t c no united_states tax_court gerald a and henrietta v rauenhorst petitioners v commissioner of internal revenue respondent docket no filed date ps owned stock warrants in nmg wcp sent a letter to nmg regarding its intention to purchase all the issued and outstanding_stock of nmg ps then assigned their warrants to four charitable institutions at the time of the assignments the donees were under no legal_obligation and could not be compelled to sell the warrants the donees subsequently sold their warrants to wcp r determined that the contributions by ps were anticipatory assignments of income ps moved for partial summary_judgment arguing that the anticipatory_assignment_of_income doctrine does not apply where donees are not legally obligated and cannot be compelled to sell contributed_property ps rely on revrul_78_197 1978_1_cb_83 r argues that he is not bound by his ruling but has neither withdrawn nor modified that ruling held revrul_78_197 supra provides that in the case of a charitable_contribution of stock the internal_revenue_service will treat proceeds of the - - sale of the stock as income to the donor only if at the time of the gift the donee is legally bound or can be compelled to sell the shares we treat revrul_78_ supra as a concession in the instant case see 101_tc_537 there remains no genuine issue of material fact regarding whether the charitable donees were legally obligated or could be compelled to sell the stock warrants at the time of the assignments by ps accordingly ps are entitled to judgment as a matter of law john k steffen walter a pickhardt and david r brennan for petitioners david l zoss for respondent opinion ruwe judge the matter is before us on petitioners’ motion for partial summary_judgment pursuant to rule respondent determined a deficiency of dollar_figure in petitioners’ federal income taxes and an accuracy-related_penalty of dollar_figure pursuant to sec_6662 for the issue for decision is whether the transfer of stock warrants to four charitable institutions was an anticipatory assignment of the proceeds from a sale of those warrants ‘a111 section references are to the internal_revenue_code in effect for the tax_year in issue and all rule references are to the tax_court rules_of_practice and procedure background at the time of filing the petition petitioners resided in naples florida petitioners were the only partners of arbeit co arbeit a general_partnership nmg inc nmg was a delaware corporation which did business as george rice sons on date arbeit and nmg executed an agreement which required that arbeit surrender big_number shares of nmg series a preferred_stock a subordinated promissory note and certain previously issued nmg warrants pursuant to this same agreement nmg issued to arbeit a senior subordinated promissory note of dollar_figure million and a junior subordinated promissory note of dollar_figure million nmg also issued a warrant which gave arbeit the right to purchase dollar_figure shares of nmg class a common_stock at an exercise price of dollar_figure per share before date arbeit sieben investment co berkeley atlantic income ltd and bg services ltd held warrants to purchase nmg class a common_stock in the following amounts warrantholder number of shares arbeit dollar_figure sieben dollar_figure berkeley dollar_figure bg services dollar_figure total dollar_figure before date nmg’s outstanding_stock consisted 7arbeit’s sole purpose was to act as a nominee for petitioners as trustee of the gerald rauenhorst revocable_trust this trust was a revocable grantor_trust and its assets were treated as owned by mr rauenhorst under sec_676 - - of big_number shares of class a common_stock and shares of series b preferred_stock that were convertible share for share into nmg common_stock nmg’s stock was owned as follows common_stock shares of ownership shares of shareholder common_stock percentage preferred_stock grossberg family’ big_number e james cooper dollar_figure john j woodlock dollar_figure randolph k ginsberg dollar_figure john j zamora dollar_figure total big_number dollar_figure ‘the grossberg family consisted of ewel_ grossberg and june marion grossberg in their capacities as trustees of the grossberg trust of and their children linda finkel and alan b grossberg if all preferred shares were converted into nmg common shares and if all warrants were exercised the following would represent the percentage ownership of nmg shares as of date shareholders and shares of ownership warrantholders common_stock percentage grossberg family dollar_figure e james cooper dollar_figure dollar_figure john j woodlock dollar_figure dollar_figure randolph k ginsberg dollar_figure dollar_figure john j zamora dollar_figure dollar_figure arbeit dollar_figure dollar_figure sieben dollar_figure dollar_figure berkeley dollar_figure dollar_figure bg services dollar_figure dollar_figure total dollar_figure dollar_figure ‘as a result of rounding the percentages the total should actually be dollar_figure percent on date world color press inc wcp wrote a letter to the chairman of the board_of directors of nmg ewel grossberg in which it stated its intention to purchase all the issued and outstanding shares of nmg on the terms and conditions - - outlined in the letter this letter of intent was signed by robert g burton as chairman president and ceo of wcp the letter was accepted by ewel grossberg as chairman of nmg by randolph k ginsberg as president of nmg by jim cooper as vice president of manufacturing of nmg and by john woodlock as vice president of finance of nmg on date wcp’s board_of directors adopted a resolution to negotiate and to enter into the agreement for the purchase of all the issued and outstanding capital stock of nmg on date arbeit executed an assignment of its rights in the nmg warrant to four institutions the university of st thomas marguette university the mayo foundation and the archdiocese of st paul and minneapolis catholic community_foundation the rights to purchase dollar_figure shares of nmg class a common_stock were allocated as follows university of st thomas dollar_figure shares marquette university dollar_figure shares mayo foundation dollar_figure shares archdiocese of st paul and minneapolis dollar_figure shares and arbeit dollar_figure shares the donee institutions were organizations described in sec_170 on date the general manager of arbeit wrote a letter to the chief financial officer of nmg requesting that the warrant formally held by arbeit be reissued to reflect the assignments and that the reissued warrants be delivered by mail -- - to the new owners by date legal counsel for nmg sent letters dated date which enclosed reissued warrants to arbeit the university of st thomas marquette university the mayo foundation and the archdiocese the donees each acknowledged having received the reissued warrants on date in letters addressed to mr rauenhorst legal counsel for nmg requested that each of the donees execute an additional party signature page which related to a stockholders agreement and registration rights agreement dated date on date each of the donees signed an additional party signature page neither the additional party signature page nor the stockholders agreement nor the registration rights agreement bound the donees to sell their stock warrants to nmg or wcp on date the general manager of arbeit sent a letter to nmg and wcp in which he confirmed arbeit’s intention to surrender its warrant to purchase dollar_figure shares for cash as part of wcp’s acquisition of nmg stock arbeit executed a warrant purchase and sale agreement dated as of date in which arbeit agreed to sell its warrant for dollar_figure shares of nmg stock to wcp for dollar_figure per share on or before date this agreement was contingent upon wcp’s acquisition of all the issued and outstanding_stock of nmg pursuant to a stock purchase agreement - on date legal counsel for nmg sent a letter to each of the donees enclosing a warrant purchase and sale agreement pursuant to which each donee would agree to sell its reissued warrant to wcp the letters requested that each donee sign the agreement and return it for receipt by nmg’s legal counsel on date the donees each signed a warrant purchase and sale agreement dated date in which they agreed to sell their reissued nmg warrants to wcp for dollar_figure per share on or before date on date nmg nmg’s stockholders and wcp executed an agreement for the purchase of all the issued and outstanding_stock of nmg at a stated purchase_price of dollar_figure million allocated among the shares of stock and the warrants wcp acquired all the issued and outstanding_stock of nmg and all the issued and outstanding warrants to purchase nmg stock ina transaction that was closed on date pursuant to this transaction the holders of the reissued warrants sold those warrants and received the following consideration number of price per total warrantholder shares share consideration univ of st thomas dollar_figure dollar_figure dollar_figure marquette univ dollar_figure dollar_figure dollar_figure mayo foundation dollar_figure dollar_figure dollar_figure archdiocese dollar_figure dollar_figure big_number dollar_figure arbeit dollar_figure dollar_figure dollar_figure bach of the donees filed a form_8282 donee information_return with its federal_income_tax return for in which each reported date as the date it received its --- - warrant the forms filed by the university of st thomas marquette university and the mayo foundation report a sale of their warrants on date the form_8282 filed by the archdiocese reports a sale of its warrant on date petitioners did not report any gain from the sale of the warrants by the donees on their federal_income_tax return for on date respondent issued a notice_of_deficiency in which he determined that the donation of n m g inc stock was an anticipatory_assignment_of_income resulting in an increase in capital_gains of dollar_figure in discussion a motion for partial summary_judgment this matter arises in the context of petitioners’ motion for partial summary_judgment summary_judgment is designed to expedite litigation and to avoid unnecessary and expensive trials shiosaki v commissioner 61t c we shall grant a motion for partial summary_judgment where there is ‘the parties agree that this case is appealable to the court_of_appeals for the eleventh circuit binding precedent in the eleventh circuit includes decisions of the court_of_appeals for the fifth circuit filed before date 283_f3d_1258 n 11th cir affg 115_tc_376 661_f2d_1206 11th cir we follow a decision of the court_of_appeals to which an appeal from our disposition of a case lies so long as that decision is squarely in point and a failure to follow that decision would result in an inevitable reversal 99_tc_490 54_tc_742 affd 445_f2d_985 10th cir - no genuine issue as to any material fact relevant to the issues involved 118_tc_226 the moving party has the burden of proving that no genuine issue of material fact exists and that party is entitled to judgment as a matter of law 116_tc_73 in all cases the evidence must be viewed in the light most favorable