department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc dom psi fsa-n-149632-01 uilc internal_revenue_service national_office field_service_advice memorandum for dennis m gallagher appeals officer from associate chief_counsel passthroughs and special industries cc psi subject whether roasting is incidental to a related mining process this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer parent location issues in determining whether roasting is incidental to a related mining process for depletion purposes under sec_613 should the cost of roasting be compared only to the cost leaching or to the cost of all subsequent mining processes conclusion under the circumstances described below roasting facilitates and therefore is related only to leaching accordingly roasting can be incidental only to leaching in this case and in determining whether the cost of roasting is insubstantial the cost of roasting should be compared only to the cost of leaching facts taxpayer is a wholly owned subsidiary of parent and is included with parent’s consolidated_return taxpayer computes gross_income from mining based on sales of leached and unleached a mineral subject_to a percent rate at its mine located in location the production is processed for eventual sale as rare fsa-n-149632-01 earth elements taxpayer has computed gross_income from mining for its entire production using a representative field price taxpayer mines the ore by the open-pit method which involves drilling blasting and loading into trucks with power shovels followed by hauling to a mill for beneficiation at the mill the ore is crushed by a primary and secondary crusher next a slurry of crushed material is heated and passed through flotation cells separating the from the ore this yields a percent rare earth concentrate if taxpayer does not sell the concentrate to third parties the concentrate is sent to taxpayer’s chemical plant for further processing at the chemical plant the concentrate is first roasted1 by heating to a temperature of big_number f for hours the primary purposes of the roasting are to eliminate carbon dioxide and to convert the concentrate into rare earth oxide the concentrate is then cooled and is ready for further processing to obtain rare earth products after roasting the concentrate is leached2 by hydrochloric acid this dissolves the noncerium rare earth elements leaving the cerium behind the remaining portion is called rare earth chloride this rare earth chloride is then subjected to solvent extraction where europium and other rare earths are further separated the facts in this case were the subject of a field_service_advice dated date the fsa the issue in that case was whether roasting of the mineral prior to leaching at the chemical plant is a mining or nonmining process the fsa concludes that because roasting is not a specifically enumerated mining process under sec_613 it otherwise would be classified as a mining process only if it is necessary or incidental to a mining process specifically enumerated in sec_613 the fsa does not consider roasting to be necessary because taxpayer failed to demonstrate that roasting is an essential or indispensable prerequisite to the leaching of taxpayer’s concentrate with respect to whether roasting is incidental the fsa states that roasting is defined as a heating operation for the purpose of driving off volatile matter or to effect certain chemical changes at temperatures below those required for complete fusion revproc_78_19 sec_48 1978_2_cb_491 leaching is defined as the separation of metallic or nonmetallic compounds from ore by causing the desired substance to dissolve in an aqueous solution of acid base or salt and the separation of the solution from the solid residue the solvent is usually recovered by precipitation of the desired substance revproc_78_19 sec_30 1978_2_cb_491 fsa-n-149632-01 i n determining whether a process is incidental the courts have applied a two-part test first the process must take place prior to a mining process and facilitate the performance of the mining process second it must be insubstantial when compared to the costs of the other process the fsa then concludes that the proper standard is to compare the cost of roasting to the cost of leaching to determine whether roasting is incidental we understand that it is taxpayer’s position that in comparing the cost of roasting only to the cost of leaching the fsa does not apply the proper standard for determining whether roasting is incidental the correct standard is to compare the cost of roasting to all the costs of mining processes incurred subsequent to roasting you have requested advice whether taxpayer’s comments would change any of the conclusions reached in the fsa law and analysis sec_613 provides in part that in the case of mines and other natural deposits listed in sec_613 the allowance for depletion under sec_611 is the percentage specified in sec_613 of the gross_income_from_the_property sec_613 provides that the term gross_income_from_the_property means in the case of a property other than an oil or gas well and other than a geothermal_deposit gross_income from mining sec_613 provides in part that the term mining includes not only the extraction of ores and minerals from the ground but also the treatment processes considered as mining described in sec_613 and the treatment processes necessary or incidental thereto sec_613 lists the treatment processes where applied by the owner or operator are considered as mining to the extent they are applied to the ore or mineral in respect of which he is entitled to a deduction for depletion under sec_611 allowable mining processes listed in sec_613 include crushing grinding beneficiation by concentration flotation cyanidation leaching crystallization precipitation but not electrolytic deposition roasting thermal or electric smelting or refining or by substantially equivalent processes or a combination of processes used in the separation or extraction of the product from the ore or the mineral or minerals from other material from the mine or other natural_deposit sec_613 lists certain processes that are not considered mining unless they are otherwise provided for in sec_613 or are necessary or incidental to processes so provided for roasting is specifically listed as a nonmining process fsa-n-149632-01 sec_1_613-4 provides that a process is incidental to another related process if the cost thereof is insubstantial in relation to the cost of the other process or if the process is merely the coincidental result of the application of the other process if a taxpayer demonstrates that as a factual matter a particular process is necessary or incidental to a process named as a mining process in sec_613 or sec_1_613-4 the necessary or incidental process also will be considered a mining process case development hazards and other considerations taxpayer relies on 446_f2d_981 2d cir as support for its position that the correct standard for determining whether roasting is incidental is to compare the cost of roasting to all the costs of mining processes incurred subsequent to roasting to determine whether the cost of roasting is insubstantial taxpayer notes that in barton mines the cost of the process in question was deemed insubstantial relative to the other processes in the grain mill barton mines f 2d pincite emphasis added thus the court compared the cost of the nonmining process to the costs of multiple subsequent processes we believe that taxpayer’s reliance on barton mines is misplaced in barton mines the court considered whether a number of treatment processes applied in a series by a taxpayer were necessary or incidental to mining processes the court stated that t he common meaning of ‘incidental’ implies that the process must occur in subordinate conjunction with a mining process and that it is the coincidental and secondary result of the mining process id pincite the court noted however that the sec_1_613-4 definition of incidental in addition to allowing for processes that are the coincidental result of mining processes also includes any process related to a mining process so long as its cost is insubstantial in relation to the cost of the mining process id the court explained however that relatedness is not enough for a nonmining process to be considered incidental to a mining process rather properly construed the term ‘incidental’ describes a process that takes place prior to a mining process and although not essential or indispensable to the mining process is designed