internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-118387-99 date date legend taxpayer seller seller company plant plant district commission a commission b a b c d this letter responds to your request dated date that we rule on certain tax consequences of the transfer of a portion of the plants from sellers to the taxpayer and the company as set forth below you have requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to the taxpayer and its qualified nuclear decommissioning fund as well as rulings regarding the tax treatment of the transfer of nonqualified funds on the transfer of the plants the taxpayer has represented the following facts and information relating to the ruling_request the taxpayer is an investor owned public_utility and is under the audit jurisdiction of the district_director of district the taxpayer is under the regulatory jurisdiction of commission a commission b and the nuclear regulatory commission prior to the transaction at issue the taxpayer owned an undivided b percent interest in each of the plants on d taxpayer entered into two asset purchase agreements in the first agreement agreement taxpayer and company agreed to purchase from seller a a undivided_interest as tenants in common without the right of plr-118387-99 partition in each of the plants with one-half of the purchased interest being acquired by each purchaser in the second agreement agreement taxpayer and company agreed to purchase from seller a a undivided_interest as tenants in common without the right of partition in each of the plants with one-half of the purchased interest being acquired by each purchaser after these purchases the taxpayer will own a c percent interest in each of the plants taxpayer and company will pay to the sellers cash and will assume all liabilities with respect to decommissioning the transferred interests in the plants with respect to the taxpayer the sellers will transfer their proportionate ownership_interest in the plants nuclear fuel real_property machinery equipment licenses and the assets contained in the sellers’ qualified and nonqualified nuclear decommissioning funds the taxpayer currently maintains qualified and nonqualified nuclear decommissioning funds with respect to its pre-existing ownership_interest in the plants requested ruling neither the taxpayer nor its qualified nuclear decommissioning funds will recognize any gain_or_loss or otherwise take into account any income_or_deduction into account by reason of the transfer of one-half of the assets of the sellers’ qualified nuclear decommissioning funds into the taxpayer’s respective existing qualified funds at closing the taxpayer’s qualified nuclear decommissioning funds will have a basis in the assets received equal to the basis of such assets in the sellers’ funds immediately prior to closing sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified nuclear decommissioning fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides that the rate_of_tax on the income of a qualified nuclear decommissioning fund is percent sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified nuclear decommissioning fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership plr-118387-99 interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified nuclear decommissioning fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a under the specific facts herein these dispositions qualify under the general provisions of sec_1_468a-6 thus under sec_1_468a-6 the taxpayer’s funds will not be disqualified upon the receipt of the sellers’ qualified funds sec_1_468a-6 provides that neither a transferee of an interest in a nuclear power plant nor the transferee’s fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of a sale accordingly neither the taxpayer nor its qualified funds will recognize gain_or_loss or otherwise take into account any income_or_deduction upon the receipt of the qualified nuclear decommissioning funds from the sellers sec_1_468a-6 provides that transfers to which sec_1_468a-6 apply do not affect basis thus the qualified funds in the hands of the taxpayer will have a basis in their assets equal to the basis in their assets immediately prior to the transfer from the sellers requested ruling subsequent to the transfer of one-half of the assets from the sellers’ qualified nuclear decommissioning funds the taxpayer’s existing qualified funds will continue to be treated as qualified nuclear decommissioning funds satisfying plr-118387-99 the requirements of sec_468a and sec_1_468a-5 and the taxpayer will continue to be treated as an eligible_taxpayer and an electing taxpayer with respect to its interests in the plants sec_1_468a-1 defines eligible_taxpayer as any taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 defines in part a qualifying interest to include a direct ownership_interest sec_1_468a-5 sets out the qualification requirements for a qualified nuclear decommissioning fund and sets forth reason for disqualification of a qualified_fund sec_1_468a-6 provides in part that for purposes of sec_468a the transfer of assets from a seller’s qualified_fund to a transferee’s qualified_fund will not constitute a payment or contribution of assets by the transferee to its qualified_fund the taxpayer’s qualified nuclear decommissioning funds qualified under sec_468a prior to their receipt of one-half of the assets of the sellers’ respective qualified funds since as determined above with respect to requested ruling this transaction qualifies for treatment under sec_1_468a-6 the taxpayer’s funds will not be disqualified upon the receipt of the proportionate amount of the sellers’ qualified funds in addition assuming the qualification requirements of sec_1_468a-5 continue to be followed receipt of the proportionate amount of the sellers’ qualified funds under these circumstances will not affect the qualification status of the taxpayer’s existing qualified nuclear decommissioning funds requested ruling in the taxable_year of closing the taxpayer will not currently recognize any gain or otherwise take any income into account by reason of the transfer of one-half the assets of the sellers’ nonqualified nuclear decommissioning funds to the taxpayer’s existing nonqualified nuclear decommissioning funds with respect to the sellers’ transfer of a portion of the plants and associated nonqualified funds to the taxpayer in exchange for consideration and the assumption of the obligation to decommission those portions of the plants taxpayer will not recognize any gain or otherwise take any income into account by reason of the transfer of the nonqualified nuclear decommissioning funds generally a taxpayer does not realize income upon its purchase of a business’ assets even where those assets include cash or marketable_securities and in connection with the purchase the taxpayer assumes liabilities of the seller see 194_f2d_190 2d cir revrul_55_675 1955_2_cb_567 in this case company cannot acquire the taxpayer’s interests in the plants without assuming the associated decommissioning liabilities which are inextricably associated with the ownership and operation of the plants and there is no indication that the transaction is other than a bona_fide purchase of taxpayer’s interests in the plants and the associated assets and liabilities the exception to the general_rule set forth in revrul_71_450 1971_2_cb_78 does not apply in revrul_71_450 unlike the present situation the purchaser agreed to assume the prepaid subscription liability in return for a separate cash payment and the liability was not reflected in the plr-118387-99 sales_price of the business accordingly taxpayer will not realize income from its acquisition of one-half of the sellers’ interests in the plants and in one-half the assets in the non-qualified funds except to the extent that under the rules of sec_1060 the amount of cash and other class_i_assets received by taxpayer not including the assets in the qualified funds surpasses the amount of consideration provided by taxpayer and taken into account in the year of the acquisition further to the extent that taxpayer is entitled to take into account other consideration paid taxpayer will make appropriate adjustments to reflect any income previously recognized by virtue of having acquired class_i_assets in excess of the consideration taken into account in the year of the acquisition see sec_1_1060-1t c 338-6t b and -7t b our conclusion above is conditioned on taxpayer including in basis only the cash paid to sellers and any liabilities that are otherwise incurred for federal_income_tax purposes and allocating this consideration pursuant to the residual_method under sec_1060 and the regulations thereunder pursuant to sec_461 and the regulations thereunder taxpayer will not be entitled to treat as a component of its cost_basis at the time of the closing any amount attributable to the future decommissioning liabilities assumed in the transactions finally sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1_1060-1t a provides that in the case of an applicable_asset_acquisition sellers and purchasers must allocate the consideration under the residual_method as described in sec_1_338-6t and sec_1_338-7t in order to determine respectively the amount_realized from and the basis in each of the transferred assets sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis is determined wholly by reference to the consideration paid for such assets sec_1_1060-1t c defines a seller’s consideration as the amount in the aggregate realized from selling the assets in the applicable_asset_acquisition under sec_1001 sec_1060 provides no independent basis for determining the amount a taxpayer realizes on the sale of assets or the time such amount may be taken into account the amount_realized and the time such amount is taken into account are determined solely under generally applicable tax_accounting principles see sec_1001 and sec_461 the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan associations and other depository institutions class ii generally consisting of actively_traded personal_property like u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not plr-118387-99 actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets class vi all sec_197 intangibles as defined in sec_197 except goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not they qualify as sec_197 intangibles consideration is first reduced by the amount of class_i_assets transferred by the seller the remaining consideration is then allocated among the class_ii_assets pro_rata to the extent of their fair_market_value then among the class_iii_assets pro_rata to the extent of their fair_market_value then among the class_iv_assets pro_rata to the extent of their fair_market_value then among the class_v_assets pro_rata to the extent of their fair_market_value then among the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated among the class_vii_assets pro_rata according to their fair_market_value sec_1 1t c 338-6t b and 338-6t b the following example illustrates the operation of sec_1060 on date1 an applicable_asset_acquisition is made the assets sold consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure and a basis in the hands of the seller of dollar_figure class_iii_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_v_assets with fair_market_value of dollar_figure and a basis of dollar_figure and class_vi_assets with a fair_market_value of dollar_figure and a basis of dollar_figure the consideration consists of dollar_figure cash and an assumed liability of dollar_figure that under applicable tax_accounting principles is taken into account at the time of the applicable_asset_acquisition the consideration will be first reduced by dollar_figure the amount of class_i_assets the remaining consideration will be allocated as follows dollar_figure to class_ii_assets pro_rata according to fair_market_value resulting in a dollar_figure gain dollar_figure to the class_iii_assets pro_rata according to fair_market_value resulting in no gain_or_loss dollar_figure to the class_iv_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain dollar_figure to the class_v_assets pro_rata according to the fair_market_value resulting in no gain_or_loss dollar_figure to the class_vi_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain and the remaining dollar_figure to the class_vii_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain the character of the amounts of gain_or_loss recognized by the seller as well as any applicable holding periods are determined by the nature of the underlying assets sec_1 1t a 1060-1t c and 338-6t if under general tax principles there is a subsequent adjustment to the consideration eg if it is later determined that the actual amount of the liability assumed differs from the value that the parties assigned to such liability on the date of plr-118387-99 the applicable_asset_acquisition that amount is allocated in a manner that produces the same allocation that would have been made at the time of the acquisition had such amount been paid_or_incurred on the acquisition_date sec_1_1060-1t a 1060-1t c and 338-7t with respect to the plant equipment operating_assets and nonqualified nuclear decommissioning fund assets these assets comprise a trade_or_business in sellers’ hands and the basis taxpayer takes in those assets will be determined wholly by reference to taxpayer’s consideration thus sellers’ transfer of plant equipment operating_assets and nonqualified_fund assets to taxpayer in exchange for cash and the assumption of the decommissioning liability except to the extent funded by the qualified_fund is an applicable_asset_acquisition as defined in sec_1060 as such its federal tax treatment is determined under sec_1060 and the regulations thereunder accordingly on the acquisition_date taxpayer’s basis in the assets acquired must be determined by allocating its cost ie the consideration provided by taxpayer on the acquisition_date which includes cash and the issue_price of any notes but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically taxpayer will first reduce its consideration by the amount of class_i_assets it receives in the transaction including any class_i_assets held in the nonqualified_fund to the extent the class_i_assets received exceed taxpayer’s consideration the taxpayer will recognize income to the extent taxpayer’s consideration exceeds the class_i_assets it receives such excess will be allocated to the class_ii_assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value because the combined value of the class i and ii assets will exceed taxpayer’s consideration on the acquisition_date the total amount of consideration to be allocated to the class_ii_assets will be less than their fair_market_value and no consideration will be allocated to assets in classes iii iv v vi or vii when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable assets acquisition eg when and to the extent the non-qualified funds pay or incur decommissioning expenses such amounts will be taken into account as increases to taxpayer’s consideration and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date sec_1_1060-1t a 1060-1t c 338-6t and 338-7t requested ruling pursuant to sec_1_468a-6 the taxpayer will not be required to file a request for a revised schedule of ruling amounts for its original b percent interest in the plants as a result of the purchase of the additional a percent interest and the taxpayer’s current schedule of ruling amounts will not be affected by this purchase sec_1_468a-6 provides rules for the determination of a schedule of ruling amounts for a transferee of an interest in a nuclear power plant these rules provide for the determination of a schedule of ruling amounts for the interest in a nuclear power plant that is transferred the rules do not affect the applicability of an plr-118387-99 existing schedule of ruling amounts as it applies to a portion of a nuclear power plant owned by a transferee prior to an acquisition of an additional portion of a plant accordingly until the occurrence of one of the mandatory review requirements of sec_1_468a-3 the taxpayer will not be required to file a request for a revised schedule of ruling amounts for its original b percent interest in the plants as a result of the purchase of the additional a percent interest nor will taxpayer’s current schedule of ruling amounts be affected by this purchase however with respect to the additional a percent interest in the plants purchased by the taxpayer the rules of 468a-6 e would apply the ruling_amount for the year of acquisition will be the sellers’ ruling_amount adjusted for the amount of the sellers’ interest acquired and percent of the taxable_year remaining after the transaction after the year of acquisition taxpayer would have to apply for a new schedule of ruling amounts with respect to the a percent interest in the plants this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in accordance with the powers of attorney we are sending a copy of this ruling to your authorized representative we are also sending a copy of this letter_ruling to the district_director of district sincerely charles b ramsey chief branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ---------------------------- ------------------------------------ -------------------------------------------- ----------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-148756-10 date date legend distributing ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------- controlled ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- --------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ----------------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ------------------------------------------- ------------------------------------------------- llc ------------------------------------------------------------------------------------ plr-148756-10 ----------------------------------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- -------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ------------------------------------ llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- -------------------------------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ------------------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- --------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- ------------------- llc ------------------------------------------------------------------------------------ ----------------------------------------------------------- --------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------- plr-148756-10 ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------- sub ------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------- shareholder group shareholder a shareholder b shareholder c shareholder d shareholder e --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------- --------------------------------------------------------------------------------- --------------- ----------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------- ----------------------------------- plr-148756-10 business a business b business c business d enhancement mechanic overlapping directors agreements distributing debt revolving credit facility --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------- --------------------------------------------------------------------------------- ------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------- 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--------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------- plr-148756-10 term loans security interests --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------- anticipated