t c memo united_states tax_court vicki m smith petitioner v commissioner of internal revenue respondent docket no filed date john w nelson for petitioner timothy s sinnott for respondent memorandum findings_of_fact and opinion chiechi judge petitioner filed the petition in this case in response to a so-called final appeals determination notice_of_determination concerning petitioner’s request for relief from joint_and_several_liability under section for each of her 1all section references are to the internal_revenue_code in continued taxable years and we must decide whether petitioner is entitled to relief under that section for each of those years we hold that she is to the extent stated herein findings_of_fact some of the facts in this case have been stipulated and are so found at the time she filed the petition in this case petitioner resided in indiana petitioner who was born in received a bachelor of science degree in business administration in from the university of evansville in evansville indiana during college petitioner took courses in accounting marketing statistics finance business administration and quantitative business analysis on date petitioner married michael smith mr smith we shall sometimes refer to petitioner and mr smith as the smiths mr smith who wa sec_49 years old at the time of the trial in this case had taken some college courses but had not received a college degree during their marriage the smiths maintained separate bank accounts and deposited their respective earnings into their respective bank accounts from the time they married until continued effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure around date mr smith handled the family’s financial affairs including signing any checks and paying household bills as of the time of the trial in this case neither petitioner nor mr smith had filed for divorce and petitioner did not intend to file for divorce at no time during their marriage did mr smith abuse petitioner the smiths have a daughter and a son at the time of the trial in this case the smiths’ daughter who wa sec_21 years old was a full-time_student at a private university in illinois which was her primary residence the smiths’ daughter stayed with petitioner only during summers and other school recesses during college the smiths’ daughter received certain financial aid for her college education in addition at the time of the trial in this case petitioner and her family were providing an unidentified amount of support to the smiths’ daughter as of the time of the trial in this case the smiths’ son who was years old and residing with petitioner was a senior at a private high school in indiana and intended to attend a private university in ohio at that time the smiths’ son was receiving certain financial aid for his high school tuition and petitioner was paying approximately dollar_figure each school year towards that tuition from around date until january or date mr smith worked as a patrol officer for the indianapolis police department police department during and mr smith worked as a police officer at least hours each week and often worked significant amounts of overtime from around until at least the time of the trial in this case petitioner worked for dow agro sciences l l c dow as of the time of that trial petitioner was a customer service representative for dow during and dow paid peti- tioner salaries of dollar_figure and dollar_figure respectively during dow paid her a salary of dollar_figure during and petitioner sold certain mary kay products mary kay activity during those years petitioner had net_income from the mary kay activity of dollar_figure and dollar_figure respec- tively at all relevant times petitioner maintained through dow a retirement account under sec_401 retirement account from through late or early petitioner at times borrowed money from her retirement account in order to pay certain expenses including basic living_expenses at a time not disclosed by the record during the 1990s mr smith began operating an unincorporated business real_estate business in which he acquired and operated certain rental real_estate properties in indianapolis and engaged in so- called flipping which involved his purchasing certain proper- ties renovating them and selling them although mr smith’s real_estate business was initially successful it became unprof- itable at an undisclosed time before which caused the smiths to incur certain obligations and debts because of the unprofitability of mr smith’s real_estate business around the smiths commenced a bankruptcy proceeding in late mr smith established first choice appraisal inc first choice of which he owned at all relevant times all of the outstanding_stock at no time did petitioner have an ownership_interest in first choice at all relevant times first choice was treated for federal_income_tax tax purposes as an s_corporation during and mr smith in addition to working full time as a patrol officer for the police department appraised certain residential real_estate in indiana on behalf of first choice at all relevant times first choice maintained an unidenti- fied number of bank accounts first choice accounts into which mr smith deposited all of the money that first choice received petitioner did not have access to the first choice accounts during and first choice maintained an office in indianapolis at which mr smith conducted most of its business at certain times during those years mr smith also worked for first choice at the smiths’ residence where he conducted his work for first choice primarily on the family’s computer a password was necessary in order to access the first choice files that mr smith created and maintained on that computer petitioner did not know that password and did not at any time view those files during and petitioner did not have access to the books_and_records or the financial statements of first choice that would have made her aware of the respective amounts of net_income that that company was generating during those years petitioner was not involved in the preparation of any_tax return that first choice filed and was not shown any such return before or after its filing on a date early in before april the smiths filed jointly form_1040 u s individual_income_tax_return form_1040 for joint_return in that return they reported taxable_income of dollar_figure showed tax of dollar_figure claimed a withholding_tax credit of dollar_figure and showed tax due of dollar_figure the smiths did not pay on or before date the tax shown due of dollar_figure around date the smiths entered into an installment_agreement installment_agreement with the internal_revenue_service service with respect to their unpaid tax for around date respondent applied a dollar_figure overpay- ment for the smiths’ taxable_year against their remaining unpaid tax for pursuant to the installment_agreement the smiths made monthly payments to the service of at least dollar_figure from date through date because of certain activities discussed below in which mr smith engaged on behalf of first choice while appraising certain residential real_estate around late or early the federal bureau of investigation fbi began investigating him and that company in date the fbi executed a search warrant on mr smith at the smiths’ residence and searched it for about four hours during that search mr smith and the smiths’ son were present but not petitioner around date the smiths filed form_1040 for joint_return in that return the smiths reported inter alia wages of dollar_figure net_income of dollar_figure from the mary kay activity net_income of dollar_figure from first choice adjusted_gross_income of dollar_figure and taxable_income of dollar_figure in the joint_return the smiths showed tax of 2pursuant to the installment_agreement in june and date the smiths paid to the service dollar_figure and dollar_figure respectively 3mr smith hired jimmie johnson mr johnson a self-em- ployed tax preparer to prepare their joint_return the smiths previously had used h_r block to prepare their tax re- turns 4the wages of dollar_figure that the smiths reported in the joint_return consisted of dollar_figure that dow paid to petitioner and dollar_figure that the police department paid to mr smith during we note that the smiths rounded to the nearest dollar all amounts that they reported in the respective joint tax returns that they filed for and dollar_figure and self-employment_tax of dollar_figure claimed a withhold- ing tax_credit of dollar_figure and showed tax due of dollar_figure around date mr smith gave the joint_return to petitioner and asked her to sign it although petitioner did not review that entire return before signing it she was aware that first choice an s_corporation generated certain income that was reported in that return and that that return showed a significant amount of tax due petitioner asked mr smith how he intended to pay the tax shown due in the joint_return mr smith responded that he would pay it from the profits that first choice would generate in the following year petitioner and mr smith signed the joint_return but did not pay the tax shown due in that return when they filed it around date at the time the smiths filed the joint_return petitioner did not suffer from any physical or mental illness at a time not disclosed by the record after the smiths filed the joint_return petitioner recommended to mr smith that he establish a quarterly payment plan with the service with respect to any_tax estimated to be due on income generated by first choice in order to reduce the amount that the smiths would 5the dollar_figure withholding_tax credit that the smiths claimed in the joint_return consisted of dollar_figure that dow withheld from petitioner’s wages and dollar_figure that the police department withheld from mr smith’s wages during owe when they filed a tax_return in which they reported such income mr smith did not do so from date to date the smiths did not make the payments required under the installment_agreement as a result on date respondent issued a separate letter lt11 final notice--notice of intent to levy and your notice of a right to a hearing notice_of_levy to petitioner and mr smith with respect to and respondent included with the notice_of_levy that respondent issued to petitioner inter alia publication what you should know about the irs collection process that publication indicated that so-called innocent spouse relief might be available to certain taxpayers and di- rected taxpayers to another publication of the service discussing such relief on date a grand jury for the u s district_court for the southern district of indiana district_court indicted mr smith and nine other individuals on charges of conspiracy to defraud the united_states wire fraud and money laundering that indictment alleged that one or more cocon- spirators of mr smith purchased certain property for low prices and then sold that property to another coconspirator who pur- 6the indictment against mr smith and the nine