t c memo united_states tax_court joel l and delynn e boyce petitioners v commissioner of internal revenue respondent docket no filed date joel l and delynn boyce pro_se louise pais for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge larry l nameroff pursuant to sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge nameroff special_trial_judge this case is before us on respondent's motion to dismiss for failure to state a claim and to impose a penalty under sec_6673 respondent determined the following deficiencies and additions to tax with respect to petitioner joel l boyce year deficiency dollar_figure big_number big_number additions to tax sec_6651 sec_6654 dollar_figure big_number big_number dollar_figure big_number big_number in addition respondent determined the following deficiencies and additions to tax with respect to petitioner delynn e boyce year deficiency dollar_figure big_number big_number additions to tax sec_6651 sec_6654 dollar_figure big_number big_number dollar_figure the adjustments giving rise to the above deficiencies and additions to tax are based upon the failure of petitioners to file federal_income_tax returns and report gross_receipts from state farm insurance dividend income_interest income a all section references are to the internal_revenue_code in effect for the years in issue all rule references are to the tax_court rules_of_practice and procedure premature_distribution from an individual_retirement_account a distribution from the oregon public employees retirement fund and capital_gains from the sale of mutual funds and real_estate petitioners filed a petition with this court on date the gist of petitioners' allegations in their petition is that petitioners are american citizens and residents domestic and not united_states citizens and or residents national that this case can only be heard by an article iii court that the issuance of the notice_of_deficiency was an abuse_of_discretion by the commissioner that the commissioner erroneously and arbitrarily determined that petitioners were taxpayers that they received taxable_income and that they were engaged in a taxable activity that petitioners have been denied adequate notice and a meaningful opportunity to be heard at the administrative level that petitioners have been denied certain procedural safeguards guaranteed to them as sovereign citizens of one of the several sovereign republican states of the continental states united that petitioners have been labeled tax protesters and that the additions to tax under sec_6651 and sec_6654 are confined to alcohol_tobacco_and_firearms revenue petitioners did not explain why they filed a petition in an article i court they could have paid the deficiencies and additions to tax and filed a claim_for_refund and if disallowed sued for refund in an article iii court petitioners make further allegations in the petition which are common in tax_protester petitions regarding the audit techniques utilized by respondent in her motion to dismiss respondent contends that the petition fails to allege clear and concise assignments of error in respondent's deficiency determination in violation of rule b and concise lettered statements of fact on which petitioners base the assignments of error in violation of rule b attached to respondent's motion were copies of letters sent by or on behalf of petitioners to respondent's agents during the course of the investigation of their tax_liabilities these letters contain many of the same tax_protester arguments as in the petition and petitioners' objection to respondent's motion to dismiss subsequent to the filing of respondent's motion the court reviewed the petition herein and agreed with respondent that the allegations therein are tax_protester allegations that have been repeatedly rejected by this and other courts accordingly petitioners were ordered to file an objection to respondent's motion or alternatively an amended petition setting forth adequate assignments of error and statements of fact in response to the merits of respondent's determinations petitioners filed an objection on date the objection contains further tax_protester arguments including that this court lacks in personam jurisdiction over petitioners and that petitioners reside in the california republic the objection also includes an objection to the spelling of petitioners' names in capital letters because they are not fictitious entities in view of the state of the record we conclude that no useful purpose would be served by scheduling a hearing in this matter rule provides that a party may file a motion to dismiss for failure to state a claim upon which relief can be granted we may grant such a motion when it appears beyond doubt that the party's adversary can prove no set of facts in support of a claim that would entitle him or her to relief 355_us_41 677_f2d_676 8th cir rule b requires that a petition filed in this court contain clear and concise assignments of each and every error which the taxpayer alleges to have been committed by the commissioner in the determination of the deficiency and the additions to tax in dispute rule b further requires that the petition contain clear and concise lettered statements of the facts on which the taxpayer bases the assignments of error see 78_tc_646 the failure of a petition to conform with the requirements set forth in rule may be grounds for dismissal rule sec_34 sec_123 the arguments made by petitioners are without factual and legal foundation and appear to represent a protest of the federal tax laws these types of tax_protester arguments have been heard by this court on many occasions and rejected we see no need to respond to each of petitioners' arguments with copious citations of precedent see 737_f2d_1417 5th cir in short petitioners are taxpayers subject_to the income_tax laws see 82_tc_403 petitioners' argument that they are not taxpayers is frivolous 783_f2d_934 9th cir gross_income pursuant to sec_61 means all income from whatever source derived and includes income realized in any form whether in money property or services since petitioners were citizens and residents of the united_states and earned their income in the united_states their income comes within the general definition of gross_income under sec_61 moreover under sec_7701 petitioners were persons and were required under sec_6012 to file federal_income_tax returns and pay the income_tax due thereon the authority of congress to impose and collect federal income taxes from individuals has long been upheld as constitutional 366_us_213 o'malley v woodr307_us_277 247_us_339 furthermore this court generally as in the case here will not look behind a deficiency_notice to examine evidence used or the propriety of the commissioner's motives or the administrative policy or procedures involved in making her determinations abrams v commissioner supra pincite 79_tc_185 62_tc_324 petitioners' contention that they were denied adequate notice and a meaningful opportunity to be heard has been rejected as irrelevant numerous times 92_tc_1127 65_tc_68 affd without published opinion 559_f2d_1207 3d cir boyce v commissioner tcmemo_1990_555 in addition petitioners' contention that they have been labeled as tax protesters causing them to be subjected to peculiar procedures has been consistently rejected as meritless 669_f2d_1351 10th cir 638_f2d_182 10th cir 521_f2d_1188 9th cir moreover petitioners' contention that their case should be heard by an article iii court and that a special_trial_judge should not decide their case is without merit the constitutionality of the tax_court has been repeatedly upheld on the basis of congressional authority to create specialized courts under article i of the constitution 501_us_868 80_tc_1111 57_tc_392 the tax_court is a court of law which exercises judicial power to interpret and apply the provisions of the internal_revenue_code in disputes between taxpayers and the commissioner freytag v commissioner supra moreover under sec_7443a the chief_judge of the tax_court can assign any_tax court_proceeding to a special_trial_judge for hearing and the preparation of proposed findings_of_fact and written opinion id the court rejects this and other tax_protester type arguments raised by petitioners as being frivolous and without merit petitioners have failed to raise any issue with regard to the amount of their income or deductions or the correct amount of their tax_liability including the additions to tax accordingly they have not raised any justiciable issues and respondent's motion to dismiss will be granted sec_6673 authorizes this court to impose a penalty in favor of the united_states in an amount not to exceed dollar_figure whenever it appears that the taxpayer's position in a proceeding is frivolous groundless or instituted or maintained primarily for delay a petition in the tax_court is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir petitioners have made frivolous arguments they were advised that the allegations in the petition were similar to those in other cases for which sec_6673 penalties have been awarded nevertheless petitioners failed to file an amended petition containing clear and concise assignments of error or statements of fact rather they continued to assert stale and time-worn tax_protester rhetoric we find that petitioners have instituted and maintained this action primarily for delay and that petitioners' position in this proceeding is frivolous and groundless in view of the above respondent's request for a penalty under sec_6673 will be granted petitioner joel l boyce will be required to pay the united_states a penalty of dollar_figure and petitioner delynn e boyce will be required to pay a penalty of dollar_figure an appropriate order and decision will be entered for respondent


