t c summary opinion united_states tax_court hem c and krishna gupta petitioners v commissioner of internal revenue respondent docket no 15534-99s filed date bradley s shannon for petitioners paul k voelker for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect at the time the petition was filed ' the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue the issues for decision are whether petitioners under sec_165 are entitled to a deduction in for either an ordinary abandonment_loss or a theft_loss in the amount of dollar_figure on brief respondent agrees that petitioners sustained an ordinary_loss of dollar_figure due to abandonment but contends that the loss was not sustained by petitioners during petitioners contend they sustained the loss during either by a theft that they discovered during or by an abandonment that occurred during ’ some of the facts were stipulated those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioners were legal residents of las vegas nevada sometime in early hem gupta petitioner responded to an advertisement ina las vegas newspaper soliciting participants in a trade_or_business activity that involved the sale of telephone debit cards and musical greeting cards the promoter of the enterprise was a company based in atlanta georgia known as business motivations inc telebanc bmi on or about date after having been contacted by bmi petitioner agreed it appears that petitioners’ claim to an abandonment_loss is not based on respondent's concession but is based on petitioners' contention of an abandonment of their claim for reimbursement or recovery_of the moneys paid_by petitioner to the promoter of the aborted business activity described more fully in the following pages to become a distributor for bmi the financial outlay required by bmi was dollar_figure of which petitioner paid dollar_figure initially and the remainder shortly thereafter the activity involved the placement of display stands preferably in supermarkets on which the greeting cards were displayed for purchase along with brochures describing the telephone debit cards a customer desiring a telephone debit card would present the brochure at the checkout counter and the cashier would activate a telephone card for a certain number of minutes allowable for telephone use for the dollar_figure paid_by petitioner he was to receive display stands to be placed pincite locations big_number telephone debit cards and big_number greeting cards and envelopes on the suggestion of bmi petitioner engaged the services of silver star locating of arlington texas to find suitable locations for the display stands the cost for that service was dollar_figure petitioner made one payment of dollar_figure the agreement with silver star locating allowed for cancellation however if the agreement was canceled silver star locating was entitled to retain percent of the dollar_figure contracted amount petitioner elected to cancel the contract and on date silver star locating refunded dollar_figure to petitioner retaining dollar_figure or percent of the dollar_figure contracted amount as a forfeited fee problems also developed between petitioner and bmi bmi did not immediately ship the necessary merchandise to petitioner to enable him to commence the activity it appears that petitioner became aware that telephone debit cards of competitors were being marketed in las vegas for amounts less than those of bmi petitioner complained about this to bmi however the record does not reflect whether bmi addressed this complaint petitioner later decided that in lieu of distributing the musical greeting cards since bmi also promoted the sale of medical emergency response cards merc petitioner would instead market merc bmi agreed to this switch merc were programmed to contain vital medical information of the holder so that in an emergency if the cardholder was incapacitated such information would be available by telephone bmi did not immediately send the merc to petitioner although the record shows petitioner made several telephone requests to bmi during in order that he could commence his business however ina letter to bmi dated date petitioner expressing frustration requested his money back on date bmi shipped some of the telephone debit cards and brochures however bmi did not provide the store locations with the necessary computer to activate the cards ina letter to bmi dated date petitioner concluded the letter with the following the last four months have only proved that there is no product no marketing and no organization it is only a garage operation i again request immediate refund of my money on date petitioner through a prepaid legal services plan engaged an attorney from norcross georgia who wrote bmi declaring that the contract with petitioner had been breached and demanded the return of the amounts petitioner had paid to bmi petitioner also contacted during the better business bureau of atlanta georgia requesting information for filing a complaint against bmi this action by petitioner apparently prompted bmi to attempt a reworking of the agreement with petitioner that was confirmed ina letter by petitioner to bmi dated date however bmi apparently did not live up to the terms and conditions of that agreement bmi did ship merc and brochures to petitioner but no display stands nor information as to the locations for the display stands for which bmi had assumed responsibility in the new agreement petitioner returned the merc to bmi on date on date petitioner wrote his attorney and stated as of now i seek your help in getting full refund of my money immediately plus expenses and damages with no ifs buts or any reasoning what-so-ever on the same date petitioner wrote directly to bmi stating this is my final notice and request for refund of my money in that letter petitioner requested dollar_figure on date petitioner wrote his attorney requesting that he file suit against bmi and file a lien against bmi such action was not taken by petitioner's attorney because the requested work went beyond what the attorney was reguired to do under the prepaid legal services agreement petitioner did not independently pursue legal action against bmi nor did petitioner receive any money from bmi as he had demanded in his date letter to bmi further bmi did not ship any further materials to petitioner although petitioner at trial contended he made continued demands on bmi on his own and through his attorney up to date there was no written documentation offered into evidence to support these claims nor was any documentary_evidence offered regarding communications between petitioner and bmi during during petitioner contends he came to realize that he would not recover any amount from bmi on their federal_income_tax return petitioners filed a schedule c profit or loss from business on which they reported their transaction with bmi as a business activity for sales of medical response systems they reported no gross_receipts dollar_figure cost_of_goods_sold and negative gross_income of dollar_figure petitioners claimed office expenses of dollar_figure and a net_loss of dollar_figure in the notice_of_deficiency respondent disallowed the dollar_figure cost_of_goods_sold and dollar_figure in itemized_deductions resulting from the dollar_figure disallowance for cost_of_goods_sold at trial and on brief petitioners presented their case as a claim for a loss under sec_165 sec_165 allows as a deduction any loss sustained by a taxpayer during the taxable_year that is not_compensated_for_by_insurance_or_otherwise under sec_165 in the case of an individual the deduction under sec_165 is limited to losses_incurred in a trade_or_business losses_incurred in any transaction entered into for profit though not connected with a trade_or_business and losses of property not connected with a trade_or_business or a transaction entered into for profit if such losses arise from fire storm shipwreck or other_casualty or from theft this latter deduction is subject_to additional limitations under sec_165 as noted earlier respondent on brief conceded that petitioners sustained an ordinary abandonment_loss in the amount of dollar_figure but respondent disagrees that this loss was sustained in a trial memorandum respondent stated that allowance of the dollar_figure in office expenses claimed on schedule c of petitioners' return was inadvertent however respondent did not file an answer or otherwise move to increase the deficiency with respect to this item ‘ sec_165 allows the loss deduction only to the extent that the amount of the loss from each casualty exceeds dollar_figure and sec_165 generally allows the net_casualty_loss deduction only to the extent the net casualty losses exceed percent of the taxpayer's adjusted_gross_income in as a result of respondent's concession the court need not address whether the agreed loss was incurred by petitioners in a trade_or_business or in a transaction not connected with a trade_or_business but entered into for profit nor does the court need to decide whether petitioners' loss was an abandonment_loss see sec_1_165-2 sec_1 a --8 income_tax regs petitioners contend they sustained a theft_loss and that the loss was sustained during the basic question therefore is factual whether petitioners sustained their loss during the documentation offered into evidence at trial dealt almost exclusively with the year consisting of various communications between petitioner his attorney and bmi there was no documentary information offered into evidence between petitioner and bmi during although petitioner claimed he continued making demands on bmi that year during however the record does not reflect any communications between petitioner or his attorney with bmi petitioners have not pointed to any factual event that occurred during that would relate to the loss in question sec_1_165-1 income_tax regs provides in pertinent part when a taxpayer claims that the taxable_year in which a loss is sustained is fixed by his abandonment of the claim for reimbursement he must be able to produce objective evidence of his having abandoned the claim such as the execution of a release there is no objective evidence that petitioner abandoned the claim with bmi during the record does not support a finding that petitioners sustained an abandonment_loss during the court sustains respondent on this issue with respect to petitioners' claim that the loss was a theft_loss sec_165 provides that any loss arising from theft is treated as sustained during the taxable_year in which the taxpayer discovers the loss see sec_1_165-8 income_tax regs sec_1_165-1 income_tax regs provides generally that if in the year of discovery of the theft there is a reasonable prospect for recovery the theft_loss related thereto is not considered sustained until the taxable_year in which it can be ascertained with reasonable certainty whether or not such reimbursement will be received on this record the court is satisfied that petitioners were reasonably certain prior to that they would not be reimbursed by bmi the record does not support petitioners' claim that they sustained a theft during the record moreover does not satisfy the court that a theft occurred however if a theft did occur the court is satisfied it did not occur during respondent therefore is sustained on this issue -- - reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number ------------------- ---------------------- ------------------ -------------------------------------- ------------------------- ------------------------- department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-142533-11 date april legend legend donor trust trust ---------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------ -------------------------- -------------------------- ----------------------- ------------------- ----------------------------- ---------------------------------------------- ------------------ ------------------------------ ------------------------ --------------- date date date a b c d e taxpayer state state statute ------------------------------------------------------- state statute ---------------------------------------------------- state statute ---------------------------------------------------- state statute ---------------------------------------------------- state statute ---------------------------------------------------- dear ----------- this letter responds to your authorized representative’s letter dated date requesting a ruling on the gift_tax consequences of proposed disclaimers to be executed by taxpayer plr-142533-11 facts the facts submitted and representations made are as follows trust donor executed trust an irrevocable_trust on date a date prior to date under article second paragraph b of trust the trustees are to pay such sum or sums from time to time out of the income accumulated income or principal of trust to or for the benefit of a donor's child or any of a's descendants in the trustees' sole and absolute discretion in the event of illness accident other misfortune or any emergency or if in the trustees' judgment it is necessary to provide for the beneficiaries’ comfortable maintenance support or education trust will terminate years after the death of the survivor of a b and c and all of donor's descendants living on date on termination the remaining trust principal and undistributed_income will be distributed to the descendants of a who have no living ancestor who is a descendant of a per stirpes on date the date trust was executed donor had living descendants consisting of three children a b and c and eight grandchildren all of whom are still living d is a child of a and was not living on date taxpayer is d's child and a’s grandchild under article second paragraph b taxpayer is one of the beneficiaries to whom the trustees may in their discretion make current distributions of income and principal and taxpayer has previously received such discretionary distributions from trust in addition under article second paragraph b taxpayer will be entitled to receive a per stirpital portion of the trust remainder if taxpayer survives until the termination of trust and d dies prior to the time of distribution trust is governed by the laws of state taxpayer attained the age of majority age under state law on date taxpayer proposes to disclaim her contingent right to receive any distribution from trust on termination of the trust the disclaimer will be executed by taxpayer within nine months after attaining majority trust a executed trust an irrevocable_trust on date a date prior to date under paragraph first of trust the trustees are to divide trust into three equal shares under paragraph first subparagraphs a b and c the income derived from the first one-third share is to be accumulated and added to principal the income of the second one-third share is to be paid to a and on a’s death to e if she survives a as his spouse however under paragraph third subparagraph d a reserved the right exercisable by will to direct a contrary disposition of the income of this one-third share to be effective after a’s death or e’s death if she survives a as his spouse the income of the remaining one-third share is plr-142533-11 to be paid to e so long as she is a's spouse or has survived a as his spouse or to any of a's descendants in the event of need occasioned by illness accident or other misfortune or in any emergency or if in the trustee's discretion it is necessary for the comfortable maintenance support or education of any beneficiary or of his or her family under paragraph first subparagraph d after a's death or on e's later death if she survives a as his spouse the three shares of trust are to be combined into a single trust less any portion of the second one-third share for which a has made a contrary testamentary_disposition of the income pursuant to the right a reserved to do so in paragraph third subparagraph d along with accumulated income trust is then to be divided into equal shares one such share for each of a's then living children and deceased children leaving surviving issue the surviving issue to take the deceased child's share by representation during the continuation of the trust term the trustee is to pay to the beneficiaries a child of a if living or if a child dies his or her surviving issue by representation of a respective share so much income of that share as the trustee in the trustee's discretion determines in addition under paragraph first subparagraph e after a's death the trustee may distribute such principal as the trustee deems necessary to an income_beneficiary in the event of illness accident other misfortune or any emergency or if in the judgment of the trustee it is necessary for the comfortable maintenance support or education of any beneficiary or of the beneficiary's family any amount_paid is to be charged against the share from which the beneficiary is then receiving or entitled to receive income under paragraph first subparagraph d trust is to terminate years after the death of the last survivor of a e and those of a's children living on date on termination trust principal and accumulated income will be distributed per stirpes to a's descendants then living who have no living ancestor who is a descendant of a d was not yet born when a executed trust on date d is not one of the measuring lives determining the duration of trust hence d is a potential recipient of a one-third share of the remainder taxpayer is d’s child and a’s grandchild taxpayer as a's descendant is entitled to distributions of income from a one-third share described above in the event certain needs arise after a and e have both died and if d has also died taxpayer if then living will be entitled as a surviving issue of d to distributions of income and principal of the trust share set_aside with respect to d further on termination of trust taxpayer if living will be entitled to a distribution of all or a portion of the remainder of that share by representation taxpayer proposes to disclaim her contingent right to share in the distribution of trust on termination of the trust the disclaimer will be executed by taxpayer within nine months after attaining majority taxpayer has not received discretionary distributions from trust plr-142533-11 taxpayer requests a ruling that the proposed disclaimers will not constitute a transfer subject_to federal gift_tax law and analysis trust and trust are governed by the laws of state under state statute any individual to whom property or an interest therein is donatively transferred by any means including a transfer resulting from another disclaimer may disclaim all or any portion of the transfer unless the terms of the transfer otherwise provide the disclaimer shall cause the terms of the transfer to be applied to the disclaimed transfer and to any future interests taking effect thereafter as if the disclaimant had died immediately before the transfer state statute provides that a disclaimer is made by a writing showing an unconditional refusal to accept a transfer or a portion thereof signed by the disclaimant or representative and delivered on or before nine months after the transfer or by any later time provided in the particular case or pursuant to other provisions of the state statutes and before any acceptance of the disclaimed interest delivery of a disclaimer may be accomplished by delivery to the transferor the transferor's personal representative or other legal_representative or the holder of legal_title to the property to which the interest is related state statute provides that each separate interest in property is subject_to disclaimer or acceptance and each separate interest including any specific amount part fraction or asset thereof or formula amount based on present or future facts independent of the disclaimant's volition is subject_to disclaimer or acceptance state statute provides that a contingent future_interest may be disclaimed in whole or in part at any time before or within nine months after beneficiaries of the interest have been fully ascertained and their interests vested sec_2501 of the internal_revenue_code imposes a tax on the transfer of property by gift during any calendar_year by any individual sec_2511 provides that the gift_tax imposed under sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that in the case of transfers creating an interest in the person disclaiming made before date where the law governing the administration of the decedent's_estate gives a beneficiary a right completely and unqualifiedly to refuse to accept ownership of property transferred from a decedent a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable_time after knowledge of the existence of the transfer is unequivocal is effective under local law and is made before the disclaimant has accepted the property compare with sec_2518 and plr-142533-11 sec_25_2518-1 through providing rules for determining whether a disclaimer is a qualified_disclaimer effective for estate and gift_tax purposes in the case of the disclaimer of an interest in property that is created in the beneficiary disclaiming by a transfer made after date as noted above under sec_25_2511-1 if the interest to be disclaimed was created before date the disclaimant must disclaim the interest in the property within a reasonable_time after knowledge of the existence of the transfer creating the interest to be disclaimed in the case of a disclaimer of an interest in trust in general the transfer occurs when the trust is established rather than when the interest actually vests in the disclaimant if the transferor has not reserved any power over the trust see 455_us_305 however the time limitation for making the disclaimer does not begin to run until the disclaimant has attained the age of majority and is no longer under a legal disability to disclaim id pincite see also sec_2518 and sec_25_2518-2 in this case taxpayer will execute each disclaimer within nine months after attaining majority under these circumstances the proposed disclaimers will be considered to be made within the time prescribed in sec_25_2511-1 under sec_25_2511-1 the disclaimers must be unequivocal revrul_76_156 1976_1_cb_292 which considers the application of sec_25_2511-1 concludes that a disclaimer is unequivocal if the disclaimant's act of refusal is unambiguous in its consequences that is the disclaimant must unqualifiedly refuse to accept ownership of the property for example a disclaimer is unequivocal if the disclaimed property must pass as otherwise provided in the instrument and not pursuant to the direction of the disclaimant similarly a disclaimer is unequivocal if the disclaimant does not accept the benefits from the property interest disclaimed in this case the disclaimed interests will not pass pursuant to any direction on the part of taxpayer further taxpayer will not accept the benefits of the disclaimed interests after the disclaimers cf sec_25 a i and d examples and regarding treatment of certain interests in the same property as separate interests eligible for qualified_disclaimer treatment under sec_2518 under sec_25_2511-1 the disclaimers must be effective under local law in this case state law specifically provides that an individual may make a valid disclaimer of any separate interest in property while retaining other separate interests in the same property further the disclaimers will be timely under state statute see also state statute consequently if taxpayer satisfies the procedural requirements prescribed under state law the disclaimers will be valid under local law finally under sec_25_2511-1 the disclaimant must not have accepted the property before the disclaimer in the instant case distributions received by taxpayer from trust prior to attaining the age of majority are not considered acceptance of the property subject_to the disclaimer cf sec_25_2518-2 sec_25_2518-2 example plr-142533-11 concluding that a minor’s receipt of discretionary distributions during minority does not constitute acceptance of the benefits of the interest subsequently disclaimed under sec_2518 accordingly we conclude that based on the facts submitted and representations made assuming that the disclaimers are executed as proposed the disclaimers with respect to trust and trust will not constitute transfers subject_to the federal gift_tax the ruling contained in this letter is 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 except as specifically ruled herein we express no opinion on the federal tax consequences of the proposed disclaimers under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours senior technician reviewer branch office of associate chief_counsel _________________________ leslie h finlow passthroughs special industries enclosure copy for sec_6110 purposes cc