other indi- viduals contained counts mr smith was indicted on only counts of conspiracy to defraud the united_states counts of wire fraud and count of money laundering chased it for an inflated price second purchase and thereafter failed to make the required mortgage loan payments to the lending institution that financed the second purchase the second purchase by another coconspirator caused a significant loss to the lending institution because the property purchased was worth considerably less than the outstanding mortgage loan the indictment alleged that mr smith provided an inaccurate and inflated appraisal in order to aid certain of his cocon- spirators in obtaining financing for the second purchase of the subject property at an inflated price and appropriate to himself and his coconspirators the gain realized by the seller in the second purchase after mr smith was indicted he was arrested released on his own recognizance pending his trial in the district_court and suspended in january or date from the police department around date pursuant to the respective notices of levy issued to petitioner and mr smith respondent levied against certain unidentified assets of one or both of them and credited dollar_figure against their tax_liability for around date the smiths filed form_1040 for joint_return in that return the smiths reported inter 7mr johnson who prepared the smiths’ joint_return also prepared their joint_return alia wages of dollar_figure net_income of dollar_figure from the mary kay activity net_income of dollar_figure from first choice adjusted_gross_income of dollar_figure and taxable_income of dollar_figure in the joint_return the smiths showed tax of dollar_figure and self-employment_tax of dollar_figure claimed a withholding_tax credit of dollar_figure and showed tax due of dollar_figure around date mr smith gave the joint_return to petitioner and asked her to sign it although petitioner did not review that entire return before signing it she was aware that first choice an s_corporation generated certain income that was reported in that return and that that return showed a significant amount of tax due petitioner asked mr smith how he intended to pay the tax shown due in the joint_return mr smith responded that he would pay it from the profits that first choice would generate in the following year petitioner and mr smith signed the joint_return but did not pay the tax shown due in that return when they filed it 8the wages of dollar_figure that the smiths reported in the joint_return consisted of dollar_figure that dow paid to petitioner and dollar_figure that the police department paid to mr smith during 9the dollar_figure withholding_tax credit that the smiths claimed in the joint_return consisted of dollar_figure that dow withheld from petitioner’s wages and dollar_figure that the police department withheld from mr smith’s wages during 10the tax due shown in the joint_return included an estimated_tax penalty of dollar_figure around date at the time the smiths filed the joint_return petitioner did not suffer from any physical or mental illness around date pursuant to the respective notices of levy issued to petitioner and mr smith respondent levied against certain unidentified assets of one or both of them and credited dollar_figure against their tax_liability for around date respondent applied an overpayment of dollar_figure for the smiths’ taxable_year as credits of dollar_figure and dollar_figure against the amounts that they owed for and respectively around date respondent applied an overpayment of dollar_figure for the smiths’ taxable_year as a credit against the amount that they owed for on date the district_court commenced the trial of mr smith and certain of his coconspirators on the charges in the indictment on date the jury unanimously found mr smith guilty of each of the counts against him on date the district_court sentenced mr smith to months of imprisonment and years of supervised release the district_court also ordered mr smith to pay restitution of dollar_figure to certain lending institutions on date mr smith reported to the federal prison at ashland kentucky to begin serving his prison sentence as of the time of the trial in this case mr smith was to be released from prison around date as of that time petitioner expected that mr smith would return to live with her after his release around date petitioner filed form_8857 request for innocent spouse relief form with respect to and petitioner attached to that form form questionnaire for requesting spouse form we shall sometimes refer collectively to form_8857 and form that petitioner filed with respect to and as petitioner’s innocent spouse relief request in petitioner’s innocent spouse relief request she claimed that she had no reason to believe there was a problem with the joint_return or the joint_return and that mr smith handled all of the family finances at the time she filed petitioner’s innocent spouse relief request petitioner did not suffer from any physical or mental illness in petitioner’s form_8857 petitioner claimed total monthly income of dollar_figure consisting of monthly wages of dollar_figure and monthly gifts of dollar_figure in that form petitioner also claimed total monthly expenses of dollar_figure consisting of claimed monthly expense federal state and local_taxes rent or mortgage utilities telephone food car including car payments and insurance medical_expenses life_insurance clothing tuition2 total amount dollar_figure big_number big_number big_number 1in form that petitioner attached to form_8857 that she submitted to the service petitioner claimed total monthly car expenses of dollar_figure consisting of dollar_figure for automobile payments dollar_figure for automobile insurance and dollar_figure for automobile gas and repairs the record does not establish why petitioner claimed dollar_figure in form_8857 and dollar_figure in form 2the tuition expense that petitioner claimed was for tuition that she paid to the university that the smiths’ daughter was attending around date mr smith submitted to respondent form questionnaire for non-requesting spouse in that form mr smith claimed that he and petitioner maintained sepa- rate bank accounts that petitioner did not have any access to the first choice accounts and that petitioner was not involved in any of the business or the financial affairs of first choice on date respondent issued to petitioner letter 3661c preliminary determination preliminary determination with respect to petitioner’s request for relief under sec_6015 for in that letter respondent determined that petitioner was not entitled to that relief because she did not file her request for relief within two years of the first collec- tion activity with respect to around date petitioner submitted to respondent form statement of disagreement form in response to respondent’s determination with respect to her request for relief under sec_6015 for form in that form petitioner stated i was unaware of the attempts from the irs to collect the debt when i found out my spouse michael as- sured me that the matter was being taken care of michael was the person who received the mail at our house for many years of our marriage he was responsi- ble for all the household expenses he had a full-time job and owned a small_business whose tax consequences were attached to our personal income_tax returns the tax returns were completed by a third party tax profes- sional i had no reason to question or review the returns each year so i signed them in reliance on their accuracy my inability to pay this debt only became a matter of heightened concern this year after michael was incar- cerated michael believed he would be able to pay all expenses including any taxes when the investi- gation which turned into a case was settled he believed he would be vindicated return to work get the money back that was taken from him and be able to make arrangements to settle any outstanding debt that did not happen his incarceration has created a financial hardship for me my son and my daughter i have been forced to give up our four bedroom house and move to a two bedroom apartment i cannot make the mortgage payment so the house will be foreclosed on soon i am now attempting to work to resolve this situation i ask that the irs grant me equitable relief from this debt as it was my reasonable belief that my husband was taking care of any expenses due from his business including the taxes this debt places an extreme financial hardship on me and my and sic children who have already lost our home this debt places a finan- cial strain on the daily care of my children please also consider the fact that prior to my husband’s problems i was fully compliant with the tax laws in every year prior and since as you can see by the data provided on form this tax debt is more than my annual salary this tax debt was not a result of my doings or knowl- edge i relied on my husband and a professional tax preparer i have now been faced with financial ruin because of it i respectfully request that the irs grant me equitable relief from this debt an examiner working for the service respondent’s examiner prepared an examination workpaper dated date examina- tion workpaper with respect to petitioner’s request for relief under sec_6015 for in that workpaper respondent’s examiner concluded that petitioner is not entitled to relief under that section for any portion of the underpayment for that year the examination workpaper stated inter alia general information denied - she is liable for part of the up underpay- ment per tax ran attribution worksheet they both did not have enough taxes withheld from their income to pay the bal due she is liable for dollar_figure he is liable for dollar_figure she has no reason to believe he was going to pay she knew there was a bal due she knew they had financial problems because he lost his job his business closed she also knew there was a bal due from the previous yr not paid it would not cause an economic hardship to hold her liable her income exceeds her expenses by dollar_figure a month they have not been apart months spouse’s response he just talks about she was not involved in his busi- ness he does not talk about the balance due evaluation process year sec_6015 liability arose on or after date joint_return is valid there is enough information to determine the claim no oic accepted eligibility factors underpayment_of_tax - relief is not available under sec_6015 sec_6015 filed a joint_return claim filed timely liability unpaid or rs requesting spouse may have refundable payments not a fraudulent return no fraudulent transfer of assets no disqualified assets transferred the underpaid tax is not solely attributable to the nrs nonrequesting spouse attribution per the attribution worksheet they both did not have enough taxes withheld from their income to pay the balance due partial attribution to the nrs continue evaluating for the portion attributable to the nrs deny relief for the