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 b03 plr-138166-14 date april x --------------------------------------------------------------------------------------------------- --------------------------- legend country -------- date ------------------ dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representatives 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 classified as a partnership for federal tax purposes facts the information submitted states that x was organized on date under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a partnership for federal tax purposes however x failed to timely file form_8832 entity classification election electing to be a partnership effective date law and analysis sec_301_7701-3 provides in part 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 as provided in plr-138166-14 sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and 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 that except as provided in sec_301 b unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 under sec_301_7701-3 the election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a partnership effective date a copy of this letter should be attached to the form_8832 plr-138166-14 this ruling is contingent on x and the owners of x filing within days from the date of this letter all required federal_income_tax and information returns including amended returns consistent with the requested relief being effective date these returns may include but are not limited to form_8865 return of u s persons with respect to certain foreign_partnerships a copy of this letter should be attached to any such returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision 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 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ________________________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------ ---------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-113725-07 date date ---------------- ------------------ ------------------------ -------------------------------- ------------------ --------- ---------------------------- ------------------ ------------------------ ------------------------ date decedent trust date state spouse daughter daughter daughter marital trust one -------------------- family_trust marital trust two -------------------- trustee date a b c d date date executor date e f g state statute state statute -------------------------------------------------------------- ----------------------------------------- ----------- -------------- ----------- ----------- ----------------------------------------- ----------------------- ------------------------------------------------------------------ ----------------------------------- -------------- ----------- -------------- --------------------------------------------- ---------------------------------------------------------- plr-113725-07 --------------------- this responds to your representative’s letter dated date requesting rulings under the applicable provisions of the internal_revenue_code facts the facts and representations submitted are summarized as follows on date decedent created trust a revocable_trust on date decedent died a resident of state whereupon trust became irrevocable decedent was survived by spouse daughter daughter daughter and grandchildren trust provides that after the death of decedent the trustee shall divide the trust estate into three trusts marital trust one to consist of certain real and personal_property family_trust to consist of the smallest amount necessary to reduce to zero the federal estate_tax payable as a result of the death of decedent after taking into account the state_death_tax_credit and marital trust two to consist of the balance of the trust estate article sections of trust contains the provisions of marital trust one relating to the distribution of income and principal to spouse during spouse’s lifetime article section provides that on the death of spouse the assets of marital trust one shall be added to or used to fund family_trust article sec_1 of trust contains the provisions of family_trust relating to the distribution of income to spouse during spouse’s lifetime article sec_2 provides that upon the death of spouse the trustee shall distribute the assets of family_trust including any amounts added thereto from marital trust one and marital trust two to such of decedent’s daughters as shall then be living except that the then living descendants of a deceased daughter shall take per stirpes the share that the daughter would have received if living each distribution is subject_to the postponement of possession until such beneficiary attains the age of article sections of trust contains the provisions of marital trust two relating to the distribution of income and principal to spouse during spouse’s lifetime article sec_3 provides that on the death of spouse the assets of marital trust two shall be added to or used to fund family_trust except to the extent the amount of estate and inheritance taxes is increased as a result of the inclusion of the assets of marital trust one and marital trust two in spouse’s estate article of trust provides that the law of state governs the validity and interpretation of trust trustee currently serves as the trustee of marital trust one family_trust and marital trust two plr-113725-07 it is represented that all of decedent’s generation-skipping_transfer gst tax exemption was available for allocation at her death form_706 the united_states estate and generation-skipping_transfer_tax return was timely filed with extensions on behalf of decedent’s estate on date form_706 reflects that marital trust one was funded with a total of dollar_figurea in assets marital trust two was funded with a total of dollar_figureb in assets and family_trust was funded with a total of dollar_figurec in assets an election was made on schedule m of decedent’s form_706 to treat the property of marital trust one and marital trust two as qualified terminal interest property qtip under sec_2056 of the internal_revenue_code code a reverse_qtip_election under sec_2652 of the code was made with respect to the property of marital trust two the executor of decedent’s estate allocated dollar_figurec of decedent’s gst tax exemption available under sec_2632 in effect at the time of the transfer to family_trust and dollar_figured of decedent’s gst_exemption to marital trust two on date daughter daughter and daughter disclaimed all of their interests in that portion of family_trust including that portion of marital trust one and marital trust two that may ultimately be added to family_trust that would not result in any gst tax due to any allocation of gst_exemption by decedent and spouse it is represented that all of the disclaimers are irrevocable and that the disclaimers were in a written instrument delivered to trustee of family_trust within months of decedent’s death it is also represented that none of the disclaimants have accepted or will accept any of the interests or benefits of the disclaimed interest spouse died on date a resident of state executor currently serves as the executor of spouse’s estate executor is neither a beneficiary nor a party related to a beneficiary of marital trust one marital trust two or family_trust executor timely filed with extensions spouse’s form_706 on date spouse’s form_706 reflected the inclusion in spouse’s gross_estate of the assets of marital trust one valued at dollar_figuree and marital trust two valued at dollar_figuref executor of spouse’s estate allocated spouse’s available gst_exemption in the amount of dollar_figureg to the assets of marital trust one trustee now seeks to sever marital trust one into gst exempt marital trust one and gst nonexempt marital trust one it is represented that upon severance gst exempt marital trust one and gst nonexempt marital trust one will be governed in accordance with the provisions governing marital trust one it is further represented that marital trust one will be severed on a fractional basis gst exempt marital trust one will be funded with a fraction of the original trust with the numerator equal to spouse’s unused gst_exemption and the denominator equal to the fair_market_value of the assets of marital trust one on the date of severance gst nonexempt marital trust one will be funded with a fraction of the original trust equal to one minus the fraction determined for gst exempt marital trust one plr-113725-07 it is further represented that gst exempt marital trust one and gst nonexempt marital trust one will be funded with the appropriate pro_rata portion of each asset held by marital trust one or if funded on a non pro_rata basis each trust will be funded by applying the appropriate fraction or percentage to the total fair_market_value of the assets of marital trust one as of the date of severance you have requested the following rulings after the severance of marital trust one gst exempt marital trust one and gst nonexempt marital trust two will be recognized as separate trusts for gst tax purposes the former having an inclusion_ratio of zero and the latter having an inclusion_ratio of one the disclaimers executed by daughter daughter and daughter will be considered qualified disclaimers under sec_2518 the distribution of the assets of gst exempt marital trust one will not result in a transfer subject_to gift_tax under sec_2501 ruling_request sec_2001 of the internal_revenue_code imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides in pertinent part that no deduction shall be allowed under sec_2056 where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies plr-113725-07 sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 and that such an election once made shall be irrevocable sec_2044 provides in relevant part that the value of the gross_estate shall include the value of any property in which the decedent had a qualifying_income_interest_for_life and for which a deduction was allowed under sec_2056 sec_2044 provides that for purposes of chapter and chapter property includible in the gross_estate of the decedent under sec_2044 shall be treated as property passing from the decedent sec_2601 imposes a tax on every gst under a of the tax_reform_act_of_1986 act the gst tax is generally applicable to gsts made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to any gst from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 defines the term applicable_rate with respect to any gst as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that generally the inclusion_ratio with respect to any property transferred in a gst is the excess of over the applicable_fraction with respect to a gst that is not a direct_skip sec_2642 provides that in general the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable plr-113725-07 sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2652 provides that for purposes of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 by reason of sec_2056 the estate of the decedent may elect to treat all of the property in such trust for gst purposes as if the election to be treated as qualified_terminable_interest_property had not been made this election is referred to as a reverse_qtip_election and as provided in sec_26_2652-2 is made on the return on which the qtip_election was made sec_2654 provides that for gst tax purposes the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts sec_2642 provides that if a_trust is severed in a qualified_severance the trusts resulting from the severance shall be treated as separate trusts thereafter for gst purposes sec_2642 