internal_revenue_service number release date index number ------------------------ ------------------- --------------------------------------- in re ------------------ --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no -------------- telephone number ---------------------- refer reply to cc psi plr-102553-18 date date ------------------- -------------------- ------------------------------ -------------------------------------- ------------------- ------------------------- ------------------ --------------------------------------------------------------------------------- legend donor a b c d e taxpayer trust ------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- --------------------------------------------------------------- trust --------------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------- -------------------- --------------------------- ------------------------ -------------------------------------------------------------- ------------------------ ------------------------ ------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ date date date date corporate trustee individual trustee a individual trustee b state state statute state statute state statute state statute plr-102553-18 dear ------------ this responds to your authorized representative’s letter of date in which a ruling is requested on the gift_tax consequences of your proposed disclaimers the facts and representations are as follows trust donor executed trust an irrevocable_trust on date under article second paragraph b of the trust instrument the income shall be accumulated and added to principal however the trustees are authorized to pay such sum or sums from time to time out of the income accumulated income or principal of trust to or for the benefit of a or any of a’s descendants in the trustees’ sole and absolute discretion in the event of illness accident or other misfortune or in the event of any emergency or if in the trustees’ judgment it is necessary for the comfortable maintenance support or education of such person article second paragraph b further provides that trust will terminate twenty years after the death of the survivor of a b c and all of donor’s descendants living on date on termination the remaining trust principal and undistributed_income will be distributed to the descendants of a who have no living ancestor who is a descendant of a per stirpes under article seventh the trust is to be construed in accordance with the laws of state the current trustees of trust are corporate trustee and individual trustee a on the date trust was executed donor had eleven living descendants consisting of three children a b and c and eight grandchildren all of whom are still living a’s child d was born on date after the trust instrument was executed taxpayer is d’s child and a’s grandchild as a’s descendant the trustees may in their discretion make distributions of income and principal to taxpayer during the trust term further taxpayer as a descendant of a will be entitled to receive a share of the per stirpital portion of the trust remainder if d dies prior to the termination of trust and taxpayer survives trust trust an irrevocable_trust was executed by a on date under paragraph first of the trust instrument the trust is to be held in three equal shares under paragraph first subparagraph a the income derived from one share is to be accumulated and added to principal under paragraph first subparagraph b the income of the second one-third share is to be paid to a however under paragraph plr-102553-18 third subparagraph d a reserved the right exercisable by will to direct a contrary disposition of the income of this one-third share to be effective after a’s death under paragraph first subparagraph c the income of the remaining one-third share is to be paid to any of a’s descendants in the event of need occasioned by illness accident or other misfortune or in any emergency or if in the trustee’s discretion it is necessary for the comfortable maintenance support or education of any beneficiary or of his or her family under paragraph first subparagraph d after a’s death all of the one-third shares of trust are to be combined into a single trust less any portion of the second one-third share for which a has made a contrary testamentary_disposition of the income along with accumulated income trust is then to be divided into equal shares one such share for each of a’s then living children and deceased children leaving surviving issue the surviving issue to take the deceased child’s share by representation during the continuation of the trust term the trustee is to pay to the beneficiaries a’s children or their surviving issue by representation of a respective share so much income of that share as the trustee in the trustee’s discretion determines under paragraph first subparagraph e after a’s death the trustee may as to any beneficiary who from time to time is receiving or entitled to receive trust income in the trustee’s discretion in the event of illness accident or other misfortune or in the event of any emergency or if in the judgment of the trustee it is necessary for the comfortable maintenance support or education of any beneficiary or of the beneficiary’s family pay to or for the beneficiary such principal as the trustee deems necessary however the amount so paid is to be charged against the share from which the beneficiary is then receiving or entitled to receive income under paragraph first subparagraph d trust is to terminate twenty years after the death of the last survivor of a and all of a’s children living on the date a executed trust on termination the trust will be distributed per stirpes to a’s descendants then living who have no living ancestor who is a descendant of a under article fourth the trust is to be construed in accordance with the laws of state the current trustees of trust are corporate trustee and individual trustee b d was not yet born when a executed trust on date because d’s life is not one of the lives measuring the duration of trust d is a potential recipient of a one-third share of the remainder taxpayer as a’s descendant is entitled to distributions of income from a one-third share described above in the event certain needs arise after a has died and if d has also died taxpayer if then living will be entitled as d’s surviving issue to i distributions of income and principal of the trust share set_aside with respect to d and ii on termination of trust distribution of all or a portion of the remainder of that share by representation plr-102553-18 proposed disclaimers taxpayer will attain the age of majority under state law on date taxpayer has not received any income or principal distributions from either trust or trust taxpayer proposes to disclaim her contingent rights to receive trust corpus upon the terminations of trust and trust the disclaimers will be executed by taxpayer no later than within nine months after attaining her majority taxpayer requests a ruling that the execution and delivery of the proposed disclaimers will not constitute a transfer subject_to federal gift_tax law and analysis trust and trust are governed by the laws of state under state statute any individual to whom property or an interest therein is donatively transferred by any means including a transfer resulting from another disclaimer may disclaim all or any portion of the transfer unless the terms of the transfer otherwise provide the disclaimer shall cause the terms of the transfer to be applied to the disclaimed transfer and to any future interests taking effect thereafter as if the disclaimant had died immediately before the transfer state statute provides that a disclaimer is made by a writing showing an unconditional refusal to accept a transfer or a portion thereof signed by the disclaimant or representative and delivered on or before nine months after the transfer or by any later time provided in the particular case or pursuant to other provisions of that chapter and before any acceptance of the disclaimed interest delivery of a disclaimer may be accomplished by delivery to the transferor the transferor’s personal representative or other legal_representative or the holder of legal_title to the property to which the interest is related state statute provides that each separate interest in property is subject_to disclaimer or acceptance and each separate interest including any specific amount part fraction or asset thereof or formula amount based on present or future facts independent of the disclaimant’s volition is subject_to disclaimer or acceptance state statute provides that a contingent future_interest may be disclaimed in whole or in part at any time before or within nine months after beneficiaries of the interest have been fully ascertained and their interests vested sec_2501 of the internal_revenue_code imposes a tax on the transfer of property by gift sec_2511 provides that the gift_tax imposed under sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible plr-102553-18 sec_25_2511-1 of the gift_tax regulations provides that in the case of transfers creating an interest in the beneficiary disclaiming made before date where the law governing the administration of the decedent’s estate gives the beneficiary a right completely and unqualifiedly to refuse to accept ownership of property transferred from a decedent a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable_time after knowledge of the existence of the transfer is unequivocal is effective under local law and is made before the disclaimant has accepted the property cf sec_2518 and sec_25_2518-1 through providing rules for determining whether a disclaimer is a qualified_disclaimer effective for estate and gift_tax purposes in the case of the disclaimer of an interest in property that is created in the beneficiary disclaiming by a transfer made after date as noted above under sec_25_2511-1 if the interest to be disclaimed was created before date the disclaimant must disclaim the interest in the property within a reasonable_time after knowledge of the existence of the transfer creating the interest to be disclaimed in the case of a disclaimer of an interest in trust in general the transfer occurs when the trust is established rather than when the interest actually vests in the disclaimant if the transferor has not reserved any power over the trust see 455_us_305 however the time limitation for making the disclaimer does not begin to run until the disclaimant has attained the age of majority and is no longer under a legal disability to disclaim see jewett v commissioner supra u s pincite see also sec_2518 and sec_25_2518-2 in this case taxpayer proposes to disclaim her contingent right to receive trust corpus on the termination of trust and trust she will execute the disclaimers within nine months after reaching age under these circumstances the proposed disclaimers will be considered to be made within the time prescribed in sec_25_2511-1 under sec_25_2511-1 the disclaimers must be unequivocal revrul_76_156 1976_1_cb_292 which considers the application of sec_25_2511-1 concludes that a disclaimer is unequivocal if the disclaimant’s act of refusal is unambiguous in its consequences that is the disclaimant must unqualifiedly refuse to accept ownership of the property for example a disclaimer is unequivocal if the disclaimed property must pass as otherwise provided in the instrument and not pursuant to the direction of the disclaimant similarly a disclaimer is unequivocal if the disclaimant does not accept the benefits from the property interest disclaimed in this case the disclaimed interests will not pass pursuant to any direction on the part of taxpayer further taxpayer will not accept the benefits of the disclaimed interests after the disclaimers see sec_25 d cf sec_25_2518-3 and sec_25_2518-3 example and example regarding treatment of certain interests in the same property as separate interests eligible for qualified_disclaimer treatment under sec_2518 plr-102553-18 under sec_25_2511-1 the disclaimers must be effective under local law in this case state law specifically provides that an individual may make a valid disclaimer of any separate interest in property while retaining other separate interests in the same property further the disclaimers will be timely under state statute consequently if taxpayer satisfies the procedural requirements prescribed under state law the disclaimers will be valid under local law finally under sec_25_2511-1 the disclaimant must not have accepted the property before the disclaimer we conclude that based on the facts submitted and representations made if the disclaimers are executed as proposed and assuming that taxpayer has not accepted or received any of the benefits of the disclaimed interests the terminating distributions the disclaimers will not constitute transfers subject_to the federal gift_tax except as expressly provided herein we express no opinion on the federal tax consequences of the transactions under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely karlene lesho karlene lesho senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp plr-130765-02 date date legend parent purchaser purchaser partnership target sellers date a date b date c plr-130765-02 company official tax professionals dear this letter responds to a letter dated date submitted on behalf of parent requesting a second extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent previously received an extension of time in a letter dated date plr-110215-02 publication parent is requesting a second extension to file a sec_338 election under sec_338 with respect to the acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a parent failed to file the election by the extended due_date date b the material information is summarized below parent is the common parent of a consolidated_group purchaser is a wholly owned subsidiary of parent purchaser is an llc wholly owned by purchaser and disregarded as an entity separate from purchaser for federal_income_tax purposes target is a foreign_corporation wholly owned by partnership a domestic_partnership sellers were the only partners of partnership on date a pursuant to a purchase agreement of the same date purchaser and purchaser acquired all of sellers’ partnership interests in partnership in exchange for cash it is represented that the acquisition of target by means of the acquisition of all of the partnership interests in partnership qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return target is a controlled_foreign_corporation within the meaning of sec_957 target is not a passive_foreign_investment_company for which an election under sec_1295 was in effect or foreign_investment_company or foreign_corporation the stock ownership which is described in sec_552 plr-130765-02 parent intended to file the election pursuant to sec_1_338-2t d the election was due on date b however for various reasons a valid election was not filed after date b it was discovered that the election had not been filed subsequently a request was submitted under sec_301_9100-1 for an extension of time to file the election plr- granted an extension until date c to file the election however for various reasons the extended due_date was missed and this second request was submitted the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or any taxable_year that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 2t d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by the parent company official and tax professionals explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301 b v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements plr-130765-02 of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly a second extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 in accordance with sec_1_338-2t d and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the taxpayers' parent’s consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion as to whether the acquisition of target’s stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 to file the election we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent plr-130765-02 pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours senior technician reviewer branch office of associate chief_counsel corporate ken cohen


t c memo united_states tax_court david broomfield petitioner v commissioner of internal revenue respondent docket no 4849-03l filed date david broomfield pro_se mark d petersen for respondent memorandum opinion gale judge this case is before the court on respondent's motion to dismiss for lack of jurisdiction on the ground that the petition was not filed within the time prescribed by sec_6330 petitioner filed an objection to respondent's motion the parties then filed seriatim responses to petitioner's objection a hearing was held on respondent's motion petitioner who is incarcerated did not appear but instead submitted a statement under rule c respondent offered the testimony of the settlement officer who handled petitioner's request for a hearing under sec_6330 we base our findings on the facts that are not in dispute petitioner's submissions and various documents from petitioner's administrative file in the record we rely on respondent's witness's testimony only to the extent it contains admissions or establishes the foundation for admitting the material in petitioner's administrative file background petitioner was incarcerated at oakhill correctional institution in oregon wisconsin at the time the petition was filed on date a final notice - notice_of_intent_to_levy and notice of your right to a hearing was mailed to petitioner pincite west wanda avenue milwaukee wisconsin wanda avenue address regarding unpaid federal income taxes for on unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure date petitioner timely requested a hearing by filing a form request for a collection_due_process_hearing in which he listed the wanda avenue address as his address on date the settlement officer assigned to petitioner's case mailed an acknowledgment letter and appeals process flyer to petitioner at the wanda avenue address an assignment letter requesting that petitioner contact the appeals_office to schedule a hearing was sent to petitioner's wanda avenue address on date after no response was received with respect to the foregoing letters the settlement officer confirmed the wanda avenue address as the address of petitioner recorded on respondent's integrated data retrieval system idrs and sent a second assignment letter to the wanda avenue address on date requesting that petitioner contact her by date petitioner responded to this letter by telephoning the settlement officer on date they conducted a hearing over the telephone at that time petitioner advised the settlement officer of his belief that he was due a refund with respect to his tax_year and of his desire to file a corrected return for petitioner claimed to have filed previously for petitioner requested that the settlement officer provide him a return form for completion and filing petitioner further requested return forms for and so that he could become current in his filing obligations in the course of this discussion petitioner advised the settlement officer that he would be going to jail on the day after their telephone conversation date the settlement officer mailed a letter to petitioner at the wanda avenue address which enclosed return forms for and through and set a date deadline for petitioner to submit completed returns for these years on date petitioner was incarcerated in the wisconsin state prison system petitioner did not submit the completed returns or any other materials by the december deadline on date respondent mailed a notice_of_determination dated date regarding the proposed levy for to the wanda avenue address using certified mail return receipt requested respondent received a return receipt card indicating that the notice_of_determination was accepted at the wanda avenue address on date the wanda avenue address was also the address given in the most recent federal_income_tax return that petitioner filed prior to the mailing of the notice_of_determination namely petitioner's return for received by respondent on date on date the settlement officer received a letter from petitioner dated date and postmarked date advising that he had been incarcerated since date had had no mail forwarded to him by prison authorities and therefore had been unable to complete the return or any of the other return forms as requested by the settlement officer petitioner sought a further extension of time to file a return for petitioner further requested that all materials be retransmitted to him at oakhill correctional institution county hwy m p o box oregon wisconsin on date days after respondent mailed the notice_of_determination the court received a document from petitioner that was filed as his petition for lien or levy action the document was in an envelope postmarked date respondent subsequently filed a motion to dismiss for lack of jurisdiction discussion sec_6330 establishes the procedures for administrative and judicial review of actions to collect by levy sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of the right to a hearing before the levy is made if a hearing is requested it is held by the internal_revenue_service office of appeals sec_6330 following the hearing the appeals officer will issue a written_determination setting forth his findings and decisions sec_301 e q a-e8 i proced admin regs sec_6330 provides that a person may within days of a determination appeal the determination to the tax_court or if the tax_court does not have jurisdiction over the underlying tax_liability to a federal district_court the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress 85_tc_527 the court's jurisdiction under sec_6330 depends on the issuance of a valid notice_of_determination and the filing of a timely petition for review see 117_tc_122 114_tc_492 it follows that when a petition is not timely filed we are obliged to dismiss the case for lack of jurisdiction see 115_tc_114 in his motion respondent argues that the petition is untimely and that the court therefore lacks jurisdiction petitioner maintains that his incarceration and subsequent transfers within the wisconsin prison system prevented him from receiving mail from date through at least date therefore petitioner argues that he did not receive the sec_301_6330-1 proced admin regs clarifies that this 30-day period commences on the day after the date of the notice_of_determination notice_of_determination with sufficient time to file a timely petition with this court although sec_6330 does not specify the means by which the commissioner is required to give notice of a determination made under sec_6330 we have held that use of the method authorized in sec_6212 and b for notices of deficiency is sufficient 122_tc_258 thus if a notice_of_determination is sent by certified or registered mail to the taxpayer at his last_known_address it is sufficient and valid for purposes of commencing the 30-day period in which the petition must be filed regardless of whether the taxpayer actually receives the notice in time to petition the court id pincite petitioner argues in the alternative that we should extend the period for him to file his petition under fed r civ p b although the federal rules of civil procedure may be instructive in the interpretation and application of our rules see eg 119_tc_242 83_tc_302 this court is governed by its own rules see sec_7453 this court's counterpart to fed r civ p b is rule c see explanatory note to rule c 60_tc_1080 rule c provides that the court in its discretion may make longer or shorter any period provided by these rules emphasis added rule c then distinguishes the period fixed by statute within which to file a petition with the court to redetermine a deficiency or a liability and provides that such periods cannot be extended by the court fed r civ p b does not address time periods fixed by statute and thus has little relevance here consistent with rule c we lack authority to extend the period for filing a petition fixed by sec_6330 respondent sent the notice_of_determination dated date by certified mail to the wanda avenue address on date the petition in this case was received by the court on date in an envelope postmarked date4 - that is and days respectively after the date the notice_of_determination was issued and mailed accordingly our jurisdiction depends on whether the wanda avenue address was petitioner's last_known_address at the time the notice was mailed the court_of_appeals for the seventh circuit where an appeal in this case would ordinarily lie has indicated that a taxpayer's last_known_address is the address which in light of the circumstances the commissioner reasonably believes is the address at which the taxpayer wishes to be reached at the time the notice_of_deficiency is sent 946_f2d_45 7th cir 929_f2d_329 7th cir the commissioner may rely on the address found in the return being audited5 or the most recent see sec_7502 and a rule a the court_of_appeals for the seventh circuit has not adopted the position of this court and other courts of appeals that the address on the taxpayer's most recently filed return generally constitutes the last_known_address instead the address on a subsequently filed return is relevant but not dispositive concerning the last_known_address compare 907_f2d_517 5th cir most recent tax_return filed revg 92_tc_949 cylcone drilling inc v continued address in his files unless there is 'clear and concise notification from the taxpayer directing the commissioner to use a different address ' goulding v united_states supra quoting 653_f2d_1185 7th cir eschweiler v united_states supra 91_tc_1019 the burden falls on the taxpayer to give clear and concise notification to the commissioner of a change in address eschweiler v united_states supra pincite goulding v united_states supra pincite 62_tc_367 the commissioner need only exercise reasonable diligence in attempting to discover the taxpayer's last_known_address eschweiler v united_states supra pincite indeed in the view of the court_of_appeals for the seventh circuit even where the commissioner has become aware that the address obtained from the taxpayer may not be where he is currently residing the commissioner is entitled to use such address absent clear and concise notification from the taxpayer of a new address id pincite even though aware that taxpayer's lease had expired for the address commissioner used commissioner entitled to use such continued kelley 769_f2d_662 10th cir most recent tax_return filed 724_f2d_808 9th cir most recent tax_return filed 91_tc_1019 most recent tax_return filed with 946_f2d_45 7th cir 653_f2d_1185 7th cir address absent clear and concise notification by taxpayer in determining whether the commissioner acted with reasonable diligence to identify the taxpayer's last_known_address the focus of the inquiry is the information the commissioner had available to him at the time the notice was mailed 128_f3d_118 2d cir eschweiler v united_states supra pincite whether the commissioner has discharged his obligation of reasonable diligence is a question to be resolved upon the facts and circumstances of each case mcpartlin v commissioner supra when the taxpayer is incarcerated we and other courts have generally held that the commissioner is entitled to treat an address given in the return under audit or in the return most recently filed as the last_known_address even where the commissioner has some knowledge of the incarceration absent clear and concise notification by the taxpayer that the place of incarceration or some other address should be used see eg 297_f2d_760 9th cir snell v commissioner tcmemo_1993_470 affd without published opinion 50_f3d_16 9th cir agustin v commissioner tcmemo_1992_167 tirado v commissioner tcmemo_1979_448 cf 437_fsupp_247 d md last_known_address was place of incarceration where taxpayer advised commissioner of place and commencement_date of incarceration the exceptions have generally arisen where the knowledge that the commissioner possesses regarding the taxpayer’s incarceration is quite specific and there is an infirmity in the last_known_address on which the commissioner seeks to rely see 539_f2d_231 d c cir notice not sent to last_known_address where commissioner aware that taxpayer had been incarcerated in atlanta penitentiary for years and mailed notice to warden there for service on taxpayer 74_tc_377 commissioner participated in prosecution resulting in taxpayers' conviction for federal tax crimes therefore taxpayers' whereabouts in federal prison system readily available to commissioner address on which commissioner relied not given on returns for years involved 62_tc_543 deficiency determined as a result of commissioner’s agent’s interview of taxpayer in jail neither address on which commissioner relied had been provided by taxpayer for the reasons discussed below we conclude that the wanda avenue address was petitioner’s last_known_address when respondent mailed the notice_of_determination the wanda avenue address was the address reported by petitioner in the last return he filed before respondent’s mailing of the notice_of_determination namely his federal_income_tax return received by respondent on date moreover petitioner listed the wanda avenue address as his address on his form submitted on date see schake v commissioner tcmemo_2002_262 address listed on request for hearing considered in determining last_known_address for sec_6330 purposes as the wanda avenue address was both the address reported in petitioner’s most recently filed return and that listed in his request for a hearing under sec_6330 we conclude that it was his last_known_address as of the commencement of his sec_6330 hearing the question becomes whether petitioner’s informing the settlement officer of his pending incarceration caused any change in the address that respondent was entitled to rely on as the last_known_address when the notice_of_determination was mailed we conclude in the circumstances of this case that it does not according to the settlement officer's case notes and correspondence with petitioner in a telephone conference in addition petitioner responded to the settlement officer’s followup letter of date sent to the wanda avenue address we note that the settlement officer sent the date letter to the wanda avenue address only after verifying that address in respondent's computerized idrs file listings of taxpayer addresses as petitioner had failed to respond to two earlier letters sent to the wanda avenue address as followups to his request for a hearing because the address reported in the most recently filed return and that listed in the request for the sec_6330 hearing were the same we have no occasion to consider whether the last_known_address standard employed by the court_of_appeals for the seventh circuit which accords greater weight to the address on the return currently under audit should result in greater weight being given to the address listed on the hearing request rather than any different address in the most recently filed return conducted on date petitioner and the settlement officer agreed that petitioner would submit tax returns for and through pursuant to a time frame that the settlement officer would establish in her letter to petitioner forwarding the necessary return forms on date the settlement officer sent petitioner a letter at the wanda avenue address forwarding the return forms and setting date as the deadline for returning the completed forms petitioner clearly received this letter as he references the date deadline and acknowledges his agreement to submit a return by then in his various submissions to the court petitioner was incarcerated on date but he did not contact the settlement officer before then or indeed until his letter of date advising of his new address at the oakhill correctional institution we do not believe petitioner was unaware that his incarceration would commence on date when he spoke with the settlement officer on date or when he received her date letter shortly thereafter the in his various submissions petitioner has at no point claimed that he advised respondent of the date or place of his incarceration prior to his date letter notwithstanding the fact that respondent claimed in support of his motion to dismiss that petitioner did not notify respondent of a new address until date when respondent's appeals_office received petitioner's letter dated date in which petitioner notified respondent of a change_of address settlement officer concedes that petitioner had made her aware of his pending incarceration in their date conversation but claims that petitioner did not advise her of any specifics concerning the date or place on the basis of the date letter which evidences the settlement officer's lack of awareness of petitioner's imminent incarceration and petitioner's failure to claim otherwise we find that petitioner did not advise respondent of the date or place of his incarceration prior to his letter of date indeed by his silence in the face of imminent incarceration petitioner allowed the settlement officer to be misled about his whereabouts the caselaw concerning last_known_address generally places the burden on the taxpayer to apprise the commissioner through clear and concise notification of any change_of address including circumstances where the taxpayer has been incarcerated see 297_f2d_760 9th cir snell v commissioner tcmemo_1993_470 agustin v commissioner tcmemo_1992_167 tirado v commissioner tcmemo_1979_448 the rationale is that the place of incarceration may constitute a temporary place of abode and to require the commissioner to keep track of a taxpayer's whereabouts in these circumstances would impose an impossible administrative burden on him cohen v see supra note commissioner supra pincite the exceptions to the taxpayer's burden to provide clear and concise notification have occurred where the commissioner had at his disposal specific information concerning the whereabouts of an incarcerated taxpayer see 539_f2d_231 d c cir 74_tc_377 62_tc_543 here petitioner does not allege and we do not find that he notified respondent that he wished any correspondence to be sent to him at his place of incarceration prior to respondent's mailing the notice_of_determination on date while petitioner informed the settlement officer that he would be going to jail this information was not of sufficient clarity and precision to fulfill petitioner's duty_of providing clear and concise notice of a definite change_of address tirado v commissioner supra moreover there is no allegation or suggestion that respondent had some other means of knowing the specifics of petitioner's incarceration such that petitioner might be relieved of his duty to provide clear and concise notification of any change in address keeton v commissioner supra is instructive in that case the commissioner had participated in the prosecution that led to the taxpayer's conviction for federal tax crimes thus we concluded that the commissioner knew the taxpayer was in federal prison and could have readily ascertained his whereabouts similarly in diviaio v commissioner supra on which petitioner relies the commissioner's knowledge of the taxpayer's place of incarceration was patent as the commissioner mailed the notice_of_deficiency to the warden at the federal penitentiary in atlanta for service on the taxpayer here there is no allegation or suggestion that respondent knew at the time the notice_of_determination was mailed whether petitioner was in the federal or state penal system much less the precise location where petitioner was incarcerated finally we note that the notice_of_determination mailed on date to petitioner at the wanda avenue address was accepted there on date which suggests that petitioner had made arrangements to receive mail there and intended for mail to be sent there see snell v commissioner supra we accordingly hold that petitioner's last_known_address when the notice_of_determination was mailed was the wanda avenue address to which the notice was mailed on date the notice was therefore sufficient to commence the 30-day period within which petitioner could appeal the determination to the tax_court under sec_6330 122_tc_258 as the petition was postmarked on date and delivered to the court on date or and days respectively after the issuance and mailing of the notice_of_determination we are obliged to grant respondent's motion to dismiss for lack of jurisdiction 117_tc_122 115_tc_114 to reflect the foregoing an order of dismissal for lack of jurisdiction will be entered


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp -plr date date legend company district selling shareholders date date date date state c xxx ppp project b ddd percent purchaser purchaser purchaser ccc hhh plr dollar_figurefff dollar_figureggg dollar_figureiii case j dear this letter responds to the date request for rulings submitted by your representative on behalf of company and the selling shareholders listed on the attached schedule a with respect to the transfer of certain water rights you have requested a ruling that for federal_income_tax purposes company's participation in the procedures by which the transfer of the water is accomplished in conjunction with the sales by the selling shareholders of their rights to the water will not constitute a sale_or_other_disposition of property by company nor a distribution_of_property by the company to the selling shareholders with respect to their stock additionally you have requested rulings on whether the water rights will constitute capital assets in the hands of the selling shareholders and whether certain_sales of these water rights will constitute sales or exchanges of capital assets the information submitted in the request and in a later submission is summarized below facts company was organized on date as a ditch and reservoir company and is subject_to state c's statutory requirements for mutual ditch companies company uses the cash_method_of_accounting and its fiscal_year ends on date approximately xxx of the company's shareholders are selling shareholders the other shareholders are not transferring any of their water rights and are not involved in the transactions described herein state c mutual ditch companies generally were created when a group of farmers banded together and formed the cooperative company for the express purpose of storing and conducting water for irrigation purposes company's primary function has been to deliver to and store the water of its shareholders the company's assets are limited to those necessary to deliver and store the water these assets include weirs canals dams water control devices and a storage reservoir the shareholders used the bylaws and shares to quantify each of their beneficial use rights in the water transported by the company the company owns no land on which to make use of the water it transports and stores although water is derived from two sources only the water from project b the project b water as described below is the subject of this ruling_request plr on date district a quasi-governmental corporation subject_to state c's statutory requirements for such entities entered into an agreement the repayment contract with the united_states bureau of reclamation the bureau for the development of project b project b emanates from the reclamation act of as amended the repayment contract grants district the right to allocate the project b water the district does so through allotment contracts that require the water users to pay their proportionate share of the district's costs to operate and maintain project b and to repay the federal government for its construction costs the operating reimbursements costs on date district entered into an allotment contract with company which provided that company would be entitled to receive an allocation of water for the beneficial use of its shareholders the project b water was then allocated pro_rata among the shareholders based on their shares in addition to paying on a pro_rata basis company's annual operating_expenses based on their respective allocation of project b water each shareholder pays his proportionate share of the operating reimbursements costs under the allotment contract conditions in state c are such that water is in great demand as such the selling shareholders intend to relinquish their beneficial_ownership of ddd percent of the project b water through three sales agreements the master sales agreements with purchaser purchaser and purchaser the master sales agreements with purchaser and purchaser provide they will acquire an aggregate of ccc units of project b water at dollar_figurefff per unit and dollar_figureggg per unit respectively the master sales agreement with purchaser provides for an allocation of hhh units of project b water at dollar_figureiii per unit in order to satisfy certain transfer requirements of the district the master sales agreement with purchaser includes an option for purchaser to take all or some of the units through a twenty-five year interruptible supply contract the interruptible supply contract under the interruptible supply contract the price for the units is the same as in the master sales agreement and it includes an option to purchase the units for a nominal fee by its terms the interruptible supply contract will remove beneficial_ownership of the units from the selling shareholders you have indicated that purchaser has elected to take all the units pursuant to the interruptible supply contract the selling shareholders will be paid in full for all units upon the closing of all three transactions including the transaction subject_to the interruptible supply contract to facilitate the negotiation of the master sales agreements and the interruptible supply contract the selling shareholders created ppp to act as their agent the only members of ppp are the selling shareholders the selling shareholders are not selling their shares in company but their shares will bear a legend to reflect that they are no longer entitled to their full allocation of the project b water plr you have indicated that company is not materially participating in the transactions described above company as a party to the allotment contract however will agree to the amendment of the allotment contract to reflect the reduced allotment of project b water the master sales agreements and the interruptible supply contract are conditioned on our rulings herein however the selling shareholders due to the crisis situation in state c have already transferred some of the project b water to the purchasers the emergency sales the consideration received by the selling shareholders from these emergency sales is being held in escrow pending our rulings herein according to the courts of state c mutual ditch companies are unique entities which are formed not under state c' s general corporation statutes but under special legislation reserved for ditch and reservoir companies in analyzing the relationship between the shareholders and mutual ditch companies in regards to water rights the supreme court of state c in case j has stated that a mutual ditch company is merely engaged in the business of transporting and storing the water for its shareholders benefit and the law of state c uniformly holds that the actual ownership of the water rights is in the shareholder the supreme court's analysis noted that a longstanding tenet of state c law is that ownership of a water right can be acquired only by the actual beneficial use of the water mere diversion is not sufficient to meet the requirements of state c's constitution finally the supreme court noted that it is well established that the water rights owned by the shareholders are property rights accordingly based on this supreme court's decision and other decisions by this court it is clear that under state c law company is not the beneficial_owner of any of the water it transports for the benefit of its shareholders including the project b water representations company has represented that it is not a party to the master sales agreements or the interruptible supply contract and shall not receive any proceeds or other consideration arising or resulting from the transactions described herein based on the information and representations submitted we rule as follows the selling shareholders for federal_income_tax purposes are the beneficial owners of the project b water rights and the sale of such rights including the short-term emergency sales described above will not be deemed to be a sale_or_other_disposition of property by the company or a distribution_of_property by the company to the selling shareholders with respect to their stock accordingly the company will not realize gain_or_loss as a result of the selling shareholders' transactions sec_1001 sec_301 sec_311 plr the beneficial rights in the project b water constitutes a capital_asset in the hands of the selling shareholders sec_1221 the transfer of the beneficial rights in the project b water under the master sales agreements and the interruptible supply contract constitute sales of capital assets by the selling shareholders sec_1222 caveat no opinion is expressed about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling for example no opinion is expressed about whether the short-term emergency sales constitute sales or exchanges of capital assets nor are we opining on the selling shareholders' bases in these water rights the rulings contained in this letter are based upon information and a representation submitted by the company and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination procedural statements this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your taxpayer_representative sincerely steven hankin senior technical reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index number -------------------------------- ---------------------------- ------------------------ ------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-101803-10 date date legend x a -------------------------- ---------------------- ---------------------------------- b ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------- state court d1 d2 d3 ------------ --------------------------------------------------------------- --------------------------- --------------------- -------------------------- dear --------------------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling that x's subchapter_s_election did not terminate on d2 the information submitted states that x was incorporated in state on d1 x made an election to be treated as an s_corporation effective d1 as part of x’s formation x’s founding shareholders which included a executed a shareholders’ agreement under this agreement a shareholder desiring to transfer shares of x must i obtain the plr-101803-10 consent of the other shareholders prior to transfer ii the transferee must become a party to the agreement and iii no transfer is allowed if the transfer would result in the termination of x’s s_corporation status on d2 a attempted to transfer a portion of his shares in x to b which is not an eligible s_corporation shareholder on d3 court entered an order holding that the attempted transfer of a's shares in x to b was null and void and that a remained the record and legal owner of all of the shares a attempted to transfer to b sec_1362 of the internal_revenue_code provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1362 provides that an s election terminates whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation based solely on the facts and representations submitted because a's transfer of x shares to b was void ab initio under state law as determined by court we conclude that x's s_corporation_election did not terminate on d2 accordingly as b was never a shareholder of x x will be treated as continuing to be an s_corporation from d2 and thereafter provided x's s_corporation_election was valid and has not otherwise terminated under the provisions of sec_1362 x and all its current and prior shareholders must treat x as having been an s_corporation for the period from d2 to the present in addition x and its shareholders must treat a as having been the shareholder of the x shares which a attempted to transfer to b and amend any prior tax returns that are inconsistent with this treatment any amended returns required under this paragraph must be filed within days of the date of this ruling or it will be null and void a copy of this letter must be attached to any such returns except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-101803-10 pursuant to a power_of_attorney on file a copy of this letter is being sent to x's authorized representatives sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index numbers ---------------------------------- ------------------------------------------------- ----------------------- -------------------------------- ------------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------ telephone number --------------------- refer reply to cc psi plr-122176-09 date date legend x --------------------------------------------------- --------------------------------------------------- d1 d2 country --------------------------- ---------------- --------------------------- dear -------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d2 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective d2 plr-122176-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 and iii provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that an election under sec_301_7701-3 must be signed by - a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury sec_301_7701-3 provides that if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301 c i for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-122176-09 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 effective d2 with the appropriate service_center to elect to be classified as a disregarded_entity a copy of this letter should be attached to the form_8832 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 ita b04 plr-162105-05 date date -------------------------- ------- ------- ------- ------- ----------------------------- ----------------------------------------------------------------- ----------------------------- taxpayer date date year year year year city state ------------------------------------- ---------------------------------------------------------------------------- property a dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg notice airport authority ------------------------------------------------------------------------------------------------------ dear ------------------- this responds to your letter dated date requesting rulings on whether your settlement proceeds should be treated as gain from the sale of a principal_residence and if so whether you are eligible to exclude the gain under sec_121 of the --------------------------------------------------------- ----------------------------------------------------------------- ------------ ------------ --------- ------------ --------- ----------- --------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------------------------------------ plr-162105-05 internal_revenue_code you supplemented your request with letters and additional materials on date and on date facts in year taxpayer moved into the city the city located in state is serviced by airport when taxpayer first moved into the city metropolitan area he lived in an apartment located approximately a miles from airport on date taxpayer purchased property also located about a miles from airport for dollar_figurea taxpayer represents that he owned and used_property as his principal_residence for slightly more than months on date taxpayer sold property to an unrelated purchaser taxpayer’s gross_proceeds on the sale were dollar_figureb his amount_realized after paying a sales commission of dollar_figurec was dollar_figured taxpayer thus realized a nondeductible loss of dollar_figuree dollar_figured minus dollar_figurea on the sale of property in year which taxpayer properly did not claim on his year federal_income_tax return shortly after purchasing and occupying property taxpayer realized there was substantial noise from airplanes flying overhead during peak flight periods early mornings and early evenings taxpayer represents that had he known or been advised how noisy the flight traffic would be he would not have purchased property in year after taxpayer had unsuccessfully sought to rescind the sale he brought a civil_action for damages against the sellers their real_estate agent his own real_estate agent and the agencies with which the realtors were associated arguing that the defendants had a duty to disclose the airport noise prior to the sale in year the defendants paid taxpayer dollar_figuref in settlement of the litigation under the law of state sellers are expressly required to disclose noise from commercial nuisances affecting residential property and any notice from a governmental agency which may affect title to property residential property owners within the noise impact zone surrounding airport also receive a specific notice from the airport authority the notice advises such owners that their property is exposed to average aircraft noise levels which exceed typical ground-based or background noise state law requires sellers of property to disclose any governmental notice affecting the property the notice is a governmental notice the notice serves as a notice of potential aircraft noise impact upon the recipients’ property and the notice of potential noise impact should be disclosed to all prospective purchasers who may be considering use of the property for a residential purpose taxpayer represents and the material he submitted shows that he had specifically advised his agent that he wanted to be away from a major highway or road and had rejected one home he was shown because of road noise he had briefly visited the property a total of about times at different times of day and during both weekdays and the weekend he had not heard airplane traffic on any of those visits he had plr-162105-05 discussed the prevalence of noise with residents in the area before buying property and he did not receive from the sellers or real_estate agents the notice of potential airport noise expressly required by state law as noted above the distances between the apartment and airport and between property and airport were approximately the same however the apartment is located southeast of airport whereas property is southwest of airport due to this directional difference residents of the subdivision in which property is located are subject_to significantly more airport noise than are residents of the apartment an affidavit from an airport authority official obtained by taxpayer in connection with his lawsuit against the seller and the real_estate agents contains information to the effect that the subdivision in which property was located was subject_to five times more sound energy than was the area surrounding the apartment this difference was due to the direction of airport’s runways the official’s affidavit also provides explanations of how it is possible for someone to briefly visit the subdivision in which property is located and not hear aircraft noise taxpayer has asked us to rule that the settlement proceeds received in year should be treated in the same manner as proceeds from the sale of his principal_residence second taxpayer requests us to rule that the sale of property was due to unforeseen circumstances and that any gain realized on the sale is excluded under sec_121 law and analysis a treatment of the settlement proceeds in determining how settlement proceeds should be taxed the service and the courts generally ask in lieu of what was the settlement amount_paid 102_tc_465 102_tc_116 80_tc_1104 144_f2d_110 1st cir cert_denied 323_us_779 in determining the nature of the claim and thus the taxability of the proceeds the most important factor to consider is the intent of the payor considering all the facts and circumstances allen v commissioner tc memo citing 349_f2d_610 10th cir affg t c memo the essential question in such a case is what is the basic reason for the payment 290_f2d_283 2d cir determining the payor's intent is a factual inquiry that requires consideration of all factors involved in resolving the claim including the parties' allegations evidence arguments and the terms of any settlement in the present case the pleadings consistently reflect taxpayer’s claims that the defendants failed to disclose that property was affected by airport noise and that he was entitled to damages as a consequence of the failure to disclose in effect taxpayer argued that his home was plr-162105-05 less valuable than he thought because of the airport noise thus in our view taxpayer’s lawsuit was directly tied to the property purchased by taxpayer and the proceeds he received should be treated in the same manner as proceeds from the sale of property 344_us_6 also is instructive in determining the tax treatment of the settlement proceeds arrowsmith involved two taxpayers who in decided to liquidate and divide the proceeds of a corporation in which they had equal stock ownership all distributions were made by and the taxpayers properly reported the profits obtained from the distributions as capital_gains in a judgment was rendered against the old corporation and against one of the taxpayers individually the two taxpayers as transferees of the corporation’s assets were required to and did pay the judgment for the corporation the taxpayers argued that because each taxable_year stands on its own under the annual accounting principle and there was no sale_or_exchange in they were entitled to an ordinary business deduction in that year this view was rejected by the court however which accepted the service’s position that the loss was capital because it was part of the original liquidation transaction and in essence was a diminution of the original_proceeds the court agreed that the returns from through should not be re-opened and readjusted but rejected the argument that annual accounting required ordinary_loss treatment in in essence by holding that characterization of a later-year transaction was determined in correlation with a prior-year transaction the court dispensed with the need for an actual or deemed sale_or_exchange in the later year arrowsmith has been applied in many cases and rulings in particular see kimbell v united_states 490_f2d_203 cert_denied 419_us_833 sale of interest in oil_and_gas leases resulted in capital_gain taxpayer’s subsequent-year settlement of claim involving illegal slanting of wells treated as capital_loss by reference to prior-year transaction rather than as a deduction against ordinary_income for payment of an ordinary and necessary business_expense and revrul_79_278 1979_2_cb_302 corporation which incurred a short-term_capital_loss on sale of stock entitled to treat settlement proceeds in later year as short-term_capital_gain viewed in isolation the settlement proceeds received by taxpayer in year would be ordinary_income because there was no sale_or_exchange however under arrowsmith and the other case law discussed above the year settlement proceeds are characterized by reference to the sale transaction occurring in year and thus are treated as proceeds from the sale of a principal_residence held for more than one year by taxpayer accordingly dollar_figuree of the settlement proceeds received by taxpayer is a return_of_capital and not includible in his gross_income the remaining portion of the proceeds dollar_figureg is treated in year as gain from the sale of a principal_residence see generally bittker lokken federal taxation of income estates and gifts vol paragraph 3d ed warren gorham lamont plr-162105-05 b sec_121 taxpayer also argues that the sale of property was due to unforeseen circumstances and that any gain realized on the sale including the settlement proceeds treated as gain is excluded under sec_121 sec_121 provides that a taxpayer's gross_income will not include gain from the sale_or_exchange of property if during the five-year period ending on the date of the sale_or_exchange such property has been owned and used by the taxpayer as the taxpayer's principal_residence for periods aggregating two years or more the full exclusion is available only once every two years sec_121 provides that the maximum exclusion amount is dollar_figure dollar_figure for married taxpayers sec_121 provides for a reduced maximum exclusion for taxpayers who fail to satisfy the ownership and use tests or the limit of one sale every two years if the primary reason for sale_or_exchange is a change in place of employment health or unforeseen circumstances the reduced maximum exclusion is computed by multiplying the maximum dollar limitation of dollar_figure dollar_figure for certain joint filers by a fraction the numerator of the fraction is the shortest of the following periods the period of time that the taxpayer owned the property during the 5-year period ending on the date of the sale_or_exchange the period of time that the taxpayer used the property as the taxpayer's principal_residence during the 5-year period ending on the date of the sale_or_exchange or the period of time between the date of a prior sale_or_exchange of property for which the taxpayer excluded gain under sec_121 and the date of the current sale_or_exchange the numerator of the fraction may be expressed in days or months the denominator of the fraction is days or months depending on the measure of time used in the numerator sec_1_121-3t b of the temporary income_tax regulations provides the following factors for determining the taxpayer’s primary reason for the sale the extent to which the sale and the circumstances giving rise to the sale are proximate in time the suitability of the property as the taxpayer’s principal_residence materially changes the taxpayer’s financial ability to maintain the property is materially impaired the taxpayer uses the property as the taxpayer’s residence during the period of ownership of the property the circumstances giving rise to the sale are not reasonably foreseeable when the taxpayer begins using the property as the taxpayer’s principal_residence and the circumstances giving rise to the sale occur during the period of the taxpayer’s ownership and use of the property as the taxpayer’s principal_residence under sec_1_121-3t e a sale is by reason of unforeseen circumstances if the primary reason for the sale is the occurrence of an event that the taxpayer does not anticipate before purchasing and occupying the residence example of sec_1_121-3t e plr-162105-05 illustrates a situation in which a taxpayer did not meet the unforeseen circumstances test in example c buys a house that he uses as his principal_residence the property is located on a heavily-traveled road c sells the property before two years has elapsed because he is disturbed by the traffic the example concludes that c is not entitled to claim a reduced maximum exclusion under the unforeseen circumstances exception because the primary reason for the sale was the traffic and c could reasonably have anticipated the traffic at the time he purchased and occupied the house we believe that taxpayer conducted a reasonable investigation of property and did not anticipate the airport noise before purchasing and occupying property as provided in sec_1_121-3t e moreover example of sec_1_121-3t e is distinguishable from the facts of the present case first property was the same distance from airport as was the apartment from which taxpayer moved and the apartment was not affected by airport noise second taxpayer’s visits to property did not put him on actual notice of airport noise taxpayer’s statement that he visited property on multiple occasions without hearing such noise was buttressed by the affidavit of the airport authority official which provided explanations why such noise might not occur during a series of brief visits also prior to his purchase of property taxpayer talked to future neighbors who did not mention the airport noise third taxpayer did not receive the required governmental notice from the sellers or the real_estate agents a notice expressly designed to alert prospective purchasers that property was located within the noise impact zone and thus adversely affected by airport noise finally we accept taxpayer’s assertion that he would not have purchased property had he known of the airport noise additionally example of sec_1_121-3t e is distinguishable from the facts of the present case taxpayer did not move next to airport in the same way the taxpayer in example moved next to a heavily-traveled highway the taxpayer in the example clearly anticipated some noise just not as much as was actually experienced in contrast taxpayer did not anticipate airport noise when he purchased property as the affidavit from the airport official demonstrates the difference in noise between the apartment and property is a function of the runways’ orientation thus the difference in airport noise was due not to taxpayer’s distance from airport but rather direction this fact supports taxpayer’s contention that he did not anticipate any airplane noise at all based on the facts representations and the relevant law as set forth above we rule as follows the settlement proceeds are to be treated as proceeds from the sale of a principal_residence held for more than a year by taxpayer thus dollar_figuree of the settlement proceeds received by taxpayer is a return_of_capital and not includible in his gross_income the plr-162105-05 remaining portion of the proceeds dollar_figureg is treated as gain from the sale of a principal_residence taxpayer’s primary reason for the sale of property was an unforeseen circumstance consequently taxpayer is allowed to exclude the dollar_figureg of gain under sec_121 in year caveats a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under ' except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter in addition no opinion is expressed or implied as to whether taxpayer has used_property as his principal_residence this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting enclosure copy for sec_6110 purposes


t c memo united_states tax_court wayne t howard petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in burlington massachusetts during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


t c memo united_states tax_court ronald r armacost and cathy l armacost petitioners v commissioner of internal revenue respondent docket no filed date richard p algeo for petitioners julie l payne for respondent memorandum findings_of_fact and opinion dean special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in ronald and cathy armacost's federal income taxes for the taxable_year in the amount of dollar_figure 1section references are to the internal_revenue_code in effect for the year at issue rule references are to the tax_court rules_of_practice and procedure the sole issue for decision is whether interest payments on a promissory note made by ronald armacost petitioner to his ex- wife are deductible some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference petitioners resided in liberty lake washington at the time their petition was filed findings_of_fact petitioner married linda l armacost in during their marriage petitioner and linda armacost accumulated numerous assets including stocks bonds a personal_residence vacation properties and other liquid_assets they also acquired several commercial properties on which they developed constructed and operated gas stations and convenience stores petitioner and linda armacost resided only in the community_property states of washington or idaho during their marriage therefore most of their assets were owned in undivided one-half interests in date petitioner and linda armacost legally_separated they agreed to divide their property equally and executed a separation agreement designating which property would be allocated to whom all their property along with its value at date of dissolution was divided as follows ronald armacost lake home at priest lake idaho dollar_figure all boats boat motors and trailers and motorcycles plus household furnishings dollar_figure hawaiian condominium at kihei maui dollar_figure and debt on family home -dollar_figure all capital stock in budget oil co inc dollar_figure one-half of all investment stocks dollar_figure one-half of all royalty rights in procto-therm dollar_figure one-half of all limited_partnership interests in oil well rotator and handlebar dollar_figure one-half of existing partnership interests in cable marque and dinestalon dollar_figure individual_retirement_accounts dollar_figure one-half interest in ronald armacost's budget oil co inc pension and profit sharing plan dollar_figure commercial property located at n division -dollar_figure commercial property located at division and augusta dollar_figure commercial property located at university city dollar_figure commercial property located on pines road dollar_figure commercial property located in moscow idaho dollar_figure building at third and maple dollar_figure commercial property located at liberty lake dollar_figure and bank note - mcdonald's property -dollar_figure ranch land located in adams county idaho dollar_figure total assets dollar_figure linda armacost family home dollar_figure vehicles and household furnishings dollar_figure and account balances dollar_figure mcdonald's property dollar_figure miller real_estate contract dollar_figure lang real_estate contract dollar_figure one-half of all investment stocks dollar_figure one-half royalty rights in procto-therm dollar_figure one-half partnership_interest in cable marque and dinestalon dollar_figure one-half of all limited_partnership interests in oil well rotator and handlebar dollar_figure one-half interest in ronald armacost's budget oil co inc pension and profit-sharing_plan dollar_figure total assets dollar_figure petitioner received more property upon dissolution of the marriage than did linda armacost so he signed a promissory note in the amount of dollar_figure payable to linda armacost to equalize the distribution of assets the note was payable for years pincite percent interest linda armacost also was granted a security_interest in the properties transferred to petitioner petitioner made payments to linda armacost under the note and deducted the interest_paid on his federal_income_tax return for taxable_year respondent disallowed the deduction on the ground that the interest was nondeductible personal_interest under sec_163 opinion respondent contends that the interest on the note was incurred for purposes of dividing community_property incident_to_divorce sec_1041 provides that no gain_or_loss shall be recognized on the transfer of property incident_to_divorce and the property is treated as having passed to the transferee by gift respondent argues that the interest here is nondeductible because the underlying debt is traced back to the divorce a personal purpose this is essentially the same argument respondent made in 109_tc_279 in the seymour case the taxpayer incurred indebtedness to his ex-spouse upon his divorce respondent disallowed his interest_deduction on the ground that sec_1041 characterized the taxpayer's interest as personal_interest under sec_163 in that case the taxpayer prevailed because we concluded that sec_1041 does not require indebtedness to a former spouse incident_to_divorce to be characterized as personal_interest for purposes of sec_163 seymour v commissioner supra pincite if the taxpayer can satisfy the requirements of sec_163 through e the interest will be properly deductible under sec_163 id generally sec_163 provides that interest on indebtedness is deductible by the taxpayer in the year it is paid sec_163 however substantial limitations are placed on this general_rule which may limit or prohibit the taxpayer from deducting indebtedness interest at all sec_163 provides that for an individual taxpayer personal_interest is nondeductible personal_interest is defined in sec_163 as the residual of what remains after considering five enumerated exceptions these exceptions are as follows a interest_paid or accrued on indebtedness properly allocable to a trade_or_business other than the trade_or_business of performing services as an employee b any investment_interest within the meaning of subsection d c any interest which is taken into account under sec_469 in computing income or loss from a passive_activity of the taxpayer d any qualified_residence_interest within the meaning of paragraph and e any interest payable under sec_6601 on any unpaid portion of the tax imposed by sec_2001 for the period during which an extension of time for payment of such tax is in effect under sec_6163 or sec_6166 or under sec_6166a as in effect before its repeal by the economic_recovery_tax_act_of_1981 sec_163 the exception relating to investment_interest is the basis for petitioner's claim interest on indebtedness must be allocated in the same manner as its underlying debt sec_1_163-8t temporary income_tax regs fed reg date underlying debt is allocated by tracing specific disbursements of the proceeds to specific expenditures id if the underlying debt is incurred as a personal_expenditure the interest on that debt may not be deducted under sec_163 except to the extent such interest is qualified_residence_interest sec_1_163-8t example temporary income_tax regs fed reg date but if the underlying debt is incurred to acquire investment_property the interest on that debt is deductible under sec_163 as investment_interest sec_163 investment_interest is defined as any interest_paid on indebtedness properly allocable to investment_property sec_163 investment_property includes property producing gross_income from interest dividends annuities or royalties not derived in the taxpayer's trade_or_business or property held in the course of the taxpayer's trade_or_business which is neither a passive_activity nor an activity in which the taxpayer materially participates sec_163 sec_469 to determine whether the promissory note signed by petitioner is indebtedness traceable to investment_property we look at the nature of the underlying assets acquired by petitioner as a result of the divorce to the extent the note was made to acquire linda armacost's community interest in their investment_property the interest_paid on that note will be properly characterized as investment_interest and will be deductible under sec_163 to the extent however the note was made to acquire her interest in noninvestment property the interest will not be deductible as investment_interest under sec_163 respondent's determinations are presumed correct and petitioner has the burden of proving them erroneous rule a 290_us_111 the separation agreement is silent as to which properties received by petitioner are attributable to the dollar_figure note but the lack of such designation in the settlement agreement does not affect the underlying character of the assets the value differential between what petitioner received and what linda armacost received may appear to be equal to the total property distribution upon the divorce however examination of the total property values is not the end of our analysis based on the record we are able to classify each property as either investment_property or noninvestment property petitioner received personal_property a condominium in maui and a lake house in idaho he also assumed the outstanding debt on the family home petitioner testified that these assets are noninvestment properties and the record supports such a finding the evidence also shows that petitioner's stock partnership interests and royalty rights ira pension and profit plan and commercial real_estate are investment_property linda armacost received the family home cash and personal_property which we find is noninvestment property for her share of investment_property linda armacost kept the mcdonald's property two land sale contracts her interest in investment stocks and partnership interests and one-half of their pension and profit sharing plan the character of these assets is reflected in the record and the parties do not dispute such a designation there is some dispute however as to the ranch located in adams county idaho and a condominium unit located in liberty lake washington respondent contends that the ranch land 2the value of petitioner's investment_property is reduced by his liability on the bank note on linda armacost's mcdonald's property allocated to petitioner is noninvestment community_property petitioner however testified that he inherited the ranch from his father in addition section paragraph of the settlement agreement states that the ranch land is the sole and separate_property of the petitioner property_acquired_by_bequest or devise is ordinarily that spouse's separate_property see in re estate of salvini p 2d wash therefore the ranch is not community_property and linda armacost had no right to receive payment for any interest in the property see 282_us_101 hansen v blevins p 2d idaho in re estate of salvini supra because petitioner already owned the ranch in its entirety we find that no part of the dollar_figure note is attributable to the acquisition of this property next we look at the condominium unit situated in liberty lake respondent argues that a condominium unit valued at dollar_figure was allocated to petitioner as noninvestment property petitioner however contends that the property located in liberty lake was not actually a condominium but was one of his commercial convenience stores after careful review of the record we agree with petitioner that the property the parties valued at dollar_figure is not a condominium unit and should be characterized as commercial investment_property the parties submitted joint exhibit 4-d schedule of assets received upon marital dissolution schedule of assets which refers to a commercial property in liberty lake valued at dollar_figure the schedule of assets only refers to one property in liberty lake the separation agreement however refers to two properties in liberty lake a condominium is described in section paragraph of the separation agreement and commercial real_estate abutting liberty lake road is found in section paragraph for reasons unknown a condominium in liberty lake is not listed on the schedule of assets petitioner testified however that the only noninvestment property he received outside of the personal_property was the condominium in maui and the house on the lake in idaho everything else petitioner claims is commercial investment_property his testimony is supported by the schedule of assets which categorizes the liberty lake property valued at dollar_figure as commercial property respondent's argument that the liberty lake property valued at dollar_figure is a noninvestment property is unsupported by the record we do not know the nature of the condominium in liberty lake but its character does not affect our finding that the commercial property in liberty lake valued at dollar_figure is includable in petitioner's acquisition of investment_property from linda armacost based on our findings above we draw the following conclusions regarding the value of properties distributed ronald armacost linda armacost noninvestment 1dollar_figure big_number investment 2dollar_figure 4big_number 1includes lake home in idaho dollar_figure personal_property and household furnishings dollar_figure condominium in maui dollar_figure and debt on the family home -dollar_figure 2includes all capital stock in budget oil co inc dollar_figure one-half of all investment stocks royalty rights and partnership interests dollar_figure ira dollar_figure one-half interest in pension and profit sharing plan dollar_figure commercial property located at n division -dollar_figure commercial property located at division and augusta dollar_figure commercial property located at university city dollar_figure commercial property located on pines road dollar_figure commercial property located in moscow idaho dollar_figure commercial property located at liberty lake dollar_figure real_estate at third and maple dollar_figure and a bank note on the mcdonald's property -dollar_figure 3includes the family home dollar_figure vehicles and household furnishings dollar_figure and account balances dollar_figure 4includes mcdonald's property dollar_figure miller real_estate contract dollar_figure lang real_estate contract dollar_figure one-half interest in investment stocks royalty rights and partnership interests dollar_figure one-half interest in pension and profit sharing plan dollar_figure petitioner received dollar_figure less than linda armacost in noninvestment property value and dollar_figure more than linda armacost in investment_property value this means that petitioner is entitled to his one-half community interest of dollar_figure from linda armacost for noninvestment property and linda armacost is entitled to her one-half community interest of dollar_figure from petitioner for investment_property linda armacost's deficit in investment_property nearly equals the dollar_figure promissory note signed by petitioner thus we conclude that the debt is attributable to the acquisition of linda armacost's community share of investment_property and the interest on that indebtedness is deductible pursuant to sec_163 to reflect the foregoing decision will be entered for petitioners