to facilitate its performance id pincite the court in barton mines recognized that the drying accomplished by the disputed process dryer h was designed to facilitate the subsequent screening processes in the grain mill which accomplished gravity separation that function was therefore related to concentration processes in the same way that the thawing of frozen ore is incidental to concentration in the example provided by the regulation defining the term incidental id fsa-n-149632-01 the court then concluded that dryer h was therefore incidental to the grain mill’s concentration process and if the cost was insubstantial relative to the other processes in the grain mill it qualifies as a mining process under sec_613 id under sec_1_613-4 a nonmining process is incidental to a mining process if the nonmining process is related to a mining process and the cost of the nonmining process is insubstantial in relation to the cost of the mining process the court in barton mines emphasized that the nonmining process in question in that case facilitated and therefore was related to subsequent grain mill processes thus the court compared the cost of nonmining process to the cost of multiple processes in the grain mill not because the mining processes occurred subsequent to the nonmining process but because the processes in the grain mill were determined to be related to the nonmining process in this case the mining processes that occur subsequent to roasting are leaching precipitation and solvent extraction the facts show that roasting prior to leaching is more economical and efficient than leaching alone furthermore we understand that the taxpayer’s expert stated that a stronger leaching with longer residence times would nevertheless accomplish the combined processes of roasting and leaching these facts indicate that the other processes precipitation and solvent extraction may be performed without the benefit of roasting as long as the appropriate amount of leaching is performed the purpose of roasting in this case is to make the leaching process more economical and efficient thus roasting facilitates and therefore is related only to leaching accordingly our position continues to be that roasting can be incidental only to leaching in this case and in determining whether the cost of roasting is insubstantial the cost of roasting should be compared only to the cost of leaching this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have any questions concerning this memorandum please contact jaime park at brenda stewart assistant to chief branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------------------ ---------------------------- ------------------------- ----------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number -------------------- refer reply to cc psi b02 plr-125808-09 date date x state a trustee family_trust d1 d2 -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- ------------------ d3 dear ------------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state and elected to be an s_corporation effective d2 pursuant to an agreement dated d3 a established family_trust on d3 a transferred all of the x stock to family_trust plr-125808-09 x represents that family_trust qualified to elect to be treated as an electing_small_business_trust esbt under sec_1361 however no election was made under sec_1361 to treat family_trust as an esbt x represents that the failure to make an election pursuant to sec_1361 was inadvertent and not motivated by tax_avoidance x further represents that x has filed returns consistent with x’s status as an s_corporation x and trustee have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which it was made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on d3 because family_trust was not an eligible shareholder of x on d3 we also conclude that this termination of x’s s election on d3 was an inadvertent termination within the meaning of sec_1362 this ruling is conditioned upon trustee filing an esbt election for family_trust effective d2 with the appropriate service_center within days of the date of this letter as well as any necessary original or amended income_tax returns of family_trust necessary to comply with this letter copies of this letter should be attached to the esbt election and any such returns if family_trust does not comply with these conditions this letter is null and void therefore we conclude that x will continue to be treated as an s_corporation for the period beginning on d3 provided that x’s s_corporation_election was valid and was not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed regarding x’s eligibility to be an s_corporation or the validity of its s_corporation_election further no opinion is expressed as to whether family_trust qualifies as an esbt plr-125808-09 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------- -------------------------------------- ------------------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-112105-08 date september x a b c legend ---------------------- ---------------------------------------------- ----------------------- ------------------------- ------------------------------ ---------------------- country ---------- d1 d2 ---------------------- --------------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations facts x was formed under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x was a wholly-owned subsidiary of a a country corporation b a country corporation acquired a through a subsidiary entity c on d1 upon b’s acquisition of a it was plr-112105-08 intended that x would be treated as a disregarded_entity effective d2 however due to inadvertence a form_8832 entity classification election to treat x as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an entity separate from its owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than 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_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-112105-08 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301 and sec_301_9100-3 as a result x is granted an extension of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the internal_revenue_code in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court joan farr f k a joan heffington petitioner v commissioner of internal revenue respondent docket no filed date joan farr f k a joan heffington pro_se patrick a greenleaf for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following deficiencies in petitioner’s federal excise_taxes under sec_4958 and b for the years indicated 1all section references are to the internal_revenue_code code in effect for and the years at issue all rule references are to the tax_court rules_of_practice and procedure year sec_4958 dollar_figure dollar_figure dollar_figure findings_of_fact sec_4958 dollar_figure dollar_figure dollar_figure virtually all of the facts have been deemed established pursuant to rule f petitioner resided in kansas at the time she filed the petition at all relevant times including during and petitioner was the chief_executive_officer and a member of the board_of directors of the associa- tion for honest attorneys aha any work that petitioner did for aha during and was done at her residence petitioner had organized aha in as a nonprofit corporation under the laws of the state of kansas during that year petitioner also prepared and filed on behalf of aha an application with the internal_revenue_service irs for a determination that it qualified as an organization described in sec_501 that was exempt from federal_income_tax tax the irs granted that application and made that determination for each of the year sec_2010 sec_2011 and sec_2012 aha filed with the irs form 990-n e-postcard in which it reported that it continued to operate as a tax- exempt_organization described in sec_501 petitioner was its principal officer and its annual gross_receipts were less than dollar_figure aha did not file for any of the year sec_2010 sec_2011 and sec_2012 form_990-pf return of private_foundation or sec_4947 nonexempt_charitable_trust treated as private_foundation form_990-pf which must be filed annually by every private_foundation or sec_4947 trust that is treated as a private_foundation regardless of its revenues or assets nor did aha file for any of the year sec_2010 sec_2011 and sec_2012 form_4720 return of certain excise_taxes under chapter sec_41 and sec_42 of the internal_revenue_code form which must be filed by every private_foundation or sec_4947 trust that is treated as a