tax_exempt_and_government_entities_division department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date date release number release date legend org organization name xx date address address org address employer_identification_number person to contact id number contact numbers voice fax certified mail - return receipt requested dear this is a final adverse determination_letter with regard to your status under sec_501 of the internal_revenue_code you are a subordinate organization included in group exemption number the parent organization was granted tax exempt status as an organization described in sec_501 of the code in may 19xx the primary activity of org org is the operation a commercial bar open to the general_public the current officer and owner the intent to generate profits all assets and net_earnings of org belong to created org with members of org do not have a common fraternal bond org is not a domestic fraternal society operating_under_the_lodge_system the net_earnings of which are devoted exclusively to religious charitable scientific literary educational and fraternal purposes the organization does not qualify for exemption under sec_501 of the internal_revenue_code consequently the organization’s exempt status is revoked effective april 20xx you have agreed to the revocation of your exempt status by signing form 6018-a you are required to file forms with the appropriate service_center for the tax periods beginning on and after april 20xx you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at not toll-free if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing director eo examinations cesty ki - a qa tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service te_ge eo examinations ms dal commerce street tx dallas taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail -- return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization’s exempt status is necessary if you accept our findings please sign and return the enclosed form 6018-a consent to proposed action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final federal_income_tax returns for the tax period s shown above if you have not yet filed these returns please file them with the examiner as soon as possible unless a report of income_tax_liability was issued to you with other instructions file returns for later tax years with the appropriate service_center indicated in the instructions for those returns in the event of revocation you will be required to file if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process please note that fast tract mediation services referred to in publication do not apply to exempt_organizations if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you enclosed for your convenience an envelope is if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in the united_states tax_court the united_states court of federal claims or the united_states district_court after satisfying procedural and jurisdictional requirements as described in publication you may also request that we refer this matter for technical_advice as explained in publication exempt_organizations appeal procedures for unagreed issues determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if a you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely director eo examinations enclosures publication publication form 6018-a report of examination envelope form 886a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service org ein march 20xx legend org organization name president cco co xx date state state president co-1 co-1 issue whether org is operated exclusively for exempt purposes described within internal_revenue_code sec_501 facts org hereinafter org whose employer_identification_number is was incorporated in the state of state org was recognized as an organization exempt from federal_income_tax as described in sec_501 under the group ruling number org operated a bar named co in chapter sec_311 of the state revised statutes liquor control law in order for a licensee to sell intoxicating liquor outside city limits a licensee must meet certain provisions such as having obtained an exemption from the payment of federal income taxes as provided in sec_501 sec_501 sec_501 sec_501 sec_501 sec_501 sec_501 or sec_501 of the united_states internal_revenue_code of as amended in any incorporated city having a population of less than big_number inhabitants as determined by the last decennial census under the provisions and methods set out in this chapter also in chapter sec_311 of the state revised statutes liquor control law states that an organization can obtain a license to sell liquor by the drink if at least of the gross_income of which is derived from the sale of prepared meals or food consumed on such premises or which has an annual gross_income of at least dollar_figure from the sale of prepared meals or food consumed on such premises before forming org the officer president had operated the bar that was able to sell beer only to attract more customers president would like to obtain liquor license for her bar the officer was sure that her bar was unable to meet food sale requirements so the only option she had to obtain the liquor license is to become a tax exempt_organization she knew about co-1 from the bars around that were co-1 subordinates the officer got the co-1 national headquarters’ contact information from the bar where her son worked the officer called co-1 national headquarters to ask about the information on how to apply requirements to become a co-1 subordinate and how to maintain the status of co-1 subordinate the parent organization's constitution and bylaws state that co-1 purpose is to promote fellowship among all living beings respectfully to encourage the elimination of prejudice and help unify divergent groups in the overall interest of american democracy to orientate our youth with full knowledge of responsibilities as well as privileges of form 886-a rev department of the treasury - internal_revenue_service page -1- form 886a department of the ‘treasury - internal_revenue_service explanation of items name of taxpayer org ein schedule no or exhibit year period ended march 20xx citizenship through the wisdom of our seniors to assist the underprivileged and well deserving by maintenance of sponsoring educational opportunities and by providing monetary grants and awards toward their wellbeing overall to fully support the effort of drug free america to encourage compassion for every fellow man woman and child in distress and or deserving to provide social clubs for members and guests for the purpose of fellowship and entertainment of its members to create and initiate new programs to assist the homeless battered and abandoned children the mentally retarded and the needy and well deserving for the purpose of their well-being requirements to become a co-1’s subordinate are as follows l start the chapter with members at annual dues of dollar_figure each by the seventh year of incorporation the subordinate is required to have members the dues will be split between the parent organization and subordinate for each membership sold after donate dollar_figure to other approved non-profit entities all donations must be verified by providing the co-1 national headquarters copies of canceled checks submitted for donations if donations are given to needy individuals subordinate must submit the name of the individual social_security_number date of birth address the reason for the donation and the amount of the donation conduct monthly meeting after president contacted the co-1 headquarters to ask for steps and the information to become a co-1 subordinate she received the package including the following material from the co- headquarters constitution and bylaws of co-1 m o v membership requirements instructions on how to prepare articles of incorporation state liquor control checklist prepared by co-1 national headquarters to help the organization prepare all necessary forms filed with division of liquor control to obtain liquor license the following information listed on the checklist k a m a n certificate of incorporation articles of incorporation copy after filed with the state secretary of states office property dwelling lease agreement bill of sales of inventory fixtures managing officers appointment form subordinate group authorized form_2 page tax exemption_letter receivable on payment of charter fees and membership dues form 886-a rev department of the treasury - internal_revenue_service page -2- department of the ‘lreasury - internal_revenue_service explanation of items form 886a name of taxpayer org schedule no or exhibit year period ended march 20xx ein article iii part of the articles of incorporation states that each co-1 post lodge will be committed to contribute dollar_figure each year to charity s of the post lodge choice these charities may be within the post’s own community verification of donations must be submitted to the co-1 national headquarters monthly to be placed in each post lodge file the officer did not change anything inside or outside of the bar when the bar was operated under org the old name of the bar co was still used by the organization the bar was open the general_public to meet the membership requirement the officer invited her customers to become members members were required to pay membership dues members were not required to pay sales_taxes for their drinks there is a complete lack of regalia or memorabilia specific to the co-1 either inside or outside the organization the organization is devoid of any rites or rituals specific to the co-1 culture when the meetings are held or when new members are recruited org has only one class of membership law internal_revenue_code sub sec_501 provides an exemption for domestic_fraternal_societies orders or associations operating_under_the_lodge_system the net_earnings of which are devoted exclusively to religious charitable scientific literary educational and fraternal purposes and which do not provide for the payment of life sick accident or other_benefits income_tax regulation sec_1_501_c_10_-1 provides that an organization will qualify for exemption under sec_501 if it is a domestic fraternal beneficiary society order or association described in sec_501 and the regulations thereunder except that it does not provide for the payment of life sick accident or other_benefits to its members and devotes its net_earnings exclusively to religious charitable scientific literary educational and fraternal purposes internal_revenue_code sec_501 provides an exemption from taxation for fraternal beneficiary societies orders or associations operating_under_the_lodge_system or for the exclusive benefit of the members of a fraternity itself operating_under_the_lodge_system and providing for the payment of life sick accident or other_benefits to the members of such society order or association or their dependents revrul_81_117 1981_1_cb_346 states that an organization that does not conduct any fraternal activities or operate under the lodge_system but does operate exclusively