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 plr-140143-09 date march grantor bank trust trust trust sub- trusts trust sub- trusts date date date merger agreement state court ------------------- ----------------------------- --------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------------- ----------------- ------------------- ---------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ --------------------------- --------------------------------------------------------------- plr-140143-09 ---------------------------------------------------------- ------------- ----------- state court state state state law ------------------------------------------------------------------ state law ------------------------------------------------------------------ state law ---------------------------------------------- state law ---------------------------------------------- a b c d e f g h i ----------------------------------- ----------------------------- ---------------------- ----------------------- --------------------------- ------------------------- ------------------------------- ------------------- --------------------------------------- dear ------------------------------------------------------------------------------ this responds to your letter dated date requesting a ruling pertaining to the estate gift generation-skipping_transfer and income_tax effects of a proposed merger of two irrevocable trusts and respective sub-trusts created prior to date the facts submitted and representations made are as follows grantor has five grandchildren a b c d and e all of whom are over the age of twenty-one f is the daughter of grantor and the mother of a b c d and e g is the spouse of f and father of a b c d and e h is the spouse of d grantor is deceased a b c d and e are alive and each has three children a has two grandchildren on date a date prior to date grantor created an irrevocable_trust trust for the benefit of a b c d and e that was immediately divided into five equal separate trusts one for the benefit of each a b c d and e trust sub-trusts f g and bank are the trustees of the sub-trusts created for the benefit of a and c g b and bank are trustees of the sub-trust created for the benefit of b g h and bank are trustees of the sub-trust created for the benefit of d g e and bank are trustees of the sub-trust created for the benefit of e on date a date prior to date grantor created another irrevocable_trust trust for the benefit of a b c d and e that was immediately divided into five equal separate trusts trust sub-trusts one for the benefit of each a b c d and e f g and bank are trustees of the sub-trusts created for a b c and e g h and bank are trustees of the sub-trust created for the benefit of d the trustees of the trust sub-trusts and the trust sub-trusts are collectively referred to as trustees plr-140143-09 under the terms of articles i ii and iii of trust the trustees of the trust sub-trusts must accumulate income and add it to principal until the grandchild for whose benefit such sub-trust is held reaches age twenty-one at which time the trustees may distribute the income to the beneficiary notwithstanding the previous sentence the trustees may withhold the income and distribute it to a descendant of the grandchild or add it to principal the trustees have the discretionary authority to distribute principal for a grandchild’s or the grandchild’s descendant’s maintenance and education accident illness or other emergencies to enable such persons to purchase build or improve a home to establish a business or profession or to enter into any other financial transaction that the trustees deem to be in the grandchild’s or the grandchild’s descendant’s best interests provided however if any beneficiary is the trustee of the trust established for his benefit the distribution powers are vested exclusively in the other trustees the trustees may also terminate the trust and distribute the trust estate to the grandchild if at any time the trustees are of the opinion that the continuance of the trust is neither necessary nor desirable in the interests of the grandchild upon death each grandchild has the power to appoint his share outright or in trust to any living descendants of grantor except to himself his estate his creditors or creditors of his estate or if there are no living descendants of grantor then to any individual or entity if a grandchild fails to appoint the trust estate then the trustees must distribute the trust estate in equal shares to the grandchild’s living descendants per stirpes or if the grandchild has no living descendants to the living descendants of f provided however if any portion of the trust estate becomes distributable to a grandchild for whose benefit a_trust share exists such portion shall be added to the grandchild’s existing trust under article iv if a descendant of the grandchild becomes entitled to a fractional share of the trust estate before reaching age thirty the trustees are authorized to hold such amounts in trust for the benefit of such descendant the trustees must accumulate income and add it to principal the trustees have discretion to distribute principal for such beneficiary’s maintenance and education the trust will terminate on the earliest to occur of i the death of the beneficiary ii the beneficiary reaching age thirty or iii the twenty-first anniversary of the death of the last to die of the descendants of grantor’s father living on date upon termination the trustees will distribute the trust estate outright to the beneficiary if the trust terminates due to the death of the beneficiary the trustees will distribute the trust estate equally to the living children of the beneficiary or if there are no living children of the beneficiary then to the beneficiary’s intestate heirs under state law article vi provides that any individual trustee may appoint an additional or successor trustee provided however no more than three individuals may serve as trustee of trust at any time any corporate trustee may be removed but such removal will not take effect until a successor corporate trustee is appointed to serve plr-140143-09 under the terms of articles i ii and iii of trust the trustees have discretion to distribute principal for the maintenance and education of the grandchild or his descendant for accident illness or other emergencies of the grandchild or his descendant to enable the grandchild or his descendant to purchase build or improve a home to establish a business or profession or for any other purpose the trustees deem worthwhile and in the best interests of the grandchild or his descendant the trustees may distribute income to the beneficiary or his descendants or may accumulate income and add it to principal furthermore the trustees may terminate the trust by distributing the principal to the grandchild if at any time the trustees believe the continuance of the trust is neither necessary nor desirable in the interests of the grandchild upon death each grandchild has the power to appoint his share outright or in trust to any living descendants of grantor except to himself his estate his creditors or creditors of his estate or if there are no living descendants of grantor then to any individual or entity if a grandchild fails to appoint the trust estate