sese john d ellis for respondent memorandum findings_of_fact and opinion lauber judge the internal_revenue_service irs or respondent deter- mined a deficiency in petitioners’ federal_income_tax of dollar_figure and an ac- curacy-related penalty of dollar_figure before trial respondent conceded the following adjustments set forth in the notice_of_deficiency a dollar_figure adjustment to income on account of a thrift_savings_plan distribution which was actually a loan additional tax of dollar_figure determined under sec_72 on the foregoing amount and a deduction of dollar_figure for home mortgage interest at trial petitioners conceded that they failed to report a dollar_figure taxable refund of state_income_tax after further concessions at trial and in respondent’s post-trial brief dis- cussed further below the issues for decision are whether petitioners received unreported income from their two sole proprietorships whether petitioners are entitled to deduct certain expenses reported on their respective schedules c profit or loss from business and whether petitioners are liable for an accuracy-rela- ted penalty with certain exceptions we will sustain respondent’s determinations findings_of_fact during petitioner husband mr parker operated as a sole proprietor- ship a collateral repossession business mid-atlantic auto recovery mid-atlan- tic he contracted with banks and other financial institutions that had made loans based on collateral typically cars but occasionally appliances or equipment if the borrower became delinquent on the loan mid-atlantic would repossess the all statutory references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar collateral hold it for at least days and follow the bank’s instructions regarding ultimate disposition of the property the banks paid mid-atlantic fees for these services and mr parker deposited these fees into one of his bank accounts from january to date mid-atlantic operated out of a trailer on a leased security lot where the repossessed collateral was kept this trailer had telephone electricity and internet service provided by local utilities mr parker moved mid-atlantic’s operations to another lot in date mid-atlantic had three full-time employees during mr parker his son and his daughter other family members and their friends occasionally served as drivers or part-time office staff during petitioner wife mrs parker briefly operated a mary kay busi- ness selling cosmetic products she purchased dollar_figure of startup inventory before and sold a small portion of this inventory during the first few months of that year after deciding that she did not like the business she discontinued it in mid- she retained all of the unsold inventory mr parker testified that state law required creditors to hold repossessed collateral for at least days before disposing of it petitioners maintained more than a dozen accounts at wachovia bank dur- ing four of these accounts were titled in mid-atlantic’s name mr parker generally deposited fees received from the financial institutions into one of these accounts the other accounts were held in petitioners’ names either individually or jointly and were used for both business and personal purposes for petitioners timely filed form_1040 u s individual_income_tax_return they included in this return a schedule c for the mid-atlantic business that reported gross_receipts of dollar_figure and total expenses of dollar_figure for a net_loss of dollar_figure the reported expenses were as follows expense rent utilities insurance_contract labor car and truck other amount dollar_figure big_number big_number big_number big_number big_number petitioners also included in this return a schedule c for the mary kay business that reported gross_receipts of dollar_figure cost_of_goods_sold of dollar_figure and car and truck expenses of dollar_figure for a net_loss of dollar_figure the irs selected petitioners’ return for examination and on date issued them a timely notice_of_deficiency on the basis of a bank de- posits analysis the irs determined that petitioners had omitted dollar_figure of gross_receipts from the mid-atlantic business and dollar_figure of gross_receipts from the mary kay business the irs disallowed for lack of substantiation all of the deductions that petitioners claimed on the schedules c the irs also determined an accuracy-related_penalty with respect to these adjustments while resident in virginia petitioners timely petitioned this court for redetermination of the deficiency and the penalty at the close of trial the court ordered one round of seriatim briefs respon- dent timely filed his brief on date petitioners did not file a post-trial brief when a party fails to file a brief on issues that have been tried we may consider those issues waived or conceded see eg 117_tc_117 n 84_tc_693 aff’d without published opinion 789_f2d_917 4th cir we will exercise our discretion not to do so here petitioners submitted to the court by facsimile on date a docu- ment purporting to be a post-trial brief the court informed petitioners that a brief cannot be filed by facsimile but must be filed electronically or in paper form petitioners did not file a brief as instructed by the court opinion i burden_of_proof the irs’ determinations in a notice_of_deficiency are generally presumed correct though the taxpayer can rebut this presumption rule a 290_us_111 the u s court_of_appeals for the fourth circuit the appellate venue in this case absent stipulation to the contrary has held that the usual presumption of correctness applies in omitted income cases where the irs employs a reasonable method of determining income such as the bank_deposits method 999_f2d_760 4th cir aff’g tcmemo_1992_153 other courts have required the irs in unre- ported income cases to establish a minimal evidentiary showing connecting the taxpayer with the income-producing activity e g 994_f2d_1542 11th cir aff’g tcmemo_1991_636 if the irs were required to make a minimal evidentiary showing here respondent has met that burden by introducing bank records establishing that peti- tioners received unreported income from their sole proprietorships petitioners thus bear the burden of proving by a preponderance_of_the_evidence that respon- dent’s determination of unreported income is arbitrary or erroneous see wil- liams f 2d pincite citing 293_us_507 87_tc_74 petitioners do not contend and they could not plausibly contend that the burden_of_proof as to any issue of fact should shift to respondent under sec_7491 ii unreported income sec_61 defines gross_income as all income from whatever source de- rived including income derived from business a taxpayer must maintain books_and_records establishing the amount of his or her gross_income see sec_6001 when a taxpayer does not keep accurate books_and_records the irs may deter- mine his or her income under such method as in the opinion of the secretary does clearly reflect income sec_446 see 92_tc_661 and where the taxpayer has unexplained bank_deposits the irs may employ the bank_deposits method to estimate his or her income estate of 132_f2d_775 2d cir aff’g 45_bta_104 64_tc_651 aff’d 566_f2d_2 6th cir the irs has great latitude in reconstructing a taxpayer’s income and the reconstruction need only be reasonable in light of all surrounding facts and circumstances petzoldt t c pincite bank_deposits are prima facie evidence of income the bank_deposits method starts with the presumption that all money deposited in a taxpayer’s bank account during a given period constitutes taxable_income 335_f2d_671 5th cir this presumption is rebutted to the extent the deposits are shown to include nontaxable amounts and the government must take into account any non-taxable source of which it has knowledge ibid 96_tc_858 aff’d 959_f2d_16 2d cir after the irs reconstructs a taxpayer’s income and determines a deficiency the taxpayer bears the burden of proving that the irs’ implementation of the bank_deposits analysis was unfair or inaccurate see 102_tc_632 dileo t c pincite the taxpayer may do so by showing among other things that certain deposits came from nontaxable sources see clayton t c pincite nontaxable sources include funds attributable to interaccount bank transfers and returned checks as well as loans gifts inheri- tances or assets on hand at the beginning of the taxable_period 69_tc_729 ndollar_figure quoting troncelliti v commissioner t c memo the revenue_agent ra employed the bank_deposits method to reconstruct petitioners’ income after obtaining copies of petitioners’ bank statements by issuing summonses to their banks the ra used the statements which are part of the record to prepare schedules listing all deposits after eliminating nontaxable receipts of which he was aware the ra prepared and provided to petitioners a schedule that determined unreported income of dollar_figure of this sum the ra allocated dollar_figure to the mid-atlantic business and dollar_figure to the mary kay business petitioners did not respond to the ra’s analysis nor did they pro- vide him with any documents establishing that certain deposits represented non- taxable receipts with respect to the mary kay business the evidence at trial established and respondent now concedes that dollar_figure of the deposits represented nontaxable re- imbursement to mrs parker from family and friends for a vacation trip this leaves in question the remaining dollar_figure of deposits petitioners offered no evidence that these deposits reflected nontaxable items we accordingly find that petitioners received during unreported income of dollar_figure from the mary kay business with respect to the mid-atlantic business respondent concedes that peti- tioners received dollar_figure of the deposited funds in and that this income was not taxable for this leaves in question the remaining dollar_figure of deposits petitioners’ primary argument is that