for the form 886-a rev department of the treasury - internal_revenue_service page -3- form 886a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended march 20xx name of taxpayer org ein benefit of members of certain related domestic_fraternal_societies operating_under_the_lodge_system does not qualify for exemption under sec_501 of the code revrul_73_165 c b 224a defines a fraternal beneficiary society order or association exempt under sec_501 as one that in addition to being operated in furtherance of fraternal purposes is so operated under the lodge_system or for the exclusive benefit of the members of a fraternity that is so operated under the lodge_system and has an established system for the payment to its members or their dependents of life sick accident or other_benefits there is no requirement that either the fraternal features or the insurance features predominate so long as both features are present in national union v marlow 374_f_775 a fraternal beneficial society was defined as one whose members have adopted the same or a very similar calling avocation or profession or who are working in union to accomplish some worthy object and who for that reason have banded themselves together as an association or society to aid and assist one another and to promote the common cause the term fraternal can properly be applied to such an association for the reason that the pursuit of a common object calling or profession usually has a tendency to create a brotherly feeling among those who are thus engaged the national union did not fit this definition because it was an association of individuals who were associated for the purpose of obtaining insurance the court concluded that jn its practical operations therefore the defendant company cultivates fraternity and confers benefits in the same manner that every insurance_company doing business on the mutual plan cultivates feelings of fraternity and confers benefits upon its members or in other words when the defendant is stripped of all disguises and judged by the standard of what it is engaged in doing and what it was most likely organized to do it is simply an insurance_company which carries on an extensive business on the assessment plan the court in 24_tc_891 reversed on other grounds 236_f2d_509 3rd cir concluded that an organization had not established its exemption as a fraternal beneficiary society because members lacked a common tie to qualify for the exemption an organization must be fraternal here only the active members comprising less than per cent of the total membership of the post had a common tie they of course had the bond of having formerly served in the polish army but approximately percent of the total membership of the post was social members who were not ex-members of the polish armed_forces and who had nothing in common with the active members or with each other an organization cannot be classed as fraternal where the only common bond between the majority of the members is their membership in that organization form 886-a rev department of the treasury - internal_revenue_service page -4- eaves form 886a department of the ‘treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended march 20xx org ein 19_tc_240 provided that the requirement of common ties and objectives is not satisfied merely by a recitation of such purposes in the association's constitution or bylaws it is necessary that the stated purposes be implemented or accomplished by specific acts the tax_court denied exemption to an organization whose constitution called for among other things the promotion of civic enterprises in the community it engaged in no civic or charitable activities during the period under review the court in 2_f2d_367 e d mo stated that by the 'lodge system’ is generally understood as an organization which holds regular meetings at a designated place adopts a representative form of government and performs its work according to ritual philadelphia and reading relief association 4_bta_713 held that where the sole motive in joining an organization is to receive insurance benefits and there are no lodges rituals ceremonies or regalia then there is no fraternal element present knights of columbus building association of stamford conn inc v united_states aftr 2d dc conn held that an organization that operated a bar and buffet that was utilized by nonmember community organizations was not operating with the exemption provisions and therefore was not exempt under sec_501 taxpayer’s position org consents to the proposed revocation government’s position org is not a domestic fraternal society because the members do not have a common tie or objective the only common bond between the members is their membership in org members of org do not have a common fraternal bond the members do not possess a similar calling avocation or profession and are not working in unison to accomplish any worthy objective or common cause rituals ceremonies and regalia that are evidence of fraternal activities are not found in org org has not been neither operating for religious charitable scientific literary educational and fraternal purposes nor devoting its net_earnings exclusively to religious charitable scientific literary educational and fraternal purposes the current officer president created org with the intent to generate profits all assets and net_earnings of org belong to the owner president org is not operating_under_the_lodge_system org is a member of the parent organization through the payment of dues and a charter fee the term membership dues implies that each member pays a fee for membership because they place a value on form 886-a rev department of the treasury - internal_revenue_service page -5- department of the treasury - internal revenuc service explanation of items form 886a name of taxpayer org schedule no or exhibit year period ended march 20xx ein their association with the organization and that there are rights privileges or benefits associated with membership the organization does not have a set meeting schedule and there are no rituals associated with the meetings the organization does not have a representative form of government because the members have no voice or voting rights in the business operation of the organization or the net_earnings the officers are not selected or elected by the membership during the year under audit although org donated dollar_figure month to some charities that does not make org meet the c requirements org is operating in a commercial manner which is not an exempt activity described under internal_revenue_code sec_501 conclusion in the case of org it is held that where the primary purpose or activity of the organization is the commercial manner in which the bar operates org is not a domestic fraternal society operating_under_the_lodge_system the net_earnings of which are devoted exclusively to religious charitable scientific literary educational and fraternal purposes the organization does not qualify for exemption under sec_501 of the internal_revenue_code consequently the organization’s exempt status is revoked effective april 20xx forms should be filed for the tax periods ending on and after march 20kx form 886-a rev department of the treasury - internal_revenue_service page -6-


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-127892-03 cc psi b07 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend taxpayer ein parent ein corporation a ein corporation b corporation c_corporation d corporation e year date tam-127892-03 date date date date issues can taxpayer include qualified_research_expenses paid_or_incurred by corporation d and corporation d subsidiaries for the period date through date for purposes of computing its research_credit for its taxable_year ended date how should taxpayer compute its research_credit for its taxable_year ended date conclusions taxpayer cannot include any of the qualified_research_expenses paid_or_incurred by corporation d and corporation d subsidiaries for the period date through date for purposes of computing its research_credit for its taxable_year ended date taxpayer should compute its research_credit for its taxable_year ended date on an aggregate basis including the following a percent of the qualified_research_expenses paid_or_incurred by corporation a for the period date through date and corporation a’s average annual gross_receipts for the four taxable years preceding the credit_year b all of the qualified_research_expenses paid_or_incurred by corporation d and corporation d subsidiaries for the short taxable_year from date through date and corporation d and corporation d subsidiaries’ average annual gross_receipts for the four taxable years preceding the credit_year and c all of the qualified_research_expenses paid_or_incurred by corporation a subsidiaries for the full taxable_year from date through date and corporation a subsidiaries’ average annual gross_receipts for the four taxable years preceding the credit_year facts prior to date corporation a was the common parent of a consolidated_group of corporations the corporation a consolidated_group was a calendar_year taxpayer corporation a wholly owned more than domestic subsidiaries including lower-tier subsidiaries hereinafter corporation a subsidiaries prior to date corporation d was a member of the corporation b consolidated_group of corporations the corporation b consolidated_group was also a calendar_year taxpayer corporation c was a wholly-owned subsidiary of corporation b corporation d was a wholly-owned subsidiary of corporation c_corporation d owned many domestic subsidiaries tam-127892-03 including corporation e on date corporation c was liquidated into corporation b in a complete_liquidation to which sec_332 of the internal_revenue_code hereinafter the code applied with the consequence that after this liquidation corporation b directly owned percent of the stock of corporation d corporation e was then liquidated into corporation d in a complete_liquidation under sec_332 a transaction to which sec_381 and c of the code applied all remaining subsidiaries of corporation d are hereinafter referred to as corporation d subsidiaries on date the day after date corporation b distributed all of the corporation d stock to corporation b shareholders in a distribution to which sec_355 of the code applied immediately after the sec_355 distribution of corporation d stock to the corporation b shareholders corporation a merged with and into corporation d in a statutory merger under sec_368 of the code as a result of the merger corporation d either directly or indirectly owned percent of the outstanding_stock of the corporation a subsidiaries in consideration for the merger the corporation a shareholders received more than percent of the outstanding_stock of corporation d as a result the corporation a shareholders obtained a majority interest in corporation d the merger of corporation a with and into corporation d qualified as a reverse_acquisition as defined in sec_1_1502-75 immediately following the merger corporation d changed its name to parent the same name