private_foundation in the event certain excise_taxes under chapter sec_41 and sec_42 of the code are incurred aha filed a petition in the court for a declaratory_judgment under sec_7428 with respect to a notice_of_determination that respondent had issued to it on date thereby commencing the case at docket no 14562-15x in that 2we have taken judicial_notice of certain facts regarding certain irs forms and or certain irs instructions with respect to certain irs forms notice respondent determined to revoke effective date aha’s exemption from tax under sec_501 because respondent had determined that aha ha d not operated in accordance with the provisions of sec_501 during and aha maintained a checking account at verus bank in derby kansas aha checking account during those years petitioner had exclusive signature_authority for that checking account during and petitioner used the aha checking account to make certain purchases from certain third parties and certain cash withdrawals totaling dollar_figure dollar_figure and dollar_figure respectively specifically petitioner used the aha checking account in and to make certain purchases from certain department stores and grocery stores such as dillard’s walmart kwik shop kohl’s walgreens and dillons in addition petitioner used the aha checking account in and to make automobile-related purchases such as quiktrip a a auto salvage derby quick 3we have taken judicial_notice of certain facts relating to the notice_of_determination issued to aha on which the declaratory_judgment proceeding that aha commenced in the case at docket no 14562-15x is based 4attached as an appendix are tables that set forth all of the purchases from third parties that petitioner made with checks drawn on and all of the cash withdrawals that she made from the aha checking account totaling dollar_figure dollar_figure and dollar_figure during and respectively lube k-15 auto salvage and meineke petitioner also used the aha checking account in and to make certain home-related and real- estate-related purchases from certain stores such as slumberland westar energy lowes t s tree service gene’s stump grinding service dutch’s echostar dish allstate roberts overdoors inc lusco brick stone my construction and star lumber supply in addition petitioner used the aha checking account in and to make certain payments with respect to a usaa credit card petitioner also used the aha checking account in to make a dollar_figure payment to an animal clinic and a dollar_figure payment to st john’s military school for tuition for her son and another dollar_figure payment to that school in addition petitioner used the aha checking account in to pay dollar_figure for the exhuma- tion and dna testing of her father’s remains although petitioner used the aha checking account during and to make certain purchases from certain third parties and certain cash with- drawals totaling dollar_figure dollar_figure and dollar_figure respectively she did not report any income from aha in the individual tax_return that she filed for each of those years aha did not pay petitioner a salary during any of the year sec_2010 through nor did aha issue to petitioner form_w-2 wage and tax statement or any type of form_1099 for any of those years in addition aha did not file any form sec_941 employer’s quarterly federal tax_return form sec_941 or any form_940 employer’s annual federal unemployment futa_tax return form for any of the year sec_2010 sec_2011 and sec_2012 or for any periods within any of those years during the period through aha did not execute any promissory notes payable to petitioner and did not make any payments of interest to her respondent issued to petitioner a notice_of_deficiency notice for her taxable_year sec_2010 sec_2011 and sec_2012 in that notice respondent determined inter alia that during those taxable years petitioner a so-called disqualified_person had engaged in certain excess_benefit transactions with aha under sec_4958 totaling dollar_figure dollar_figure and dollar_figure respectively opinion we must decide whether to sustain respondent’s determinations in the notice petitioner has the burden of establishing that those determinations are erroneous see rule a 290_us_111 sec_7491 is inapplicable because it does not apply to taxes imposed by subtitle d of the code such as the taxes under sec_4958 that are at issue here before deciding whether to sustain respondent’s determinations in the notice we summarize the statutory framework within which we must make that decision sec_4958 imposes on each excess_benefit_transaction a so- called first-tier tax equal to percent of the excess_benefit the first-tier tax is required to be paid_by any disqualified_person as defined in sec_4958 with respect to that excess_benefit_transaction see sec_4958 sec_4958 defines the term excess_benefit_transaction to mean generally any transaction in which an economic benefit is provided by an applica- ble tax-exempt_organization directly or indirectly to or for_the_use_of any disquali- fied person if the value of the economic benefit provided exceeds the value of the consideration including the performance of services received for providing such benefit the term excess_benefit means the excess referred to in sec_4958 as pertinent here sec_4958 defines the term disqualified_person to mean with respect to any transaction inter alia any person who was at any time during the 5-year period ending on the date of such transaction in a position to exercise substantial influence over the affairs of the organization sec_4958 defines the term applicable_tax-exempt_organization in pertinent part to mean-- any organization which without regard to any excess_benefit would be described in paragraph of sec_501 and exempt from tax under sec_501 and any organization which was described in sec_4958 at any time during the 5-year period ending on the date of the transaction sec_4958 imposes a so-called second-tier tax equal to percent of the excess_benefit involved the second-tier tax will be imposed i n any case in which an initial first-tier tax is imposed by sec_4958 a on an excess_benefit_transaction and the excess_benefit involved in such transaction is not corrected within the taxable_period the second-tier tax imposed by sec_4958 is required to be paid_by any disqualified_person as defined in sec_4958 with respect to that excess_benefit_transaction sec_4958 defines the terms correction and correct for purposes of the second-tier tax imposed by sec_4958 to mean with respect to any excess_benefit_transaction undoing the excess_benefit to the extent possible and taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified_person were dealing under the highest fiduciary standards 6the term applicable_tax-exempt_organization does not include a private_foundation as defined in sec_509 sec_4958 defines the term taxable_period for purposes of the second-tier tax imposed by sec_4958 to mean with respect to any excess_benefit_transaction the period beginning with the date on which the transaction occurs and ending on the earliest of-- a the date of mailing a notice_of_deficiency under sec_6212 with respect to the tax imposed by sec_4958 a or b the date on which the tax imposed by sec_4958 a is assessed we turn now to whether to sustain respondent’s determinations in the notice in doing so we must decide whether aha is an applicable_tax-exempt_organization as defined in sec_4958 whether petitioner is a disqualified_person with respect to aha as defined in sec_4958 whether during each of her taxable_year sec_2010 sec_2011 and sec_2012 petitioner engaged in excess_benefit transactions with aha as defined in sec_4958 totaling dollar_figure dollar_figure and dollar_figure respectively and whether petitioner corrected the excess_benefits involved in those respective excess_benefit transactions within the taxable_period as defined in sec_4958 first-tier tax under sec_4958 applicable_tax-exempt_organization in petitioner prepared and filed on behalf of aha an application with the irs for a determination that it qualified as an organization described in sec_501 that was exempt from tax the irs granted that application and made that determination for each of the year sec_2010 sec_2011 and sec_2012 aha filed with the irs form 990-n e-postcard in which it reported that it continued to operate as a tax- exempt_organization described in sec_501 petitioner was its principal officer and its annual gross_receipts were less than dollar_figure aha did not file for any of the year sec_2010 sec_2011 