some of these deposits were nontaxable advances of bailout money from mid-atlantic’s financial_institution clients mr parker testified that a third party might have a prior claim on collateral that the client wished him to repossess for example a car might have been towed to a city lot because of unpaid parking tickets or a piece of machinery might be subject_to a mechanics lien he testified that the financial institutions would advance him funds to cover such contingencies enabling him to bail out the collateral and then repossess it because mid-atlantic allegedly held these funds in a fiduciary capacity petitioners urge that the funds represented nontaxable receipts in an effort to quantify these alleged advances of bailout money mr parker provided a substitute form 1099-misc miscellaneous income issued to mid-atlantic by ford motor credit for he also provided a summary which he prepared listing bank_deposits allegedly corresponding to payments from ford motor credit in the form 1099-misc reports dollar_figure of income whereas mr parker’s summary shows dollar_figure of deposits petitioners contend that the dif- ference between these numbers or dollar_figure corresponds to nontaxable advances of bailout money for at least three reasons we are unpersuaded by petitioners’ argument first they failed to establish that all of the deposits on mr parker’s summary actu- ally corresponded to payments from ford motor credit second petitioners claimed on their schedule c for the mid-atlantic business under the category of other expenses a deduction of dollar_figure for bailouts paid if it was mr parker’s practice to claim a deduction for bailouts paid he would first have to include in gross_income any advances of funds used for bailouts third mid- atlantic had at least bank clients during but petitioners produced no documentary_evidence regarding supposed bailout advances from any client other than ford motor credit in sum petitioners have failed to prove that they received advances of bailout money from mid-atlantic’s clients during or that if they received such advances the advances constituted nontaxable receipts and they offered no evidence suggesting that the bank_deposits in question constituted nontaxable receipts for any other reason we accordingly find that petitioners received during unreported income of dollar_figure from the mid-atlantic business iii schedule c expenses deductions are a matter of legislative grace the taxpayer bears the burden of proving that reported business_expenses were actually incurred and were ordi- mr parker testified that he had forms 1099-misc from other clients but he failed to produce them to respondent before date the date by which we ordered petitioners to produce to respondent any documents they wished to use at trial in any event mr parker contradicted himself by first stating that he had but did not produce these additional forms 1099-misc and then stating that these documents had been either lost or destroyed in a storm nary and necessary sec_162 rule a the taxpayer also bears the burden of substantiating expenses underlying his claimed deductions by keeping and producing records sufficient to enable the irs to determine the correct_tax liability sec_6001 503_us_79 sec_1_6001-1 e income_tax regs the failure to keep and present such records counts heavily against a taxpayer’s attempted proof rogers v commissioner tcmemo_2014_141 at in the event a taxpayer establishes that he has incurred a deductible expense but is unable to substantiate the precise amount the court may approximate the amount of the deduction bearing heavily against the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir the court must however have evidence sufficient to provide a basis upon which an estimate can be made 939_f2d_874 9th cir aff’g in part rev’g in part tcmemo_1989_390 85_tc_731 sec_274 imposes stricter substantiation requirements for deductions claimed for expenses of travel meals and entertainment no such deduction is allowed unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating his own statements the amount time and place and business_purpose for each expenditure sec_274 sec_1_274-5t b and c temporary income_tax regs fed reg date a court may not apply the cohan_rule to approximate expenses covered by sec_274 50_tc_823 aff’d per curiam 412_f2d_201 2d cir a mid-atlantic busine sec_1 rent expense petitioners reported on their schedule c for the mid-atlantic business a rent expense of dollar_figure for the lease of mid-atlantic’s security lot respondent in his post-trial brief conceded the rent expense deduction in full we accordingly conclude that petitioners are entitled to deduct a rent expense of dollar_figure for insurance expense petitioners reported on their schedule c for the mid-atlantic business an insurance expense of dollar_figure respondent in his post-trial brief conceded the insurance expense deduction in full we accordingly conclude that petitioners are entitled to deduct an insurance expense of dollar_figure for utilities expense petitioners reported on their schedule c for the mid-atlantic business a utilities expense of dollar_figure respondent in his post-trial brief conceded a deduction for dollar_figure of these expenses attributable to payments to american disposal and don’s johns mr parker testified that mid-atlantic during paid for electricity service from northern virginia electric cooperative novec and for landline and internet service from verizon all of which was supplied to the trailer on mid-atlantic’s security lot he testified that he also paid for cell phone service from sprint for himself and his employees with regard to electricity service mr parker provided a canceled check for dollar_figure made out to novec in date he testified that this check was repre- sentative of his usual monthly bill he testified that for the other months in he paid the electric bill using a debit card he produced no business records in- voices or bank statements showing other_payments to novec with regard to landline and internet service mr parker provided a canceled check for dollar_figure made out to verizon in date he provided no other documentary_evidence of payments to verizon with regard to cell phone service he provided a canceled check for dollar_figure made out to sprint in date he provided no other documen- tary evidence of payments to sprint we find that mid-atlantic maintained electricity landline and internet service in the trailer on its security lot and we will estimate its utilities expense using the cohan_rule because mr parker stated that the lease on the security lot was in place from january to september we will allow him a deduction for nine months of expenses for these utilities since he substantiated expenses of dollar_figure dollar_figure dollar_figure for date and established that these charges were typical we will allow petitioners to deduct dollar_figure dollar_figure months on this account we will not allow a deduction for any cell phone expenses because petitioners provided no evidence that the cell phones in question--held by mr parker and his children--were used for business purposes taking into account the dollar_figure conceded by respondent we will allow a deduction for utilities expense of dollar_figure for contract labor expenses petitioners reported on their schedule c for the mid-atlantic business contract labor expenses of dollar_figure mr parker testified that mid-atlantic employed his son and daughter full time and that he occasionally hired other family members and their friends as part-time workers to staff the trailer and drive vehicles at trial he produced canceled checks totaling dollar_figure in an effort to cell phones were not listed_property under sec_280f for and petitioners thus were not required to meet the strict substantiation requirements of sec_274 however they must still show that the cell phones were used for business rather than personal purposes and provide some credible_evidence as to the extent of business use because they did not satisfy these requirements we will disallow a deduction for all of the cell phone expenses substantiate the latter expenses checks totaling dollar_figure were made out to five named payees respondent has conceded dollar_figure of this sum corresponding to checks written during the rest of the canceled checks were made out to cash typically in round- dollar amounts such as dollar_figure mr parker testified that his usual practice was to make out checks to cash and personally deposit them into his workers’ bank ac- counts but the evidence showed that the opposite often occurred on occa- sions mr parker wrote checks typically in exact dollar amounts such as dollar_figure directly to the five named workers he did not explain this inconsistency petitioners offered no evidence such as a form 1099-misc a check stub or another document to show that the amounts of checks made out to cash were paid to workers as compensation_for services rendered many of these checks were apparently given to family members or their acquaintances the memo lines on many of these checks have obscure notations such as jessie m a and blam mr parker did not explain these references or link them in any way to contract labor and the round-dollar amounts of these checks are at odds with the notion that they represented payment of hourly wages we will accordingly disallow a deduction for the dollar_figure of contract labor expenses not conceded by respondent car and truck expenses petitioners reported on their schedule c for the mid-atlantic business car and truck expenses of dollar_figure this deduction was based not on actual expenses but on a mileage_allowance of cents a mile for big_number alleged business miles driven using two tow trucks petitioners did not maintain or produce at trial a mileage log odometer readings a trip sheet an account book or any form of