t c memo united_states tax_court ruth r johnson-straub petitioner v commissioner of internal revenue respondent docket no filed date ruth r johnson-straub pro_se jordan s musen terry w vincent and richard s bloom for respondent memorandum opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules of this case is before the court on respondent's motion to dismiss for failure to state a claim as supplemented filed pursuant to rule petitioner resided in cleveland ohio at the time that the petition was filed with the court respondent's notice_of_deficiency respondent issued to petitioner a notice_of_deficiency dated date in respect of the taxable_year and a notice_of_deficiency dated date in respect of the taxable_year in said notices respondent determined the following deficiencies in petitioner's federal income taxes and additions to tax additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure --- big_number dollar_figure dollar_figure the deficiencies in income taxes are based on respondent's determination that petitioner failed to report income as reflected in the following schedules practice and procedure amount income payor wage sec_1 university hospitals of cleveland ohio dollar_figure 1respondent has given petitioner credit for amounts withheld from petitioner's taxes insofar as petitioner's ultimate tax_liability is concerned however the determination of a statutory deficiency does not take such amounts into account see sec_6211 amount income payor wage sec_1 university hospitals of cleveland ohio dollar_figure self-employment income2 a f feo phd assoc big_number 1see supra note 2the deficiency in income_tax for includes self- employment_tax pursuant to sec_1401 the additions to tax under sec_6651 are based on respondent's determination that petitioner's failure to timely file income_tax returns for the taxable years in issue was not due to reasonable_cause finally the addition_to_tax under sec_6654 is based on respondent's determination that petitioner failed to pay the required amount of estimated_taxes for petitioner's petition petitioner filed her petition a 23-page typewritten document on date the crux of petitioner's position appears to be that respondent acted illegally and in contravention of her constitutional rights by determining deficiencies in her income taxes for the taxable years in issue thus the petition includes the following allegations that respondent did further in violation of law and petitioner's constitutional right to due process of law tell petitioner to petition_tax_court for a redetermination of the alleged deficiency that respondent did further in violation of law and petitioner's constitutional right to due process of law cause the notices of deficiency to be placed in the united_states mail thereby utilizing the united_states postal service in the attempt to extort monies not lawfully due and owing according to the respondent's decision that respondent did in violation of law and petitioner's constitutional right to due process of law attempt to obtain an unjust legal advantage over petitioner should petitioner have failed to seek remedy in the tax_court by having affixed the notice_of_deficiency waiver form to the alleged notice_of_deficiency whereupon respondent obtains a default allowing respondent to proceed without any regard to the rights of petitioner respondent's rule motion and subsequent developments as indicated respondent filed a motion to dismiss for failure to state a claim on date shortly after respondent filed her motion to dismiss the court issued and served an order calendaring respondent's motion for hearing and also directing petitioner to file a proper amended petition in accordance with the requirements of rule in particular the respondent subsequently supplemented her motion to dismiss in order to clarify the determinations made in the notices of deficiency court directed petitioner to file a proper amended petition setting forth with specificity each error allegedly made by respondent in the determination of the deficiency and separate statements of every fact upon which the assignments of error are based petitioner failed to respond to the court's order as directed respondent's motion to dismiss was called for hearing pursuant to notice in washington d c on date counsel for respondent appeared at the hearing and presented argument on the pending motion petitioner did not appear at the hearing however she did file a rule c statement with the court shortly before the hearing in her rule c statement petitioner again reiterated her claim that her rights have been violated by the issuance of the notices of deficiency thus petitioner's rule c statement includes the following statements in preparing notices of deficiency respondent caused a collateral_estoppel and or res_judicata in violation of petitioner's constitutional right of due process respondent is attempting to extort monies from petitioner utilizing the notices of deficiency in violation of law and petitioner's constitutional right to due process of law notices of deficiency contain penalties in violation of petitioner's constitutional petitioner did not sign the rule c statement we find this curious given that petitioner attempts to raise a constitutional issue out of the alleged failure of respondent's service_center director to sign the notices of deficiency however the fact of the matter is that the copy of each such notice that is attached as an exhibit to the petition bears such signature right to due process of law respondent's agent did tell petitioner to