defines qualified_severance as the division of a single trust and the creation by any means available under the governing instrument or under local law of two or more trusts if i the single trust was divided on a fractional basis and ii the terms of the new trusts in the aggregate provide for the same succession of interests of beneficiaries as are provided in the original trust sec_2642 provides that if a_trust has an inclusion_ratio of greater than zero and less than a severance is a qualified_severance only if the single trust is divided into two trusts one of which receives a fractional share of the total value of all trust assets equal to the applicable_fraction of the single trust immediately before the severance in this case the trust receiving the fractional share shall have an inclusion_ratio of zero and the other trust shall have an inclusion_ratio of one sec_2642 provides that the term qualified_severance includes any other severance permitted under regulations prescribed by the secretary sec_2642 provides that a severance provided for in sec_2642 may be made at any time plr-113725-07 sec_26_2642-6 of the generation-skipping_transfer_tax regulations provides in relevant part that a qualified_severance must satisfy each of the following requirements the single trust must be severed pursuant to the terms of the governing instrument or pursuant to applicable local law the severance must be effective under local law the date of severance must be either the date selected by the trustee or the court-imposed date of funding in the case of an order of the local court with jurisdiction over the trust ordering the trustee to fund the resulting trusts on or as of a specific date for a date to satisfy the definition in the preceding sentence however the funding must be commenced immediately upon and funding must occur within a reasonable_time but in no event more than days after the selected valuation_date the single trust is severed on a fractional basis such that each new trust is funded with a fraction or percentage of the original trust and the sum of those fractions or percentages is one or one hundred percent respectively the severance of a_trust based on a pecuniary amount does not satisfy this requirement with respect to the particular assets to be distributed to each resulting trust each resulting trust may be funded with the appropriate fraction or percentage pro_rata portion of each asset held by the original trust alternatively the assets may be divided among the resulting trusts on a non pro_rata basis based on the fair_market_value of the assets on the date of severance however if funded on a non pro_rata basis each resulting trust must be funded by applying the appropriate fraction or percentage to the total fair_market_value of the trust assets as of the date of severance the terms of the resulting trusts must provide in the aggregate for the same succession of interests of beneficiaries as are provided in the original trust this requirement is satisfied if the beneficiaries of the separate resulting trusts and the interests of the beneficiaries with respect to the separate trusts when the separate trusts are viewed collectively are the same as the beneficiaries and their respective beneficial interests with respect to the original trust before severance in the case of a qualified_severance of a_trust with an inclusion_ratio as defined in sec_26_2642-1 of either one or zero each trust resulting from the severance will have an inclusion_ratio equal to the inclusion_ratio of the original trust in the case of a qualified_severance occurring after gst tax exemption has been allocated to the trust if the trust has an inclusion_ratio as defined in sec_26_2642-1 that is greater than zero and less than one then the trust must be severed initially into two trusts one resulting trust must receive that fractional share of the total value of the original trust as of the date of severance that is equal to the applicable_fraction as defined in sec_26_2642-1 and c used to determine the inclusion_ratio of the original trust immediately before the severance the other resulting trust must receive that fractional plr-113725-07 share of the total value of the original trust as of the date of severance that is equal to the excess of one over the fractional share described in the preceding sentence the trust receiving the fractional share equal to the applicable_fraction shall have an inclusion_ratio of zero and the other trust shall have an inclusion_ratio of one sec_26_2642-6 provides that a qualified_severance may occur at any time prior to the termination of the trust thus provided that the separate resulting trusts continue in existence after the severance a qualified_severance may occur either before or after gst tax exemption has been allocated to the trust a taxable_event has occurred with respect to the trust or an addition has been made to the trust sec_2654 provides that for gst tax purposes the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts state statute provides in relevant part that a trustee has the power to sever any trust on a fractional basis into two or more separate and identical trusts for any reason unless expressly provided to the contrary in the trust instrument each separate trust must be held and administered upon the identical terms and conditions of the trust from which it was severed a separate trust created by severance must be treated as a separate trust for all purposes from the date on which the severance is effective in the instant case as a result of the qtip_election made on decedent’s form_706 with respect to marital trust one the property of marital trust one is includible in spouse’s gross_estate pursuant to sec_2044 spouse accordingly will be considered the transferor of the assets of marital trust one for gst tax purposes with respect to the assets of family_trust the property of family_trust was includible in decedent’s gross_estate and decedent is considered the transferor with respect to the assets of family_trust for gst tax purposes with respect to the assets of marital trust two as a result of the qtip_election and the reverse_qtip_election the property of marital trust two is includible in spouse’s gross_estate pursuant to sec_2044 but decedent is considered the transferor for gst tax purposes as provided above trust provides that upon the death of spouse the assets of marital trust one and marital trust two are to be added to family_trust however marital trust one is treated as a separate trust from family_trust for gst tax purposes because marital trust one has a different transferor than family_trust on spouse’s form_706 dollar_figureg of spouse’s gst tax exemption was allocated to the assets of marital trust one causing marital trust one to have an inclusion_ratio between one and zero trustee proposes to sever marital trust one into two trusts gst exempt marital trust one having an inclusion_ratio of zero and gst nonexempt marital trust one having an inclusion_ratio of one state statute authorizes a trustee to sever any trust on a fractional basis into two or more separate and identical trusts for any reason provided each separate trust is held and administered upon the identical terms and conditions of plr-113725-07 the trust from which it was severed trustee represents that marital trust one will be severed on a fractional basis with gst exempt marital trust one receiving that fractional share equal to the applicable_fraction and gst nonexempt marital trust one receiving that fractional share equal to one minus the applicable_fraction the provisions of gst exempt marital trust one and gst nonexempt marital trust one will provide for the same succession of interests of beneficiaries as is provided prior to severance provided the severance is effective under local law and the funding of the severed trusts occurs within a reasonable_time after the date of severance as selected by trustee we rule that the severance of marital trust one into gst exempt marital trust one and gst nonexempt marital trust one will be a qualified_severance under sec_2642 when gst exempt marital trust one receives a fractional share of the assets of marital trust one equal to the applicable_fraction as defined in sec_26_2642-1 and c used to determine the inclusion_ratio immediately before the severance gst exempt marital trust one will have an inclusion_ratio of zero and gst nonexempt marital trust one will have an inclusion_ratio of one the severance should be reported by filing form 706-gs t generation-skipping_transfer_tax return for terminations the form should have qualified_severance written at the top of the form and a notice of qualified_severance notice should be attached to the return the return and attached notice should be filed by april 15th of the year immediately following the year during which the severance occurred or by the last day of the period covered by an extension of time if an extension of time is granted to file the form the notice should contain with respect to the original trust the name of the transferor the name and date of creation of the original trust the tax identification_number of the original trust and the inclusion_ratio before the severance the notice should contain with respect to each of the resulting trusts created by the severance the name and tax identification_number of the trust the date of severance the fraction of the total assets of the original trust received by the resulting trust other details explaining the basis for the funding of the resulting trust and the inclusion_ratio ruling_request and sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that the gift_tax applies to gifts indirectly made any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax however in the case of a transfer creating an interest plr-113725-07 in property made after date sec_25_2511-1 shall not apply to the donee if as a result of a qualified_disclaimer by the donee a completed_transfer of an interest in property is not effected sec_2518 sets forth the requirements that must be met for a disclaimer to be treated as a qualified_disclaimer for federal gift_tax purposes sec_2518 provides that if a person makes a qualified_disclaimer with respect to any interest in property then for purposes of the estate gift and generation-skipping_transfer taxes the interest will be treated as if it had never been transferred to the disclaimant sec_2518 defines the term qualified_disclaimer to mean an irrevocable and unqualified refusal by a person to accept an interest in property but only if such refusal is in writing such writing is received by the transferor of the interest the transferor's legal_representative or the holder of the legal_title to the property to which the interest relates not later than the date which is nine months after the later of the date on which the transfer creating the interest in such person is made or the day on which such person attains age such person has not accepted the interest or any of its benefits and as a result of such refusal the interest passes without any direction on the part of the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer sec_25_2518-1 provides in part that if a person makes a qualified_disclaimer then for purposes of federal estate gift and generation-skipping_transfer_tax provisions the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified_disclaimer instead it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer accordingly a person making a qualified_disclaimer is not treated as making a gift sec_25_2518-2 provides in part that in the case of a remainder_interest in property that an executor elects to treat as qualified_terminable_interest_property under sec_2056 the remainderman must disclaim within months of the transfer creating the interest rather than months from the date such interest is subject_to tax under sec_2044 or sec_2519 sec_25_2518-3 provides that a disclaimer of an undivided portion of a separate interest in property that meets the other requirements of a qualified_disclaimer under sec_2518 and the corresponding regulations is a qualified_disclaimer an undivided plr-113725-07 portion of a disclaimant’s separate interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in such property and must extend over the entire term of the disclaimant’s interest in such property and in other_property into which such property is converted sec_25_2518-3 example provides that a bequeathed his residuary_estate to b b disclaims a fractional share of the residuary_estate any disclaimed property will pass to a’s surviving_spouse w the numerator of the fraction disclaimed is the smallest amount that will allow a’s estate to pass free of federal estate_tax and the denominator is the value of the residuary_estate b’s disclaimer is a qualified_disclaimer state statute provides in part that a beneficiary may disclaim his succession to any interest in property that unless disclaimed would pass to the beneficiary as beneficiary of a testamentary_trust to be effective a disclaimer must be in writing declare the writing as a disclaimer describe the interest or power disclaimed and be signed by the person making the disclaimer a disclaimer with respect to an interest in a testamentary_trust must be delivered to the trustee within nine months after the event giving rise to the right to disclaim unless otherwise provided in the instrument creating the disclaimed interest the disclaimed interest passes as if the disclaimant had died immediately before the interest was created in this case based upon the representations made and the information submitted we conclude that the four requirements under sec_2518 are satisfied the first requirement is satisfied because the disclaimers are in writing the second requirement is satisfied because the disclaimers were delivered to the trustee of family_trust not later than nine months after the death of decedent which was the transfer creating the interest to be disclaimed the third requirement is satisfied because daughter daughter and daughter have represented that they have not and will not accept any of the disclaimed interests or benefits the fourth requirement is satisfied because under state law the disclaimed property will pass to recipients other than daughter daughter and daughter and will not pass to any recipient at the direction of daughter daughter or daughter accordingly assuming the disclaimers are effective under state law we conclude that each of the disclaimers by daughter daughter and daughter will be considered qualified disclaimers under sec_2518 as a result of the disclaimers by daughter daughter and daughter the assets of gst exempt marital trust one will be distributable to the grandchildren of decedent pursuant to sec_25_2511-1 and sec_25_2518-1 we further conclude that the distribution of the assets of gst exempt marital trust one will not result in a transfer subject_to gift_tax 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 plr-113725-07 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan senior technician reviewer branch passthroughs special industries


t c no united_states tax_court investment research associates inc petitioner v commissioner of internal revenue respondent docket no 16410-05l filed date r filed a federal_tax_lien in florida florida lien and mailed to p a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 lien notice regarding p’s unpaid taxes for and the years in dispute p did not submit to r a request for an administrative hearing with regard to the florida lien three months later r filed a federal_tax_lien in illinois illinois lien and mailed to p a second lien notice for the years in dispute p submitted to r’s office of appeals a request for an administrative hearing regarding the illinois lien relying on sec_301_6320-1 and proced admin regs r’s office of appeals determined that p’s request for an administrative hearing was not timely because p failed to request an administrative hearing in response to the earlier florida lien the office of appeals conducted a so-called equivalent_hearing and mailed to petitioner a decision letter p filed a petition with the court challenging r’s decision letter held sec_301_6320-1 and proced admin regs is a reasonable interpretation of sec_6320 i r c and is valid and controlling in this case held further p failed to timely request an administrative hearing with regard to the florida lien and therefore the office of appeals was not required to conduct an administrative hearing under sec_6320 i r c held further the decision letter in dispute does not constitute a notice_of_determination which would permit p to invoke the court’s jurisdiction under sec_6320 and sec_6330 i r c and this case shall be dismissed for lack of jurisdiction robert e mckenzie and kathleen m lach for petitioner sean robert gannon and kathleen c schlenzig for respondent opinion haines judge the question presented in this collection review case is whether the court has jurisdiction under sec_6320 and sec_6330 to review the decision letter concerning equivalent_hearing decision letter upon which the petition for lien or levy action is based as discussed in detail below we conclude that petitioner failed to timely request an administrative hearing and therefore the decision letter in dispute does not constitute a notice_of_determination which would permit petitioner to invoke this court’s jurisdiction under sec_6320 and sec_6330 consequently we are obliged to dismiss this case section references are to sections of the internal_revenue_code as amended for lack of jurisdiction background in inv research associates ltd v commissioner tcmemo_1999_407 a memorandum opinion filed in consolidated dockets the court held inter alia that investment research associates inc petitioner was liable for deficiencies additions to tax and an accuracy-related_penalty for the years and to the court entered decisions in petitioner’s deficiency cases in date petitioner did not appeal the court’s decisions in its deficiency cases and those decisions are now final sec_7481 sec_7483 in date respondent assessed the deficiencies additions to tax and accuracy-related_penalty described above as well as interest on date respondent mailed to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with regard to petitioner’s unpaid taxes for and hereinafter investment research associates inc filed petitions for redetermination with the court at docket nos and in accordance with the supreme court’s decision in 544_us_40 125_sct_1270 the court’s memorandum opinion in inv research associates ltd v commissioner tcmemo_1999_407 recently was deemed stricken with regard to taxpayers other than petitioner the years in dispute on date respondent filed a notice_of_federal_tax_lien with the secretary of state for the state of florida the florida lien with regard to petitioner’s unpaid taxes for the years in dispute petitioner did not submit to respondent a request for an administrative hearing with regard to the florida lien on date respondent filed a notice_of_federal_tax_lien with the secretary of state for the state of illinois the illinois lien with regard to petitioner’s unpaid taxes for the years in dispute on date respondent mailed to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with regard to petitioner’s unpaid taxes for the years in dispute on date petitioner submitted to respondent’s office of appeals appeals_office a request for an administrative hearing under sec_6320 the appeals_office determined that petitioner’s request for an administrative hearing was not timely and conducted a so- called equivalent_hearing sec_301_6320-1 proced admin regs on date respondent mailed to petitioner a decision letter for the years in dispute the decision letter stated in pertinent part your due process hearing request was not filed within the time prescribed under sec_6320 and or however you received a hearing equivalent to a due process hearing except that there is no right to dispute a decision by the appeals_office in court under sec_6320 and or the decision letter stated that the appeals_office rejected petitioner’s offer-in-compromise and that the liens were properly filed and would not be released on date petitioner filed with the court a petition for lien or levy action challenging respondent’s decision letter petitioner acknowledged in its petition that respondent filed the florida lien in date and that respondent issued to petitioner a notice_of_federal_tax_lien filing at that time the petition states that petitioner did not submit to respondent a request for an administrative hearing after receiving notice of the florida lien because petitioner did not own significant assets in the state of florida the court issued an order in this case directing the parties to show cause why this case should not be dismissed for lack of jurisdiction both parties filed responses to the court’s order the court subsequently directed respondent to file a reply to petitioner’s response and respondent complied with the court’s order discussion sec_6321 imposes a lien in favor of the united_states on all property and rights to property of a person liable for tax when a demand for the payment of the person’s taxes has been made and the person fails to pay those taxes such a lien arises when an assessment is made sec_6322 sec_6323 requires the secretary to file a notice_of_federal_tax_lien if the lien