documentation to substantiate the big_number miles claimed they thus failed to satis- fy the substantiation requirements for deducting the mileage_allowance see revproc_2010_51 2010_51_irb_883 at trial petitioners abandoned any claim to a mileage_allowance and claimed a deduction for actual car and truck expenses such as the cost of new tires oil changes and general maintenance but they produced no documents to substan- tiate these expenses apart from a dollar_figure check payable to virginia dmv which they did not establish was business related the only other canceled checks were dollar_figure checks made out to cash that were drawn on a mid-atlantic account and apparently deposited into mrs parker’s account these checks do not evidence the payment of car and truck expenses petitioners clearly incurred some car and truck expenses during be- cause mid-atlantic was in the towing business but they produced no substantia- tion for the mileage_allowance reported on their return or for the actual car and truck expenses for which they claimed a deduction at trial even if tow-truck expenses were regarded as exempt from the strict substantiation requirements of sec_274 petitioners’ failure to supply any substantiation whatsoever means that we are not at liberty to estimate these expenses in order to estimate expenses under the cohan_rule we must have some evidence on the basis of which an estimate can be made vanicek t c pincite as it is we have no alternative but to deny for lack of substantiation a deduction for the dollar_figure of car and truck expenses other expenses petitioners reported on their schedule c for the mid-atlantic business other expenses of dollar_figure these expenses were allegedly incurred for quickbooks software bank service charges computer and internet expenses continuing education classes dues and subscription fees postage and delivery expenses taxes on tarring property and bailouts in an effort to substantiate these expenses petitioners produced at trial a few canceled checks but none of these checks had any logical relationship to the categories of expenses reported several of the checks were made out to cash one was made out to american disposal and respondent conceded the amount deductible as a utilities expense another was made out to a contract worker we conclude that petitioners have not carried their burden of substantiating any of the reported other expenses b mary kay busine sec_1 car and truck expenses petitioners reported on their schedule c for the mary kay business car and truck expenses of dollar_figure at trial they conceded the deduction for these expenses in full we accordingly conclude that petitioners are not entitled to deduct any car and truck expenses for the mary kay business cost_of_goods_sold petitioners reported on their schedule c for the mary kay business gross_receipts of dollar_figure and cost_of_goods_sold of dollar_figure we have determined that the actual gross_receipts of the mary kay business were dollar_figure dollar_figure dollar_figure of unreported income respondent concedes that petitioners are entitled to a corresponding cost_of_goods_sold of dollar_figure cost_of_goods_sold is the amount that the taxpayer expended to purchase or construct inventory sold during the year gaitan v commissioner tcmemo_2012_3 103_tcm_1010 mrs parker testified that she purchased dollar_figure of inventory before and that most of this inventory remained unsold when she quit the mary kay business in mid-2010 petitioners testified that they had boxes and boxes of that stuff still at the house the inventory that remained on hand after was obviously not sold during that year we conclude that petitioners have not borne their burden of proving entitlement to an adjustment for cost_of_goods_sold in excess of the amount that respondent conceded iv penalties the code imposes a penalty on the portion of any underpayment_of_tax attributable to n egligence or disregard of rules and regulations or a ny sub- stantial understatement of income_tax sec_6662 and b and negli- gence includes any failure to make a reasonable attempt to comply with the internal revenue laws sec_6662 an understatement of income_tax is sub- stantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 under sec_7491 respondent bears the burden of production with respect to the liability of an individual for any penalty see 116_tc_438 no penalty is imposed with respect to any portion of an underpayment if the taxpayer acted with reasonable_cause and in good_faith with respect thereto the taxpayer bears the burden of proving reasonable_cause and good_faith id at reasonable_cause can be shown by good-faith reliance on the advice of a qualified_tax professional sec_1_6664-4 c income_tax regs respondent has met his burden of production with respect to petitioners’ negligence and disregard of rules and regulations petitioners failed to report dollar_figure of income attributable to their mid-atlantic and mary kay businesses and claimed more than dollar_figure of deductions for which they had no substantiation whatsoever petitioners have not demonstrated that these failures were due to reasonable_cause for both businesses petitioners maintained virtually no books_and_records to track their income and expenses the evidence they produced at trial consisting mostly of canceled checks often bore little relationship to the income and expenses reported on their return they did not rely on any profes- sional advice in taking these positions we find that the entirety of petitioners’ underpayment for was attribu- table to negligence in the event the rule computation indicates that petition- ers’ understatement of income_tax for exceeds the greater of dollar_figure or of the amount required to be shown on their return we conclude that the underpayment is alternatively attributable to a substantial_understatement_of_income_tax for which they have not shown reasonable_cause to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si date date legend x d1 this responds to the letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the cc dom p si secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes 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 signed david r haglund sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date internal_revenue_service index number ----------------------- ---------------------------------------------- ----------------------------------- ----------------------------- -------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact - id no - telephone number --------------------- refer reply to cc corp b02 plr-126936-06 date june legend seller parent ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------- seller llc ------------------------------------ ----------------------------- ------------------------ -------------------------------- ------------------------------------------------ ------------------------ target sub ------------------------------------------------------ ---------------------------------------- target sub ----------------------------------------------------- ----------------------------- target sub target sub ----------------------------------------------------------------- ----------------------------- ----------------------------------------------------------------------------------------- ------------------------------------ ----------------------------- target sub ------------------------------------------------- ---------------------------- plr-126936-06 target sub buyer parent ---------------------------------------------------------------- ------------------------------------ ------------------------------------------------------------------------- ---------------------------------------------- -------------------------- buyer buyer ------------------------------- ---------------------------------------- ----------------------------------------------------------------- ----------------------------------- a ---------------------- ------------- b dear ----------------- this letter responds to your letter dated date requesting a ruling on certain federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date date date date and date the material information provided for consideration is summarized below seller parent the stock of which is publicly traded and widely held is the common parent_corporation of a consolidated_group of corporations except for dollar_figurea of preferred_stock seller parent directly and indirectly owns all of the stock of seller seller wholly owns llc an entity disregarded as separate from its owner for united_states federal tax purposes seller through llc and other entities disregarded for u s federal tax purposes owns stock in target sub target sub target sub target sub target sub and target sub collectively the target subsidiaries each of the target subsidiaries is a foreign_corporation buyer parent the ordinary shares of which are publicly traded and widely held directly or indirectly wholly owns buyer and buyer buyer parent buyer and buyer are foreign_corporations seller parent and buyer parent each directly or indirectly own an equity_interest in each of b entities treated as partnerships for u s federal tax purposes pursuant to an agreement executed between seller parent and buyer parent it is contemplated that seller through llc and other entities disregarded for u s federal plr-126936-06 tax purposes will sell i stock of target sub to buyer and ii stock of target sub target sub target sub target sub and target sub to buyer such transactions collectively the proposed transactions based solely upon the information submitted we rule that sec_304 will not apply to the proposed transactions except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed regarding the application of sec_1248 to the proposed transactions this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the ruling contained