petition the united_states tax_court in violation of her constitutional right to due process of law respondent did utilize the united_states postal service for transmitting illegal attempts at extorting monies from petitioner discussion rule provides that a party may file a motion to dismiss for failure to state a claim upon which relief can be granted we may grant such a motion when it appears beyond doubt that the party's adversary can prove no set of facts in support of a claim which would entitle him or her to relief 355_us_41 677_f2d_676 8th cir rule b requires that a petition filed in this court contain clear and concise assignments of each and every error that the taxpayer alleges to have been committed by the commissioner in the determination of the deficiency and any addition_to_tax in dispute rule b further requires that the petition contain clear and concise lettered statements of the facts on which the taxpayer bases the assignments of error see 78_tc_646 the failure of a petition to conform with the requirements set forth in rule may be grounds for dismissal rule sec_34 sec_123 in general the determinations made by the commissioner in a notice_of_deficiency are presumed to be correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 503_us_79 290_us_111 moreover any issue not raised in the pleadings is deemed to be conceded rule b jarvis v commissioner supra pincite n 73_tc_736 the petition filed in this case does not satisfy the requirements of rule b and there is neither assignment of error nor allegation of fact in support of any justiciable claim rather there is nothing other than petitioner's allegation that respondent has violated statutory and constitutional standards by determining deficiencies in petitioner's income taxes based on petitioner's failure to report wage and self-employment_income by issuing notices of deficiencies consistent with the deficiency procedures prescribed by law and by advising petitioner that she has the right to contest respondent's determination in a prepayment forum ie this court petitioner's allegation constitutes nothing other than tax_protester rhetoric and legalistic gibberish as demonstrated by the passages from the petition and the rule c statement previously quoted see 82_tc_403 80_tc_1111 76_tc_1027 affd 696_f2d_1234 9th cir the court's order dated date provided petitioner with an opportunity to assign error and allege specific facts concerning her liability for the taxable years in issue unfortunately petitioner failed to respond to the court's order as directed if petitioner did not receive the income determined by respondent petitioner could have easily so alleged we see no need to catalog petitioner's various arguments and painstakingly address them as the court_of_appeals for the fifth circuit has remarked we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir suffice it to say that it is within the undoubted power of congress to provide any reasonable system for the collection_of_taxes if only the injunction against the taking of property without due process of law in the method of collection and protection of the taxpayer is satisfied 275_us_101 see 419_us_565 the deficiency procedures set forth in subchapter_b of chapter of the internal_revenue_code secs which specifically provide for the issuance of notices of deficiency and the prepayment review of such notices by this court satisfy the due process standard of the 5th amendment see adler v commissioner tcmemo_1989_446 affd without published opinion 930_f2d_26 9th cir see also 273_f2d_23 9th cir affg and remanding tcmemo_1958_85 65_tc_1180 because the petition fails to state a claim upon which relief can be granted we shall grant respondent's motion to dismiss as supplemented see 747_f2d_478 8th cir we turn now on our own motion to the award of a penalty against petitioner under sec_6673 as relevant herein sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless the record in this case convinces us that petitioner was not interested in disputing the merits of either the deficiencies in income taxes or the additions to tax determined by respondent in the notices of deficiency rather the record demonstrates that petitioner regards this case as a vehicle to protest the tax laws of this country and espouse her own misguided views a petition to the tax_court is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir petitioner's position as set forth in the petition and the rule statement consists solely of protester rhetoric and legalistic gibberish based on well- established law petitioner's position is frivolous and groundless we are also convinced that petitioner instituted and maintained this proceeding primarily if not exclusively for purposes of delay having to deal with this matter wasted the court's time as well as respondent's moreover taxpayers with genuine controversies were delayed in view of the foregoing we will exercise our discretion under sec_6673 and require petitioner to pay a penalty to the united_states in the amount of dollar_figure coleman v commissioner supra pincite crain v commissioner supra pincite8 coulter v commissioner 82_tc_580 abrams v commissioner supra pincite in order to reflect the foregoing an order of dismissal and decision will be entered


t c memo united_states tax_court kenneth james kunkel and susan kathryn kunkel petitioners v commissioner of internal revenue respondent docket no filed date kenneth james kunkel and susan kathryn kunkel pro sese ina susan weiner and kirsten e brimer for respondent memorandum findings_of_fact and opinion lauber judge the internal_revenue_service irs or respondent deter- mined for petitioners’ taxable_year a deficiency of dollar_figure and an accuracy- related penalty of dollar_figure the issues for decision are whether petitioners are entitled to a charitable_contribution_deduction in an amount larger than the irs al- lowed and whether petitioners are liable for the sec_6662 penalty we resolve both issues in favor of respondent findings_of_fact the parties filed a stipulation of facts with accompanying exhibits that are incorporated by this reference petitioners resided in pennsylvania when they peti- tioned this court on schedule a itemized_deductions of their timely filed federal_income_tax return petitioners claimed a charitable_contribution_deduction of dollar_figure of this amount dollar_figure represented alleged cash contributions the irs determined that petitioners had substantiated dollar_figure of cash contributions peti- tioners do not dispute the disallowance of the remaining dollar_figure this case focuses on petitioners’ claimed deduction of dollar_figure for noncash charitable_contributions which the irs disallowed in its entirety petitioners contend that they donated property during to four chari- table organizations the upper dublin lutheran church church goodwill in- dustries goodwill the military order of the purple heart service foundation purple heart and vietnam veterans of america vietnam veterans petition- all statutory references are to the internal_revenue_code code as in effect for the tax_year at issue all rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dollar ers’ noncash contributions to the church consisted of items they allegedly donated to it sec_2011 annual flea market these items included books valued at dollar_figure household_items valued at dollar_figure clothing valued at dollar_figure toys valued at dollar_figure telescopes valued at dollar_figure jewelry valued at dollar_figure and household furniture valued at dollar_figure for a total of dollar_figure petitioners did not produce a receipt or an acknowledgment from the church for their donations of any of these items the church was evidently equipped to provide such receipts because petitioners claimed to have a receipt from the church for their contributions to the flea market petitioners produced no evidence such as photographs that any of the listed items were actually delivered to the church the church did not inform petitioners whether any of the items allegedly contributed were sold or at what price petitioners’ noncash contributions to goodwill purple heart and vietnam veterans allegedly consisted of clothing valued at dollar_figure household furniture valued at dollar_figure household_items valued at dollar_figure and toys valued at dollar_figure for a total of dollar_figure petitioners produced no documentary_evidence and had no re- collection as to which items were donated to which charity they produced a spreadsheet created during the irs audit that listed various items--eg blouses dresses dress shirts dress coats and baby outfits--and assigned estimated amounts as the fair market values of these items petitioners contended that these items in the aggregate were divided in some manner among the three charities for goodwill petitioners testified that they took batches of items at various times to a goodwill location they generally made these trips in the early morn- ing or evening when the goodwill warehouse was unattended they placed soft goods in large bins intended for after-hours dropoffs they left large items such as furniture outside the warehouse door petitioners testified that they were care- ful to ensure that the items in each batch were worth less than dollar_figure because they thought this eliminated the need to get receipts for purple heart and vietnam veterans petitioners allegedly scheduled a pickup and left the items outside their house the charity sent a truck to pick up the items generally while petitioners were away and usually left a doorknob hanger saying thank you for your contribution these doorknob hangers contained no other information they were undated they were not specific to petitioners and they did not list or describe the property contributed petitioners testified that they created index cards recording the items as they were delivered to goodwill or left for pickup by purple heart or vietnam veter- ans petitioners later aggregated this information into a master list when the time came to prepare their tax_return they assigned estimated values to the items petitioners did not introduce into evidence the index cards they allegedly prepared or any other contemporaneous_records supporting their contention that they made the alleged gifts they supplied no evidence concerning their cost bases in these items or the manner in which they determined fair market values the irs timely issued petitioners a notice_of_deficiency disallowing for lack of substantiation dollar_figure of their claimed cash contributions and all of their claimed noncash contributions totaling dollar_figure the irs also determined an accuracy- related penalty petitioners timely sought review in this court i burden_of_proof opinion the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving those determi- nations erroneous rule a 290_us_111 deductions are a matter of legislative grace taxpayers must demonstrate their entitlement to deductions allowed by the code and substantiate the amounts of claimed deductions 503_us_79 sec_1_6001-1 income_tax regs petitioners do not contend and the evidence does not establish that the burden_of_proof as to any factual issue should shift to respondent under sec_7491 petitioners thus bear the burden of proving their entitlement to the claimed noncash charitable_contribution deductions ii charitable_contributions a statutory framework sec_170 allows as a deduction any contribution made within the taxable_year to a charitable_organization such as those involved here sec_170 c such deductions are allowed only if the taxpayer satisfies statutory and regulatory substantiation requirements see sec_170 sec_1_170a-13 income_tax regs the nature of the required substantiation depends on the size of the contri- bution and on whether it is a gift of cash or property for all contributions of dollar_figure or more the taxpayer generally must obtain a contemporaneous written acknowledgment from the donee sec_170 se- parate contributions of less than dollar_figure are not subject_to the requirements of sec_170 regardless of whether the sum of the contributions made by a tax- payer to a donee organization during a taxable_year equals dollar_figure or more sec_1_170a-13 income_tax regs additional substantiation requirements are imposed for contributions of pro- perty with a claimed value exceeding dollar_figure sec_170 still more rigor- ous substantiation requirements including the need for a qualified_appraisal are imposed for contributions of property with a claimed value exceeding dollar_figure sec_170 similar items of property must be aggregated in determining whether gifts exceed the dollar_figure and dollar_figure thresholds see sec_170 for purposes of determining thresholds under this paragraph property and all similar items of property donated to or more donees shall be treated a sec_1 property the term similar items of property is defined to mean property of the same generic category or type such as clothing jewelry furniture electronic equip- ment household appliances or kitchenware sec_1_170a-13 income_tax regs b analysis petitioners contend that they donated property in with an aggregate value of dollar_figure the property they allegedly contributed may be grouped into the following seven categories items claimed value clothing books household furniture household_items toys telescopes jewelry total dollar_figure big_number big_number big_number big_number big_number petitioners do not meaningfully challenge this categorization of their alleged gifts and each category has a claimed value exceeding dollar_figure therefore in addition to meeting the general substantiation requirements of sec_170 petitioners must satisfy the additional requirements of sec_170 for all seven categories of gifts for the two categories with alleged values exceeding dollar_figure clothing and books petitioners must meet the rigorous substantiation re- quirements imposed by sec_170 contributions of dollar_figure or more sec_170 provides that an individual may deduct a gift of dollar_figure or more only if he substantiates the deduction with a contemporaneous written petitioners argue that not all textbooks should be aggregated because a pharmacology textbook is not similar to a spanish textbook we disagree the regulations define similar items of property as property of the same generic category or type sec_1_170a-13 income_tax regs the regulations provide the following example i f a donor claims on her return for the year de- ductions of dollar_figure for books given by her to college a dollar_figure for books given by her to college b and dollar_figure for books given by her to college c the dollar_figure thresh- old of paragraph c of this section is exceeded ibid under the regulations a pharmacology textbook is in the same generic category as a spanish textbook petitioners argue that they were unaware of the requirement to aggregate property but they testified that they relied on irs publication charitable_contributions in preparing their return that publication specifically in- structs taxpayers that i n figuring whether your deduction is dollar_figure or more you must combine your claimed deductions for all similar items of property donated to any charitable_organization during the year acknowledgment of the contribution by the donee organization see weyts v commissioner tcmemo_2003_68 discussing legislative_history of this pro- vision this acknowledgment must include a description but not value of any property other than cash contributed state whether the donee provided any goods or services in exchange for the gift and if the donee did provide goods or services include a description and good-faith estimate of their value sec_170 sec_1_170a-13 income_tax regs the acknowledgment is contemporaneous if the taxpayer obtains it from the donee on or before the earlier of the date the taxpayer files a return for the year of contribution or the due_date including extensions for filing that return sec_170 petitioners did not provide to the irs or the court a contemporaneous written acknowledgment from any of the four charitable organizations petition- ers produced no acknowledgment of any kind from the church or goodwill and the doorknob hangers left by the truck drivers from vietnam veterans and purple heart clearly do not satisfy the regulatory requirements these doorknob hangers are undated they are not specific to petitioners they do not describe the property contributed and they contain none of the other required information petitioners contend that they did not need to get written acknowledgments because they made all of their contributions in batches worth less than dollar_figure we did not find this testimony credible petitioners allegedly donated property worth dollar_figure to the church this donation occurred in conjunction with a single event the church’s annual flea market petitioners’ testimony that they intentionally made all other contributions in batches worth less than dollar_figure requires the assumption that they made these donations with an alleged value of dollar_figure on distinct occasions this assumption is implausible and has no support in the record moreover petitioners testified that they did not assign values to the donated items until they prepared their tax_return in that being so it is hard to see how they could have ensured at the time they contributed the property that each individual batch was worth less than dollar_figure even if petitioners could be excused from the contemporaneous written acknowledgment requirement on the theory that they made all gifts in batches worth less than dollar_figure they were still required to maintain records to document their donations which generally must include receipts from the donees see sec_1_170a-13 income_tax regs receipts are not required where a contribu- tion is made in circumstances where it is impractical to obtain a receipt eg by depositing property at a charity’s unattended drop site ibid in that event how- ever the taxpayer shall maintain reliable written records with respect to each item of donated property including the name of the donee the date and location of the contribution a description of the property and the method used to determine its fair_market_value id sec_1_170a-13 income_tax regs if we assume arguendo that it was impractical for petitioners to obtain receipts from goodwill or the truck drivers who picked up their goods they nevertheless failed to keep reliable written records because they did not record the dates of any of their contributions they did not record which items were donated to which charity and they did not record how they determined the fair_market_value of any items for these reasons we conclude that petitioners were required to obtain but did not obtain contemporaneous written acknowledgments for their contributions of property during their claimed deductions must accordingly be denied for lack of substantiation under sec_170 contributions exceeding dollar_figure although petitioners’ failure to satisfy the substantiation requirements for contributions of dollar_figure or more is fatal to their claim we will briefly address for sake of completeness the other applicable substantiation requirements for non- cash contributions in excess of dollar_figure taxpayers are required to maintain additional reliable written records with respect to each item of donated property sec_1_170a-13 and income_tax regs see gaerttner v commissioner tcmemo_2012_43 these records must include among other things the ap- proximate date the property was acquired and the manner of its acquisition a description of the property in detail reasonable under the circumstances the cost or other basis of the property the fair_market_value of the property at the time it was contributed and the method used in determining its fair_market_value sec_170 sec_1_170a-13 and d i a and b income_tax regs petitioners allegedly made noncash contributions to four different charities of seven categories of items each with a claimed value exceeding dollar_figure but they did not maintain written records establishing when or how these items were ac- quired or what their cost bases were nor did petitioners maintain written records establishing how they calculated the items’ fair_market_value no deduction is allowed for any contribution of clothing or a household item unless such property is in good used condition or better sec_170 the term ‘household items’ includes furniture furnishings electronics appliances linens and other similar items sec_170 most of the items petitioners allegedly donated consisted of clothing and household_items they failed to present credible_evidence that these items were in good used condition or better and they did not furnish a qualified_appraisal with their return see sec_170 exception where qualified_appraisal is supplied for all these reasons petitioners have not satisfied the substantiation requirements for donations of property valued over dollar_figure for contributions of property other than publicly_traded_securities or similar items of property valued over dollar_figure the taxpayer must generally satisfy the substantiation requirements discussed in the text and must also obtain a qualified_appraisal of the items and attach to his tax_return a fully completed appraisal_summary sec_170 sec_1_170a-13 income_tax regs petitioners did not obtain a qualified_appraisal for any of the items and did not continued the court has no doubt that petitioners did donate some property to chari- table organizations during but the code imposes a series of increasingly rigorous substantiation requirements for larger gifts especially when they consist of property rather than cash because petitioners did not satisfy these require- ments we are unable to allow a deduction for their claimed noncash gifts iii accuracy-related_penalty sec_6662 imposes a penalty upon the portion of any underpayment attributable to among other things negligence or disregard of rules or regulations the term negligence includes any failure to make a reasonable attempt to com- ply with the tax laws and disregard includes any careless reckless or inten- tional disregard sec_6662 negligence also includes any failure to keep ade- quate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs see 139_tc_19 with respect to an individual taxpayer’s liability for a penalty sec_7491 places on the commissioner the burden of production thereby requiring the commissioner to come forward with sufficient evidence indicating that continued attach a fully completed appraisal_summary to their tax_return they thus failed to satisfy the substantiation requirements for their claimed contributions of clothing dollar_figure and books dollar_figure imposition of a penalty is appropriate 116_tc_438 once the commissioner meets his burden of production the taxpayer bears the burden of proving that the commissioner’s determination is incorrect ibid see rule a welch v helvering u s pincite we find that respondent has discharged his burden of production by showing that peti- tioners failed to keep adequate_records see sec_1_6662-3 income_tax regs sec_6664 provides an exception to the imposition of the accuracy- related penalty if the taxpayer establishes that there was reasonable_cause for and that he acted in good_faith with respect to the underpayment the decision as to whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances see sec_1_6664-4 income_tax regs circumstances that may signal reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer ibid petitioners testified as to their belief that they did not need to obtain receipts or acknowledgment letters because they left donations at unattended dropoff loca- tions and because each batch of items they delivered or left for pickup was worth less than dollar_figure as noted earlier we were unpersuaded by this testimony these rationales have no application to petitioners’ alleged donation of property worth dollar_figure to the church their testimony that they intentionally made all other contributions in batches worth less than dollar_figure requires the implausible as- sumption that they made these donations on distinct occasions in any event petitioners failed to keep reliable written records of their gifts because they did not record the dates of any of their contributions they did not record which items were donated to which charity and they did not record how they determined the fair market values of any items see sec_1_170a-13 and income_tax regs in sum we find that petitioners were negligent in preparing their return and that no portion of their underpayment met the reasonable_cause exception we will accordingly sustain respondent’s imposition of the sec_6662 penalty to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date cc dom fs it a number release date uilc internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel field service cc dom fs subject periodic equipment maintenance field_service_advice this field_service_advice responds to your memorandum dated date it is not binding on examination or appeals and is not a final case determination this document may not be cited as precedent legend taxpayer year yy xx ww vv tt dollar_figureamount dollar_figuredollar_figureamount dollar_figuredollar_figuredollar_figureamount dollar_figuredollar_figuredollar_figuredollar_figureamount dollar_figuredollar_figuredollar_figuredollar_figuredollar_figureamount issues whether taxpayer should be required to capitalize the periodic costs it incurs to clean sandblast prime and paint certain barge hulls under sec_263 whether costs incurred by taxpayer to perform towboat engine maintenance in year sec_1 and must be capitalized under sec_263 or may those costs be deducted under sec_162 whether in answering issue the analysis required by sec_263 regarding material increases in value and life should be considered from the perspective of a composite asset only or should the towboat engines be considered separately from the towboats conclusions taxpayer is not required to capitalize its periodic costs to clean sandblast prime and paint certain barge hulls and it may claim a current business_expense deduction for those costs under sec_162 further case development is required further case development is required facts this taxpayer-- runs full-service barge lines transporting various commodities on the inland waterway system in the united_states it has a fleet of towboats which it uses to propel its barges along the system the barges in issue have an expected useful_life of about yy to xx years however that life can arguably be extended to up to ww years by more frequent painting maintenance of the barges includes sandblasting priming and painting the barges’ hulls to fight corrosion and natural deterioration painting and or cleaning if needed is scheduled after regular inspection of the hulls based on taxpayer’s historical experience although there is no set schedule a barge is usually painted every vv to tt years the average cost of painting a barge usually depends upon whether it is a tank or dry cargo barge a tank barge with a replacement cost of about dollar_figureamount usually costs about dollar_figuredollar_figureamount to paint a dry cargo barge with a replacement cost of about dollar_figuredollar_figuredollar_figureamount usually costs about dollar_figuredollar_figuredollar_figuredollar_figureamount to paint taxpayer’s total annual cost for cleaning painting averaged dollar_figuredollar_figuredollar_figuredollar_figuredollar_figureamount for the years in issue law and analysis sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business the regulations thereunder further provide that the costs of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life-but keep the property in ordinarily efficient operating condition-may be currently deducted sec_1_162-4 that regulation also provides however that the cost of repairs in the nature of replacements that arrest deterioration and appreciably prolong the life of the property must be capitalized and depreciated in accordance with sec_167 id sec_263 and sec_1_263_a_-1 provide that no deduction is allowed for any amount_paid out for new buildings or for permanent improvements or betterments made to increase the value of any property moreover sec_263 prohibits a deduction for amounts expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made sec_1_263_a_-1 specifically provides however that amounts paid_or_incurred for incidental repairs and maintenance within the meaning of sec_161 and sec_1_162-4 are not capital expenditures revrul_94_12 1994_1_cb_36 makes clear that the service’s position on the general deductibility of incidental repair and maintenance_costs was unaffected by the supreme court’s decision in 503_us_79 notwithstanding the resultant incidental natural prolonging of the property’s useful_life the cost of painting a business or income-producing property has long been held deductible as an ordinary and necessary current_expense see eg haverty furniture co v commissioner 15_f2d_345 5th cir any compare 400_f2d_686 10th cir even if item is a repair standing alone cost must be capitalized if part of general modernization or rehabilitation plan jones v commissioner u s t c 5th cir aff’g 24_tc_563 the cost of painting as part of remodeling plan is incidental to improvement and must be capitalized revrul_88_57 1988_2_cb_36 expenditures_for major rehabilitations of railroad freight cars are capital under sec_263 prolonged life in this case as a result of the cleaning painting is merely in the nature of an assumed maintenance of the inherent usefulness of the property see 14_tc_635 relining of basement wall to prevent oil seepage was merely to allow continued use of property for which it was intended city national bank v commissioner no t c memo 11_tcm_411 cleaning sandblasting and painting of building walls held deductible consequently the cleaning sandblasting priming and painting of the barge hulls in issue here are currently deductible by taxpayer case development hazards and other considerations by clifford m harbourt senior technician reviewer income_tax accounting branch


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c 201u51vu27 sep uniform issue list se tv ep rat legend amount a year year year month month date airline x dear this is in response to a request submitted on your behalf by your authorized representative dated date as supplemented by correspondence dated date and date in which you request a waiver of the day rollover requirement contained in sec_125 of the worker retiree and employee recovery act of wrera the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page you were a qualified airline employee who worked for airline x airline x entered into bankruptcy proceedings during year during the period year to year you received amount a from airline x amount a was paid to you by airline x in order to offset the termination of airline x’s qualified_retirement_plan and was paid pursuant to an order of a federal bankruptcy court for purposes of this ruling the internal_revenue_service assumes that airline x’s retirement_plan is a plan qualified within the meaning of sec_401 of the internal_revenue_code the code’ as provided in sec_125 of wrera wrera was signed into law in december wrera among other things allows a qualified airline employee who receives an airline payment amount days to transfer the airline payment to a roth individual_retirement_account roth_ira qualified_rollover_contribution described in sec_408a of the code if the transfer is completed timely the contribution is to be treated as a during month 2c__ which was prior to date airline x of the above wrera provision as part of this notification you received a mailed notice that the transfer into a roth_ira had to be completed no later than date wrera only transfers made on or before date qualified for the special roth_ira contribution treatment afforded by wrera there is no hardship exception or similar provision in wrera that allows for an extension of the day transfer_period _ which date i sec_180 days from the date of enactment of you were notified by you explain that although you did receive this notice during month did not read the notice until month 20’ which was after date because you were very ill during that time period you have provided to the internal_revenue_service extensive documentation which substantiates your being ill during calendar_year you explain that due to your extreme illness you were not aware of the need to complete or able to complete the transfer on or before date you based on the facts and representations you request a ruling that the internal_revenue_service waive the day timeframe imposed by sec_125 of wrera on airline payment amounts as part of your request you cite the internal revenue service's authority to waive violations of the 60-day period provided for in sec_402 of the code and argue for analogous treatment with respect to your airline payments with respect to your ruling_request sec_402 of the code provides that except as otherwise provided in this section any amount actually distributed to any distributee by any employees' trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 page 2zvu1v iv27 sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code provides in general that an eligible_rollover_distribution means any distribution to an employee of all or any portion of the balance of the credit of the employee in a qualified_trust sec_402 c also provides in relevant part that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made i for the life or life expectancy of the employee or the joint lives or joint life expectancy of the employee and the employee's designated_beneficiary or ii for a period of ten years or more or iii any distribution that is made upon the hardship of the employee sec_402 of the code in relevant part defines eligible_retirement_plan as i an individual_retirement_account described in sec_408 a ii an individual_retirement_annuity described in sec_408 other than an endowment_contract iii a qualified_trust iv an annuity plan described in sec_403 v an eligible_deferred_compensation_plan described in sec_457 which is maintained by an eligible_employer described in sec_457 and vi an annuity_contract described in sec_403 sec_1_402_c_-2 question and answer of the income_tax regulations states that if an eligible_rollover_distribution is paid to an employee and the employee contributes all or part of the eligible_rollover_distribution to an eligible_retirement_plan no later than the 60th day following the date the employee received the distribution the amount contributed is not currently includible in gross_income sec_402 states that except as provided in subparagraph b any rollover within the meaning of code sec_402 must be accomplished within days of the day on which the distributee received the property distributed sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 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_402 of the code 9v1iv5z lue page sec_408a of the code provides that no rollover_contribution may be made to a roth_ira unless it is a qualified_rollover_contribution sec_408a of the code provides that the term qualified_rollover_contribution means a rollover_contribution to a roth_ira from another such account from an eligible_retirement_plan if the rollover meets the requirements of sec_408 and in the case of any eligible_retirement_plan defined in sec_402 such rollover_contribution meets the requirements of sec_402 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 d i of the code 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 sec_125 of the worker retiree and employee recovery act of provides that if a qualified airline employee receives any airline payment and transfers any portion of such amount to a roth_ira within days of receipt or if later within days of enactment of the act then such amount to the extent so transferred shall be treated as a qualified_rollover_contribution described in sec_408a of the code sec_125 of wrera provides in relevant part that an airline payment amount’ is a payment of money or other_property payable by a commercial passenger airline carrier to a qualified airline employee i under the approval of an order of a federal bankruptcy court in a case filed after date and before date sec_125 of wrera provides that the term qualified airline employee means an employee or former employee of a commercial passenger airline carrier who was a participant in a defined_benefit_plan maintained by the carrier which - a is a plan described in sec_401 of the code which includes a_trust exempt from tax under sec_501 and b was terminated or became subject_to the restrictions in paragraphs and of sec_402 of the pension_protection_act of initially the service notes that the payments received by you from airline x do not constitute eligible rollover distributions as that term is used in sec_402 of the code thus these payments are not described in sec_402 of the code and do not qualify for an extension of the day period referenced in page sec_125 of wrera because of the application of sec_402 of the code or for treatment analogous to that provided under said code section sec_125 of wrera provides that the airline payments which were received by you as a result of a federal bankruptcy order take on the character of a qualified_rollover_contribution because of the operation of sec_125 of wrera and only if they are transferred to a roth_ira within the applicable time period provided under sec_125 of wrera sec_125 of wrera contains no provision which would permit the service to extend the day period contained therein nor do we believe its provisions authorize the service to permit a taxpayer to complete a transfer to a roth_ira outside of the time frame found in sec_125 of the wrera by reference to any other section of the code under the circumstances presented in this case the service hereby declines to waive the 180-day rollover requirement with respect to amount a because it does not have the authority to do so the amounts you received stemming from the bankruptcy of airline x do not constitute qualified rollover_contributions as that term is used in sec_125 of wrera therefore your proposed contribution of amount a to a roth_ira will not be considered a valid rollover_contribution eligible for the special tax treatment outlined in sec_125 of wrera 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 k 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_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact xxxxxxxxxxxxxxxxxxxxxxx by phone at xxxxxxxxxxxxxxxxxxxxxxxx xx please address all correspondence to xxxxxxxxxxx sincerely yours danaea v ior - _ frances v sloan manager employee plans’technical group enclosures deleted copy of ruling letter notice of intention to disclose