then the trustees must continue to hold the trust estate in one trust for the benefit of the grandchild’s living descendants per stirpes the trustees have authority to distribute the income in equal shares to the living descendants per stirpes or may accumulate income and add it to principal the trustees also have discretion to distribute principal to the descendants for the same purposes as set forth above for a grandchild’s trust the trust estate will terminate on the death of the last to die of the descendants upon termination the trustees will then divide and distribute the remaining trust estate into the number of equal shares necessary to provide one such share with respect to each trust originally created for each grandchild notwithstanding the above all trusts will terminate on the twenty-first anniversary of the death of the last to die of the descendants of grantor who were living on date and the trustees will distribute the trust estate to the persons in equal shares per stirpes for whose primary benefit the trust is held article iv of trust provides that in the event any property becomes distributable to a person under the age of thirty the trustees are authorized to retain such property in trust for the benefit of such person the trustees may distribute principal for the maintenance and education of such person and must accumulate income and add it to principal the trust will terminate upon the earlier to occur of the death of such person or such person reaching age thirty upon termination the trustees shall distribute the principal to such person or if the trust terminates due to the person’s death shall distribute the principal in equal shares to the person’s living children or if the person has no living children in equal shares to the living descendants per stirpes of the most immediate ancestor of such person who is grantor or any descendant of grantor who has living descendants finally article vi of trust states that if any portion of the trust estate is not disposed of pursuant to any other provision of the trust document then the trustees must distribute the trust estate to i plr-140143-09 article viii of trust provides that the individual trustees or if no individual trustees are serving then the majority of grantor’s living children over the age of eighteen or if none the majority of grantor’s living grandchildren over the age of eighteen may appoint successor trustees of the trusts notwithstanding the previous sentence grantor may not be appointed as trustee not more than one corporation and three individual trustees may serve as trustees of the trusts at any one time and in the event that a successor trustee must be appointed after a corporate trustee is removed then if any one or more of the persons appointing the successor trustee is also a beneficiary of such trust then any trustee appointed to replace the removed trustee may not be a person who would be a_related_or_subordinate_party with respect to such beneficiary as defined under sec_672 of the code furthermore any person authorized to appoint a successor trustee is authorized to remove a corporate trustee only f may remove individual trustees state law provides that a trustee who has the absolute discretion to invade the principal of a_trust for the benefit of one or more proper object of the exercise of the power may exercise such discretion by appointing all or part of the principal of the trust in favor of a trustee of another trust provided that the exercise of such discretion a does not reduce any fixed income_interest of any income_beneficiary of the trust b is in favor of the proper objects of the exercise of the power and c does not violate the limitations of state law state law provides that interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a_trust provided that the matters agreed to do not violate a material purpose of the trust and include terms and conditions that could be properly approved by a court state law provides that after notice to the beneficiaries a trustee may combine two or more trusts into a single trust if the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust two or more trusts may be combined into a single trust if the interests of each beneficiary in the trust resulting from the combination are substantially the same as the combined interests of the beneficiary in the trusts prior to the combination trustees represent that on date pursuant to state law the parties agreed to administrative modifications to trust one of the modified terms authorizes the trustees to merge the assets of a_trust estate into a single trust estate provided that in all respects deemed material by the trustees the trust estates to be combined are held on the same terms and conditions and for the benefit of the same beneficiaries also on date pursuant to state law and state law the trustees executed merger agreement which proposes to merge trust and trust effectively merging the trust sub-trust created for the benefit of a b c d and e into the respective trust sub-trust created for such beneficiary the purpose of the proposed merger is plr-140143-09 for administrative convenience and greater efficiency of management and investment of the trust property currently ten sub-trusts exist and after the proposed mergers five sub-trusts will exist the proposed merger will allow each merged trust to be governed by one trust document which will reduce the cost of administrative expenses such as tax compliance accounting costs and management fees state court approved merger agreement and state court approved both the modifications to trust and the merger of the trusts however each court conditioned its approval on the receipt of a favorable ruling by the internal_revenue_service that the proposed mergers will not subject trust or trust to the gst tax under sec_1 of the merger agreement the provisions of trust will govern the merged trust except for the following provisions upon the termination of a merged trust for the benefit of a grandchild in the event the grandchild has not exercised his power_of_appointment granted with respect thereto the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred and the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred in the event any property passing to a beneficiary under the age of thirty is retained by the trustee in trust for such person then in the event of the death of the beneficiary before receiving all trust assets if the beneficiary has no living children the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred and the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred if any merged trust has not terminated prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor’s father living on date then the fractional portion of the merged trust attributable to trust shall terminate on such anniversary and the principal shall be distributed according to the terms of trust as if the merger had not occurred similarly if any merged trust has not terminated prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date then the fractional portion of the merged trust attributable to trust shall terminate on such anniversary and the trustees shall distribute the principal thereof to the person or persons in equal shares per stirpes for whose benefit such trust is being held trustees represent that no additions have been made to either trust or trust after date requested rulings plr-140143-09 trust and trust and the respective sub-trusts are currently exempt from the gst tax under sec_2601 internal_revenue_code code the proposed merger of trust and trust and the respective sub-trusts will not cause any distributions from the merged trusts or distributions upon termination of the merged trusts to become subject_to gst tax provided there are no post-merger additions to the merged trusts the proposed mergers will not result in a transfer by any of the beneficiaries that is subject_to gift_tax under sec_2501 no gain_or_loss will be recognized under sec_1001 upon the proposed merger the assets of the merged trusts will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the proposed merger ruling sec_2601 of the code imposes a tax on each generation-skipping_transfer sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c relating to property includible in the grantor's gross_estate under sec_2038 and sec_2042 trusts a and b were in existence and funded prior to date trustees represent that no additions have been made to the principal of either trust after date accordingly based on the facts presented and representations made we conclude that trust and trust and the respective sub-trusts are exempt from the gst tax under sec_2601 ruling plr-140143-09 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy b i a b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust sec_26_2601-1 example considers a situation where the grantor in establishes an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the example concludes that the trust that resulted from the merger will not be subject_to the provisions of chapter the instant case involves facts that are similar to example in sec_26_2601-1 except that certain dispositive provisions remainder beneficiaries and perpetuities periods differ in trust and trust these differences however are accounted for in merger agreement which provides that to the extent the trust provisions differ the fractional portion of the principal of the merged trust attributable to each original trust will be administered in accordance with the original trust documents the rules in sec_26_2601-1 apply in the case of trusts that are exempt from gst tax because the trusts were in existence and irrevocable prior to date plr-140143-09 based on the facts presented and the representations made we conclude that the merger of trust and trust as described above will not shift any beneficial_interest in the trusts to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the consolidation of trusts will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust or trust accordingly based on the information submitted and the representations made we conclude that the proposed merger of trust and trust and the respective sub- trusts will not affect the grandfathered status of these trusts and will not cause any distributions from the merged trust or distributions upon termination of the merged trust to become subject_to gst tax provided there are no post-merger additions to the merged trust ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by an individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift will be considered the amount_of_the_gift sec_2512 states that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift based on the facts submitted and the representations made the beneficial interests of the trust beneficiaries will not change as a result of the proposed merger of trust and trust as described above accordingly based upon the facts provided and the representations made we rule that the proposed merger of trust and trust will not result in a transfer by any of the beneficiaries that is subject_to federal gift_tax under sec_2501 ruling sec_61 of the code defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for plr-140143-09 determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 in cottage savings the supreme court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are 'different' in the sense that is 'material' to the internal_revenue_code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the income and principal distribution provisions of trust and trust are substantially identical the two trusts differ in minor ways the merger agreement recognizes these minor differences and provides that should the differences between the two trusts arise the trusts will be construed in accordance with their original terms with this provision the legal entitlements of the beneficiaries are not affected by the merger the beneficiaries’ interests in the merged trust will not differ in_kind or extent from what they enjoyed under trust and trust the proposed merger of trust and trust is not an exchange of properties that are materially different from one another based on the facts presented and the representations made we conclude that the proposed merger of trust and trust will not result in the recognition of gain_or_loss to either the merged trust or any beneficiary thereof under sec_61 and sec_1001 ruling sec_1015 states that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor under the law applicable to the year in which the transfer was made plr-140143-09 sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining basis_of_property where more than one person acquires an interest in property by transfer in trust under sec_1_1015-1 property acquired by gift has a single uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person in this case neither sec_1001 nor sec_61 applies to the proposed transaction thus based upon the facts provided and the representations made we rule that the assets of each merged trust will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the proposed merger furthermore except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the ruling s in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-140143-09 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan chief branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes cc


t c memo united_states tax_court gary kaplan petitioner v commissioner of internal revenue respondent docket no filed date david i faust for petitioner frederick c mutter for respondent memorandum findings_of_fact and opinion laro judge petitioner did not file federal_income_tax returns nor make any_tax payments for and the years at issue pursuant to his authority under sec_6020 respondent prepared substitutes for returns for both years unless otherwise indicated section references are to the internal revenue continued in a notice_of_deficiency respondent determined the following income_tax deficiencies and additions to tax additions to tax_year tax dollar_figure big_number sec_6654 dollar_figure big_number sec_6651 sec_6651 dollar_figure big_number dollar_figure big_number petitioner resided in missouri when he timely petitioned this court the issues before us are whether for the years at issue petitioner is liable for self-employment_tax on his income as a consultant for betonsports plc and capital_gains_tax from the sale of shares of betonsports plc we hold that he is and whether for the years at issue petitioner is liable for additions to tax under sec_6651 for failure_to_file timely under sec_6651 for failure_to_pay_tax