in this letter is based upon information 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 this ruling it is subject_to verification on examination sincerely frances kelly assistant branch chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct uniform issue list tep rats legend taxpayer a taxpayer b ira x financial_institution c amount u doctor b date dear this is in response to your request dated date as supplemented by correspondence dated date date and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age asserts that on date he received a distribution from ira x of amount u and that taxpayer a’s failure to accomplish a rollover of amount u was due to the effects of a mental condition which was such as to impair his ability to make sound financial decisions or to understand the consequences of his actions _ page on date taxpayer a authorized the distribution of amount u from ira x through an internet online transfer taxpayer a asserts that he has no recollection of the amount u withdrawal taxpayers a and taxpayer b taxpayer a’s wife had sufficient other non-ira assets available to pay any expenses at the time of the date transaction taxpayer a has submitted documentation including letters from his treating physician doctor b that taxpayer a was suffering from a mental condition at the time of the date ira x withdrawal and that taxpayer a’s mental condition impaired his ability to understand the consequences of his financial actions based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement with respect to the transfer of amount u contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 page sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with taxpayer a’s assertion that his failure to accomplish a rollover of amount u was due to the effects of a mental condition which was such as to impair his ability to make sound financial decisions or to understand the consequences of his actions therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount u from ira x pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter_ruling to make a rollover_contribution of an amount equal to amount u to an ira or iras described in code sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of code sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent page a copy of this letter_ruling is sent to your authorized representative pursuant to the provisions of a power_of_attorney on file in this office if you wish to inquire about this ruling please contact xxxxxx please address all correspondence to se t ep ra t3 sincerely yours if _ fees sian manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c summary opinion united_states tax_court richard a paikowski petitioner v commissioner of internal revenue respondent docket no 11529-04s filed date richard a paikowski pro_se frederic j fernandez for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code as in effect for the years at issue the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined the following deficiencies in and additions to petitioner’s federal income taxes for and year deficiency dollar_figure big_number additions to tax sec_6651 dollar_figure big_number sec_6654 dollar_figure dollar_figure the issues for decision are whether petitioner filed timely federal_income_tax returns for and and whether petitioner is liable for additions to tax under sec_6651 and sec_6654 background the stipulated facts and the exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in waterford wisconsin in petitioner was employed by jack safro toyota inc in car sales and earned wages totaling dollar_figure in petitioner was employed by andrew motor sales inc in car sales and earned wages totaling dollar_figure petitioner submitted to respondent form sec_1040 u s individual_income_tax_return for and in the income portion of both returns petitioner entered zeros on all lines petitioner reported that he had no taxable_income and that no taxes were due petitioner claimed a refund of dollar_figure for and dollar_figure for which represented the full amounts of federal income taxes that were withheld from his wages by his employers during those years respondent subsequently issued to petitioner statutory notices of deficiency for and respondent determined that the forms submitted by petitioner do not constitute federal_income_tax returns and that the wages earned by petitioner in and are income discussion the commissioner’s determinations are presumed correct and generally taxpayers bear the burden of proving otherwise rule a 290_us_111 sec_7491 provides that if in any court_proceeding the taxpayer introduces credible_evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for a tax the burden_of_proof with respect to such factual issues will be placed on the commissioner see 116_tc_438 petitioner has not raised the issue of sec_7491 nor has he introduced any credible_evidence with respect to the factual issues therefore sec_7491 does not apply whether petitioner timely filed his tax returns the majority of courts including this court have held that generally a return that contains only zeros is not a valid_return 120_tc_163 a return ‘which does not contain any information relating to the taxpayer’s income from which the tax may be computed is not a return within the meaning of the internal_revenue_code ’ 627_f2d_830 7th cir quoting 426_f2d_519 10th cir 102_tc_137 the taxpayer must have an honest and reasonable intent to supply the information required by the tax code for a form to constitute a return united_states v moore supra pincite petitioner by entering zeros on all lines on the income portion of his returns did not have an honest and reasonable intent to supply the information required therefore the forms submitted by petitioner for and do not constitute federal_income_tax returns sec_61 provides that gross_income means all income from whatever source derived including compensation_for services see 435_us_21 410_us_441 petitioner does not dispute that he earned wages for and and that the wages represented compensation_for services rendered see cabirac v commissioner supra pincite it is beyond contention that wages represent taxable_income it is a general tax law principle that full compensation_for services rendered--no matter to whom paid or when--is income immediately taxable to the person who earned the money 775_f2d_887 7th cir see cent ill pub serv co v united_states supra therefore petitioner’s wages are income petitioner raised at trial typical tax_protester type arguments on the basis of well-established law the court sees no need to address petitioner’s frivolous and groundless arguments see 737_f2d_1417 5th cir additions to tax under sec_6651 and sec_6654 sec_7491 imposes the burden of production in any court_proceeding on the commissioner with respect to the liability of any individual for penalties and additions to tax higbee v commissioner supra pincite trowbridge v commissioner tcmemo_2003_164 affd 378_f3d_432 5th cir in order to meet the burden of production under sec_7491 the commissioner need only make a prima facie case that imposition of the penalty or addition_to_tax is appropriate higbee v commissioner supra the burden_of_proof remains on the petitioner who must prove that his failure_to_file was due to reasonable_cause and not due to willful neglect sec_6651 469_us_241 higbee v commissioner supra pincite a failure_to_file a federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and nevertheless was unable to file the return within the prescribed time barkley v commissioner tcmemo_2004_287 sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite respondent determined additions to tax under sec_6651 for and asserting that petitioner failed to file federal_income_tax returns for those years respondent has met his burden of production since the zero returns filed by the petitioner are not valid returns the court finds that petitioner did not have reasonable_cause for his failure_to_file the returns and that he is liable for the additions to tax as respondent determined respondent also determined that petitioner is liable for an addition_to_tax under sec_6654 for failure to make timely and sufficient payments for and estimated_taxes the sec_6654 addition_to_tax is mandatory unless petitioner can place himself within one of the computational exceptions provided by that section 91_tc_874 75_tc_1 since petitioner has failed to do so respondent’s determination is sustained sec_6673 provides that the court is authorized to require a taxpayer to pay to the united_states a penalty of up to dollar_figure whenever it appears that the taxpayer’s position in the proceeding is frivolous and groundless while a penalty will not be imposed at this time the court cautions petitioner that a penalty may be imposed if he continues to advance the same frivolous and groundless arguments in the future reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