as corporation a on its consolidated_return for the taxable_year beginning on date and ending on date taxpayer consisting on date of parent f k a corporation d as the common parent_corporation d subsidiaries and corporation a subsidiaries elected to claim the alternative_incremental_research_credit under sec_41 of the code when computing its sec_41 credit_for_increasing_research_activities for the taxable_year ended date taxpayer included in its aggregate credit_year qualified_research_expenses amounts paid_or_incurred by corporation d and corporation d subsidiaries for the period date through date law sec_41 provides a nonrefundable income_tax_credit for qualified_research_expenses qres paid_or_incurred by a taxpayer during the taxable_year under the general_rule the research_credit is equal to the sum of twenty percent of the excess if any of the this technical_advice_memorandum only addresses issues related to the computation of the research_credit under sec_41 we express or imply no opinion as to whether taxpayer has satisfied the requirements for qualified_research under sec_41 and d also we express or imply no opinion on the allocation of the group credit among members of the controlled_group under prop sec_1_41-6 tam-127892-03 taxpayer’s qres for the taxable_year over its base_amount and twenty percent of the taxpayer’s basic_research expenses sec_41 for taxable years beginning after date a taxpayer may elect to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 if properly elected the alternative_incremental_research_credit for taxable years beginning after date and before date is equal to the sum of the following amounts i dollar_figure percent of so much of the qres for the taxable_year as exceed sec_1 percent of the average annual gross_receipts for the taxable years preceding the credit_year but does not exceed percent of such average ii percent of so much of the qres for the taxable_year as exceed sec_1 percent of the average annual gross_receipts for the taxable years preceding the credit_year but does not exceed percent of such average and iii dollar_figure percent of so much of the qres for the taxable_year as exceed sec_2 percent of the average annual gross_receipts for the taxable years preceding the credit_year sec_41 sec_41 provides that in determining the amount of the credit under sec_41 all members of the same controlled_group_of_corporations shall be treated as a single_taxpayer sec_41 provides that the term controlled_group_of_corporations has the same meaning given to such term by sec_1563 except that a more than percent shall be substituted for at least percent each place it appears in sec_1563 and b the determination shall be made without regard to sec_1563 and e c sec_1563 provides that a controlled_group_of_corporations includes a parent-subsidiary_controlled_group a parent-subsidiary_controlled_group is one or more chains of corporations connected through stock ownership with a common parent_corporation if the percentage of ownership requirements in sec_1563 and b are met with respect to each corporation in the group see sec_1563 sec_41 provides that if after date a taxpayer acquires the major portion of a trade_or_business of another person hereinafter in this paragraph referred to as the predecessor or the major portion of a separate_unit of a trade_or_business of a predecessor then for purposes of applying this section for any taxable_year ending after such acquisition the amount of qres paid_or_incurred by the taxpayer during periods before such acquisition shall be increased by so much of such expenses tam-127892-03 paid_or_incurred by the predecessor with respect to the acquired trade_or_business as is attributable to the portion of such trade_or_business or separate_unit acquired by the taxpayer and the gross_receipts of the taxpayer for such periods shall be increased by so much of the gross_receipts of such predecessor with respect to the acquired trade_or_business as is attributable to such portion sec_1_41-7 provides that for the meaning of acquisition separate_unit and major portion see sec_1_52-2 sec_1_41-7 also provides that an acquisition includes an incorporation or a liquidation sec_1_52-2 provides in part that the term acquisition includes a lease agreement if the effect of the lease is to transfer the major portion of the trade_or_business or of a separate_unit of the trade_or_business for the period of the lease sec_1_52-2 provides that neither the major portion of a trade_or_business nor the major portion of a separate_unit of a trade_or_business is acquired merely by acquiring physical assets the acquisition must transfer a viable trade_or_business sec_1_52-2 provides that a separate_unit is a segment of a trade_or_business capable of operating as a self-sustaining enterprise with minor adjustments the allocation of a portion of the goodwill of a trade_or_business to one of its segments is a strong indication that that segment is a separate_unit sec_1_52-2 provides several examples illustrating the acquisition of a separate_unit of a trade_or_business sec_1_52-2 provides that all the facts and circumstances surrounding the transaction shall be taken into account in determining what constitutes a major portion of a trade_or_business or separate_unit sec_41 provides that in the case of any short taxable_year qres and gross_receipts shall be annualized in such circumstances and under such methods as the secretary may prescribe by regulation sec_1_41-3 b provides in relevant sec_1_41-3 was amended by t d i r b to reflect the changes to the computation of the research_credit made by the revenue reconciliation act of and was applicable for taxable years beginning on or after date treasury and the service reconsidered t d and on date issued new proposed_regulations f_r big_number i r b amending the effective date to date the new proposed_regulations retain the special rules for short taxable years contained in sec_1_41-3 of t d although these rules are applicable for taxable years after the year at issue here no inference should be drawn from the applicability date concerning the application of sec_41 to the expenditures paid_or_incurred before the applicability date tam-127892-03 part the following rules short credit_year if a credit_year is a short taxable_year then the base_amount determined under sec_41 but not sec_41 shall be modified by multiplying that amount by the number of months in the short taxable_year and dividing the result by short taxable_year preceding credit_year if one or more of the four taxable years preceding the credit_year is a short taxable_year then the gross_receipts for such year are deemed to be equal to the gross_receipts actually derived in that year multiplied by and divided by the number of months in that year sec_1_1502-76 provides that a consolidated_return must include the common parent’s items of income gain deduction loss and credit for the entire consolidated_return_year and each subsidiary’s items for the portion of the year for which it is a member if the consolidated_return includes the items of a corporation for only a portion of its tax_year items for the portion of the year not included in the consolidated_return must be included in a separate_return including the consolidated_return of another group sec_1_1502-76 generally provides that a corporation becomes or ceases to be a member during a consolidated_return_year at the end of the day on which its status as a member changes and its tax_year ends for all federal_income_tax purposes at the end of that day appropriate adjustments must be made if another provision of the code or regulations contemplates the event occurring before or after the corporation’s change in status sec_1_1502-76 provides that if on the day a corporation’s status as a member changes a transaction occurs that is properly allocable to the portion of the corporation’s day after it ceases to be a member the corporation and all related_persons must treat the transaction as occurring at the beginning of the following day sec_1_1502-76 generally provides that the returns for the years that end and begin with a corporation becoming or ceasing to be a member are separate tax years and are subject_to the rules of the code applicable to short periods sec_1_1502-76 provides that although the periods ending and beginning with a corporation’s change in status are different tax years items other than extraordinary items may be ratably allocated between the periods if the corporation is not required to change its annual_accounting_period or its method_of_accounting as a result of its change in status and the corporation makes an irrevocable ratable allocation election tam-127892-03 sec_1_1502-75 provides in part that if a corporation the first_corporation or any member of a group of which the first_corporation is the common parent acquires substantially_all the assets of the second corporation in exchange in whole or in part for stock of the first_corporation and the shareholders immediately before the acquisition of the second corporation as a result of owning stock of the second corporation own immediately after the acquisition more than percent of the fair_market_value of the outstanding_stock of the first_corporation then any group of which the first_corporation was the common parent immediately before the acquisition shall cease to exist as of the date of the acquisition and any group of which the second corporation was the common parent immediately before the acquisition shall be treated as remaining in existence with the first_corporation becoming the common parent of the group sec_1_1502-75 provides in pertinent part that if in a transaction described in sec_1_1502-75 the first_corporation files a consolidated_return for the first taxable_year ending after the date_of_acquisition then - a the first_corporation and each corporation which immediately before the acquisition is a member of the group of which the first_corporation is the common parent shall close its taxable_year as of the date_of_acquisition and each such corporation shall immediately after the acquisition change to the taxable_year of the second corporation and b if the acquisition is a transaction described in sec_381 then for purposes of sec_381 the second corporation shall not close its taxable_year merely because of such acquisition and all taxable years ending on or before the date_of_acquisition of the second corporation and each corporation which immediately before the acquisition is a member of any group of which the second corporation is the common parent shall be treated as taxable years of the acquiring_corporation analysis the computation of the research_credit for a controlled_group_of_corporations is governed by the rules of sec_41 and f and its underlying regulations the consolidated_return_regulations under sec_1502 provide the rules in order that the tax_liability of an affiliated_group_of_corporations filing a consolidated_return can be returned determined computed assessed collected and adjusted in such manner as to clearly reflect the income_tax_liability