term credit rating ----------------------------------------------------------------------------- -------------------------------------- anticipated note credit rating credit rating agency a credit rating agency b definition a definition b other arrangements occurrence a ---------------------------------------------------------------------------- -------------------------------------- ------------------------------------- ------------------------ --------------------------------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------- 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--------------------------------------------------------------------------------- ------------------------ ----- plr-148756-10 b c d e f g h i j k l m n o date date ---- ------------- ------------- --------------------------------- ---------------------- --------------------------------- --------------- ----- ----- ----- ------ ---- ----- ----- -------------------------- -------------------------- dear --------------------- this letter_ruling responds to your date request submitted by your authorized representative for rulings on certain federal_income_tax consequences of the proposed transactions defined below the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support plr-148756-10 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_355-2 ii is being used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 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 the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing is the common parent of an affiliated_group whose includible corporations join in filing a consolidated federal_income_tax return the authorized and outstanding capital stock of distributing consists of two classes of common_stock the distributing class a stock and the distributing class b stock and collectively the distributing common_stock the distributing class a stock is publicly traded and widely held based on publicly available securities information only shareholder a shareholder b shareholder c shareholder d and shareholder e held five percent or more of the distributing class a stock on date shareholder group held all of the distributing class b stock and less than a percent of the distributing class a stock on date distributing believes that shareholder a shareholder b shareholder c and shareholder e are u s persons and that shareholder d is not a u_s_person prior to the proposed transactions i distributing wholly owned llc ii llc wholly owned llc iii llc wholly owned sub sub sub sub sub llc and llc iv sub wholly owned sub and llc v sub wholly owned llc vi llc wholly owned llc vii llc owned b percent of llc and was the managing member of llc viii llc wholly owned llc ix llc wholly owned llc and x sub sub and sub each owned a third of sub as part of the proposed transactions llc formed llc llc llc and llc each of distributing and sub through sub is classified as a corporation for federal_income_tax purposes under sec_301_7701-2 and sec_301_7701-3 each of llc through llc and llc through llc is classified as an entity that is disregarded as separate from its owner for federal_income_tax purposes under sec_301_7701-3 llc is classified as a partnership for federal_income_tax purposes under sec_301_7701-3 distributing and the members of its separate_affiliated_group as defined in sec_355 the distributing sag directly engage in various businesses including plr-148756-10 business a which is a segment of business b financial information has been submitted indicating that business a has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years prior to the contribution as defined below the distributing sag also will have engaged in business c which is a segment of business d after the contribution newly formed controlled and the members of its separate_affiliated_group the controlled sag will engage in business c financial information has been submitted indicating that business c has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transactions distributing has proposed the following series of transactions the proposed transactions some of which have already been completed i ii iii iv v vi vii viii ix llc distributed all of the membership interests of llc to sub sub distributed all of the membership interests of llc to sub sub distributed all of the membership interests of llc to llc the sub distribution llc distributed all of the membership interests of llc to llc llc contributed all of the membership interests of llc to llc llc distributed all of the stock of sub and all of the membership interests of llc and llc to llc and may distribute other assets with insignificant value to llc llc contributed all of the stock of sub and all of the membership interests of llc and llc to llc llc and llc respectively llc distributed a note receivable from llc to llc followed by a contribution of such note by llc to llc sub sub and sub each will declare a distribution of approximately dollar_figurec payable via a note to llc collectively the notes x llc will contribute the notes to sub the sub contribution plr-148756-10 xi llc will contribute all the membership interests of llc to controlled in exchange for a controlled class a stock and controlled class b stock which constitute all of the outstanding_stock of controlled the controlled stock b controlled indebtedness the controlled indebtedness in the amount of as much as dollar_figured and c the potential assumption_of_liabilities not in excess of the adjusted_basis of the contributed assets collectively the contribution xii llc will distribute all of the controlled stock to distributing xiii distributing will distribute all of the controlled class a stock pro_rata to the holders of distributing class a stock with respect to their distributing class a stock and the controlled class b stock pro_rata to the holders of the distributing class b stock with respect to their distributing class b stock the stock_distribution and distributing or llc will exchange the controlled indebtedness for the distributing debt the debt exchange and together with the stock_distribution the distribution following the distribution the overlapping directors will provide services to both distributing and controlled also following the distribution distributing and its affiliates on the one hand and controlled and its affiliates on the other hand will have continuing relationships including those established in connection with the proposed transactions the types of services to be provided are expected to include tax sharing and allocations employee matters agreements and may include certain other continuing agreements the continuing agreements following the effective date of the distribution subject_to market and other conditions distributing may repurchase distributing class a stock in exchange for cash in open market transactions the controlled indebtedness is expected to consist of approximately dollar_figuree of term loans the controlled term loans with a term of f years and approximately dollar_figureg of senior unsecured notes with h year maturities the controlled unsecured notes the controlled term loans will be secured_by the security interests the controlled unsecured notes will be senior unsecured obligations that will rank pari passu with all present and future senior unsecured debt the controlled indebtedness will not contain a sinking_fund provision or a defeasance requirement absent a disposition of a substantial portion of controlled’s assets which is not anticipated the controlled term loans will not be payable before maturity other than the annual payment of i percent of the principal of such loans or through a refinancing with debt that will have a maturity_date no earlier than the original maturity_date of the controlled term loans the controlled unsecured notes will not be redeemable prior to j years from issuance except in the event of a change_of control of controlled in such event it is anticipated that controlled would either be obligated or permitted to offer to redeem at k percent of plr-148756-10 par plus accrued interest to the purchase date any redemption after j years may require a premium payment equal to half the interest rate declining ratably to par during years j through l call_right would be at par during any remaining years the controlled term loans and the controlled unsecured notes initially will have below investment grade credit ratings from credit rating agency a and credit rating agency b specifically the controlled term loans are anticipated to have a credit rating of no greater than the anticipated term_loan credit rating and the controlled unsecured notes are anticipated to have a credit rating of no greater than the anticipated note credit rating credit rating agency a defines the category of the anticipated term_loan credit rating to mean definition a similarly any obligation rated in the category of the anticipated term_loan credit rating or below by credit rating agency b is considered to have definition b the sum of the distributing debt exchanged for the controlled indebtedness in the debt exchange will not exceed the weighted quarterly average of the third-party indebtedness of distributing including the indebtedness of llc for the twelve-month period ending on the close of business on date the day before the date the board_of directors of distributing directed management to actively pursue the distribution the debt exchange will be facilitated by investment banks commercial banks or other investment entities that will acquire good and valid title to the distributing debt at least m days prior to the date of the debt exchange such bank or entity an investment_entity and collectively the investment entities distributing and the investment entities will enter into exchange agreements the exchange agreements no sooner than n days after the investment entities acquire all the distributing debt thereafter on the same day as entering into the exchange agreements the investment entities are anticipated to enter into agreements to sell the controlled indebtedness they receive in the debt exchange to unrelated third parties distributing has not and will not provide any funds to investment entities for the purchase of the distributing debt and has not and will not act as guarantor for any financing_arrangement in connection with such purchases the investment entities may enter into other arrangements with respect to the distributing debt but none of distributing any member of its affiliated_group or any member of the shareholder group will be a party to such arrangements representations distributing makes the following representations in connection with the proposed transactions a the sub contribution will qualify as a transaction to which sec_351 applies plr-148756-10 b c d e f g h indebtedness if any owed by controlled to distributing after the distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing in the distribution will be received by a shareholder of distributing as a creditor employee or in any capacity other than that of a shareholder of distributing no part of the consideration to be distributed by distributing will be received by a security holder as an employee or in any capacity other than that of a security holder of the corporation the five years of financial information submitted on behalf of business a as conducted by the distributing sag represents the present operations of the business and regarding the business there have been no substantial operational changes since the date of the last financial statement submitted for purposes of this representation the occurrence is not considered a substantial operational change the five years of financial information submitted on behalf of business c as conducted by the distributing sag prior to the contribution and the controlled sag after the contribution represents the present operations of the business and regarding the business there have been no substantial operational changes since the date of the last financial statement submitted the distributing sag neither acquired_business a nor acquired control of an entity conducting business a 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 under prop sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the distribution the distributing sag has been the principal_owner of the goodwill and significant assets of business a and will continue to be the principal_owner following the distribution the distributing sag neither acquired_business c nor acquired control of an entity conducting business c 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 under prop sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the distribution the distributing sag has been the principal_owner of the goodwill and significant assets of business c and the controlled sag will continue to be the principal_owner following the distribution plr-148756-10 i j k l m following the distribution except with respect to the overlapping directors and as provided in the continuing agreements the distributing sag will continue the active_conduct of business a and the controlled sag will directly continue the active_conduct of business c independently and with their separate employees the distribution is being carried out for the following corporate business purposes i to enhance the credit profile of distributing by the enhancement mechanic thereby providing distributing with greater financial and strategic flexibility to pursue acquisitions following the separation and ii to increase the aggregate stock price of distributing and controlled relative to the pre- distribution value of outstanding distributing stock so as to allow each company to a issue equity in connection with acquisitions on more favorable terms and b increase the long-term attractiveness of equity compensation programs in both cases with less relative dilution to existing equity holders the distribution is motivated in whole or substantial part by these corporate business purposes the distribution is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both for purposes of sec_355 immediately after the distribution no person determined after applying 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 for purposes of sec_355 immediately after the distribution no person determined after applying 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 was either i 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 attributable to distributions on 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 n the total adjusted_basis of the assets transferred by distributing to controlled in the contribution will equal or exceed the sum of i the total liabilities assumed within the meaning of sec_357 by controlled and ii the total plr-148756-10 o p q r s amount of money and the fair_market_value of other_property within the meaning of sec_361 received by distributing from controlled and transferred to distributing’s shareholders or creditors in connection with the plan_of_reorganization the total fair_market_value of the assets transferred 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 exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without recognition of gain received by distributing in the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution any liabilities assumed within the meaning of sec_357 by controlled in the contribution were incurred in the ordinary course of business and are associated with the assets transferred to controlled in connection with the contribution distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction except with respect to the controlled indebtedness that will be exchanged in the debt exchange and trade payables between distributing and controlled created in the ordinary course of business including those created in connection with the continuing agreements no intercorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the distribution immediately before the distribution items of income gain loss deduction and credit if any will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d furthermore distributing’s excess_loss_account with respect to its controlled stock if any will be included in income immediately before the distribution to the extent required by applicable regulations see sec_1_1502-19 t except for payments with respect to transitional services which would be intended to equal the costs of such services and are not expected to continue for a period to exceed o years payments made in connection with the other plr-148756-10 u v w x continuing agreements which could extend beyond o years will be on terms intended to reflect those terms arrived at by parties negotiating at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv 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 either corporation immediately after the transaction as defined in sec_355 either i any person that holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 will have held such an interest in such corporation immediately before the transaction or ii neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 the payment of cash in lieu of fractional shares of controlled stock if any is solely for the purpose of avoiding the expense and inconvenience to controlled of issuing and maintaining fractional shares and will not represent separately bargained for consideration the total cash that will be paid in the transaction to any shareholder in lieu of a fractional share of controlled stock will not exceed one percent of the total consideration that will be distributed in the transaction any fractional share interests of each distributing shareholder will be aggregated and sold by an exchange agent on behalf of such shareholder and it is intended that no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of controlled stock y neither distributing nor controlled i was or will be a united_states_real_property_holding_corporation as defined in sec_897 at any time during the five-year period ending on the date of the distribution or ii will be a united_states_real_property_holding_corporation immediately after the distribution z all of the controlled indebtedness constitute securities for purposes of sec_361 plr-148756-10 rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the proposed transactions the contribution together with the distribution will qualify as a reorganization described in sec_368 each of distributing and controlled will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing as a result of the contribution sec_357 and sec_361 no gain_or_loss will be recognized by controlled as a result of the contribution sec_1032 controlled’s basis in each asset received in the contribution will be the same as the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled’s holding_period in each asset received in the contribution will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing on the stock_distribution sec_361 provided that the controlled indebtedness is transferred in the debt exchange pursuant to the plan_of_reorganization distributing will not recognize any income gain loss or deduction with respect to the controlled indebtedness other than i deductions attributable to the fact that distributing debt may be redeemed at a premium ii income attributable to the fact that distributing debt may be redeemed at a discount and iii interest_expense accrued with respect to distributing debt sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders upon their receipt of the controlled stock in the distribution sec_355 each distributing shareholder’s basis in a share of distributing common_stock as adjusted under sec_1_358-1 will be allocated between the share of distributing common_stock with respect to which the distribution is made and the share of controlled stock or allocable portions thereof received with respect to the share of distributing common_stock in proportion to their fair market values plr-148756-10 each distributing shareholder’s holding_period in the controlled stock received will include the holding_period of the distributing common_stock with respect to which the distribution of the controlled stock is made provided that the distributing common_stock is held as a capital_asset on the date of the distribution sec_1223 the earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 a distributing shareholder that receives cash in lieu of a fractional share of controlled stock will recognize gain_or_loss measured by the difference between the basis of the fractional share received as determined above in ruling and the amount of cash received sec_1001 any gain_or_loss will be treated as capital_gain or loss provided the fractional share of stock is held as a capital_asset on the date of the distribution sec_1221 and sec_1222 following the distribution controlled will not be a successor to distributing for purposes of sec_1504 therefore controlled and its direct and indirect subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be members of an affiliated_group_of_corporations entitled to file a consolidated federal_income_tax return with controlled as the common parent immediately following the distribution except insofar as it may be relevant to sec_355 any indemnity payments made by distributing to controlled or vice versa that i have arisen or will arise for a taxable_period ending on or before the distribution or for a taxable_period beginning on or before and ending after the distribution and ii will not have become fixed and ascertainable until after the distribution will be treated as occurring immediately before the distribution see 344_us_6 revrul_83_73 c b llc will increase its basis and or reduce any excess_loss_account with respect to its stock of sub prior to the contribution by the aggregate basis in the property contributed to sub by llc pursuant to the sub contribution the sub distribution will be a distribution of the membership interests of llc by sub to distributing prior to the contribution sec_301 and sec_1_1502-13 plr-148756-10 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed regarding i ii iii whether the distribution satisfies the business_purpose requirement of sec_1_355-2 whether the distribution is being used principally as a device for the distribution of the earnings_and_profits or distributing controlled or both see sec_355 and sec_1_355-2 and whether the distribution is part of a plan or series of related transactions under sec_355 procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative a copy of this letter_ruling 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 the letter_ruling sincerely gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c office_of_chief_counsel date number info release date conex-170405-03 cc ita b4 uil ------------------------------------------- ------------------------------------------ -------------------------------- attention ------------------ dear -------------- this letter is in response to your inquiry concerning the request for a private_letter_ruling submitted by the ----------------------------------------------------------------- the --------------- successfully represented certain clients in an inverse condemnation proceeding as prevailing plaintiffs the ----------------- clients became entitled to an award of attorneys’ fees under the uniform relocation assistance and real_property acquisition policies act ura u s c in date the --------------- requested a ruling that attorneys’ fees recovered by pro bono counsel for vindicating the constitutional rights of these clients not be included in the gross_income of these clients under sec_61 of the internal_revenue_code relying on well-established legal principles the irs advised the --------------- that it would rule adversely subsequently the --------------- withdrew its request in a fundraising letter dated date the --------------- challenged the irs position as unsupported by either the facts or the law neither challenge has any merit the traditional american rule is that a prevailing litigant may not ordinarily recover attorneys’ fees unless authorized by statute 421_us_240 however the congress has enacted statutes such as the ura that relieve prevailing parties of the burden of paying litigation costs in vindicating certain important rights and shift the burden to the losing party these statutes typically shift the burden only if attorneys’ fees are actually incurred by the client and do not permit the recovery_of fees by pro_se plaintiffs to recover incurred attorneys’ fees the ----------------- clients would have had to satisfy the court that in the least an implied agreement existed that the representation although nominally pro bono would be undertaken on condition that the clients would seek and remit to the ----------------any attorneys’ fees recovered under the ura 52_fedclaims_667 the supreme court of the united_states has ruled definitively that attorneys’ fees recovered under fee shifting statutes belong to the prevailing_party generally plaintiffs not to the lawyers see 495_us_82 and 475_us_717 these cases involved awards recovered under the civil rights attorney’s fees awards act of u s c we believe the same principle applies to the attorneys’ fees to which the ----------------- clients became entitled for vindicating their claim of unconstitutional taking against the government the ----------------- suggestion that no court supports the irs’ view is incorrect this principle has been applied by the courts in holding that a taxpayer must include in gross_income attorneys’ fees recovered under a similar fee-shifting statute in sinyard v commissioner tcmemo_1998_364 aff’d 268_f3d_756 9th cir the courts agreeing with the irs concluded that the taxpayers must include in their gross_income the attorneys’ fees recovered from the defendant under the age discrimination in employment act adea in reaching its conclusion the ninth circuit cited approvingly the opinions of the supreme court in evans and venegas the --------------- requested the ruling after the ninth circuit rendered its opinion in sinyard the ----------------- letter suggests that other organizations have received similar awards and have not been told that the fees belong to their clients the irs’ position is that the client owns the entire cause of action including any claim for attorneys’ fees and must include in gross_income the entire amount of a settlement or judgment undiminished by any fees paid to the attorney some courts disagree with the irs’ view recently the government requested the supreme court to review the adverse opinions in 345_f3d_373 6th cir and 340_f3d_1074 9th cir accordingly a favorable ruling to the --------------- or any other similarly-situated organization would be inconsistent with the irs’ litigating position the majority of appellate courts agree with the irs and we anticipate that the supreme court will resolve the conflict among the circuits i hope this information is helpful if you have any questions please call --------------------- identification_number ------------- at --------------------- robert a berkovsky branch chief office of associate chief_counsel income_tax accounting sincerely


t c memo united_states tax_court john thurman elaine sheryl horejs petitioners v commissioner of internal revenue respondent docket no 8928-o1l filed date john thurman elaine sheryl horejs pro sese anne w durning and sheara l gelman for respondent memorandum opinion panuthos chief special_trial_judge this matter is before the court on respondent’s motion for summary_judgment and to impose a penalty under sec_6673 as amended filed pursuant to rule respondent contends that there is no unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure - - dispute as to any material fact with respect to this lien action and that with concessions discussed below respondent’s notice_of_determination should be sustained as a matter of law summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b see 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read ina manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 as explained in detail below there is no genuine issue as to any material fact and a decision may be rendered as a matter of law accordingly we shall grant respondent’s motion for summary_judgment as amended background a substitute for returns and petitioners’ first amended returns petitioners failed to file timely federal_income_tax returns for and on date respondent prepared a substitute for return with respect to petitioners’ taxable_year see sec_6020 on date respondent prepared substitutes for return with respect to petitioners’ taxable years and id on october november and date petitioners submitted and respondent accepted late-filed original tax returns for the taxable years and respectively each of the above-referenced returns showed taxes due on date respondent assessed the taxes shown as due on those returns plus late_filing_penalties and estimated_tax penalties as follows additions to tax_year income_tax sec_6651 a sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number big_number on date respondent also assessed statutory interest in the amounts of dollar_figure dollar_figure and dollar_figure for the taxable years and respectively on date respondent sent petitioners notices of balance due informing petitioners that they had tax_liabilities for and q4e- and requesting that they pay them petitioners failed to do so b respondent’s notice_of_deficiency and petitioners’ response on date respondent issued a notice_of_deficiency to petitioners in the notice respondent determined deficiencies in and additions to petitioners’ federal income taxes for and as follows additions to tax_year deficiency sec_6651 a sec_6654 dollar_figure dollar_figure sec_708 big_number big_number big_number big_number big_number respondent determined that petitioners failed to substantiate business deductions claimed on their tax returns for the years in question respondent also determined that petitioners failed to report as income a premature_distribution from a retirement_plan during by letter dated date petitioners returned the notice_of_deficiency to respondent petitioners’ letter stated in pertinent part this presentment is denied and is dishonored further we do hereby affirm that we cannot be required to file or pay income taxes under the compelled benefit of using federal reserve notes because we have reserved all our rights under the common_law through the uniform commercial code pincite we are among the national citizenry of the continental_united_states we are --- - non-resident aliens to the federal territory we have never had any income from the federal united_states petitioners failed to file a petition for redetermination with the court challenging the notice_of_deficiency c additional assessments on date respondent assessed the deficiencies and additions to tax for and determined in the notice_of_deficiency dated date as well as statutory interest on date respondent sent petitioners notices of balance due informing petitioners that they had tax_liabilities for and and requesting that they pay them petitioners failed to do so d petitioners’ amended returns on or about date petitioners submitted to respondent form sec_1040x amended u s individual_income_tax_return for the taxable years and petitioners reported that they had no taxable_income during the years in question petitioners also asserted that they had erroneously reported taxable_income on their original tax returns petitioners claimed a refund in the amount of dollar_figure for by notice dated date respondent denied petitioners’ refund claim be respondent’s final notice and petitioners’ response on date respondent sent petitioners a notice_of_federal_tax_lien filing and your right to a hearing under irc -- - in respect of their outstanding liabilities for and on date petitioners submitted to respondent a form request for a collection_due_process_hearing challenging respondent’s notice_of_federal_tax_lien filing petitioners’ request stated that there is no valid assessment against us f the appeals_office hearing on date appeals officer angela m carmouche the appeals officer conducted an appeals_office hearing that petitioners attended by letter dated date the appeals_office forwarded to petitioners forms certificate of assessments payments and other specified matters with regard to their taxable years and copies of the forms dated date are attached to respondent’s motion for summary_judgment which was served on petitioners the appeals_office also provided petitioners with a copy of the court’s opinion in 115_tc_576 g respondent’s notice_of_determination on date respondent sent petitioners a notice_of_determination concerning collection action s under sec_6320 and or the notice stated that the appeals_office had determined that it should not restrict the appropriate collection action h petitioners’ petition on date petitioners filed with the court a petition for lien or levy action seeking review of respondent’s notice_of_determination on date petitioners filed an amended petition which includes allegations that the appeals officer failed to obtain verification from the secretary that the requirements of any applicable law or administrative procedure were met as required under sec_6330 and petitioners never received a notice_and_demand for payment of the disputed taxes i respondent’s motion for summary_judgment as indicated respondent filed a motion for summary_judgment and to impose a penalty under sec_6673 asserting that there is no dispute as to a material fact and that respondent is entitled to judgment as a matter of law in particular respondent contends that because petitioners received the notice_of_deficiency dated date they cannot challenge the existence or amount of the income_tax deficiencies and additions to tax determined in the notice for in this proceeding respondent further contends that the appeals officer’s review of forms with regard to petitioners’ accounts for and satisfied the verification requirement imposed under at the time that the petition was filed petitioners resided in burley idaho --- - sec_6330 and demonstrates that petitioners were issued notices and demands for payment on the same dates that respondent entered the assessments in question finally respondent argued that petitioners’ behavior warranted the imposition of a penalty under sec_6673 respondent subsequently filed an amendment to his motion for summary_judgment correcting a citation therein petitioners filed an objection to respondent’s motion thereafter pursuant to notice respondent’s motion was called for hearing at the court’s motions session in washington d c counsel for respondent appeared at the hearing and offered argument in support of respondent’s motion in lieu of appearing at the hearing petitioners filed a written_statement with the court pursuant to rule c following the hearing the court directed respondent to file a further amendment to his motion addressing the question whether respondent’s determination of additions to tax under sec_6654 as set forth in the notice_of_deficiency dated date and subsequently assessed was correct respondent filed a second amendment to his motion conceding that he had erroneously determined and improperly assessed additions to tax under sec_6654 in the amounts of dollar_figure dollar_figure and dollar_figure for the taxable years and respectively transcripts of the addition_to_tax under sec_6654 which is imposed when an individual taxpayer fails to pay estimated_tax is continued --- - account attached to respondent’s second amendment to his motion show that respondent has moved to abate the erroneous assessments in light of the erroneous assessments respondent seeks to withdraw his request that the court impose a penalty on petitioners pursuant to sec_6673 petitioners filed an objection to the second amendment to respondent’s motion for summary_judgment while petitioners appear to accept the concessions made by respondent they nevertheless continue to object to respondent’s motion for summary_judgment as amended discussion sec_6321 imposes a lien in favor of the united_states on all property and rights to property of a person when a demand for continued computed by reference to the amount of tax reported by a taxpayer on his original return or if no return is filed by reference to the tax for such year sec_1_6654-1 income_tax regs sec b provides that the court’s normal jurisdiction to redetermine a deficiency under sec_6213 does not encompass the addition_to_tax under sec_6654 except where no return is filed for the taxable_year as previously discussed although respondent initially prepared substitutes for return for the years and respondent subsequently accepted petitioners’ late-filed original returns and on date assessed additions to tax under sec_6654 based on the taxes that petitioners reported due in those returns respondent also determined additions to tax under sec_6654 in the notice_of_deficiency dated date as indicated respondent now concedes that such additions to tax were erroneously determined and improperly assessed inasmuch as petitioners had previously filed original returns reporting taxes due see weir v commissioner tcmemo_2001_184 - the payment of the person’s liability for taxes has been made and the person fails to pay those taxes such a lien arises when an assessment is made sec_6322 sec_6323 requires the secretary to file a notice_of_federal_tax_lien if such lien is to be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor lindsay v commissioner tcmemo_2001_285 sec_6320 provides that the secretary shall furnish the person described in sec_6321 with written notice of the filing of a notice of lien under sec_6323 the notice required by sec_6320 must be provided not more than business days after the day of the filing of the notice of lien sec_6320 sec_6320 further provides that the person may request administrative review of the matter in the form of an appeals_office hearing within days beginning on the day after the 5-day period sec_6320 provides that the appeals_office hearing generally shall be conducted consistent with the procedures set forth in sec_6330 d and e see eg 114_tc_176 sec_6330 prescribes the matters that a person may raise at an appeals_office hearing in sum sec_6330 c provides that a person may raise collection issues such as spousal defenses the appropriateness of the commissioner’s intended collection action and possible alternative means of collection sec_6330 b provides that the existence and amount of the underlying tax_liability can be contested at an appeals_office hearing only if the person did not receive a notice_of_deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute the tax_liability see 114_tc_604 goza v commissioner supra sec_6330 provides for judicial review of the administrative determination in the tax_court or a federal district_court as may be appropriate a summary_judgment petitioners challenge the assessments made against them on the ground that the notice_of_deficiency dated date is invalid however the record shows that petitioners received the notice_of_deficiency and disregarded the opportunity to file a petition for redetermination with this court see sec_6213 it follows that sec_6330 b generally bars petitioners from challenging the existence or amount of their underlying tax_liabilities in this collection review proceeding ’ as previously discussed on date respondent entered assessments for taxes and additions to tax under sec_6651 and based upon the taxes that petitioners reported due in their late-filed original returns inasmuch as the underlying taxes were self-assessed these items were not subject_to redetermination under the court’s normal deficiency jurisdiction see sec_6201 sec_6211 b although it is arguable whether sec_6330 b barred petitioners from challenging these particular assessments petitioners did not specifically dispute these items moreover continued even if petitioners were permitted to challenge the validity of the notice_of_deficiency petitioners’ arguments are frivolous and groundless see 118_tc_162 goza v commissioner supra as the court_of_appeals for the fifth circuit has remarked we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir suffice it to say that petitioners are taxpayers subject_to the federal_income_tax see sec_1 a and that compensation_for labor or services rendered constitutes income subject_to the federal_income_tax see sec_61 640_f2d_1014 9th cir we likewise reject petitioners’ argument that the appeals officer failed to obtain verification from the secretary that the requirements of all applicable laws and administrative procedures were met as required by sec_6330 the record shows that the appeals officer obtained and reviewed forms with regard to petitioners’ taxable years and federal tax assessments are formally recorded on a record of continued petitioners do not point to any discrepancy in the record or set forth specific facts that would suggest that there is a genuine issue for trial whether these items were properly assessed see rule d - - assessment sec_6203 the summary record through supporting records shall provide identification of the taxpayer the character of the liability assessed the taxable_period if applicable and the amount of the assessment sec_301_6203-1 proced admin regs sec_6330 does not require the commissioner to rely on a particular document to satisfy the verification requirement imposed therein 118_tc_365 ndollar_figure weishan v commissioner tcmemo_2002_88 lindsey v commissioner tcmemo_2002_87 tolotti v commissioner tcmemo_2002_86 duffield v commissioner tcmemo_2002_53 kuglin v commissioner tcmemo_2002_51 in this regard we observe that the forms on which the appeals officer relied contained all the information prescribed in sec_301_6203-1 proced admin regs see weishan v commissioner supra lindsey v commissioner supra tolotti v commissioner supra duffield v commissioner supra kuglin v commissioner supra petitioners have not alleged any irregularity in the assessment procedure that would raise a question about the validity of the assessments or the information contained in the forms see 115_tc_35 mann v commissioner tcmemo_2002_48 accordingly we hold that the appeals officer satisfied the verification requirement of sec_6330 cf nicklaus v commissioner 1t c petitioners also contend that they never received a notice_and_demand for payment for or the requirement that the secretary issue a notice_and_demand for payment is set forth in sec_6303 which provides in pertinent part sec_6303 general_rule ---where it is not otherwise provided by this title the secretary shall as soon as practicable and within days after the making of an assessment of a tax pursuant to sec_6203 give notice to each person liable for the unpaid tax stating the amount and demanding payment thereof xk k the forms that the appeals officer relied on during the administrative process show that respondent sent petitioners notices of balance due on the same dates that respondent made assessments for the taxes and additions to tax in question a notice of balance due constitutes a notice_and_demand for payment within the meaning of sec_6303 see eg 953_f2d_531 9th cir weishan v commissioner supra see also 7_f3d_137 9th cir petitioners have failed to raise a spousal defense make a valid challenge to the appropriateness of respondent’s intended collection action or offer alternative means of collection these issues are now deemed conceded rule b under the circumstances we conclude that respondent is entitled to -- - judgment as a matter of law sustaining the notice_of_determination dated date with the noted concession of the assessments of the additions to tax under sec_6654 determined in the notice_of_deficiency dated date b sec_6673 respondent originally moved for the imposition of a penalty on petitioners under sec_6673 however in light of respondent’s concession of additions to tax under sec_6654 as set forth in the notice_of_deficiency dated date and afterwards assessed respondent seeks to withdraw his request for the imposition of a penalty under the circumstances the portion of respondent’s motion for summary_judgment as supplemented that seeks the imposition of penalty under sec_6673 will be deemed withdrawn in order to give effect to the foregoing an order and decision will be entered granting respondent’s motion for summary_judgment as amended as relevant herein sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceeding is frivolous or groundless


office_of_chief_counsel internal_revenue_service memorandum number release date cc psi cjlangley preno-125773-10 uilc date date to holly mccann chief excise_tax program from stephanie bland senior technician reviewer cc psi subject kerosene sold under the low income home energy assistance program this memorandum responds to your request dated date for advice on the treatment of undyed kerosene purchased using state vouchers or other forms of payment by a state under the low income home energy assistance program liheap or an equivalent state funded program this advice may not be used or cited as precedent liheap is a federally-funded grant program managed by the u s department of health and human services that provides grants to all states the district of columbia u s territories and indian tribes and tribal organizations collectively local liheap programs the purpose of liheap is to assist low income households particularly those with the lowest incomes that pay a high proportion of household_income for home energy primarily in meeting their immediate home energy needs the federal government does not provide energy assistance directly to the public rather a person in need of assistance must apply to the local liheap program which will determine eligibility for assistance unlike some federal programs applications eligibility rules types of assistance and benefit levels can vary greatly among the various local liheap programs in one type of liheap program a state provides a voucher for a certain amount of money to its liheap participants through an agency it establishes the participant then uses the voucher to purchase undyed kerosene for use in home heating systems afterwards the state_agency reimburses the ultimate vendor for the dollar amount specified on the voucher preno-125773-10 you have asked us for our legal opinion on whether in the situation described above undyed kerosene purchased by liheap participants using vouchers and used by liheap participants for home heating purposes is for the exclusive use of a state if the use of the undyed kerosene by liheap participants is deemed to be used for the exclusive use of a state you have asked whether an ultimate vendor that is registered under sec_4101 may use the voucher as a certificate within the meaning of sec_48 e for purposes of making an ultimate vendor claim for purposes of this memorandum we assume tax has been imposed under sec_4041 or sec_4081 sec_4081 of the internal_revenue_code generally imposes an excise_tax on taxable fuels that are removed from a refinery removed from a terminal entered into the u s or sold to a person not registered under sec_4101 unless there was a prior tax sec_4041 provides a backup tax for any liquid not taxed under sec_4081 that is sold for use or used as a fuel in a diesel powered highway vehicle or diesel powered train however under sec_4041 states are exempt from such tax if the fuel is for the exclusive use of any state the code does not define the term exclusive use sec_6427 provides that except as otherwise provided in sec_6427 and l if any diesel_fuel or kerosene on which tax has been imposed by sec_4041 or sec_4081 is used by any person in a nontaxable_use the secretary shall pay without interest to the ultimate_purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel under sec_4041 or sec_4081 as the case may be reduced by any payment made to the ultimate vendor under sec_6427 sec_6427 provides that the term nontaxable_use means any use that is exempt from tax imposed by sec_4041 other than by reason of a prior imposition of tax sec_6427 provides that sec_6427 shall not apply to diesel_fuel or kerosene used by a state_or_local_government sec_6427 provides that except for sec_6427 credit card issuers the amount that would but for sec_6427 have been paid under sec_6427 with respect to any fuel shall be paid to the ultimate vendor of such fuel if such vendor i is registered under sec_4101 and ii meets the requirements of sec_6416 b or d sec_48_6427-9 of the manufacturers and retailers excise_tax regulations provides rules under which certain registered ultimate vendors of taxed diesel_fuel and kerosene may claim the credits or payments allowed by sec_6427 sec_48_6427-9 provides generally that the buyer must provide the ultimate vendor a certificate that consists of a statement that is signed under penalties of perjury by a person with authority to bind the buyer is in substantially the same form as the model certificate provided in sec_48_6427-9 of this section and contains all information necessary to complete such model certificate a new certificate must be given if any information in the current certificate changes the certificate may be included as part of any business records normally used to document a sale preno-125773-10 revrul_59_359 1959_2_cb_312 holds that sales of gasoline to a state highway authority is for the exclusive use of the state when the gasoline is furnished without charge to motorists stranded on the highway revrul_73_542 1973_2_cb_341 holds that sales of diesel_fuel to bus owner- operators under contract with a county school board to transport students to and from school are sales for the exclusive use of a political_subdivision of a state when the school board reimburses the bus owner-operator for the actual cost of the fuel rather than on a per mile or per_diem basis in revrul_79_112 1979_14_cb_356 a school district contracts with an independent school_bus operator to transport students to and from school under the terms of the contract the school_bus operator agrees to bear all fuel expenses including the risk and burden of increases in the cost of fuel the revenue_ruling holds that the sale of gasoline for use by the bus operator is not for the exclusive use of the school district revrul_70_214 1970_1_cb_230 holds that in determining whether sales to an organization are sales for the exclusive use of a state it must be established that the organization is either a controlled directly or indirectly by a state_agency or b is performing a traditional governmental function on a nonprofit basis the situation described above differs from revrul_73_542 because in this case the state does not bear the burden of any price increases in the fuel instead the state provides a voucher that the liheap participant redeems for a dollar amount of undyed kerosene therefore if prices increase the liheap participant incurs higher out-of- pocket fuel costs furthermore this case is distinguishable from revrul_59_359 because in this case the state neither purchases nor takes title to the undyed kerosene finally the liheap participant in this case is neither controlled directly or indirectly by a state_agency nor does it perform a traditional government function such as maintaining public safety on the highways see revrul_70_214 based on the foregoing we conclude that undyed kerosene purchased by liheap participants for home heating use under the scenario described above is not used for the exclusive use of a state accordingly the ultimate vendor is not the proper claimant under sec_6427 we note however that in the scenario described above although the undyed kerosene is not being used for an exclusive state use it is being used for a nontaxable_use sec_6427 generally provides that if any kerosene on which tax has been imposed by sec_4041 or sec_4081 is used by any person in a nontaxable_use the secretary shall pay without interest to the ultimate_purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel in this case the liheap participant is the ultimate_purchaser of the undyed kerosene it purchases using state vouchers therefore to the extent tax was imposed under sec_4041 or sec_4081 the liheap participant preno-125773-10 may make a claim under sec_6427 for an amount equal to the aggregate amount of the tax so imposed if you have any questions concerning this memorandum please contact charles j langley jr at


significant index no department of the treasury internal_revenue_service washington d c tax exempt and government entities oct se tep rh az ein - plan no re dear this letter constitutes notice that approval has been granted for the change in retirement rate assumptions as described below the ruling applies for the plan_year beginning date this ruling is made in accordance with sec_430 of the internal_revenue_code code and sec_303 of the employee_retirement_income_security_act_of_1974 in issuing this ruling we have considered only the acceptability of the new assumptions and as necessary the method by which the transition is to be made between the prior and the new assumptions accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculation or other material submitted with your request please note that this letter addresses only specific issues arising under sec_430 of the code and the approval granted herein should not be read to imply that the plan as it stands satisfies the requirements of other sections of the code the retirement rates that have been approved are as follows age _ less than years or more years ft management ft management - continued age less than years or more year sec_25 other non-union age rate sec_55 when filing form_5500 for the plan_year beginning please indicate on line of the schedule sb by checking the yes box that a change in non-prescribed assumptions has been made for the current_year you should also include a copy of this letter as an attachment to the schedule sb labeled schedule sb line - change in non- prescribed actuarial assumptions - if you have any questions regarding this matter please contact id jat - sincerely yours david m ziegler manager employee_plans actuarial group cc


tcmemo_2010_246 united_states tax_court ronald m costi petitioner v commissioner of internal revenue respondent docket no 26482-09l filed date ronald m costi pro_se anna a long for respondent memorandum findings_of_fact and opinion cohen judge this case was commenced under sec_6330 in response to a notice_of_determination concerning collection action sustaining a lien to secure petitioner’s unpaid tax_liabilities for and the issue for decision is whether sustaining the lien was an abuse_of_discretion all section references are to the internal_revenue_code findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in california at the time his petition was filed at all material times he was an insurance agent petitioner filed and federal_income_tax returns on which he reported tax due of dollar_figure and dollar_figure respectively he did not make required estimated_tax payments for either year but did make payments reducing the tax_liabilities as of date balances remained outstanding on the liabilities for and and petitioner does not dispute the liabilities in date he entered into an installment_payment agreement for the balance of his liability he defaulted on that agreement by not making timely estimated_tax payments for subsequent years on date the internal_revenue_service irs filed a notice_of_federal_tax_lien for and petitioner requested a hearing under sec_6320 and sec_6330 petitioner submitted information to a representative of the irs appeals_office and entered into negotiations for installment payments on the unpaid balances of his liabilities a hearing was subsequently conducted by another irs employee who had recently become a settlement officer in the appeals_office and had limited experience handling hearings under sec_6330 petitioner requested that the lien be removed and the settlement officer indicated that she would recommend removal of the lien but that her recommendation was subject_to managerial review the removal of the lien was not approved however and the settlement officer’s request that it be removed was ultimately withdrawn the settlement officer verified that the requirements of applicable law and administrative procedure had been met and determined that the filing of the lien was appropriate to protect the government’s interest on date a notice_of_determination sustaining the lien was sent to petitioner opinion sec_6321 imposes a lien in favor of the united_states on all property and property rights of a taxpayer liable for taxes after a demand for the payment of the taxes has been made and the taxpayer fails to pay the lien arises when the assessment is made see sec_6322 the irs files a notice_of_federal_tax_lien to preserve priority and put other creditors on notice see sec_6323 sec_6320 requires the secretary to send written notice to the taxpayer of the filing of a notice of lien and of the taxpayer’s right to an administrative hearing on the matter the hearing generally shall be conducted consistent with procedures set forth in sec_6330 d e and g see sec_6320 at the hearing a taxpayer may raise any relevant issue including challenges to the appropriateness of the collection action and possible collection alternatives see sec_6330 taxpayers are to provide all relevant information requested by appeals sec_301_6330-1 proced admin regs under sec_6330 a taxpayer may contest the validity of the underlying tax_liability but petitioner has not done so therefore to prevail petitioner must establish that the issuance of the notice_of_determination sustaining the lien filing was an abuse_of_discretion see 114_tc_604 an abuse_of_discretion is shown only if the action of the appeals officer was arbitrary capricious or without sound basis in fact or law see 129_tc_107 petitioner represents that he timely contacted the appeals_office and made arrangements to make payments on the unpaid balances of his liabilities he contends that sustaining the lien was an abuse_of_discretion because he was initially told that the lien would be withdrawn and was given inconsistent information by different representatives in the appeals_office he implies that the change_of position may have resulted from contact made with the irs by his former wife his complaint is basically one of unfulfilled expectations the notice_of_determination reflects that the denial of the request for withdrawal of the lien occurred in part because petitioner declined to provide information about how the lien would adversely affect him there is no evidence in the administrative record or at trial suggesting that the lien is more intrusive than necessary to protect the government’s interest although petitioner feels that he was misled into believing that the lien would be removed and that the appeals_office communications and change_of position were unfair he has not shown that the lien was inappropriate we cannot conclude that sustaining the lien was an abuse_of_discretion decision will be entered for respondent