t c no united_states tax_court joseph e lewis petitioner v commissioner of internal revenue respondent docket no 6284-06l filed date p filed hi sec_2002 income_tax return late p included payment for the reported tax due with his return r assessed additions to tax under sec_6651 and i r c for late filing and late payment p requested an abatement of the additions to tax which was ultimately denied after a hearing before r’s appeals_office r then initiated a collection action and p now seeks review of his liability for additions to tax under sec_6330 i r c r moves for summary_judgment pursuant to sec_301_6330-1 q a-e2 proced admin regs r argues that p had an opportunity to dispute the underlying liability in a conference with r’s appeals_office and thus cannot properly raise the underlying liability again in a sec_6330 i r c collection review proceeding held sec_301_6330-1 q a-e2 proced admin regs is valid held further because p had a conference with r’s appeals_office he is precluded from disputing the assessed additions to tax again in his sec_6330 i r c action joseph e lewis pro_se linette b angelastro for respondent opinion goeke judge this matter is before the court on respondent’s motion for summary_judgment respondent moves for summary_judgment pursuant to sec_6330 b and sec_301_6330-1 proced admin regs respondent argues that because petitioner was offered and participated in an appeals_conference he is precluded from properly raising his underlying tax_liability again in a subsequent collection review proceeding because we find sec_301_6330-1 q a-e2 proced admin regs to be a reasonable expression of congress’s intent and because petitioner participated in a conference with appeals in which he was permitted to dispute his underlying tax_liability we hold that petitioner may not properly raise his tax_liability again in a collection review hearing or before this court accordingly respondent’s motion will be granted 1unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure background at the time his petition was filed petitioner resided in lancaster california petitioner is a plumber by trade petitioner and his wife jointly filed their form_1040 u s individual_income_tax_return for the tax_year on date petitioner reported a tax due of dollar_figure and enclosed payment of that amount with the return petitioner’s return was originally due on date respondent assessed the tax reported on the return along with additions to tax pursuant to sec_6651 and of dollar_figure for late filing and dollar_figure for late payment petitioner then submitted a request to respondent to abate the assessments of additions to tax based on reasonable_cause petitioner argued that the additions to tax for his late filing should be abated because his accountant who possessed petitioner’s tax documents was hospitalized with stomach cancer at the time petitioner’s taxes were due petitioner’s request was ultimately assigned to an appeals officer the appeals officer reviewed the circumstances of the late filing including correspondence from petitioner as well as petitioner’s employer and declined to abate the additions to tax the appeals officer then sent petitioner a letter indicating that his appeal had been denied on date respondent issued to petitioner letter final notice notice_of_intent_to_levy and notice of your right to a hearing advising petitioner that respondent intended to levy on petitioner’s property to collect the unpaid liability for tax_year thereafter petitioner timely submitted form request for a collection_due_process_hearing on date in his form petitioner again requested an abatement of the late filing and late payment additions to tax assessed for tax_year petitioner continued to argue that his late filing be excused because of his accountant’s illness petitioner’s case was then assigned to a settlement officer for a collection review hearing the settlement officer reviewed the administrative file and determined that petitioner’s request for an abatement of the late filing and late payment additions to tax had already been considered by appeals thus the settlement officer determined that petitioner’s underlying liability could not be raised properly again in his collection review hearing petitioner did not raise any additional issues with respect to the levy notice on date respondent issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or in response to the notice_of_determination petitioner filed a petition with this court on date the only question raised in the petition is whether there is reasonable_cause to abate the additions to tax imposed by respondent under sec_6651 and for late filing and late payment discussion i sec_301_6330-1 q a-e2 proced admin regs respondent argues that pursuant to sec_6330 and sec_301_6330-1 q a-e2 proced admin regs where a taxpayer has an opportunity for a conference with respondent’s appeals_office before a collection action has begun then the amount and existence of the underlying tax_liability can neither be raised properly in a collection review hearing nor on appeal to this court thus respondent argues for summary_judgment on the ground that petitioner’s participation in a conference with the appeals_office to consider his request for abatement of additions to tax precluded him from raising his underlying liability in his collection review hearing or in this court we have previously held that where a taxpayer filed amended returns and was provided with an opportunity for a hearing with respondent’s appeals_office the taxpayer was not entitled to challenge the underlying liability in a subsequent collection in this case petitioner actually participated in the prior conference with appeals however it appears respondent’s position is that merely the offer of a prior conference with appeals is a sufficient opportunity to preclude subsequent review of the liability in a collection review hearing we do not decide the more narrow question of whether simply an offer of a conference with appeals is sufficient to preclude subsequent collection review consideration review proceeding farley v commissioner tcmemo_2004_168 noting that the taxpayer still had the opportunity to seek judicial review by paying the tax and filing suit for a refund in district_court see also bailey v commissioner tcmemo_2005_241 while acknowledging that the taxpayer had not challenged the validity of sec_301_6330-1 q a-e2 proced admin regs noting that the taxpayer was afforded several opportunities to dispute his tax_liability administratively we have also previously held in a court- reviewed opinion that a taxpayer who has self-assessed a liability has not had the opportunity to dispute his tax_liability and may raise the underlying liability in a collection review proceeding see 122_tc_1 noting that the taxpayers had not had an opportunity to ‘dispute’ their tax_liability in any sense of the term finally while not binding on this court we note that many district courts have held that a taxpayer is precluded from raising the underlying liability where he was provided with an opportunity for a conference with appeals see eg 294_fsupp2d_879 s d tex finding penalty abatement request was sufficient opportunity to dispute underlying tax_liability for purposes of sec_6330 253_fsupp2d_258 d conn holding that a taxpayer who was notified of his liability and offered an opportunity for an appeals hearing could not dispute the liability again in a collection review hearing we have not however previously addressed the validity of sec_301_6330-1 q a-e2 proced admin regs and must do so in order to resolve respondent’s summary_judgment motion we begin our analysis with the statutory language sec_6330 was enacted as part of the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_746 the restructuring and reform act sec_6330 generally provides that respondent cannot proceed with the collection of a person’s taxes by levy until the person has been given notice and the opportunity for an administrative review of the matter in the form of an appeals_office hearing and if dissatisfied with judicial review of the administrative determination see 115_tc_35 114_tc_176 sec_6330 provides for judicial review of the administrative determination in the tax_court or a federal district_court as may be appropriate sec_6330 has now been amended to provide for judicial review of the administrative hearing exclusively in the tax_court pension_protection_act of publaw_109_280 120_stat_1019 effective for determinations made more than days after the date of enactment sec_6330 prescribes the matters that a person may raise at an appeals_office hearing sec_6330 provides that a person may raise collection issues such as spousal defenses the appropriateness of respondent's intended collection action and possible alternative means of collection see 114_tc_604 goza v commissioner supra sec_6330 establishes circumstances under which a person may challenge the existence or amount of his or her underlying tax_liability under sec_6330 however a person is prohibited from raising in a collection review proceeding an issue that was raised and considered at a previous administrative or judicial proceeding if the person seeking to raise the issue participated meaningfully in such hearing or proceeding because respondent has not argued sec_6330 as a basis for summary_judgment we decide this matter solely with respect to petitioner’s ability to raise his underlying liability pursuant to sec_6330 sec_6330 respondent has previously stated that because sec_6330 explicitly applies to challenges to tax_liability sec_6330 with its more stringent requirement of meaningful participation applies to non-liability issues office_of_chief_counsel notice cc-2003-016 pincite date while not clear whether respondent continues to adhere to this limited interpretation of sec_6330 respondent has not argued sec_6330 as a basis to preclude review of the underlying liability in this case see office_of_chief_counsel notice cc-2006-019 pincite date updating and replacing office_of_chief_counsel notice cc-2003-016 and merely restating the language of sec_6330 provides issues at hearing -- b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability respondent has promulgated regulations regarding sec_6330 pursuant to his authority under sec_7805 sec_301_6330-1 proced admin regs provides in pertinent part e matters considered at cdp hearing -- in general the taxpayer also may raise challenges to the existence or amount of the tax_liability specified on the cdp_notice for any_tax period shown on the cdp_notice if the taxpayer did not receive a statutory_notice_of_deficiency for that tax_liability or did not otherwise have an opportunity to dispute that tax_liability sec_301_6330-1 q a-e2 proced admin regs provides in pertinent part questions and answers the questions and answers