and the factors necessary for the determination of such liability on date corporation a merged with and into corporation d in a statutory merger under sec_368 it is clear that under general corporate principles tam-127892-03 corporation d is the acquiring entity in a statutory merger the assets and liabilities of corporation a the disappearing corporation pass to corporation d the surviving entity by operation of law see doloboff and wilcox 771-2nd t m corporate acquisitions -- a b and c reorganizations corporation d absorbs the corporate enterprise of corporation a with the result that corporation d the acquiring_corporation steps into the shoes of corporation a the disappearing corporation as to its assets and liabilities see bittker and eustice federal income_taxation of corporations and shareholders 7th ed the issue is whether the consolidated_return_regulations mandate a different result that is whether the consolidated_return_regulations require that corporation a be treated as the acquiring entity for purposes of sec_41 neither sec_41 nor the consolidated_return_regulations provide special rules for determining the research_credit when there is an acquisition or disposition involving a consolidated_group for certain limited purposes the consolidated_return_regulations under sec_1_1502-75 provide that the larger corporation is the acquiring_corporation the larger corporation is treated as the acquiring_corporation with respect to the continuation of the group rules the determination of taxable years of the group and its members and with respect to determining taxable years under sec_381 carryovers of attributes in certain corporate acquisitions sec_1_1502-75 this substance over form determination is limited solely to the issues set out under this provision of the regulations the consolidated_return_regulations do not extend this substance over form treatment to other provisions of the code the consolidated_return_regulations are silent as to the determination of the credit under sec_41 thus treatment of corporation a as the acquiring entity for purposes of determining the research_credit is neither required nor authorized by the consolidated_return_regulations including the reverse_acquisition_rules upon the merger of corporation a into corporation d the shareholders of corporation a received more than percent of the fair_market_value of the outstanding_stock of corporation d under the consolidated_return_regulations in effect in year the corporation a consolidated_return group remained in existence after the merger and corporation d renamed parent became the common parent of the corporation a consolidated_return group sec_1_1502-75 corporation d the taxpayer has advanced several arguments in support of its position some of these arguments are discussed herein the argument has been made that the provisions of sec_1_1502-76 and example thereunder require that corporation a be treated as the substantive common parent and that corporation d be treated as the common parent in form only as stated above corporation d becomes the common parent of the corporation a group upon the merger of corporation a into corporation d see sec_1_1502-75 sec_1_1502-76 merely provides rules for tam-127892-03 subsidiaries became members of the corporation a consolidated_return group at the end of the day on date because the corporation a consolidated_return group remained in existence after the merger of corporation a with and into corporation d the corporation a consolidated_return group that is the taxpayer consolidated_group has a full taxable_year beginning on date and ending on date sec_1_1502-75 corporation a subsidiaries have a full taxable_year beginning on date and ending on date sec_1_1502-75 corporation a has a short taxable_year beginning on date and ending on date when it merged out of existence corporation d and corporation d subsidiaries have two short taxable years a short taxable_year beginning on date and ending on date and a short taxable_year beginning on date and ending on date sec_1_1502-75 taxpayer is a controlled_group_of_corporations for purposes of sec_41 consisting at the end of its full taxable_year on date of parent f k a corporation d as the common parent_corporation d subsidiaries and corporation a subsidiaries all members of the taxpayer controlled_group should be treated as a single_taxpayer for purposes of computing the research_credit under sec_41 when the taxpayer controlled_group computes its credit_year qres under the alternative_incremental_research_credit rules of sec_41 it should aggregate each member’s credit_year qres further the taxpayer controlled_group should aggregate each member’s average annual gross_receipts for the four taxable years preceding the credit_year sec_41 the taxpayer controlled_group should compute its aggregate research_credit including the following corporation a we have determined that the merger of corporation a with and into corporation d under sec_368 constitutes the acquisition of a major portion of a trade_or_business by corporation d for purposes of sec_41 in other words corporation d acquired_corporation a for purposes of sec_41 see sec_1_52-2 and ii providing that an acquisition must transfer a viable trade_or_business for its taxable_year ended date taxpayer should include in its aggregate computation percent of the qres paid_or_incurred by corporation a for the period date through date the period prior to the acquisition and corporation a’s average determining the items of income gain loss deduction and credit of the common parent and each member to be included in the consolidated_return these rules do not change the determination that corporation d is the common parent for purposes of the consolidated_return_regulations tam-127892-03 annual gross_receipts for the four taxable years preceding the credit_year corporation d and corporation d subsidiaries taxpayer cannot include any of the qres paid_or_incurred by corporation d and corporation d subsidiaries for the short taxable_year from date through date rather taxpayer should include in its aggregate computation only the qres paid_or_incurred by corporation d and corporation d subsidiaries for the short taxable_year from date through date and corporation d and corporation d subsidiaries’ average annual gross_receipts for the four taxable years preceding the credit_year using the short taxable_year rules of sec_1_41-3 because corporation d’s and corporation d subsidiaries’ first taxable_year preceding the credit_year is a short taxable_year beginning on date and ending on date taxpayer should multiply each of corporation d’s and corporation d subsidiaries’ gross_receipts for that short taxable_year by twelve and divide the result by the number of months in that short taxable_year see sec_1_41-3 then because the credit_year beginning on date and ending on date is a short taxable_year taxpayer should multiply each of corporation d’s and corporation d subsidiaries’ average annual gross_receipts for the four taxable years preceding the credit_year by the number of months in the short taxable_year and divide the result by twelve see sec_1_41-3 corporation a subsidiaries taxpayer should include in its aggregate computation all of the qres paid_or_incurred by corporation a subsidiaries for the full taxable_year from date through date taxpayer should also include corporation a subsidiaries’ average annual gross_receipts for the four taxable years preceding the credit_year caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


department of the treasury lié4 ou8 internal_revenue_service washington d c aug t ep rat3 tax_exempt_and_government_entities_division u i l legend company a company b company c company d plan x dear this is in response to the letter dated date as supplemented by correspondence dated date and date submitted on your behalf by your authorized representative in which you request a ruling that the assets in plan x with its suspense_account may be retained within the company a controlled_group after the sale of company b whose wholly owned subsidiary company c is the sponsor of plan x and that plan sponsorship may be transferred to another member of the company a controlled_group whose employees participate in plan x the following facts and representations have been submitted under penalties of perjury in support of your request company a is contemplating selling its wholly owned subsidiary company b including its subsidiaries company c and company d to an entity outside the company a controlled_group plan x is maintained by company c plan x maintains a qualified_replacement_plan suspense_account suspense_account under internal_revenue_code code sec_4980 at the time of the ruling_request plan x covered employees of company c and company d and employees of other members of the company a controlled_group the suspense_account was created with excess_assets of a defined_benefit_plan sponsored by company c that was terminated in currently the suspense_account is used to fund non-elective employer contributions for participants in plan x the suspense_account is scheduled to fund such contributions over a maximum seven-year period as of date the suspense_account was valued at dollar_figure an allocation of dollar_figure was made from the suspense_account in as the non-elective contributions under plan x employer contributions of dollar_figure were made from the suspense_account for the plan_year presently a total of participants would be impacted by the sale of company b this would leave participants who previously participated in plan x who would continue to participate in plan x after the contemplated sale this change in the number of participants is due to attrition company a has stipulated that plan x is a qualified_replacement_plan within the meaning of code sec_4980 and that currently at least percent of the active participants in the terminated defined_benefit_plan who remain employees within the company a controlled_group remain as active participants in plan x company a further stipulates that after the sale of company b at least percent of those participants who participated in the terminated defined_benefit_plan and who remain active employees of the company a controlled_group after the sale will remain active participants in plan x until the earlier of such time as they terminate employment with a member of the company a controlled_group or the suspense_account is exhausted based upon the facts and representations company a requests a ruling that the assets in plan x with its suspense_account may be retained within the company a controlled_group after the sale of company b the plan_sponsor plan sponsorship will be changed to either company a or one of its retained subsidiaries at the time of the sale of company b sec_4980 of the code provides for a percent excise_tax on the amount of any reversion from a qualified_plan sec_4980 provides in pertinent part that the excise_tax under sec_4980 shall be increased to percent with respect to an employer_reversion from a qualified_plan unless the employer either establishes