is to be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor lindsay v commissioner tcmemo_2001_285 affd 56_fedappx_800 9th cir sec_6323 which addresses the place for filing a notice_of_federal_tax_lien provides that the commissioner is required to file separate liens if a taxpayer owns real_property in more than one state and the commissioner may be required to file separate liens in different counties or other governmental subdivisions within a state as designated by the laws of that state sec_6320 pertaining to liens and pertaining to levies provide protections for taxpayers in tax collection matters in general terms sec_6320 and sec_6330 provide for notice and the right to an administrative hearing and judicial review when the commissioner files a federal_tax_lien or proposes to collect unpaid taxes by levy a notice requirements sec_6320 provides that the secretary shall notify in writing the person described in sec_6321 of the filing of a notice of lien under sec_6323 sec_6320 sets forth the time and methods under which the commissioner is required to provide the notice described in sec_6320 the flush language of sec_6320 provides that the notice required by sec_6320 is to be provided not more than business days after the day of the filing of the notice of lien sec_6320 describes the information required to be included in the notice described in sec_6320 sec_6320 provides that the notice shall include the right of the person to request a hearing during the 30-day period beginning on the day after the 5-day period described in paragraph b right to an administrative hearing sec_6320 provides that a person requesting a hearing under subsection a b is entitled to a hearing in respondent’s appeals_office sec_6320 imposes a qualification on subsection b by providing that a person shall be entitled to only one hearing under this section with respect to the taxable_period to which the unpaid tax specified in subsection a a relates sec_6320 provides that an appeals_office hearing generally shall be conducted consistent with the procedures set forth in sec_6330 d and e c judicial review and tax_court jurisdiction when the appeals_office issues a notice_of_determination to a taxpayer following an administrative hearing regarding a lien or levy action sec_6320 by way of cross-reference and d provide that the taxpayer will have days following the issuance of a notice_of_determination to file a petition for review with the tax_court or federal district_court as may be appropriate see 123_tc_1 affd 412_f3d_819 7th cir 116_tc_255 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 it is well settled that the court’s jurisdiction under sec_6320 and sec_6330 depends upon the issuance of a valid notice_of_determination and the filing of a timely petition for review sec_6330 123_tc_326 orum v commissioner supra respondent’s issuance of a decision letter as opposed to a notice_of_determination is not conclusive with respect to the question of whether the court has jurisdiction in this case d the parties’ position sec_1 respondent relying on sec_301_6320-1 and proced admin regs respondent asserts that because petitioner failed to submit to respondent a request for an administrative hearing in respect of the florida lien filed in date the appeals_office was not obliged to provide petitioner with an administrative hearing under sec_6320 in response to petitioner’s challenge to the illinois lien filed in date sec_301_6320-1 proced admin regs provides in pertinent part that a taxpayer is entitled to one cdp collection_due_process_hearing with respect to the first filing of a nftl on or after date for a given tax period or periods with respect to the unpaid tax shown on the nftl if the taxpayer timely requests such a hearing sec_301 b q a-b1 proced admin regs states q-b1 is a taxpayer entitled to a cdp hearing with respect to the filing of a nftl for a type of tax and tax periods previously subject_to a cdp_notice with respect to a nftl filed in a different location on or after date a-b1 no although the taxpayer will receive notice of each filing of a nftl under sec_6320 the taxpayer is entitled to only one cdp hearing under sec_6320 for the type of tax and tax periods with respect to the first filing of a nftl that occurs on or after date with respect to that unpaid tax accordingly if the taxpayer does not timely request a cdp hearing with respect to the first filing of a nftl on or after date for a given tax period or periods with respect to an unpaid tax the taxpayer forgoes the right to a cdp hearing with appeals and judicial review of the appeals’ determination with respect to the nftl under such circumstances the taxpayer may request an equivalent_hearing as described in paragraph i of this section thus respondent avers that the court lacks jurisdiction in this case on the ground the decision letter in dispute does not constitute a notice_of_determination that would permit petitioner to invoke the court’s jurisdiction under sec_6320 and sec_6330 petitioner petitioner argues that sec_301_6320-1 and proced admin regs is not a reasonable interpretation of sec_6320 and is invalid specifically petitioner argues that although sec_6320 expressly limits a taxpayer to one hearing for a particular taxable_period sec_6320 does not contain any language requiring a taxpayer to request an administrative hearing with respect to the first notice_of_federal_tax_lien filed by the commissioner as petitioner sees it if the commissioner files multiple liens in different states or governmental subdivisions at different times the taxpayer may request an administrative hearing with regard to any one of those liens so long as his or her request is made within the time limit imposed under sec_6320 petitioner contends that it is manifestly unreasonable to interpret sec_6320 to require a taxpayer to challenge a federal_tax_lien that is filed in a jurisdiction in which the taxpayer has little if any property asserting that it timely filed its request for an administrative hearing with regard to the illinois lien petitioner maintains that the court has jurisdiction in this case on the ground the decision letter in dispute should be considered a notice_of_determination consistent with the court’s holding in 119_tc_252 e analysis sec_6320 requires the commissioner to give written notice to a taxpayer when a federal_tax_lien is filed under sec_6323 given that sec_6323 contemplates the filing of separate liens in multiple states or in multiple counties or other governmental subdivisions within a state it follows that a taxpayer like petitioner in the present case may receive multiple lien notices under sec_6320 although a person may receive multiple lien notices under sec_6320 sec_6320 clearly states that the person is entitled to only one administrative hearing under sec_6320 with respect to the unpaid tax for a particular taxable_period for which a lien was filed the statute does not however explicitly address the narrow question presented in this case ie whether a taxpayer’s right to an administrative hearing in the appeals_office and judicial review of the appeals office’s determination is tied to the first federal_tax_lien filed against the taxpayer or whether the taxpayer may defer and request an administrative hearing in respect of a later filed lien as noted earlier respondent relies on sec_301_6320-1 and proced admin regs as authority for the proposition that a taxpayer must request an administrative hearing with respect to the first federal_tax_lien that is filed in respect of unpaid tax for a particular taxable_period petitioner counters that sec_301_6320-1 and proced admin regs is an interpretative_regulation promulgated under sec_7805 a that is entitled to very little deference and in any event the regulation is inconsistent with the letter and the spirit of sec_6320 it is well settled that an interpretative treasury_department regulation is valid if it implements a congressional mandate in a reasonable manner see natl muffler dealers association inc v united_states 440_us_472 citing 411_us_546 an interpretative treasury_department regulation is reasonable under natl muffler dealers association inc v united_states supra if it harmonizes with the plain language of the statute its origin and its purpose id pincite see also 455_us_16 as previously discussed the language of sec_6320 does not address explicitly the precise point we must decide in this case where a statute is ambiguous or silent we may look to the statute’s legislative_history to determine congressional intent see eg 481_us_454 in this case congress directly addressed the question at issue in the legislative_history underlying sec_4 sec_7805 provides in pertinent part that the secretary shall prescribe all needful rules and regulations for the enforcement of this title specifically h conf rept pincite 1998_3_cb_747 under the heading liens states in pertinent part the conference agreement generally follows the senate amendment except that taxpayers would have a right to a hearing after the notice of lien is filed the irs would be required to notify the taxpayer that a notice of lien had been filed within days after filing during the 30-day period beginning with the mailing or delivery of such notification the taxpayer may demand a hearing before an appeals officer who has had no prior involvement with the taxpayer’s case this hearing right applies only after the first notice of lien with regard to each tax_liability is filed emphasis added in short the house conference_report states that a taxpayer’s right to an administrative hearing and judicial review under sec_6320 arises only with respect to the first lien that is filed for a particular tax_liability where as here congress has directly spoken to the precise question at issue and the intent of congress is clear that is the end of the matter inasmuch as sec_301_6320-1 and proced admin regs reiterates a procedural principle that was unambiguously articulated by congress in the legislative_history of sec_6320 the regulation is valid and controlling in this case see 72_tc_433 sustaining the validity of sec_1_274-2 income_tax regs where the regulation was squarely based on the language of the legislative_history of sec_274 f conclusion there is no dispute that although petitioner received notice of the lien that respondent filed in florida in date petitioner did not submit to respondent a request for an administrative hearing consistent with sec_301_6320-1 and proced admin regs respondent’s appeals_office was not obliged to and did not provide petitioner with an administrative hearing under sec_6320 when petitioner subsequently sought to challenge the illinois lien filed in date see prakasam v commissioner tcmemo_2006_53 it is well settled that respondent may not waive the statutory period in which a taxpayer must request an administrative hearing under sec_6320 and sec_6330 see 116_tc_255 the appeals_office conducted an equivalent_hearing and issued to petitioner a decision letter the decision letter in question does not constitute a notice_of_determination that would permit petitioner to invoke the court’s jurisdiction under sec_6320 see eg id pincite accordingly we are obliged to dismiss this case for lack of jurisdiction to reflect the foregoing an order of dismissal for lack of jurisdiction will be entered


internal_revenue_service national_office technical_advice_memorandum may number release date index nos control no cc tege eb ec tam-160393-02 director sb_se compliance taxpayers’ names taxpayers’ address taxpayers’ ident no taxable_year at issue_date of conference legend taxpayer company year year year issues under the rules of sec_83 of the internal_revenue_code when was the compensation income attributable to taxpayer a’s exercises of certain incentive stock_options includible in his alternative_minimum_taxable_income computed under the rules of sec_83 how is the amount of compensation income facts taxpayer was an executive of company and a company insider for purposes of federal securities laws as part of his compensation taxpayer received big_number incentive stock_options isos in may year taxpayer exercised these options over a period of months from april year to october year company conducted an initial_public_offering ipo in may of year the underwriting agreement specified that certain employees including taxpayer were bound by a lock-up agreement preventing them from selling or otherwise disposing of their stock_options or warrants for months after the ipo that is from may to november of year company also had in place an insider trading compliance program which was intended to ensure compliance by its employees with federal securities laws among other things this program limited employees with insider knowledge to trading only on specified days the trading window during the year in year the window lasted from november to november furthermore certain employees including taxpayer were barred from trading unless they had first received approval to do so from company’s corporate compliance officer after the trading window expired in year taxpayer did not trade any of his shares because he was precluded from doing so by the insider trading compliance program from december of year until may of year company’s corporate compliance officer and general counsel refused to clear taxpayer for trading his shares of company stock trading shares in violation of the insider trading compliance program would have given the company the right to terminated taxpayer’s employment taxpayer originally filed hi sec_1040 including the amount of the spread on the exercise of his stock_options and reflecting an alternative_minimum_tax amt in the amount of dollar_figure he later filed a form 1040x seeking to abate this tax and recalculate his amt based on a fair_market_value of dollar_figure as opposed to the dollar_figure value of the spread as listed in the original return his representative made the following arguments the internal_revenue_code requires that the fair_market_value of isp sic stock at the time it is acquired be included in an amt preference calculation if it is not sold the year it is acquired normally the fair_market_value is the market price however where the stock is restricted ie where the stock cannot be liquidated at an ascertainable price or sold on the open market the fair_market_value is not the same as the market price the market_value is of little assistance when valuing restricted_stock the amt as originally calculated for taxpayer was based on the market price of company stock when it was acquired by him as his stock was restricted the fair_market_value was mistakenly assigned the market price as noted above the underlying stock could only be sold during a three-week window during the calendar_year year that is out of days in year accordingly the fair_market_value used in the amt preference should have reflected the fact that the stock could only have been transferred or liquidated during a three-week window in year thus the amt preference must be adjusted to reflect the true fair_market_value of taxpayer’s company stock because the stock was not liquid when acquired and in fact could only be transferred for a three-week period in year we are proposing in the amended_return to adjust the amt preference to equity fairness and the intent and purpose of the amt laws mandate an adjustment of taxpayer’s original amt otherwise he has a tax_liability of more than dollar_figure and restricted_stock that became worthless in about a year’s time the current_liability is an absurdity and a surreal result clearly not contemplated by congress when it devised the amt law additionally taxpayers contend that because taxpayer would have been subject_to penalties under securities exchange commission sec rule 10b-5 rule 10b-5 if he had sold company shares anytime during the period beginning in january of year and ending in may of year his rights in the company shares purchased through exercise of his isos during those years were substantially nonvested during that period law and analysis in pertinent portion sec_421 of the code provides that if a share of stock is transferred to an individual in a transfer in which the requirements of sec_422 are met relating to isos no income results to the individual at the time of the transfer no deduction under sec_162 is allowable at any time to the employer_corporation with respect to the share transferred and no amount other than the price paid under the option is considered as received by the employer_corporation for the share transferred sec_422 of the code defines an iso as an option that meets the requirements set forth in paragraphs through of that section sec_55 of the code imposes an alternative_minimum_tax upon certain tax preference items such as isos for purposes of computing alternative_minimum_taxable_income sec_56 of the code provides that sec_421 shall not apply to the transfer of stock acquired pursuant to the exercise of an iso the result is that for alternative_minimum_tax purposes the rules of sec_83 of the code that apply to nonstatutory_options also apply to determine the compensation income if any attributable to isos under sec_83of the code if in_connection_with_the_performance_of_services property is transferred to any person other than the service_recipient the excess of the fair_market_value of the property disregarding any lapse_restriction determined on the first day that the transferee's rights in the property are transferable or not subject_to a substantial_risk_of_forfeiture over the amount_paid for the property is included in the service provider's gross_income for the taxable_year which includes that day more simply put property is not taxable under sec_83 until it is transferred to and substantially_vested in the service provider or beneficiary thereof for purposes of sec_83 of the code a transfer of property occurs when a person acquires a beneficial_ownership interest in the property disregarding any lapse_restriction see sec_1_83-3 of the income_tax regulations under sec_1_83-3 a restriction which by its terms will never lapse also referred to as a nonlapse_restriction is a permanent limitation on the transferability of property that will require the transferee of the property to sell or offer to sell the property at a price determined under a formula and that will continue to apply and be enforced against the transferee or any subsequent holder other than the transferor an obligation to resell or to offer to sell the transferred property to a specific person or persons at its fair_market_value at the time of the sale is not a nonlapse_restriction the term lapse_restriction means a restriction other than a nonlapse_restriction and includes but is not limited to a restriction that carries a substantial_risk_of_forfeiture see sec_1_83-3 of the regulations for purposes of sec_83 of the code property is substantially nonvested when it is both subject_to a substantial_risk_of_forfeiture and is nontransferable within the meaning of sec_1_83-3 and d of the regulations respectively property is substantially_vested when it is either transferable or is not subject_to a substantial_risk_of_forfeiture whether a risk of forfeiture is substantial or not depends upon the facts and circumstances a substantial_risk_of_forfeiture exists where rights in property that are transferred are conditioned directly or indirectly upon the future performance or refraining from performance of substantial services by any person or the occurrence of a condition related to the purpose of the transfer and the possibility of forfeiture is substantial if such condition is not satisfied property is not subject_to a substantial_risk_of_forfeiture to the extent that the employer is required to pay the fair_market_value of a portion of such property to the employee upon the return of such property the risk that the value of property will decline during a certain period of time does not constitute a substantial_risk_of_forfeiture a nonlapse_restriction standing by itself will not result in a substantial_risk_of_forfeiture see sec_1_83-3 of the regulations for purposes of sec_83 of the code the rights of a person in property are transferable if such person can transfer any interest in the property to any person other than the transferor of the property but only if the transferee's rights in the property are not subject_to a substantial_risk_of_forfeiture accordingly property is transferable if the person performing the services or receiving the property can sell assign or pledge as collateral for a loan or as security for the performance of an obligation or for any other purpose his interest in the property to any person other than the transferor of the property and if the transferee is not required to give up the property or its value in the event that the substantial_risk_of_forfeiture materializes see sec_1_83-3 of the regulations sec_83 of the code provides that sec_83 does not apply to the transfer of an option without a readily_ascertainable_fair_market_value however sec_83 does apply to such an option at the time that it is exercised sold or otherwise_disposed_of if the option is exercised sec_83 applies to the transfer of property pursuant to the exercise if the option is sold or otherwise_disposed_of in an arm's length transaction sec_83 applies to the transfer of money or other_property received in the same manner as it would have applied to the transfer of property pursuant to an exercise of the option see sec_1_83-7 of the regulations under sec_83 of the code and sec_1_83-3 of the regulations if the sale of property at a profit within six months after the purchase of the property could subject a person to suit under section b of the securities exchange act of section b the person's rights in the property are treated as subject_to a substantial_risk_of_forfeiture and as not transferable until the earlier of the expiration of such six-month period or the first day on which the sale of such property at a profit will not subject the person to suit under section b section b is triggered by either a purchase and sale or a sale and purchase of a security within a period of less than six months by an officer director or greater-than-10 owner of the corporation the combination of a purchase and a sale event in either order is what triggers section b liability prior to the acquisition of a stock_option was not typically viewed as a purchase for section b purposes because there was no requirement to purchase the stock rather section b applied to the stock that was purchased through exercise of the option however in section b was changed thereafter for purposes of that section options generally had the same status as stock stated another way the securities exchange commission sec began treating transactions in derivative securities eg options as transactions in the underlying_security the stock because when an option has a fixed exercise price such as taxpayer's isos its grant locks in the opportunity to profit from a transaction in the underlying stock in implementing this change the sec went so far as to state that any acquisition or disposition of an option involves either a purchase or sale for section b purposes the quid pro quo was that the sec exempted from section b most exercises and conversions of options in other words after the six-month holding_period under section b starts when an option is granted not when it is exercised thus after section b interacts with sec_83 of the code as follows although an exception to this treatment may be elected under sec_1 b whereby liability under that section will apply to the stock instead of the option taxpayer has never claimed to have made that election if for example shares are acquired through the exercise of a nonstatutory option in a transfer taxable under the rules of sec_83 such shares will not be subject_to section b liability unless they are acquired during the six-month period beginning with the date of grant of the option in this regard sec_1_83-3 of the regulations provides that for purposes of sec_83 the six-month period under section b expires upon the earlier of the expiration of the six-month period or the first day on which the sale of such property at a profit will not subject the employee to section b liability applying the above rules because the isos were granted to taxpayer in may of year the section b periods applicable to those options expired by april of year respectively accordingly both of those section b periods expired before the dates that taxpayer first exercised his isos and the company shares purchased thereby were transferred to him in july of year under the february option and in november of year under the august option thus we conclude that neither section b nor sec_83 of the code imposed a substantial_risk_of_forfeiture on any of those shares in this regard because when enacting sec_83 of the code congress decided that the only provision of the securities law that would delay taxation under sec_83 of the code would be section b we also conclude that rule 10b-5 did not cause taxpayer’s rights in the company shares purchased through exercise of his isos to be substantially nonvested when they were transferred to him moreover under sec_83's definitions of substantially_vested and transferable it is clear that in order for the lock-up agreements standing by themselves to have prevented sec_83's taxation of taxpayer's rights in his shares when they were transferred to him those agreements would have had to have made those rights subject_to a substantial_risk_of_forfeiture in this regard we have been provided no information suggesting that taxpayer's or any subsequent transferee’s retention of rights in the shares were conditioned upon anyone’s future performance or refraining from performance of substantial services thus we conclude that the provisions of those agreements could not have prevented sec_83's taxation of those rights when the shares were transferred to him regarding valuation of the shares it is clear that any transfer restrictions imposed on taxpayer's sales or other trading of the shares by the referenced agreements were lapse restrictions as defined above and that this is demonstrated by both their tolling in the case of the underwriter's agreement and the lock-up agreements and the window periods during which they were inapplicable in the case of the insider trading compliance program thus we conclude that those restrictions must be ignored when valuing the shares obtained under the isos under the rules of sec_83 see sec_83 finally we note the issues in this case are in relevant portion the same as those considered 117_tc_237 aff’d no 5th cir date and that the conclusions reached in this technical_advice_memorandum are consistent with the decisions reached in that case conclusions under the rules of sec_83 of the internal_revenue_code the compensation income attributable to taxpayer’s exercises of the isos was includible in his alternative_minimum_taxable_income when the shares purchased under the isos were transferred to him under the rules of sec_83 the amount of compensation income attributable to taxpayer's exercises of the isos is determined without regard to the stock-transfer restrictions imposed by the underwriter's agreement the lock-up agreements or company's insider trading compliance program a copy of this technical_advice_memorandum is to be given to taxpayer sec_6110 of the code provides that it may not be used or cited as precedent - end -


t c memo united_states tax_court raymond m and joy d jean petitioners v commissioner of internal revenue respondent docket no filed date raymond m and joy d jean pro sese paul k webb for respondent memorandum findings_of_fact and opinion ruwe judge on date respondent issued a notice of final_determination denying petitioners’ claim to abate interest for the periods date to date and date to date with respect to their federal_income_tax liability petitioners timely filed a - - petition to this court under sec_6404 and rule after concessions ’ the sole issue to be decided is whether respondent abused his discretion by denying petitioners’ reguest to abate interest for the aforementioned periods findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this reference petitioners resided in hollister california at the time the petition was filed on date respondent notified petitioners that their federal_income_tax return for taxable_year had been selected for audit on date petitioners met with tax_auditor elaine erickson ms erickson in order to commence the audit of their tax_return sometime during date ms erickson attended phase ii business audit training sometime between march and date ms erickson attended financial status training sometime during date through february ‘ sec_6404 was redesignated sec_6404 by the victims of terrorism tax relief act of publaw_107_134 d b 115_stat_2427 unless otherwise indicated all section references are to the internal_revenue_code in effect at the time the petition was filed and all rule references are to the tax_court rules_of_practice and procedure at trial the parties stipulated a partial settlement respondent agreed to abate the interest for one-half of the period that spans jan through date ms erickson is also known by the names elaine hess and blaine sisk ms erickson attended phase iii audit training ms erickson’s group manager pat lewis instructed erickson to retain petitioners’ audit case until completing the aforesaid training petitioners’ case was assigned to ms erickson during the entire period of her training ms erickson had neither the authority to determine whether and when to go to training classes nor the authority to transfer petitioners’ case to a different agent on date ms erickson mailed to petitioners a copy of their individual income_tax examination changes audit report in date the audit of petitioners’ return was transferred to revenue_agent carol a ruiz agent ruiz petitioners’ case was transferred because ms erickson moved on date agent ruiz issued form_4564 information document reguest idr which asked for petitioners’ workpapers supporting inter alia their claim to a net_operating_loss_carryover on their return the nol on date agent ruiz by letter explained to petitioners the need for documentation supporting their claim to the nol on date agent ruiz issued a second idr which requested supporting documents petitioners failed to provide agent ruiz with the requested documentation - on date agent ruiz issued a 30-day_letter to petitioners in which she proposed changes to their return on date petitioners sent a letter to respondent agreeing and disagreeing in part with agent ruiz’s proposed changes respondent interpreted petitioners’ letter as a request that their case be transferred to the appeals_office on date appeals officer danny raley appeals officer raley sent petitioners a letter requesting a conference to negotiate a resolution of the matters with which petitioners disagreed on numerous occasions appeals officer raley requested documentation supporting petitioners’ claimed nol over the course of the next year respondent and petitioners resolved several issues from the audit of petitioners’ return on date appeals officer raley informed petitioners that he was returning their case to the examination branch of the internal_revenue_service to review petitioners’ documentation regarding the nol on date agent ruiz contacted petitioners to schedule a conference to discuss the nol petitioners informed agent ruiz that they did not wish to meet with her and wanted their case assigned to a different agent appeals officer raley sent letters to petitioners on date date date and date describing the specific documents petitioners needed to produce to substantiate their claim to the nol - - on date petitioners’ case was assigned to revenue_agent ed clarke agent clarke on date agent clarke mailed a letter to petitioners requesting a conference on date agent clarke met with petitioners and received and copied several documents on date agent clarke left a telephone message for petitioners asking that they return his phone call to schedule an appointment with him on date agent clarke spoke with petitioners and scheduled a meeting for date due to agent clarke’s hospitalization his group manager telephoned petitioners and canceled agent clarke’s date conference with petitioners agent clarke died on date on date petitioners’ case was reassigned to revenue_agent vickie mcintosh agent mcintosh on date agent mcintosh received petitioners’ audit files on date agent mcintosh reviewed petitioners’ case on date agent mcintosh scheduled a conference with petitioners for date petitioners subsequently canceled the conference which was rescheduled for date on date agent mcintosh met with petitioner raymond jean to discuss the nol on date agent mcintosh met with her group manager elizabeth laverty manager laverty and spoke on the telephone with appeals officer raley - - to discuss petitioners’ case on date agent mcintosh again met with manager laverty to discuss petitioners’ case on date manager laverty had a telephone conference with petitioner raymond jean on date petitioner raymond jean had a telephone conference with examination branch chief keith zepeda concerning petitioners’ audit on date manager laverty sent identical letters addressed to each petitioner requesting a final conference with herself and agent mcintosh and for petitioners to bring with them of the documentation supporting their claim to the nol the conference was scheduled for and attended by the parties on date petitioners failed to provide the documentation requested eventually respondent and petitioners resolved the issues that arose during the examination on date petitioners filed with respondent form_843 claim_for_refund and reguest for abatement on date respondent issued a final_determination letter disallowing petitioners’ claim_for_abatement of interest for the aforesaid periods opinion pursuant to sec_6404 the secretary may abate all or any part of an assessment of interest on any deficiency or payment of tax if either a the deficiency is attributable in whole or in part to any error or delay by an officer or employee of the internal_revenue_service in performing a ministerial_act or b an error or delay in payment of tax is attributable to such officer_or_employee being erroneous or dilatory in performing a ministerial_act a n error or delay shall be taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved sec_6404 e this court has jurisdiction to order an abatement of interest only when a taxpayer can show that the commissioner has abused his discretion in refusing a taxpayer’s request to abate interest sec_6404 to show an abuse_of_discretion a taxpayer must establish that respondent exercised his discretion arbitrarily capriciously or without sound basis in fact or law rule a 112_tc_19 citing 91_tc_1079 because congress did not intend for sec_6404 to be routinely used to avoid the payment of interest we order abatement only ‘where failure to abate interest would be widely perceived as grossly unfair ’ lee v commissioner t c in sec_6404 was amended by the taxpayer bill of right sec_2 publaw_104_168 110_stat_1457 to allow the commissioner to abate interest for an unreasonable error or delay resulting from managerial and ministerial acts the amendment applies to interest accruing on deficiencies for the tax years beginning after date and is accordingly not applicable to this case 112_tc_19 n - - quoting h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_1 under the version of sec_6404 in effect during the periods relevant hereto the commissioner has the power to abate interest only for error or delay with respect to a ministerial_act the term ministerial_act means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act such as conferences and review by supervisors have taken place sec_301 2t b temporary proced admin regs fed reg date see lee v commissioner supra petitioners argue respondent abused his discretion in failing to abate interest for two separate periods date through date and date through october ‘the final_regulation under sec_6404 was issued on date the final_regulation generally applies to interest accruing on deficiencies or payments of tax described in sec_6212 for tax years beginning after date sec_301_6404-2 proced admin regs accordingly the final_regulation is inapplicable to the instant case and sec_301_6404-2t temporary proceed admin regs fed reg date effective for taxable years beginning after date but before date applies sec_301 2t c temporary proced admin regs supra --- - ’ because petitioners’ arguments are founded on different bases we shall respond to each separately with respect to the first period date through date petitioners argue that respondent delayed the resolution of their case for approximately months while the revenue_agent assigned to their case attended training petitioners argue that they should not be penalized with interest for a period during which respondent acknowledges his employee was not permitted or authorized to work on their case petitioners’ argument fails because respondent did not have the discretion to abate interest for the subject period the version of sec_6404 in effect for the period at issue provides the commissioner with discretion to abate all or any part of an assessment of interest only if such interest is a result of an error or delay by an officer_or_employee in the performance of a ministerial_act sec_6404 the commissioner does not have the requisite discretion to abate interest with respect to an error or delay resulting from managerial acts at trial tax_auditor erickson testified that ‘at trial the parties stipulated the partial settlement of this second period specifically the parties settled their dispute regarding the period spanning jan through date accordingly this opinion relates solely to the periods articulated in the petition to which the parties have not stipulated a partial settlement see supra note -- - her manager had the sole authority to decide whether she was to receive training and whether petitioners’ case was to be reassigned to another revenue_agent those decisions constituted managerial and not ministerial acts example of the temporary regulations assists in the resolution of this issue a revenue_agent is sent to a training course and the agent’s supervisor decides not to reassign the agent’s cases during the training course no work is done on the cases assigned to the agent neither the decision to send the agent to the training course nor the decision not to reassign the agent’s cases is under the circumstances a ministerial_act thus interest attributable to the delay cannot be abated sec_301 6604-2t b example temporary proced admin regs fed reg date see jacobs v commissioner tcmemo_2000_123 gorgie v commissioner tcmemo_2000_80 because there is no ministerial_act performed by respondent’s employees or officers that caused any delay in the resolution of petitioners’ case respondent could not abate interest for this period accordingly we uphold respondent’s final_determination not to abate interest for this first period with respect to the second period at issue which because of the parties’ settlement now only involves date through date and august through date petitioners’ argument centers on the allegedly unreasonable delay resulting from the assignment of their case to a new revenue_agent who during the processing of petitioners’ case died petitioners fail to identify any ministerial_act performed by respondent which delayed the resolution of their case as discussed above respondent has discretion to abate interest for an error or delay resulting only from a ministerial_act performed by his employees by definition a ministerial_act is one that is procedural or mechanical it does not involve the exercise of judgment or discretion 113_tc_145 respondent’s decision of how and when to work on a case based on an evaluation of his entire caseload and his workload priorities is not a ministerial_act strang v commissioner tcmemo_2001_104 leffert v commissioner tcmemo_2001_23 petitioners have failed to demonstrate that any delay was due to a ministerial_act in fact the record demonstrates that respondent performed substantial work on petitioners’ case during this second period after petitioners’ case was processed by respondent’s appellate division it was returned to the audit branch petitioners requested a transfer of their case to a different revenue_agent respondent capitulated and on date he transferred the case to agent clarke on date agent clarke sent petitioners a letter detailing the return of the case from the appeals_division and its assignment to him ’ on january the letter requested petitioners to contact agent clarke to schedule a conference regarding their case identifying the nol agent clarke met with petitioners and retained photocopies of documents submitted by petitioners the only apparent period of inactivity with regard to petitioners’ case is from january until date however the parties have stipulated the settlement of their dispute for this period on date agent clarke left a telephone message for petitioners to return his call in order to schedule a conference on date agent clarke spoke with petitioners and scheduled a conference for date due to agent clarke’s hospitalization on date manager laverty canceled agent clarke’s scheduled conference with petitioners on date petitioners’ case was reassigned to agent mcintosh on date agent mcintosh received petitioners’ audit files on date agent mcintosh reviewed petitioners’ case on date agent mcintosh and petitioners scheduled a conference for date petitioners canceled and subsequently rescheduled that conference for date petitioner raymond jean met with agent mcintosh on date on date agent mcintosh met with manager laverty and spoke on the telephone with appeals officer raley about petitioners’ case on date agent mcintosh again met with manager laverty to discuss as the sole remaining issue and the need for documentation supporting petitioners’ claims thereto petitioners’ case on date manager laverty conferred telephonically with petitioners concerning their audit the commissioner’s discretionary power to abate interest is conditioned upon a finding that the error or delay is not significantly attributable to the taxpayer sec_6404 respondent requested documentation supporting petitioners’ claim to the nol and petitioners failed to provide such documentation any delay with respect to the resolution of petitioners’ case during this second period was significantly attributable to petitioners petitioners have not demonstrated that respondent abused his discretion in refusing to abate interest during either of the periods at issue decision will be entered under rule