and sec_2012 form_990-pf which must be filed annually by every private_foundation or sec_4947 trust that is treated as a private_foundation regardless of its revenues or assets nor did aha file for any of those years form_4720 which must be filed by every private_foundation or sec_4947 trust that is treated as a private_foundation in the event certain excise_taxes under chapter sec_41 and sec_42 of the code are in- curred aha filed a petition in the court for a declaratory_judgment under sec_7428 with respect to a notice_of_determination that respondent had issued to it on date thereby commencing the case at docket no 14562-15x in that notice respondent determined to revoke effective date aha’s exemption from tax under sec_501 because respondent had determined that aha ha d not operated in accordance with the provisions of sec_501 petitioner does not dispute respondent’s determinations in the notice that during each of the year sec_2010 sec_2011 and sec_2012 aha was an applicable_tax-exempt_organization as defined in sec_4958 on the record before us we find that throughout the period commencing with its inception in though date the irs treated aha as an organization described in sec_501 that was exempt from tax on that record we further find that during each of the year sec_2010 sec_2011 and sec_2012 aha was an applicable_tax-exempt_organization as defined in sec_4958 disqualified_person during and petitioner was the chief_executive_officer and a member of the board_of directors of aha during those years she had exclusive signature_authority for the aha checking account at verus bank petitioner does not dispute respondent’s determinations in the notice that during each of the year sec_2010 sec_2011 and sec_2012 she was a disqualified_person with respect to aha as defined in sec_4958 on the record before us we find that during each of the year sec_2010 sec_2011 and sec_2012 petitioner was in a position to exercise substantial influence over the affairs of aha see sec_53_4958-3 to foundation excise_tax regs persons deemed to have substantial influence over an organization include voting members of the governing body presidents chief executive officers and treasur- ers on that record we further find that during each of those years petitioner was a disqualified_person with respect to aha as defined in sec_4958 excess_benefit transactions during and petitioner used the aha checking account to make certain purchases from certain third parties and certain cash withdrawals totaling dollar_figure dollar_figure and dollar_figure respectively petitioner disputes respondent’s determinations in the notice that those purchases and those cash withdrawals are excess_benefit transactions as defined in sec_4958 in support of her position petitioner advances the following three contentions each of the payments to third parties for the purchases at issue was for a business or an exempt_purpose of aha each of those payments and each of the cash withdrawals at issue constituted compensation that aha owed petitioner for services that she had rendered for aha during years prior to and or 7see supra note each of the payments at issue and each of the cash withdrawals at issue represented the repayment by aha of certain loans that petitioner had made to aha during years prior to in support of the contentions that petitioner advances in support of her position she relies on her testimony and certain documentary_evidence with respect to petitioner’s testimony on which she relies we found her testimony to be general conclusory vague self-serving uncorroborated and or not credible in certain material respects we are not required to and we shall not rely on peti- tioner’s testimony to establish her position or any of the contentions that she advances in support of her position that none of the purchases from certain third parties and certain cash withdrawals totaling dollar_figure dollar_figure and dollar_figure respectively that she made during and is an excess_benefit_transaction as defined in sec_4958 see eg 87_tc_74 with respect to certain documentary_evidence on which petitioner relies we found that evidence to be questionable not reliable not credible and or otherwise not persuasive we are not required to and we shall not rely on any such 8petitioner prepared at least some of the documentary_evidence on which she relies after respondent began an examination of her taxable_year sec_2010 sec_2011 continued documentary_evidence to establish petitioner’s position or any of the contentions that she advances in support of her position that none of the purchases from certain third parties and certain cash withdrawals totaling dollar_figure dollar_figure and dollar_figure respectively that she made during and is an excess_benefit_transaction as defined in sec_4958 on the record before us we find that petitioner has failed to carry her burden of establishing that none of the purchases from certain third parties and certain cash withdrawals totaling dollar_figure dollar_figure and dollar_figure respec- tively that she made during and is an excess_benefit_transaction as defined in sec_4958 based upon our examination of the entire record before us we find that petitioner has failed to carry her burden of establishing error in respondent’s deter- minations in the notice that there are deficiencies of dollar_figure dollar_figure and dollar_figure under sec_4958 for her taxable_year sec_2010 sec_2011 and sec_2012 respectively continued and second-tier tax under sec_4958 petitioner does not dispute that she has not corrected within the taxable_period the excess_benefit involved in each excess_benefit_transaction see sec_4958 in which respondent determined she engaged during each of the year sec_2010 sec_2011 and sec_2012 and as a result of which respondent determined a deficiency under sec_4958 for each of those years that we have sustained we presume that petitioner does not dispute those matters because it is her position that she did not engage in any excess_benefit_transaction with aha during or on the record before us we find that petitioner has not corrected within the taxable_period the excess_benefit involved in each excess_benefit_transaction in which respondent determined she engaged during each of the year sec_2010 sec_2011 and sec_2012 and as a result of which respondent determined a deficiency under sec_4958 for each of those years that we have sustained based upon our examination of the entire record before us we find that petitioner has failed to carry her burden of establishing error in respondent’s deter- minations in the notice that there are deficiencies of dollar_figure dollar_figure and dollar_figure under sec_4958 for her taxable_year sec_2010 sec_2011 and sec_2012 respectively to reflect the foregoing decision will be entered for respondent appendix checks drawn on aha’s checking account during checks used for petitioner’s personal expenses date of check check no payee dillards quiktrip cingular wireless a a auto salvage allstate dr scott landes dillons dillons hollister quiktrip dillons kountry kupboard gary shawalter kwik shop dillons kwik shop dillons quiktrip walmart 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 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure date of check check no payee total derby quick lube walmart kwik shop usaa credit card dillons rods walmart checks used to obtain cash for petitioner amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure check no date of check amount dollar_figure dollar_figure dollar_figure dollar_figure total dollar_figure grand total dollar_figure payee verus bank verus bank verus bank joan heffington checks drawn on aha’s checking account during checks used for petitioner’s personal expenses date of check check no payee --- dillons stamps misc quiktrip westar energy walmart improv slumberland drc walmart walmart penny’s walmart walgreens quiktrip dillons walmart usaa credit card quiktrip st john’s military school 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 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure date of check check no payee t s tree service gene’s stump grinding service dillons el paso animal clinic walmart dutch’s great clips walmart walmart kohls hollister rollins echostar dish ryan lawn tree lowes walmart sedgwick co treasurer meineke car care st john’s military school walmart 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 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure date of check check no payee amount --- total --- --- --- --- --- central mississippi crematory inc medscreens inc dillons perfect memorials joel osteen subway dillons penny’s dish k-15 auto salvage walmart lowes o’reilly auto braums at t solutions lowes 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 dollar_figure dollar_figure dollar_figure dollar_figure checks used to obtain cash for petitioner date of check check no --- payee verus bank joan heffington cash amount dollar_figure dollar_figure dollar_figure payee check no date of check amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total grand total dollar_figure joan heffington joan heffington joan heffington joan heffington joan heffington checks drawn on aha’s checking account during checks used for petitioner’s personal expenses date of check check no payee total --- --- --- --- motor mint cars my construction roberts overdoors inc lusco brick stone star lumber supply dillons lowes quiktrip walmart quiktrip kwik shop checks used to obtain cash for petitioner date of check check no payee --- --- --- cash joan heffington cash joan heffington joan heffington 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 amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure date of check check no payee amount --- cash from deposit slip joan heffington dollar_figure dollar_figure total dollar_figure grand total dollar_figure ---


internal_revenue_service number release date index nos cc psi - plr-152261-01 date x y member b state dear this is in reply to a recent letter submitted by x’s authorized representative on behalf of x requesting a ruling that y will be treated as a disregard ed entity for federal tax purposes the information submitted states that y is a state limited_liability_company llc the state llc act provides that limited_liability_company and domestic limited_liability_company means a limited_liability_company formed under the laws of state and having or more members x a corporate entity has of the economic_interest in y x has a share of the profits and losses of y and a share of whatever would be distributed in liquidation of y the other member of y member b will not share in the profits and losses of y or receive anything in liquidation of y under the llc agreement the agreement for y member b’s only rights are to help prevent the bankruptcy of y by requiring member b’s approval in order for y to i file for bankruptcy ii dissolve or liquidate iii amend the certificate of formation for y iv engage in a business other than specified in y’s certificate of formation or v enter into a credit facility or borrowing outside the ordinary course of its business or other than contemplated upon its formation sec_301_7701-2of the procedure and administration regulations provides that business entities are entities recognized for federal tax purposes but not properly classified as trusts under sec_301_7701-4 or otherwise subject_to special treatment under the code a business_entity with two or more members is classified for federal tax purposes as either a partnership or a corporation sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner under sec_301_7701-3 a domestic eligible_entity with a single owner is disregarded as an entity separate form its owner unless it elects to be treated as a corporation under sec_301_7701-3 since y is a domestic eligible_entity and you have represented that it will not file an election to be treated as a corporation its federal tax classification depends upon whether y has one member or more than one member in this case member b is a member of y for the sole limited purpose of preventing x from placing y into bankruptcy on its own volition member b has no interest in y capital profits or losses and neither manages the enterprise nor has any management rights other than those limited rights described above thus for federal tax purposes member b will not be treated as a member of y accordingly x is the sole member of y because x is the sole owner of y and y will not elect to be treated as a corporation for federal tax purposes y will be disregarded as an entity separate from x based solely on the facts submitted and representations made we conclude that provided that y does not file an election to be treated as a corporation for federal tax purposes under sec_301_7701-3 y will be disregarded as an entity separate from x furthermore based on the facts and circumstances set forth in the ruling_request dated date plr-113383-01 llc’s assets and activities will be attributed to x for purposes of determining whether x qualifies as an exchange accommodation titleholder under revproc_2000_37 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c c h ief c o u n sel date number info release date cc tege eoeg et2 genin-102993-02 uil reference continuing employment exception - sec_3121 dear this letter responds to your written inquiry dated date requesting that we determine whether or not services performed by an employee of the university are exempt from medicare_tax pursuant to the continuing employment exception set forth in internal_revenue_code code sec_3121 as we understand the facts you have provided the employee in question was employed by the university on date laid off on date and reemployed on date currently the employee is still employed by the university during the period between date and date the employee worked for several months with a private employer as a general matter apart from the procedure for issuing a formal opinion as described in revproc_2002_1 2002_1_irb_1 the internal_revenue_service is not able to provide binding legal advice applicable to particular taxpayers your request does not conform to the requirements of revproc_2002_1 and therefore does not provide the necessary information to issue a formal opinion applying code sec_3121 to your specific facts however we are pleased to provide you with the following general information regarding the continuing employment exception to medicare_tax which we hope will be helpful taxes under the federal_insurance_contributions_act fica are computed as a percentage of wages paid_by the employer and received by the employee with respect to employment in general all payments of remuneration by an employer for services performed by an employee are subject_to fica_taxes unless the payments are specifically excepted from the term wages or the services are specifically excepted from the term employment there are two taxes that comprise fica_taxes old-age_survivors_and_disability_insurance_tax oasdi and hospital_insurance_tax old-age_survivors_and_disability_insurance_tax also known as social_security_tax is imposed genin-102993-02 under code sec_3101 and sec_3111 hospital_insurance_tax also known as medicare_tax is imposed by code sec_3101 and sec_3111 section a of the consolidated omnibus budget reconciliation act of pub_l_no 100_stat_313 codified in various sections of u s c amended code sec_3121 in general the amendment applies code sec_3101 and sec_3111 the medicare portion of fica to wages for services rendered after date by newly hired employees of states and political subdivisions previously most employees of states and political_subdivision were not covered under fica as their services were excepted from the term employment by code sec_3121 code sec_3121 provides an exception to code sec_3121 and subjects certain state and local_government employees to medicare taxes under code sec_3121 except in limited circumstances services performed by state and local_government employees hired after date who are not subject_to a agreement are considered employment for medicare_tax purposes in contrast such services in the absence of a agreement continue to be exempt from the oasdi portion of fica under code sec_3121 under code sec_3121 services performed by state or local employees hired on or before date continue to be exempt from medicare taxes if code sec_3121 otherwise applies provided that such employee sec_1 were performing substantial and regular services for the state or political_subdivision employer before date were bona_fide employees of such employer on date had a relationship with such employer that was not based on the avoidance of medicare_tax and had an employment relationship with such employer that was not terminated at any time since date this exception is referred to as the continuing employment exception revrul_86_88 1986_2_cb_172 provides guidelines related to the application of code sec_3121 medicare_tax to wages of newly hired employees of states and political subdivisions the situation