portion attributable to the rs tier i factors limited scope taxpayers are currently not divorced widowed or le- gally separated and did not live apart prior to the claim for at least consecutive months tier i factors limited scope not met tier ii factors taxpayers are currently not divorced widowed against or legally_separated and did not live apart prior to the claim for at least consecutive months no economic hardship explanation the info she provided shows her income against exceeds her expenses by dollar_figure a month but she added her daughters college tuition of dollar_figure a month as an expenses after a call to her to verify this that sic is not a basic living_expenses so her in- come exceeds by dollar_figure a month no marital abuse no poor mental or physical health no legal_obligation established knowledge background rs - bachelor of science in business administration business admin finance intro acctg marketing stastics sic involvement rs - she had her own account that her income was deposited into they had no joint account lifestyle changes nrs’s elusiveness duty to inquire nrs - some college nrs - he had his own account no no she did not review the return before signing it lived together all year living arrangements rs had knowledge or reason to know against explanation she knew there was a balance due she did not have reason to believe he was going to pay it she knew they had financial problems when he lost his job his business was shut down they also owed the year before have not paid it she did not receive any benefit no significant benefit gained for explanation made a good_faith effort to comply with the tax for laws explanation unique circumstances no not meeting tier ii factors - deny claim tier ii consideration she has been compliant based on the above facts it is equitable to hold the rs lia- ble for the balance she did not have reason to believe he was going to pay it would not cause an economic hardship they are still married living together tier ii factors not met - deny claim denied under sec_6015 - full scope conclusion - denied under f she is liable for part bal due she did not have reason to believe he was going to pay it would not cause an economic hardship they are still married living together she states they have been apart since date but he is just incarcerated which does not constitute a separation on date respondent issued to petitioner a preliminary determination with respect to her request for relief under sec_6015 for in that letter respondent deter- mined that petitioner is not entitled to that relief because you petitioner did not show it would be unfair to hold you respon- sible you did not prove that at the time you signed the return you had reason to believe the tax would be paid also the documentation you provided does not prove economic hardship around date petitioner submitted to respondent form in response to respondent’s determination with respect to her request for relief under sec_6015 for form that form contained a statement materially identical to the one that petitioner had included in her form petitioner’s form also included the following addi- tional information with respect to her then current expenses since initially filing for equitable relief it has become more clear the magnitude of my monthly expenses they include rent dollar_figure gas electricity dollar_figure food dollar_figure tithes dollar_figure auto payment dollar_figure auto ins dollar_figure auto license plates dollar_figure life ins dollar_figure auto gas repairs dollar_figure medical dental ins dollar_figure sears card dollar_figure loan dollar_figure clothing dollar_figure taxes dollar_figure plus co-pays for any medical dental appointments prescriptions vision exams glasses and contact lenses etc while i understand the family contribution of my daugh- ter’s college expenses is not considered part of my financial hardship my son is in high school and i have varying expenses that relate to that as well ie his tuition dollar_figure yr books dollar_figure yr etc respondent assigned petitioner’s appeal to an officer respondent’s appeals officer in respondent’s appeals_office appeals_office while that appeal was pending petitioner submitted to the appeals_office a pay statement dated date reflecting petitioner’s gross salary petitioner’s salary from dow and certain amounts that dow had deducted from petitioner’s salary for the biweekly pay_period april to date pay statement and a spreadsheet showing certain of petitioner’s monthly expenses expenses spreadsheet the date pay statement indicated that petitioner’s monthly salary was dollar_figure that pay statement showed the following biweekly amounts that dow had deducted from petitioner’s salary amount federal state and local_taxes medical dental vision and disability insurance and health care reimbursement account life_insurance esp loan2 contribution to petitioner’s retirement account miscellaneou sec_3 total actual biweekly deduction dollar_figure prorated monthly deduction1 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 1for convenience we have prorated the amount that dow deducted from petitioner’s salary in order to determine the amount that dow would have deducted each month from petitioner’s monthly salary 2the esp loan represented payments that petitioner made to her retirement account in order to repay certain loans that she had made from that account 3the category miscellaneous included two items identified on the date pay statement as rhcap and hp mbrshp singl the record does not establish what those two items represented or why petitioner paid certain amounts with respect to those items in the expenses spreadsheet petitioner claimed the follow- ing monthly expenses claimed expense rent gas electric_car payment cable home telephone cellular telephone automobile--gas food sears card1 tithes total amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 1as of the time of the trial in this case petitioner had paid the balance on her sears credit card after considering petitioner’s appeal respondent’s appeals officer prepared an appeals case memorandum dated date appeals memorandum in that memorandum respondent’s appeals officer concluded that petitioner is not entitled to relief under sec_6015 for or the appeals memorandum stated in pertinent part 11in the appeals memorandum respondent’s appeals officer analyzed petitioner’s appeal under the factors set forth in revproc_2000_15 2000_1_cb_447 revenue_procedure we note that revproc_2003_61 2003_2_cb_296 revenue_procedure superseded revproc_2000_15 revenue proce- dure is effective for requests for relief under sec_6015 that were filed on or after date id sec revproc_2003_61 is applicable in this case because petitioner filed petitioner’s innocent spouse relief request around date discussion and analysis sec_6015 relief is provided for under sec_6015 if taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either and relief is not available under subsection sec_6015 or c threshold factors under sec_6015 a joint_return was filed sec_6015 and c are not avail- able there was a timely application_for relief there was no underpayment as of date there is no evidence of fraudulent transfers of assets there is no evidence of disqualified assets transferred there was no evidence of a fraudulent joint_return presented the eo examining officer determined that the threshold factors of sec_6015 were not met because the taxpayer did not request relief within years of the first collection activity for the account she filed for relief date the notice_of_intent_to_levy was mailed to each indi- vidual date the taxpayer meets the threshold factors for the tax_year because collection activities had not yet begun i agree with the examining officer’s determinations only the tax_year will be considered further tier i tier ii factors of sec_6015 the taxpayer does does not qualify under the tier i tier ii factors of sec_6015 following are the circumstances under which equitable relief under sec_6015 will ordi- narily be granted tier i in cases where a liability reported on a joint_return is unpaid equitable relief under sec_6015 will ordinarily be granted in cases where all of the following elements are satisfied a at the time relief is requested the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse or has not been a member of the same household as the nonrequesting spouse at any time during the 12-month_period ending on the date relief was requested relevant facts from taxpayer govern- ment the taxpayer is still married and did not mention any plans to file for divorce her spouse is incarcerated for the next few years in federal prison this element is not satisfied because the taxpayers are married and separate living arrangements due to imprisonment does not qualify as sepa- rate households b at the time the return was signed the requesting spouse had no knowledge or reason to know that the tax would not be paid the requesting spouse must establish that it was reasonable for the requesting spouse to be- lieve that the nonrequesting spouse would pay the reported liability and relevant facts from taxpayer govern- ment the taxpayer believed that her husband would be found innocent rein- stated at his job and their lives would return to normal she signed the tax_return after he was indicted and had been suspended from his job this element is not satisfied because the taxpayer knew that the tax_liability would not be paid for some time due to the criminal proceedings that were taking place during the couple was using their savings to pay for their personal living_expenses and his attorney fees c the requesting spouse will suffer eco- nomic hardship if relief is not granted for purposes of this section the determination of whether a requesting spouse will suffer economic hardship will be made by the commis- sioner or the commissioner’s delegate and will be based on rules similar to those pro- vided in sec_301_6343-1 of the regulations on procedure and administration relevant facts from taxpayer govern- ment the taxpayer is trying to change the family’s standard of living so that her income is enough to pay their basic living_expenses she has moved from the family home to an apartment because she could not afford the mortgage payment the taxpayer is experiencing economic hardship with or without this tax lia- bility this element is satisfied because the taxpayer is suffering an economic hard- ship and is unable to pay her basic living_expenses at the present time tier ii the secretary may grant equitable relief under sec_6015 if taking into account all the facts and circumstances it is inequita- ble to hold the requesting spouse liable for all or part of the unpaid liability or defi- ciency the following is a partial list of the positive and negative factors that will be taken into account in determining whether to grant full or partial equitable relief under sec_6015 no single factor will be determinative of whether equitable relief will or will not be granted in