timely and under sec_6654 for failure to make estimated_tax payments we hold that he is continued code in effect for the years at issue and rule references are to the tax_court rules_of_practice and procedure findings_of_fact petitioner is a citizen_of_the_united_states by birth after finishing the eleventh grade petitioner dropped out of high school at the time he had two young children had no job and was making money illegally on the side by sportsbooking betonsports in approximately petitioner and several others began operating an illegal sportsbooking business in new york city called betonsports after being arrested in new york city on sportsbooking charges in petitioner moved the operation of betonsports to florida in petitioner saw a street advertisement which stated legal licensed sportsbooking in aruba grand occidental petitioner had friends in the sportsbooking industry one of whom knew the owner of grand occidental after speaking with the owner of grand occidental petitioner moved betonsports’ operations to aruba netherlands antilles in or around petitioner moved betonsports’ operations to antigua which had a bigger sportsbooking industry however because of antigua’s poor infrastructure and high telecommunication costs petitioner soon began looking for a place to which to relocate his business after considering several sportsbooking hubs petitioner settled upon costa rica because he believed it to be a good place to live and raise his family in petitioner moved betonsports’ operations to costa rica petitioner and his family stayed in costa rica for over years betonsports was a very successful operation by betonsports had call centers in costa rica and the dominican republic and at various times employed big_number to big_number people by it was one of the largest sports wagering businesses in the world although betonsports took sports wagers from all over the world approximately of those wagers came from the united_states in addition betonsports’ primary focus was american football which accounted for approximately of its bets by value before date betonsports’ assets were held by boulder overseas corp boulder a corporation that petitioner wholly owned in date betonsports plc plc went public on the london stock exchange in order to effect the initial_public_offering ipo plc purchased the assets of betonsports from boulder in exchange for shares of plc and cash in anticipation of the ipo petitioner transferred his shares in boulder to several trusts based in the isle of at trial petitioner maintained that at the time he did not believe that his operation of betonsports outside of the united_states was illegal during his time overseas petitioner obtained sportsbooking licenses from aruba antigua costa rica england and the dominican republic according to petitioner he believed that these licenses allowed him to accept wagers from the united_states jersey bird trusts petitioner was the protector of the bird trusts and basel trust corp channel islands ltd basel was the sole trustee from the date of their creation through at least date petitioner and his family were the intended beneficiaries of the bird trusts from the date of their creation until petitioner’s indictment in the bird trusts made discretionary distributions to petitioner and his family on which they lived in connection with its ipo plc issued a prospectus which disclosed in a section titled risk factors in general persons and organizations engaged in the business of sports betting in the us via the telephone or internet are in violation of existing us federal laws including but not limited to the interstate wireless act commonly known as the federal wire act in addition most us states also prohibit telephone and internet sports betting in an attempt to circumvent the laws of the us a number of sportsbooks have established their operations in jurisdictions outside of the us where their sportsbook activities are licensed the us courts have previously held that existing us laws do apply to sportsbooks and online casinos which are licensed abroad and operate outside the us but which take bets that originate in the us in a us citizen who operated an online sportsbook based and licensed in antigua and who had returned to the us was convicted under the federal wire act and sentenced to months imprisonment petitioner claims that he placed betonsports in trust on the advice of his attorney and the investment bankers handling the ipo in order to shield the company’s assets from general creditors as part of plc’s ipo petitioner sold million plc shares through boulder for approximately dollar_figure million and transferred the proceeds into various bank and investment accounts in switzerland and the isle of jersey in date petitioner sold another million plc shares through boulder for approximately dollar_figure million and again transferred the proceeds into various bank and investment accounts in switzerland and the isle of jersey boulder had no basis in any of these plc shares following plc’s ipo petitioner was retained as a consultant for plc and was paid dollar_figure in both and plc ceased operations in mid-2006 criminal case on date petitioner and several other individuals were indicted on a number of counts related to betonsports’ sportsbooking activities as part of the third superseding and final indictment the government alleged count of racketeer influenced and corrupt organizations rico conspiracy counts of mail fraud counts of use of wire communication to transmit bets count of the parties stipulate that this income constitutes self-employment_income the original indictment was replaced by a superseding indictment on date a second superseding indictment on date and finally a third superseding indictment on date the original indictment included several counts of tax_evasion for wagering excise_taxes which were later dropped in the second superseding indictment interstate transportation of gambling paraphernalia count of conspiracy to violate the wire wager act count of rico forfeiture and count of non-rico forfeiture for these offenses the government sought a sentence of to years of imprisonment and criminal forfeiture of dollar_figure million including but not limited to petitioner’s interests in boulder plc and other sportsbooking entities several trusts a number of swiss bank accounts a helicopter a beach house and a farm the government also sought and obtained freezes on petitioner’s overseas trusts in the isle of jersey and bank accounts in switzerland steven muchnick an assistant u s attorney ausa for the eastern district of missouri worked extensively on petitioner’s criminal case along with ausa michael fagan and u s department of justice doj attorney marty woelfle in or around ausa fagan and doj attorney woelfle withdrew from the case and were replaced by ausa steven holtshouser and special ausa charles birmingham joseph ludewig and travis ardury special agents from the on date at the request of the u s department of justice doj the royal court of jersey channel islands issued an order freezing all assets of the bird trusts including proceeds from the sales of plc shares in and which were held in swiss bank accounts on date at the request of the doj the swiss government froze the funds in swiss bank accounts owned directly or indirectly