or maintains a qualified_replacement_plan or the plan provides for certain benefit increases which take effect on the termination_date sec_4980 of the code generally defines the term employer_reversion as the amount of cash and fair_market_value of other_property received directly or indirectly by the employer from the qualified_plan sec_4980 d of the code provides that a qualified_replacement_plan is a qualified_plan established or maintained by the employer in connection with a qualified_plan termination which satisfies the participation asset transfer and allocation requirements of sec_4980 b and c sec_4980 requires that at least percent of the active participants in the terminated plan who remain as employees of the employer after the termination be active participants in the replacement plan sec_4980 of the code requires that a direct transfer from the terminated plan to the replacement plan be made before any employer_reversion and that the transfer be an amount equal to the excess if any of i percent of the maximum amount which the employer could receive as an employer_reversion without regard to sec_4980 over ii the amount equal to the present_value of the aggregate increases in the accrued_benefits under the terminated plan of any participants or beneficiaries pursuant to a plan amendment adopted during the 60-day period ending on the date of termination of the qualified_plan and which takes effect immediately on the termination_date sec_4980 of the code provides that in the case of the transfer of any amount under sec_4980 from a terminated plan such amount in not includible in the gross_income of the employer no deduction is allowable with respect to such transfer and the transfer is not treated as an employer_reversion for purposes of sec_4980 sec_4980 of the code provides that if the replacement plan is a defined_contribution_plan the amount transferred to the replacement plan must be i allocated under the plan to the accounts of participants in the plan_year in which the transfer occurs or il credited to a suspense_account and allocated from such account to accounts of participants no less rapidly than ratably over the seven-plan-year period beginning with the year of the transfer sec_4980 of the code provides that if by reason of any limitation under sec_415 any amount credited to a suspense_account under sec_4980 may not be allocated to a participant before the close of the seven-plan-year period such amount shall be allocated to the accounts of other participants and if any portion of such amount may not be allocated to other participants by reason of such limitation it shall be allocated to the participant as provided in sec_415 sec_4980 of the code provides that any income on any amount credited to a suspense_account under the clause i ii shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period determined under such clause after application of clause ii ‘ sec_4980 d c iv of the code provides that if any amount credited to a suspense_account under clause i ii is not allocated as of the termination_date of the replacement plan i such amount shall be allocated to the accounts of the participants as of such date except that any amount which may not be allocated by reason of any limitation under sec_415 shall be allocated to the accounts of other participants and ii if any portion of such amount may not be allocated to other participants under subclause i by reason of such limitation such portion shall be treated as an employer_reversion to which this section applies based on the representations and stipulations of company a we find that plan x will continue to be a qualified_replacement_plan within the meaning of code sec_4980 because it continues to meet the requirements of that code section specifically plan x will continue to cover percent of the active participants in the previously terminated defined_benefit_plan who remain employed by the company a controlled_group after the sale of company b and the suspense amount will continue to be allocated no less rapidly than ratably over the seven-plan-year period beginning with the year of the original transfer from the terminated defined_benefit_plan accordingly we rule that the retention of plan x with its suspense_account within the company a controlled_group after the sale of company b will not affect the status of plan x as a qualified_replacement_plan this ruling letter is based on the assumption that plan x is qualified under sec_401 of the code and that its related trust is tax-exempt under sec_501 of the code at all times relevant to this ruling no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions regarding this letter please contact id at sincerely yours ch b woichacebs - employee_plans technical g up enclosures deleted copy of letter_ruling notice cc


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 b02 plr-133130-08 date august trust ------------------------------------------------------------------------------------------------------ ----------------------- a b ------------------------------------------------------------------------------------------------------ ------------------------ ------------------ state ------------- d1 ------------------- dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of trust by trust’s authorized representative requesting a ruling under sec_671 and sec_675 of the internal_revenue_code the information submitted states that on d1 a created and funded trust an irrevocable_trust for the benefit of a’s children in accordance with state law a and all beneficiaries of trust will execute a modification to trust’s governing instrument to provide that a shall have the power solely in a nonfiduciary capacity and without the approval of any person in a fiduciary capacity to reacquire any property contained in trust by substituting other_property of equivalent value sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust plr-133130-08 there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_673 though specify the circumstances under which the grantor or a person other than the grantor is treated as the owner of a portion of a_trust sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity the term power_of_administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value sec_1_675-1 provides in general that the grantor is treated as the owner of any portion of a_trust if under the terms of the trust instrument or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiaries of the trust sec_1_675-1 provides that the circumstances which may cause administrative controls to be considered exercisable primarily for the benefit of the grantor include the existence of certain powers of administration exercisable in a nonfiduciary capacity by any nonadverse_party without the approval or consent of any person in a fiduciary capacity the term powers of administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value if a power is not exercisable by a person as trustee the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration based solely on the facts and representations submitted we conclude that the circumstances surrounding the administration of trust will determine whether the power_of_administration is exercisable in a fiduciary or nonfiduciary capacity this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the internal_revenue_service office where the returns are filed therefore we cannot determine at this time whether a will be treated as the owner of trust or any portion thereof under sec_675 provided that the circumstances indicate that the power_of_administration is exercisable in a nonfiduciary capacity a will be treated as the owner of trust under sec_671 and sec_675 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code we express no opinion regarding the federal gift_tax consequences of the proposed transaction specifically we are not ruling on whether the proposed modifications will plr-133130-08 have any gift_tax consequences and whether any future substitutions of assets will have any gift_tax consequences in addition we express or imply no opinion as to whether future activities involving a_trust and the substitution power are the same as or substantially_similar to the transaction_of_interest identified in notice_2007_73 however a and trust are alerted to the potential obligation under sec_1_6011-4 to disclose any future transactions that are the same or substantially_similar to the transactions identified in notice_2007_73 and to the potential for penalties for the failure to disclose such transactions 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


tcmemo_2012_122 united_states tax_court daniel w rood and rebecca rood petitioners v commissioner of internal revenue respondent docket no filed date a brian phillips for petitioners randall b childs for respondent memorandum opinion goeke judge this matter is before the court on respondent’s motion for summary_judgment pursuant to rule respondent contends that no genuine 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court continued issue exists as to any material fact and that the determination to deny petitioners’ deduction for alimony payments should be upheld the issue for decision is whether certain payments by petitioners qualified as deductible_alimony in accordance with sec_71 for the reasons stated below we shall grant respondent’s motion for summary_judgment background at the time the petition was filed petitioners resided in orlando florida on date daniel rood married ida wozniak in orlando florida no children were born of the marriage in mr rood and ms wozniak filed a dissolution of marriage action in orange county florida during the course of their divorce proceedings mr rood and ms wozniak entered into negotiations regarding settlement as part of these negotiations ms wozniak’s attorney sent a letter dated date to mr rood’s attorney proposing a settlement offer including a provision whereby-- the husband shall pay to the wife the sum of dollar_figure a month for as long as she continues to be enrolled at rollins college to complete her degree as planned but no longer than a period of five years continued rules_of_practice and procedure thereafter mr rood’s attorney sent a letter to ms wozniak’s attorney stating-- the following items have been proposed by my client mr rood as also being agreeable to your client ms wozniak revised as follows this amount of dollar_figure per month for as long as the wife continues to be enrolled at rollins college to complete her degree as planned but no longer than a period of sixty months beginning thirty days after the entry of the final judgment by way of income deduction order is non-modifiable on date mr rood and ms wozniak entered into a marital property settlement agreement msa pursuant to the msa mr rood received the marital residence in exchange for a dollar_figure payment to ms wozniak furthermore mr rood had to pay ms wozniak dollar_figure toward equitable distribution of the marital assets moreover paragraph of the msa states-- the respondent husband shall pay non-modifiable lump sum alimony in the amount of dollar_figure to the petitioner wife at the rate of dollar_figure per month for a period of months by income deduction order beginning thirty days after the entry of the final judgment the divorce between mr rood and ms wozniak became final on date upon a final judgment of dissolution of marriage final judgment issued by the ninth judicial circuit_court for orange county florida county court paragraph of the final judgment incorporates the msa and paragraph of the final judgment states-- the husband shall pay to the wife as non-modifiable lump sum alimony the sum of three hundred thousand dollar_figure and no dollars payable monthly in the amount of five thousand dollars dollar_figure and no dollars beginning date and continuing each month thereafter for sixty months until paid in full the said alimony shall be paid_by income deduction order to the wife also included in the final judgment was a provision stating that the county court retains jurisdiction of the parties hereto and the subject matter hereof for the purpose of enforcement of obligations as between the parties the county court also issued an income deduction order to mr rood’s employer the income deduction order instructed mr rood’s employer to withhold amounts from mr rood’s paycheck and pay to the florida department of revenue n on-modifiable lump sum alimony in the amount of dollar_figure payable at the rate of dollar_figure per month for sixty months beginning date until date or until notified that said amount has been paid in full mr rood subsequently married rebecca rood petitioners filed a joint income_tax return for the tax_year claiming an alimony deduction of dollar_figure for payments made to ms wozniak during respondent examined petitioners’ income_tax return and determined that the payments were not deductible therefore respondent determined a dollar_figure deficiency in petitioners’ income_tax petitioners timely filed a petition with this court and respondent filed a motion for summary_judgment i summary_judgment discussion summary_judgment is designed to expedite litigation and to avoid unnecessary and expensive trials 61_tc_861 a motion for summary_judgment may be granted where the pleadings and other materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir the burden is on the moving party to demonstrate that no genuine issue as to any material fact remains and that he is entitled to judgment as a matter of law 116_tc_73 in all cases the evidence is viewed in the light most favorable to the nonmoving party 100_tc_32 however the nonmoving party is required to go beyond the pleadings and by his own affidavits or by the ‘depositions answers to interrogatories and admissions on file ’ designate ‘specific facts showing that there is a genuine issue for trial ’ 477_us_317 see also 119_tc_157 115_tc_554 petitioners filed an affidavit and a response to respondent’s motion for summary_judgment in petitioners’ response they contend that the provisions in the divorce decree msa and income deduction order providing for non-modifiable lump sum alimony should be interpreted as providing for rehabilitative alimony that would terminate upon ms wozniak’s death petitioners argue that a critical factor in determining whether a payment is deductible_alimony is whether the payment is modifiable even though the divorce decree explicitly states that the payments are nonmodifiable petitioners argue that the payments were in fact modifiable because the county court retained jurisdiction to enforce the msa and the msa could be modified by an agreement by both the parties moreover petitioners assert that florida law considers the intent of the parties in determining the character of payments labeled as alimony and the settlement negotiation letters between mr rood and ms wozniak leading up to the final judgment demonstrate that the payments should be classified as deductible rehabilitative alimony that would terminate upon ms wozniak’s death petitioners urge us to consider the settlement negotiation letters in determining the intent of the parties because they argue the florida parol evidence rule requires examination of extrinsic evidence ii history of alimony payment deductions under sec_71 before_1984 sec_71 required courts to consider a number of factors to determine whether certain transfers of money would be treated as alimony for federal_income_tax purposes 102_f3d_842 6th cir aff’g tcmemo_1995_183 whether payments represented alimony or a property settlement was a question of intent id pincite intent was to be ascertained from the agreement itself and from the surrounding facts and circumstances id congress amended sec_71 in the deficit_reduction_act_of_1984 pub_l_no sec_422 stat pincite to eliminate the subjective inquiries into the intent and the nature of payments that had plagued the courts in favor of a simpler more objective test see baker v commissioner tcmemo_2000_164 citing hoover v commissioner f 3d pincite h_r rept no part ii pincite u s c c a n the objective test was necessary because state courts sometimes used the term alimony indiscriminately 407_f3d_186 3d cir aff’g tcmemo_2005_575 congress eliminated any consideration of intent in determining the deductibility of a payment as alimony in favor of a more straightforward objective test that rests entirely on the fulfillment of the explicit requirements set forth in sec_71 123_tc_258 citing hoover v commissioner f 3d pincite baker v commissioner tcmemo_2000_164 nelson v commissioner tcmemo_1998_268 see also rosenthal v commissioner tcmemo_1995_603 whether or not the parties intended for the payments to be deductible to petitioner we must focus on the legal effect of the agreement in determining whether the payments meet the criteria under sec_71 iii deductible_alimony payments for federal_income_tax purposes pursuant to sec_215 there shall be allowed as a deduction an amount equal to the alimony payments paid during an individual’s taxable_year for purposes of sec_215 the term alimony means any alimony as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 sec_215 sec_71 defines alimony as any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse if a payment satisfies all of these factors then the payment is alimony if it fails to satisfy any one of these factors then the payment is not alimony jaffe v commissioner tcmemo_1999_196 in this case that subparagraphs a b and c are all satisfied is not in dispute the issue before us is whether petitioners’ payments to ms wozniak satisfy subparagraph d of sec_71 in prior cases considering the same question the courts have applied the following sequential approach the court first looks for an unambiguous termination provision in the divorce decree if there is no unambiguous termination provision then the court looks to whether the payments would terminate at the payee’s death by operation of state law and if state law is unclear the court will look solely to the divorce decree to determine whether the payments would terminate at the payee’s death see kean v commissioner f 3d pincite 45_fedappx_700 9th cir 293_f3d_1208 10th cir aff’g tcmemo_1999_293 hoover v commissioner f 3d pincite leventhal v commissioner tcmemo_2000_92 while we will consider state law when there is no unambiguous termination provision in the divorce decree we will not engage in the very sort of subjective inquiry that had prompted the revision of sec_71 hoover v commissioner f 3d pincite therefore when state law is ambiguous as to the termination of payments upon the death of the payee we will not engage in complex subjective inquiries under state law rather we will read the divorce instrument and make our own determination based on the language of the document id see also fithian fed appx pincite in this case both the msa and final judgment provide that mr rood was to make non-modifiable lump sum alimony payments to ms wozniak neither document makes any reference to whether the obligation to make the payments would terminate upon the death of ms wozniak because the divorce documents are silent as to whether the obligation to make the payments would terminate upon ms wozniak’s death we turn to florida law to answer that question in a dissolution of marriage action the florida trial_court is vested with broad discretion to achieve equity when dividing property between the parties and when granting alimony estate of gary v commissioner tcmemo_1991_38 citing kaylor v kaylor so 2d fla dist ct app florida recognized three types of alimony in 2003--permanent periodic rehabilitative and lump-sum alimony the trial_court may award alimony in any combination thereof fla stat ann sec_61 west kirchman v kirchman so 2d fla dist ct app permanent alimony is an allowance for the support and maintenance of a spouse during his or her lifetime cann v cann so 2d fla dist ct app the obligation for periodic alimony afforded by a final divorce decree terminates upon the death of the payee spouse see in re estate of freeland so 2d fla van boven v first nat’l bank in palm beach so 2d fla dist ct app rehabilitative alimony has been defined as alimony paid for the purpose of rehabilitating the spouse to whom it is awarded such as financially supporting an ill spouse until health is restored or financially supporting a spouse until he or she can be trained for employment or in some circumstances until the spouse has a reasonable_time to recover from the trauma of the dissolution cann v cann so 2d pincite furthermore the test for determining whether alimony provisions are nonmodifiable lump-sum alimony is as follows-- a lump-sum alimony award discharges the payor from further liability for the recipient party’s support an award of lump-sum alimony vests in the recipient at the time of the final decree of dissolution and is not subject_to defeasance or modification lump-sum alimony is essentially payment of a definite sum and is in the nature of a final property settlement hence an award of lump-sum alimony creates a vested right which survives death and is not terminable on the recipient party’s remarriage filipov v filipov so 2d fla dist ct app see canakaris v canakaris so 2d fla newsome v newsome so 2d fla dist ct app cann v cann so 2d pincite although an existing vested interest is not as a general matter necessary for an award of lump-sum alimony the fact of granting a lump-sum award in the final judgment itself actually creates a vested right in the receiving party which is neither terminable upon a spouse’s remarriage or death nor subject_to modification hannon v hannon so 2d fla dist ct app citing canakaris v canakaris so 2d pincite thus in awarding lump- sum alimony the court is effectually deciding that the particular amount awarded should not be modified instead it should be made absolute--ie placed beyond the powers of the trial judge to change it id where a decree awards an allowance in gross even though it is made payable in installments the right becomes vested in the payee and the obligation of the payor has every element of finality id pincite petitioners invite us to consider extrinsic