illustrate the provisions of this paragraph e as follows q-e2 when is a taxpayer entitled to challenge the existence or amount of the tax_liability specified in the cdp_notice a-e2 a taxpayer is entitled to challenge the existence or amount of the tax_liability specified in the cdp_notice if the taxpayer did not receive a statutory_notice_of_deficiency for such liability or did not otherwise have an opportunity to dispute such liability receipt of a statutory_notice_of_deficiency for this purpose means receipt in time to petition the tax_court for a redetermination of the deficiency asserted in the notice_of_deficiency an opportunity to dispute a liability includes a prior opportunity for a conference with appeals that was offered either before or after the assessment of the liability where as here respondent has promulgated interpretive regulations with respect to a statutory provision we have generally applied the analysis set forth by the supreme court in 440_us_472 under national muffler an interpretive regulation is valid if it implements a congressional mandate in a reasonable manner id pincite an interpretive regulation 5the regulations have been amended and the answer a-e2 now provides a taxpayer is entitled to challenge the existence or amount of the underlying liability for any_tax period specified on the cdp_notice if the taxpayer did not receive a statutory_notice_of_deficiency for such liability or did not otherwise have an opportunity to dispute such liability receipt of a statutory_notice_of_deficiency for this purpose means receipt in time to petition the tax_court for a redetermination of the deficiency determined in the notice_of_deficiency an opportunity to dispute the underlying liability includes a prior opportunity for a conference with appeals that was offered either before or after the assessment of the liability an opportunity for a conference with appeals prior to the assessment of a tax subject_to deficiency procedures is not a prior opportunity for this purpose sec_301_6330-1 q a-e2 proced admin regs applicable to requests for hearings on or after date is reasonable if it harmonizes with the plain language of the statute its origin and its purpose id pincite following its decision in national muffler the supreme court decided 467_us_837 in chevron the court stated that when reviewing an agency’s regulatory implementation of a statute we look first to whether congress has directly spoken to the precise question at issue id pincite if congressional intent is clear our inquiry ends and we apply the unambiguously expressed intent of congress id pincite however if congressional intent is not clear the question is whether the regulation is based on a permissible construction of the statute id this court has on a number of occasions considered chevron’s effect on national muffler and the review of interpretive tax regulations see eg 126_tc_96 discussing the review of federal tax regulations under national muffler in relation to chevron and stating that chevron restated national muffler in a more practical two-part test cent pa sav association subs v commissioner 104_tc_384 same noting the supreme court’s application of national muffler after chevron whether our analysis is guided by national muffler or by chevron the result would be the same in evaluating the validity of sec_301_6330-1 q a- e2 proced admin regs we first consider whether congress has spoken directly to the precise question at issue in answering this question we are instructed not to confine our examination to a particular statutory provision in isolation 118_tc_299 citing fda v brown williamson tobacco corp 529_us_120 affd 438_f3d_739 7th cir the meaning or ambiguity of certain words or phrases may become evident only when placed in context fda v brown williamson tobacco corp supra pincite citing 513_us_115 it is a ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme ’ id quoting 489_us_803 neither the restructuring and reform act nor the code defines what is meant by otherwise have an opportunity to dispute a tax_liability further a fair reading of the section suggests different possible meanings on the one hand it can be read to mean an opportunity to challenge the underlying liability in a forum ultimately subject_to judicial review on the other hand it can be read to include challenges subject_to judicial review as well as challenges heard by respondent’s appeals_office in circumstances where no subsequent prepayment judicial review of the determination is available we examine these competing possibilities in turn as this court has often stated receipt of a notice_of_deficiency serves as a taxpayer’s ticket to the tax_court see eg 126_tc_195 110_tc_20 for income estate and certain excise_taxes respondent cannot assess a deficiency before first issuing a notice_of_deficiency sec_6213 upon receipt the notice_of_deficiency entitles a taxpayer to petition this court to have a judge and not the commissioner review his or her tax_liability de novo prior to the assessment and collection of the tax see manko v commissioner supra thus pursuant to sec_6330 a taxpayer who actually received a notice_of_deficiency may not raise the underlying liability again in a collection review proceeding because he has previously litigated the liability by petitioning this court or declined such an opportunity to litigate the liability by failing to petition this court 6this case does not involve a deficiency determination requiring respondent to issue a notice_of_deficiency under sec_6212 on which assessment is restricted by sec_6213 accordingly we do not address the applicability of sec_301_6330-1 q a-e2 proced admin regs and the phrase otherwise have an opportunity in sec_6330 to situations requiring a notice_of_deficiency a notice_of_deficiency is not however the only ticket to the tax_court in other contexts a taxpayer may enjoy prepayment judicial review of a tax_liability without having been issued a notice_of_deficiency for instance with respect to the commissioner’s classification of individuals as employees for purposes of employment_taxes an employer is afforded a process akin to the deficiency procedures sec_7436 in these cases where the commissioner seeks to reclassify individuals as employees he may issue a notice_of_determination with respect to the employment classification to the employer sec_7436 this notice_of_determination entitles a taxpayer to petition this court for de novo review of the employee classification as well as the proper amount of tax owing from this classification sec_7436 and b a taxpayer may also seek prepayment review in this court of a request for an abatement of interest sec_6404 a taxpayer might also be afforded prepayment judicial review of a tax_liability in a bankruptcy proceeding u s c sec_505 see also sabath v commissioner tcmemo_2005_222 thus it is possible to interpret otherwise have an opportunity to dispute to refer to those situations where a taxpayer was afforded one of the other nondeficiency avenues for prepayment judicial review accordingly reading section for this purpose employment_taxes are those taxes imposed under subtit c c b as a whole one might conclude that congress intended only for taxpayers who previously litigated or were afforded the opportunity to litigate their tax_liabilities by receipt of a notice_of_deficiency or otherwise to be precluded from once again raising the underlying tax_liability in a collection review hearing in other words by enacting the collection review procedures congress intended that every taxpayer have one prepayment opportunity to litigate his tax_liability before the commissioner brings his collection authority to bear such an interpretation finds some support in the legislative_history of the restructuring and reform act sec_6330 originated in sec_3401 of the senate version of h_r the bill that after amendment was enacted as the restructuring and reform act the predecessor of sec_6330 in the senate version provided without limitation that a taxpayer could raise in a sec_6330 proceeding challenges to the underlying tax_liability as to existence or amount h_r sec_3401 sec_105th cong 2d sess cong rec s4163 daily ed date judicial review of all collection review determinations including those regarding the underlying liability was to be conducted on an abuse_of_discretion standard s rept pincite 1998_3_cb_537 the expansive senate version provoked responses from the department of the treasury and other representatives of the executive branch expressing concerns that under the senate bill a taxpayer could dispute in a collection review proceeding tax_liabilities that had been previously litigated see statement of administration policy executive office of the president office of management and budget on h_r 2676--internal revenue service restructuring and reform act reported by the senate committee on finance date reprinted in tax notes today tnt date letter from robert e rubin secretary_of_the_treasury to william archer chairman committee on ways means u s house of representatives date reprinted in tax notes today tnt date the final version of the legislation devised in conference added the language that a person may challenge the existence or amount of the underlying liability for any_tax period if such person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability while there is nothing explicit in the committee reports to explain the added limitation it is reasonable to conclude that the conference committee was addressing the stated criticisms of allowing taxpayers multiple opportunities for judicial review of their tax_liability see montgomery v commissioner t c pincite gale j concurring thus it would follow that the language adopted by the conference committee was meant to limit those taxpayers who have previously litigated the underlying liability or declined the opportunity to do so after