presented in q a of this revenue_ruling appears to be applicable to the facts of this matter a state employee who performed regular and a agreement is an agreement between a state or political_subdivision thereof and the secretary of health and human services pursuant to sec_218 of the social_security act u s c sec_418 extending social_security coverage to employees of such state or political_subdivision genin-102993-02 substantial services for remuneration prior to date and whose employment relationship with the state employer was terminated after date was later rehired by the state employer the revenue_ruling determined that the continuing employment exception did not apply to the state employee based on code sec_3121 which is discussed in the above paragraph revrul_86_88 in q a defines termination of employment for purposes of code sec_3121 as a question of fact this determination must be based on the relevant facts and circumstances of the particular situation the revenue_ruling also explains that g reat weight however will be given to the personnel rules of the state employer or political_subdivision employer to determine if an employment relationship has been terminated however revrul_88_36 1988_20_irb_22 which supplements revrul_86_88 provides another example in which an employee’s employment was considered continuing even though the employee was notified that she would be terminated as of the end of date because the school district might not receive sufficient funding the employee continued to be covered under the school district’s health insurance program through date on the same basis as before date in date sufficient funding was provided and the employee began working with the same employer on the same basis as before date the revenue_ruling determined that the employment was continuous ie not terminated as provided in code sec_3121 because the school district received sufficient funding and its personnel policies indicated that the employment relationship continued because the terminated employee retained health_insurance_coverage both revenue rulings indicate that the determination of whether an employment relationship is terminated is based on the facts presented with particular emphasis on the personnel policies of the employer consequently in applying this information to your situation you would determine whether the employment relationship has been terminated in the same manner if you have any additional questions or need further assistance please contact patricia p holdsworth at sincerely lynne a camillo acting branch chief employment_tax branch office of the assistant chief_counsel exempt_organizations employment_tax government entities


t c summary opinion united_states tax_court robert lee and rebecca waters petitioners v commissioner of internal revenue respondent docket no 11643-o00s filed date robert lee waters pro_se alexandra be nicholaides for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed the decision to be entered in this case is not reviewable by any other court and this opinion should not be cited as authority all subsequent section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency in petitioners’ federal_income_tax an accuracy-related_penalty and an addition_to_tax for as follows penalty addition_to_tax year deficiency sec_6662 sec_6651 a dollar_figure dollar_figure sec_441 after concessions by petitioners ’ the issues for decision are as follows whether for the taxable_year in issue petitioners are entitled to a deduction under sec_165 for a loss attributable to a the unauthorized removal of furnishings and fixtures from an apartment building in and b the foreclosure on such building in we hold that they are not whether petitioners are liable for the accuracy-related_penalty under sec_6662 for negligence or intentional disregard of rules or regulations we hold that they are to the extent provided herein in the petition petitioners disputed the entire deficiency determined by respondent in the notice_of_deficiency however petitioners did not assign any error or allege any facts with respect to respondent’s determinations regarding the receipt of unreported nonemployee compensation in the amount of dollar_figure the imposition of self-employment_tax on such nonemployee compensation and the disallowance of itemized_deductions for charitable_contributions and unreimbursed employee_expenses moreover at trial petitioners did not dispute any of these adjustments accordingly we regard petitioners as having conceded these matters whether petitioners are liable for an addition_to_tax under sec_665l1 a for failure to timely file an income_tax return we hold that they are background some of the facts have been stipulated and they are so found petitioners resided in southfield michigan at the time that their petition was filed with the court a petitioners during the taxable_year in issue petitioner robert lee waters petitioner was employed full-time as a teacher by the board_of education of detroit michigan during that same year petitioner rebecca waters was a housewife b acquisition of the hazelwood property in date a group of six individuals the land_contract vendees purchased a parcel of improved real_estate in detroit michigan the hazelwood property under a land_contract the land_contract vendees included petitioners petitioner’s father marland and dortha moore and marland moore’s mother the hazelwood property consisted of a 38-unit 4-story apartment building with an elevator the memorandum of land_contract that was recorded with the register of deeds for wayne county michigan did not disclose the purchase_price of the hazelwood property q4e- in date the land_contract vendees received a warranty deed to the hazelwood property the warranty deed recites that the hazelwood property was conveyed for the full consideration of dollar_figure in date marland and dortha moore and marland moore’s mother conveyed their interest in the hazelwood property to petitioners and petitioner’s father according to the quit claim deed the conveyance was for the full consideration of dollar_figure c mortgage on the hazelwood property in date a loan in the amount of dollar_figure was obtained from first independence national bank of detroit first independence as security for the loan petitioners and petitioner’s father gave first independence a mortgage on the hazelwood property d rental of the hazelwood property in or about date petitioner’ purportedly entered into a lease with a nonprofit housing corporation operated by reverend jim holley which converted the hazelwood property into a homeless shelter this arrangement allegedly ended in february or date at which time petitioner took back possession of for the sake of convenience we may sometimes refer to petitioner as the owner of the hazelwood property even though petitioners and petitioner’s father were the record owners of the property the building only to discover that everything had been trashed in this regard petitioner testified at trial as follows and see in these apartments i had stoves refrigerators and like that all this was gone when i came back there was no stoves no refrigerators no faucets no shower heads no knobs on the door i mean everything no light fixtures in the hall and whatever and this is what i came back to and i had to try to refurbish petitioner did not maintain insurance on the hazelwood property and at trial he made no mention of ever having filed any police report regardless petitioner never pursued any recovery against either the nonprofit housing corporation or its operator because they were insolvent be foreclosure and mortgage sale of the hazelwood property as early as petitioner began having difficulty in making payments to first independence indeed in date first independence filed a 11s pendens with the register of deeds for wayne county michigan petitioner continued having difficulty in making payments to first independence in particular petitioner did not make all payments in and he did not make any payment in foreclosure proceedings against the hazelwood property were commenced by first independence in the proceedings culminated on date with a mortgage foreclosure sale the outstanding balance at that time was dollar_figure consisting of principal of dollar_figure interest of dollar_figure and an continued -- - at that time first independence as highest bidder with an offer of dollar_figure at public auction received a sheriff’s deed dated date the sheriff’s deed the sheriff’s deed gave notice in part that during the six months immediately following the sale the property may be redeemed neither petitioner nor petitioner rebecca waters nor petitioner’s father redeemed the hazelwood property in date first independence conveyed the hazelwood property by warranty deed to an unrelated third-party ff petitioners’ income_tax return on date respondent received petitioners’ u s individual_income_tax_return form_1040 for the return was signed by petitioners and dated date petitioners did not apply for or receive any extension of time to file on their return petitioners reported adjusted_gross_income of dollar_figure and taxable_income of zero petitioners reported no tax_liability and claimed a refund in the amount of the tax that had been withheld from petitioner’s wages as a teacher petitioners itemized their deductions for in this regard petitioners attached schedule a itemized_deductions to their return and claimed total itemized_deductions of dollar_figure continued escrow deficiency of dollar_figure - of this amount dollar_figure was claimed for a casualty or theft_loss in respect of the hazelwood property in support of their claimed casualty or theft_loss petitioners attached form_4684 casualties and thefts to their return in section b business and income-producing property petitioners computed their claimed loss as follows cost or adjusted_basis dollar_figure less insurance or other reimbursement -o- fair_market_value before casualty theft big_number fair_market_value after casualty theft big_number diminution in fair_market_value big_number lesser_of cost or adjusted_basis or diminution in fair_market_value big_number casualty or theft_loss big_number discussion a loss deduction the parties’ contentions petitioners contend they are entitled to a casualty or theft_loss based on theft of the furnishings and fixtures of the hazelwood property and the subsequent foreclosure on the property itself petitioners further contend that they are entitled to deduct the loss in because that was the year in which they surrendered possession of the hazelwood property in this regard petitioners allege that after the foreclosure sale on we decide this issue without regard to the burden_of_proof accordingly we need not decide whether the general_rule of sec_7491 is applicable to this issue see 116_tc_438 --- - date they remained in possession of the hazelwood property until mid-date when for the first time since the foreclosure sale they were contacted by first independence and told that the bank would immediately take possession of the property respondent acknowledges that a theft_loss may be deductible as may be a loss attributable to the foreclosure of property however respondent contends that any loss to which petitioners may be entitled is deductible in the year in which any theft was allegedly discovered and the year in which petitioners’ equity_of_redemption was extinguished deductibility of losses in general as a general_rule sec_165 allows as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise however in the case of an individual sec_165 limits the deduction to losses_incurred ina trade_or_business losses_incurred in any transaction entered into for profit and losses of property not connected with a trade_or_business or with a transaction entered into for profit if such losses arise from fire storm shipwreck or other_casualty or from theft a loss is treated as sustained during the taxable_year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in --- - such taxable_year sec_1_165-1 income_tax regs see also sec_1_165-1 income_tax regs however if there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery no portion of a loss with respect to which reimbursement may be received is sustained until it can be ascertained with reasonable certainty whether or not such reimbursement will be received sec_1_165-1 income_tax regs casualty and theft losses under sec_165 a loss arising from theft is sustained during the taxable_year in which the taxpayer discovers the loss see sec_165 sec_1_165-1 income_tax regs sec_1 a income_tax regs the term theft includes but is not limited to larceny embezzlement and robbery see sec_1 d income_tax regs whether a theft exists depends upon the law of the jurisdiction wherein the particular loss occurred manteleone v commissioner 34_tc_688 petitioner urges us to find that the theft of the furnishings and fixtures of the hazelwood property occurred in at trial however petitioner candidly admitted that he discovered the loss of such furnishings and fixtures early in when he regained possession of the building from his tenant in order to expedite our discussion we shall accept that any unauthorized removal of furnishings and fixtures from the hazelwood property constituted a theft under michigan law -- - petitioner’s testimony at trial graphically illustrates this admission q okay but the damage occurred prior to ‘97 correct a yes qo and the foreclosure occurred in ‘96 a it started -- yes qo okay so there was no event -- no damage or vandalization in ‘97 that gave rise to the loss a no the rise to the loss happened in not ‘97 it is clear therefore that any casualty or theft_loss that petitioner may have sustained from an unauthorized removal of furnishings and fixtures from the hazelwood property was not sustained in but in an earlier year s see sec_165 sec_1_165-1 income_tax regs sec_1_165-8 income_tax regs thus not only did petitioner discover the loss at the latest in february or date but no reasonable prospect of reimbursement existed at that time that would have served to defer recognition of the loss to equally unpersuasive is petitioners’ related contention that the foreclosure of the hazelwood property was tantamount to a casualty_loss rather the disposition of mortgaged property at a foreclosure sale is treated as a sale_or_exchange from which the mortgagor may realize gain_or_loss under sec_1001 see 311_us_504 we therefore turn to that matter foreclosure_loss petitioner contends that the foreclosure_loss occurred in because that’s when the bank came and said 'this is my building now' respondent contends that the loss occurred in the year in which the period of redemption expired and the sheriff’s deed became final in michigan the period of redemption from a foreclosure sale depends on a number of factors including the type and size of the property the date of the mortgage and the amount of the debt owed as applicable herein a 6-month period of redemption applies for mortgages executed on or after date on multifamily residential property in excess of four units and not more than acres in size if more than two-thirds of the mortgage debt remains outstanding mich comp laws ann sec west because the right to redeem is statutory the redemption_period may not be extended by a court absent unusual circumstances such as fraud flynn v korneffel mich see cameron v adams mich refusing to extend the redemption_period despite the fact that the mortgagor had paid part of the redemption amount anda serious illness had prevented him from conducting his personal business during the redemption_period when the redemption_period expires both legal_title and the right to possession vest in the purchaser mich comp laws ann sec west bankers trust co v rose mich shelby co v dickinson mich possession of the property by the mortgagor after the redemption_period expires is unlawful and no notice to quit is necessary shelby co v dickinson supra in view of the foregoing it is clear that upon the expiration of the 6-month redemption_period on date petitioner no longer had any ownership right or possessory interest in the hazelwood property equally clear is the fact that any delay by first independence to take actual possession of the property is without legal consequence thus by virtue of michigan law any loss that petitioner may have sustained from the foreclosure on the hazelwood property was sustained in the year in which petitioner’s egquity of redemption was extinguished see sec_1_165-1 income_tax regs see also sec_1_165-1 income_tax regs conclusion because no loss was sustained in the only taxable_year before the court we hold that the deduction in issue is not allowable for that year b accuracy--related penalty next we consider whether petitioners are liable for the accuracy-related_penalty under sec_6662 sec_6662 and b provides that if any portion of an underpayment_of_tax is attributable to negligence or disregard of rules or regulations then there shall be added to the tax an amount equal to percent of the amount of the underpayment that is so attributable the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and the term disregard includes any careless reckless or intentional disregard sec_6662 see sec_1_6662-3 income_tax regs however no penalty shall be imposed with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion sec_6664 applicable to court proceedings arising in connection with examinations commencing after date sec_7491 c places on the commissioner the burden of production with respect to a taxpayer’s liability for any penalty or addition_to_tax see internal_revenue_service restructuring and reform act of publaw_105_206 sec a c 112_stat_685 however the taxpayer still bears the burden of proving that the negligence_penalty is inapplicable rule a 503_us_79 290_us_111 116_tc_438 as we see it the principal issue in this case involves an issue of timing ie the year in which a loss may properly be deducted we have decided that issue in respondent’s favor however we can appreciate how petitioner might have concluded that the foreclosure of the hazelwood property was not complete until date since that is when he apparently surrendered possession of the property similarly although petitioner may have discovered the unauthorized removal of furnishings and fixtures in we can appreciate how he might have concluded that such removal was inextricably connected with the ultimate fate of the hazelwood property which at the time was either in or on the verge of foreclosure proceedings in view of the foregoing we do not sustain respondent’s determination of the penalty under sec_6662 to the extent that the underpayment_of_tax in this case is attributable to the loss deduction under sec_165 in contrast we sustain respondent’s determination of the penalty under sec_6662 to the extent that the underpayment_of_tax in this case is attributable to the adjustments conceded by petitioners see supra note in this regard we observe that a taxpayer’s failure to keep adequate books_and_records or - - to properly substantiate items constitutes negligence sec_1_6662-3 income_tax regs in addition negligence is strongly indicated where a taxpayer fails to include on an income_tax return an amount of income shown on an information_return sec_1_6662-3 income_tax regs c addition_to_tax under sec_6651 a finally we consider whether petitioners are liable for an addition_to_tax under sec_6651 sec_6651 imposes an addition_to_tax for failure to timely file an income_tax return the addition_to_tax may be avoided if the failure to timely file is due to reasonable_cause and not willful neglect reasonable_cause contemplates that the taxpayer exercised ordinary business care and prudence and was nonetheless unable to file a return within the prescribed time 469_us_241 sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite sec_7491 places on the commissioner the burden of production with respect to a taxpayer’s liability for any penalty or addition_to_tax however as previously mentioned the taxpayer still has the burden of proving that the commissioner's determination of the addition_to_tax is erroneous rule a indopco inc v commissioner supra welch v helvering supra - higbee v commissioner supra 67_tc_111 36_tc_170 absent an extension of time to file petitioners’ income_tax return was required to be filed by wednesday date see sec_6072 however petitioners did not apply for or receive any extension of time to file and their tax_return bearing their signatures and the date of date was not received by respondent until date such evidence satisfies respondent’s burden of production under sec_7491 c at trial petitioners did not introduce any evidence regarding reasonable_cause or lack of willful neglect indeed apart from arguing that there is no deficiency in income_tax petitioners have not argued that they should be excused from liability for the addition_to_tax finally there is nothing in the record to suggest that petitioners’ failure to timely file was due to reasonable_cause and not willful neglect accordingly we sustain respondent’s determination on this is sue d conclusion reviewed and adopted as the report of the small_tax_case division to give effect to our disposition of the disputed issues as well as petitioners’ concessions see supra note decision will be entered under rule


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date ------------------- number release date conex-117275-16 uil the honorable kirsten gillibrand united_states senator third avenue suite new york ny attention dear senator gillibrand i am responding to your inquiry dated date on behalf of your constituent ------------------------- ------------------ requested your assistance in obtaining a private_letter_ruling from the irs on whether participation by employees of the ------------------------------ ---------- status as a governmental_plan within the meaning of sec_414 of the internal_revenue_code code sec_414 of the code generally defines the term governmental_plan as a plan that the government of the united_states the government of any state or its political subdivisions or any of their agencies or instrumentalities establishes or maintains for employees of the governmental entity under sec_3 of revproc_2016_3 2016_1_irb_126 the irs will not issue rulings on whether an employee_benefit_plan is a governmental_plan under sec_414 of the code this includes rulings on whether a particular set of facts affects a plan’s status as a governmental_plan therefore a private_letter_ruling on the issues your constituent raised is not available on date the department of treasury and the irs published an advance notice of proposed rulemaking announcing the intent to write regulations on the definition of a governmental_plan under sec_414 of the code and requesting comments on the underlying issues see f_r ------------------------------------------------ will affect the retirement system’s in the ----- conex-117275-16 as noted in the priority guidance plan which is a listing of published guidance projects the treasury_department and irs are actively working we are working on issuing a notice of proposed rulemaking that will provide guidance relating to the determination of whether a plan is a governmental_plan within the meaning of sec_414 of the code a copy of the priority guidance plan is available on the irs website at www irs gov uac priority-guidance-plan i am sorry i do not have more details at this time but i hope this information is helpful if you need further assistance please contact me at ----------------- --------------------- -------------------- ----------------------- or at sincerely pamela r kinard senior technician reviewer qualified_plans branch tax exempt and government entities


internal_revenue_service number release date index number ------------------------------- --------------------------------- -------------------------------- ------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-134349-07 date date -------------------------------- --------------------- legend x ----------------------------------------- a ------------------------------------------- d1 d2 state dear --------------- ---------------------- ------------- -------------------------- we received a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under ' b of the internal_revenue_code this letter responds to that request facts x was incorporated under state law on d1 x’s sole shareholder a intended for x to be an s_corporation effective d2 however x’s form_2553 election by a small_business_corporation was not timely filed thus x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d2 plr-134349-07 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year - a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b such election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for the taxable_year and sec_1362 shall not apply sec_1362 provides that if a an election under sec_1362 is made for conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make an s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d2 within days following the date of this letter the election shall be treated as timely made the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes is being sent to your authorized representative in accordance with a power_of_attorney on file with this office a copy of this letter except as expressly provided herein we express or imply no opinion concerning plr-134349-07 of the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it sec_6110 sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc