number release date id office uilc cca_2010061517383622 ----------- from --------------------- sent tuesday date pm to ------------------ cc ---------------- subject advice on firpta thanks for your patience while i coordinated with the sec_1445 experts within counsel ------------ here is a written explanation that you can provide to the service_center in bringing resolution to your case facts a nonresident_alien sold real_property located in the united_states which is a united_states_real_property_interest usrpi as defined in sec_897 and sec_1_897-1 the buyer withheld of the amount_realized on the sale as required under sec_1445 and sec_1_1445-1 however the buyer did not pay over the amount withheld to the irs consequently the nonresident_alien seller did not receive a stamped copy of form_8288-a from the irs the seller filed a u s tax_return on which it sought a credit in the amount withheld against his tax_liability and sought a refund of the excess_amount withheld to date the service_center has refused to grant the credit because it has no record of receiving the amount withheld from the buyer as in fact the buyer had not paid over the amount withheld issue whether the seller is entitled to the credit and thus a refund even though the amount withheld was never paid to the irs conclusion yes the seller is entitled to the credit and thus a refund in this case provided that the seller has substantial evidence eg closing documents of the amount of the credit analysis sec_1_1445-1 last sentence provides that a ny tax withheld under sec_1445 shall be credited against the amount of income_tax as computed in the seller's return see also sec_1462 granting a credit for income_tax withheld at the source sec_1_1445-1 provides that generally a stamped copy of form_8288-a statement of withholding on dispositions by foreign persons of u s real_property interests must be attached to the seller's return to establish the amount withheld which is available as a credit if the amount withheld under sec_1445 exceeds the seller's maximum_tax liability with respect to the disposition as determined by the irs then the seller may seek an early refund of the excess pursuant to sec_1_1445-3 or a normal refund upon the filing of a tax_return sec_1_1445-1 provides that if a stamped copy of form_8288-a has not been provided to the seller by the irs the seller may establish the amount of tax withheld by the buyer by attaching to its tax_return substantial evidence eg closing documents of such amount such a seller must attach to its return a statement which supplies all of the information required by sec_1_1445-1 including the seller's identifying number the preamble to t d date which finalized the sec_1445 withholding regulations explains that sec_1_1445-1 was promulgated specifically to deal with the situation in which the buyer failed to remit the withheld funds to the irs accordingly if the seller filed the requisite tax_return and establishes the amount withheld through substantial evidence the service_center should grant a credit to the seller to the extent the amount withheld exceeds his maximum_tax liability with respect to the disposition as determined by the irs it should be noted that sec_1461 and sec_1_1445-1 impose liability on the buyer for the tax which it was required to withhold in addition sec_6651 imposes penalties on the buyer for failure_to_file form_8288 when due and for failure to pay the withholding when due -------------has spoken with the --------------attorney who previously provided you advice in this case and all parties are now in agreement that credit for the withholding is permissible even though the amount withheld was never paid to the irs thus please disregard the advice previously provided by --------------- ------------------------------------------------------------------------------------------------------------------- please let me know if you have any questions ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------------------------------------------------------------------------


department of the treasury internal_revenue_service washington d c ver iment entitie division date release number release date date xxxxxx xxxxkx xxxxxx xxxxxx xxxxxx contact person identification_number telephone number employer_identification_number xxxxxx uniform issue list legend e z o a t dear this is in response to n’s request for a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code code’ facts m is tax-exempt under sec_501 of the code m is described in sec_501 and classified as a public charity under sec_509 and sec_170 m’s exempt_purpose is to promote higher education in the state in which m is located to raise and receive funds for the support and enhancement of o a university and aid o in its development as a leading educational_institution the assets of many individual funds created by donors to support the various academic departments and schools of o m has an endowment in which are invested m also is the trustee of a number of charitable_remainder trusts individually the trust and collectively the trusts’ of the remainder_interest in each trust n is one such charitable_remainder_trust in which m is trustee and remainder beneficiary m is the legal owner of the trusts’ assets and in addition the owner xxxxxxk as both the trustee and the beneficiary of the trusts m has a substantial interest in the value of each trust the trusts benefit m and it is the intentions of the trusts’ donors that m manage the trusts to attain the greatest return possible donors have expressed their concerns when the investment returns of the trusts have been lower than the return on m’s endowment m invests its endowment funds in a widely diverse manner including substantial investments in public equities bonds private equity and real_estate much of the income earned by the investment portfolio consists of dividends interest rents and long- and short-term_capital_gains however some income is debt-financed or otherwise unrelated_business_taxable_income m uses an endowment share concept internally with respect to the individual endowment funds that it holds under this concept each individual endowment fund owns a certain number of shares of m’s endowment with the value of each share based on the underlying endowment investments m would like to achieve greater economies of scale in the management of the trusts a potentially higher investment return for the trusts and increased diversification of the trusts’ investments m seeks to create a contractual relationship with each trust contract each trust would own a contractual right against m however a_trust would have no interest at all in m's underlying endowment investments assets under the contract between m and each trust the value of each of a trust’s shares would equal its value at the time of acquisition and further equal the value of each of the shares of m’s individual endowment funds thereby allowing the trusts to receive investment returns equal to those of the individual endowment funds under the contract the trusts will have no ownership_interest in m’s underlying assets no contract rights with respect to other trusts and no power or right of any kind to control direct supervise recommend or review m’s business activities operations or decisions with respect to m's endowment except the right to review payout computations the trusts will not have the right to veto or opt_out of any of the underlying investments of m’s endowment under the contract m will be neither a partner nor an agent of the trusts and the trusts will never be liable for any cost expense or payment incurred or due by m or for which m responsible relating to m's endowment or underlying endowment assets further m will indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to m’s endowment or the underlying endowment assets m's endowment will bear the costs of its management and the value of the shares held by the trust will reflect those costs however m will not charge a fee for its services and not otherwise receive income from the services it provides to the trusts other than entities affiliated with the o m does not manage funds for any third parties business taxable_income earned by its endowment portfolio with no deduction being taken against unrelated_business_taxable_income for any payments made to the trusts m will pay any_tax owed on unrelated is liable or ruling requested n has requested the following ruling the issuance of shares of m’s endowment pursuant to a contractual obligation to the trusts kxkxkxxk the making or receipt of payments with respect to the shares and the holding or redemption of the shares all pursuant to a contract agreement will not generate unrelated_business_taxable_income to n under sec_512 of the code law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth certain modifications under these modifications dividends interest royalties rent from real_property and gain from the sale of property are excluded from the computation of unrelated_business_taxable_income sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of an organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether a trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations xxxxxx analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in all of these trusts m has an interest as a beneficiary and serves as trustee each trust would acquire contractual participation shares referenced to m’s endowment which would give the trust a contractual right against m but no interest whatsoever in the underlying investment_assets of m’s endowment the contract between m and each of the trusts would provide that the price of each share would equal its value at the time of acquisition and each share would have the same value that m uses for internal accounting purposes for its endowment funds the trusts will not have a position of ownership in the underlying assets of m’s endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the units reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m will pay any_tax owed on unrelated_business_taxable_income earned by the endowment portfolio with no deduction taken against unrelated_business_taxable_income for any payments made to the trusts ruling based on the information submitted we rule as follows the issuance of shares of m’s endowment pursuant to a contractual obligation to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares all pursuant to a contractual agreement will not generate unrelated_business_taxable_income to n under sec_512 of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to n's authorized representatives a copy of this letter should be kept in n’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to xxxxxx make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert w malone acting manager exempt_organizations technical group enclosure notice department of the treasury internal_revenue_service washington d c tax exempt and ivernment entities division date release number release date date xxxxxx xxxxxx xxxxxx xxxxxx xkxxxxx contact person identification_number telephone number employer_identification_number xxxxxx uniform issue list legend s z o w o n dear this is in response to n’s request for a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code code facts m is tax-exempt under sec_501 of the code m is described in sec_501 and classified as a public charity under sec_509 and sec_170 m’s exempt_purpose is to promote higher education in the state in which m is located to raise and receive funds for the support and enhancement of o a university and aid o in its development as a leading educational_institution the assets of many individual funds created by donors to support the various academic departments and schools of o m has an endowment in which are invested m also is the trustee of a number of charitable_remainder trusts individually the trust and collectively the trusts of the remainder_interest in each trust n is one such charitable_remainder_trust in which m is trustee and remainder beneficiary m is the legal owner of the trusts’ assets and in addition the owner xxxxxx as both the trustee and the beneficiary of the trusts m has a substantial interest in the value of each trust the trusts benefit m and it is the intentions of the trusts’ donors that m manage the trusts to attain the greatest return possible donors have expressed their concerns when the investment returns of the trusts have been lower than the return on m’s endowment m invests its endowment funds in a widely diverse manner including substantial investments in public equities bonds private equity and real_estate much of the income earned by the investment portfolio consists of dividends interest rents and long- and short-term_capital_gains however some income is debt-financed or otherwise unrelated_business_taxable_income m uses an endowment share concept internally with respect to the individual endowment funds that it holds under this concept each individual endowment fund owns a certain number of shares of m’s endowment with the value of each share based on the underlying endowment investments m would like to achieve greater economies of scale in the management of the trusts a potentially higher investment return for the trusts and increased diversification of the trusts’ investments m seeks to create a contractual relationship with each trust contract each trust would own a contractual right against m however a_trust would have no interest at all in m's underlying endowment investments assets under the contract between m and each trust the value of each of a trust’s shares would equal its value at the time of acquisition and further equal the value of each of the shares of m’s individual endowment funds thereby allowing the trusts to receive investment returns equal to those of the individual endowment funds under the contract the trusts will have no ownership_interest in m’s underlying assets no contract rights with respect to other trusts and no power or right of any kind to control direct supervise recommend or review m’s business activities operations or decisions with respect to m’s endowment except the right to review payout computations the trusts will not have the right to veto or opt_out of any of the underlying investments of m’s endowment under the contract m will be neither a partner nor an agent of the trusts and the trusts will never be liable for any cost expense or payment incurred or due by m or for which m is liable or responsible relating to m’s endowment or underlying endowment assets further m will indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to m’s endowment or the underlying endowment assets endowment will bear the costs of its management and the value of the shares held by the trust will reflect those costs however m will not charge a fee for its services and not otherwise receive income from the services it provides to the trusts other than entities affiliated with the o m does not manage funds for any third parties business taxable_income earned by its endowment portfolio with no deduction being taken against unrelated_business_taxable_income for any payments made to the trusts m will pay any_tax owed on unrelated m’s ruling requested n has requested the following ruling the issuance of shares of m’s endowment pursuant to a contractual obligation to the trusts xxxxkxxk the making or receipt of payments with respect to the shares and the holding or redemption of the shares all pursuant to a contract agreement will not generate unrelated_business_taxable_income to n under sec_512 of the code law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth certain modifications under these modifications dividends interest royalties rent from real_property and gain from the sale of property are excluded from the computation of unrelated_business_taxable_income sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of an organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether a trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued a manner generally similar to comparable commercial activities of non-exempt organizations in xkkxkkk analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in all of these trusts m has an interest as a beneficiary and serves as trustee each trust would acquire contractual participation shares referenced to m’s endowment which would give the trust a contractual right against m but no interest whatsoever in the underlying investment_assets of m’s endowment the contract between m and each of the trusts would provide that the price of each share would equal its value at the time of acquisition and each share would have the same value that m uses for internal accounting purposes for its endowment funds the trusts will not have a position of ownership in the underlying assets of m’s endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the units reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m will pay any_tax owed on unrelated_business_taxable_income earned by the endowment portfolio with no deduction taken against unrelated_business_taxable_income for any payments made to the trusts ruling based on the information submitted we rule as follows the issuance of shares of m’s endowment pursuant to a contractual obligation to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares all pursuant to a contractual agreement will not generate unrelated_business_taxable_income to n under sec_512 of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to n’s authorized representatives a copy of this letter should be kept in n’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to xxxxxxk make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert w malone acting manager exempt_organizations technical group enclosure notice


ae government entities division department of the treasury internal_revenue_service washington d c date ph anch rs o2or2 u ll no dollar_figure contact person identification_number telephone number be2 employer_identification_number legend x y x dear applicant this is in reply to x's ruling_request dated date for approval of a set-aside of funds under the suitability test of sec_4942 b i of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations for its tax_year ending date x is exempt from federal_income_tax under sec_501 of the code and is a private_foundation under sec_509 of the code x does not ordinarily commit funds in advance but instead distributes funds each year to qualified charities on date x set-aside x dollars which are to be used towards the construction of an intensive care unit for a non-profit hospital owned and operated overseas by y y a religious institution is supervised and controlled by a church which qualifies as an exempt_organization under sec_501 x has set-aside x dollars for the construction of an intensive care unit the project is in the preliminary stage of construction as part of the construction of the entire hospital y hopes to raise sufficient funds to construct the entire hospital the amount set-aside exceeds the estimated cost of construction of the intensive care unit any remaining funds are to be used for general construction of the hospital the set-aside is intended only to meet the distribution requirement of the date tax_year the set-aside is not needed for compliance with the distribution_requirements of any prior year the amount set_aside is significantly less than x’s annual distributable_amount x represents that all of the amounts set_aside for this specific project will be paid out by date x believes that the project can be better served through set-aside rather than an immediate direct contribution to the hospital because the set-aside will encourage closure of the project by ail parties x further believes that the set-aside will encourage other participants to make final commitments to the hospital to ensure that the project will go forward and be completed in a timely manner although x's pledge is not contingent on a matching grant by others both x and y believe that the existence of the set-aside once publicized to others will encourage contributions to the overall project there is no written_agreement between x and y regarding the set-aside sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or the other exempt purposes stated in that section sec_509 of the code describes organizations exempt from federal_income_tax under sec_501 of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code sec_4942 of the code generally imposes excise_tax on any private_foundation that does not expend qualifying distributions for exempt purposes at least equal to its distributable_amount for its tax_year sec_4942 of the code provides that in general a qualifying_distribution is any amount including reasonable and necessary administrative expenses paid to accomplish or to acquire an asset used directly in carrying on one or more of the purposes described in sec_170 of the code which includes charitable purposes sec_4942 of the code provides that an amount of income that is set_aside for a specific project within one or more purposes of sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 of the code sec_4942 of the code provides in pertinent part that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the private_foundation establishes to the satisfaction of the secretary that the amount set_aside will be paid for the specific project within five years and that the suitability test for a set-aside under sec_4942 of the code is met sec_4942 of the code provides a suitability test in which the private_foundation at the time of the set-aside must establish to the satisfaction of the secretary that the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 or sec_170 of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the requirements of sec_4942 of the code are met the requirements are met if the foundation establishes ‘to’ the’ satisfaction’of the commissioner that the amount sét aside will'be paid for the specific project within months after it is set_aside and the set-aside otherwise meet sec_2 the suitability test of sec_53 a -3 b of the regulations sec_53_4942_a_-3 of the regulations provides that its suitability test for a set-aside is met if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made the regulation cites as an example of a suitable project a plan to erect a building to house the direct charitable educational or similar exempt_activities of the foundation such as a museum building even if the exact location and architecturat plans have not been finalized sec_53_4942_a_-3 of the regulations provides that a private_foundation must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside revrul_77_7 1977_1_cb_354 held that the term specific project as defined in sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations includes a project to be undertaken by a public charity unrelated to the private_foundation making the set-aside x’s set-aside for this project will be for a specific project within the educational and charitable purposes of sec_170 of the code as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations x represents that its amounts of income to be set_aside for this specific project will be paid out for this project within months from the time when the first amount is set_aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations x's project is better accomplished by this set-aside of income rather than by immediate payment under the suitability test of sec_4942 of the code and sec_53 a - b of the regulations the set-aside will encourage the timely completion of the project and the existence of the set-aside will encourage contributions to the overall hospital construction_project therefore x’s specific project of building an intensive care unit for a non-profit hospital meets the requirements for a set-aside of income under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations accordingly we rule that x's set-aside of x dollars of its income for the construction of the intensive care unit with any excess funds being used for the general construction of the hospital was a qualifying_distribution under sec_4942 of the code and sec_53 a - b of the regulations for its tax_year ending on december of when the amount of income was set_aside sec_53_4942_a_-3 of the regulations provides that any set-aside approved by the internal_revenue_service must be evidenced by the entry of a dollar amount in your books_and_records as a pledge or obligation to be paid at a future date or dates further the amount of the set-aside must be taken into account in determining your minimum_investment_return see sec_53_4942_a_-2 of the regulations and any income attributable to a set-aside must be taken into account in computing x's adjusted_net_income see sec_53_4942_a_-2 of the regulations except as we have ruled above we express no opinion as to the tax consequences of the 20f transaction under the cited provisions of the code or under any other provisions of the code this ruling is directed only to x sec_61 k of the code provides that it may not be used or cited as precedent because this ruling letter could help to resolve any questions please keep it in your permanent records and include a copy with your annual return form_990-pf if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely terrell m berkovsky manager exempt_organizations technical group


t c memo united_states tax_court ingo h jensen petitioner v commissioner of internal revenue respondent docket no filed date richard f battagline and robert m stefancin for petitioner john m tkacik jr and richard s bloom for respondent memorandum findings_of_fact and opinion powell special_trial_judge this case is before the court on petitioner’s motion for reasonable_litigation_costs pursuant - to sec_7430 and rules and ' filed date neither party requested a hearing and the court concludes that a hearing is not necessary for the proper disposition of this motion although some facts appear in dispute those facts are essentially irrelevant to our resolution of this matter findings_of_fact at the time the petition was filed petitioner resided in macedonia ohio guild mortgage co guild issued petitioner a form 1099-a acquisition or abandonment of secured_property and a form c cancellation of debt for petitioner’s taxable_year the form 1099-c indicated cancellation of debt income of dollar_figure petitioner did not include this amount in income on his federal_income_tax return respondent mailed a cp2000 letter commonly known as a day letter to petitioner on date the letter proposed to increase petitioner’s taxable_income to reflect income from the cancellation of the debt the proposed increase resulted in an additional tax_liability of dollar_figure and the imposition of an accuracy-related_penalty under sec_6662 of dollar_figure unless otherwise indicated section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure the letter stated that the proposed inclusion of cancellation of debt income was the result of third-party information specifically referencing the form 1099-c received from guild the letter set forth in detail the procedures for petitioner to follow should he choose to contest the proposed changes the letter also stated that petitioner’s response was required by date and that if petitioner failed to respond by date respondent would presume that the proposed changes were correct and issue petitioner a notice_of_deficiency petitioner retained the law firm of brouse mcdowell on date no response to the 30-day_letter however was submitted to respondent on date respondent issued a notice_of_deficiency to petitioner based on the changes proposed in the 30-day_letter on date jeffrey w leonard mr leonard an attorney with brouse mcdowell filed a petition on behalf of petitioner with this court the petition alleged that petitioner was insolvent at the time the debt was canceled and therefore no income was recognized see sec_108 petitioner never requested an appeals_office conference before the filing of his petition with the tax_court when mr leonard was offered a conference by appeals officer john mazur during a telephone conversation on date the offer was declined instead mr leonard promised the appeals officer - that he would provide respondent documentation proving petitioner’s insolvency at the time of the cancellation of the debt despite the appeals officer’s followup attempts to contact mr leonard by telephone on date and by letter dated date mr leonard failed to provide the promised documentation relating to the alleged insolvency on date associate district_counsel dennis driscoll sent mr leonard a letter seeking to explore the possibility of settlement and again requesting the information relating to petitioner’s insolvency on date robert m stefancin mr stefancin another attorney with brouse mcdowell informed the appeals officer that mr leonard was no longer with the firm mr stefancin requested additional time to enter an appearance so that he could respond to the letter sent by mr driscoll as of date mr leonard remained the attorney of record and no other attorney had filed an entry of appearance the appeals officer never received the information or documentation promised regarding the insolvency issue on date the case was transferred to the district counsel’s office a letter was sent to mr leonard informing him of this action on date john m tkacik mr tkacik an attorney with the office of district_counsel left a telephone - - message for mr leonard on date mr leonard returned mr tkacik’s telephone call during the ensuing conversation mr leonard was informed that respondent was not permitted to contact petitioner directly because of mr leonard’s entry of appearance the case was calendared for the tax_court trial session in cleveland ohio commencing on date and a conference should be scheduled to comply with the branerton requirements mr leonard stated that he would discuss the matter with his client and with mr stefancin and indicated that he might withdraw as attorney of record on date mr leonard called mr tkacik to inform him that the necessary documents for his withdrawal as attorney of record as well as the necessary documents for substitution of counsel would be prepared and filed to date no withdrawal as attorney of record by mr leonard has been received by the tax_court richard f battagline mr battagline another attorney at brouse mcdowell entered an appearance in this case on date during a telephone conference between messrs tkacik and battagline on date mr battagline raised the issue see 61_tc_691 requiring that parties make reasonable informal efforts to obtain needed information voluntarily before resorting to formal discovery -- - whether an erroneous form 1099-c had been issued because the debt discharged was nonrecourse the erroneous form 1099-c issue mr tkacik requested information to support this argument as well as reiterated respondent’s request for documentation regarding the insolvency issue some documentation was forwarded to mr tkacik on date mr tkacik found the documentation failed to prove petitioner’s insolvency and did not address the erroneous form 1099-c issue additional documentation was received by mr tkacik on date mr tkacik found that this additional documentation again failed to substantiate the insolvency claim and failed to address the erroneous form 1099-c issue finally in a conference call conducted on date mr battagline set forth arguments of law and facts sufficient to set the basis for determining that the form 1099-c was erroneous on date mr battagline filed a motion for leave to amend petition and motion for continuance of trial which the court granted correspondence resumed between the parties beginning date mr battagline provided mr tkacik with legal arguments establishing that the canceled debt was nonrecourse mr tkacik reached the same conclusion and on date informed mr battagline - the final issue involved petitioner’s treatment of the canceled nonrecourse debt on date mr tkacik informed mr battagline that respondent was now treating the matter as a taxable_exchange under sec_1001 and that respondent therefore needed documentation regarding petitioner’s basis in the property on date mr battagline contacted mr tkacik stating that the required_documentation would be furnished mr tkacik received the documentation on date after an initial disagreement over the tax treatment of the exchange and on the basis of additional information received by respondent on date respondent conceded the case on date on date the parties filed a stipulation of settlement on the same date petitioner’s motion for litigation costs of dollar_figure was filed opinion sec_7430 provides that in any court_proceeding brought by or against the united_states the prevailing_party may be awarded reasonable_litigation_costs if the prevailing_party establishes that he exhausted the administrative remedies available within the internal_revenue_service and did not unreasonably protract the proceedings see sec_7430 for petitioner to qualify as a prevailing_party for purposes of sec_7430 it must be established that the position of - - the united_states in the proceeding was not substantially justified petitioner substantially prevailed with respect to either the amount in controversy or with respect to the most significant issue presented and petitioner met the net_worth requirements of u s c section d b at the time the petition was filed sec_7430 respondent has the burden of proving that the position_of_the_united_states was substantially justified and petitioner bears the burden_of_proof with respect to all other requirements see sec_7430 b rule e 108_tc_430 respondent concedes that petitioner substantially prevailed with respect to the amount in controversy and that petitioner met the net_worth requirements respondent maintains however that respondent’s position was substantially justified that petitioner failed to exhaust his administrative remedies and that petitioner unreasonably protracted the proceedings the requirements of sec_7430 are conjunctive therefore failure to meet any one of the regquirements will preclude an award of costs see 88_tc_492 while we have great difficulty with petitioner’s argument that respondent’s position was not substantially justified we do not believe that it is necessary to reach that guestion in our --- - view petitioner did not exhaust his administrative remedies and we find no reason to delve into the other requirements petitioner never requested an appeals_conference with respondent although such a conference was available sec_301_7430-1 proced admin regs provides that where an appeals_conference is available administrative remedies are exhausted only when the taxpayer participates in an appeals_conference before petitioning this court or requested such a conference as applicable herein by filing a written protest with respondent and had his request denied see lloyd v commissioner tcmemo_2000_299 see also swanagan v commissioner tcmemo_2000_294 additionally after filing the petition petitioner was contacted by the appeals officer and offered a post-petition appeals_conference petitioner declined the opportunity to participate in the offered appeals_conference petitioner asserts that he would have provided documentation to respondent sufficient to satisfy the exhaustion of administrative remedies requirement if only respondent had not been hasty in issuing a notice_of_deficiency and then after the petition had been filed had respondent not guickly transferred the case to the district counsel’s office we find this argument meritless the fact is that petitioner and his attorney ignored the 30-day_letter that letter set forth a clear deadline for responding to the proposed changes petitioner failed to even -- - retain counsel until a month after this deadline had passed then after retaining counsel petitioner continued to ignore the 30-day_letter it was not until respondent mailed the notice_of_deficiency more than months after the deadline set forth in the 30-day_letter and more than a month after petitioner had retained counsel that petitioner made any attempt to contact respondent petitioner argues that pursuing the appeals remedy would have been futile see 88_tc_529 affd in part and revd in part on other grounds 851_f2d_1492 d c cir in phillips the taxpayer was unaware of the issue until after his case was docketed in the tax_court furthermore we found that the commissioner’s insistence on pursuing the matter through litigation and the refusal to consider the effect of his own revenue rulings demonstrate d that any discussion of this issue that petitioner attempted was futile id pincite but there is no suggestion here that respondent’s mind was closed and that development of the case through the administrative appeals process would have been unproductive the fact is that petitioner never attempted to get the matter settled before the case was calendared for trial petitioner also cites cole v commissioner tcmemo_1996_ in cole we found that the taxpayer had satisfied the exhaustion of administrative remedies requirement of sec_7430 despite not having requested an appeals_conference the taxpayer responded in writing to the commissioner’s 30-day_letter setting forth her arguments and providing substantiation she kept up a continuous dialog with the commissioner in an attempt to settle the matter and filed a petition with the tax_court only after the commissioner failed to cooperate we found that the taxpayer had exhausted her administrative remedies because of her ongoing dialog with the commissioner the commissioner’s failure to respond to several of her letters the commissioner’s filing of a notice_of_deficiency in the middle of the negotiations process and her lack of reason to believe that the negotiations had reached an impasse see id the facts in cole are distinguishable from those in this case petitioner ignored the 30-day_letter delayed providing requested documentation and rejected respondent’s offer of a post-petition appeals_conference meanwhile respondent stood by ready willing and able to proceed with settlement discussions if petitioner had acted promptly this matter could have been resolved shortly after petitioner received the 30-day_letter this is not conduct that we condone see uddo v commissioner tcmemo_1998_276 accordingly petitioner’s motion will be denied an appropriate order and decision will be entered


of f i c e of c h i ef c ou n sel number info release date department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date c ita b04 ------------ conex-100647-09 index number the honorable bill nelson united_states senator landmark two east robinson street suite orlando fl dear senator nelson i am responding to your inquiry dated date on behalf of your constituent -------------------- ---------------expressed concern about paying the alternative_minimum_tax amt despite having paid full taxes and capital_gain taxes although ------------did not clearly explain his situation we hope the following general information about the amt will be helpful to determine whether a taxpayer is liable for the amt the taxpayer must first calculate his or her regular_tax_liability taking into account appropriate deductions credits and exclusions the taxpayer then makes a separate calculation to determine an alternative amount of taxable_income amti a taxpayer calculates the amti by taking into account a number of adjustments and preferences which generally are income and deduction items treated less favorably in computing amti than when calculating regular taxable_income after the taxpayer has computed amti he or she determines tentative_minimum_tax tmt which is the excess of amti over an amt_exemption_amount multiplied by the applicable amt tax_rate if tmt is greater than the regular_tax_liability the taxpayer has an amt liability if tmt is the same as or less than the taxpayer’s regular_tax_liability the taxpayer has no amt liability as stated above the amt is a separately figured tax that eliminates many deductions thus increasing the tax_liability for a taxpayer who would otherwise pay less tax some common examples of deductions not allowed in computing the alternative_minimum_taxable_income are miscellaneous_itemized_deductions the standard_deduction and the deductions for state and local_taxes and for personal exemptions examples of common preference items not allowed in computing amti are exclusions for gains on conex-100647-08 sale of certain small_business stock and interest on certain state and local bonds the capital_gains_tax however does not create amt liability because the tax on capital_gains for individuals is the same for both regular_tax and alternative_minimum_tax to illustrate assume that in a married_filing_jointly taxpayer who takes the standard_deduction and two personal exemptions has ordinary_income of dollar_figure and capital_gains income of dollar_figure arriving at an adjusted_gross_income of dollar_figure after taking the standard_deduction dollar_figure and a deduction for two personal exemptions dollar_figure the taxable_income is dollar_figure the regular_tax is dollar_figure including the capital_gains portion and the tentative_minimum_tax is dollar_figure including the capital_gains portion thus this taxpayer owes an amt of dollar_figure this occurs for two reasons first the standard_deduction and personal exemptions are eliminated in the minimum_tax calculation second the amt rate i sec_26 percent while the effective regular_tax_rate under this example is about percent congress enacted the amt to serve on overriding objective to ensure that no taxpayer with substantial economic_income can avoid significant tax_liability by using exclusions deductions and credits congress believed that it was inherently unfair for high- income taxpayers to pay little or no tax due to their ability to use_tax preferences see h_r rep no pincite if you have any additional questions please contact me or ---------------------at ----- ------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax and accounting


department of the treasury internal_revenue_service washington d c tax exempt and governmentennnes division index number plan re plan no ein taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above named plan which are described in sec_431 b b and b of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases identified in your submission established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 d of the code sec_431 d a of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 d the plan has submitted the required information to meet the criteria in s'ection d and includes a penalties of perjury statement representing the plan's actuary certified that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided in granting this ruling it is expected that the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption was applied in accordance with applicable law and regulations and each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan in addition we are not expressing any opinion as to the accuracy of any material submitted with your request we have sent a copy of this letter to the manager ep classification in baltimore maryland and to the manager ep compliance unit in chicago illinois this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours david m ziegler manager ep actuarial group cc


internal_revenue_service uil nos 0832-dollar_figure number release date cc dom fi p plr-108060-99 date liquidator of the estate company a parent b date c state d reinsurer e date f court g year h law i date j date k date l dear this is in response to the ruling_request of date c as supplemented submitted by the acting director of insurance of state d as liquidator of the estate of company a regarding the federal tax treatment under the internal_revenue_code of certain transactions described below this request supplements rulings previously given to this taxpayer in a private_letter_ruling dated date plr company a is a state d stock_life_insurance_company which is owned percent by parent b company a its subsidiaries and parent b and parent b’s other subsidiaries filed a life non-life consolidated_return for year h but have not filed a return since that date in year h company a developed financial difficulties on date f by an agreed order of liquidation with a finding of insolvency the order court g of state d placed company a and its subsidiaries into receivership the court also appointed the liquidator of the estate to take possession of the property business and affairs of the company to liquidate company a company a’s liquidation has not yet been completed as it retains assets that will be used in due course to pay a portion of its liabilities the order ruled specifically that company a was insolvent the order further provided that the rights and liabilities of the creditors policyholders and stockholders of company a became fixed as of the date of the order the order went to explicitly cancel all direct policies or contracts of insurance heretofore issued by company a except those policies or contracts of insurance which are covered policies within the meaning of the state d law i or the obligations or any part thereof of which the state d life and health guaranty association the association or any similar organization in any other state is obligated to assure payment of which shall remain in full force and effect until canceled or until they expire in accordance with their terms a covered policy is defined under state d law as any policy or contract within the scope of the life and health guaranty association article of the insurance code the relevant provisions generally provide coverage and limitation guidelines to persons who were policyholders of company a prior to the date of the order the state d insurance code applies to policyholders domiciled in state d the provisions further state that all premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the state d association and that the state d association shall be liable for unearned premiums due to policy or contract owners arising after the entry of such order as part of the state d association’s role in the liquidation of company a the association was required by state d statute to guarantee assume or reinsure or cause to be guaranteed assumed or reinsured the covered policies of covered persons of the insolvent insurer assure payment of the contractual obligations of the insolvent insurer to covered persons provide such monies pledges notes guarantees or other means as are reasonably necessary to discharge such duties or with respect to only life and health_insurance_policies provide benefits and coverages in accordance with the statutory rules of state d notice was given to the policyholders that premiums for post-order coverage should be submitted directly to the state d association any premiums sent or delivered to the liquidator of the estate by the policyholders for post-order coverage were forwarded to the appropriate state guaranty associations the liquidator of the estate has represented that the effect of the state d statutes in combination with the cancellation of all uncovered contracts and policies under the order was that company a no longer had any rights obligations or other responsibilities with respect to the covered contracts after date f the liquidator of the estate further represents that all premiums due thereafter were to be paid to the appropriate state guaranty associations which were likewise liable for any benefits or claims due or payable after date f according to their respective state statutes after year h the only business of the liquidator of the estate was to value the remaining assets to resolve all claims and after all litigation was concluded to use the liquidated assets to pay creditors to the extent possible a one page estimate of the aggregate claim liability by company a to its policyholders the tentative claim liabilities as of date f was prepared apparently concurrently with the order two years later on date j the liquidator of the estate filed a motion with court g for approval of his recommendations as to the methodology to be employed in evaluating policyholder values as of date f the following year almost three years after issuance of the original insolvency order the method was approved by an order of court g dated date k the determination of the total claim liabilities as of date f using the approved method is still being reviewed by the policyholders the association and similar associations in other states but is expected in due course to be approved by court g at the conclusion of the liquidation these liabilities are hereinafter referred to as final claim liabilities the liquidator of the estate has represented that the final claim liabilities are anticipated to be either the same or greater than the tentative claim liabilities as of date f but that it is possible that the final claim liabilities may be less than the tentative claim liabilities the estate of company a continued to be in the insurance_business during its liquidation although it no longer qualified for treatment as a life_insurance_company for federal tax law purposes after date f we have ruled previously based on the facts submitted and the representations made at that time that any insurance premiums_paid for coverage subsequent to company a’s year h taxable_year are not includible in the income of the estate of company a the estate of company a filed a federal tax_return for year h which tax_year is now closed and not at issue however the estate of company a was entitled to a deduction in year h under sec_805 for all claims and benefits accrued and all losses_incurred whether or not ascertained on insurance and annuity_contracts during year h which amount would have included the tentative claim liabilities revrul_84_170 1984_2_cb_245 holds that under sec_6012 formerly sec_6012 of the internal_revenue_code the liquidator of the estate of an insolvent insurance_company must file a federal_income_tax return for the insurer so long as the insurer is considered to continue in existence for federal tax purposes the liquidator must file the return for the period that the liquidator continues to have possession of or title to the property of the insurer revrul_63_104 1963_1_cb_172 holds in part that an affiliated_group_of_corporations which has filed consolidated_returns for prior taxable years is required to file a consolidated_return for a subsequent taxable_year even though a member of the group is involved in bankruptcy proceedings and the trustee in bankruptcy fails or refuses to file a form_1122 consenting to the filing of such a return revrul_69_405 1969_2_cb_240 holds that an insurance_company is no longer entitled to file as a life_insurance_company once it no longer has life_insurance_reserves even though its sole business is that of winding up its life_insurance business this revenue_ruling is consistent with the requirements of current sec_816 as to qualification of an insurance_company as a life_insurance_company although it assumes that the non-life insurance_company will file a form_1120 at the time that this ruling was issued form 1120-pc was not yet available and insurance_companies other than life_insurance_companies filed a form_1120 as a result the ruling fails to specify the use of form 1120-pc which is now required to be used by insurance_companies that are not life_insurance_companies as of date f the tax treatment of the cancellation of the uncovered contracts and what was effectively an assumption_reinsurance of the covered contracts by the participating guarantee associations on that date was appropriately treated under part i of subchapter_l of the code the adjustments produced by the difference between the tentative claim liabilities and the final claim liabilities will occur however in a later year when the estate of company a’s only business is that of winding up and liquidating its prior life_insurance business an activity that does not qualify the estate of company a for treatment as a life_insurance_company under part i of subchapter_l accordingly the adjustments occurring after year h are properly handled under part ii of subchapter_l and returns are to be filed on form 1120-pc this conclusion is consistent with that reached in revrul_69_405 in the case of an increase in the amount of liabilities to the policyholders over the tentative claim liabilities the analog to sec_805 in part ii is sec_832 which defines losses_incurred to include losses paid during the taxable_year which amount in this case will consist of the excess_amount if any paid_by the estate of company a over the amount of tentative claim liabilities determined in year h and deductible at that time under sec_805 sec_108 provides that gross_income does not include any amount by reason of the discharge_of_indebtedness of the taxpayer if the discharge occurs when the taxpayer is insolvent the amount excluded under sec_108 b is limited to the amount by which the taxpayer is insolvent sec_108 sec_108 provides that except as otherwise provided in sec_108 there shall be no insolvency_exception from the general_rule that gross_income includes income from the discharge_of_indebtedness sec_108 provides that no income shall be realized from the discharge_of_indebtedness to the extent that payment of the liability would have given rise to a deduction the general rules of sec_108 apply for purposes of all the provisions of the code sec_108 defines the term indebtedness_of_the_taxpayer to mean any indebtedness for which the taxpayer is liable a discharge_of_indebtedness is defined under sec_1_61-12 as the payment or purchase of a taxpayer's obligations at less than fair value sec_805 provides that a life_insurance_company is entitled to a deduction for all claims and benefits accrued and all losses_incurred whether or not ascertained during the taxable_year on insurance and annuity_contracts sec_1_809-5 of the regulations concerning prior sec_809 the predecessor to sec_805 states that all claims and benefits accrued less reinsurance recoverable and all losses_incurred whether or not ascertained during the taxable_year on insurance and annuity_contracts including contracts supplemental thereto the term all claims and benefits accrued includes for example matured endowments and amounts allowed upon surrender the term losses_incurred whether or not ascertained includes a reasonable estimate of the amount of the losses based upon the facts in each case and the company’s experience with similar cases incurred but not reported by the end of the taxable_year as well as losses reported but where the amount thereof cannot be ascertained by the end of the taxable_year the estate of company a has a contractual obligation to its contract holders to pay the benefits provided under the contracts it has either issued or assumed through reinsurance the estate of company a has previously represented that when court g issued its order on date e the contractual obligations of the estate of company a were both fixed in amount although not ascertained and terminated by operation of state d law accordingly after year h the estate of company a’s sole obligation to its policyholders was its own debt obligation the maximum value of the debt obligation was determined to be the tentative claim liabilities amount in year h and will be the final claim liabilities amount as determined by court g the estate of company a will satisfy a portion of the final claim liabilities to the extent that the estate of company a is insolvent at that time the state a court is expected to discharge the estate of company a from its liability to pay the portion of the final claim liabilities due to the contract holders that cannot be paid due to lack of assets with respect to the discharge of the indebtedness to the contract holders the estate of company a will realize income_from_discharge_of_indebtedness under sec_61 at the time that its obligations to the contract holders measured by the final claim liabilities determined by order of court g are discharged by court g or other state d court having jurisdiction over the insolvency proceeding however the estate of company a will not recognize income upon the discharge_of_indebtedness under sec_108 provided that the estate of company a is insolvent when the discharge occurs and will not become solvent as a result of the discharge based on the facts submitted and the representations made we hold as follows the estate of company a holds no life_insurance_reserves as of january year l pursuant to rev ruls and the estate of company a must file a return on form 1120pc taking into account its continued consolidation or lack thereof for tax years subsequent to year h until its liquidation is complete the final claim liabilities when approved by court g will not be deductible by the estate of company a in any taxable_year subsequent to year h to the extent that the tentative claim liabilities were accrued and deductible by the estate of company a in year h if the final claim liabilities exceed the tentative claim liabilities previously deductible in year h the portion of the excess that is paid will be deductible under sec_832 in the year paid while the unpaid excess will in the year approved by court g be an unpaid loss subject_to sec_832 if the final claim liabilities are less than the tentative claim liabilities previously deductible in year h the reduction in liabilities shall be includible in income except to the extent that sec_108 applies the estate of company a will not recognize income by reason of sec_108 as a result of court g’s discharge of final claim liabilities that remain unpaid after all distributions to creditors and policyholders but non-recognition applies only to the extent that the estate of company a is insolvent at the time of such discharge no opinion is expressed as to the federal tax treatment of the estate of company a under other provisions of the code and income_tax regulations which may also be applicable thereto we also are not ruling as to the federal tax consequences of the described transactions upon any other parties this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return to be filed by the estate of company a for taxable_year subsequent to date l sincerely yours assistant chief_counsel financial institutions products by s donald j drees jr senior technician reviewer branch


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 b04 plr-104517-12 date date re ----------------------------------------------------------------------------- legend husband wife date date date year trust property ---------------------------------------------------------------------------------------- accountant ---------------------------------------------------- ------------------------------------------------------ ------------------------ -------------------------- -------------------- ------- --------------------------------------------------------------------- ------------------------------------------------------------------ --------------------------- dear ------------------ this letter responds to a letter dated date and subsequent correspondence from your authorized representative requesting extensions of time under sec_2642 of the internal_revenue_code code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to a_trust facts you represent the facts to be as follows taxpayers are husband and wife on date a date prior to date husband created an irrevocable_trust trust for the benefit of taxpayers’ children and more remote issue husband transferred property property to trust on date husband and wife each filed a form_709 plr-104517-12 united_states gift and generation-skipping_transfer_tax returns for year and elected under sec_2513 to treat the gifts as made one-half by each spouse husband died on date in the process of preparing form_8939 allocation of increase in basis for property_acquired_from_a_decedent taxpayers’ accountant accountant discovered that accountant had failed to allocate husband’s gst_exemption and wife’s gst_exemption properly to the transfers attributable to each spouse on husband’s form_709 for year and on wife’s form_709 for year husband’s estate and wife request extensions of time to make allocations of his gst_exemption and her gst_exemption to the transfers to trust it is represented that to date no taxable_distributions taxable terminations or any other events have occurred with respect to trust that would give rise to a gst tax_liability law and analysis sec_2513 provides generally that for gift_tax purposes if the parties consent a gift made by one spouse to any person other than his or her spouse shall for gift_tax purposes be considered as made one-half by the donor spouse and one-half by his or her spouse sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for decedents dying and generation-skipping transfers before date provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting plr-104517-12 comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 section provides an automatic_extension of time for making certain elections sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part except as provided in sec_301_9100-3 through iii that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied therefore husband’s estate is granted an extension of time of days from the date of this letter to allocate his available gst_exemption to the date transfers to trust in addition wife is granted an extension of time of days from the date of this letter to allocate her available gst_exemption to the date transfers to trust the allocations will be effective as of the date of the transfers and will be based on the value of the contributions on the date of the transfers plr-104517-12 the allocation of wife’s gst_exemption and husband’s gst_exemption should be made on supplemental form sec_709 and filed with the internal_revenue_service center in cincinnati a copy of this letter should be forwarded to the internal_revenue_service cincinnati service_center - stop cincinnati oh for association with each form_709 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by _____________________________ james f hogan branch chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-106948-99 date date parent subsidiary subsidiary date year dear this letter responds to a date letter and subsequent correspondence submitted on behalf of parent by parent’s authorized representative requesting relief under sec_1362 of the internal_revenue_code and sec_301 of the procedure and administration regulations the information submitted states that subsidiary was a fiscal_year s_corporation with union and non-union workers pursuant to negotiations with the union the shareholders of subsidiary formed parent and contributed the stock of subsidiary to parent subsidiary also became a subsidiary of parent this restructuring terminated subsidiary 1’s s_corporation_election recently when parent searched for a new accounting firm it learned about the concept of qualified subchapter_s subsidiaries qsss and that parent could have qualified for s_corporation status beginning with the fiscal_year ending date of year the shareholders relied on their former accountants for relevant tax_advice the former accountants never discussed the possibility of becoming a qsss group for the year ending date of year sec_1362 of the code provides that if-- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year sec_1361 defines the term qualified_subchapter_s_subsidiary qsss as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qsss the statutory provision does not however provide guidance on the manner in which the qsss election is made or the effective date of the election on date the service published notice_97_4 1997_1_cb_351 providing a temporary procedure for the making of a qsss election under notice_97_4 a taxpayer makes a qsss election with respect to a subsidiary by filing a form_966 corporate dissolution or liquidation subject_to certain modifications with the appropriate service_center the election may be effective on the date form_966 is filed or up to days prior to the filing of the form provided that date is not before the parent’s first taxable_year beginning after date and that the subsidiary otherwise qualifies as a qsss for the entire period for which the retroactive election is in effect sec_301_9100-1 of the regulations provides that the commissioner has the discretion to grant a reasonable extension of the time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the facts and the representations submitted we conclude that parent has established reasonable_cause for failing to make a timely election to be an s_corporation for parent’s taxable_year ending date of year accordingly provided that parent makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for parent’s taxable_year ending date of year within days following the date of this letter then such election will be treated as timely made for parent’s taxable_year ending date of year a copy of this letter should be attached to the form_2553 this ruling is conditioned on parent and its shareholders filing within days following the date of this letter any amended returns consistent with the treatment of parent as an s_corporation beginning with its taxable_year ending date of year in the present situation the requirements of sec_301_9100-3 have been satisfied as a result parent is granted an extension of time for making the elections to treat subsidiary and subsidiary as qssss effective for parent’s taxable_year ending date of year until days following the date of this letter the election should be made by following the procedure set forth in notice_97_4 a copy of this letter should be attached except as specifically set forth above we neither express nor imply any opinion as to the federal_income_tax consequences of the transactions described above nor related transactions under any other provision of the code specifically we express no opinion concerning the formation of any entity or concerning parent’s status as an s_corporation and subsidiary and subsidiary 2's status as qssss this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent according to the power_of_attorney on file with this office a copy of this letter will be sent to parent’s authorized representative sincerely paul f kugler office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc pa mehara postn-103302-15 uilc date date to layne b cogan revenue_agent abusive transactions technical issues small_business self employed se s e fe sw sd from blaise g dusenberry senior technician reviewer branch procedure administration cc pa subject assessing preparer penalties this memorandum responds to your request for assistance this advice may not be used or cited as precedent issues issue may the sec_6694 preparer penalty for understatement_of_liability due to willful or reckless conduct be assessed if the return preparer made an amended_return which was never filed issue may the sec_6694 preparer penalty for understatement_of_liability due to willful or reckless conduct be assessed if amended returns were filed but the internal_revenue_service service disallowed the refund issue may the sec_6694 preparer penalty for understatement_of_liability due to unreasonable positions the sec_6694 preparer penalty for understatement_of_liability due to willful or reckless conduct or the sec_6701 penalty for aiding_and_abetting understatements of tax_liability be assessed if the return preparer made and filed a claim_for_refund after the period of limitations for refund claims had expired postn-103302-15 short conclusions issue yes if the return is not filed a penalty under sec_6694 may be assessed if the return preparer signed the return and the return preparer’s conduct was willful or reckless issue yes under the language of sec_6694 the return preparer penalty may be assessed if the tax_return_preparer prepares any return or claim_for_refund with respect to which any part of an understatement_of_liability is due to willful or reckless conduct there is no requirement that the service allow the amounts claimed on an amended_return before the sec_6695 penalty may be assessed issue the penalties under sec_6694 sec_6694 or sec_6701 should not be assessed merely because the return preparer made and filed a claim_for_refund after the period of limitations for refunds had expired because an understatement_of_liability does not include claims that are barred by the period of limitations in addition there may be extenuating circumstances that weigh against asserting the penalty the amended_return for example may be perfecting an earlier timely informal claim_for_refund factual scenarios scenario return preparer made amended returns for three consecutive years which contained an understatement_of_liability due to willful or reckless conduct the taxpayer filed the year amended_return but not the subsequent year amended returns waiting to see if the amended_return was accepted the refund claimed on the year amended_return was not allowed examination has a copy of the amended returns for all three years from the taxpayer each has the return preparer’s signature on them examination also has copies of the amended returns for all three years from the return preparer obtained during the investigation which do not have his signature on them but have a watermark stating preparer copy scenario return preparer made an amended_return that contained an understatement_of_liability due to willful or reckless conduct the refund claimed on the amended_return was disallowed by the service_center but examination has only secured a copy of the amended_return from the return preparer that is not signed by him scenario return preparer made an amended_return that contained an understatement_of_liability due to willful or reckless conduct the amended_return was not filed and examination has only secured copies of an unsigned copy from the return preparer postn-103302-15 scenario return preparer made an amended_return after the period of limitations for refunds had expired and the amended_return was filed law and analysis issue may the sec_6694 preparer penalty for understatement_of_liability due to willful or reckless conduct be assessed if the return preparer made an amended_return which was never filed yes if the return is not filed a penalty under sec_6694 may be asserted if the return preparer signed the return the language of sec_6694 does not require that a return be filed for the penalty to apply only that a return is prepared and sec_1_6694-1 provides that a return is prepared when it is signed sec_6694 provides that if a tax_return preparer- a prepares any return or claim of refund with respect to which any part of an understatement_of_liability is due to an unreasonable position and b knew or reasonably should have known of the position such tax_return_preparer shall pay a penalty with respect to each such return or claim in an amount equal to the greater of dollar_figure or percent of the income derived or to be derived by the tax_return_preparer with respect to the return or claim the penalty may be increased under sec_6694 if any part of the understatement is due to a willful attempt in any manner to understate the liability for tax on the return or claim or a reckless or intentional disregard of rules or regulations sec_1_6694-1 provides that f or purposes of the penalties under sec_6694 a return or claim_for_refund is deemed prepared on the date it is signed by the tax_return_preparer if a signing_tax_return_preparer within the meaning of sec_301_7701-15 of this chapter fails to sign the return the return or claim_for_refund is deemed prepared on the date the return or claim is filed a strict reading of the code thus suggests that if an amended_return made by a return preparer contained an understatement_of_liability due to willful or reckless conduct the penalty under sec_6694 could technically apply if the amended_return is either postn-103302-15 signed by the return preparer or if it not signed by the return preparer if the amended_return is filed accordingly in scenario the sec_6694 return preparer penalty for understatement_of_liability due to willful or reckless conduct may be assessed for all three years because the return preparer made an amended_return that he signed that contained an understatement due to willful or reckless conduct sec_1 a in scenario the sec_6694 return preparer penalty for understatement due to willful or reckless conduct may be assessed because the return preparer made an amended_return that contained an understatement_of_liability due to willful or reckless conduct that was filed sec_1_6694-1 in scenario the sec_6694 return preparer penalty for understatement due to willful or reckless conduct should not be assessed because although the return preparer made an amended_return that he signed that contained an understatement due to willful or reckless conduct the amended_return was not filed and there is no evidence the return preparer signed the amended_return sec_1_6694-1 issue can the sec_6694 return preparer penalty for understatement_of_liability due to willful or reckless conduct be assessed if amended returns were filed but the service disallowed the refund yes under the language of sec_6694 the return preparer penalty may be assessed if a tax_return_preparer prepares any return or claim of refund with respect to which any part of an understatement_of_liability is due to willful or reckless conduct there is no requirement that the service allow the amounts claimed on an amended_return before the sec_6695 penalty may be assessed see james j schneider cpa v united_states 257_fsupp_1154 s d ind deduction for artwork disallowed preparer penalty for willful or reckless conduct under sec_6694 assessed 568_fsupp_763 c d cal casualty_loss disallowed preparer penalty under sec_6694 assessed pickering v united_states u s t c e d ark business deduction disallowed preparer penalty under sec_6694 assessed issue may the sec_6694 preparer penalty for understatement_of_liability due to unreasonable positions the sec_6694 preparer penalty for understatement_of_liability due to willful or reckless conduct or the i r c penalty for aiding and sec_6701 penalties for aiding_and_abetting understatement_of_tax liability provides in part a imposition of penalty --any person-- who aids or assists in procures or advises with respect to the preparation or presentation of any portion of a return affidavit claim or other document postn-103302-15 abetting understatement_of_tax liability be assessed if the return preparer made and filed an amended_return after the period of limitations for refund claims had expired the penalties under sec_6694 sec_6694 or sec_6701 should not be assessed merely because the return preparer made and filed a claim_for_refund after the period of limitations for refunds had expired because an understatement_of_liability does not include refund claims that are barred by the period of limitations sec_6694 defines the term understatement_of_liability as follows for purposes of this section the term understatement_of_liability means any understatement of the net amount payable with respect to any_tax imposed by this title or any overstatement of the net amount creditable or refundable with respect to any such tax except as otherwise provided in subsection d the determination of whether or not there is an understatement_of_liability shall be made without regard to any administrative or judicial action involving the taxpayer sec_6511 establishes the basic rules for refund_or_credit of an overpaid tax sec_6511 states no credit or refund shall be allowed or made after the expiration of the period of limitations prescribed for the filing of a claim for credit or refund unless a claim for credit or refund is filed by the taxpayer within such period when a refund is denied because the period of limitations had lapsed it is not denied because there is under sec_6694 an understatement of the net amount payable with respect to any_tax imposed by this title or any overstatement of the net amount creditable or refundable with respect to any such tax the claim_for_refund may in fact reflect the correct_tax liability the refund is barred merely because the claim was made too late accordingly the penalties under sec_6694 and sec_6694 do not apply because a time barred claim does not fall under the definition of an understatement_of_liability as defined in sec_6694 for that same reason the penalty under sec_6701 should not asserted for time barred claims for although sec_6694 applies for purposes of this section that is sec_6694 identical words in the same statute usually have the same meaning see 513_us_561 who knows or has reason to believe that such portion will be used in connection with any material matter arising under the internal revenue laws and who knows that such portion if so used would result in an understatement of the liability for tax of another person shall pay a penalty with respect to each such document in the amount determined under subsection b postn-103302-15 normal rule_of statutory construction is that identical words used in different parts of the same act are intended to have the same meaning 2a norman j singer shambie singer statutes and statutory construction sec_46 pincite 7th ed in addition there may be extenuating circumstances that weigh against asserting the penalty when an amended_return appears to be filed out of time the amended_return may for example be perfecting an earlier timely informal claim_for_refund despite the requirement that a claim be submitted on one of the service’s forms supplied for that purpose a document submitted to the service that fails to satisfy sec_2 can be treated as an informal refund claim it has long been recognized that a claim_for_refund need not be in any specific form and informal refund claims timely filed which adequately notify the internal_revenue_service that a refund is being sought have been held to toll the statute_of_limitations and if defective may be perfected by the filing of a formal claim after the lapse of the statutory period 314_us_186 american radiator standard sanitary corp v united_states ct_cl 318_f2d_915 73_tc_1198 accordingly we conclude that the penalties under sec_6694 sec_6694 or sec_6701 should not be assessed merely because the return preparer made and filed an amended_return after the period of limitations for refunds had expired please call if you have any further questions see sec_1 and