t c memo united_states tax_court estate of franklin z adell deceased kevin r adell temporary co-personal representative petitioner v commissioner of internal revenue respondent docket no 24412-12l filed date denis john conlon steven spencer brown and royal b martin jr for petitioner angela b reynolds for respondent memorandum opinion kerrigan judge the petition in this case was filed in response to a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination dated date upholding collection of the estate’s unpaid gift_tax liability for tax_year we must consider whether respondent’s determination to proceed with collection was proper unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar background this case was fully stipulated under rule the stipulated facts are incorporated in our findings by this reference the estate’s representative is the son of the decedent and he lives in florida the petition includes a michigan address on date the decedent died while a resident of michigan and his will was probated in michigan in before his death the decedent paid a dollar_figure legal judgment judgment entered against his son on date the estate filed timely a form_706 united_states estate and generation-skipping_transfer_tax return which reported the amount of the judgment as a loan receivable by the estate and thus an asset of the gross_estate on this return the estate made an election under sec_6166 to defer payment of a portion of the estate_tax for five years and to pay the estate_tax in installments the date estate_tax_return and accompanying schedules indicate that the estate owned three closely held businesses having the following values company birmingham properties inc stn com inc adell broadcasting corp value dollar_figure big_number big_number the date estate_tax_return and schedules reported dollar_figure of total estate_tax due the estate paid the dollar_figure portion of the estate_tax that could not be deferred under the estate’s sec_6166 election at the time it submitted the estate_tax_return payment of the remaining dollar_figure of estate_tax was deferred on date respondent assessed dollar_figure of estate_tax against the estate on the basis of the estate’s date estate_tax_return on date respondent issued a notice of final_determination to the estate that the estate’s election under sec_6166 had terminated on the ground that the estate failed to pay the installments as they came due we upheld the termination of the election estate of adell v commissioner tcmemo_2013_228 on date the estate filed an amended form_706 first amended estate_tax_return which reclassified the judgment as a taxable gift and a form_709 united_states gift and generation-skipping_transfer_tax return which reported the judgment as a taxable gift the gift_tax_return showed dollar_figure of gift_tax due on date the estate filed a second amended form_706 second amended estate_tax_return the second amended estate_tax_return reported the value of stn com inc as zero and classified the judgment as a taxable gift on date respondent assessed dollar_figure of gift_tax on the basis of the gift_tax_return respondent also assessed a dollar_figure penalty for late filing of the gift_tax_return a dollar_figure penalty for late payment of the gift_tax and dollar_figure of interest the estate’s reporting and respondent’s assessment of the gift_tax created a situation in which the judgment was included in both the estate_tax assessment and the gift_tax assessment on date respondent issued two notices of deficiency one regarding the estate_tax liability and the other regarding the gift_tax liability the estate_tax notice_of_deficiency determined that the estate owed dollar_figure of estate_tax the estate_tax notice_of_deficiency included the dollar_figure judgment as an asset of the gross_estate the gift_tax notice_of_deficiency determined that the estate owed dollar_figure of gift_tax equal to the amount self-assessed on the gift_tax_return plus an additional dollar_figure of unreported gift_tax a timely petition was filed in this court in response to the estate_tax notice_of_deficiency and that case is pending at docket no the estate contends that the estate_tax notice_of_deficiency is erroneous because it includes the judgment as an asset of the taxable_estate and overvalues stn com inc the case at docket no was tried in date no petition was filed with this court in response to the gift_tax notice_of_deficiency on date the estate filed a protest letter with respondent concerning the gift_tax liability the protest letter requested that respondent stay all collection actions consolidate consideration of the gift_tax liability with consideration of the estate_tax liability and abate the penalties the estate requested that respondent abate the penalties on the grounds that the judgment had already been reported as an asset on the date estate_tax_return and that the gift_tax liability could be satisfied by applying the dollar_figure estate_tax payment against the gift_tax liability the estate’s protest letter was assigned to an appeals officer for consideration on date respondent assessed the additional dollar_figure of gift_tax that respondent had determined in the gift_tax notice_of_deficiency plus dollar_figure of interest for tax_year on date respondent sent the estate a letter final notice_of_intent_to_levy and notice of your right to a hearing with respect to the gift_tax on date the estate filed a form request for a collection_due_process or equivalent_hearing cdp hearing request regarding the letter on date respondent sent the estate a letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 notifying the estate that respondent had filed a notice_of_federal_tax_lien nftl with respect to the gift_tax on date the estate filed a cdp hearing request regarding the letter on date a settlement officer sent the estate a letter scheduling a telephone collection_due_process cdp conference for date to address the proposed levy on date the settlement officer sent the estate a letter requesting that the estate provide within days any information it would like the settlement officer to consider on date the settlement officer sent a letter scheduling a telephone cdp hearing for date to address the nftl on date the estate’s counsel sent a letter to the settlement officer stating that the dollar_figure estate_tax payment should be applied against the dollar_figure gift_tax liability on date the telephone cdp conference was held the estate’s counsel contended that because the judgment was included in both the estate_tax assessment and the gift_tax assessment it should be removed from one of the accounts the estate’s counsel further contended that if respondent were to sustain the gift_tax assessment respondent should transfer the dollar_figure estate_tax payment to the gift_tax account to satisfy the gift_tax liability on date the settlement officer informed the estate that respondent would suspend the cdp proceedings until the appeals_office determined whether the judgment should be included in the estate_tax assessment or the gift_tax assessment on date the appeals_office determined that the judgment should be included in the gift_tax assessment on date the estate’s counsel sent a letter to the settlement officer stating that the dollar_figure estate_tax payment should be applied against the on date the estate and respondent filed a stipulation of settled issues in the case at docket no stating that the judgment was a taxable gift rather than an asset of the estate dollar_figure gift_tax liability the letter also requested that respondent issue a notice_of_determination on date the estate’s counsel informed the settlement officer that the estate did not wish to pursue a collection alternative because the estate_tax payment should be applied against the gift_tax liability the estate’s counsel reiterated his request that the settlement officer issue a notice_of_determination on date the appeals officer sent a letter to the estate disallowing the claim_for_abatement of gift_tax penalties and interest the letter noted that the gift_tax_return was due on date but the internal_revenue_service irs did not receive it until date in addition to the judgment the decedent made gifts of dollar_figure in and dollar_figure in for which gift_tax returns were due but never filed and there was no overpayment of estate_tax available to apply against the gift_tax liability because the estate remained liable for the deferred portion of the estate_tax and that the case at docket no was still pending in this court as of date the assessed estate_tax balance was dollar_figure of deferred estate_tax plus dollar_figure of interest on date respondent sent petitioner the notice_of_determination sustaining the proposed levy and nftl in the notice of determination the settlement officer verified that all the requirements of applicable law had been met considered the issues the estate raised and determined that the proposed collection action appropriately balanced the need for the efficient collection_of_taxes with the legitimate concern of the estate that the collection action be no more intrusive than necessary discussion sec_6331 authorizes the secretary to levy upon the property and property rights of a taxpayer who fails to pay a tax within days after notice_and_demand before the secretary may levy upon the taxpayer’s property the secretary must notify the taxpayer of the secretary’s intention to levy sec_6331 the secretary must also notify the taxpayer of his or her right to a cdp hearing sec_6330 the federal government obtains a federal_tax_lien against the property and rights to property whether real or personal of a taxpayer with an outstanding tax_liability whenever a demand for payment has been made and the taxpayer neglects or refuses to pay sec_6321 122_tc_287 sec_6320 requires the secretary to provide written notice to a taxpayer when the secretary has filed an nftl against the taxpayer’s property and property rights see also sec_6321 the secretary must also notify the taxpayer of his or her right to a cdp hearing sec_6320 if the taxpayer requests a cdp hearing the