to the nonmoving party 100_tc_32 a partial summary adjudication may be made even though all the issues are not disposed of rule b 111_tc_315 b charitable_contributions of appreciated_property this case involves a charitable gift of appreciated_property namely warrants to purchase stock at a set price it is well established that a gift of appreciated_property does not result in income to the donor so long as he gives the property away absolutely and parts with title thereto before the property charitable_contributions of appreciated_property typically give rise to a deduction equal to its fair_market_value however the deduction for capital_gain_property is generally limited to percent of the taxpayer’s adjusted_gross_income sec_170 b c f sec_1_170a-1 income_tax regs on their form_1040 u s individual_income_tax_return for petitioners claimed a charitable deduction of dollar_figure in accordance with a valuation report they submitted with their return respondent raises as an amendment to his answer an issue regarding the correct amount of the charitable deduction that petitioners claimed for petitioners concede that issue cannot be decided on a summary_judgment motion -- - gives rise to income by way of a sale 42_tc_894 see also 476_f2d_704 5th cir affg tcmemo_1971_222 209_f2d_331 5th cir however it is equally well established that the incidence of taxation depends on the substance rather than the form of a transaction 324_us_331 450_f2d_472 5th cir to that end the commissioner has used a number of doctrines as a basis for recharacterizing a purported gift of appreciated_property including the anticipatory_assignment_of_income doctrine eg 108_tc_244 affd 174_f3d_997 9th cir the step_transaction_doctrine eg blake v commissioner tcmemo_1981_579 affd 697_f2d_473 2d cir and the sham_transaction doctrine eg 865_f2d_644 5th cir he invokes the anticipatory_assignment_of_income doctrine as the basis for his recharacterizing the purported gifts of stock warrants in this case anticipatory_assignment_of_income doctrine the general principles underlying the assignment_of_income_doctrine are well established it taxes income to those who earn or otherwise create the right to receive it and enjoy the benefit of it when paid 311_us_112 further the mere assignment of the right to receive income is not enough to insulate the assignor from income_tax_liability where the assignor actually earns the income or is otherwise the source of the right to receive and enjoy the income 333_us_591 a person cannot escape taxation by anticipatory assignments however skillfully devised where the right to receive income has vested 312_us_579 a mere transfer which is in form a gift of appreciated_property may be disregarded for tax purposes if its substance is an assignment of a right to income see 62_tc_684 affd on other grounds 523_f2d_1308 8th cir however the precise contours of the anticipatory_assignment_of_income doctrine in the context of charitable_contributions of appreciated_property have been the subject of some contention in palmer the taxpayer exercised effective_control over both a corporation and a tax-exempt foundation that he had organized the taxpayer sought to transfer a certain asset a college from the corporation to the foundation in a way that would enable the taxpayer to maintain control_over the direction and operation of the college and that would yield the most favorable tax consequences to that end the taxpayer caused the foundation to acquire certain shares of stock in the corporation which were held by a_trust in which he was a trustee and income_beneficiary the taxpayer then transferred shares of stock that he owned directly to the foundation so that it held percent of the issued and outstanding shares of the corporation finally the board_of directors and the shareholders of the corporation approved the redemption of the foundation’s stock in exchange for the operating_assets of the college the commissioner argued that there was an anticipatory assignment of the proceeds of the redemption we disagreed and held that neither the anticipatory_assignment_of_income doctrine nor the step_transaction_doctrine was applicable id pincite we noted that even though the donor anticipated or was aware that the redemption was imminent the presence of an actual gift and the absence of an obligation to have the stock redeemed have been sufficient to give such gifts independent significance id citing carrington v commissioner supra dewitt v united_states 503_f2d_1406 ct_cl and 361_f2d_972 we held when the foundation received the gift of stock from the petitioner no vote for the redemption had yet been taken although we recognize that the vote was anticipated nonetheless under the hudspeth reasoning that expectation is not enough we have found that the foundation was not a sham was not an alter ego of the petitioner and that it received his entire_interest in the shares of the corporation stock on the same day it acquired enough shares of stock from the trust to hold in the aggregate percent of the outstanding shares of the corporation thereafter the foundation voted for the redemption it did so because the redemption was in its interest at the time of the gift that vote had not yet been taken and by the afternoon of date the foundation had the voting power to prevent the redemption if it wished to do so in these circumstances at the time of the gift the redemption had not proceeded far enough along for us to conclude that the foundation was powerless to reverse the plans of the petitioner in light of the presence of an actual valid gift and because the foundation was not a sham we hold that the gift of stock was not in substance a gift of the proceeds of redemption id pincite the internal_revenue_service irs in revrul_78_197 1978_1_cb_83 acquiesced to our decision in palmer v commissioner supra and in doing so devised a bright-line_test which focuses on the donee’s control_over the disposition of the appreciated_property revrul_78_197 c b pincite states in 62_tc_684 aff’d on another issue 523_f2d_1308 8th cir the united_states tax_court held that the internal_revenue_service incorrectly treated a gift of stock to an organization exempt from income_taxation pursuant to sec_511 of the internal_revenue_code of followed by a prearranged redemption of the stock as a redemption of the stock from the donor followed by a gift of the redemption proceeds to the donee the service will follow palmer on this issue acg page this bulletin in palmer the taxpayer had voting control of both a corporation and a tax-exempt private_foundation pursuant to a single_plan the taxpayer donated shares of the corporation’s stock to the foundation and then caused the corporation to redeem the stock from the foundation it was the position of the service that the substance of the transaction was a redemption of the stock from the taxpayer taxable under sec_301 of the code followed by a gift of the redemption proceeds by the taxpayer to the foundation the united_states tax_court rejected this argument and treated the transaction according to its form because the foundation was not a sham the transfer of stock to the foundation was a valid gift and the foundation was not bound to go through with the redemption at the time it received title to the shares also see 490_f2d_241 2nd cir behrend v united_states no 4th cir and carrington v commissioner sic f 2d 5th cir the service will treat the proceeds of a redemption of stock under facts similar to those in palmer as income to the donor only if the donee is legally bound or can be compelled by the corporation to surrender the shares for redemption in 74_tc_730 s c johnson son inc v commis63_tc_778 and palmer v commissioner supra we considered the donees’ control_over the course of disposition and the donees’ ability to reverse a set course of disposition as significant factors in deciding that the donors were not taxable on the donees’ subsequent receipt of proceeds however we have indicated our reluctance to elevate the question of donee control to a talisman for resolving anticipatory_assignment_of_income issues for example in 66_tc_340 we stated that the donee’s power to reverse the donor’s anticipated course of disposition was only one factor to be considered in see also 471_f2d_275 8th cir finding significant that the donees here were powerless to vitiate taxpayer’s manifest intent to liquidate or provide them with the corporation’s assets through redemption 58_tc_259 affd 477_f2d_1058 2d cir wherein we found significant the fact that the donee was powerless both legally and as a practical matter to change the course of events already unfolding - - ascertaining the ‘realities and substance’ of the transaction cf 531_f2d_1343 6th cir in a more recent opinion we further extrapolated our position as follows in determining the reality and substance of a transfer the ability or the lack thereof of the transferee to alter a prearranged course of disposition with respect to the transferred property provides cogent evidence of whether there existed a fixed_right to income at the time of transfer although control_over the disposition of the transferred property is significant to the assignment_of_income analysis the ultimate question is whether the transferor considering the reality and substance of all the circumstances had a fixed_right to income in the property at the time of transfer ferguson v commissioner t c pincite citations omitted this court has not adopted the bright-line_test stated in revrul_78_197 supra as the test for resolving anticipatory_assignment_of_income issues and instead we have considered the donee’s control to be merely a factor albeit an important factor for example in 80_tc_331 the taxpayer transferred to custodial accounts for his children stock in a corporation that had entered into a merger agreement with another corporation the merger agreement was approved by the shareholders of both corporations before the transfer although the transfer occurred before the effective date of the merger this court held that the right to the merger proceeds had virtually ripened prior to the transfer and that the transfer of the stock constituted a transfer of the merger -- - proceeds rather than an interest in a viable corporation id pincite see also 13_f3d_577 2d cir jones v united_states supra pincite s c johnson son inc v commissioner supra pincite arguments of the parties petitioners filed a motion for partial summary_judgment and argue that they are entitled to judgment as a matter of law on the issue of whether they must account for the gains realized on the sales of the assigned warrants petitioners rely on 476_f2d_704 5th cir and revrul_78_197 supra and they argue that where the donees are in 476_f2d_704 5th cir affg tcmemo_1971_222 the taxpayer was the sole shareholder in a corporation that was in turn a partner ina partnership the taxpayer also belonged to a church that was interested in acquiring a rectory the partnership owned a residence which was suitable for a rectory and accordingly the taxpayer initiated a series of transactions for the purpose of placing