evidence in determining the nature of the payments however the congressional amendments to sec_71 as well as our judicial precedents make clear that we should not engage in subjective inquiries in determining whether the obligation to make payments under a divorce decree would terminate upon the death of the payee spouse the intent of the parties is irrelevant in determining whether such an obligation would terminate at death therefore we do not consider the settlement negotiation letters florida law is clear that the obligation to pay lump-sum alimony granted in a divorce decree does not terminate upon the death of the payee spouse the msa the final judgment and the income deduction order all order mr rood to pay nonmodifiable lump-sum alimony to ms wozniak moreover petitioners’ payments in this case cannot be rehabilitative alimony because there is no specific finding by the trial_court regarding the need for rehabilitation or a plan to do so and thus the payments are not tied to any specific rehabilitative purpose kirchman v kirchman so 2d pincite the payments were for the sum of dollar_figure at the rate of dollar_figure per month until paid in full accordingly we find that the payments were for a definite sum and in the nature of a final property settlement and therefore were lump-sum alimony payments under florida law--the payments would not terminate upon the death of ms wozniak and are therefore nondeductible petitioners cite filipov v filipov so 2d pincite newsome v newsome so 2d pincite and canakaris v canakaris so 2d pincite for the proposition that the nature of the payments should be determined by whether the final judgment is modifiable however in canakaris the court merely indicated that it may expressly retain jurisdiction to terminate lump-sum alimony installment payments upon the death of a spouse when the parties agree to such a provision in a property settlement agreement in this case the parties agreed that the lump-sum alimony payments were nonmodifiable moreover in filipov and newsome the courts were deciding whether payments were periodic alimony or lump-sum alimony when the payments were vaguely defined in the divorce documents in this case all three agreements state that the payments were nonmodifiable lump sum alimony petitioners’ arguments to the contrary are rejected finally even if florida law was unclear concerning whether the payments at issue were lump-sum alimony when state law is ambiguous we look only to the express language in the divorce documents to determine whether the payments would terminate upon the death of the payee looking only to the divorce documents we find that petitioners’ payments qualified as lump-sum alimony and the obligation to pay them would not terminate upon the death of ms wozniak iv conclusion petitioners have failed to designate any specific facts in dispute that would indicate that there is a genuine issue for trial therefore we conclude that there is no issue as to any material fact and that a decision may be rendered as a matter of law under florida law the payments at issue were made pursuant to an obligation to pay lump-sum alimony florida law is clear that the obligation to pay lump-sum alimony does not terminate upon the death of the payee spouse therefore petitioners’ dollar_figure monthly payments in are not deductible_alimony for purposes of sec_71 to reflect the foregoing an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c tax exempt and co ero es sep - - fi p’ avy uil 408a xxxxxxxxxxxxxxxxxxxxxxxk xxxxxxxxxxxxxxxxxxxkxxxxx xxxxxxxxxxxxxxxxxxxxxxxx legend taxpayer a xxxxxxxxxxxxxxxxxxx taxpayer b xxxxxxxxxxxxxxxxxxx financial planner c xxxxxxxxxxxxxxxxxxx ira x ira y xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxkx roth_ira x xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxk roth_ira y xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxkx company d xxxxxaxxxxxxxxxxxxxxxx month e xxxxxxxxxxxx amount l xxxxxxxxxxxx amount m xxxxxxxxxxxx dear xxxxxxxxxxxx in a letter dated date you requested a ruling in which you request relief under sec_301_9100-3 of the procedure and administration regulations regulations the following facts and representations support your ruling_request taxpayer a is married to taxpayer b taxpayers a and b respectively maintained ira x and ira y traditional individual_retirement_arrangements ira described in sec_408 of the internal_revenue_code the code with company d during month e pursuant to the advice of their financial planner c taxpayers a and b converted ira x and ira y in the amounts of amount l and amount m respectively to roth_ira x and roth_ira y respectively also with company d taxpayers a and b’s adjusted_gross_income agi for 408a c b of the code however prior to the ira conversions taxpayers a and b were not advised by their financial planner c that they were ineligible to convert ira x and ira y to roth iras additionally taxpayers a and b were unaware of the time limits and or deadlines for recharacterizing amounts that had been improperly converted from traditional iras to roth iras exceeded the limit found at section taxpayers a and b timely filed their calendar_year joint_return form_1040 ‘federal income_tax based on the above information you request the following letter_ruling that pursuant to sec_301_9100-3 of the regulations taxpayers a and b are granted a period not to exceed six months from the date of this ruling letter to recharacterize their roth_ira x and roth_ira y respectively to traditional iras with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a d of the code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not to the transferor ira under code sec_408a and sec_1_408a-5 of the regulations this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer’s federal_income_tax returns for the year of contributions sec_1_408a-5 question and answer-6 of the regulations describes how a taxpayer makes the election to recharacterize the ira contributions to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_408a of the code and sec_1_408a-4 q a-2 of the regulations provide in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for taxable_year is the modified agi derived from the joint_return using the couple’s combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning request for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to the elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the temporary regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer’s control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service v the taxpayer reasonably relied on a qualified_tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the temporary regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax_year that would have been affected b the election had it been timely made are closed by the statute_of_limitations before the taxpayer’s receipt of a ruling granting relief under this section in this case taxpayers a and b were ineligible to convert ira x and ira y to roth_ira x and roth_ira y since their adjusted_gross_income exceeded dollar_figure however taxpayers a and b believed that they were eligible to convert their iras to roth iras until they discovered otherwise at which time the deadlines for recharacterizing their roth iras as traditional iras had passed taxpayers a and b filed this request for sec_301 relief shortly after discovering that they were ineligible to convert ira x and ira y to roth iras calendar_year is not a closed tax_year and the statue of limitations with respect thereto has not run with respect to your request for relief we believe that based on the information submitted and the representations made the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth iras as traditional iras specifically the service has concluded that you have met the requirement of clause v of sec_301_9100-3 of the regulations therefore you are granted an extension of days from the date of the issuance of this letter_ruling to so recharacterize no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section or either the code or regulation which may be applicable thereto this letter assumes that the above-referenced iras qualify under code sec_408 at all relevant times this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative if you have any questions regarding this ruling please contact xxxxxxxxxx at xxxxxxxxx or by fax at xxxxxxxxxxxx s dp yours rances v sloan employee_plans tgchnical group enclosures deleted copy of letter_ruling notice


id office uilc cca_2008071708490041 ----------------------------- number release date from --------------- sent thursday date am to --------------- cc --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- subject re form_8919 thanks again the instructions you copy below are correct in what they say ------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------that is consistent with our published view that receipt of a w-2 means there is no worker classification controversy for purposes


t c summary opinion united_states tax_court linda l domanico and anthony m domanico petitioners v commissioner of internal revenue respondent docket no 18992-04s filed date linda l domanico and anthony m domanico pro sese joan casali for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the taxable_year in issue all monetary amounts are rounded respondent determined a deficiency in petitioners’ federal_income_tax for the taxable_year of dollar_figure the deficiency is attributable solely to the 10-percent additional tax under sec_72 on an early distribution from a qualified_retirement_plan after petitioners’ partial concession concerning the amount of the deficiency in dispute the sole issue for decision is whether petitioners are liable under sec_72 for the percent additional tax on an early distribution from petitioner linda l domanico’s sec_401 qualified_retirement_plan 401_k_plan we hold that they are background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and accompanying exhibits at the time that the petition was filed petitioners resided in lindenhurst new york from to petitioner linda l domanico mrs domanico worked as a flight attendant for trans world airlines on or about date petitioners paid to respondent dollar_figure in respect of the dollar_figure deficiency representing the percent additional tax under sec_72 on dollar_figure of petitioner linda l domanico’ sec_401 plan distribution which portion petitioners conceded was not used for higher education expenses plus interest thereon however as discussed infra in the text the distribution of dollar_figure less her education expenses of dollar_figure equals dollar_figure this discrepancy is not explained in the record inc twa during her employment with twa mrs domanico participated in twa’ sec_401 plan in mrs domanico terminated her employment with twa because of a permanent injury that she incurred on board an aircraft several years later she continued her studies towards a permanent teaching certificate in mrs domanico began her graduate studies she incurred the following higher education expenses year college adelphi st john’s university st john’s university st john’s university teacher education institute teacher education institute total amount dollar_figure big_number big_number big_number dollar_figure during mrs domanico was also employed as a librarian twa informed mrs domanico by letter dated date that american airlines had acquired twa and that she was eligible to roll over your account balance to another qualified_plan or ira you were advised that once your twa-sponsored plan the plan is terminated you will be required to i make an election either to roll over the balances in that plan to the american airlines dollar_figureuper dollar_figureaver plan or other qualified_plan if you take a job with another company that allows such rollovers ii transfer your balances to an individual ira or iii take a direct distribution on the basis of her research of the u s master tax guide master tax guide a tax guide published by commerce clearing house inc a private commercial publisher mrs domanico decided to take a direct distribution of dollar_figure from the 401_k_plan in at the time of the distribution she had not reached years of age nor was she disabled in the year that she received the distribution mrs domanico used dollar_figure of the distribution to pay higher education expenses that she incurred in that year with the exception of dollar_figure see supra note she used the remaining funds to pay off debt that she had incurred in and for higher education expenses and pay for higher education expenses that she subsequently incurred in and petitioners timely filed a form_1040 u s individual_income_tax_return for on their return petitioners reported the dollar_figure distribution as income but did not report the 10-percent additional tax for an early distribution under sec_72 on form_5329 additional taxes on qualified_plans including iras and other tax-favored accounts petitioners indicated that the early distribution was not subject_to the additional tax by virtue of exception ira_distributions made for higher education expenses in the notice_of_deficiency respondent determined that petitioners are liable for the 10-percent additional tax on the early distribution from mrs domanico’ sec_401 plan pursuant to sec_72 an attachment to the notice_of_deficiency stated in relevant part the qualified_retirement_plan in question was not an individual_retirement_plan and that the additional tax cannot be avoided by offset of the distribution by qualified_education_expenses any qualified_education_expense offset is limited to expenses paid during the taxable_year of distribution petitioners timely filed a petition with the court disputing the determined deficiency paragraph of the petition states i used an early distribution from a qualified_plan for educational expenses i was forced to make a decision by my employer and i thought i interpreted the tax code correctly the monies that i used were entirely my contributions i was told that had i rolled them over for one day they would be exempt from the penalty i feel i am being penalized harshly for such a finite misinterpretation i would greatly appreciate a favorable ruling discussion3 petitioners contend that the distribution from mrs domanico’ sec_401 plan is excepted from the 10-percent additional tax on early distributions because they used the funds to pay for mrs domanico’s higher education expenses_incurred from through in support of their contention petitioners rely on paragraph of the master tax guide that states in pertinent part early distributions distributions from a traditional_ira to a participant before the individual has reached age ½ are generally subject_to the same penalty that applies to early distributions from qualified_plans many of the exceptions to the early distribution penalty also apply to early distributions from a traditional_ira the following the facts are not in dispute and the issue is essentially one of law accordingly we decide the issue without regard to sec_7491 exceptions to the penalty also apply when early distributions are made from an ira education expenses the penalty does not apply if the individual uses the ira money to pay for qualified_higher_education_expenses for the individual the individual’s spouse child or grandchild of the individual or the individual’s spouse qualified expenses included sic tuition at a post-secondary educational_institution books fees supplies and equipment code sec_72 emphasis added therefore in petitioners’ view because distributions from an ira and a qualified_plan ie a 401_k_plan are treated the same in some instances for purposes of the 10-percent penalty and because a distribution from an ira that is used for higher education expenses is exempt from the 10-percent penalty a distribution from a qualified_plan that is used for higher education expenses should also be exempt from the 10-percent penalty moreover according to petitioners a one-time distribution should cover expenses_incurred over a number of years because paragraph of the master tax guide does not state that the funds must be used in the same calendar_year that the distribution is received as discussed below we disagree with petitioners’ contention first it is well settled that the authoritative sources of federal tax law are the statutes regulations and judicial decisions and not guides such as the master tax guide that are published by private commercial publishers see eg zimmerman v commissioner 71_tc_367 affd without published opinion 614_f2d_1294 2d cir second sec_72 imposes an additional tax on distributions from a qualified_retirement_plan equal to percent of the portion of such amount that is includable in gross_income unless the distribution comes within one of several statutory exceptions for purposes of the 10-percent additional tax a qualified_retirement_plan includes both a 401_k_plan and an individual_retirement_account or individual_retirement_annuity collectively iras see sec_72 sec_401 k c and lastly as relevant herein the 10-percent additional tax imposed on early distributions from qualified_retirement_plans does not apply to distributions from individual retirement plans used for higher education expenses of the taxpayer for the taxable_year sec_72 an individual_retirement_plan is defined as an individual_retirement_account or individual_retirement_annuity commonly referred to as iras sec_4 sec_72 provides sec_72 10-percent additional tax on early distributions from qualified_retirement_plans -- e distributions from individual retirement plans for higher education expenses -- distributions to an individual from an individual_retirement_plan to the extent such distributions do not exceed the qualified_higher_education_expenses of the taxpayer for the taxable_year a retirement plans qualified under sec_401 and k however are not included in the definition of individual_retirement_plan under sec_7701 clearly congress intended this exception to apply only to distributions from individual retirement plans ie iras and not to all qualified_retirement_plans see sec_4974 and and a taxpayer_relief_act_of_1997 publaw_105_34 sec a 111_stat_809 this is evident in the report of the committee on the budget which provides penalty free ira withdrawals for education expenses--the bill provides that individuals may make penalty-free withdrawals from their iras to pay for the undergraduate and graduate higher education expenses of themselves their spouses their children and grandchildren or the children or grandchildren of their spouses emphasis added h rept pincite 1997_4_cb_319 the report of the committee on the budget specifically provides that only withdrawals from iras that are used for higher education expenses will qualify as withdrawals excepted from the 10-percent additional tax id in the present case mrs domanico’ sec_401 plan is a qualified_retirement_plan and distributions therefrom are subject_to the 10-percent additional tax under sec_72 absent an applicable statutory exception although mrs none of the exceptions under sec_72 eg distributions made after the employee attains age ½ continued domanico used her 401_k_plan distribution for a commendable purpose ie to pay for higher education expenses the distribution does not qualify for the higher education expenses exception under sec_72 because the distribution was not from an ira although the common retirement-oriented purpose of a 401_k_plan and an individual_retirement_plan may have led petitioners to a finite misinterpretation based on their reading of the master tax guide a 401_k_plan and an individual_retirement_plan are separate and distinct in that only withdrawals from an ira may qualify for this exception see sec_72 sec_401 sec_408 and b the distinction between the two for purposes of sec_72 may appear to exalt form over substance but it is a distinction that is legislatively mandated in closing we think it appropriate to observe that we found petitioners to be very conscientious taxpayers who obviously take their federal tax responsibilities quite seriously we recognize that the difference between a qualified_retirement_plan and an continued attributable to an employee’s being disabled or made to an employee after separation_from_service after attainment of age of apply in this case in contrast to petitioners’ finite misinterpretation we note that par of the master tax guide is consistent with the statutory language in that it identifies education expenses as an additional exception that applies when early distributions are made from an ira ira is highly technical and we applaud petitioners for their efforts in researching the tax consequences of receiving a 401_k_plan distribution the tax_court however is a court of limited jurisdiction and lacks general equitable powers 484_us_3 40_tc_436 affd 331_f2d_422 7th cir consequently our jurisdiction to grant equitable relief is limited 92_tc_776 73_tc_1014 although we acknowledge that petitioners used the 401_k_plan distribution for a laudable purpose absent some constitutional defect we are constrained to apply the law as written see 736_f2d_1168 7th cir affg 80_tc_783 and we may not rewrite the law because we may ‘deem its effects susceptible of improvement’ 516_us_235 quoting 464_us_386 accordingly petitioners’ appeal for relief must in this instance be addressed to their elected representatives the proper place for a consideration of petitioner’s complaint is the halls of congress not here hays corp v commissioner supra pincite therefore we conclude that mrs domanico’ sec_401 plan distribution is subject_to the additional tax under sec_72 accordingly we sustain respondent’s determination on this issue conclusion we have considered all of the other arguments made by petitioners and to the extent that we have not specifically addressed them we conclude that those arguments are contrary to the legislative mandate reviewed and adopted as the report of the small_tax_case division to reflect our disposition of the disputed issue as well as petitioners’ partial concession see supra note decision will be entered for respondent