any particular case rather all factors will be considered and weighed appropriately the list is not intended to be exhaustive factors that favor relief the factors weighing in favor of relief in- clude but are not limited to the following a marital status the requesting spouse is separated whether legally_separated or liv- ing apart or divorced from the nonrequesting spouse relevant facts from taxpayer govern- ment the taxpayer is still married and did not mention any plans to file for divorce her spouse is incarcerated for the next few years in federal prison this element is not satisfied because the taxpayers are married and separate living arrangements due to imprisonment does not qualify as sepa- rate households b economic hardship the requesting spouse would suffer economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted relevant facts from taxpayer govern- ment the taxpayer is trying to change the family’s standard of living so that her income is enough to pay their basic living_expenses she has moved from the family home to an apartment because she could not afford the mortgage payment the taxpayer is experiencing economic hardship with or without this tax lia- bility this element is satisfied because the taxpayer is suffering an economic hard- ship and is unable to pay her basic living_expenses at the present time c abuse the requesting spouse was abused by the nonrequesting spouse but such abuse did not amount to duress relevant facts from taxpayer govern- ment the taxpayer was not abused by her spouse this factor does not favor relief be- cause there is no evidence or allega- tion of abuse d no knowledge or reason to know in the case of a liability that was properly re- ported but not paid the requesting spouse did not know and had no reason to know that the liability would not be paid relevant facts from taxpayer govern- ment the taxpayer believed that her husband would be found innocent rein- stated at his job and their lives would return to normal she signed the tax_return after he was indicted and had been suspended from his job this element is not satisfied because the taxpayer knew that the tax_liability would not be paid for some time due to the criminal proceedings that were taking place during the couple was using their savings to pay for their personal living_expenses and his attorney fees e nonrequesting spouse’s legal_obligation the nonrequesting spouse has a legal obliga- tion pursuant to a divorce decree or arrange- ment to pay the outstanding liability this will not be a factor weighing in favor of relief if the requesting spouse knew or had reason to know at the time the divorce de- cree or agreement was entered into that the nonrequesting spouse would not pay the lia- bility relevant facts from taxpayer govern- ment the taxpayer is still legally married to her spouse and does not plan to divorce him at this time the factor does not favor relief because there is no legal_obligation from a divorce decree that the spouse is to pay the liability f attributable to nonrequesting spouse the liability for which relief is sought is solely attributable to the nonrequesting spouse relevant facts from taxpayer govern- ment the taxpayer is liable for a small portion of the liability since her withholding credits were not enough to cover her share of the tax_liability the majority of the tax due is credited to the taxpayer’s spouse this factor favors relief because a substantial portion of the tax_liability is her spouse’s responsibility factors weighing against relief the factors weighing against relief include but are not limited to the following a attributable to the requesting spouse the unpaid liability or item giving rise to the deficiency is attributable to the re- questing spouse relevant facts from taxpayer govern- ment the taxpayer is liable for a small portion of the liability since her withholding credits were not enough to cover her share of the tax_liability the majority of the tax due is credited to the taxpayer’s spouse this factor does not weigh against re- lief b knowledge or reason to know a request- ing spouse knew or had reason to know of the item giving rise to a deficiency or that the reported liability would be unpaid at the time the return was signed this is an ex- tremely strong factor weighing against re- lief nonetheless when the factors in favor of equitable relief are unusually strong it may be appropriate to grant relief under sec_6015 in limited situations where a re- questing spouse knew or had reason to know that the liability would not be paid and in very limited situations where the requesting spouse knew or had reason to know of an item giving rise to a deficiency relevant facts from taxpayer govern- ment the taxpayer believed that her husband would be found innocent rein- stated at his job and their lives would return to normal she signed the tax_return after he was indicted and had been suspended from his job this factor weighs against relief c significant benefit the requesting spouse has significantly benefited sic beyond normal support from the unpaid lia- bility or items giving rise to the deficiency see sec_1 b relevant facts from taxpayer govern- ment the taxpayer and her family were paying normal living_expenses and the attorney fees with savings after her spouse was suspended without pay from his job this factor does not weigh against re- lief d lack of economic hardship the request- ing spouse will not experience economic hard- ship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted relevant facts from taxpayer govern- ment the taxpayer is trying to change the family’s standard of living so that her income is enough to pay their basic living_expenses she has moved from the family home to an apartment because she could not afford the mortgage payment the taxpayer is experiencing economic hardship with or without this tax lia- bility this factor does not weigh against re- lief e noncompliance with federal_income_tax laws the requesting spouse has not made a good_faith effort to comply with federal_income_tax laws in the tax years following the tax_year or years to which the request for relief relates relevant facts from taxpayer govern- ment the taxpayer and her spouse have filed and paid their tax_liabilities for the and tax years this factor does not weigh against re- lief f requesting spouse’s legal_obligation the requesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the liability relevant facts from taxpayer govern- ment the taxpayer is still legally married to her spouse and does not plan to divorce him at this time this factor does weigh against relief no additional factors were presented by the tax- payer that would favor relief taking into account all the facts and circumstances in this case there are hazards that would be faced by both sides should the case be heard at us tax_court in an effort to settle both tax years i offered to relieve her of his liability for the tax_year she has not accepted the offer because the taxpayer did not establish that it would be inequitable to hold her liable for the and tax years i am recommending that the examiner’s posi- tion should be sustained the taxpayer does not meet the statutory requirements for the tax_year and has not proven her case regarding the tax_year on date respondent issued to petitioner the notice_of_determination in that notice respondent denied petitioner’s request for relief under sec_6015 for each of and with respect to the notice_of_determination stated in pertinent part you petitioner did not file your request timely sec_6015 requires innocent spouse claims to be filed no later than two years after we start collection activity against you our records show the date that the irs first initiated collection activity against you by sending you a due process notice wa sec_1 with respect to the notice_of_determination stated in per- tinent part the information we have available does not show you meet the requirements for relief as of date the smiths owed a balance of dollar_figure with respect to as of that date the smiths owed a balance of dollar_figure with respect to at the trial in this case petitioner claimed that certain of her monthly expenses had changed revised monthly expenses since she submitted petitioner’s innocent spouse relief request and the expenses spreadsheet the revised monthly expenses that petitioner claimed at trial consisted of claimed monthly expense amount dollar_figure 1at the time of the trial in this case petitioner had rent electric cable telephone1 automobile life and renter’s insurance disconnected her landline home telephone service at that time petitioner and her children had only cellular telephone service as of the time of the trial in this case petitioner had a monthly salary of dollar_figure and monthly expenses of dollar_figure consist- ing of 12for convenience we have rounded petitioner’s monthly expenses to the nearest dollar monthly expense federal state and local_taxes rent electric gas telephone cable car including car payments and gasoline automobile life and renter’s insurance food medical_expenses including insurance dental vision and disability retirement account loan payment clothing total amount dollar_figure big_number big_number as of the time of the trial in this case petitioner had complied with the tax laws for each taxable_year after and opinion the parties’ only dispute is whether petitioner is entitled to relief under sec_6015 for her taxable_year dollar_figure 13petitioner concedes that she is not entitled to relief under sec_6015 or c for or on brief petitioner also concedes that because an appeal in this case would normally lie in the u s court_of_appeals for the seventh circuit she is not entitled to relief under sec_6015 for under 607_f3d_479 7th cir revg 132_tc_131 which we shall follow see 54_tc_742 affd 445_f2d_985 10th cir even though we disagree with it see pullins v commissioner t c ___ 135_tc_374 in lantz the court_of_appeals upheld the validity of sec_1_6015-5 income_tax regs which requires that a requesting spouse file a request for relief no more than two years after the commissioner of internal revenue commissioner first begins collection activity with respect to the year for which relief is requested continued petitioner bears the burden of proving that she is entitled to relief under that section see rule a 118_tc_106 affd 353_f3d_1181 10th cir sec_6015 provides sec_6015 relief from joint_and_several_liability on joint_return f equitable relief --under procedures pre- scribed by the secretary if-- taking into account all the facts and circumstances it is inequitable to hold the indi- vidual liable for any unpaid tax or any deficiency or any portion of either and relief is not available to such individ- ual under subsection b or c the secretary may relieve such individual of such liability as directed by sec_6015 the commissioner has pre- scribed procedures in revproc_2003_61 that are to be used in determining whether it would be inequitable to find the requesting spouse liable for part or all of the underpayment_of_tax that revenue_procedure lists seven threshold conditions threshold conditions which must be satisfied before the commis- continued lantz v commissioner supra pincite petitioner filed form_8857 more than two years after respondent first began collection activity with respect to sioner will consider a request for relief under sec_6015 revproc_2003_61 sec_4 c b pincite petitioner concedes that she does not satisfy all of the threshold conditions with respect to the portion of the underpay- ment for that is attributable to herself see revproc_2003_61 sec_4 on the record before us we find that petitioner is not entitled to relief under sec_6015 for that portion the parties agree that petitioner satisfies all of the threshold conditions with respect to the portion of the underpay- ment for that is attributable to mr smith where the requesting spouse satisfies the threshold conditions sec_4 of revproc_2003_61 sets forth the circumstances under which the commissioner ordinarily will grant relief to that spouse under sec_6015 in a case like the instant case where a liability is reported in a joint_return but not paid petitioner concedes that she does not qualify for relief under sec_4 of revproc_2003_61 instead she relies on section dollar_figure of that revenue_procedure in support of her claim for relief under sec_6015 section dollar_figure of revproc_2003_61 sets forth the following factors that are to be considered in determining whether a requesting spouse is entitled to relief under sec_6015 whether the requesting spouse is separated or divorced from the nonrequesting spouse marital status factor whether the requesting spouse would suffer economic hardship if not granted relief economic hardship factor whether the requesting spouse knew or had reason to know that the nonre- questing spouse would not pay the tax_liability knowledge factor whether the nonrequesting spouse has a legal obliga- tion to pay the outstanding tax_liability pursuant to a divorce decree or agreement legal_obligation factor whether the requesting spouse received a significant benefit from the item giving rise to the deficiency significant benefit factor and whether the requesting spouse has made a good_faith effort to comply with the tax laws for the taxable years following the taxable_year to which the request for such relief relates com- pliance factor dollar_figure revproc_2003_61 sec_4 a c b pincite in making our determination under section 14other factors that may be considered under revenue proce- dure are whether the nonrequesting spouse abused the requesting spouse abuse factor and whether the requesting spouse was in poor mental or physical health mental or physical health factor when he or she signed the tax_return return or when he or she requested relief revproc_2003_61 sec_4 b c b pincite in the event the nonrequest- ing spouse abused the requesting spouse or the requesting spouse was in poor mental or physical health when he or she signed the return or when he or she requested relief the abuse factor or the mental or physical health factor as the case may be will be taken into account id however where as here the nonrequesting spouse did not abuse the requesting spouse and the requesting spouse was not in poor mental or physical health when she signed the return or when she requested relief those factors are not taken into account id f we shall consider those factors and any other_relevant_factors no single factor is to be determinative in any particu- lar case and all factors are to be considered and weighed appropriately with respect to the marital status factor the parties agree that the smiths remained married as of the time of the trial in this case with respect to the economic hardship factor respondent 15in determining whether a requesting spouse will suffer economic hardship sec_4 c of revproc_2003_61 requires reliance on rules similar to those provided in sec_301_6343-1 proced admin regs that regulation gener- ally provides that an individual suffers an economic hardship if the individual is unable to pay his or her reasonable basic living_expenses sec_301_6343-1 proced admin regs provides in pertinent part ii information from taxpayer --in determining a reasonable amount for basic living_expenses the direc- tor will consider any information provided by the taxpayer including-- a the taxpayer’s age employment status and history ability to earn number of dependents and status as a dependent of someone else b the amount reasonably necessary for food clothing housing including utilities home-owner insurance home-owner dues and the like medical_expenses including health insurance transportation current tax_payments including federal state and local alimony child_support or other court-ordered payments and expenses necessary to the taxpayer’s production_of_income such as dues for a trade_union or professional organization or child care payments which allow the taxpayer to be gainfully_employed continued argues that petitioner merely testified that she had the ex- penses listed in her brief but did not provide any substantia- tion of those expenses we reject respondent’s argument in addition to her testimony which we found to be credible peti- tioner submitted form_8857 in which she claimed certain expenses the form in which she provided addi- tional information about her monthly expenses the date pay statement detailing certain expenses that dow deducted from her wages and the expenses spreadsheet in which she detailed certain of her expenses in evaluating petitioner’s request for relief neither respondent’s examiner nor respondent’s appeals officer maintained that petitioner was not entitled to relief because she failed to substantiate her claimed expenses in fact respondent’s appeals officer relied on those claimed expenses in reaching the conclusion in the appeals memorandum continued c the cost of living in the geographic area in which the taxpayer resides d the amount of property_exempt_from_levy which is available to pay the taxpayer’s expenses e any extraordinary circumstances such as special education expenses a medical catastrophe or natural disaster and f any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director that petitioner was experiencing economic hardship with or without this tax_liability we have found that as of the time of the trial in this case petitioner had a monthly salary of dollar_figure and monthly expenses of dollar_figure exclusive of certain expenses that petitioner argues should be included as part of her basic living expenses16 and certain other expenses that respondent argues should be excluded as part of her basic living expensesdollar_figure thus we have 16petitioner argues that her claimed monthly expense for food ie dollar_figure is unreasonably low and significantly less than the monthly expense for food ie dollar_figure set forth in the national standards service’s national standards that the service uses in determining whether a taxpayer is suffering an economic hardship petitioner also asserts that she is entitled to use the monthly expenses set forth in the service’s national standards for food clothing and other items we need not and shall not address whether petitioner is entitled to use those monthly expenses that is because without including in peti- tioner’s basic living_expenses the monthly expenses set forth in the service’s national standards for food clothing and other items we have found that petitioner’s monthly expenses exceed her monthly salary 17respondent argues that cable television tithes to peti- tioner’s church and certain contributions to petitioner’s retirement account do not constitute reasonable basic living_expenses we need not and shall not address whether tithes to petitioner’s church and certain contributions to petitioner’s retirement account constitute reasonable basic living_expenses that is because without including in petitioner’s reasonable basic living_expenses those tithes and those contributions we have found that petitioner’s monthly expenses exceed her monthly salary we have included dollar_figure for cable television in peti- tioner’s reasonable basic living_expenses in doing so we have rejected respondent’s argument that petitioner’s cable expense of dollar_figure is not a reasonable basic living expense even if we were to exclude cable television from petitioner’s reasonable basic living_expenses petitioner’s monthly salary would exceed continued found that petitioner’s monthly expenses exceeded her monthly salary respondent argues that the balance in petitioner’s retire- ment account which as of the time of the trial in this case was approximately dollar_figure could be used to pay a significant portion of the liabilities respondent’s argument ignores that petitioner concedes that she is liable for the smiths’ tax_liability for which as of date was dollar_figuredollar_figure respondent’s argument also ignores that petitioner has at times borrowed money from her retirement account in order to pay certain expenses including basic living_expenses we believe that she will be required to continue to borrow from her retire- ment account in order to meet certain of those basic living_expenses continued her monthly expenses by only dollar_figure and would not change our finding below with respect to the economic hardship factor in the alternative respondent argues that at best peti- tioner’s cable expense would fall under ‘other’ or ‘miscella- neous’ items of the national standards petitioner relies upon and would not be a separate allowable expense respondent’s argu- ment is not clear in any event we have not included in deter- mining petitioner’s reasonable basic living_expenses any of the monthly expenses set forth in the service’s national standards for food clothing and other items see supra note and we need not and shall not address respondent’s alternative argument 18the tax_liability for continues to accrue interest until paid see sec_6601 on the record before us we find that petitioner has carried her burden of establishing that she would suffer economic hard- ship if relief under sec_6015 were not granted with respect to the portion of the underpayment for that is attributable to mr smith with respect to the knowledge factor petitioner must establish that it was reasonable for her to believe that mr smith would pay the tax shown due in the joint_return see revproc_2003_61 sec_4 b a iii c b pincite respondent argues that based on mr smith’s legal difficul- ties and loss of employment petitioner knew or had reason to know that mr smith would not pay those tax_liabilities with the return or in a reasonably prompt time petitioner coun- ters that she had no reason to believe that the tax shown due in the joint_return would not be paid that is because according to petitioner it was reasonable for her to believe 19respondent’s argument that petitioner must believe that the tax would be paid in a reasonably prompt time is based on banderas v commissioner tcmemo_2007_129 in banderas we held that in order for a belief that a liability would be paid to be reasonable the requesting spouse must believe that the funds to pay the liability would be on hand within a reasonably prompt time respondent contends that that holding in banderas is wrong and that the requesting spouse must believe that the tax would be paid_by the later of the date on which the return was filed or the date on which the tax is due to be paid we need not revisit our holding in banderas as respondent invites us to do because as discussed below even under that holding we sustain respon- dent’s argument with respect to the knowledge factor mr smith when he told her that he would pay that amount out of the profits generated by first choice in the following year petitioner contends that at the time she signed the joint_return her husband’s business 1st choice appraisal 1st choice was coming off of an impressive year in where it had total income of dollar_figure given that its total income in was dollar_figure sufficient income was being produced to pay the tax_liability moreover although the indictment against michael smith had been filed on date the trial against him did not commence until date over one year after petitioner signed the return moreover the jury verdict against mr smith was not returned until date thus although there was perhaps cause for concern at the time the return was filed the full extent of mr smith’s legal problems was not yet apparent to petitioner when she signed the return cross-refs omitted on the record before us we reject petitioner’s argument we have found that around date petitioner and mr smith signed the joint_return we have also found that at that time petitioner was aware that around the smiths commenced a bankruptcy proceeding early in before april the smiths filed the joint_return in which they showed tax of dollar_figure claimed a withholding_tax credit of dollar_figure and showed tax due of dollar_figure the smiths did not pay on or before date the tax shown due in the joint_return of dollar_figure around date the smiths entered into the installment_agreement around date a the smiths filed the joint_return in which they showed tax due of dollar_figure and b petitioner was aware that that return showed a significant amount of tax due the smiths did not include any payment with the joint_return when they filed it around date from date to date the smiths did not make the payments required under the installment agree- ment on date a grand jury for the district_court indicted mr smith on counts and in january or date mr smith was suspended from the police department on the record before us we find that it was not reasonable for petitioner to believe at the time she signed the joint_return around date that first choice would generate profits in the following year sufficient to pay the tax shown due in that returndollar_figure on the record before us we find that petitioner has failed to carry her burden of establishing that she reasonably believed that the tax shown due in the joint_return would be paid on or before the date on which that tax was due on that record we further find that petitioner has failed to carry her burden of establishing that she reasonably believed that the funds to pay the tax shown due in the joint_return would be available 20we thus reject petitioner’s contention that the instant case is materially similar to downs v commissioner tcmemo_2010_165 we find downs to be materially distinguishable from the instant case and petitioner’s reliance on that case to be misplaced within a reasonably prompt timedollar_figure on the record before us we find that petitioner has failed to carry her burden of establish- ing that she did not know and had no reason to know that the tax shown due in the joint_return would not be paid with respect to the legal_obligation factor the parties agree that there is no divorce decree or other agreement that obligates mr smith to pay the portion of the underpayment that is attributable to him with respect to the significant benefit factor the parties agree that petitioner did not receive a significant benefit beyond normal support from the portion of the underpayment attributable to mr smith with respect to the compliance factor the parties agree that petitioner has complied with the tax laws for all years after based upon our examination of the entire record before us we find that petitioner has carried her burden of establishing that it would be inequitable to hold her liable for the portion of the underpayment for that is attributable to mr smith on that record we further find that petitioner has carried her burden of establishing that she is entitled to relief under sec_6015 for that portion of that underpayment 21see supra note we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing and the concessions of petitioner decision will be entered under rule


internal_revenue_service national_office technical_advice_memorandum date number release date director appeals taxpayer name taxpayer address taxpayer identification no quarters involved date of conference third party contact none index uil no case mis no tam-128334-02 cc psi b8 legend taxpayer issue is taxpayer the proper person to claim a credit or payment under sec_6427 of the internal_revenue_code with respect to undyed diesel_fuel sold to the state as described below conclusion taxpayer is not the proper person to claim a credit or payment under sec_6427 with respect to undyed diesel_fuel sold to the state as described below facts taxpayer sells undyed diesel_fuel taxpayer is liable for the federal excise_tax imposed by sec_4081 on the removal of undyed diesel_fuel from its terminals taxpayer sold the diesel_fuel to dealers states bought undyed diesel_fuel from the dealers using a credit card issued by taxpayer taxpayer filed claims with respect to the excise_tax imposed by sec_4081 on the diesel_fuel purchased by states using taxpayer’s credit card the irs disallowed these claims the office of appeals requested technical_advice on this issue law and analysis sec_4081 imposes a federal excise_tax on certain removals of taxable_fuel from any terminal sec_4083 provides that diesel_fuel is a taxable_fuel sec_6427 provides that if diesel_fuel on which tax was imposed by sec_4081 is used by a state for its exclusive use then the ultimate vendor of the diesel_fuel is the person eligible to claim a credit or payment with respect to the tax if certain conditions are met sec_48_6427-9 of the manufacturers and retailers excise_tax regulations provides rules under which certain registered ultimate vendors of taxed diesel_fuel may claim the credits or payments allowed by sec_6427 sec_48_6427-9 defines an ultimate vendor as a person that sells undyed diesel_fuel to any state for its exclusive use sec_48_6427-9 provides that a claim with respect to diesel_fuel is allowed by sec_6427 only if among other conditions the claimant sold the diesel_fuel to any state for its exclusive use the appeals_office that submitted this request determined that because the dealers rather than taxpayer sold the diesel_fuel to the state taxpayer was not the ultimate vendor of diesel_fuel therefore taxpayer was not the proper person to make a claim with respect to the diesel_fuel sold to the state taxpayer argues that the oil company credit card rule for gasoline provided in notice_89_29 1989_1_cb_669 applies to diesel_fuel because sec_6416 and sec_6427 are similar in that both sections identify the seller of the fuel as the entity entitled to make a claim therefore taxpayer reasons that it should be treated as the seller of the diesel_fuel to the state we agree with the appeals_office sec_6427 and sec_48_6427-9 provide that the proper person to claim a credit or payment with respect to the tax imposed on diesel_fuel sold to a state for its exclusive use is the ultimate vendor that sold the diesel_fuel to the state taxpayer did not sell the diesel_fuel to the state accordingly taxpayer is not the proper person to claim a credit or payment with respect to diesel_fuel sold to the state notice_89_29 applies only to gasoline and not to diesel_fuel sec_48_6427-9 did not create an oil company credit card rule with respect to diesel_fuel ultimate vendors caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent


department of the treasury internal_revenue_service washington d c tax exempt and cover oe aug -3 uniform issue list set ep ra ts legend decedent a taxpayer b taxpayer c trust d state w city x date l date m date n date q date r date s ira x court p court q o a o commissioner z statute y statute z statute aa statute bb dear this is in response to your request for a private_letter_ruling submitted by your authorized concerning the proper rollover treatment of representative by letter dated distributions from decedent a's individual_retirement_account ira x under sec_408 of the internal_revenue_code code this letter also considers subsequence correspondence submitted by your authorized representative on your behalf including correspondence dated and your authorized representative has submitted the following facts and representations in support of your ruling_request decedent a was born on date l and died on date m at age a resident of state w taxpayer b whose date of birth was date q was married to decedent a at the time of his death and survived decedent a ira ira x at the time of his death taxpayer c decedent a’s son also survived him decedent a maintained an individual_retirement_account trust d was executed on date n article ix of trust t provides that trust d shall be administered in accordance with the laws of state w on date r decedent a named trust d as the beneficiary of his ira x pursuant to applicable provisions of trust d taxpayer b is the sole trustee of trust d pursuant to article vi of trust d as sole trustee taxpayer b has authority and control_over trust d assets article iv a_trust d provides in the event that taxpayer b survives decedent a as was the case the trust d trustee shall pay to decedent a’s surviving_spouse as much of the income and if the income is insufficient as much of the principal as the trustee considers advisable for her maintenance support and health any income not distributed shall be added to principal under article iv b at taxpayer b’s death the remaining principal shall be distributed to decedent a and taxpayer c if living or if not to taxpayer c’s then living descendants per d e t stirpes or if neither taxpayer c nor any of his descendants are then living in equal shares to the then living nieces and nephews of decedent a and taxpayer b before making discretionary payments to taxpayer b the trustee shall consider the other financial resources available to taxpayer b article v a of trust d provides generally that although the trustee of trust d shall consider other financial resources available to taxpayer b before making discretionary payments to her said trustee is not limited to making such discretionary payments only when other financial resources are exhausted or substantially depleted article v b contains a spendthrift_clause which provides that persons with beneficial interests in property held by the trustee shall have no power to assign or anticipate their interests article vi f of trust d gives taxpayer b as the sole trustee of trust d the authority ‘to exercise any other powers which the trustee considers advisable for the proper and advantageous management investment and distributions of the property held in the trust taxpayer b’s authorized representative has argued on her behalf that the laws of state w permit the trustee of trust d in the exercise of her discretion granted under the provisions of trust d to withdraw any or all of the trust d principal if such withdrawal is advisable for her maintenance support and health taxpayer b’s authorized representative has also directed the service’s attention to the following state w statute statute y which provides in general that a trustee may file with commissioner z of state w a statement that the person trustee elects to have this section apply to all fiduciary assets controlled by the person a person who files the election referenced above becomes subject_to the following section of the state w statutes among others statute z which provides that in making an investment decision the fiduciary may consider without limitation iii the expected tax consequences of investment decisions or strategies statute aa of state w provides that to the extent any provision of statute bb of state w is inconsistent with the terms of a governing instrument the governing instrument shall control documentation submitted to the service indicates that the trustee of trust d has filed the election provided in statute y with commissioner z a controversy arose among taxpayer b and taxpayer c and taxpayer b’s and decedent a’s nephews and nieces taxpayer c and the nephews and nieces took the position that taxpayer b as trustee of trust d did not have the discretion to withdraw the ira x balance taxpayer b petitioned court p of state w for a declaratory_judgment that taxpayer b has the discretion as trustee of trust d to withdraw the balance from ira x and then to distribute the balance to taxpayer b individually in order for her to contribute the balance into an ira set up and maintained in her name taxpayer c and thirteen living nephews and nieces of taxpayer b and decedent a were defendants in this case on date s the court p ordered that taxpayer b as trustee of trust d has the discretion to withdraw the balance from ira x distribute it to herself in her individual capacity and contribute that balance to her rollover ira taxpayer b as trust d trustee intends to withdraw the full amount standing in ira x and then pay said ira x funds to herself as the named beneficiary of trust d taxpayer b will then contribute the amounts distributed from ira x to another ira set up and maintained in her name the recipient ira will meet the requirements of code sec_408 said contribution will occur no later than the day following the date on which taxpayer b as trustee of trust d receives the ira x distribution both the distribution and contribution will occur in calendar_year it is represented that taxpayer b will make irrevocable beneficiary designations with respect to the benefits that will be paid from her ira at her death the primary beneficiary will be taxpayer c if living or if not taxpayer c’s then living descendants per stirpes the secondary beneficiary will be the then living nieces and nephews of decedent a and taxpayer b in equal shares based on the above facts and representations you through your authorized representative request the following rulings that with respect to taxpayer b decedent a's ira x will not be treated as an inherited ira under code sec_408 that for purposes of code sec_408 and sec_1_408-8 of the final income_tax regulations regulations taxpayer b may be treated as the beneficiary of decedent a's ira x so that the ira x account balance may be distributed to her and rolled over from decedent a's ira x into an jra set up and maintained in taxpayer b’s name and that the amounts standing in ira x which will be distributed to taxpayer b and then rolled over into an ira set up and maintained in her name will not be included in her gross_income and will not be taxed under code sec_408 in the year in which distributed in which received and in which rolled over into her ira with respect to your ruling requests code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution code sec_408 provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution code sec_408 provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual thus pursuant to code sec_408 a surviving_spouse who acquires ira proceeds from and by reason of the death of her husband may elect to treat those ira proceeds as her own and roll them over into her own ira code sec_408 provides in general that the rollover rules of code sec_408 do not apply to any amounts required to be distributed in accordance with code sec_401 and sec_408 code sec_401 provides in relevant part that distributions from a retirement_plan qualified within the meaning of code sec_401 must begin no later than the plan participant's required_beginning_date and must be paid over a period of time that may extend to the joint life expectancies of the plan participant and his her designated_beneficiary code sec_408 extends the code sec_401 requirements to iras described in code sec_408 thus in short an ira owner may receive required distributions over her life expectancy or over a period not to exceed the joint life expectancies of the ira holder and her designated_beneficiary on date final income_tax regulations regulations were published in the federal_register with respect to code sec_401 and sec_408 see also r b date sec_1_408-8 of the regulations question and answer provides that a surviving_spouse of an ira owner may elect to treat the spouse's entire_interest as a beneficiary in an individual's ira as the spouse's own ira in order to make this election the spouse must be the sole beneficiary of the ira and have an unlimited right to withdraw amounts from the ira if a_trust is named as beneficiary of the ira this requirement is not satisfied even if the spouse is the sole beneficiary of the trust the preamble to the regulations provides in relevant part that a surviving_spouse who actually receives a distribution from an ira is permitted to roll that distribution over into his her own ira even if the spouse is not the sole beneficiary of the deceased's ira as long as the rollover is accomplished within the requisite day period a rollover may be accomplished even if ira assets pass through either a_trust and or an estate with respect to your ruling requests generally under certain conditions if either a decedent’s plan or ira proceeds pass through a third party eg a_trust and then are distributed to the decedent's surviving_spouse who is entitled to receive the distribution said spouse will be treated as acquiring them directly from the decedent thus generally if the conditions are met said surviving_spouse will be eligible to roll over either the qualified_plan or the ira proceeds into his her ira generally for the conditions to be met the surviving_spouse must have total control_over the disposition of the plan or ira assets however prior to addressing the issue of whether taxpayer b can accomplish her intended rollover it is necessary to determine whether taxpayer b has the authority under trust d and under state w law to withdraw ira x and distribute it to herself as proposed taxpayer b has taken the position that under certain provisions of trust d and under state w law taxpayer b as trustee of trust w has the authority to withdraw the ira x balance first taxpayer b asserts that under article iv a of trust d taxpayer b may withdraw the entire balance of ira x article iv a of trust d provides that taxpayer b is entitled to as much of the income and if income is insufficient as much of the principal as the trustee considers advisable for taxpayer b’s maintenance support and health in this case taxpayer b is the trustee under state w law a trustee’s power to make discretionary distributions to or for the benefit of the trustee in the trustee’s individual capacity is limited by an ascertainable_standard relating to the trustee’s health education support and maintenance as defined in sec_2041 and sec_2514 of the internal_revenue_code to the extent that the trust does not already so provide state w code ann est trusts section a west accordingly under trust d and state w law taxpayer b may only make discretionary distributions to herself limited by this ascertainable_standard taxpayer b admits that she will use her discretionary powers in order to maximize funds available for her maintenance support and health as well as to preserve as much of the principal as possible for the benefit of the remaindermen accordingly we conclude that taxpayer b as trustee of trust d does not have the authority under article iv a and state w section a to withdraw the entire ira x balance second taxpayer b asserts that as trustee of trust d she is entitled to withdraw the entire balance of ira x under article vi f under article vi f the trustee is authorized to exercise any other powers which the trustee considers advisable for the proper and advantageous management investment and distribution of the property held in trust taxpayer b asserts that under state w law courts have conferred broad discretionary powers on trustees however in this case this provision of trust d only authorizes taxpayer b to exercise powers which ensure the proper management and investment and distribution_of_property held in trust d other words trust property would continue to be held in trust d not entirely withdrawn as proposed here therefore we conclude that taxpayer b as trustee of trust d does not have the authority under article vi f to withdraw the ira x balance in asserts that she as trustee has the authority to withdraw the entire balance of third taxpayer b ira x thereby terminating trust d under section the prudent investor rule’ of the state w code this section provides that in making an investment decision the fiduciary may consider without limitation the expected tax consequences of investment decisions or strategies taxpayer b elected to have this section apply however the prudent investor rule is a rule that allows the fiduciary to consider tax consequences when making investments of trust principal the rule does not address withdrawals of the principal from a_trust the rule addresses actions to make or retain investments in a_trust therefore we conclude that taxpayer b as trustee of trust d does not have the authority under section to withdraw the ira x balance fourth under state w law a court in equity may terminate a_trust where termination is not inconsistent with the settlor’s intent or does not defeat a material purpose of the trust and where all of the current and potential beneficiaries including minor unborn or unascertained beneficiaries consent kirkland v mercantile-safe deposit trust co of city x state w probasco v clark state w app state w ct spec app in re trust of lane state w however in this case trust d contains a spendthnift provision it is well settled in state w law that a spendthrift trust cannot be terminated where the interest of one or more beneficiaries is subject_to a restraint on alienation even if all of the possible beneficiaries consent to termination kirkland supra see also in re trust of lane supra in kirkland the court stated that spendthrift trusts must be immune from attempts by the beneficiaries themselves to reach the corpus kirkland supra therefore we conclude that the circuit_court court p did not have the authority to order that taxpayer b as trustee of trust d could withdraw the ira x balance which in effect terminates trust d even if all of the beneficiaries of trust d consent even though we have concluded that taxpayer b does not have the authority under trust d or state w law to withdraw the ira x balance taxpayer b may decide to carry out the court p order therefore the next issue is whether the circuit_court order will be recognized for federal tax purposes in 387_us_456 the court considered whether a state trial court’s characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court in this case the circuit_court order gives taxpayer b the authority to in effect terminate trust d by withdrawing the entire balance of ira x and distributing that amount to taxpayer b the ira x distributions to trust d make up the trust corpus without those distributions trust d would not have any corpus and would in effect be terminated court p is not the highest court in state w the highest court in state w court q has ruled that a spendthrift trust such as here cannot be terminated where the interest of one or more beneficiaries is subject_to restraint on alienation even if all of the possible beneficiaries consent to termination kirkland supra accordingly the decision of the court p is not controlling for purposes of federal tax law therefore we conclude that after giving proper regard to the circuit court’s determination and other state w law that the circuit_court order is not consistent with state w law and as such the service is not bound by the court p order and any withdrawal by taxpayer b would be an unauthorized distribution further if in fact the beneficiary designation for the rollover ira may be changed and is not therefore irrevocable and if in fact the remainder beneficiaries did consent to the withdrawal they may be treated for federal gift_tax purposes as having made a gift under sec_2501 finally taxpayer b asserts that the service should rule favorably because she is accomplishing trust d’s purpose taxpayer b states that she intends to designate the same individuals named and in the same order named as the remainder beneficiaries of trust d as beneficiaries of her rollover ira at her death taxpayer b claims that the beneficiary designation will be irrevocable these guarantees whether irrevocable or not do not change the fact that taxpayer b does not have the authority under the trust provisions or state w law to terminate trust d and therefore the service will not recognize such actions for federal tax purposes for the reasons state above we conclude that taxpayer b does not have the authority under the provisions of trust d or state w law to withdraw the entire ira x balance and that for federal tax purposes the service is not bound by the court p order thus in conclusion taxpayer b is not entitled to receive a distribution of all amounts remaining in ira x through trust d thus under the facts stated above except as noted below taxpayer b is not to be treated as the payee and beneficiary of ira x for purposes of code sec_408 and sec_408 since she is not entitled to receive a distribution of ira x and is not the payee or distributee thereof she is not entitled to contribute as a rollover_contribution ira x into an jra set up and maintained in her own name thus with respect to your ruling requests we conclude 20u944058 that except as noted below decedent a's ira x will be treated as an inherited ira under code sec_408 with respect to the person or entity entitled to receive distributions therefrom trust d that except as noted below for purposes of code sec_408 and sec_1_408-8 of the final income_tax regulations you taxpayer b may not be treated as the beneficiary of decedent a's ira x so that the ira x account balance may not be distributed to you and rolled over from decedent a's ira x into an ira set up and maintained in taxpayer b’s name and that amounts standing in ira x which will be distributed to taxpayer b if any will be taxed under code sec_408 in the year in which distributed in which received please note the service’s third response immediately above concludes that amounts properly paid to taxpayer b if any will be taxed to her in the calendar_year received in this regard the service notes that taxpayer b is entitled under the provisions of trust d to income and principal subject_to the standard described therein thus to the extent that taxpayer b receives distributions consistent with the provisions of trust d she will be treated as the payee or distributee within the meaning of code sec_408 thereof furthermore the service notes that under the provisions of trust d taxpayer b has the absolute right to receive distributions of trust d income thus to the extent taxpayer b receives a distribution of trust d income consisting of ira x assets she may roll over said distribution to the extent it exceeds amounts required to be distributed from ira x pursuant to code sec_401 made applicable to ira x pursuant to code sec_408 see code sec_408 above this letter is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact - please address all correspondence to se t ep ra t3 pincite yours ganeet v frances v onan manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp 2-plr-104660-00 date date legend parent purchaser target sellers date a date b date c company official outside tax professional business a state x country y z dear this letter responds to your letter dated date requesting an plr-104660-00 extension of time on behalf of parent under sec_301_9100-1 through of the procedure and administration regulations to file an election parent is requesting the extension of time to file a sec_338 election under sec_338 of the internal_revenue_code and sec_1_338-1 and sec_1_338-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to the regulations under sec_338 are to the regulations as in effect on date a additional information was submitted by facsimiles dated june and date the material information submitted for consideration is summarized below parent a state x corporation is the common parent of a consolidated_group that has a tax_year ending on june 30th and uses the accrual_method of accounting purchaser a wholly owned subsidiary of parent is a state x corporation and uses the accrual_method of accounting target is a country y corporation and was wholly owned by sellers sellers are individuals who are citizens and residents of country y and it is represented that each of the sellers is not a united_states_shareholder as defined in sec_951 parent purchaser and target are all engaged in business a prior to the below described acquisition sellers and target did not file u s income_tax returns and were not subject_to u s income_taxation further target was not a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a u s income_tax return on date a purchaser acquired z an amount greater than of the sellers’ stock of target pursuant to a stock purchase agreement for cash and a small percentage of parent stock in a fully taxable transaction it is represented that purchaser was not related to sellers within the meaning of sec_338 and purchaser's acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 the election was due on date b however for various reasons the election was not filed on date c which is after the due_date for the election outside tax professional discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessments under sec_6501 has not expired for parent’s purchaser’s and target’s taxable_year s in which the acquisition occurred the taxable years in which the election should have been filed or any taxable_year s that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset purchases if the purchasing_corporation makes or is treated as having made a sec_338 plr-104660-00 election under sec_338 and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 be attributed to the person acquiring such stock sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form_8023 in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the plr-104660-00 government sec_301 a in this case the time for filing the election is fixed by the regulations ie sec_1_338-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by company official and outside tax professional explain the circumstances that resulted in the failure_to_file a valid election the information establishes that a tax professional was responsible for the election that parent relied on the tax professional to timely make the election and that the government will not be prejudiced if relief is granted see sec_301 b v based on the facts and information submitted including the representations made we conclude that parent has established that it acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-1 until days from the date_of_issuance of this letter for parent to file the election with respect to purchaser’s acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the issuance of this letter all applicable returns and amended returns necessary to report the transaction consistent with the election and the taxpayers' parent’s purchaser’s and sellers’ tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' tax_liability is lower sec_301_9100-3 parent should file the election in accordance with sec_1_338-1 and sec_1_338-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form a copy of this letter should be attached to the election form parent and target must file or amend if and as applicable its applicable returns to report the acquisition as a sec_338 transaction and to attach a copy of form_8023 and a copy of this letter see sec_1_338-1 and sec_1_338-1 no opinion is expressed as to whether purchaser's acquisition of the target plr-104660-00 stock qualifies as a qualified_stock_purchase whether the acquisition of the target stock qualifies for sec_338 treatment and if the acquisition of the target stock qualifies for sec_338 treatment as to the amount of gain_or_loss recognized if any by target on its deemed asset sale in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayer its employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel corporate cc by ken cohen acting chief branch corporate