hearing is conducted by the appeals_office sec_6320 sec_6330 at the hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed collection action sec_6320 sec_6330 once the settlement officer makes a determination the taxpayer may appeal the determination to this court sec_6320 sec_6330 where the validity of the underlying tax_liability is properly in issue we review that matter de novo 114_tc_604 114_tc_176 where the underlying liability is not in issue we review the matter for abuse_of_discretion see 131_tc_197 goza v commissioner t c pincite the estate contends that respondent should have credited the payment it made with the date estate_tax_return against its gift_tax liability there is some lack of uniformity in our precedents as to whether a de novo standard of review applies where as appears to be true here the controversy concerns the proper application against the tax_liability at issue in the cdp hearing of a credit overpayment or remittance because we would sustain respondent’s determination in this case under either standard of review we have no need to decide which one applies see golub v commissioner tcmemo_2013_196 at the estate contends that it designated the date payment be applied to the estate’s gift_tax liability the irs allows a taxpayer to designate the application of a voluntary tax payment if the irs has assessed one or more tax_liabilities against the taxpayer when he or she submits the payment and the taxpayer provides specific contemporaneous written directions for application of the payment 47_tc_65 concert staging servs inc v commissioner tcmemo_2011_231 slip op pincite see also revproc_2002_26 2002_1_cb_746 if the taxpayer does not properly designate how a payment should be applied the irs generally applies the payment in a manner see 125_tc_14 compare 116_tc_60 applying de novo standard where taxpayer challenged application of overpayment credits reasoning that the validity of the underlying tax_liability ie the amount unpaid after application of credits to which petitioner is entitled was properly at issue with kovacevich v commissioner tcmemo_2009_160 slip op pincite applying abuse_of_discretion standard where taxpayer challenged application of tax_payments and orian v commissioner tcmemo_2010_234 slip op pincite same that best serves its interest 961_f2d_867 9th cir concert staging servs inc v commissioner slip op pincite see also revproc_2002_26 supra the estate remitted the date payment to respondent with the date estate_tax_return as of date respondent had assessed only the estate_tax against the estate the estate did not file a gift_tax_return until date and respondent did not assess the gift_tax liability until date therefore the estate could not have designated that the date payment be applied against the gift_tax liability the estate contends that it made an overpayment of estate_tax sec_6402 authorizes the commissioner to credit a taxpayer’s overpayment against any internal revenue tax_liability of the taxpayer see 138_tc_348 for a tax payable in installments sec_6403 provides that any overpayment of an installment must be applied first to any unpaid installments if the amount of the overpayment exceeds the full amount of the tax due then it may be credited or refunded as provided in sec_6402 sec_6403 92_tc_714 aff’d 928_f2d_901 9th cir respondent assessed dollar_figure of estate_tax on the basis of the original estate_tax_return the estate paid the dollar_figure nondeferrable portion of the estate_tax on its first amended estate_tax_return the estate reported dollar_figure of nondeferrable estate_tax equal to the original nondeferrable portion of the estate_tax less the amount of the estate_tax attributable to the judgment the estate contends that it overpaid the nondeferrable portion of the estate_tax by dollar_figure we have held that sec_6403 applies in instances where the taxpayer makes an election under sec_6166 and overpays the nondeferrable portion of the estate_tax estate of bell v commissioner t c pincite we further held that under sec_6403 the commissioner must apply any overpayment of the nondeferrable portion to the deferred portion before the commissioner can credit or refund the overpayment to the taxpayer id the parties agree that as of date the estate had dollar_figure of assessed deferred estate_tax plus dollar_figure of interest even if the estate overpaid the nondeferrable portion it did not pay more than the full amount of estate_tax due respondent did not have an available overpayment of estate_tax to credit against the estate’s gift_tax liability respondent’s determination to terminate the estate’s sec_6166 election does not change this result because termination of the election simply causes the deferred portion to be due immediately rather at some later time any overpayment of the nondeferrable portion must still be applied to the unpaid estate continued we note that the estate is seeking relief from the estate_tax due in the case at docket no in that case the estate contends that the settlement officer abused her discretion because she did not hold this case in abeyance pending resolution of the estate_tax matter regardless of the outcome in that case our analysis in the instant case remains the same we review a settlement officer’s determination using the information available at the time of his or her determination see hoyle v commissioner t c pincite 125_tc_301 aff’d 469_f3d_27 1st cir mccorkle v commissioner tcmemo_2003_34 slip op pincite there was no estate_tax overpayment available on date to credit against the gift_tax liability sec_6330 requires the settlement officer to consider the following during a cdp hearing whether the requirements of any applicable law or administrative procedure have been met any issues appropriately raised by the taxpayer and whether the nftl or proposed levy action balances the need for the efficient collection_of_taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary lunsford v commissioner continued tax first even if payment is immediately due see 92_tc_714 aff’d 928_f2d_901 9th cir 117_tc_183 diamond v commissioner tcmemo_2012_90 slip op pincite see also sec_6320 the settlement officer based her determination on the required factors the settlement officer verified that all legal and procedural requirements were met considered the issues the estate raised and determined that the proposed collection action appropriately balanced the need for the efficient collection_of_taxes with the legitimate concern of the estate that the collection action be no more intrusive than necessary consequently we sustain the notice_of_determination to proceed with the proposed collection action any contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent


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 tege eoeg eo1 plr-134257-17 date may legend foundation ------------------------------------------------------------------------- trust trustor spouse date1 date2 date3 --------------------------------- ------------------------- ------------------------- ----------------------- ------------------------ ----------------------- dear ------------- this letter responds to trust’s date request for rulings regarding excise_tax issues in connection with the administration and planning for termination of trust under sec_4947 facts according to the information provided by trust trust is an irrevocable_trust created under a revocable_living_trust agreement dated date1 by trustor as amended by a first amendment dated date2 together the trust agreement trust was created after the death of trustor executors of trustor’s estate elected to treat all the assets of trust as qualified_terminable_interest_property qtip pursuant to sec_2056 trust represents that no deductions were allowable or taken under sec_170 sec_545 sec_642 sec_2055 sec_2106 or sec_2522 with respect to any assets transferred to trust at trustor’s death nor has trust set_aside any funds for which it has claimed a charitable deduction all section references are to the internal_revenue_code_of_1986 as amended unless otherwise stated plr-134257-17 under the trust agreement trustor’s spouse spouse is entitled to receive during spouse’s lifetime all the net_income of trust and distributions from principal within the discretion of the trustees for spouse’s care support health and maintenance the assets of trust remaining at spouse’s death are distributable to foundation at spouse’s death all the assets of trust will be includible in spouse’s gross_estate pursuant to sec_2044 and deductible from spouse’s taxable_estate pursuant to sec_2055 under the trust agreement the trustees of trust have the authority to sell or exchange trust property and to acquire by purchase or exchange such property as the trustees may deem advisable foundation is recognized as exempt from federal_income_tax under sec_501 as an organization described in sec_501 and is classified as a private_foundation under sec_509 foundation was created under a charitable_trust agreement dated date3 by trustor and spouse as donors rulings requested trust requests the following rulings during the lifetime of spouse trust will not be a split-interest trust subject_to sec_4947 and the provisions of sec_4941 sec_4943 sec_4944 and sec_4945 shall not apply during the lifetime of spouse the direct and indirect self-dealing rules of sec_4941 and the regulations thereunder will not apply to trust after the death of spouse and upon the resulting termination of spouse’s interest in trust for purposes of sec_53_4947-1 trust will not be a nonexempt_charitable_trust described in sec_4947 or be subject_to the provisions of sec_4941 sec_4943 sec_4944 and sec_4945 for a reasonable period of settlement so that the trustees of trust may perform the ordinary duties of administration necessary for the settlement of trust law sec_501 exempts from federal income_taxation organizations described in sec_501 sec_501 describes organizations organized and operated exclusively for charitable purposes sec_509 provides that unless specifically excepted any organization described in sec_501 is a private_foundation plr-134257-17 sec_4941 imposes an excise_tax on disqualified persons as defined in sec_4946 for each act of self-dealing between a disqualified_person and a private_foundation sec_4941 defines self-dealing as any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person lending of money or other extension of credit between a private_foundation and a disqualified_person furnishing of goods services or facilities between a private_foundation and a disqualified_person payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person or transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 provides that a disqualified_person with respect to a private_foundation includes a a substantial_contributor to the foundation b a foundation_manager within the meaning of subsection b l c an owner of more than percent of - i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation d a member_of_the_family as defined in sec_4946 of any individual described in subparagraph a b or c e a corporation of which persons described in subparagraph a b c or d own more than percent of the total combined voting power f a partnership in which persons described in subparagraph a b c or d own more than percent of the profits interest g a_trust or estate in which persons described in subparagraph a b c or d hold more than percent of the beneficial_interest sec_4946 provides that the term substantial_contributor means a person who is described in sec_507 ie a person who contributed or bequeathed an aggregate amount of more than dollar_figure to the private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution of bequest is received by the foundation from such person and in the case of a_trust the creator of the trust sec_4947 provides that for purposes of chapter a_trust which is not exempt from tax under sec_501 all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and for which a deduction was allowed under sec_170 sec_545 sec_652 sec_2055 plr-134257-17 a or shall be treated as an organization described in sec_501 sec_4947 provides in part that in the case of a_trust which is not exempt from tax under sec_501 not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_652 sec_2055 sec_2106 or sec_2522 certain code provisions including sec_4941 shall apply as if such trust were a private_foundation this paragraph does not apply with respect to any amounts payable under the terms of such trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 any amounts in trust other than amounts for which a deduction was allowed under sec_170 sec_545 sec_652 sec_2055 sec_2106 or sec_2522 if such amounts are segregated from amounts for which no deduction was allowable or any amounts transferred in trust before date sec_53_4941_d_-1 provides that the term indirect self-dealing shall not include a transaction with respect to a private foundation’s interest or expectancy in property whether or not encumbered held by an estate or revocable_trust including a_trust which has become irrevocable on a grantor’s death regardless of when title to the property vests under local law if i the administrator or executor of an estate or trustee of a revocable_trust either a possesses a power of sale with respect to the property b has the power to reallocate the property to another beneficiary or c is required to sell the property under the terms of any option subject_to which the property was acquired by the estate or revocable_trust ii such transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate_or_trust or over the private_foundation iii such transaction occurs before the estate is considered terminated for federal_income_tax purposes pursuant to sec_1_641_b_-3 or in the case of a revocable_trust before it is considered subject_to sec_4947 iv the estate_or_trust receives an amount which equals or exceeds the fair_market_value of the foundation's interest or expectancy in such property at the time of the transaction taking into account the terms of any option subject_to which the property was acquired by the estate_or_trust and v with respect to transactions occurring after date the transaction either a results in the foundation receiving an interest or expectancy at least as liquid as the one it gave up b results in the foundation receiving an asset related to the active carrying out of its exempt purposes or c is required under the terms of any option which is binding on the estate_or_trust plr-134257-17 sec_1_641_b_-3 provides that the determination of whether a_trust has terminated depends on whether the property held in trust has been distributed to the persons entitled to succeed to the property upon termination of the trust rather than upon the technicality of whether or not the trustee has rendered its final accounting a reasonable_time is permitted after such event for the trustee to perform the duties necessary to complete the administration of the trust thus if pursuant to the terms of the governing instrument the trust is to terminate upon the death of the life_beneficiary and the corpus is to be distributed to the remainder beneficiary the trust continues after the death of the life_beneficiary for a period reasonably necessary to a proper winding up of the affairs of the trust sec_53_4947-1 provides that the basic purpose of sec_4947 is to prevent trusts which are not exempt from tax under sec_501 all or part of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which have amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 from being used to avoid the requirements and restrictions applicable to private_foundations for purposes of this section a_trust shall be presumed in the absence of proof to the contrary to have amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_652 sec_2055 sec_2106 or sec_2522 if a deduction would have been allowable under one of these sections sec_53_4947-1 provides that for purposes of this section and sec_53_4947-2 a charitable_trust within the meaning of sec_4947 is a_trust which is not exempt from taxation under sec_501 all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 a charitable_trust as defined in this paragraph shall be treated as an organization described in sec_501 and if it is determined under sec_509 that the trust is a private_foundation then chapter including sec_4941 shall apply to the trust sec_53_4947-1 provides that an estate from which the executor or administrator is required to distribute all of the net assets in trust to charitable beneficiaries will not be considered a charitable_trust under sec_4947 during the period of estate administration or settlement except as provided in paragraph b ii of that section a charitable_trust created by will shall be considered a charitable_trust under sec_4947 as of the date of death of the decedent- grantor except as provided in paragraph b v of this section relating to certain revocable and testamentary trusts which wind up sec_53_4947-1 provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust for charitable beneficiaries or free of trust to such beneficiaries is considered terminated plr-134257-17 for federal_income_tax purposes under sec_1_641_b_-3 then the estate will be treated as a charitable_trust under sec_4947 between the date on which the estate is considered terminated under sec_1_641_b_-3 and the date final distribution of all the net assets is made to or for the benefit of the charitable beneficiaries sec_53_4947-1 provides in part that the term reasonable period of settlement means that period reasonably required or if shorter actually required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust these duties include for example the collection of assets the payment of debts taxes and distributions and the determination of the rights of the subsequent beneficiaries sec_53_4947-1 provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor or a_trust created by will from which the trustee is required to distribute all of the net assets in trust for or free of trust to charitable beneficiaries is not considered a charitable_trust under sec_4947 for a reasonable period of settlement within the meaning of paragraph b iv after becoming irrevocable after that period the trust is considered a charitable_trust under sec_4947 sec_53_4947-1 provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor in which all of the unexpired interests are charitable and under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable solely for charitable beneficiaries is not considered a_trust under sec_4947 for a reasonable period of settlement within the meaning of paragraph b iv of this section after becoming irrevocable except that sec_4941 may apply if the requirements of sec_53_4941_d_-1 are not met after that period the trust is considered a charitable_trust under sec_4947 sec_53_4947-1 provides that for purposes of this section and sec_53_4947-2 a split interest trust within the meaning of sec_4947 is a_trust which is not exempt from taxation under sec_501 not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 a_trust is one which has amounts in trust for which a deduction was allowed under sec_642 within the meaning of sec_4947 once a deduction is allowed under sec_642 to the trust for any amount permanently set_aside sec_53_4947-1 provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust or free of trust to both charitable and non-charitable beneficiaries is considered terminated for federal_income_tax purposes under sec_1_641_b_-3 then the estate will plr-134257-17 be treated as a split-interest trust under sec_4947 or a charitable_trust under sec_4947 if applicable between the date on which the estate is considered terminated under sec_1_641_b_-3 and the date on which the final distribution of the net assets to the last remaining charitable_beneficiary is made sec_53_4947-1 provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable for both charitable and non-charitable beneficiaries is not considered a split-interest trust under sec_4947 for a reasonable period of settlement after becoming irrevocable except that sec_4941 may apply if the requirements of sec_53_4941_d_-1 are not met after that period the trust is considered a split-interest trust under sec_4947 the term reasonable period of settlement means that period reasonably required or if shorter actually required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust these duties include for example the collection of assets the payment of debts taxes and distributions and the determination of rights of the subsequent beneficiaries analysis ruling sec_1 and during spouse’s lifetime trust is neither a charitable_trust within the meaning of sec_4947 and sec_53_4947-1 nor a split-interest trust within the meaning of sec_4947 and sec_53_4947-1 trusts described in either sec_4947 or sec_4947 have unexpired interests or amounts in trust for which a charitable deduction has been allowed for federal tax purposes sec_53_4947-1 provides that the basic purpose of sec_4947 is to prevent trusts which are not exempt from tax under sec_501 all or part of the unexpired interests in which are devoted to charitable purposes and which have amounts in trust for which a charitable deduction was allowed from being used to avoid the requirements and restrictions applicable to private_foundations including sec_4941 sec_4943 sec_4944 and sec_4945 here no charitable deductions were allowable or taken with respect to any assets transferred to trust at trustor’s death and no such charitable deduction will be allowable to trust prior to its termination at the death of spouse trust thus is not subject_to sec_4947 at any time during spouse’s lifetime similarly for the same reasons sec_4941 sec_4943 sec_4944 and sec_4945 are not applicable to trust as an entity described in sec_4947 or during spouse’s lifetime because sec_4947 is inapplicable to trust during spouse’s lifetime by reason of the fact that no charitable deductions are allowable or will be taken until after spouse’s death the direct and indirect self-dealing rules of sec_4941 and the regulations plr-134257-17 thereunder will not apply to trust as an entity described in sec_4947 or during spouse’s lifetime we are not ruling on any transaction trust may engage in during spouse’s lifetime with foundation or other private_foundation or whether trust is a disqualified_person with respect to a private_foundation ruling upon spouse’s death all the assets of trust will be includible in spouse’s gross_estate pursuant to sec_2044 and deductible from spouse’s taxable_estate pursuant to sec_2055 subsequently at such time as no non-charitable interests continue to exist and amounts have been deducted under sec_2055 with respect to amounts held in trust trust generally would become described as a nonexempt_charitable_trust under sec_4947 and be subject_to the provisions of sec_4941 sec_4943 sec_4944 and sec_4945 however the regulations under sec_4947 provide that in the case of a_trust created by will from which the trustee is required to distribute all the assets in trust for or free of trust to charitable beneficiaries the restrictions imposed by sec_4947 do not apply for a reasonable period of settlement sec_53_4947-1 the term reasonable period of settlement means that period reasonably required or if shorter actually required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust these duties include for example the collection of assets the payment of debts taxes and distributions and the determination of rights of the subsequent beneficiaries only after a reasonable period of settlement is a_trust described in sec_53_4947-1 considered a charitable_trust under sec_4947 we note however that during this reasonable period of settlement transactions with respect to foundation’s interest or expectancy in trust may result in indirect self-dealing between foundation and a disqualified_person with respect to foundation if the requirements of sec_53 b are not met we are not ruling whether the proposed transaction will meet these requirements rulings based solely on the facts and representations submitted by trust we rule as follows during the lifetime of spouse trust will not be a split-interest trust subject_to sec_4947 and the provisions of sec_4941 sec_4943 sec_4944 and sec_4945 shall not apply during the lifetime of spouse the direct and indirect self-dealing rules of sec_4941 and the regulations thereunder will not apply to trust after the death of spouse and upon the resulting termination of spouse’s interest in trust for purposes of sec_53_4947-1 trust will not become a nonexempt_charitable_trust subject_to sec_4947 and the plr-134257-17 provisions of sec_4941 sec_4943 sec_4944 and sec_4945 for a reasonable period of settlement so that the trustees of trust may perform the ordinary duties of administration necessary for the settlement of trust the rulings contained in this letter are based upon information and representations submitted by or on behalf of trust and accompanied by a penalty of perjury statement executed by an appropriate party as specified in revproc_2018_1 2018_1_irb_1 b this office has not verified any of the material submitted in support of the request_for_ruling and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling is based or the transaction involves a continuing action or series of actions and the controlling facts change during the course of the transaction see revproc_2018_1 sec_11 no ruling is granted as to whether foundation qualifies as an organization described in sec_501 or sec_509 except as expressly provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any aspects of any transaction or item_of_income described in this letter_ruling this letter is directed only to trust sec_6110 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 trust’s authorized representatives if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely mary jo salins chief exempt_organizations branch tax exempt government entities cc


internal_revenue_service number release date index number ------------------------------------------------------------ -------------------- ------------------------- ----------------------------------------- re ----------------------------------- 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-103723-19 date june legend decedent date child law firm date date ------------------------------- ---------------- -------------------------- ---------------------------- --------------------------- --------------------------- -------------------- dear ------------ this letter responds to your authorized representative’s letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make an alternate_valuation election under sec_2032 of the internal_revenue_code code the facts and representations submitted are summarized as follows decedent died on date child is the personal representative of decedent’s estate the personal representative retained law firm to prepare form_706 united_states estate and generation-skipping_transfer_tax return the personal representative timely filed form_706 on or about date law firm did not advise the personal representative to elect alternate_valuation under sec_2032 on the form_706 accordingly the personal representative did not elect alternate_valuation under sec_2032 on the form_706 in plr-103723-19 preparation of the accounting for the decedent’s estate law firm determined that the election for alternate_valuation under sec_2032 should have been made on or about date which was within one year after the due_date of the form_706 the personal representative filed a supplemental form_706 making the alternate_valuation election under sec_2032 subsequently the personal representative submitted this request for an extension of time under sec_301_9100-3 to make the election law and analysis sec_2032 provides in part that the value of the gross_estate may be determined if the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise_disposed_of within months after the decedent’s death such property shall be valued as of the date of distribution sale exchange or other_disposition in the case of property not distributed sold exchanged or otherwise_disposed_of within months after the decedent’s death such property shall be valued as of the date months after the decedent’s death sec_2032 provides that no election may be made under sec_2032 with respect to an estate unless such election will decrease the value of the gross_estate and the sum of the tax imposed under chapter of the code estate_tax and the tax imposed by chapter generation-skipping_transfer_tax with respect to property includible in the decedent’s gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 such election once made shall be irrevocable under sec_2032 no election may be made under sec_2032 if such return is filed more than one year after the time prescribed by law including extensions for filing such return sec_20_2032-1 of the estate_tax regulations provides that a request for an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 will not be granted unless the estate_tax_return is filed no later than one year after the due_date of the return including extensions under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or statutory election but no 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 if the taxpayer demonstrates to the satisfaction of the plr-103723-19 commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently the personal representative is granted an extension of time to date the date the supplemental form_706 was filed to make the alternate_valuation election under sec_2032 a copy of this letter should be forwarded to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh 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 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 this ruling is directed only to the taxpayer requesting it plr-103723-19 sec_6110 of 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 sincerely associate chief_counsel passthroughs special industries by karlene m lesho karlene m lesho senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec uniform issue list t ep la tt legend company plan dear this letter is in response to your request dated date submitted on your behalf by your authorized representative in which the company requests a private_letter_ruling that the adoption of a plan amendment which will provide a temporary lump-sum_distribution option during a specified window period to a certain category of plan participants will not be treated as an increase in the plan’s liabilities by reason of an increase in plan benefits for purposes of sec_412 of the internal_revenue_code the code and sec_304 of the employee_retirement_income_security_act_of_1974 erisa each as in effect prior to amendments made by the pension_protection_act of the ppa’ the lump-sum option will only be available to terminated vested participants and participants still employed who will have the opportunity after termination of employment to elect to receive their vested benefit as a lump-sum_distribution participants who have already begun receiving benefits will not be offered the lump-sum option all participants offered a lump-sum option will also have the opportunity to elect to receive an immediate_annuity in the applicable normal form ie qualified_joint_and_survivor_annuity or single_life_annuity instead of the lump-sum the proposed amendment does not result in an increase in benefits since the lump-sum payments must be the actuarial equivalent to the annuity options available under the plan as required by sec_415 of the code in lieu of the immediate distribution participants may defer commencement of their vested_accrued_benefit to their normal_retirement_date or any earlier retirement date as currently available in the plan the lump-sum option will not be available at the deferred commencement_date an extension of the amortization period for the unfunded liabilities of the plan was previously granted pursuant to sec_412 of the code and sec_304 of erisa sec_101 of reorganization plan no of 1979_1_cb_480 transferred the authority for issuing rulings under sec_304 of erisa from the secretary of labor to the secretary_of_the_treasury one condition of the extension of the amortization period is that the company may not amend the plan to increase benefits and or plan liabilities except in accordance with sec_412 of the code accordingly the company seeks a ruling that its plan amendment will not violate the condition of its extension of the amortization period for the unfunded liabilities under the provisions of sec_412 of the code as in effect prior to ppa there are restrictions on amendments resulting in an increase in the plan’s liabilities by reason of an increase in plan benefits while an extension of time under sec_412 is in effect applicable law sec_412 as in effect prior to ppa provides requirements relating to waivers and extensions no amendment of the plan which increases the liabilities of the plan by reason of any increase in benefits any change in the accrual_of_benefits or any change in the rate at which benefits become non-forfeitable under the plan shall be adopted if a waiver under subsection d or an extension of time under subsection e is in effect with respect to the plan or if a plan amendment described in subsection c has been made at any time in the preceding months months for multiemployer plans lf a plan is amended in violation of the preceding sentence any such waiver or extension of time shall not apply to any plan_year ending on or after the date on which such amendment is adopted b exception paragraph shall not apply to any plan amendment which- a the secretary of labor determines to be reasonable and which provides for only de_minimis increases in the liabilities of the plan b only repeals an amendment described in subsection c or c is required as a condition of qualification under this part analysis the pian amendment affects only former plan participants with vested benefits who are not yet receiving benefits and participants still employed who will have the opportunity after termination of employment to elect to receive their vested benefit as a lump-sum_distribution the amendment does not increase their benefits change benefit accruals or change the rate at which benefits become nonforfeitable under the plan the amendment only affects the manner in which benefits are paid to participants with deferred vested benefits the lump-sum form of benefit payout is the actuarial equivalent to the participant's accrued_benefit under the plan and consequently not an increase in the liabilities of the plan ruling therefore the adoption of the proposed plan amendment will not violate the provisions of sec_412 of the code as the plan amendment does not increase benefits change benefit accruals or the rate at which benefits become nonforfeitable this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t2 sincerely en ine manager plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose cc


internal_revenue_service number release date index number -------------------------- ------------- ------------------------------------ --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-137020-07 date february -------------- -------------- ------------------------- legend x ------------------------------------------ state date dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an entity classification election a limited_liability_company formed on date under the laws of state x inadvertently failed to file a form_8832 entity classification election electing to treat x as a corporation for federal_income_tax purposes effective date recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that an eligible_entity with at least two members may elect to be classified as either an association and thus a corporation under the facts submitted and representations made are summarized as follows x is sec_301_7701-2 generally provides that a business_entity is any entity sec_301_7701-3 further provides that so long as a business_entity is not sec_301_9100-1 provides that the commissioner may grant a reasonable plr-137020-07 sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election the effective date of the election can not be more than seventy-five days prior to the date the form is filed and can not be more than twelve months after the date on which the election is filed extension of time to make a regulatory election or a statutory election but no 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_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a corporation for u s income_tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code except as specifically set forth above no opinion is expressed concerning the based solely on the information submitted and the representations made we sec_301_9100-1 through provide the standards the plr-137020-07 provides that it may not be used or cited as precedent being sent to x’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely william p o’shea associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes enclosures cc


t c memo united_states tax_court donnovan m mcnely and betty j cruz-mcnely petitioners v commissioner of internal revenue respondent docket no filed date cindy l ho for petitioners cameron w carr and thomas r mackinson for respondent memorandum findings_of_fact and opinion nega judge respondent determined a deficiency in petitioners’ federal_income_tax a late filing addition_to_tax under sec_6651 and an 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar accuracy-related_penalty under sec_6662 of dollar_figure dollar_figure and dollar_figure respectively after stipulations the issue before the court is whether petitioners are entitled to deduct theft losses passed through m m properties inc m m totaling dollar_figure for their tax_year findings_of_fact some of the facts are stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference petitioners resided in california when they timely filed the petition 2the parties have stipulated an adjustment of dollar_figure to income for gambling_losses claimed as other miscellaneous deductions on schedule a itemized_deductions liability for the sec_6651 late filing addition_to_tax and liability for the sec_6662 accuracy-related_penalty further we note that the record contains evidence in the form of a civil penalty approval form that respondent complied with the requirements of sec_6751 see graev v commissioner 149_tc_485 supplementing and overruling in part 147_tc_460 3in the notice_of_deficiency respondent disallowed any deduction for the theft_loss respondent has conceded that the s_corporation described below incurred a theft_loss but argues that petitioners were not entitled to deduct any of that loss for for lack of proof that the loss was incurred during that year the only year before this court i sec_2011 additionally we find the record lacks facts sufficient to enable us to consider the implications of the theft_loss for years outside with respect to our redetermination of the deficiency properly before this court see 95_tc_437 accordingly our jurisdiction over this loss extends only to the claim made on petitioners’ tax_return i m m properties inc petitioner donnovan mcnely and jeffery mckay incorporated m m on date a sec_50 shareholders m m was an s_corporation at all relevant times m m was involved in the real_estate business in northern california exclusively until mr mckay’s cousin justin sinnott presented m m with an investment opportunity in southern california mr sinnott’s proposed opportunity to m m involved m m’s purchasing distressed real_estate properties which had immediate renters who could not qualify for loans to purchase the homes this would create immediate rental income for m m before it later sold the property to the renter for a premium the purchases would take place through first investments jocal investments eternity escrow and salem abbadi we will refer to the actors and the proposed opportunity collectively as the fraud scheme the truth behind the opportunity was a complex real_estate fraud transaction which generally faked a short_sale of property to a cash buyer eg m m and issued a grant deed to the cash buyer eg m m no one paid the bank holding the note on the property thus after the bank foreclosed on the property the cash buyer eg m m would no longer have ownership of the property in some transactions the fraud scheme would use real title companies which had title insurance but in other transactions they would use fake title companies created under the fraud scheme between and m m purchased between and properties while the record is unclear on how many of these properties were purchased as part of the fraud scheme at least six properties six southern california properties were subject_to the fraud scheme ii the six southern california properties between january and date m m acquired the six southern california properties of the six southern california properties at least four used real title companies a m m’s fraud suspicion mr mckay acted as the point_of_contact both through mr sinnott and directly for m m’s dealings with the fraud scheme on date mr mckay learned of the possible issues with m m’s real_estate investments concerning the six southern california properties through an email from mr sinnott in approximately date mr mckay drove to southern california to speak with members of the fraud scheme but was unable to find anyone associated with it after the may trip but at a time not in the record mr mckay spoke with a member of the fraud scheme and attempted to recoup some of m m’s investment by fabricating a story involving a rich aunt who was seeking to invest in commercial real_estate the fraud scheme owned mr mckay told the fraud scheme that his aunt would invest only after m m had received some of its investment back mr mckay’s attempt to scam the fraud scheme did not work and m m did not receive any money from the fraud scheme at any time subsequently at a time not in the record but in after concern arose with m m’s potential loss on the six southern california properties mr mckay spoke briefly with a fellow country club member an attorney named richard struck about the fraud scheme after their conversation at the country club mr mckay had a one-hour meeting with mr struck at his office in that meeting mr mckay described his dealings with the fraud scheme but did not provide any documentation mr struck who was not retained advised mr mckay that the best recourse would be restitution after litigation neither mr mcnely mr mckay nor m m filed a lawsuit b police investigation investigator donald willie with the orange county district attorney’s office became involved in the investigation of the fraud scheme in on 4on date investigator willie contacted the federal bureau of investigation fbi for their notes when he began his investigation the fbi had continued date investigator willie conducted his only interview with m m speaking with mr mckay to gather information related to m m’s investments in the fraud scheme during the interview mr mckay asked whether there was a chance m m would recover any of its investment to which investigator willie answered that it was highly unlikely other parties had recovered some or all of their investments through title insurance as some of the title companies used by the fraud scheme were legitimate neither mr mcnely mr mckay nor m m filed title insurance claims iii petitioners’ tax_return petitioners untimely filed their form_1040 u s individual_income_tax_return for the tax_year claiming a dollar_figure schedule a deduction under sec_165 for a theft_loss related to the six southern california properties m m’s return filed on date did not report the theft losses continued been investigating the fraud scheme for two years but never spoke to mr mcnely or mr mckay the first criminal indictments were filed in 5the court is unclear as to why petitioners believed they were entitled to a deduction for a theft_loss when m m did not claim a theft_loss deduction on it sec_2011 return opinion i burden_of_proof the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving those determinations erroneous rule a 290_us_111 deductions are a matter of legislative grace 308_us_488 taxpayers must comply with specific requirements for any deductions claimed see 503_us_79 292_us_435 ii sec_165 theft_loss sec_165 generally permits taxpayers to deduct against their ordinary_income the amount of any uncompensated loss resulting from theft for the year in which the taxpayer discovers that loss see sec_165 c e to qualify for a theft_loss deduction taxpayers must prove the occurrence of a theft the amount of the theft_loss and the year in which the taxpayers discover the theft_loss id a taxpayer may deduct a theft_loss for the year in which the loss is sustained sec_165 any loss arising from theft is treated as sustained during the taxable_year in which the taxpayer discovers the loss and in which the loss is evidenced by a closed and completed transaction sec_165 sec_1 d income_tax regs whether there is a closed and completed transaction with respect to a theft_loss depends on the taxpayer’s prospect of recovering the loss sec_1_165-1 income_tax regs whether there is a reasonable_prospect_of_recovery is a question of fact that must be determined by examining all facts and circumstances id the test for determining whether the taxpayer had a reasonable prospect of recovering a theft_loss is primarily an objective test see 61_tc_795 aff’d 521_f2d_786 4th cir however the taxpayer’s subjective belief as of the close of the year that there is a reasonable prospect of recovering the loss is also an important and relevant factor see 326_us_287 the burden_of_proof is on petitioners and they must prove that it could have been ascertained with reasonable certainty as of date that the loss would never be 6326_us_287 did not involve the theft_loss deduction at issue here but rather a deduction available to holders of corporate stock that becomes worthless however the court_of_appeals for the fourth circuit in 521_f2d_786 4th cir aff’g 61_tc_795 analogized to boehm in a very similar context and we agree that the analogy is apt 128_f3d_1410 n 10th cir aff’g tcmemo_1995_342 recovered see 128_f3d_1410 10th cir aff’g tcmemo_1995_342 sec_1_165-1 income_tax regs if in the year of discovery there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery no portion of the loss with respect to the which reimbursement may be received is sustained until the year in which it can be ascertained with reasonable certainty whether such reimbursement will be received jeppsen v commissioner f 3d pincite see sec_1_165-1 income_tax regs further if the prospect of recovery was simply unknowable at the end of the tax_year then the taxpayer is not entitled to the theft_loss deduction for that year see 429_fedappx_560 6th cir s peculation and conjecture will not support a taxpayer deduction under this provision aff’g tcmemo_2009_255 supplementing tcmemo_2008_271 iii actions mr mcnely personally did not speak with anyone from the fraud scheme mr struck or investigator willie all communications were through his business 7the court has jurisdiction in this proceeding to determine whether petitioners are entitled to deduct any theft_loss incurred by m m during see eg 135_tc_238 powell v commissioner tcmemo_2016_111 at n aff’d 689_fedappx_763 4th cir partner mr mckay mr mcnely testified that in we talked to an attorney who advised that it would cost several hundred thousand dollars to fight the fraud scheme and that they would not recover their money the evidence in the record fails to show that mr mcnely personally spent any time money or effort to recover his loss a relevant factor is the amount of time and money spent by the taxpayer investigating and prosecuting the claim see 71_tc_501 because of the vagueness and inconsistences revealed in the record the court does not find mr mcnely’s testimony credible but does find the inconsistencies important in the court’s determination of the year in which the loss was sustained as compared to mr mcnely’s subjective belief mr mcnely’s uncorrobortaed and in part contradicted testimony shows he believed he had no reasonable_prospect_of_recovery in not the year for which the theft_loss deduction was claimed mr mcnely testified that the fraud scheme led m m to believe it had interests in the commercial real_estate scam m m had presented and that it took m m five or six months to realize that it had completely lost its 8the court has no evidence of mr mcnely’s speaking with an attorney other than his uncorroborated testimony investment in upon the fraud scheme’s returning none of their investment he subsequently spoke with a lawyer and his accountant who both informed him there was no prospect of recovery in dollar_figure further he claims to have filed a police report in late but did not provide any evidence of this claim mr mcnely testified that he did not file an insurance claim because he believed that all the titles were fake however mr mcnely did not provide any evidence other than his testimony the court finds credible investigator willie’s testimony that other victims did recover through title insurance claims the court finds that mr mcnely had the opportunity to file a claim in with a prospect of recovery but chose not to 9mr mcnely testified that the conversation was probably in may or date this time line is contradicted by mr mckay’s testimony and communication with mr sinnott and we decline to find the time line as fact 10mr mcnely testified that his accountant agreed and advised mr mcnely that the best thing to do was to write it off on his tax_return and consider it a loss mr mcnely filed hi sec_2011 tax_return untimely in the court does not find it credible that mr mcnely discussed the loss with and was advised by his accountant three years before filing his tax_return further while the date of his return was stipulated by the parties mr mcnely testified that he believed he did not file hi sec_2011 tax_return untimely which contradicts the stipulation and that he had hired people to complete his tax returns for him in the year for which the deduction was claimed the only actions by m m were an attempt to scam the fraud scheme and mr mckay’s conversation with mr struck while m m’s attempt to scam the fraud scheme clearly shows it believed it might be possible to recover some of its investment the meeting with mr struck confirmed that mr struck advised that recovery might be possible through restitution however mr mcnely and m m failed to file a lawsuit seeking recovery further as late a sec_2015 when mr mckay on behalf of m m was interviewed by investigator willie he inquired about the prospect of recovery this shows that m m did not have a subjective belief that there was no reasonable_prospect_of_recovery as late a sec_2015 after reviewing both objective and subjective factors the court finds that m m’s prospect of recovery was simply unknowable and nothing more than speculation and conjecture at the end of by the end of m m had not engaged an attorney filed insurance claims or made any effort to recoup any of the losses thus it would have been impossible for m m to conclude when others had recovered and m m had been advised of potential recovery options there was no reasonable_prospect_of_recovery we have considered all the other arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br5-plr-161071-01 date date bank bankus bank b bank c date a date b date c date d date e date f date g month a month b banking license city a city b country a dear this is in reply to a private_letter_ruling request dated date a requesting rulings under sec_882 of the internal_revenue_code_of_1986 the code the information submitted for consideration is substantially as set forth below 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 bank is an international banking institution that is incorporated under the laws of country a and that maintains branches representative offices and subsidiaries in the united_states and various other countries prior to date b bank operated a us branch office in city a under a banking license through which bank represents it was engaged in the active_conduct of banking finance or similar_business within the meaning of regulation c i bank’s operations satisfied the definition of bank under code sec_581 and sec_585 bank represents that it surrendered its banking license on date b bank represents that surrendering its banking license required it to sell certain assets including loans loan commitments and letters of credit to its us affiliate bankus the assets and liabilities recorded on the us branch’s books_and_records were eliminated by date d bank represents that it also transferred debt securities that were attributable to its u s office under sec_1_864-4 to its foreign_branch office in city b in month a bank represents that deposits ceased to be taken on its books_and_records during month b bank continued to hold a banking license even after it had transferred its assets and liabilities and ceased to take deposits because it continued to operate a us banking business with all transactions recorded on its city b books_and_records rather than on city a books_and_records bank represents that it surrendered its banking license on date b during this time bank’s u s business involved marketing its foreign exchange products making markets in interest rate derivatives and trading emerging market currency and bonds throughout this time even after month b when bank stopped taking deposits in its u s branch bank continued to file its u s tax returns using the fixed ratio method applicable to banks that it had elected under sec_1_882-5 bank represents that it relinquished its banking license when its parent on date g purchased and merged bank b into bank c bank also represents that the merged corporation applied for a ruling with the banking license regulator that allowed bank c to act as agent for bank in city a without requiring it to have a banking license because bank allowed city a employees to have discretion to book transactions on bank’s city b balance_sheet for u s tax purposes bank represents that as a result of the exercise of bank c’s discretionary activities conducted in the united_states on behalf of bank that it continues to have a us permanent_establishment under article of the united states- country a double tax_convention entered into force on date c requested ruling for the tax_year ending date d bank requests that it be entitled to use the ninety three percent fixed ratio described in sec_1_882-5 for the entire taxable_year requested ruling for the tax_year ending date e bank requests permission to change its election pursuant to sec_1_882-5 from the fixed ratio method described in regulation c to the actual ratio method described in c i to determine its us connected liabilities under regulation c bank represents that it can no longer use the percent fixed ratio as of date d because it no longer satisfied the definition of a bank under sec_585 as a result of its cessation of taking deposits as a substantial part of its u s trade_or_business discussion sec_1_882-5 provides rules for determining the amount of interest_expense of a foreign_corporation that is allocable under sec_882 of the code to income that is or is treated as effectively connected with the conduct_of_a_trade_or_business within the united_states sec_1_882-5 provides determination of total amount of u s -connected liabilities for the taxable_year general_rule the amount of u s -connected liabilities for the taxable_year equals the total value of u_s_assets for the taxable_year as determined under paragraph b of this section multiplied by the actual ratio for the taxable_year as determined under paragraph c of this section or if the taxpayer has made an election in accordance with paragraph c of this section by the fixed ratio sec_1_882-5 provides elective fixed ratio method of determining u_s_liabilities a taxpayer that is a bank as defined in sec_585 without regard to the second sentence thereof may elect to use a fixed ratio of percent in lieu of the actual ratio a taxpayer that is neither a bank nor an insurance_company may elect to use a fixed ratio of percent in lieu of the actual ratio a bank as defined in sec_585 is a corporation that would otherwise meet the definition of a bank within sec_581 except for the fact that it is a foreign_corporation sec_581 provides in relevant part t he term bank means a bank or trust company incorporated and doing business under the laws of the united_states including laws relating to the district of columbia or of any state a substantial part of the business of which consists of receiving deposits and making loans and discounts or of exercising fiduciary powers similar to those permitted to national banks under authority of the comptroller of the currency and which is subject by law to supervision and examination by state or federal authority having supervision over banking institutions bank is a banking institution resident in country a that would meet the requirements of sec_581 if it were a u s domestic_corporation it has not represented that it is a_trust company or that a substantial part of its business in the united_states consists of exercising fiduciary powers similar to those permitted to national banks under authority of the comptroller of the currency accordingly bank will only qualify as a bank within the meaning of sec_581 if it engages in the other activities prescribed by the statute code sec_585 by reference to sec_581 requires a substantial part of bank’s business in the united_states to consist of taking deposits and making loans and discounts and that it be subject_to regulatory supervision and examination by a state or federal regulatory agency bank only satisfied the definition of bank under sec_585 through the end of its taxable_year ending date d regardless of whether it continued to possess a banking license after this date possession of a banking license does not imply that an entity is a bank although bank remained engaged in a u s trade_or_business after date d it stopped taking deposits and therefore failed to meet the definition of a bank within the meaning of sec_1_882-5 and by reference sec_585 and sec_581 accordingly based on the facts and representations submitted after bank ceased to take deposits it could no longer apply the percent elective fixed ratio method permitted only to a taxpayer that is a bank under c since after date d bank did not qualify as a bank under sec_1_882-5 it must request permission to switch to the actual ratio or automatically be subject_to the fixed capital ratio pursuant to c under sec_1_882-5 bank is not eligible to make a new election with respect to the computation of its u s connected liabilities under sec_1_882-5 for the year ending date e without the consent of the commissioner sec_1_882-5 provides in relevant part a n elected method must be used for a minimum of five years before the taxpayer may elect a different method to change an election before the end of the requisite five-year period a taxpayer must obtain the consent of the commissioner the commissioner will generally consent to a taxpayer’s request to change its election only in rare and unusual circumstances based solely on the facts and representations submitted bank is permitted to allocate interest_expense under sec_1_882-5 in the manner provided below and subject_to the following conditions ruling number bank shall remain on the percent fixed ratio method for the entire taxable_year ending on date d since bank satisfied the definition of bank under sec_585 without regard to the second sentence thereof for a substantial part of the tax_year which included the beginning of the year ruling number for the year ended date e bank may switch to the actual ratio method prescribed in sec_1_882-5 by filing an amended tax_return for such year an amended_return with respect to this election for the taxable_year ended date e may be satisfied by furnishing a written_statement that includes this private_letter_ruling in the same manner prescribed by sec_1 h iii b within days of the date of this letter and without regard to the requirements of sec_1_6664-2 if bank switches to the actual ratio for the taxable_year ending date e bank must remain on such method for a minimum of five years and may not make a new election before the end of such requisite period without the consent of the commissioner or_his_delegate if bank does not switch to the actual ratio for the taxable_year ending date e by filing an amended_return bank may make the election with its original timely filed return including extensions for the year ended date f if bank makes the actual ratio election for the year ended date f bank must remain on the actual ratio for a minimum of five years even if bank obtains another banking license in the united_states and begins banking operations that qualify it as a bank within the meaning of sec_585 without regard to the second sentence thereof during that minimum five year period for any year as of the taxable_year ended date e that bank does not make an actual ratio election bank’s fixed ratio will be fifty percent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences or any aspect of any transaction or item not discussed or referenced in this letter a copy of this letter must be attached to any income_tax return to which it is relevant including any amended or previously filed return this ruling is directed only to the taxpayer s 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 the taxpayer sincerely ____________ paul epstein senior technical reviewer branch office of associate chief_counsel international


internal_revenue_service number info 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 b01 genin-121042-08 date june ------------------------------ legend taxpayer ------------------------------------------------- d1 d2 dear ------------------ --------------------- --------------------- we are responding to a form_8832 entity classification election dated d2 and submitted on behalf of taxpayer by which you attempted to elect to classify taxpayer as a corporation effective d1 pursuant to sec_301_7701-3 of the procedure and administration regulations form_8832 must be received by the service_center no later days after the effective date of the election however taxpayer may use the private_letter_ruling process to obtain relief to file a late entity classification election sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an entity classification election the procedures for requesting a private_letter_ruling are set out in revenue_procedure rev_proc section of revproc_2008_1 describes the information that must be included in the request requests for letter rulings must be accompanied by a user_fee in an appropriate amount the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income as determined under appendix a of rev_proc of less than dollar_figure million and more than dollar_figure qualify for a reduced user_fee in the amount of dollar_figure and taxpayers with gross_income of less than dollar_figure qualify for a reduced user_fee in the amount of dollar_figure if taxpayer qualifies for the reduced fee the ruling_request must include a statement certifying taxpayer’s gross_income for the last 12-month taxable_year for details see appendix genin-121042-08 a of revproc_2008_1 refer to appendix b of revproc_2008_1 for a sample format for a letter_ruling request requests for letter rulings should be sent to the following address internal_revenue_service attn cc pa lpd dru p o box ben franklin station washington dc we hope that the above information proves helpful sincerely david r haglund david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service department of the treasury index numbers washington dc number release date person to contact telephone number refer reply to cc dom corp - plr-107099-99 date date purchaser parent target sellers purchaser’s attorneys purchaser’s outside tax professional authorized representatives date a date b date c this responds to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election purchaser and sellers are requesting the extension to file a sec_338 election under sec_338 and sec_338 h of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations the election with respect to purchaser’s acquisition of target on date b additional information was received in letters dated date date and date the material information is summarized below parent is the common parent of a consolidated_group that has a taxable_year ending september and uses the accrual_method of accounting parent owns all of the outstanding_stock of purchaser target prior to the transaction was an s_corporation on date a purchaser parent target and sellers entered into a stock purchase agreement the stock purchase agreement or the agreement for purchaser to acquire all of sellers’ target stock on date b purchaser acquired all of the sellers’ target stock pursuant to the stock purchase agreement for cash and a certain number of shares of common_stock representing percent of the fully diluted common equity of parent in a fully taxable transaction purchaser was not related to sellers within the meaning of sec_338 as the sellers are individuals it is represented that purchaser’s acquisition of target stock qualified as a qualified_stock_purchase as defined in sec_338 following the acquisition new target was included in parent’s consolidated_return purchaser and sellers intended to file the election pursuant to the stock purchase agreement entered into on date a the parties contracted to make the election the agreement also provided that each seller must sign at or prior to closing all federal and state forms used to make the election pursuant to that provision each seller signed form 8023-a at the closing on date b the agreement also provided an allocation among the parties of the responsibility for the taxes resulting from the making of the election all parties to the agreement were obligated to file their returns in accordance with the making of the sec_338 h election and the purchase_price allocation provided for in the agreement the election was due on date c but was not filed sometime after date c the due_date of the election purchaser received a request from the representative of one of the sellers to furnish a copy of the election so that the seller could file a copy of the election purchaser was unable to locate a copy of a filed form 8023-a the purchaser believed that purchaser’s outside tax professional had been instructed to file the election and that the election had been filed purchaser’s attorneys thought that purchaser had informed purchaser’s outside tax professional of the necessity of filing the election and that the election had been made purchaser has now ascertained that the sec_338 election was never filed purchaser and sellers have proceeded in a manner consistent with the election having been filed subsequently purchaser filed this request in which the sellers now join under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser’s target’s or sellers’ taxable_year in which the acquisition sale was consummated the taxable_year in which the election should have been filed or for any taxable_year s that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase qsp sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for a target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 and provide that if a sec_338 election is made for the target_corporation it is irrevocable and a sec_338 election is deemed made for the target_corporation sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form 8023-a or form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form 8023-a or form_8023 provide that if a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders then the form must be signed by each person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qsp the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide the details as to the preparation of the signature attachment and its attachment to form 8023-a or form_8023 sec_1_338-2 provides that if an election under sec_338 is made for target old target is deemed to sell target’s assets and new target is deemed to acquire those assets sec_1_338_h_10_-1 provides that old target is treated as if while owned by the selling s_corporation shareholders it distributed all of its assets in complete_liquidation sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form 8023-a or form_8023 and the instructions thereto under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by regulations promulgated under sec_338 ie no later than the 15th day of the 9th month beginning after the month in which the acquisition_date occurs see sec_1_338-1 the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser sellers and the authorized representative explain the circumstances that resulted in the failure to timely file a valid election the information also establishes that tax professionals were responsible for the election that seller and purchaser relied on them to timely make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that purchaser and seller have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and sellers to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on the taxpayers’ sellers’ purchaser’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the district directors’ offices upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ liability is lower sec_301_9100-3 the above extension is also conditioned on i purchaser and the sellers signing the election and ii purchaser and sellers treating the acquisition sale of target stock as a sec_338 transaction purchaser and sellers must file the election in accordance with sec_1 h - d that is new elections on form 8023a or form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter should be attached to the election form purchaser and sellers must file or amend as applicable their returns to report the transactions as sec_338 transactions and attach a copy of the new election the information required therewith and a copy of this letter see also announcement 1998_2_irb_38 we express no opinion regarding whether the acquisition sale of target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and sellers on target’s deemed asset sale and deemed liquidation in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the district_director s should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter is being sent to purchaser to each of the sellers and pursuant to the power_of_attorney on file in this office to the specified authorized representative sincerely yours assistant chief_counsel corporate by bernita l thigpen deputy assistant chief_counsel corporate