receiving a notice_of_deficiency or otherwise of course if this were congress’s intent petitioner would not be precluded from raising his liability here because while he has had the opportunity for an appeals_office hearing he has not had a prior opportunity to litigate his underlying tax_liability this interpretation however is not without problems first if congress were concerned only with preventing taxpayers from enjoying multiple opportunities to litigate their tax_liability it certainly did not make this intent clear that is if this were truly the limit of congress’s intent it could have expressed this by stating in simple terms that a person may challenge the existence or amount of the underlying liability if the person had not previously had the opportunity to seek judicial review of the underlying liability to interpret sec_6330 to mean every taxpayer gets one precollection opportunity to litigate his underlying tax_liability would serve to overturn the tax collection scheme as it existed prior to the enactment of the restructuring and reform act where many tax_liabilities were not subject_to any prepayment judicial review for instance with respect to sec_6651 sec_6654 and sec_6655 additions to tax which are unrelated to a deficiency respondent may assess the liability without first issuing a notice_of_deficiency sec_6665 see also sec_6672 trust fund fraud recovery penalty sec_6694 income_tax_return_preparer penalty sec_6205 employment_taxes in each of these contexts there is no prescribed process for prepayment judicial review provided by the code thus a taxpayer faced with such a liability must first pay the liability or a divisible portion thereof before seeking court review in a refund action see 362_us_145 recognizing exception to requirement of full payment before refund_suit for divisible taxes where taxpayer may pay tax attributable to one event and then file suit_for_refund see also sec_6694 allowing suit_for_refund of tax_return_preparer penalty upon payment of percent of the penalty thus to hold that every taxpayer is entitled to litigate his underlying nondeficiency liability once a collection action is initiated would only encourage a taxpayer to wait until a 8in the context of abatements of additions to tax such as those at issue here prepayment judicial review is restricted by sec_6404 which provides that no claim_for_abatement shall be filed by a taxpayer in respect of an assessment of any_tax imposed under subtitle a or b in contrast where congress desired to allow prepayment judicial review of interest it has made this intention clear sec_6404 the tax_court shall have jurisdiction over any_action brought to determine whether the secretary’s failure to abate interest under this section was an abuse_of_discretion see also 122_tc_384 collection action begins before disputing the liability such a concern was raised in secretary rubin’s letter to ways_and_means_committee chairman archer in which he warned that the expansive senate bill would encourage taxpayers to ignore their liability until a collection action begins in earnest letter from robert e rubin supra the regulations do not create such a new remedy for nondeficiency liabilities and there is nothing in the code or the legislative_history of the restructuring and reform act to suggest that this is unreasonable the fact that no prepayment judicial forum is prescribed for certain tax_liabilities does not mean that a taxpayer is without a forum to dispute these liabilities upon notice_and_demand for payment of a tax_liability a taxpayer may seek review of the liability by filing a protest with the commissioner’s appeals_office sec_601_103 sec_601_106 statement of procedural rules the appeals_office then provides a taxpayer with an informal conference in which he or she may present evidence and arguments in support of the position disputing the liability see sec_601_106 statement of procedural rules the appeals officer has the exclusive and final authority to determine the liability sec_601_106 statement of procedural rules further the appeals procedures provide that the appeals officer is duty bound to determine the correct amount of the tax with strict impartiality between the taxpayer and the government sec_601_106 statement of procedural rules thus while not de novo review by a judge appeals nonetheless provides a taxpayer with an opportunity to dispute a tax_liability the importance to congress of a meaningful appeals process as part of the overall tax collection scheme is apparent in the restructuring and reform act while the opportunity for appeals consideration has long been part of the commissioner’s collection scheme it had not previously been mandated by the code the restructuring and reform act sec_1001 112_stat_689 however mandates that an independent appeals function exist within the irs reorganization of the internal_revenue_service a in general --the commissioner of internal revenue shall develop and implement a plan to reorganize the internal_revenue_service the plan shall-- ensure an independent appeals function within the internal_revenue_service including the prohibition in the plan of ex_parte communications between appeals officers and other internal_revenue_service employees to the extent that such communications appear to compromise the independence of the appeals officers furthering this mandate senator roth chairman of the senate committee on finance explained in his statement introducing the restructuring and reform act for senate debate one of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the irs hall of mirrors have no place to turn that is truly independent and structured to represent their concerns this legislation requires the agency to establish an independent office of appeals--one that may not be influenced by tax collection employees or auditors appeals officers will be made available in every state and they will be better able to work with taxpayers who proceed through the appeals process cong rec statement of senator roth this suggests that congress intended the restructuring and reform act to result in an appeals function that acted as something more than just a rubber stamp for the commissioner’s determinations the importance of the appeals process in resolving disputes is also apparent because congress as part of the restructuring and reform act directed respondent to develop alternative dispute resolution procedures thus sec_7123 now mandates sec_7123 alternative dispute resolution procedures -- mediation -- the secretary shall prescribe procedures under which a taxpayer or the internal_revenue_service office of appeals may request non- binding mediation on any issue unresolved at the conclusion of-- a appeals procedures respondent has now developed procedures whereby a taxpayer can request mediation of factual and legal issues after settlement discussions with the appeals_office have proved unsuccessful revproc_2002_44 2002_2_cb_10 see also revproc_2006_44 2006_44_irb_800 establishing arbitration procedures to resolve certain factual disputes these provisions of the restructuring and reform act make clear that congress was concerned with providing taxpayers a meaningful process short of litigation in which they could resolve tax disputes with respondent thus reading sec_6330 in this context it is reasonable to conclude that congress intended not only to address those taxpayers who were previously provided an opportunity to litigate their liability but also those provided an opportunity to dispute the liability short of litigation ultimately while it is possible to interpret sec_6330 to mean that every taxpayer is entitled to one opportunity for a precollection judicial review of an underlying liability we find it unlikely that this was congress’s intent as we see it if congress had intended to preclude only those taxpayers who previously enjoyed the opportunity for judicial review of the underlying liability from raising the underlying liability again in a collection review proceeding the statute would have been drafted to clearly so provide the fact that congress chose not to use such explicit language leads us to believe that congress also intended to preclude taxpayers who were previously afforded a conference with the appeals_office from raising the underlying liabilities again in a collection review hearing and before this court thus in view of the statutory scheme as a whole as well as the restructuring and reform act specifically we find respondent’s interpretation of sec_6330 to be reasonable national muffler dealers association v united_states u s pincite a conference with the appeals_office provides a taxpayer a meaningful opportunity to dispute an underlying tax_liability ii respondent’s motion for summary_judgment summary_judgment may be granted where there is no genuine issue of any material fact and a decision may be entered as a matter of law rule a and b see 98_tc_518 affd 17_f3d_965 7th cir the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in the manner most favorable to the party opposing summary_judgment 85_tc_812 we are satisfied that no genuine issues of material fact exist and judgment as a matter of law is appropriate petitioner 9we reserve judgment today on whether an offer for a conference with appeals is sufficient and if so what information would be required to be included in such an offer to preclude subsequent collection review consideration if the taxpayer declines the offer without participating in such a conference we note however that we read sec_6330 to allow a taxpayer who has had neither a conference with appeals nor an opportunity for a conference with appeals to raise the underlying liability in a collection review proceeding before appeals and this court filed hi sec_2002 income_tax return on date and included payment for the reported tax due of dollar_figure respondent then assessed additions to tax of dollar_figure and dollar_figure pursuant to sec_6651 and petitioner submitted a request for abatement of the assessed additions to tax this request was referred to respondent’s appeals_office the appeals officer then considered the circumstances of petitioner’s late filing including correspondence submitted on petitioner’s behalf explaining that petitioner’s accountant who possessed petitioner’s tax records was hospitalized with stomach cancer until shortly before petitioner’ sec_2002 tax_return was filed the appeals officer then determined that reasonable_cause to abate the additions to tax was not present accordingly because petitioner had an opportunity and availed himself of that opportunity to dispute the underlying tax_liability in a conference with the appeals_office he may not raise that underlying liability again in a collection review hearing or before this court sec_6330 sec_301 e q a-e2 proced admin regs petitioner has not raised any issues other than the underlying liability in opposition to respondent’s proposed collection action in his petition therefore for the reasons stated we shall grant respondent’s motion for summary_judgment to reflect the foregoing an appropriate order and decision will be entered for respondent


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 b6 plr-109094-17 date date internal_revenue_service number release date index number --------------------------- ---------------------------------- ------------------------------------------------------------ ------------------ -------------------------------------- --------------------------- in re request for extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election pursuant to sec_59 of the internal_revenue_code legend p sec_1 sec_2 sec_3 ------------------------------------- -------------- ------------------------ ------------------------------------- --------------------- ------------------------ ------------------------- ------------------------ ------------------------------------- ------ ------------------------ date a --------------------------- dear ----------------- this letter responds to a letter dated date and supplemental correspondence submitted by p on behalf of sec_1 sec_2 and sec_3 hereinafter p sec_1 sec_2 and sec_3 will be collectively referred to as taxpayer requesting an extension of time plr-109094-17 pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make elections under sec_59 of the internal_revenue_code and sec_1 b of the income_tax regulations to deduct ratably over a 60-month period its intangible_drilling_and_development_costs idc described in sec_263 for its taxable_year ended date a taxpayer represents that the facts are as follows facts taxpayer is an affiliated_group_of_corporations of which p is the common parent taxpayer uses the overall accrual_method of accounting and files a consolidated federal_income_tax return on the basis of a calendar_year taxpayer an oil_and_gas company is engaged in the exploration and development of domestic properties taxpayer timely filed its consolidated federal_income_tax return for its taxable_year ended date a and intended to make elections under sec_59 and sec_1_59-1 to deduct ratably over a 60-month period its idc described in sec_263 taxpayer has made representations explaining why the statements required to make the elections under sec_59 and sec_1_59-1 were not timely filed taxpayer represents that granting the relief requested will not result in taxpayer having a lower tax_liability in the aggregate for the tax years affected by the elections than taxpayer would have had if the elections had been timely made taking into account the time_value_of_money taxpayer also represents that it acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government law sec_59 allows a taxpayer to deduct ratably over a specified period any qualified_expenditure to which an election under sec_59 applies sec_59 includes in the definition of qualified_expenditure any amount which but for an election under sec_59 would have been allowable as a deduction determined without regard to sec_291 for the taxable_year in which paid_or_incurred under sec_263 relating to idc sec_59 allows a taxpayer to deduct idc ratably over the 60-month period beginning with the month in which such expenditure was paid_or_incurred sec_59 specifically prohibits the deduction of the qualified_expenditures under any other section of the code if this option is elected sec_59 allows plr-109094-17 a taxpayer to make an election under sec_59 for any portion of any qualified_expenditure sec_1_59-1 prescribes the time and manner of making the election under sec_59 according to sec_1_59-1 an election under sec_59 shall only be made by attaching a statement to the taxpayer’s income_tax return or amended_return for the taxable_year in which the amortization of the qualified_expenditures subject_to the sec_59 election begins the taxpayer must file the statement no later than the date prescribed by law for filing the taxpayer’s original income_tax return including any extensions of time for the taxable_year in which the amortization of the qualified_expenditures subject_to the sec_59 election begins additionally the statement must include the taxpayer’s name address taxpayer_identification_number and the type and amount of qualified_expenditures identified in sec_59 that the taxpayer elects to deduct ratably over the applicable_period described in sec_59 under sec_301_9100-1 the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-1 through to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 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 allows automatic extensions of time for making certain elections sec_301_9100-3 allows extensions of time for making elections that do not meet the requirements of sec_301_9100-2 the commissioner will grant requests for relief under sec_301_9100-3 when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 sec_301_9100-3 provides in part that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief under sec_301_9100-3 before the failure to make the regulatory election is discovered by the internal_revenue_service or 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 advise the taxpayer to make the election sec_301_9100-3 provides in part that a taxpayer is deemed to have not acted reasonably or in good_faith if the taxpayer seeks to alter a return position for plr-109094-17 which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 of this chapter and the new position requires or permits a regulatory election for which relief is requested the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election or the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides in part that the government’s interests are considered prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money additionally sec_301_9100-3 provides in part that the government’s interests ordinarily are prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 through have been satisfied accordingly the commissioner grants taxpayer an extension of time of calendar days from the date of this letter to make the elections under sec_59 and sec_1_59-1 to deduct ratably over a 60-month period its idc described in sec_263 for its taxable_year ended date a the sec_59 elections must comply with the manner-of-election requirements of sec_1 b in making the elections taxpayer must attach a copy of this letter_ruling to its amended consolidated federal_income_tax return we have enclosed a copy for that purpose alternatively if taxpayer files its amended consolidated federal_income_tax return electronically it may satisfy this requirement by attaching a statement to its amended_return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by taxpayer and taxpayer’s representatives and accompanied by a penalties 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 a ruling it is subject_to verification on examination except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provisions of the code and the regulations thereunder specifically we express or imply no opinion on whether taxpayer satisfies the requirements of sec_263 or sec_59 plr-109094-17 this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to taxpayer’s authorized representatives we also are sending a copy of this letter to the appropriate director lb_i sincerely associate chief_counsel passthroughs special industries by _______________________________ chief branch patrick s kirwan office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------------- ------------------------------ ---------------------- ---------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-143340-11 date date x ------------------------------------------------------------------------------------------------------ ---------------------- state ------------ date ----------------------- dear ------------ this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was formed in state on date x’s shareholders intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation was timely filed for x accordingly x requests a ruling that it will be treated as an s_corporation effective date sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 an s election made after the first two and one-half months of a corporation’s taxable_year results in the corporation not being treated as an s_corporation until the taxable_year following the year in which the s election is filed plr-143340-11 sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election under sec_1362 to be treated as an s_corporation for x’s taxable_year beginning date based solely on the facts and the representations submitted we conclude that x established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x’s taxable_year beginning date a copy of this letter should be attached to the form_2553 except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc