t c memo united_states tax_court daryl ragsdale petitioner v commissioner of internal revenue respondent docket no 14004-16l filed date steven r mather and lydia b turanchik for petitioner halvor r melom for respondent memorandum findings_of_fact and opinion ashford judge petitioner commenced this collection_due_process cdp case pursuant to sec_6330 in response to a determination by the 1unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times some monetary amounts are rounded to the nearest dollar internal_revenue_service irs office of appeals appeals to uphold a proposed levy on petitioner’s property relating to his unpaid federal_income_tax liabilities for the and taxable years years at issue the issue for decision is whether appeals abused its discretion in sustaining the proposed collection action findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference petitioner resided in california at the time the petition was filed with the court i criminal judgment and restitution on date petitioner pleaded guilty to one count of income_tax evasion under sec_7201 and one count of mail fraud under u s c sec_1341 the basis for petitioner’s income_tax evasion conviction was that during and he operated a telemarketing business and used nominees including corporate entities that he created and controlled to conceal from the irs his taxable_income in the form of commissions from this business used the nominee entities to pay his personal expenses directly so as to conceal his receipt of taxable_income concealed his interest in one of the corporate entities by incorporating it in nevada and using an unrelated nominee individual to serve as corporate officer and as signatory on the bank account and failed to prepare forms 1099-misc miscellaneous income reporting his income from those nominee entities so that the irs would be unaware of his income the basis for petitioner’s mail fraud conviction was that he signed and submitted a uniform residential_loan application to a mortgage_lender that significantly inflated his gross monthly income to ensure that he would obtain the loan as part of his guilty plea petitioner agreed that the amount of tax loss associated with the income_tax evasion count was dollar_figure and that the amount of the tax loss associated with the mail fraud count was zero he further agreed to pay restitution to the irs of dollar_figure for and he also agreed to cooperate fully with the irs in its ascertainment computation and payment of his correct federal_income_tax liabilities for to the present on date the u s district_court for the southern district of california filed a judgment in petitioner’s criminal case in which it sentenced petitioner to three years of probation conditioning the probation on among other things petitioner’s paying all back tax for and including penalties and interest the district_court also ordered petitioner to pay restitution of dollar_figure to the irs payable forthwith or at the rate of dollar_figure per month ii petitioner’s underlying tax_liabilities for the years at issue petitioner did not file a federal_income_tax return and did not make any federal tax_payments for accordingly the irs prepared a substitute for return for petitioner for pursuant to sec_6020 on date on date the irs assessed against petitioner for additional tax of dollar_figure a penalty for fraud of dollar_figure a penalty for filing tax_return after the due_date of dollar_figure a penalty for late payment of tax of dollar_figure and interest for late payment of tax of dollar_figure and notified him of these assessments petitioner timely filed his federal_income_tax return reporting tax due of dollar_figure as part of his plea he admitted that this return was materially false in that he failed to report dollar_figure in taxable_income attributable to his telemarketing activities in on date the irs assessed against petitioner for additional tax of dollar_figure a penalty for fraud of dollar_figure a penalty for late payment of tax of dollar_figure and interest for late payment of tax of dollar_figure and notified him of these assessments petitioner timely filed hi sec_2012 federal_income_tax return reporting tax due of dollar_figure petitioner did not withhold sufficient funds to pay the reported tax due and did not remit payment for this self-reported liability when he filed this return on date the irs assessed against him for the reported tax due a penalty for late payment of tax of dollar_figure and interest for late payment of tax of dollar_figure and notified him of these assessments iii irs’ collection action the irs sent petitioner a letter final notice--notice of intent to levy and notice of your right to a hearing dated date levy notice the levy notice advised him that the irs intended to levy to collect his outstanding liabilities for the years at issue which through the date of the levy notice totaled dollar_figure and that he had a right to appeal the proposed collection action in response to the levy notice petitioner timely submitted form request for a collection_due_process or equivalent_hearing cdp hearing request the cdp hearing request did not challenge the underlying liabilities but did request the collection alternatives of an installment_agreement an offer-in- compromise and i cannot pay balance and further requested that a cdp hearing be held with petitioner’s authorized representative as the reason for the cdp hearing request the form stated i request an appeals hearing to allow additional time to prepare determine and discuss my eligibility for an offer-in-compromise or an installment_plan with an appeals officer due to the birth of my daughter on date my need to prepare and file my tax_return my need to determine the source of funds for a suitable offer and my ongoing work needs a representative from appeals acknowledged receipt of petitioner’s cdp hearing request by letter to petitioner dated date with a copy to his authorized representative at the time and the request was assigned to settlement officer theresa m amper so amper on date so amper sent petitioner a letter with a copy to his authorized representative in which she scheduled a telephone hearing on date she also indicated that the scheduled hearing was his opportunity to discuss with her the reasons he disagreed with the proposed collection action or to discuss collection alternatives in the letter she outlined the issues she had to consider during the hearing and informed petitioner that in order for her to consider collection alternatives such as an installment_agreement or offer-in-compromise he needed to submit to her by date a completed form 433-a collection information statement for wage earners and self-employed individuals and proof that estimated_tax payments are paid in full for the year to date on date petitioner’s authorized representative called so amper requesting that the telephone hearing be rescheduled to date so amper agreed to the request and by letter to petitioner with a copy to his authorized representative dated date she advised him of the rescheduled hearing date and requested that he provide the information she had requested in her date letter on or before date in response to so amper’s date letter petitioner’s authorized representative sent her a letter dated date enclosing two completed forms 433-a one for petitioner and one for petitioner’s wife together with supporting documentation and a copy of petitioner and his wife’s prenuptial agreement date materials on date so amper reviewed the date materials on the basis of her review she noted the existence of a potential community_property issue on date so amper called petitioner’s authorized representative and left him a voicemail message informing him that the hearing scheduled for that day was canceled and that petitioner’s cdp hearing request would be assigned to a senior settlement officer later that same day so amper separately spoke via telephone to petitioner and to his authorized representative during his conversation with so amper petitioner’s authorized representative asked her whether the irs would accept an offer-in-compromise if there was no community_property issue so amper responded that she did not know the offer-in- compromise would need to be handled by the brookhaven irs centralized offer in compromise unit irs coic unit during petitioner’s conversation with so amper he expressed concern regarding the reassignment of his cdp hearing request to another settlement officer all he wished to do was to settle his outstanding liabilities so amper informed him that his cdp hearing request would be transferred to another settlement officer in her office and that he could still send his offer-in-compromise to her petitioner also expressed concern that a notice_of_federal_tax_lien would be filed so amper told him that a notice_of_federal_tax_lien had already been filed in date2 but that no levy would occur while his cdp hearing request was pending with appeals petitioner also stated to so amper that he did not know when and why the liabilities for the tax years at issue were assessed so amper explained what the irs records showed including that he had agreed to the assessment of the and liabilities and offered to send him a copy of these irs records later that day she sent petitioner a letter with a copy to his authorized representative enclosing copies of these irs records she also enclosed form_656 offer_in_compromise and requested that he submit to her a completed form_656 by date 2petitioner claims to not have received notification of the lien filing this is of no consequence to this case petitioner’s cdp hearing request was reassigned to settlement officer deborah cartwright so cartwright and on date she sent petitioner a letter with a copy to his authorized representative in which she scheduled a telephone hearing on date her letter just like so amper’s date letter indicated that this scheduled hearing was his opportunity to discuss with her the reasons he disagreed with the proposed collection action or to discuss collection alternatives and outlined the issues that she had to consider during the hearing so cartwright also requested that petitioner provide his proposal to resolve his liability on date so cartwright received a completed form_656 from petitioner in which he proposed to pay dollar_figure to satisfy his federal_income_tax liabilities for the years at issue and payable in monthly installments of dollar_figure per month for months oic as the reason for the oic petitioner checked the box on the form indicating doubt as to collectibility he also indicated on the form that he would obtain the funds to pay for the offer from hi sec_3when she sent this letter she was known as deborah conley her name later changed to deborah cartwright during the pendency of petitioner’s cdp hearing request for clarity we will throughout this opinion refer to her as so cartwright 4petitioner’ sec_2013 liability is not at issue in this case ira retirement savings on date the irs coic unit received form 433-a oic collection information statement for wage earners and self-employed individuals with supporting documents from petitioner by letter to petitioner with a copy to his authorized representative dated date a representative from the irs coic unit acknowledged receipt of his oic and informed him among other things that he would be contacted by date on date while petitioner’s oic was being considered he and so cartwright spoke by telephone petitioner asked about the date telephone hearing and elected to have the hearing while then speaking to her they discussed the appeals process with respect to petitioner’s cdp hearing request including petitioner’s filing another cdp hearing request if he had issues with the lien filing and his right to contest appeals’ determination in the tax_court so cartwright also explained the offer process to petitioner 5before this conversation petitioner and so cartwright had a telephone conversation on date during which he told her that he no longer had an authorized representative 6so cartwright’s case activity notes state petitioner asked about the hearing on he decided to go ahead with hearing now as he filed on sic oic as his collection alternative on date so cartwright checked on the status of petitioner’s oic it had been sent to a unit in sacramento california sacramento unit because petitioner was still paying restitution by letter to petitioner dated date a representative from the sacramento unit informed him that his oic had been transferred to that unit and that it might take up to days before he was contacted offer specialist b roldan os roldan of the sacramento unit was assigned to evaluate petitioner’s oic in evaluating petitioner’s oic os roldan generated an income expense table iet and an asset equity table aet based upon petitioner’s form 433-a oic the national and local expense standards for necessary living_expenses petitioner’ sec_2015 information returns processing transcript request printout and petitioner’s filed federal_income_tax return os roldan used the iet and the aet to calculate petitioner’s ability to pay his outstanding federal_income_tax liabilities for the years at issue through an installment_agreement and his reasonable collection potential rcp 7by letter to petitioner dated date the same representative from the sacramento unit who informed him that his oic had been transferred to that unit informed him that his oic had been assigned to os roldan this letter also indicated that it might take up to days before he was contacted the aet revealed that petitioner had realizable net equity in assets totaling dollar_figure the iet revealed that petitioner’s total monthly income and total monthly allowable living_expenses were dollar_figure and dollar_figure respectively the iet thus also should have revealed that the projected amount petitioner could pay to satisfy his outstanding federal_income_tax liabilities for the years at issue was dollar_figure the difference between petitioner’s total monthly income and total allowable expenses dollar_figure multiplied by the months remaining under the collection statute however the iet erroneously indicated that the projected amount petitioner could pay was dollar_figure because os roldan erroneously multiplied by petitioner’s total allowable monthly living_expenses dollar_figure rather than the difference between his total monthly income and total allowable expenses dollar_figure she therefore concluded that his oic should be rejected because he could fully pay his outstanding liabilities for the years at issue over time the irs records at that time indicated that petitioner owed dollar_figure for the years at issue and on the basis of the aet and the iet petitioner’s rcp was dollar_figure dollar_figure plus dollar_figure on date os roldan and petitioner spoke by telephone os roldan reviewed the aet and the iet with petitioner and explained that his oic could not be recommended for acceptance because he had the ability to fully pay his outstanding liabilities for the years at issue she also answered questions pertaining to the application of the collection statute to his case in response petitioner stated that he could not afford to make monthly payments of dollar_figure as he could barely afford to make the monthly payment amount he proposed in his oic os roldan informed him that her recommendation to reject his oic would be forwarded to appeals after reviewing the recommendation and the financial information so cartwright informed petitioner by letter dated date that the sacramento unit had made a preliminary decision to reject his oic she also requested that he submit to her any other offers of collection alternatives by date she further informed him that i f appeals does not hear from you by date a recommendation will be made based on the administrative file and a closing letter issued on date petitioner called so cartwright and left a voicemail requesting a two-week extension in order to retain legal counsel so cartwright considered but ultimately denied the request in denying the request she took into account the length of time petitioner had been aware of and working towards a resolution with appeals he had submitted his oic nearly two years ago at that point and thus had had ample time to retain legal counsel she also took into account the fact that his oic did not offer to pay the full restitution amount ordered by the district_court a requirement for acceptance pursuant to internal_revenue_manual irm pt date finally she took into account the fact that he had the ability to fully pay his outstanding liabilities for the years at issue and there were no special circumstances to deviate from that on date so cartwright and petitioner spoke by telephone during the telephone call petitioner reiterated that he would like additional time to hire a lawyer so cartwright responded that she would not give him an extension of time to hire legal counsel but she was willing to discuss the issues pertaining to his oic at that time in reply petitioner voiced concern that os roldan’s ability to pay calculations were wrong because the income calculation included bonuses which were not guaranteed in the future and an individual_retirement_account that no longer had funds so cartwright began to discuss those issues with petitioner but he refused to continue the conversation until he hired legal counsel she also advised him that he had the option to file another offer-in-compromise if he wished petitioner did not provide any other documents to so cartwright by the date deadline she then proceeded to prepare a letter notice_of_determination concerning collection action s under section and or sec_6330 notice_of_determination there having been no further response from petitioner on date appeals issued the notice_of_determination to him the notice_of_determination rejected his oic and sustained the proposed levy for the years at issue a summary detailing the matters considered by appeals and its conclusions was attached to the notice_of_determination and included the following explanations brief background appeals received the offer back on date with the recommendation to reject the offer as the financial information indicated the taxpayer could full pay the liability i reviewed the offer rejection recommendation and the financial information and rejection of the offer appears to be correct as the financial information indicates that more could be paid than offered i mailed the taxpayer a letter dated may sic requesting a collection alternative or any questions a response was due to appeals by date the taxpayer called on date and requested a two week extension in order to retain counsel and get legal advice on the case i considered the request and considered several issues that were pertinent the first issue was the length of time the taxpayer was aware of and working toward a resolution with appeals the taxpayer filed the oic in august of nearly two years ago sic as the alternative to the collection action of the filing of the nftl during this time the taxpayer had ample time to retain counsel given the deadline of date sic the taxpayer also had sufficient time to retain counsel the deadline did not prevent them from doing so therefore i decided not to extend the deadline for another two weeks as this appeared to be simply a delay tactic another issued i considered was that the oic did not offer to pay the restitution amount that was the result of conviction for tax_fraud which is a requirement per irm based on this irm the service is prohibited from accepting an oic that fails to offer full payment of the restitution the taxpayer owes over dollar_figure in restitution and the oic was for dollar_figure the two week extension requested by the taxpayer would not have influenced this basic flaw in the taxpayer’s oic request the third issue i considered in deciding not to allow the taxpayer another two weeks extension of the may deadline was the evaluation provided by compliance indicated the taxpayer has the assets and income sufficient to full pay the liability which also makes them ineligible for oic consideration unless special circumstances exists no special circumstances were ever listed or provided the taxpayer was provided the date sic deadline to give some other alternative to the oic so i could consider the merits of any new proposals had the taxpayer provided some alternative and asked for additional time to perfect the request my decision to provide them additional time very well may have been different the taxpayer was advised that no extension was being given and the requirements for them to provide alternatives other than the oic by date still stood legal and administrative review i deborah j cartwright verified the requirements of any applicable law or administrative procedure were met irs records confirmed the proper issuance of the notice_and_demand notice_of_intent_to_levy and or notice_of_federal_tax_lien nftl filing and notice of a right to a collection_due_process cdp hearing issues you raised the form requested an installment_agreement offer_in_compromise and can’t pay as collection alternatives appeals analysis of the issues raised installment_agreement the taxpayer was given an opportunity to provide details of his installment_agreement proposal but he didn’t provide any specific details of his proposal can’t pay the financial information provided does not support a recommendation of currently non collectible offer_in_compromise the taxpayer submitted an offer_in_compromise that was considered by an offer specialist and their recommendation was that the taxpayer had the ability to full pay the balance due the income expense and asset equity tables are attached to this document i sent the taxpayer a letter dated date requesting a collection alternative or questions the taxpayer contacted appeals on date and left a voice mail message i contacted the taxpayer on date and he requested a two week extension in order to seek legal advice appeals did not agree to the extension as it appeared to be solely a request to delay collection i was prepared to discuss the taxpayer’s issues but the taxpayer did not want to proceed collection alternatives requested you offered no viable alternatives to collection challenges to the liability you did not dispute your liability you raised no other issues balancing analysis i balanced the competing interests when finding the notice_of_intent_to_levy is appropriate the taxpayer did not offer any viable collection alternatives during the cdp hearing process given the taxpayer’s failure to propose any viable collection alternatives the notice_of_intent_to_levy balances the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary on date petitioner timely filed a petition with this court for review of the notice_of_determination opinion i general legal principles a cdp review procedure for a proposed levy under sec_6331 if any person liable to pay any_tax neglects or refuses to do so after notice_and_demand the commissioner is authorized to collect the unpaid amount by way of a levy upon all property and rights to property belonging to such person or upon which there is a lien pursuant to sec_6330 the commissioner must provide the person with written notice of an opportunity for an administrative hearing to review the proposed levy if an administrative hearing is requested in a levy case the hearing is to be conducted by appeals sec_6330 at the hearing the appeals officer conducting it must obtain verification that the requirements of applicable law and administrative procedure have been met sec_6330 the taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the proposed collection action including spousal defenses challenges to the appropriateness of the proposed collection action and collection alternatives such as an offer-in-compromise sec_6330 following the hearing the appeals officer must determine among other things whether the proposed collection action is appropriate in reaching the determination the appeals officer must take into consideration whether the requirements of applicable law and administrative procedure have been met all relevant issues raised by the taxpayer including offers of collection alternatives such as an offer-in- compromise and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that collection be no more intrusive than necessary sec_6330 see also 117_tc_183 b standard of review sec_6330 grants this court jurisdiction to review the determination made by appeals in a cdp case if the taxpayer files a timely petition for such judicial review the applicable standard of review depends on whether the underlying tax_liability is at issue where the taxpayer’s underlying tax_liability is properly at issue the court reviews the liability determination de novo 114_tc_176 the court reviews administrative determinations made by appeals regarding nonliability issues for abuse_of_discretion 114_tc_604 although in his petition filed with the court petitioner appears to challenge his underlying tax_liabilities for the years at issue he never raised the issue of his underlying liabilities before appeals our review of appeals’ determination under sec_6330 is limited to the issues that a taxpayer raises before appeals 129_tc_107 see also sec_301_6330-1 q a-f3 proced admin regs but see 131_tc_197 holding that the court may however review whether an appeals officer met the verification requirements prescribed in sec_6330 without regard to whether the taxpayer advanced that issue at the cdp hearing supplemented by 136_tc_463 thus petitioner’s underlying liabilities for the years at issue are not properly before the court and we will review appeals’ determination sustaining the proposed levy for abuse_of_discretion that is whether the determination was arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir sego v commissioner t c pincite goza v commissioner t c pincite we do not conduct an independent review and substitute our own judgment for that of appeals murphy v commissioner t c pincite c scope of review in nonliability cdp cases that are appealable to the u s court_of_appeals for the ninth circuit such as this case see sec_7482 the scope of our review is generally limited to the administrative record see 568_f3d_710 9th cir adopting 439_f3d_455 8th cir rev’g 123_tc_85 aff’g in part as to this issue tcmemo_2006_166 and aff’g in part vacating in part decisions in related cases this is known as the administrative record rule sec_301_6330-1 q a-f4 proced admin regs defines the administrative record as appeals’ case file including any documents or materials relied upon by the appeals officer in making the determination under sec_6330 8even if petitioner’s underlying liabilities for the years at issue were properly before this court he conceded on the record at trial that he did not challenge his underlying liabilities petitioner acknowledges that keller is applicable here nevertheless he contends that the court should have admitted into evidence several exhibits exhibits 41-p through 44-p for purposes of supplementing clarifying and completing the administrative record the court_of_appeals has crafted four narrow exceptions to the administrative record rule those exceptions are if admission is necessary to determine ‘whether the agency has considered all relevant factors and has explained its decision ’ if ‘the agency has relied on documents not in the record ’ ‘when supplementing the record is necessary to explain technical terms or complex subject matter ’ or ‘when plaintiffs make a showing of agency bad faith ’ 395_f3d_1019 9th cir quoting sw ctr for biological diversity v u s forest serv 100_f3d_1443 9th cir see also meyer v commissioner tcmemo_2013_268 at n recognizing these exceptions in the context of review under sec_6330 petitioner has failed to show how the excluded exhibits fall within any of these narrowly construed exceptions the evidence is therefore unnecessary and inappropriate for this case ii analysis the record shows that so cartwright verified that the applicable legal and administrative procedural requirements were met and petitioner does not contend that so cartwright failed to balance the need for efficient tax_administration with the intrusiveness of collection for him petitioner does contend however that appeals’ determination to reject his oic and sustain the proposed levy was an abuse_of_discretion because he was not afforded a cdp hearing and the opportunity to provide input during the administrative process after he submitted his cdp hearing request and blatant errors were committed in evaluating and ultimately rejecting his oic we address each contention in turn a cdp hearing petitioner contends that no cdp hearing took place cdp hearings have historically been conducted informally 115_tc_35 to that end t he formal hearing procedures required under the administrative_procedure_act u s c et seq do not apply to cdp hearings a cdp hearing may but is not required to consist of a face-to-face meeting one or more written or oral communications between an appeals officer_or_employee and the taxpayer or the taxpayer’s representative or some combination thereof sec_301_6330-1 a-d6 proced admin regs the administrative record reflects that so amper so cartwright and os roldan discussed petitioner’s cdp hearing request with him or his authorized representative by telephone on several occasions in particular on september petitioner and so cartwright spoke by telephone and during this call petitioner agreed to go ahead with the hearing now instead of waiting for the cdp telephone hearing that so cartwright had scheduled for date in addition on date petitioner and os roldan had a telephone conversation during which os roldan explained her recommendation to reject his oic then on date after receiving os roldan’s recommendation reviewing it and the financial information and informing petitioner of the preliminary decision by letter dated date petitioner and so cartwright had a telephone conversation during which so cartwright attempted to discuss the issues pertaining to his oic these oral communications collectively constitute petitioner’s cdp hearing accordingly petitioner’s contention that no cdp hearing occurred here is without merit petitioner further contends that he was not afforded a fair hearing because he did not have the opportunity to provide input during the cdp process particularly with respect to the evaluation of his oic sec_6330 provides that upon written request a taxpayer has a right to a f air h earing which consists of the following four elements an impartial officer will conduct the hearing that officer will verify that the requirements of applicable law and administrative procedure have been met certain issues may be heard such as offers of collection alternatives and a challenge to the underlying tax_liability may be raised only if the taxpayer did not receive a notice_of_deficiency with respect to the liability or did not otherwise have an earlier opportunity to dispute the liability see sec_6330 and c vossbrinck v commissioner tcmemo_2002_96 the administrative record shows that multiple packages of documents were submitted to appeals by petitioner or on his behalf during the cdp process and he and or his authorized representative had several telephone conversations with irs representatives ie so amper os roldan and so cartwright regarding these documents indeed petitioner’s final telephone conversation regarding his cdp hearing request was with so cartwright on date during this conversation she attempted to discuss the issues pertaining to his oic including his ability to fully pay his outstanding liabilities for the years at issue but he refused instead he insisted on an extension of time to hire legal counsel 9petitioner complains that so cartwright refused a reasonable request for a short extension of time so cartwright denied petitioner’s request for a two-week extension of time for three reasons petitioner could have retained legal counsel while his oic was under consideration hiring legal counsel would not have changed the fact that his oic did not meet the restitution requirements under irm pt date and petitioner had the ability to fully pay his outstanding liabilities for the years at issue the administrative record shows that petitioner had an authorized representative at the outset of the cdp process continued accordingly contrary to petitioner’s contention he was offered the opportunity to provide input during the cdp process and in fact provided input the consideration of petitioner’s cdp hearing request satisfied the elements of a fair hearing under sec_6330 b rejection of the oic sec_7122 authorizes the commissioner to compromise a taxpayer’s federal_income_tax liability pursuant to sec_7122 the commissioner has prescribed guidelines for evaluating whether an offer-in-compromise is adequate and should be accepted see sec_301_7122-1 proced admin regs under these guidelines there are three grounds for compromise doubt as to liability continued but dismissed that representative during the process furthermore petitioner discussed os roldan’s recommendation to reject his oic with os roldan six days before so cartwright’s date letter informing him of the preliminary decision to reject his oic he could have sought legal counsel during that time he also had an additional days from the date of the date letter to the date deadline so cartwright gave him before closing the case in which he could have sought legal counsel this court has consistently held that appeals is not required to negotiate indefinitely or wait any specific amount of time before issuing a notice_of_determination see eg gazi v commissioner tcmemo_2007_342 slip op pincite there is no requirement that the commissioner wait a certain amount of time before making a determination as to a proposed levy clawson v commissioner tcmemo_2004_106 slip op pincite t here is neither requirement nor reason that the appeals officer wait a certain amount of time before rendering his determination see also sec_301_6330-1 q a-e9 proced admin regs the denial of petitioner’s extension request was reasonable under the circumstances petitioner’s complaint is overblown doubt as to collectibility and promotion of effective tax_administration id on his oic petitioner asserted that he was seeking to compromise his outstanding liabilities for the years at issue on the grounds of doubt as to collectibility doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the liability id subpara generally under the irs’ administrative pronouncements an offer-in-compromise on the grounds of doubt as to collectibility will be acceptable only where it is unlikely that the liability can be collected in full and the offer reflects the taxpayer’s total rcp ie the amount that the irs could collect through other means including administrative and judicial collection remedies revproc_2003_71 sec_4 2003_2_cb_517 irm pt date in some cases the irs may accept an offer of less than the total rcp if there are special circumstances revproc_2003_71 sec_4 c b pincite irm pt date petitioner does not contend that special circumstances exist the decision to entertain accept or reject an offer_in_compromise is squarely within the discretion of the appeals officer and the irs in general 454_f3d_688 7th cir as noted supra p we do not substitute our judgment for that of appeals and decide whether in our opinion petitioner’s oic should have been accepted or what would be an acceptable alternative murphy v commissioner t c pincite ramdas v commissioner tcmemo_2013_104 at if appeals follows all statutory and administrative guidelines and provides a reasoned balanced decision we will not reweigh the equities 140_tc_173 in support of his position that blatant errors were made in evaluating and ultimately rejecting his oic petitioner asserts that os roldan incorrectly analyzed his ability to pay as reflected in the financial information he submitted to appeals and accordingly his total rcp and so cartwright incorrectly determined that his oic must provide for full payment of his criminal restitution amount ability to pay and rcp this court has generally held that there is no abuse_of_discretion when an appeals officer relies on guidelines published in the irm to evaluate a proposed collection alternative such as an offer-in-compromise see eg 123_tc_1 aff’d 412_f3d_819 7th cir tillery v commissioner tcmemo_2015_170 at arede v commissioner tcmemo_2014_29 at aldridge v commissioner tcmemo_2009_276 slip op pincite when a collection alternative is at issue irm pt date directs an appeals officer to the appropriate irm sections containing the administrative policies and procedures relating to that alternative as relevant here irm pt date governs offer-in- compromise acceptance and rejection determinations and irm pt date financial analysis handbook provides instructions for securing verifying and analyzing financial information of a taxpayer for purposes of determining a taxpayer’s ability to pay his outstanding tax_liabilities irm pt date states that the decision to accept or reject an offer-in-compromise on the grounds of doubt as to collectibility usually rests on whether the amount offered reflects the reasonable collection potential rcp rcp is generally calculated by multiplying a taxpayer’s monthly income available to pay taxes by the number of months remaining in the statutory period for collection see sec_6502 and adding to that product the realizable net equity in the taxpayer’s assets ramdas v commissioner at additionally irm pt prescribes that absent special circumstances an offer-in-compromise on the grounds of doubt as to collectibility should not be accepted where the outstanding liability can be paid in full as a lump sum or under current installment agreement guidelines under installment_agreement guidelines an installment_agreement must reflect the taxpayer’s ability to pay on a monthly basis throughout the duration of the agreement and the primary source of information an appeals officer is to consider in accepting or rejecting a proposed agreement is the financial information provided by the taxpayer on a collection information statement ie a form 433-a along with supporting documentation irm pt date likewise irm date advises an appeals officer that a thorough verification of the taxpayer’s form 433-a involves reviewing taxpayer submitted documentation and information available from internal sources and that a s a general_rule additional documentation should not be requested when the information is readily available from internal sources or it would not change the recommendation the financial analysis handbook directs an appeals officer to a nalyze the income and expenses reflected on form 433-a to determine the amount of disposable income gross_income less all allowable expenses available to apply to the tax_liability irm pt date irm pt dollar_figure date instructs an appeals officer to use the taxpayer’s current income to calculate future income unless there are facts and circumstances that may warrant placing a different value according to the financial analysis handbook allowable expenses include those expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and or production_of_income or otherwise allowable based on the circumstances of an individual case irm pt date an appeals officer is advised to use the national and local expense standards as guidelines for allowable living_expenses and not simply rely on the living_expenses reported on a taxpayer’s form 433-a irm pt and date irm pt see also perrin v commissioner tcmemo_2012_22 slip op pincite the use of local and national standards is expressly authorized by congress and does not constitute an abuse_of_discretion even if it forces a taxpayer to change his lifestyle aldridge v commissioner slip op pincite the taxpayer has the burden of providing information to justify a departure from the local standards citing lindley v commissioner tcmemo_2006_229 aff’d in part sub nom keller v commissioner f 3d on the basis of the foregoing os roldan generated an iet and an aet determining petitioner’s ability to pay his outstanding liabilities for the years at issue through an installment_agreement and his rcp os roldan determined petitioner’s ability to pay to be dollar_figure and his realizable net equity in assets to be dollar_figure os roldan therefore determined petitioner’s rcp to be dollar_figure dollar_figure plus dollar_figure consequently she concluded that petitioner’s oic should be rejected because petitioner had the ability to fully pay his outstanding liabilities for the years at issue through an installment_agreement and his rcp exceeded the offer although as we discuss below one of os roldan’s calculations contained an error we find no fault in her overarching conclusion see ramdas v commissioner at an appeals officer does not abuse his discretion when he rejects an oic because the taxpayer’s ability to pay is greater than the amount he proposes to pay under the compromise proposal citing 447_f3d_706 9th cir aff’g t c memo any suggestion by petitioner that os roldan should have reached a different conclusion on the basis of the financial information submitted is without merit petitioner asserts that os roldan’s ability to pay calculation was incorrect resulting in a flawed recommendation to be sure she erroneously calculated the amount he could pay over time and ultimately his rcp by using his monthly allowable expenses dollar_figure instead of the difference between his monthly income and his monthly allowable expenses dollar_figure however we agree with respondent that this calculation error was harmless we have previously found that errors calculating rcp do not amount to abuse_of_discretion when the taxpayer’s offer was less than the correctly calculated rcp see eg titsworth v commissioner tcmemo_2012_12 slip op pincite and cases cited thereat see also 436_fedappx_791 9th cir finding that appeals’ mistakes when calculating taxpayers’ necessary living_expenses were harmless because the commissioner of internal revenue corrected the mistakes in the tax_court and showed that with the corrections the offer was still far below their reasonable collection potential aff’g tcmemo_2008_281 here even when os roldan’s error is corrected petitioner’s rcp still well exceeds his oic of dollar_figure his oic accordingly warranted rejection on this basis restitution petitioner also contends that his restitution obligation is irrelevant to his oic and that therefore so cartwright erred in determining that his oic was not acceptable because it did not provide for full payment of that obligation the irs guidelines however are clear when a taxpayer seeks to compromise taxes penalties and interest for the same tax periods for which restitution was ordered the offer must provide for full payment of the restitution amount and cannot modify or be inconsistent with the restitution order irm pt dec 10petitioner’s rcp as corrected is dollar_figure irm pt by his oic petitioner sought to compromise his liabilities for the years covered by the criminal restitution the district_court ordered him to pay his oic did not provide for full payment of this restitution petitioner’s oic accordingly warranted rejection on this basis as well see rebuck v commissioner tcmemo_2016_3 at rejecting an offer-in- compromise that fails to provide for full payment of criminal restitution is not an abuse_of_discretion c other offers of collection alternatives in addition to requesting an offer-in-compromise petitioner also indicated in his cdp hearing request that he was requesting an installment_agreement and i cannot pay balance the administrative record shows that he did not pursue an installment_agreement beyond his initial cdp hearing request it is not an abuse_of_discretion for an appeals officer to sustain a proposed collection action and not consider collection alternatives when the taxpayer has proposed none 124_tc_69 o’neil v commissioner tcmemo_2009_183 finding that the taxpayer discussed an offer-in-compromise with settlement officer on multiple occasions but failed to submit one in writing see also sec_301_7122-1 proced admin regs requiring that offer must be made in writing and must contain all the information requested by the irs as far as petitioner’s not being able to pay his balance and thus presumably seeking for his accounts for the years at issue to be placed in currently not collectible status as we have discussed supra petitioner had the ability to pay his outstanding liabilities for the years at issue accordingly it was appropriate for so cartwright to conclude as the notice_of_determination reflects that petitioner was not eligible for either collection alternative iii conclusion in the light of the above the court finds that appeals did not abuse its discretion in rejecting petitioner’s oic and sustaining the proposed levy for the years at issue the administrative record shows that so cartwright verified that all legal and procedural requirements had been met considered all issues petitioner raised and determined that the proposed collection action appropriately balanced the need for the efficient collection_of_taxes with the legitimate concern of petitioner that the collection action be no more intrusive than necessary petitioner is of course free to continue to negotiate with the irs concerning his liabilities for the years at issue but he is entitled to only one cdp hearing and tax_court proceeding with respect to the proposed levy see perrin v commissioner slip op pincite we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or meritless to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court rose m munoz petitioner v commissioner of internal revenue respondent docket no 7518-05s filed date rose m munoz pro_se vivian n rodriguez for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code as in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined for a deficiency in petitioner’s federal_income_tax of dollar_figure after concessions the issues for decision are whether petitioner received unreported nonemployee compensation of dollar_figure and whether petitioner worked as an independent_contractor subject_to self-employment_tax background the stipulated facts and exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in miami florida petitioner is a native spanish speaker who does not speak or understand english her daughter acted as her interpreter at trial during petitioner worked as an independent_contractor doing packing work for selected trading corporation stc petitioner’s job involved opening boxes containing the items packaging them sealing them into bags and then putting a price on them petitioner packaged items such as hair accessories and she was paid on a piecework basis 1petitioner concedes her correct filing_status is married_filing_separately she is not entitled to a dependency_exemption deduction and she is not entitled to an earned_income_credit petitioner filed a form_1040 u s individual_income_tax_return on which she reported wages of dollar_figure business income of dollar_figure from stc and adjusted_gross_income of dollar_figure respondent received a form 1099-misc miscellaneous income from advance cargo corporation acc reporting that dollar_figure in nonemployee compensation was paid to petitioner the form 1099-misc bears petitioner’s correct social_security_number but the wrong middle initial on date respondent issued to petitioner a statutory_notice_of_deficiency determining that petitioner had unreported nonemployee compensation of dollar_figure for services rendered to acc discussion the commissioner’s determinations are presumed correct and generally taxpayers bear the burden of proving otherwise rule a 290_us_111 petitioner contends that she did not receive any unreported nonemployee compensation because she has never worked for acc in any capacity she testified that the only job she held in was with stc 2petitioner has not raised the issue of sec_7491 which shifts the burden_of_proof to the commissioner in certain situations this court concludes that sec_7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application respondent contends that petitioner worked as an independent_contractor for acc during and that petitioner received compensation in cash respondent called gabriella olivera olivera owner and president of acc in as a witness olivera’s job was to interact with customers and to oversee the company according to olivera acc is a freight forwarder its business is to load cargo into containers and to ship them to south and central america ninety percent of the cargo shipped by acc was computer parts acc employed both full-time employees and independent contractors in its warehouse the workers were responsible for counting repacking loading and wrapping the computer parts independent contractors were paid in cash and were generally hired during periods of high season to assist with the loading of the containers acc employed between and employees and independent contractors in two people from acc’s administration together with an accountant maintained the books_and_records of acc the accountant prepared and sent out forms 1099-misc for based on information provided by acc during the end of the year olivera testified that because petitioner was paid dollar_figure in cash by acc in acc issued a form 1099-misc to petitioner in in addition to olivera’s testimony and the form 1099-misc for respondent presented a copy of a signed non-employee written contract between petitioner and acc contract in the contract petitioner agreed that she was an independent_contractor for acc and that she was responsible for her estimated federal income and self-employment taxes respondent also presented a fax dated date with petitioner’s notarized signature in which petitioner confirmed that she received a form 1099-misc for from acc and that she worked at acc in at trial petitioner testified that she did not work for acc claiming that her social_security_number was stolen and that her identity was used by someone else who worked at acc petitioner argued that the name on the form 1099-misc rosemary d munoz was incorrect petitioner’s name is rose mary munoz while rosemary d munoz was her daughter the court finds that is likely to be a clerical_error rather than an indication of identity theft after respondent notified petitioner of the unreported income petitioner granted several individuals including an orlando rego rego powers of attorney to help investigate the alleged identity theft petitioner testified that rego had her sign some documents but she did not read them because she did not understand english petitioner further testified that rego covered the documents so that the only thing that she saw was a little check mark and the line for her to sign petitioner essentially argues that while the signatures on the contract and the fax are hers as a result of rego’s actions she had no knowledge of the content in either document generally a taxpayer cannot avoid the duty_of filing accurate returns by placing responsibility on an agent 63_tc_149 moreover the court is not required to accept petitioner’s self-serving testimony 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 see transp labor contract leasing inc v commissioner 123_tc_154 to the extent that respondent has the burden of producing information with respect to the form 1099-misc pursuant to sec_6201 respondent has satisfied that burden other evidence weighs in favor of a finding that petitioner was an independent_contractor for acc in in petitioner lived with her teenage daughter and 85-year-old mother petitioner testified that in their income derived primarily from her independent_contractor job at stc with an annual income of dollar_figure and her mother’s social_security income with an annual income of approximately dollar_figure on its face a monthly income of approximately dollar_figure appears insufficient to provide for a family of three in miami moreover the court notes that the type of work in which independent contractors engage at acc is similar to the type of work that petitioner did at stc the court based on all of the evidence presented by petitioner and respondent concludes that petitioner was an independent_contractor for acc in sec_61 defines gross_income for purposes of calculating taxable_income as all income from whatever source derived 348_us_426 sec_1401 imposes a percentage tax on self-employment_income of every individual see 108_tc_130 self-employment_income is defined as the net_earnings_from_self-employment derived by an individual during any taxable_year sec_1402 the term net_earnings_from_self-employment is defined as the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions which are attributable to such trade_or_business sec_1402 petitioner was self-employed as an independent_contractor in accordingly petitioner is liable for self-employment_tax under sec_1401 on the unreported nonemployee compensation received from acc in reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-168321-02 date date legend x date date date date dear this responds to the letter dated date and additional correspondence submitted on behalf of x requesting a ruling under f of the internal_revenue_code facts x was organized in date and elected to be treated as an s_corporation effective date prior to filing the election to be treated as an s_corporation x had one class of common_stock and three classes of preferred_stock prior to date x redeemed all of the outstanding shares of the three classes of preferred_stock in date an attorney for one of x’s shareholders informed x that x’s certificate of incorporation authorized and that x had issued and had outstanding a second class of common_stock that provided different rights upon liquidation than the first class of common_stock on date x’s board_of directors adopted a resolution to amend the certificate of incorporation to eliminate any distinction between the first and second classes of common_stock x and its shareholders then requested inadvertent invalid election relief under f of the code plr-168321-02 x represents that there was no intent to knowingly make an invalid s election and that the events that resulted in the invalid election were not motivated by tax_avoidance or retroactive tax planning x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under a is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in c or an organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides in relevant part that if an election under a by any corporation was not effective for the taxable_year for which made determined without regard to b by reason of a failure to meet the requirements of b or to obtain shareholder consents the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in ineffectiveness steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to f agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the ineffectiveness the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x's invalid subchapter_s_election as described above was inadvertent within the meaning of f therefore x will be treated as an s_corporation from date and thereafter provided that x's s election is not otherwise terminated under d except as specifically set forth above we express no opinion concerning the federal tax consequences of the above-described facts under any other provision of the plr-168321-02 code specifically no opinion is expressed on whether x is otherwise eligible to be treated as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to the taxpayer s david r haglund sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------- ---------------------------------- -------------------------------- ---------------------------------- legend 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 corp plr-128606-10 date january distributing ------------------------------------------------------------ ------------------------------------ controlled ------------------------ ------------------------------------------------------------ company -------------------------------------------------------------------------------------------------- -------------------------------------- shareholder a shareholder b shareholder c shareholder d --------------------------------- ---------------------- -------------------- ----------------------- shareholder e ------------------------------------------------------------------------------------ ---------------------------- shareholder f shareholder g -------------------------- ------------------------ shareholder x -------------------------------------------------------------------------------------------------------------- ------------------------- shareholder y ----------------------- plr-128606-10 shareholder z ----------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- business a ---------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- state x country z date a b c d e f g h ---------- ----------- ---------------------- -- ----------- ---- --------- --------- --------- --------- --------- dear ----------------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transaction defined below the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution defined below i satisfies the business_purpose requirement of sec_1 b of the income_tax regulations ii is being used principally as a device for the distribution of the earnings_and_profits of either distributing or controlled or both see plr-128606-10 a b of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 summary of facts distributing is a closely-held state x corporation that was incorporated on date distributing has always been treated as a subchapter_s_corporation distributing has two classes of stock outstanding class a common_stock and class b common_stock class a and class b have equal rights to operating and liquidating distributions and differ only with respect to vote class a carries a vote per share class b is non-voting distributing has b shares of class a stock and b shares of class b stock outstanding each of which is equally owned by the family a shareholders and the family b shareholders the family a shareholders consist of shareholder a shareholder b shareholder c shareholder d and shareholder e the family b shareholders consist of shareholder x shareholder y and shareholder z distributing is engaged in business a in the united_states the u s business distributing owns all of the stock of controlled a state x corporation for which an election has been made to treat it as a qualified_subchapter_s_subsidiary qsub for federal_income_tax purposes controlled owns a c interest in company a country z entity that is treated as a partnership for u s federal_income_tax purposes company is also engaged in business a the country z business distributing has submitted financial information indicating that the u s business and the country z business has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years significant disagreements have developed between the family a shareholders and the family b shareholders concerning the operation of distributing these disagreements have resulted in an inability to carry on the business effectively and potential litigation accordingly distributing has structured the proposed transaction described below proposed transaction for what is represented to be a valid business_purpose distributing has proposed the following transaction the proposed transaction i distributing will distribute all of the controlled stock to shareholder x and shareholder y in exchange for a portion of their distributing stock of equal value constituting d shares of their class a stock and d shares of their class b stock the distribution plr-128606-10 ii pursuant to sec_1_1361-5 the distribution will cause a termination of controlled’s election to be treated as a qsub with the effect that controlled will be treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the termination from distributing in exchange for controlled stock the contribution the contribution will be deemed to occur immediately before the distribution iii shareholder z will sell his e shares of class a and f shares of class b distributing stock to the family a shareholders shareholder x and shareholder y will sell their remaining g shares of class a and h shares of class b distributing stock to the family a shareholders shareholder f and shareholder g following the proposed transaction the family a shareholders shareholder f and shareholder g will own all of distributing shareholder x and shareholder y will own all of controlled which will elect to be treated as a subchapter_s_corporation shareholder z will no longer own an interest in distributing or controlled representations the following representations are made with regard to the proposed transaction a the indebtedness if any owed by controlled to distributing after the distribution will not constitute stock_or_securities b the fair_market_value of the controlled stock and other consideration to be received by shareholder x and shareholder y will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholder in the exchange c no part of the consideration to be distributed by distributing in the distribution will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing d the five years of financial information submitted for the u s business conducted by distributing is representative of the business's present operation and with regard to this business there have been no substantial operational changes since the date of the last financial statements submitted e the five years of financial information submitted for the country z business conducted by company is representative of the business’s present operation and with regard to this business there have been no substantial operational changes since the date of the last financial statements submitted f neither the u s business nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a plr-128606-10 transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution distributing will have been the principal_owner of the goodwill and significant assets of the u s business and will continue to be the principal_owner following the distribution g neither the country z business nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution company will have been the principal_owner of the goodwill and significant assets of the country z business and will continue to be the principal_owner following the distribution h following the distribution distributing and company the partnership through which controlled will be treated as conducting the country z business will each continue the active_conduct of its business independently and with its separate employees i the distribution is being carried out for the following corporate business_purpose to separate ownership of distributing between the family a shareholders and the family b shareholders so that business can be carried on without conflict the distribution is motivated in whole or substantial part by this corporate business_purpose j the distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both k for purposes of sec_355 immediately after the distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution l for purposes of sec_355 immediately after the distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that either i was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii is received in the distribution to the extent attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution plr-128606-10 m the total adjusted_basis of the assets distributing will transfer to controlled in the contribution will equal or exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in the contribution and ii the amount of any cash and the fair_market_value of any other_property within the meaning of sec_361 received by distributing from controlled in the contribution and transferred to the creditors of distributing pursuant to the plan_of_reorganization n the liabilities assumed within the meaning of sec_357 by controlled in the contribution and the liabilities to which the transferred assets are subject will have been incurred in the ordinary course of business and will be associated with the assets being transferred o the total fair_market_value of the assets distributing will transfer to controlled in the contribution will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in the contribution ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the contribution and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution p distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction q no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution r payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length s no two parties to the transaction are investment companies as defined in sec_368 and iv t the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation u immediately after the transaction as defined in sec_355 either i neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 or no person will hold a 50-percent_or_greater_interest plr-128606-10 within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 who did not hold such an interest in such corporation immediately before the transaction as defined in sec_355 v distributing is an s_corporation within the meaning of sec_1361 immediately following the proposed transaction controlled will be eligible to elect s_corporation status and controlled will elect to be an s_corporation pursuant to sec_1362 there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled rulings based solely on the information submitted and representations made we rule as follows with regard to the proposed transaction the contribution followed by the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal distributing’s basis in that asset immediately before the contribution sec_362 the holding_period of each asset received by controlled in the contribution will include the period distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of shareholder x and shareholder y on the receipt of controlled stock in the distribution sec_355 the aggregate basis of the controlled stock received by shareholder x and shareholder y in the distribution will equal the shareholder’s aggregate basis in the distributing stock surrendered in exchange therefor allocated in the manner described in sec_1_358-2 sec_358 and b the holding_period of the controlled stock received by shareholder x and shareholder y in the distribution will include the period the shareholder held the distributing stock on which the distribution is made provided the shareholder held that plr-128606-10 stock as a capital_asset on the date of the distribution sec_1223 distributing's momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to make a subchapter_s_election under sec_1362 for its first taxable_year provided such election is made effective immediately following the termination of the original qsub election caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular we express no opinion regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is being used principally as a device for the distribution of the earnings_and_profits of either distributing or controlled or both see sec_355 and sec_1_355-2 and iii whether the distribution is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 in addition we express no opinion concerning the tax consequences of step iii of the proposed transaction procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter in accordance with the power_of_attorney on file in this office a copy of this ruling letter is being sent to your authorized representative sincerely ______________________________ richard m heinecke assistant to the branch chief branch office of associate chief_counsel corporate