that residence into the hands of the church at the maximum_tax benefit to the taxpayer the taxpayer transferred of the outstanding shares in the corporation’s stock to the church the partnership then conveyed the residence to the corporation and the corporation conveyed the residence to the church in redemption of the church’ sec_51 shares the commissioner applied the step_transaction_doctrine treated the taxpayer as receiving the residence in redemption of his stock and then transferring the residence to the church and determined that the taxpayer realized dividend income both this court and the court_of_appeals for the fifth circuit refused to ignore the gift step and held that the taxpayer did not realize an actual or constructive_dividend on the redemption of the shares the court_of_appeals stressed that the church had full title and full dominion and control_over the contributed stock and it was under no prior obligation to redeem its shares id pincite not legally bound and cannot be compelled to sell the contributed_property the anticipatory_assignment_of_income doctrine does not apply respondent argues that petitioners are not entitled to judgment as a matter of law and that genuine issues of material fact remain for trial respondent argues that the question whether the donees were bound or could be legally compelled to surrender their nmg warrants is not the critical issue to be resolved and accordingly neither carrington v commissioner supra nor revrul_78_197 supra controls this case it is respondent’s position that the critical issue in this case is a factual one whether petitioners’ rights to receive the proceeds of the stock transaction involving wcp ripened to a practical certainty at the time of the assignments respondent relies on 174_f3d_997 9th cir jones v united_states supra 477_f2d_1058 2d cir affg 58_tc_259 471_f2d_275 8th cir and estate of applestein v commissioner supra respondent purports to distinguish both carrington and revrul_78_197 supra on the facts of the case and the ruling to that end he contends that carrington and revrul_78_197 supra are not inconsistent with the cases he relies upon above respondent claims that in this case and the cases upon which he -- - relies there was a pending global transaction for the purchase and sale of all the stock of a corporation at the time of the gift or transfer at issue he then surmises that because carrington and revrul_78_197 supra did not involve a pending global transaction the legal principles of those authorities do not apply instead he argues that we must apply the principles of the cases he relies upon and accordingly we must conduct a detailed factual inguiry for purposes of determining whether the sale of the stock warrants had ripened to a practical certainty at the time of the assignments we cannot agree that respondent has effectively distinguished carrington and revrul_78_197 supra on their facts first neither this court nor the courts of appeals have adopted respondent’s theory of a pending global transaction as a means of distinguishing cases such as carrington and 62_tc_684 indeed the caselaw in this area applies essentially the same anticipatory_assignment_of_income principles to cases of a global nature as those applicable to cases of a nonglobal nature see eg greene v united_states supra pincite we can only interpret respondent’s use of the phrase pending global transaction as simply a restatement of the principles contained in the cases upon which he relies thus we cannot agree that respondent’s reliance on a pending global transaction distinguishes either carrington revrul_78_197 supra or other cases upon which petitioners rely with that being said and leaving carrington and those other cases aside at this point the bright-line_test of revrul_78_197 supra which focuses solely on the donee’s control_over the contributed_property stands in stark contrast to the legal test and the cases upon which respondent relies and which consider the donee’s control to be only a factor we are convinced that respondent in this case is arguing against the principles which he states in revrul_78_197 supra in his memorandum in opposition to petitioners’ motion for partial summary_judgment pincite respondent argues c revrul_78_197 1978_1_cb_83 is not controlling in this case revenue rulings are not binding on respondent or the courts 445_f2d_1142 5th cir moreover revrul_78_197 1978_1_cb_83 is not controlling in this case for the very same reasons stated above that carrington v commissioner is not controlling indeed in blake v commissioner f 2d pincite the second circuit found that revrul_78_197 does not apply to circumstances such as those in the present case stating more troublesome is the case of 62_tc_684 aff’d on other grounds 523_f2d_1308 8th cir which held that even an expectation of a stock_redemption would not warrant denying charitable_contribution status the service in revrul_78_197 c b acquiesced in palmer stating that it would treat redemption proceeds under facts similar to palmer as income to the donor only if the donee is legally bound or can be compelled by the corporation to surrender the shares for redemption id the service cited - - both grove and carrington as support for its position what we have said above indicates our belief that this ruling reads too much into those decisions where there is as here an expectation on the part of the donor that is reasonable with an advance understanding that the donee charity will purchase the asset with the proceeds of the donated stock the transaction will be looked at as a unitary one a wooden view that would require legal enforceability of an understanding or obligation to purchase the asset contemplated to be donated ab initio is not what the tax law contemplates at least this circuit will not take it to do so judgment affirmed respondent’s quotation from the blake’ opinion makes his position patently clear respondent is disavowing revrul_78_197 supra in this case when respondent’s arguments are boiled down to their essential elements he argues against the validity of the bright-line_test of revrul_78_197 supra the commissioner has neither revoked nor modified revrul_78_197 supra in response to the comments in blake indeed the commissioner has continued to rely on revrul_78_197 supra in issuing his private letter rulings see eg priv ltr rul ‘the court_of_appeals for the second circuit in 697_f2d_473 2d cir affirmed our decision in tcmemo_1981_579 the above quotation from blake could be characterized as dictum in our memorandum opinion we did not discuss revrul_78_197 1978_1_cb_83 instead we decided and the court_of_appeals agreed that there was a legally enforceable obligation on the part of the donee to purchase a yacht from the donor with the proceeds of a sale of transferred stock we held that a gift of the stock had not been made to the donee --- - date moreover the commissioner has in a private_letter_ruling dismissed the statements made in blake v commissioner supra pincite as dicta and stated that rev_rul remains in effect however despite the statements made in that case see priv ltr rul date which states in relevant part in revrul_78_197 1978_1_cb_83 the internal_revenue_service announced that it will treat the proceeds of a redemption of stock under facts similar to those in 62_tc_684 acq on this issue 1978_2_cb_2 aff’d on another issue 523_f2d_1308 8th cir as income to the donor only if the donee is legally bound or can be compelled by the corporation to surrender the shares for redemption in palmer the taxpayer-donor had voting control of both a corporation and a tax-exempt private_foundation pursuant to a single_plan the taxpayer donated shares of the corporation to the foundation and then caused the corporation to redeem the stock from the foundation in 697_f2d_473 2nd cir the court in dicta questioned the service’s acquiescence in palmer in revrul_78_197 suggesting that a mere understanding between the contributing shareholder and the charity concerning the fact that the contributed stock would be redeemed should be enough to treat the shareholder as having received redemption proceeds revrul_78_197 remains in effect however although in the case at hand there is some expectation that c will sell the farm items at such sprivate letter rulings may be cited to show the practice of the commissioner see rowan cos inc v united_states 452_us_672 t c ndollar_figure hanover bank v commissioner u s estate of cristofani v commissioner n woods inv co v commissioner 85_tc_281 ndollar_figure thurman v commissioner t c memo -- - time as their value can be realized c will be under no legally binding obligation to do so at the time the farm items are transferred to the unitrust thus based upon the representations made and the principle enunciated in the authorities cited above a will not recognize any income on a sale by the unitrust of farm items that he has transferred to it although we do not question the validity of the opinions of this court and the courts of appeals upon which respondent relies we are not prepared to allow respondent’s counsel to tt appears that the result we reached in 108_tc_244 affd 174_f3d_997 9th cir is consistent with the result that would have been obtained under revrul_78_197 1978_1_cb_83 because in ferguson we found that the donee could have been compelled to surrender the stock at the time of the gift in ferguson v commissioner supra pincite we stated we believe instead that when more than percent of the outstanding shares of ahc stock had been tendered or guaranteed which in effect was an approval of the merger agreement and the charities could not vitiate the intention of the shareholders who had tendered or guaranteed a majority of ahc stock of petitioners and of dc acguisition and cdi the right to merger proceeds matured likewise in the other cases upon which respondent relies the donees were powerless at the time of the gifts to reverse the courses of disposition set by the donors or third parties see 531_f2d_1343 6th cir contribution of 10-percent stock interest in corporation whose shareholders had overwhelmingly approved a plan of complete_liquidation hudspeth v united_states f 2d pincite taxpayer’s retained control_over corporation rendered donees with minority interest powerless to vitiate the taxpayer’s manifest intent to liquidate 80_tc_331 bargain sale of 3-percent stock interest in corporation following approval of merger plan by shareholders kinsey v commissioner t c pincite charitable donee with 56-percent majority interest did not have the legal power to stop a complete liguidation unlike the donees in continued - - argue the legal principles of those opinions against the principles and public guidance articulated in the commissioner’s currently outstanding revenue rulings we agree with respondent that revenue rulings are not binding on this court or other federal courts for that matter see frazier v commissioner 1111t c n ind pub serv co v commissioner 105_tc_341 affd 115_f3d_506 7th cir however we cannot agree that the commissioner is not bound to follow his revenue rulings in tax_court proceedings indeed we have on several occasions treated revenue rulings as concessions by the commissioner where those rulings are relevant to our disposition of the case 101_tc_537 burleson v commissioner tcmemo_1994_364 ' in phillips v continued those cases the donees in the instant case had the legal power at the time of the assignments to decide not to sell their stock warrants to nmg or wcp other cases where we have treated revenue rulings as concessions by the commissioner include 89_tc_765 cascade designs inc v commissioner tcmemo_2000_58 merritt v commissioner tcmemo_1995_44 stalcup v commissioner tcmemo_1995_43 nikkila v commissioner tcmemo_1993_628 boice v commissioner tcmemo_1993_627 callison v commissioner tcmemo_1993_626 zuhone v commissioner tcmemo_1988_142 affd 883_f2d_1317 7th cir -- - commissioner 88_tc_529 ' a court-reviewed opinion we stated respondent’s position in this case directly contradicted his long-standing and clearly articulated administrative position as set forth in revrul_72_ 1972_2_cb_634 and reiterated in revrul_83_ 1983_2_cb_220 respondent’s counsel may not choose to litigate against the officially published rulings of the commissioner without first withdrawing or modifying those rulings the result of contrary action is capricious application of the law phillips v commissioner t c pincite citation omitted respondent cites 445_f2d_1142 5th cir which states a ruling is merely the opinion of a lawyer in the agency and must be accepted as such it may be helpful in interpreting a statute but it is not binding on the secretary or the courts id pincite7 however the court_of_appeals for the fifth circuit made those statements in the context of its rejection of the government’s argument that a revenue_ruling should have the force and effect of law id pincite given the circumstances of that case we construe the statement in stubbs that the our decision in 88_tc_529 involving an award of litigation costs under sec_7430 was subsequently reversed by the court_of_appeals for the district of columbia circuit 851_f2d_1492 however that reversal was not a result of the statements quoted above instead the court_of_appeals found the commissioner’s reliance on our prior decision in 54_tc_1364 affd in part revd in part and remanded 487_f2d_36 7th cir to be substantially justified under sec_7430 phillips v commissioner f 2d pincite - - secretary is not bound by his revenue rulings to be dictum indeed the court_of_appeals for the fifth circuit without mentioning stubbs subsequently rejected an argument by the commissioner that he was not bound by his revenue rulings 135_f3d_1017 5th cir revg tcmemo_1996_307 see also 779_f2d_282 5th cir the court_of_appeals in estate of mclendon v commissioner supra pincite5 stated most questions of deference to a revenue_ruling involve an argument by the taxpayer that a particular ruling is contrary to law here however the argument to ignore or minimize the effect of revrul_80_80 comes from the commissioner the very party who issued the ruling in the first place in such a situation this circuit has a well established rule that is sufficient to resolve this case without probing the penumbrae of the general deference question fn ref omitted silco stands for the proposition that the commissioner will be held to his published rulings in areas where the law is unclear and may not depart from them in individual cases furthermore under silco the commissioner may not retroactively abrogate a ruling in an unclear area with respect to any taxpayer who has relied on it fn ref omitted applying silco to this case it quickly becomes clear that revrul_80_80 must govern our decision mclendon went to great lengths to structure his transaction to comply with applicable law and the commissioner does not dispute that in so doing mclendon expressly relied on rev_rul 80-80’s clarification of the admittedly murky area of future and dependent interest valuation the commissioner ignored the clear language of his own ruling in declaring deficiencies and it is precisely this kind of tactic that silco declares to be intolerable fn ref omitted - - while this court may not be bound by the commissioner’s revenue rulings and in the appropriate case we could disregard a ruling or rulings as inconsistent with our interpretation of the law see 86_tc_243 in this case it 1s respondent who argues against the principles stated in his ruling and in favor of our previous pronouncements on this issue the commissioner’s revenue_ruling has been in existence for nearly years and it has not been revoked or modified no doubt taxpayers have referred to that ruling in planning their charitable_contributions and indeed petitioners submit that they relied upon that ruling in planning the charitable_contributions at issue under the circumstances of this case we treat the commissioner’s position in revrul_78_197 1978_1_cb_83 as a concession accordingly our decision is limited to the question whether the charitable donees were legally obligated or could be compelled to sell the stock warrants at the time of the assignments ‘2respondent does not contend that revrul_78_197 1978_1_cb_83 is limited to cases involving redemptions indeed the commissioner has applied this ruling to factual scenarios which do not involve stock redemptions for example in priv ltr rul date the commissioner applied the ruling favorably to a gift and subsequent sale of farm items by the trustee of a charitable_remainder_unitrust we find that there is no difference in principle in the application of the revenue_ruling between a redemption of stock by a corporation and a sale of stock or stock warrants to an acquiring_corporation -- p7 - valid inter_vivos gift the requirements of a valid inter_vivos gift must be met if the purported gift is to qualify as a charitable_contribution under sec_170 ferguson v commissioner t c pincite 77_tc_9 ' generally the delivery of a gift of stock is complete upon relingquishment of dominion and control of the stock by the donor which occurs upon actual transfer on the books of the issuing_corporation ferguson v commissioner t c pincite see also 45_tc_106 sec_1_170a-1 income_tax regs there is no dispute regarding whether petitioners made a completed_gift at least in form of their warrants to purchase nmg stock with respect to the timing of that gift the parties stipulated that on date arbeit executed an assignment of rights under the arbeit nmg warrant for the purchase of dollar_figure shares of nmg class a common_stock to four organizations that counsel for nmg mailed each of the donees a the elements of an inter_vivos gift are delivery intention to make a gift on the part of the donor and absolute disposition by him of the thing which he intends to give to another oehler v falstrom n w 2d minn see also carrington v commissioner f 2d pincite a gift of stock between competent parties requires donative_intent actual delivery and relinquishment of dominion and control by the donor madison trust co v skogstrom n w wis elements are intention to give delivery end of dominion of donor creation of dominion of donee - - reissued warrant on date that the donees acknowledged receiving those warrants on date and that on date nmg’s warrant ledger was changed to reflect the donees as owners of the warrants we find that the requisites for completed gifts were met no later than date accordingly we must decide whether as of that date the charitable donees were legally bound or could be compelled to sell their stock to nmg or wcp whether the donees were legally bound or could be compelled to sell the stock warrants petitioners argue that as of date the date the warrants were transferred on the books of nmg the donees had not entered into any agreement to sell the warrants and could not be compelled by any legal means to transfer the warrants accordingly they contend that as a matter of law there was not an assignment_of_income petitioners submitted affidavits from representatives of the donees in support of their motion for partial summary_judgment each of those affidavits outlines the events which preceded the assignments each states that the stock warrants were received on date and each also states that as of that date the donees had not entered into agreements to sell the stock warrants respondent questioned the reliability of those affidavits and he contended that the affidavits were deficient in that they failed to state the personal involvement of the representatives - - with respect to petitioners’ contributions he also asserted that the testimony of those affiants is unknown and he questioned whether they were involved in any negotiations or discussions with nmg wcp or arbeit regarding wcp’s proposed acquisition of nmg stock and warrants respondent also guestioned the affiants’ competency to opine upon or reach any conclusion as to what constitutes a binding agreement or whether their respective organizations had indeed entered binding agreements in connection with the transactions at issue we do not share respondent’s reservations with respect to the affidavits and we find those affidavits credible first in response to respondent’s allegations petitioners submitted additional affidavits from each of the affiants each of those affidavits states the affiants were personally involved with respect to petitioners’ contributions before the donees’ execution of the warrant purchase and sale agreement there were no agreements amongst the donees arbeit mr rauenhorst or any other person or entity regarding the sale of the warrants and through date there were no negotiations or communications between the donees and nmg or parties representing nmg except for the letters from nmg’s legal counsel requesting that the donees sign an additional party signature page -- - second respondent relies on nonspecific allegations of an informal agreement or understanding between the donees and nmg wcp mr rauenhorst and or arbeit summary assertions and conclusory allegations are simply not enough evidence to raise a genuine issue of material fact daniels v commissioner tcmemo_1994_591 citing 949_f2d_790 5th cir also rule d provides when a motion for summary_judgment is made and supported as provided in this rule an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but such party’s response by affidavits or as otherwise provided in this rule must set forth specific facts showing that there is a genuine issue for trial see also 477_us_317 87_tc_1213 respondent alleges no facts or evidence to substantiate his position and he has submitted no affidavits in response to the affidavits that petitioners submitted instead he points out that the record lacks information regarding any discussions deliberations or negotiations which may have taken place between the donees and the other parties respondent has had ample opportunity to investigate the facts surrounding these transactions and it is clear that respondent could have requested additional information from the individuals involved see rule e he has requested neither additional discovery nor a continuance for purposes of additional discovery he has not demonstrated to our - - satisfaction that the only available method for opposing the statements in the affidavits is through cross-examination at trial further it is insufficient for the opposing party to argue in the abstract that the legal theory involved in the case encompasses factual questions 997_f2d_94 5th cir daniels v commissioner supra since petitioners have offered affidavits directly supporting their position on a material issue of fact and since respondent has failed to counter those affidavits with anything other than unsupported allegations respondent cannot avoid summary_judgment on this issue see 806_fsupp_1165 s d n y affd 13_f3d_577 2d cir thus we find that there is no genuine issue of material fact regarding whether the donees entered into a legally binding agreement to sell their stock warrants before or at the time of the assignments by petitioners the record indicates that no agreement was entered into by the donees before date the date they signed the warrant purchase and sale agreement on date nmg’s legal counsel sent letters to each of the donees enclosing a warrant purchase and sale agreement those letters state that pursuant to the warrant purchase and sale agreement the donees would agree to sell their reissued warrants to wcp and to abstain from either exercising its warrant or selling or otherwise transferring it to any other party through date certainly the formality of having the donees enter into the warrant purchase and sale agreements suggests that they had not entered into any binding agreements before date - - in support of respondent’s position that the right to sale proceeds had ripened to a practical certainty at the time of the contributions he cites the date letter of intent from wcp expressing its intention to purchase all the issued and outstanding_stock of nmg the date resolution by wcp’s board_of directors which authorized its officers to negotiate and enter into the agreement for the purchase of all the issued and outstanding capital stock of nmg and a valuation report prepared by houlihan lokey howard zukin houlihan lokey which was attached to petitioners’ return and which opined that as of date there was little chance the transaction involving wcp would not close on or before date those items might be particularly relevant for determining whether the stock_warrant purchase ripened to a practical certainty however none of those items alone or in combination show that the donees were legally bound or could be compelled to sell their stock warrants the letter of intent merely confirms wcp’s intention to purchase all of the issued and outstanding shares of the capital stock of n m g inc from the stockholders of the company however it was not an offer to purchase those shares as respondent claims although the letter of intent outlines the terms and conditions of the proposed purchase and sale of stock including the aggregate purchase_price and the repayment of - - outstanding indebtedness of nmg it was only a proposal and it cannot be construed as a legally operative offer for the purchase of all the issued and outstanding shares of nmg to that effect the letter of intent states this letter represents general intentions of the parties and except for paragraph sec_4 and does not purport to be and does not constitute a binding agreement among the buyer sellers and the company and except as set forth in paragraph sec_4 and none of us will have any legal_obligation to any other hereunder until and unless the agreement is executed by the exclusivity date if you believe the foregoing reflects our understanding please so indicate by signing below further despite respondent’s contentions otherwise the individuals from nmg who accepted and agreed to the letter of intent did not accept an offer for the purchase of their stock interests those individuals accepted and agreed to the letter of intent essentially to those sections dealing with investigations by wcp public disclosure and an exclusivity period in their capacities as officers of nmg and in the case of ewel grossberg as chairman of nmg’s board_of directors they ‘as the quoted matter above suggests there were certain parts of the letter of intent which constituted legally binding obligations however those items represented typical preliminary obligations which might appear in purchase and sale negotiations par deals with wcp investigation rights par deals with public disclosure of the proposed acquisition and par establishes an exclusivity period in favor of wcp with respect to the purchase of nmg’s stock and prohibits any distributions to its shareholders or other_payments loans or distributions out of the ordinary course of nmg’s business - -- did not accept as shareholders representing a majority of nmg’s issued and outstanding shares the letter of intent was just that a letter of intent it did not bind wcp to purchase the stock and stock warrants and it did not bind nmg’s stockholders and warrantholders to sell their stock and warrants nevertheless respondent argues that the letter of intent triggered certain provisions of the nmg stock warrants which in turn gave rise to a legally binding obligation to sell on the part of the donees first respondent contends that the letter of intent triggered nmg’s right_of_first_refusal under the terms of the nmg warrant we cannot agree that the right_of_first_refusal was triggered by the letter of intent the right_of_first_refusal arose under the warrant only in the case of a bona_fide offer for the purchase of warrants which is received by the warrantholder the letter of intent from wcp was not a bona_fide offer for the purchase of the warrants further it was not received by petitioners or the donees but was instead addressed to and accepted by the officers and the chairman of the board_of nmg nmg in turn was the party in whose favor the right of ‘ hven if we were to assume the letter of intent was a bona_fide offer to purchase the warrants a right_of_first_refusal is generally not triggered until the owner’s receipt of an offer and his good-faith decision to accept it corbin corbin on contracts sec_11 pincite rev ed in this case neither arbeit’s nor the charitable donees’ willingness to enter into a sale agreement with wcp was expressed until after the assignments of the warrants -- - refusal applies we cannot agree that under those circumstances and in the absence of a bona_fide offer to the warrantholders the right_of_first_refusal was triggered respondent also points to a portion of the letter of intent which proposes buyer will contribute to the capital of the company the funds necessary to repay the company’s outstanding indebtedness currently estimated to be dollar_figure respondent contends that since the pending stock acquisition by wcp involved a prepayment of all nmg’s subordinated debt a mandatory call provision contained in the nmg warrants was triggered respondent claims that accordingly nmg was free to redeem arbeit’s nmg warrant at any time thereafter as and if necessary to facilitate acceptance and or consummation of wcp’s offer we cannot agree the mandatory call provision was only triggered upon the prepayment or voluntary redemption of the subordinated debt those events did not occur until after the assignment of the warrants respondent notes that the letter of intent was accepted and agreed by ewel grossberg randolph k ginsberg jim cooper and john woodlock he argues that those individuals’ acceptance and agreement was significant in that they held approximately dollar_figure percent of nmg’s outstanding common_stock and percent of nmg’s outstanding preferred_stock as of date and - - that this triggered the antidilution provision of the nmg warrants ’ that provision is if a purchase tender or exchange_offer shall have been made to and accepted by the holders of more than of the outstanding shares of capital stock and if the holder of such warrants so designates in a notice given to the company the holder of such warrants shall be entitled to receive in lieu thereof the highest amount of securities or other_property to which such holder would actually have been entitled as a shareholder if such holder had exercised such warrants prior to the expiration of such purchase tender or exchange_offer and accepted such offer however the letter of intent was not an offer it was neither a purchase tender or exchange_offer as the antidilution provision specifies further ewel grossberg randolph k ginsberg jim cooper and john woodlock did not accept and agree to the conditions stated in the letter of intent in their capacities as shareholders of nmg instead they did so in their capacities as officers of nmg thus obligating nmg to some of the preliminary matters stated in the letter of intent moreover the antidilution provisions cannot be construed to legally bind the warrantholders to sell their warrants to nmg or wcp those provisions on the contrary protect the warrantholders and give them the option of participating on the same terms as the majority shareholders ‘those individuals would continue to hold dollar_figure percent of nmg’s outstanding capital stock if all outstanding preferred were treated as common shares and all nmg warrants were exercised respondent contends that this approach would be consistent with the antidilution provision in the nmg warrants -- - respondent cites wcp’s board_of directors resolution which directed its officers to negotiate and complete the acquisition of nmg shares the resolution by wcp’s board_of directors does not demonstrate that the warrantholders were legally bound or could be compelled to sell their stock warrants at the time of the assignments although that resolution preceded the assignments of the warrants to the charitable donees wcp did not complete its acquisition of nmg stock and warrants until after the assignments wcp did not reach an agreement with the donees herein until date and they did not finally consummate the transaction until they entered into the stock purchase agreement of date and closed the transaction on date those events occurred after petitioners assigned the warrants the resolution simply authorizes wcp’s officers to negotiate and complete the acquisition the resolution itself does not affect the rights of the donees in their warrants respondent relies on a correspondence report prepared by houlihan lokey dated date he relies upon a section of the houlihan lokey report entitled management comments on the transaction which states management believes that there is very little change sic the transaction will not close on or -- - before date ' again this information might be relevant to a determination whether the right to sale proceeds ripened however nothing in the houlihan lokey report suggests that the warrantholders were legally bound or could be compelled to sell their warrants to wcp respondent also points to del code ann tit sec_271 and argues that the donees could have been compelled to surrender their nmg warrants that section provides sec_271 sale lease or exchange of assets consideration procedure a every corporation may at any meeting of its board_of directors or governing body sell lease or exchange all or substantially_all of its property and assets upon such terms and conditions and for such consideration as its board_of directors or governing body deems expedient and for the best interests of the corporation when and as authorized by a resolution adopted by the holders of a majority of the outstanding_stock of the corporation entitled to vote thereon ‘sme note that despite the report’s conclusion that there was little chance the transaction involving wcp would not be consummated houlihan lokey took significant discounts for the risk that the transaction would not be completed the report reflects that there was a to 25-percent probability that the deal would fall through as of date and this discount figured into the valuation analysis of the warrants further although respondent relies significantly on the valuation report with respect to petitioners’ motion for partial summary_judgment we point out that respondent essentially takes the position in his amended answer that the valuation report is wrong in assigning a value of dollar_figure per warrant and that petitioners’ charitable deductions are limited to dollar_figure per warrant or dollar_figure in the aggregate -- -- we might agree that the donees in this case were powerless to prevent the majority shareholders of nmg from selling substantially_all the property and assets of nmg however we cannot agree that the donees could have been compelled to sell their stock warrants under this provision the donees’ stock warrants were not the property or an asset of nmg further wcp’s intentions clearly did not contemplate a direct_acquisition of nmg’s property and assets as petitioners suggest respondent might have cited other provisions of delaware’s general corporation law including section which deals with the merger of two or more entities into one corporation following a resolution of the board_of directors and upon a vote of a majority of the outstanding voting_stock and sec_275 which deals with the dissolution of a corporation following a resolution of the board_of directors upon a vote of a majority of the outstanding voting_stock however neither of those situations is present in this case neither wcp nor nmg contemplated a merger liguidation or dissolution involving those entities on the contrary the expressed intentions of wcp contemplate only an acquisition of nmg stock and warrants from the stockholders and warrantholders in the actual course of events wcp in fact acquired the stock and warrants in this manner we are not inclined to posit any hypothetical scenarios which might have occurred wherein the -- - donees might conceivably have been forced to surrender their stock warrants by merger liguidation or dissolution absent some plan or other corporate action to that effect petitioners submitted affidavits in support of their position regarding a material issue of fact respondent makes unsupported and nonspecific allegations in response to the statements in the affidavits respondent points to nothing in the record nor does he allege facts which raise a genuine issue of material fact regarding whether the donees were legally bound or could be compelled to sell the stock warrants at the time of the assignments by petitioners respondent has had ample time for investigation and does not request additional time for discovery this matter 1s now ripe for decision and we hold that petitioners are entitled to judgment as a matter of law on the anticipatory_assignment_of_income issue conclusion revrul_78_197 1978_1_cb_83 is contrary to respondent’s litigation position in this case instead of accepting the legal principles articulated in that ruling respondent’s counsel contends that the commissioner is not bound by revenue rulings and his reliance on blake v commissioner f 2d pincite demonstrates that he is taking the position in this case that the ruling is incorrect - al --- the department of the treasury’s statement of procedural rules contained in the regulations provides in relevant part objectives and standards for publication of revenue rulings and revenue procedures in the internal_revenue_bulletin -- i a a revenue_ruling is an official interpretation by the service that has been published in the internal_revenue_bulletin revenue rulings are issued only by the national_office and are published for the information and guidance of taxpayers internal_revenue_service officials and others concerned the purpose of publishing revenue rulings and revenue procedures in the internal_revenue_bulletin is to promote correct and uniform application of the tax laws by internal_revenue_service employees and to assist taxpayers in attaining maximum voluntary compliance by informing service personnel and the public of national_office interpretations of the internal revenue laws related statutes treaties regulations and statements of service procedures affecting the rights and duties of taxpayers kk v xk kek d revenue rulings published in the bulletin do not have the force and effect of treasury_department regulations including treasury decisions but are published to provide precedents to be used in the disposition of other cases and may be cited and relied upon for that purpose e taxpayers generally may rely upon revenue rulings published in the bulletin in determining the tax treatment of their own transactions and need not request specific rulings - -- applying the principles of a published revenue_ruling to the facts of their particular cases x sec_601_601 statement of procedural rules similar statements appear in the introduction section of each volume of the commissioner’s internal_revenue_bulletin see eg c b at iii surely given these statements taxpayers should be entitled to rely on revenue rulings in structuring their transactions and they should not be faced with the daunting prospect of the commissioner’s disavowing his rulings in subsequent litigation recently the irs in a joint statement issued by the commissioner the chief_counsel and the acting assistant secretary tax policy of the department of the treasury has indicated its continuing commitment to serve the public through the published guidance process department of the treasury priorities for tax regulations and other administrative guidance date to that end the irs has committed itself to increased and more timely published guidance in the form of revenue rulings and revenue procedures in the hopes of achieving increased taxpayer compliance and resolving frequently disputed tax issues these stated goals will not be achieved if the commissioner refuses to follow his own published guidance and argues in court proceedings that revenue rulings do not bind him or that his rulings are incorrect certainly the commissioner’s failure to follow his own rulings would be unfair to those -- - taxpayers such as petitioners herein who have relied on revenue rulings to structure their transactions moreover it is highly inequitable to impose penalties which respondent has done in this case accordingly in this case we shall not permit respondent to argue against his revenue_ruling and we shall treat his revenue_ruling as a concession an appropriate order will be issued granting petitioners’ motion for partial summary_judgment


internal_revenue_service number release date index number ------------------------------------------- ----------------------------- ------------------------------- --------------------- --------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-141744-05 date date ----------------------------- x state ----------------- --------------------- --------------------------- legend ---------------------------------------------------------- date date date ------------------------------------------------------------ ----------------------------------------------------------- aa dear ------------------- ------------------ trust ----- a ---------------------------- ----------------------------------------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts based on the materials submitted and representations within we understand the relevant facts to be as follows x was incorporated on date under the laws of state plr-141744-05 in addition x elected to be taxed as an s_corporation effective date on date trust was created by virtue of an agreement also on date a transferred aa shares of stock in x to trust x represents that trust was qualified to elect to be a qualified_subchapter_s_trust the income_beneficiary for the trust intended to file an election for trust to be treated as a qualified_subchapter_s_trust qsst under sec_1361 however the income_beneficiary inadvertently failed to timely file the appropriate election under d as a result of the failure_to_file this election x’s s_corporation_election terminated x represents that there was no intent to terminate x’s s_corporation_election and that the failure_to_file a timely qsst election for trust was not motivated by tax_avoidance or retroactive tax planning x also represents that since date and thereafter trust has complied with the requirements under sec_1361 which defines a qsst x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst's beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst's s_corporation stock to which the election under sec_1361 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income sec_1362 provides in relevant part that if an election under plr-141744-05 beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x's subchapter_s_election terminated because a qsst election was not filed for trust in addition we conclude that the termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided that the beneficiary for trust file a qsst election with the appropriate service_center effective date within days of the date of this letter a copy of this letter should be attached to the qsst election except as specifically set forth above we express no opinion concerning the this ruling is directed only to the taxpayer s requesting it sec_6110 of federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be treated as a qsst the code provides that it may not be used or cited as precedent letter is being sent to the taxpayer_representative in accordance with the power_of_attorney on file with this office a copy of this plr-141744-05 sincerely dianna k miosi dianna k miosi chief branch passthroughs special industries enclosures cc copy of this letter copy of this letter for sec_6110 purposes


t c summary opinion united_states tax_court robert p sweet and dawnielle k lawson petitioners v commissioner of internal revenue respondent docket no 331-03s filed date robert p sweet and dawnielle k lawson pro sese ronald t jordan 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 in effect for the year 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 for the year a deficiency in petitioners' federal_income_tax of dollar_figure and an accuracy-related_penalty of dollar_figure the court considers petitioners to have conceded respondent's determination disallowing itemized_deductions of dollar_figure because petitioners provided neither argument nor evidence on the issue at trial 100_tc_367 96_tc_226 91_tc_524 ndollar_figure petitioners concede that respondent correctly determined that dollar_figure of respondent's dollar_figure adjustment in the statutory_notice_of_deficiency is a passive_activity_loss the issues remaining for decision are whether for petitioners are entitled to deduct a loss of dollar_figure on schedule e supplemental income and loss and whether petitioners are liable for the accuracy-related_penalty under sec_6662 some of the facts have been stipulated and are so found the stipulation of facts and exhibits received in evidence are incorporated herein by reference at the time the petition was filed petitioners resided in noblesville indiana background robert p sweet petitioner was employed during the year as a real_estate loan officer and his wife dawnielle k lawson was not employed outside of the home in july of petitioner purchased his first condominium unit at the summit condominium resort summit in panama city florida in december of he purchased a second unit at the same location petitioner's two units and adjoin petitioner installed doors that allowed inside access from one unit to the other each unit contain sec_912 square feet of living space and sleeps people the average rental period for both units was more than but less than days the summit owners association handled the maintenance and upkeep of the building exterior and common areas including swimming pools hot tubs exercise equipment and sauna areas tennis courts beaches and beach chair rentals restaurants parking and collecting and removing trash a separate_entity advisors realty advisors operated an on site rental agency that rented units to the public and provided ancillary services for owners under an agreement providing for a 30-percent commission advisors provided accounting services advertising and promotion cleaning equipment and supplies an inspection prior to return of the damage deposits and an annual inspection and inventory advisors also received in a separate cleaning charge of dollar_figure1 after each owner's or owner's guest's use of a unit the 1evidence in the record indicates that this charge was later increased to dollar_figure cleaning charge paid for advisors' housekeeping or maid service following rental departures which in petitioner's case would have included cleaning and linen exchange petitioner provided the maid and linen service at no extra charge to customers each owner however was free to book his own guests or allow advisors to do it for commission petitioner periodically allowed advisors to book guests for his units and paid the standard commission petitioner sought to minimize the involvement of advisors and avoid their commission by executing his own marketing activity and customer bookings in petitioner put together and maintained a web page that advertised units and he created the web site by entering contact information and information about the amenities offered by his condominium into a template on a preexisting site called a1 vacations petitioners received gross rental income of dollar_figure during of which dollar_figure was received through bookings from advisors petitioners required their guests to call them before contacting the front desk with problems and concerns as a way to avoid high fees charged by the owners association for routine maintenance items like changing light bulbs petitioners also led guests that they booked through a detailed telephone check-in procedure petitioners maintained a storage area onsite containing certain replacement items petitioner from time to time went to visit his units to perform repairs and maintenance accompanied occasionally by his wife it was a mile trip each way when petitioner traveled to the condominium for repairs and maintenance he and his wife stayed in one of the units one of those trips was to attend the owners meeting in september petitioner attends owners meetings from time to time to protect my investment petitioner performed other activities related to the condominium units he replied to e-mails answered the phone to talk to people about the units updated his online availability calendar tested and improved his web site paid bills and handled various banking and oversight matters on petitioners' federal_income_tax return for on schedule e petitioners claimed a loss of dollar_figure of which dollar_figure is attributable to units and discussion the court decides this case on the preponderance_of_the_evidence regardless of the allocation of the burden_of_proof sec_7491 is therefore inoperative sec_469 passive_activity_loss exemption if a taxpayer is an individual the passive_activity_loss for the taxable_year shall not be allowed sec_469 the term passive_activity_loss means the amount by which the aggregate losses from all passive activities exceeds the aggregate income from all passive activities for the taxable_year sec_469 except for taxpayers entitled to treatment under sec_469 special rules for taxpayers in real_property business the term passive_activity includes any rental_activity sec_469 rental_activity is any activity where payments are principally for_the_use_of tangible_property sec_469 petitioners do not claim that the special rules of sec_469 apply to their return for sec_469 with respect to rental_real_estate_activities in which an individual actively participates provides that the sec_469 disallowance will not apply to a maximum of dollar_figure of passive_activity_losses an annual maximum of one dollar_figure offset is allowed for all of a taxpayer's rental activities sec_469 this nonapplication or exemption begins to phase out where the taxpayer's adjusted_gross_income agi exceeds certain levels sec_469 the phaseout in petitioners' case i sec_50 percent of the amount by which their agi computed without regard to passive_activity_losses exceeds dollar_figure see sec_469 e iv computed as required petitioners' adjusted_gross_income is dollar_figure and the exemption is completely phased out exception for significant_personal_services the parties agree that petitioners are entitled to claim the disputed dollar_figure loss from their condominium units at the summit as nonpassive on their federal_income_tax return for only if petitioners' condominium activity is described in sec_1_469-1t temporary income_tax regs fed reg date and petitioners meet one of the material_participation tests of sec_1_469-5t temporary income_tax regs fed reg date sec_1_469-1t temporary income_tax regs supra b exception provides that an activity generating payment for_the_use_of tangible_personal_property is not rental_activity and therefore not per se passive if the average period of customer use i sec_30 days or less and significant_personal_services are provided by or on behalf of the owner of the property in connection with making it available for customer use petitioners contend that they fall within the b exception certain services are excluded services and are not considered in determining whether significant_personal_services are performed sec_1_469-1t temporary income_tax regs supra services necessary to permit the lawful use of the property and certain construction and repair services are excluded services sec_1_469-1t temporary income_tax regs supra also described as excluded services are services similar to those commonly provided in connection with long-term rentals of high-grade commercial or residential_real_property eg cleaning and maintenance of common areas routine repairs trash collection elevator service and security at entrances or perimeters for purposes of the b exception personal services means only services performed by individuals sec_1 1t e iv temporary income_tax regs fed reg date in determining whether personal services are significant all relevant facts and circumstances for example the frequency type and value of the services are taken into account id at trial petitioner adduced both oral and documentary_evidence of what he considers to have been the significant_personal_services provided by or on behalf of petitioners in making the property available for customer use during the examination of petitioners' joint_return petitioner provided a summary tax_year fact circumstances condo document purporting to show personal services requiring big_number hours to perform petitioner however prepared for and presented at trial a second document showing the performance of hours of personal services summary for trial it is apparent from petitioner's testimony and the two versions of the summary for that at best the summaries represent estimates of the time devoted to the performance of services associated with the condominium units the court will however for purposes of discussion accept as accurate the summary for trial the court views petitioners' summary for trial as describing five categories of activity responding to telephone and internet inquiries and preparing and changing the internet web site booking guests confirming reservations and arranging for keys and parking passes travel by petitioners to and from the property repair and cleaning of the property and banking and bookkeeping among excluded services are services similar to those provided in connection with long-term rentals of high-grade commercial or residential_real_property sec_1 1t e iv b temporary income_tax regs fed reg date petitioners allege that hours were spent responding to telephone and internet inquiries to discuss the amenities of the units their availability and their desirability an additional hours are alleged to have been spent preparing and changing the web site at a1 vacations which contained similar information these activities can be fairly described as marketing similar services are provided in connection with long-term rentals of high-grade commercial or residential_real_property regardless of the hours spent such services are excluded services id petitioner or petitioner's agents engaged in booking guests confirming reservations and security deposits and arranging for keys and parking passes activities allegedly requiring hours the services may have been performed more frequently than at typical high-grade commercial or residential real properties petitioners have however provided little evidence as to whether the provided personal services were significant especially in terms of their value and the relationship of that value to the amount charged for use of the properties some of the reservation services were provided by advisors for a 30-percent commission but the same commission also paid for accounting services advertising and promotion cleaning equipment and supplies an inspection prior to return of the damage deposit and an annual inspection and inventory some of the services are excluded services the court is unable to determine how to allocate the commission to the various services provided petitioner provided no evidence of the value of the reservation services that he performed the court concludes that the reservation type services were not significant_personal_services the travel by petitioners a big_number mile round-trip between their home and the condominium units to attend meetings and to perform maintenance is said to have consumed hours the court recognizes that travel in some circumstances can be a personal service performed in connection with making property available for customer use commuting however is an inherently_personal activity and as such does not constitute a personal service to customers see 413_us_838 we cannot read sec_262 of the internal_revenue_code as excluding such expense from 'personal' expenses 326_us_465 sec_1_262-1 income_tax regs taxpayer's choice to live at a distance from his place of business is personal petitioners claim involvement in hours' worth of comprehensive seasonal repairs and maintenance of the property petitioners performed the services three times together and dawnielle assisted him on two or three of the trips the services may have been performed more frequently than at typical high-grade commercial or residential real properties petitioners however failed to provide any evidence of the value of the services they provided they did provide evidence that they paid maid and linen service_costs of dollar_figure a figure 2petitioner testified that his wife was with him on three of the trips petitioners' c p a represented to appeals_division in a letter dated date that she made two trips to their properties representing about percent of gross rentals in example of sec_1_469-1t temporary income_tax regs fed reg date the taxpayer is engaged in the activity of owning and operating a residential apartment hotel where rentals are for more than but less than days the taxpayer provides daily maid and linen service at no additional_charge because the value of the maid and linen service is less than percent of the amount charged to tenants they are not significant_personal_services the court concludes that petitioners' cleaning and repair services including maid and linen services are not significant_personal_services petitioner testified that they attended owners association meetings to protect their investment they also received and deposited funds from customers paid bills and prepared income and expense summaries for tax_return preparation petitioners argue that these activities should be considered as personal services under the b exception the b exception addresses cases where significant_personal_services are provided by or on behalf of the owner of the property in connection with making it available for customer use petitioners press their argument by broadly interpreting the in connection with language of the exception they fail however to place enough emphasis on the making the property available for use by customers language qualifying in connection with legislative_history of sec_469 suggests that sec_1372 as in effect prior to the subchapter_s_revision_act_of_1982 is relevant in determining whether significant services are performed in connection with furnishing property s rept pincite ndollar_figure the regulations provided that generally only services provided to the occupant primarily for his convenience are to be considered significant services 781_f2d_137 8th cir affg tcmemo_1984_551 52_tc_200 affd 424_f2d_751 5th cir petitioners' attendance at owners association meetings and their banking activities have more to do with the ownership of property than with making the properties available to customers the activities are not significant_personal_services petitioners have also alleged that they incurred higher than normal owners association charges dues and assessments for additional amenities such as beach chair rentals bars a game room and a parking lot nearly all the services listed are of a type commonly rendered by luxury apartment complexes especially on the florida coast see 692_f2d_97 10th cir the court finds from the entire record that petitioners' condominium activity is not described in sec_1 1t e ii temporary income_tax regs fed reg date petitioners' condominium activity during was a rental_activity a passive_activity and respondent's denial of the deduction of passive_activity_losses is sustained accordingly the court sustains respondent's determination that there is a deficiency in petitioners' income_tax for the year accuracy-related_penalty respondent determined that petitioners are liable for the sec_6662 accuracy-related_penalty taxpayers are liable for an accuracy-related_penalty in the amount of percent of the portion of an underpayment_of_tax attributable to any substantial_understatement_of_income_tax sec_6662 and b a substantial_understatement is an understatement for the taxable_year exceeding the greater of percent of the proper tax or dollar_figure sec_6662 no penalty will be imposed with respect to any portion of any underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion sec_6664 this determination is based on all the facts and circumstances sec_1_6664-4 income_tax regs sec_7491 imposes on respondent the burden of producing evidence to show that the sec_6662 penalty is appropriate but respondent need not produce evidence regarding reasonable_cause 116_tc_438 the court has sustained respondent's determination of the deficiency petitioners' understatement_of_tax exceeds the greater of percent of the proper tax or dollar_figure the court finds that respondent has satisfied the burden of production with respect to the accuracy-related_penalty under sec_6662 petitioners presented no evidence indicating reasonable_cause for the understated income accordingly the imposition of the accuracy-related_penalties is sustained the court has considered all of the other arguments made by the parties and to the extent that the arguments have not been specifically discussed above they have been found to be moot or without merit reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-102479-99 date date legend purchaser sellers target authorized representative law firm date a date b month c this responds to your authorized representative’s letter dated date requesting an extension of time under sec_301_9100-1 through of the plr-102479-99 procedure and administration regulations to file an election purchaser and sellers are requesting an extension to file a sec_338 election under sec_338 of the internal_revenue_code and h and sec_1_338_h_10_-1 of the income_tax regulations the election with respect to the acquisition of target an s_corporation on date a the material information is summarized below purchaser and target are calendar_year taxpayers and use the accrual_method of accounting target was wholly owned by sellers who are individuals on date a purchaser and sellers entered into a stock purchase agreement for purchaser to acquire all of sellers’ target stock also on date a purchaser acquired all of seller's target stock for cash and notes in a fully taxable_acquisition it is represented that purchaser and sellers are not related within the meaning of sec_338 and purchaser's acquisition of target stock qualified as a qualified_stock_purchase as defined in sec_338 purchaser and seller intended to file the election the election was due on date b but for various reasons it was not filed in month c which is after the due_date for the election purchaser's law firm discovered that the election was not timely filed the period of limitations on assessments under sec_6501 has not expired for purchaser’s target's or sellers’ taxable_year s in which the acquisition sale was consummated the year the election was due or for any year s that would be affected by the election had it been timely made sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly plr-102479-99 to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 and provide that if a sec_338 election is made for the target_corporation it is irrevocable and a sec_338 election is deemed made for the target_corporation sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by purchaser and the s_corporation shareholders on form 8023-a or form in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form 8023-a or form provide that if a sec_338 election is made for an s_corporation form 8023-a or form must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form 8023-a or form sec_1_338-2 provides that if an election under sec_338 is made for target old target is deemed to sell target's assets and new target is deemed to acquire those assets under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government in this case parent and sellers were required by sec_1_338_h_10_-1 to file the election on date b however for various reasons the election was not filed subsequently parent and sellers filed this request under sec_301_9100-1 for an extension of time to file the election the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent and sellers to file plr-102479-99 the election provided parent and seller show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser purchaser's law firm and authorized representative explain the circumstances that resulted in the failure to timely file a valid election the information also establishes that tax professionals were responsible for the election that purchaser and sellers relied on them to timely make the election that purchaser and sellers have filed or will file their federal_income_tax returns consistent with the election and requested this relief before the omission was discovered by the service and that the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and seller to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on purchaser and sellers signing the election purchaser and sellers treating the acquisition sale of target stock as a sec_338 transaction sellers not using the installment_method to report the transactions and the taxpayers' sellers’ purchaser's and target's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 purchaser and sellers must file the election in accordance with sec_1 h - d that is a new election on form 8023-a or form must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form see announcement 1998_2_irb_38 a copy of this letter should be attached to the election form purchaser and sellers must file or amend as applicable their returns to report the transaction as a sec_338 transaction including sellers amending their returns if applicable by retracting their form_6252 and not reporting this transaction on the installment_method and attach a copy of the election and the information required therewith and a copy of this letter plr-102479-99 we express no opinion as to whether the acquisition sale of target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment and if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and thus by sellers on target's deemed asset sale in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the district_director s should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this is letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent this letter is being sent to authorized representative and a copy is being sent to the taxpayer pursuant to the power_of_attorney on file in this office sincerely yours assistant chief_counsel corporate by bernita l thigpen deputy assistant chief_counsel corporate