by the bird trusts on date the royal court of jersey lifted the freeze on the bird trusts’ assets internal_revenue_service irs criminal investigations division also assisted in the investigation on date petitioner was arrested and taken into custody in the dominican republic and rendered to the united_states throughout his criminal case petitioner was represented by a team of lawyers led by defense counsel chris flood a plea agreement in spring the government and petitioner began to engage in substantial plea negotiations at around this time several of petitioner’s codefendants had pleaded guilty the isle of jersey courts had lifted the freeze on petitioner’s isle of jersey accounts and petitioner was petitioning switzerland to lift the freeze on his accounts in switzerland as well each party designated one attorney to participate in the plea negotiations--ausa holtshouser for the government and mr flood for the defendants ausa holtshouer however kept ausa muchnick informed about the plea negotiations which focused primarily on two discussion points--prison time and forfeiture amount ausa muchnick was heavily involved in the drafting of petitioner’s plea agreement on date petitioner entered into a plea agreement with the government petitioner’s plea agreement provided that in exchange for petitioner’s guilty plea to one count of rico conspiracy one count of use of wire communication to transmit bets one count of conspiracy to violate the wire wager act one count of rico forfeiture and one count of non-rico forfeiture the government would dismiss all remaining charges as part of the agreement petitioner would forfeit dollar_figure to the united_states and his term of imprisonment would be limited to to months with credit for time served regardless of his criminal history category the government also agreed that it would request the swiss central authority to lift the freeze on any remaining bank accounts that were frozen at its request that it would move to withdraw a related motion for contempt sanctions and that it would remove the lis pendens on the florida residence of petitioner’s parents finally the parties agreed that because of the large forfeiture amount no fines would be imposed upon petitioner and he would not be required to pay restitution no trial was held in this case because all the defendants ultimately entered into plea agreements with the government petitioner was still required to pay a mandatory special assessment of dollar_figure per count for every criminal felony count of which he was convicted the relevant provisions of petitioner’s plea agreement are set forth below sec_1 of the plea agreement entitled the parties provides the parties to the agreements recommendations and stipulations contained herein are the defendant gary kaplan and the office of the united_states attorney for the eastern district of missouri hereinafter the government except where expressly stated otherwise herein this document and the agreements recommendations and stipulations contained herein do not and are not intended to bind any governmental office or agency other than the united_states attorney for the eastern district of missouri sec_1 however further provides that as an exception the united_states attorney for the eastern district of missouri has received authority from the united_states attorney for the southern district of florida to make certain commitments referenced herein and said commitments shall be binding on the southern district of florida however said office is not a signatory to this agreement with regard to the plea agreement’s estoppel effect sec_2 a entitled the plea provides that the office of the united_states attorney for the eastern district of missouri agrees that no further federal prosecution will be brought in this district relative to the defendant’s participation in the betonsports organization as described in the third superseding indictment of which the office of the united_states attorney for the eastern district of missouri is aware at this time in addition the office of the united_states attorney for the eastern sic of missouri and the office of the united_states attorney for the southern district of florida which has authorized the eastern district of missouri to enter into this agreement agree that no federal prosecution will be brought in either district relative to the defendant’s involvement in a business venture known as hope mills universal of which said offices are aware at this time in addition the office of the united_states attorney for the eastern district of missouri agrees that no federal criminal tax charges will be brought in this district relative to the defendant’s receipt of income from the betonsports organization the sale of stock in betonsports plc and or the investment of the proceeds in any such income or sale emphasis added sec_2 e entitled civil or administrative actions not barred effect on other governmental agencies further provides that t he defendant has discussed with defense counsel and understands that nothing contained in this document is meant to limit the rights and authority of the united_states of america to take any civil civil tax or administrative action against the defendant except that the united_states shall not seek civil forfeiture in connection with this case or any asset constituting or derived from the receipt of income from the betonsports organization the sale of stock in betonsports plc and or the investment of the proceeds of any such income or sale emphasis added this exception for forfeiture actions also appeared in sec_2 a and sec_2 f as follows i f the court at the time of sentencing enters a final order of forfeiture in favor of the united_states in the full amount of dollar_figure then the united_states will not seek further civil and criminal forfeiture restraints or freezes in connection with the allegations contained in the third superseding indictment of any additional assets controlled by the defendant the parties agree that the remaining balance of funds and investments held in accounts presently frozen by the swiss central authority are not subject_to forfeiture finally section of the plea agreement includes a standard of interpretation clause which provides that i n interpreting this document any drafting errors or ambiguities shall not automatically be construed against any party whether or not the party was involved in drafting this document and sec_11 includes an integration clause which provides that t his document constitutes the entire agreement between the defendant and the government b change_of plea hearing also on date judge carol jackson of the u s district_court for the eastern district of missouri presided over petitioner’s change_of plea hearing ausas muchnick holtshouser and birmingham were each present at the hearing ausa muchnick testified that the change_of plea hearing was more complex and much longer than usual he explained that unlike most plea agreements which are nonbinding recommendations to a court petitioner’s plea agreement was of the type specified in rule c c of the federal rules of criminal procedure such that if the court accepts the plea agreement the court is bound by its terms during the change_of plea hearing judge jackson asked the parties a number of questions to ensure that she understood the terms of the plea agreement that the parties understood the terms of the agreement that the plea agreement represents the entirety of the parties’ agreement and that there was a sufficient factual basis for her to accept petitioner’s plea specifically judge jackson asked court before you signed this document the plea agreement did you review it with your attorneys petitioner yes i thoroughly reviewed this document with the -- with my attorneys yes i have court and you read the document before you signed it petitioner absolutely i have read it throughout the hearing petitioner asked questions and actively sought clarification regarding the nuances of the plea agreement at one point ausa holtshouser specifically invited the district court’s attention to the provision pertaining to petitioner’s civil tax_liabilities ausa holtshouser another subject of significance in the agreement is that there is no limitation here on the rights of the united_states to take any civil civil tax or administrative action at trial ausa muchnick testified that as a general policy the department of justice will not settle a civil tax_liability until criminal charges had already been resolved there has been an agreement in the plea agreement that you cover ed regarding criminal taxes but that there is nothing in the agreement that limits that this office lacks the power in any way or the power of the government to pursue any civil civil tax or administrative action court do you understand mr kaplan that there is a difference between a criminal tax proceeding and a civil tax proceeding petitioner yes i do your honor court and in this document the u s attorney’s office has agreed it will not bring any criminal tax proceeding against you however that doesn’t preclude the initiation of any civil tax proceeding or administrative action against you petitioner i understand that and we’ve agreed to that at the end of the hearing the district_court accepted petitioner’s guilty plea but did not decide whether it would accept the plea agreement on date the district_court issued an order accepting the plea agreement c presentencing report after a criminal defendant pleads guilty to an offense and before the court’s sentencing the u s probation office is required to prepare a presentencing report the presentencing report contains information about the defendant’s general background descriptions of the relevant offenses and the defendant’s role in those offenses details regarding the victims discussion of the terms of the plea agreement and analysis regarding the federal sentencing guidelines relevant sentencing enhancements and relevant sentencing reductions the presentencing report also contains a section which describes the defendant’s financial situation on which the judge may rely in determining whether to impose a fine or restitution and whether the defendant has the ability to pay those monetary sanctions these financial disclosures are self-reported and are not subject_to audit under the plea agreement petitioner was required to completely truthfully and accurately disclose his financial situation on various forms that the u s probation office provided rather than completing the requisite forms petitioner and mr flood sent the probation officer a financial disclosure in letter format in this letter petitioner represented that aside from several family loans and substantial legal fees owed to his defense attorneys he was not aware of any other outstanding liabilities against him this language was ultimately incorporated into the presentencing report under a section entitled financial condition ability to pay neither petitioner nor the government objected to the presentencing reportdollar_figure at trial ausa muchnick credibly testified that the government was not concerned with the accuracy of petitioner’s financial disclosure letter because the continued d sentencing hearing and judgment on date the district_court held petitioner’s sentencing hearing since neither party had objections to the presentencing report the district_court adopted the report as its findings_of_fact the presentencing report was then filed under seal the government attorneys prosecuting petitioner’s case did not share the presentencing report with the irs on the same day the district_court entered a final judgment in petitioner’s case the judgment provided that petitioner had pleaded guilty to one count of rico conspiracy one count of use of wire communication to transmit bets and one count of conspiracy to violate the wire wager act pursuant to the judgment the district_court sentenced petitioner to months of imprisonment and ordered petitioner to forfeit dollar_figure to the united_states opinion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer generally bears the burden of proving by a preponderance_of_the_evidence that the commissioner’s determinations are erroneous rule a 290_us_111 continued plea agreement did not impose a fine or restitution upon petitioner i unreported income gross_income includes all income from whatever source derived unless otherwise specifically excluded sec_61 the definition of gross_income broadly includes any instance of undeniable accessions to wealth clearly realized and over which the taxpayer has complete dominion and control 348_us_426 a grantor_trust is created when a person contributes cash or property to a_trust but retains certain interests such that he is treated as the owner of the trust see secs when a grantor or other person has certain powers in respect of trust property that are tantamount to dominion and control_over such property the code ‘looks through’ the trust form and deems such grantor or other person to be the owner of the trust property and attributes the trust income to such person 69_tc_165 under sec_671 the grantor of a grantor_trust is treated as the owner of the trust assets thus making the trust assets taxable to the grantor until those trust assets are distributed to the grantee 60_f3d_972 2d cir a grantor_trust is disregarded as a separate taxable entity to the extent of the grantor’s retained_interest and the grantor must report the trust’s income on his own return sec_671 sec_1_671-2 income_tax regs under sec_679 when a u_s_person directly or indirectly transfers property to a foreign_trust and the foreign_trust has a u s beneficiary the u_s_person is treated as the owner of the trust with respect to the portion of the trust attributable to the transferred property a foreign_trust is treated as having a u s beneficiary for each year in which income of the trust is paid or accumulated to the benefit of directly or indirectly a u_s_person sec_1_679-2 income_tax regs petitioner is a u s citizen and is thus a u_s_person as defined by sec_7701 the bird trusts which were organized under the laws of the isle of jersey and supervised by the royal court of jersey are foreign trusts sec_7701 sec_301_7701-7 proced admin regs finally during and the bird trusts distributed portions of their income to petitioner a u_s_person on which petitioner and his family lived thus petitioner was a u s beneficiary of the bird trusts for both years at issue on brief petitioner concedes that the bird trusts were grantor trusts petitioner further concedes that the income of the bird trusts was taxable to him as the trusts’ grantor under sec_679 petitioner argues however that this income and the stipulated self-employment_income constitute the entire deficiency amount that respondent determined respondent is precluded from bringing a civil tax action against him by the statute_of_limitations the plea agreement and judicial estoppel a preclusion by statute_of_limitations petitioner argues that respondent is precluded from bringing a civil tax action against him for and by the statute_of_limitations as a general_rule the commissioner has three years in which to make an assessment after a return is filed sec_6501 when the taxpayer does not file a return however the assessment_period never begins to run sec_6501 a substitute for return prepared under sec_6020 is not considered a return for the purposes of starting the assessment_period sec_301_6501_b_-1 proced admin regs the parties have stipulated that petitioner did not file federal_income_tax returns for and and thus the assessment_period is still open by statute petitioner argues however that the irs’ internal policy set forth in internal_revenue_manual irm pt date precludes respondent from bringing this action petitioner’s reliance on irm pt which pertains to delinquent_return procedures in the employment_tax context is misplaced instead the relevant provision is irm pt date which provides that while the enforcement period is generally limited to six years longer periods are allowed when income from illegal sources is at issue there can be no dispute that petitioner’s tax_liabilities for the years at issue arise from the fruits of his illegal gambling business therefore respondent is not barred from pursuing petitioner’s and tax_liability either by the statute_of_limitations or by irs policy b preclusion by plea agreement petitioner argues that the plea agreement precludes respondent from bringing a civil tax action against him for and at trial petitioner testified that according to his understanding the plea agreement provided that he would turn over of the betonsports proceeds held in trust he would be subject_to months of imprisonment with time served and the government would close the case petitioner claims that he would never have agreed to surrender half of the trust’s assets had he understood that the plea agreement would allow the government to pursue a civil tax action relating to betonsports petitioner argues that therefore the plea agreement should be interpreted to allow at trial we heard only testimony from petitioner on behalf of himself petitioner did not call as a witness mr flood nor any other attorney involved with his defense to testify regarding the negotiation and drafting of the plea agreement thus we may infer that had mr flood been called his testimony would not have supported petitioner’s contentions see 6_tc_1158 aff’d 162_f2d_513 10th cir the government to pursue a civil tax action only if it does not involve tax_liabilities relating to betonsports by way of example petitioner explains that the government could bring a civil tax action against him for his other ongoing businesses including a pharmaceutical company called hope mills respondent argues that the plea agreement by its terms unambiguously allows the government to pursue a civil tax action against petitioner we agree with respondent the court_of_appeals for the eighth circuit to which this case is appealable by stipulation of the parties see sec_7482 has held that w here a plea agreement has been accepted by the court we generally interpret the meaning of the terms in the agreement according to basic principles of contract law 505_f3d_804 8th cir to the extent there is ambiguity in the plea agreement a court must construe it against the government id pincite because we determine infra that the plea agreement is unambiguous we need not decide whether parties to a plea agreement may contract around the legal requirement that ambiguity in a plea agreement be construed against the government under missouri law where the terms of an integrated written_agreement are unambiguous extrinsic evidence may not be introduced to vary or contradict the terms of the agreement 713_f3d_933 8th cir consequently petitioner’s subjective and unspoken beliefs cannot dictate the meaning of an unambiguous contractdollar_figure missouri has adopted the restatement second of conflict of laws sec_188 which is a general choice-of-law test for use when a contract contains no choice-of-law provision st paul fire marine ins co v bldg con526_f3d_1166 8th cir citing viacom inc v transit cas co s w 3d mo because the plea agreement does not contain a choice-of-law provision we consider the following factors in determining which state’s law applies the place of contracting the place of negotiation of the contract the place of performance the location of the subject matter of the contract and the domicil residence nationality place of incorporation and place of business of the parties restatement second of conflict of laws sec_188 applying these factors we hold that missouri law governs the interpretation of the plea agreement because it resulted from a criminal prosecution in missouri was negotiated and executed in missouri and was accepted by a court in missouri exceptions to this general_rule exist for fraud mutual mistake accident or erroneous omission 713_f3d_933 8th cir none of which apply in this case even if we were to credit petitioner’s claim that he would not have agreed to the plea agreement had he known that the government could still pursue civil tax_liabilities relating to betonsports at most petitioner’s claim could render the plea agreement invalid on the basis that there had been no meeting of the minds petitioner however does not make this argument we further note that the court_of_appeals for the eighth circuit in interpreting missouri law has stated that meeting of the minds is an objective inquiry and ‘does not depend upon the continued the parties do not dispute that the plea agreement which provides t his document constitutes the entire agreement between the defendant and the government is an integrated agreement in addition as explained below the terms of the plea agreement unambiguously allow the united_states to bring a civil tax action against petitioner accordingly we may not consider any extrinsic evidence that contradicts the plain terms of the plea agreement before discussing the relevant provisions of the plea agreement the court believes it helpful to explain several legal terms of art all of which are a form of monetary sanction--ie criminal forfeiture civil forfeiture fine and restitution a criminal forfeiture is a governmental proceeding brought against a person to seize property as punishment for the person’s criminal behavior black’s law continued state of the parties’ minds but rather on their overt acts ’ 778_f2d_460 8th cir quoting woburn nat’l bank v woods a n h see also 347_f3d_1052 8th cir on its face the phrase meeting of the minds can create the impression that a contract is formed only when the parties to it entertain the same subjective views as to its meaning that however is not the law rather a court looks to the parties’ objective manifestations of intent citation omitted 768_f2d_217 8th cir ‘ m eeting of the minds is to be determined by the expressed and not by the secret intention of the parties ’ ‘if one’s words or acts manifest an intention to agree it is immaterial what may be the real but unexpressed state of his mind on the subject ’ quoting roper v clanton s w 2d mo ct app petitioner’s overt acts did not evidence a lack of meeting of the minds dictionary 9th ed in contrast a civil forfeiture is a n in rem proceeding brought by the government against property that either facilitated a crime or was acquired as a result of criminal activity id in the criminal penal context a fine is a pecuniary criminal punishment payable to the public treasury id pincite finally in the criminal penal context restitution is full or partial compensation paid_by a criminal to a victim ordered as part of a criminal sentence or as a condition of probation id pincite with the meanings of these terms in mind we now look to the relevant terms of the plea agreement sec_2 e of the plea agreement provides the defendant has discussed with defense counsel and understands that nothing contained in this document is meant to limit the rights and authority of the united_states of america to take any civil civil tax or administrative action against the defendant emphasis added petitioner argues however that the plea agreement is ambiguous because sec_2 e further provides the united_states shall not seek civil forfeiture in connection with this case of any asset constituting or derived from the receipt of income from betonsports organization the sale of stock in betonsports plc and or the investment of the proceeds of any such income or sale emphasis added we disagree throughout his criminal case petitioner was represented by a team of defense lawyers on the basis of the plea agreement it is evident that these attorneys understood the distinctions among criminal forfeiture fines and restitution for example ausa muchnick credibly testified that because of the large forfeiture amount the parties agreed that no fine or restitution would be imposed we thus conclude that petitioner’s attorneys knew or at least should have known the legal distinction between a civil tax action and a civil forfeiture action our conclusion is confirmed by the district court’s questioning during petitioner’s change_of plea hearing before its acceptance of the plea agreement court and in this document the u s attorney’s office has agreed it will not bring any criminal tax proceeding against you however that doesn’t preclude the initiation of any civil tax proceeding or administrative action against you petitioner i understand that and we’ve agreed to that emphasis added petitioner argues that his financial disclosure letter which did not list federal taxes as a liability and which was incorporated into the presentencing report adopted by the district_court as its findings_of_fact demonstrates that the parties and the district_court understood that he had no civil tax_liability in relation to betonsports petitioner’s argument overreaches at trial petitioner admitted that the plea agreement does not preclude the united_states from instituting a civil tax action against him for taxes unrelated to betonsports however petitioner’s financial disclosure letter did not list any_tax liabilities including tax_liabilities relating to his pharmaceutical business hope mills therefore we decline petitioner’s invitation to infer on the basis of an omission in his financial disclosure letter that he had no civil tax_liability c preclusion by judicial estoppel finally petitioner argues that the doctrine_of judicial estoppel precludes respondent from seeking civil tax_liabilities for the years at issue under the doctrine_of judicial estoppel once ‘a party assumes a certain position in a legal proceeding and succeeds in maintaining that position he may not thereafter simply because his interests have changed assume a contrary position especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him ’ new 532_us_742 quoting 156_us_680 this doctrine ‘prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase ’ id quoting 530_us_211 n several factors typically inform a court’s decision whether to apply the doctrine_of judicial estoppel whether a party’s later position is ‘clearly inconsistent’ with its earlier position whether the party has succeeded in persuading a court to accept that party’s earlier position so that judicial acceptance of an inconsistent_position in a later proceeding would create ‘the perception that either the first or the second court was misled’ and whether the party seeking to assert an inconsistent_position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped id pincite quoting 690_f2d_595 6th cir petitioner argues that the doctrine_of judicial estoppel applies in this case because the government did not object to the presentencing report which incorporated a section from petitioner’s financial disclosure letter that omitted income_tax for and as a liability we disagree the representations in petitioner’s financial disclosure letter were petitioner’s not respondent’s ausa muchnick credibly testified at trial that such financial disclosures are self-reported and are not subject_to audit ausa muchnick further credibly testified that his office did not object to the presentencing report because such representations are used to determine a defendant’s ability to pay a fine or restitution neither of which was at issue in petitioner’s case under these circumstances the government did not assert any position through its silence furthermore even if an omission in petitioner’s financial disclosure could somehow be construed as a position by the government the government did not persuade the district_court nor derive any benefit from such a position finally because the plea agreement unambiguously reserved the government’s right to bring a civil tax action against petitioner petitioner suffered no detriment nor prejudice from any perceived position of the government for these reasons petitioner’s judicial estoppel argument is without merit ii additions to tax under sec_7491 the commissioner bears the burden of production with respect to additions to tax and must come forth with sufficient evidence to show that imposition of the penalty is appropriate 116_tc_438 in the notice_of_deficiency respondent determined additions to tax for and for failure_to_file tax returns timely under sec_6651 and failure_to_pay_tax timely under sec_6651 respondent further determined additions to tax for failure to make estimated_tax payments under sec_6654 for both years the parties have stipulated that petitioner neither filed income_tax returns nor paid income_tax for both years at issue moreover petitioner has not advanced any argument in brief as to these additions to tax accordingly we deem any such arguments to be conceded see 121_tc_308 holding that arguments not addressed in brief may be considered abandoned cf holmes v commissioner tcmemo_2011_31 101_tcm_1141 holding that the issues of additions to tax under sec_6662 and sec_6654 were deemed conceded where the taxpayer did not specifically address them in his petitions his pretrial memorandum or at trial accordingly we sustain respondent’s determinations with respect to the additions to tax under sec_6651 and and in reaching our holdings we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent