internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip plr-100577-01 date date legend taxpayer company b company c parent state u state v state w country xx country yy year year year date date date date date date date date amount d amount e amount f amount g system aa module aa system bb module bb code code code firm a product z dear this is in response to your letter of date as supplemented requesting a ruling that the noncompliance of certain of taxpayer’s policies with the requirements of sec_7702 of the internal_revenue_code be waived pursuant to sec_7702 facts the information submitted indicates that taxpayer is a stock_life_insurance_company subject_to subchapter_l of the code incorporated under the laws of state u and is licensed to do business in amount d states state v country xx and country yy and is an authorized reinsurer in state w taxpayer is the successor to company b a life_insurance_company effective date company b reorganized by forming a company named company c company b continued its corporate existence following conversion as taxpayer all of the shares of the voting_stock of taxpayer are owned by parent a company parent in turn is a subsidiary of company c taxpayer continues to serve as the primary insurer on all of the outstanding contracts issued by its predecessor company b including the contracts that are the subject of this request for waiver taxpayer files its returns on a calendar-year basis and files its federal_income_tax returns on a consolidated basis with its parent company c prior to year all of the life_insurance products that taxpayer offered were designed to comply with the cash_value_accumulation_test cvat of sec_7702 in date taxpayer decided to offer a new life_insurance product know as product z and to offer a version of product z designed to comply with the guideline_premium_limitation of sec_7702 and the cash_value corridor of sec_7702 as well as a version designed to comply with the cvat in conjunction with the development of a guideline_premium_limitation cash_value corridor product taxpayer embarked on a project to develop a new administrative system for its life_insurance products to be known as system aa system aa had to have the capability to test premiums against death_benefits in order to ensure that the proper relationship between the two would be maintained this capability had been unnecessary as long as taxpayer offered only cvat products taxpayer decided to develop the new system in-house rather than contract with an outside vendor as the project progressed it became apparent that the in-house staff was not able to develop the new system without assistance from outside sources in the fourth quarter of year taxpayer engaged a temporary contract programmer system aa contract programmer to join the system aa team by date most of system aa was ready however the module that calculated the minimum face_amount necessary for a given premium payment to keep a contract in compliance with the guideline premium cash_value corridor requirements module aa remained to be completed the system aa contract programmer had primary responsibility for programming module aa and upon completion of it documented the specifications for module aa in a memorandum dated date taxpayer's life_insurance division recognized that taxpayer would need an illustration system capable of generating illustrations coordinating death_benefit levels with premiums in accordance with the guideline_premium_limitation taxpayer’s existing illustration system known as system bb had been developed exclusively for cvat products and had to be modified by developing additional modules capable of handling guideline_premium_limitation cash_value corridor products the life_insurance division engaged another contract programmer the system bb contract programmer to program a module similar to that of module aa that could handle guideline_premium_limitation cash_value corridor products the life_insurance division engaged another contractor the module bb contract programmer who developed module bb in the last quarter of year in developing module bb the system bb contract programmer relied on the specifications of module aa set forth in the date memorandum systems aa and bb were implemented in date a flaw was buried in module aa module aa was designed so that each transaction involving a contract was recorded in event logs the event log entry for a transaction consisted of the dollar amount of the transaction and a code for the type of transaction the routine that computed the premiums_paid designated code accessed system aa’s event logs for transactions that entered into the premiums_paid computations by error however that routine was not programmed to access the system’s event logs for external and internal nontaxable sec_1035 exchange transactions code and code so that the cash_value transferred from another contract in a sec_1035 exchange was not included in the premiums_paid for a contract module bb was based on module aa and contained the same error this manual processing error resulted from the failure of certain of taxpayer’s computer technicians to implement correctly the instructions of taxpayer’s actuaries taxpayer’s actuaries had correctly interpreted the requirements of sec_7702 and sec_1035 and had instructed the technicians as to the proper implementation of those sections however the technicians made certain inadvertent errors in manually programming the compliance programs into the computer systems causing certain contracts to fail on date taxpayer instituted a comprehensive review of its outstanding life_insurance contracts to determine whether they were in compliance with sec_7702 and whether life_insurance contracts that were not intended to be modified endowment contracts within the meaning of sec_7702a had inadvertently become modified endowment contracts to that end firm a an actuarial consulting firm was engaged firm a's review of taxpayer's systems uncovered the flaw described above in system aa as well as the parallel flaw in system bb and also uncovered amount e failed coverages in year taxpayer consummated amount g product z transactions involving sec_1035 exchanges as a result of the flaws in modules aa and bb system bb failed to take into account cash values transferred in these transactions as premiums_paid the guideline_premium_limitation calculations by the system were based on premiums_paid since the exchange and did not include the cash surrender values that were transferred therefore when premium payments were made that would have exceeded the guideline premium limitations for those contracts system aa failed to flag those policies the failed coverages as failing to satisfy the guideline_premium_limitation taxpayer represents that it has taken steps to correct system aa and system bb to ensure that similar errors do not occur in the future taxpayer has corrected the flaw in system aa as well as the parallel flaw in system bb so that both systems now take into account funds received in both external and internal sec_1035 exchanges as premiums in calculating the minimum death_benefit necessary for coverage under a product z contract to comply with the guideline_premium_limitation taxpayer represents that firm a has determined that system aa and system bb will now properly monitor compliance with the guideline_premium_limitation firm a has also determined that no contracts issued by taxpayer other than the amount e failed coverages under the contract require relief from the service because of the flaw in system aa taxpayer proposes to bring the amount e failed coverages into compliance with sec_7702 either by increasing the death_benefits to levels adequate to satisfy the guideline_premium_limitation based on the total premiums_paid for those coverages including amounts transferred from the original contracts or by refunding excess premium with interest law and analysis sec_7702 defines the term life_insurance_contract for all purposes of the code under sec_7702 in order to be considered a life_insurance_contract for federal tax purposes a contract must qualify as such under applicable law and must satisfy either the cash_value_accumulation_test set out in sec_7702 and b or meet the sec_7702 and c guideline premium requirements and fall within the sec_7702 and d cash_value corridor the guideline_premium_requirement of sec_7702 provides that the premiums_paid under the contract at any time must not exceed the greater of the guideline_single_premium or the sum of the guideline level premiums to that date the guideline_single_premium is the single premium at issue that is needed to fund the future_benefits under the contract using the mortality and other charges specified in sec_7702 and a minimum interest rate assumption of six percent the guideline_level_premium is the level annual equivalent of the guideline_single_premium payable until a deemed_maturity_date between the insured’s attained ages and using a minimum interest rate of four percent the computational rules of sec_7702 and the definitions of sec_7702 apply to both the guideline single and guideline_level_premium policies qualifying as life_insurance contracts under sec_7702 must also satisfy the cash_value corridor of sec_7702 the corridor specifies a minimum ratio of death_benefits as defined under sec_7702 to cash surrender values pursuant to sec_7702 the secretary_of_the_treasury may waive a failure to satisfy the requirements of sec_7702 this waiver is granted if a taxpayer establishes that the statutory requirements were not satisfied because of reasonable error and that reasonable steps are being taken to remedy the error after considering all of the facts and circumstances we find that the failure of amount e life_insurance contracts to satisfy the requirement of sec_7702 a was due to reasonable error and taxpayer is taking reasonable steps to remedy the error conclusion accordingly based on the information submitted the failure of amount e contracts to satisfy the requirements of sec_7702 is waived pursuant to sec_7702 provided that the failed contracts are cured within days of the date of this letter and the excess premiums are refunded with interest calculated as of the date of the cure and or the revised death_benefits are calculated as of the date of the cure any contracts that are not cured within days of the date this letter are not covered by this waiver except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely acting associate chief_counsel financial institutions and products by donald j drees jr senior technician reviewer branch


t c memo united_states tax_court scott roman petitioner v commissioner of internal revenue respondent docket no 8931-03l filed date p filed a petition for judicial review pursuant to sec_6330 i r c in response to a determination by r that levy action is appropriate held because there was no abuse_of_discretion by r in rejecting p’s offer_in_compromise r’s determination to proceed with collection action is sustained kirk t karaszkiewicz for petitioner jack t anagnostis for respondent memorandum opinion wherry judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule the instant proceeding arises from a petition for judicial review filed in response to a notice_of_determination concerning collection action s under sec_6320 and or the issue for decision is whether respondent may proceed with collection of tax_liabilities for the years and as so determined background petitioner filed federal_income_tax returns for and showing balances due and did not fully pay the reported liabilities respondent subsequently assessed the unpaid amounts and on date issued to petitioner a final notice - notice_of_intent_to_levy and notice of your right to a hearing with regard to the and taxable years the notice reflected a total amount due of dollar_figure including taxes penalties and interest in response to the notice petitioner’s representative kirk t karaszkiewicz mr karaszkiewicz timely submitted to respondent a form request for a collection_due_process_hearing the form contained the following explanation of petitioner’s disagreement with the notice_of_levy unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure i filed an offer_in_compromise for the tax_liabilities in question on date by a letter dated date settlement officer ronald j kroll mr kroll advised petitioner that he had received petitioner’s case for appeals consideration and would write or call to schedule a conference mr karaszkiewicz responded by a letter dated date requesting that mr kroll contact him to arrange a mutually convenient conference mr kroll investigated concerning the reference to an offer_in_compromise made in petitioner’s form he found that while an earlier offer_in_compromise apparently submitted in about december of had been returned to petitioner in december of internal_revenue_service records did not reflect a date offer when mr kroll advised mr karaszkiewicz by telephone on date of what he had learned mr karaszkiewicz said that the earlier offer had been returned because additional documentation requested had not been timely submitted mr karaszkiewicz also indicated that he would send a copy of the subsequent date form_656 offer_in_compromise and form 433-a collection information statement for wage earners and self-employed individuals on date having not received the promised copies of forms and 433-a mr kroll sent to mr karaszkiewicz a letter referencing the copies and stating in pertinent part i have not received these documents the offer was the only collection alternative proposed in your appeal please be advised that i am offering one final opportunity for you to provide the information for consideration as an alternative means of collection you have days from the date of this letter to file an offer_in_compromise or send me a written proposal on how you plan to resolve these liabilities enclosed are forms and 433-a if the documents are not received within days i will issue a determination_letter based on current information no further extensions or exceptions will be considered on date mr karaszkiewicz sent to mr kroll copies of the requested documents the offer_in_compromise proposed to pay a total of dollar_figure by remitting dollar_figure within days of acceptance and the balance in monthly installments of dollar_figure in conjunction with his review of the offer mr kroll both contacted mr karaszkiewicz by telephone with questions regarding the materials provided and subsequently sent a letter dated date requesting additional information necessary for consideration of the offer the letter also advised please see that i receive the requested information no later than date failure to submit the information may result in the recommendation that we note that mr kroll’s case activity record in one instance specifically the entry for date apparently refers to this letter erroneously as the letter your client’s offer be rejected without further consideration on date mr karaszkiewicz hand-delivered documents to mr kroll in response to the date letter in his examination of the hand-delivered documents mr kroll found that several of the requested items had not been provided he further became privy to new facts indicating that additional collection information statements would be required in order to complete consideration of the offer specifically the documents revealed that petitioner owned yet another corporation and had recently married necessitating collection information with respect to the company and to petitioner’s spouse mr kroll advised mr karaszkiewicz of these developments by telephone on date and mr karaszkiewicz said he would try to provide the requested materials by date on date mr karaszkiewicz sent to mr kroll a brief fax stating as follows mr kroll please excuse the delay in providing the additional documentation which we discussed this delay has been caused exclusively by my trial commitments i have not been able to review the documents with mr roman i assure you that we will quickly provide them when weeks later the requested information had not been submitted mr kroll determined that the proposed collection alternative could not be accepted and that collection by levy should proceed the corresponding notice_of_determination concerning collection actions s under sec_6320 and or was issued to petitioner on date the notice summarized respondent’s determination you proposed an offer_in_compromise in the amount of dollar_figure as your collection alternative we must reject your offer because you failed to submit the additional information requested which was needed to make a determination regarding the acceptance of your offer levy action is therefore appropriate an attachment to the notice provided further details and indicated that beyond the proposed collection alternative no other issues were raised by the taxpayer petitioner’s petition challenging this notice_of_determination was filed with the tax_court on date and reflected an address in marlton new jersey petitioner contends in the petition that he did not receive a fair hearing as required by sec_6330 and that respondent erred in rejecting petitioner’s offer_in_compromise due to respondent’s decision that ‘six weeks of silence’ amounts to a ‘failure to submit the requested documents’ respondent prepared and filed an answer to the petition and subsequently filed the subject motion for summary_judgment petitioner filed a response to respondent’s motion discussion i general rules a summary_judgment rule a allows a party to move for a summary adjudication in the moving party’s favor upon all or any part of the legal issues in controversy rule b directs that a decision on such a motion shall be rendered if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law the moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law 98_tc_518 affd 17_f3d_965 7th cir facts are viewed in the light most favorable to the nonmoving party id however where a motion for summary_judgment has been properly made and supported by the moving party the opposing party may not rest upon mere allegations or denials contained in that party’s pleadings but must by affidavits or otherwise set forth specific facts showing that there is a genuine issue for trial rule d the court has considered the pleadings and other materials in the record and concludes that there is no genuine justiciable issue of material fact in this case b collection actions sec_6331 authorizes the commissioner to levy upon all property and rights to property except property exempt under sec_6334 of a taxpayer where there exists a failure to pay any_tax liability within days after notice_and_demand for payment sec_6331 and sec_6330 then set forth procedures generally applicable to afford protections for taxpayers in such levy situations sec_6331 establishes the requirement that a person be provided with at least days’ prior written notice of the commissioner’s intent to levy before collection may proceed sec_6331 also indicates that this notification should include a statement of available administrative appeals sec_6330 expands in several respects upon the premise of sec_6331 forbidding collection by levy until the taxpayer has received notice of the opportunity for administrative review of the matter in the form of a hearing before the internal_revenue_service office of appeals sec_6330 grants a taxpayer who so requests the right to a fair hearing before an impartial appeals officer sec_6330 addresses the matters to be considered at the hearing sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- requirement of investigation --the appeals officer shall at the hearing obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability once the appeals officer has issued a determination regarding the disputed collection action sec_6330 allows the taxpayer to seek judicial review in the tax_court or a district_court in considering whether taxpayers are entitled to any relief from the commissioner’s determination this court has established the following standard of review where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis however where the validity of the underlying tax_liability is not properly at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 c offers in compromise sec_7122 as pertinent here authorizes the secretary_of_the_treasury to compromise any civil case arising under the internal revenue laws regulations promulgated under sec_7122 set forth three grounds for compromise of a liability doubt as to liability doubt as to collectibility or promotion of effective tax_administration sec_301_7122-1 proced admin regs with respect to the third-listed ground a compromise may be entered to promote effective tax_administration where a collection of the full liability would cause economic hardship or b exceptional circumstances exist such that collection of the full liability would undermine sec_301_7122-1 proced admin regs contains an effective date provision stating that the section applies to offers in compromise pending on or submitted on or after date sec_301_7122-1 proced admin regs previous temporary regulations by their terms apply to offers in compromise submitted on or after date through date sec_301_7122-1t j temporary proced admin regs fed reg date because the final and temporary regulations do not differ materially in substance in any way relevant here we need not resolve which section would apply in petitioner’s circumstances we further note that temporary regulations are entitled to the same weight and binding effect as final regulations peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir for simplicity and convenience citations will be to the final regulations public confidence that the tax laws are being administered in a fair and equitable manner and compromise will not undermine compliance by taxpayers with the tax laws sec_301 b proced admin regs ii analysis nothing in the record indicates that petitioner has at any time throughout the administrative or judicial proceedings attempted to challenge his underlying tax_liability accordingly we review respondent’s determination to proceed with collection for abuse_of_discretion action constitutes an abuse_of_discretion under this standard where arbitrary capricious or without sound basis in fact or law 112_tc_19 in arguing that rejection of his offer was an abuse_of_discretion and deprived him of a fair hearing petitioner focuses on the deadline allegedly set by mr kroll in his response to respondent’s motion petitioner makes what he characterizes as an equitable argument and contends as follows settlement officer kroll should not have unilaterally decided on a deadline for submission of documents and then not communicated the deadline to petitioner’s counsel the administrative record reveals that the settlement officer made repeated requests for additional information all of which except the last were responded to additionally petitioner through his counsel responded to each request and also responded when there was a delay in providing the documents responsive to the last request petitioner further alleges that the effect of the deadline was a failure by mr kroll to take into consideration both the issues raised by the taxpayer and the balancing of efficient collection and taxpayer intrusion the difficulty with this argument is that while petitioner may have preferred more time to provide the materials requested respondent’s conduct in these circumstances can hardly be characterized as arbitrary capricious or without sound basis in fact or law the record reflects that throughout the administrative process petitioner was given multiple and repeated opportunities to submit sufficient information to support his offer_in_compromise petitioner’s counsel should also have been well aware of the consequences of failure to provide requested materials an earlier offer had been returned for this reason and mr kroll’s date and date letters clearly advised mr karaszkiewicz that a failure to supply the additional information requested would lead to rejection of petitioner’s subsequent offer and issuance of a determination_letter without further consideration concerning particularly the final deadline of which petitioner complains respondent issued the notice_of_determination on date this date is more than months after mr kroll’s final request for information on date it is also weeks after the date date by which mr karaszkiewicz initially stated he would try to supply the materials and the date date on which mr karaszkiewicz said the information would be quickly provided moreover we note that it is more than years after petitioner’s initial submission of an offer_in_compromise in these circumstances and especially in light of the absence of any further communication from petitioner to alter the implications of the quickly language waiting for weeks falls within the bounds of reasonableness sec_6330 entitles taxpayers to a hearing no statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record nor are petitioner’s contentions regarding lack of warning well taken where the record in this case is replete with explicit deadlines that respondent generously extended for petitioner’s benefit the statute only requires that a taxpayer be given a reasonable chance to be heard prior to the issuance of a notice_of_determination the consideration of petitioner’s case thus did not fail to comply with the terms for a fair hearing set forth in sec_6330 consequently we conclude that there was no abuse_of_discretion in respondent’s decision to reject petitioner’s offer_in_compromise in absence of the requested information respondent was unable reasonably to determine that petitioner’s circumstances satisfied the conditions necessary for compromise of a tax_liability evaluation of potentially pertinent grounds for compromise such as doubt as to collectibility or a showing of economic hardship would require complete financial data the record is equally bereft of any indication of exceptional circumstances suggesting that collection here could undermine public confidence in tax_administration hence the court holds that respondent’s determination to proceed with collection of petitioner’s tax_liabilities was not an abuse_of_discretion see eg van vlaenderen v commissioner tcmemo_2003_346 neugebauer v commissioner tcmemo_2003_276 we shall grant respondent’s motion to reflect the foregoing an appropriate order granting respondent’s motion for summary_judgment and decision for respondent will be entered


t c summary opinion united_states tax_court fuhua cheng and sue y cheng petitioners v commissioner of internal revenue respondent docket no 9847-11s filed date fuhua cheng pro_se kristin m bourland for respondent summary opinion chiechi judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant 1hereinafter all section references are to the internal_revenue_code code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined deficiencies of dollar_figure and dollar_figure in petitioners’ federal_income_tax tax for their taxable years and respectively we must decide whether petitioners are entitled to deduct under sec_212 or sec_162 certain claimed expenses of dollar_figure and dollar_figure for their taxable years and respectively we hold that they are not background petitioner fuhua cheng mr cheng and respondent stipulated some of the facts in this case and those facts are so found at the time petitioners filed the petition they resided in kentucky during and ms cheng was a housewife and mr cheng worked as a professor of computer science for the university of kentucky uky during those years mr cheng received wage income from uky of dollar_figure and dollar_figure respectively 2petitioner sue y cheng ms cheng did not sign the stipulation of facts between mr cheng and respondent nor did she appear at the trial in this case respondent filed a motion to dismiss for lack of prosecution as to ms cheng we shall grant that motion and shall enter a decision with respect to ms cheng that is the same as the decision that we shall enter with respect to mr cheng in mr cheng began operating amchael graphics amchael a sole_proprietorship through which he conducted software development consulting and import and export businesses sometime thereafter in amchael entered into a joint_venture with qingdao laoshan foreign trade freeze-storage plant plant a company owned by the people’s republic of china china in order to combine the plant’s many years experience in food processing and amchael’s strength in marketing and information_technology to process seafood for international market and generate satisfactory financial returns to both parties to that end on date amchael and the plant formed qingdao fuhua aquatic foodstuff co ltd company in the laoshan district of qingdao city china to process and sell seafood meat and frozen vegetables amchael and the plant contributed a total of dollar_figure of capital to the company amchael invested cash of dollar_figure or percent of the total capital of the company and the plant’s investment consisted of a plant and equipment valued at dollar_figure or percent of the total capital of the company in exchange for their capital contributions amchael and the plant received 25-percent and 75-percent ownership interests respectively in the company 3certain portions of the record and mr cheng at trial and on brief refer interchangeably to amchael and mr cheng for convenience we shall do the same pursuant to the contract governing the joint_venture between amchael and the plant joint_venture agreement the company was to remain in existence for years but it was possible to extend the period of its existence according to the joint_venture agreement amchael’s responsibilities included providing marketing information to the company finding customers for the company in the international market and working on other matters that the company requested the joint_venture agreement also authorized the company to name amchael as its agent in selling its products according to the joint_venture agreement the plant’s responsibilities included submitting application materials to the chinese government obtaining an operating license for the company applying for and obtaining ownership of the land on which the company was to operate renting manufacturing equipment from the chinese government arranging paperwork for importing and shipping the equipment needed to operate the company assisting the company in finding management and personnel and working on other matters that the company requested a board_of trustees company board consisting of five members was the highest authority of the company and was responsible for making decisions on its behalf an individual known as a general manager who was recommended by the plant and who reported to the company board managed the daily operations of the company neither mr cheng nor his sole_proprietorship amchael managed the company and neither amchael nor the plant was allowed to transfer its interest in the company without the unanimous approval of the company board if amchael or the plant made the operation of the company impossible the other person had the right to request that the violating party terminate the joint_venture agreement the joint_venture agreement provided that the company was to make the following payments to amchael over the initial 12-year period of its existence dollar_figure during the first year of operation dollar_figure during the second year of operation dollar_figure during the third year of operation dollar_figure during the fourth year of operation dollar_figure during the fifth year of operation and percent of the profits during each year of operation six through twelve by date because of mismanagement and chinese government foreign trade policy reform the plant had accumulated operating losses of approximately dollar_figure and debt of approximately dollar_figure that large debt and lack of capital caused the plant to begin experiencing difficulty in continuing its operations 4the record does not establish whether the company made any of the annual payments to amchael that the joint_venture agreement required by date the plant was in nonproduction status although the financial condition of the plant in would have warranted its declaring bankruptcy and seeking to reorganize its operations chinese law would not have permitted it to do so in date the capital in the company was reevaluated thereafter amchael’s initial dollar_figure investment in the company was reduced to dollar_figure and the plant’s investment therein was reduced to dollar_figure at a time not specifically established by the record after date and before date a plan transfer plan was developed under which the plant was to divest itself of its ownership_interest in the company under the transfer plan employees and management of the company were to make capital contributions to form a chinese stock holding association stockholding association that stockholding association was to form qingdao sheng-hua aquatic foodstuff freeze- storage plant new plant and the plant was to transfer its ownership_interest in the company to the new plant on date the company board held a meeting to discuss inter alia the transfer plan and the potential impact of that plan on the company at that 5the record does not establish how the respective reductions of amchael’s and the plant’s investments in the company were accomplished meeting which mr cheng attended the company board adopted resolutions that mr cheng was not to withdraw from the company his dollar_figure investment therein and that all issues regarding the transfer of the plant’s ownership_interest in the company were to be reported to and discussed with mr cheng on date the plant’s parent company qingdao city laoshan import- export head company head company submitted to the licang district foreign trade and economic committee licang economic committee a request to transfer to the new plant pursuant to the transfer plan the plant’s 75-percent ownership_interest in the company on date the head company submitted to the licang district government a request to effect the transfer plan on a date not established by the record the chinese government approved the transfer plan in date when the total assets of the company were valued at dollar_figure and its debt totaled dollar_figure the transfer plan was effected by 6the record does not establish when the licang economic committee granted the head company permission to transfer the plant’s interest in the company to the new plant 7the record does not establish when the licang district government granted the head company’s request to effect the transfer plan 8the record does not establish the date on which the transfer plan was approved and what chinese governmental agency approved the transfer plan using a method known as a buy-out by inheriting debt under chinese law a buy-out by inheriting debt is permitted when the value of the assets of an enterprise is approximately equal to its debt such a buyout results in a purchaser’s taking over the assets of an enterprise by assuming its debt under certain chinese regulationsdollar_figure after the transfer plan was effected in date the company had the following options for satisfying its then-existing debt use the investment money from the stockholding association to repay the debt attempt to reach an installment_agreement with the company’s creditors or use the investment money from the stockholding association as a circulating fund to develop business and pay the debt with profits petitioners filed joint tax returns for their taxable years return and return petitioners attached schedule c profit or loss from business schedule c for amchael to each of the return schedule c 9the record does not establish the specific steps and procedures under which the buy-out by inheriting debt transfer of the plant’s interest in the company to the new plant was effected 10the record does not establish what the stipulated terms taking over and assuming mean in the context of a buy-out by inheriting debt 11the record does not establish the amount of debt that the company had after the transfer plan was effected and the return schedule c in the schedule c petitioners claimed certain expenses of dollar_figure claimed debt expense which petitioners described in that schedule as debt payment to qingdao fuhua aquatic foodstuff co ltd dong licun licang district qingdao china in the schedule c petitioners claimed certain expenses of dollar_figure claimed debt expense which petitioners described in that schedule as debt payment to qingdao fuhua aquatic foodstuff co ltd dong licun licang district qingdao china respondent issued to petitioners a notice_of_deficiency notice with respect to their taxable years and in the notice respondent determined to disallow the claimed debt expense of dollar_figure and the claimed debt expense of dollar_figure discussion mr cheng bears the burden of establishing that the determinations in the notice are erroneous see rule a 290_us_111 moreover deductions are a matter of legislative grace and mr cheng bears the burden of proving entitlement to any deduction claimed see 503_us_79 the code and the regulations thereunder required mr cheng to maintain records sufficient to establish the amount of any deduction claimed see sec_6001 sec_1_6001-1 income_tax regs at trial mr cheng was the only witness we found mr cheng’s testimony to be in certain material respects vague self-serving and or uncorroborated we shall not rely on the testimony of mr cheng to establish his position with respect to the issue presented see eg 87_tc_74 it was petitioners’ position in the petition that they are entitled for their taxable years and respectively to deduct under sec_212 or sec_162 the claimed debt expense of dollar_figure and the claimed debt expense of dollar_figure on brief mr cheng takes the position that petitioners are entitled to deduct those claimed debt expenses only under sec_212 because it is not altogether clear whether mr cheng is no longer relying on sec_162 to support his position with respect to the claimed debt expense and the claimed debt expense we shall consider mr cheng’s claimed entitlement to those claimed debt expense deductions under both sec_212 and sec_162 we shall first summarize briefly the respective requirements of sec_212 and sec_162dollar_figure sec_212 allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year for the management conservation or maintenance of property held for the production of incomedollar_figure the determination of whether an expenditure satisfies the requirements for deductibility under that section is a question of fact see 49_tc_38 sec_162 generally allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business the determination of whether an expenditure satisfies the requirements for deductibility under that section is a question of fact see 320_us_467 in general for purposes of sec_212 and sec_162 an expense is ordinary if it is considered normal usual or customary for the management conservation or 12we address sec_212 before we consider sec_162 because mr cheng relies on that section in his brief the last document that he filed in this case 13expenses deductible under sec_212 are miscellaneous_itemized_deductions see sec_67 as such they are allowed as deductions only to the extent that they exceed percent of the taxpayer’s adjusted_gross_income see sec_67 maintenance_of_property_held_for_the_production_of_income under sec_212 or in carrying_on_a_trade_or_business under sec_162 see 308_us_488 83_tc_356 aff’d 777_f2d_662 11th cir generally for purposes of sec_212 and sec_162 a taxpayer’s payment of the debt of another taxpayer is not an ordinary_expense of the payor-taxpayer that is deductible under those sections see welch v helvering u s pincite carbine v commissioner supra in general for purposes of sec_212 and sec_162 an expense is necessary if it is appropriate and helpful for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income under sec_212 or in carrying_on_a_trade_or_business under sec_162 see 383_us_687 carbine v commissioner supra pincite generally for purposes of sec_212 and sec_162 a taxpayer’s payment of the debt of another taxpayer is not a necessary expense of the payor-taxpayer that is deductible under those sections see welch v helvering supra 357_f2d_504 9th cir aff’g tcmemo_1964_226 where a taxpayer pays the obligation of another taxpayer with the primary motive of managing conserving or maintaining property of the payor-taxpayer held_for_the_production_of_income or promoting or protecting a trade_or_business of the payor-taxpayer that payment is deductible by the payor-taxpayer under sec_212 or sec_162 provided that that payment of that other taxpayer’s obligation is an ordinary_and_necessary_expense within the meaning of sec_212 for the management conservation or maintenance of property of the payor- taxpayer held_for_the_production_of_income see carbine v commissioner t c pincite or within the meaning of sec_162 in carrying_on_a_trade_or_business of the payor-taxpayer see 48_tc_679 we turn now to petitioner’s position that he is entitled to deduct the claimed debt expense and the claimed debt expense for petitioners’ taxable years and respectively in order to be entitled under sec_212 or sec_162 to those claimed debt expense deductions mr cheng must establish inter alia that he paid_or_incurred during petitioners’ taxable years and those respective claimed debt expenses it is mr cheng’s position that he satisfies that requirement because pursuant to the transfer plan he as a 25-percent_owner of the company assumed percent of the company’s debt including debt of the plant that mr cheng claims the company assumed and obligated himself to pay that percent of the company’s debt that he assumed by making an annual payment to the company of dollar_figure we find no reliable evidence in the record establishing mr cheng’s position that pursuant to the transfer plan he as a 25-percent_owner of the company assumed percent of the company’s debt including debt of the plant that mr cheng claims the company assumed and he obligated himself to pay that percent of the company’s debt that he claims he assumed by making an annual payment to the company of big_number assuming arguendo that we had found reliable evidence in the record to establish the underlying factual premises discussed above of mr cheng’s position we turn to his argument that as long as petitioners can manage to pay the debt installment and get credit for it it does not matter if the money is sent by the petitioners directly 14as we understand it mr cheng is not arguing that when he claims that he assumed percent of the company’s debt pursuant to the transfer plan he agreed to be responsible directly to the company’s creditors to pay percent of that debt respondent does not dispute and thus we assume that because of foreign_currency exchange fluctuations big_number was equal to dollar_figure in and dollar_figure in in support of his argument that he satisfied his claimed annual obligation to pay big_number to the company with borrowed funds mr cheng contends that he entered into an oral agreement purported loan agreement with his sister and her spouse under which they lent him big_number in each of the years and by making a payment of big_number in each of those years to the company on mr cheng’s behalfdollar_figure mr cheng maintains that pursuant to the purported loan agreement he is required to repay with interest the big_number that he claims his sister and her spouse lent him in each of the years and from profits of the company that he will receive as a 25-percent_owner of the company we find no reliable evidence in the record establishing that in each of the years and the payment of big_number that respondent does not dispute and we thus assume see supra note mr cheng’s sister and her spouse made to the company was a payment that they made on behalf of mr cheng on the record before us we reject mr cheng’s contention that he entered into an oral agreement with his sister and her spouse under which they lent him big_number in 15on brief respondent states based upon the record it appears that mr cheng’s sister and her spouse not only supplied the funds but actually made the payments at issue it appears that respondent does not dispute and thus we assume that mr cheng’s sister and her spouse made a payment to the company of big_number in each of the years and each of the years and by making a payment of big_number in each of those years to the company on mr cheng’s behalfdollar_figure on the record before us we find that mr cheng has failed to carry his burden of establishing that he paid_or_incurred during petitioners’ taxable years and respectively the claimed debt expense and the claimed debt expense based upon our examination of the entire record before us we find that mr cheng has failed to carry his burden of establishing that petitioners are entitled under sec_212 or sec_162 to deduct the claimed debt expense of dollar_figure and the claimed debt expense of dollar_figuredollar_figure 16moreover a purported loan between family members like the purported loan that mr cheng claims his sister and her spouse made to him in each of the years and would be subject_to close scrutiny see 92_tc_470 aff’d without published opinion 912_f2d_1466 5th cir mr cheng acknowledged at trial that there are no written_agreement between him and mr cheng’s sister and her spouse requiring repayment of the alleged loans fixed repayment schedule for the alleged loans fixed rate of interest charged on the alleged loans and consequences to mr cheng if he were to fail to repay the alleged loans 17assuming arguendo that mr cheng had carried his burden of establishing that he paid_or_incurred during petitioners’ taxable years and respectively the claimed debt expense and the claimed debt expense mr cheng would nonetheless be required to establish that those expenses are ordinary and necessary expenses within the meaning of sec_212 that he paid_or_incurred in managing conserving or maintaining his interest in the company or continued we have considered all of petitioners’ contentions and arguments that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing an order granting respondent’s motion to dismiss for lack of prosecu- tion as to petitioner sue y cheng and decision for respondent will be entered continued within the meaning of sec_162 that he paid_or_incurred in carrying on his business amchael the parties stipulated that petitioner fuhua cheng claims to have assumed twenty-five percent of the debt of the company in order to protect his investment in the c ompany and prevent the chinese banks from assuming ownership of the c ompany on the record before us assuming arguendo that mr cheng had carried his burden of establishing that he paid_or_incurred during petitioners’ taxable years and respectively the claimed debt expense and the claimed debt expense and that he paid_or_incurred those claimed debt expenses for the purpose of protecting his investment in the company and preventing the chinese banks from assuming ownership thereof on the record before us we find that mr cheng has failed to carry his burden of establishing that those claimed debt expenses are ordinary and necessary expenses within the meaning of sec_212 that he paid_or_incurred in managing con- serving or maintaining his interest in the company or within the meaning of sec_162 that he paid_or_incurred in carrying on his business amchael if we were to accept all of the foregoing assumptions as facts it appears to us that mr cheng did nothing more in and than make an additional capital con-tribution to the company in order to protect the investment that he had already made in that company


t c summary opinion united_states tax_court patrick m shannon petitioner v commissioner of internal revenue respondent docket no 9574-05s filed date patrick m shannon pro_se lisa k hunter for respondent chiechi judge this case is before the court on respon- dent’s motion for summary_judgment respondent’s motion and was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed 1although the court ordered petitioner to file a response to respondent’s motion petitioner failed to do so 2all section references are to the internal_revenue_code in continued the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority we shall grant respondent’s motion background the record establishes and or the parties do not dispute the following petitioner resided in bellevue nebraska at the time he filed the petition in this case petitioner did not timely file a federal_income_tax tax_return return for his taxable_year on or about date respondent prepared a substitute for return for that year on date respondent issued to petitioner a notice_of_deficiency with respect to his taxable_year notice_of_deficiency which he received in that notice respondent determined a deficiency in and additions under sec_6651 sec_6651 and sec_6654 to petitioner’s tax for that year in the respective amounts of dollar_figure dollar_figure dollar_figure and dollar_figure continued effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure 3with respect to the addition_to_tax under sec_6651 respondent determined in the notice_of_deficiency that if petitioner did not pay the balance of the tax owed within the time prescribed by law a penalty of of the tax due is added for each month the tax remains unpaid not to exceed a total of of the unpaid amount petitioner did not file a petition in the court with respect to the notice_of_deficiency on date respondent assessed with respect to petitioner’s taxable_year the tax of dollar_figure and additions to tax under sec_6651 sec_6651 and sec_6654 of dollar_figure dollar_figure and dollar_figure respectively that respondent determined in the notice_of_deficiency as well as interest as provided by law on such assessed amounts and abated certain of such assessed amounts we shall refer to any such unpaid assessed amounts as well as interest as provided by law accrued after date as petitioner’s unpaid notice_of_deficiency liability on date respondent issued to petitioner a notice of balance due with respect to petitioner’s unpaid notice_of_deficiency liability around date petitioner’s return preparer sent respondent form_1040 u s individual_income_tax_return for petitioner and his spouse lauri shannon ms shannon for their taxable_year return that petitioner and ms shannon had signed respondent filed that return sometime shortly after respondent received it in their return petitioner and ms shannon reported total_tax of dollar_figure and tax due of dollar_figure when petitioner’s return preparer sent respondent the return 4see supra note around date petitioner and ms shannon did not pay the tax shown due in that return on date respondent assessed with respect to the taxable_year of petitioner and ms shannon tax of dollar_figure dollar_figure increase in tax which was the difference between the total_tax ie dollar_figure that petitioner and ms shannon reported in their return and the amount of tax ie dollar_figure that respondent determined in the notice_of_deficiency and assessed on date with respect to petitioner’s taxable_year and additions to tax under sec_6651 and of dollar_figure and dollar_figure respec- tively attributable to the dollar_figure increase in tax in- creases in the additions to tax as well as interest as provided by law on such assessed amounts we shall refer to any such unpaid assessed amounts as well as interest as provided by law accrued after date as petitioner’ sec_5 unpaid return liability we shall refer collectively to petitioner’s unpaid notice_of_deficiency liability and petitioner’s unpaid return liability as well as interest as provided by law accrued after date and date respec- tively as petitioner’s unpaid total liability 5this case involves only petitioner and not ms shannon for convenience we shall sometimes refer only to petitioner and not to petitioner and ms shannon on date respondent issued to petitioner a notice of balance due with respect to petitioner’s unpaid return liability on various dates from may through date respondent abated certain assessed amounts of petitioner’s tax additions to tax and interest as provided by law with respect to petitioner’s taxable_year on various dates after respon- dent made the respective assessments on date and date with respect to petitioner’s taxable_year respondent applied as credits to the unpaid total liability certain overpayments with respect to certain other taxable years of petitioner after petitioner’s taxable_year on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing with respect to petitioner’s unpaid total liability on or about date petitioner sent a letter peti- tioner’s date letter to respondent that respondent received on date that letter stated in pertinent part letter of protest i state that i want to appeal the irs find- ing to the appeal office see copy of your letter attached tax years involved are and i do not agree with your conclusion that we owe any money to you we did not owe when we filed our return you owe us a refund for and not to mention the dollar_figure refund that we never received amount owed us is approximately dollar_figure plus interest for four years reproduced literally on or about date an appeals officer with respondent’s appeals_office appeals officer sent petitioner a letter that letter stated in pertinent part in review of your protest and or request for a hearing i find that the outstanding liabilities are from your own late filing of the return the first liabil- ity was established by the service with some limited information after you defaulted your right to petition the tax_court thereafter you submitted a return for with a higher liability since the due_date of the return was date you were assessed the failure_to_file_penalty the failure to pay penalty and interest as the service took funds from other returns adjustments were made to the penalties and interest since some of the payments from other returns were not known until after the penalties and interest were assessed but the effective date of the refunds took effect earlier the total assessed balance is currently dollar_figure since the service took dollar_figure levy funds on date 6petitioner attached to his date letter form cp urgent we intend to levy on certain assets please respond now form cp the internal_revenue_service irs had issued form cp to him with respect to petitioner’s unpaid total liability i ask that you respond within the next days to discuss the case or set a time and date to discuss the case reproduced literally on date the appeals officer held a telephonic hearing with petitioner’s authorized representative by letter dated date the appeals officer sent petitioner’s authorized representative a copy of a transcript of the irs’s account with respect to petitioner’s taxable_year on or about date petitioner’s authorized representative sent the appeals officer a letter petitioner’s date letter that letter stated in pertinent part we are asking for abatement of penalties for this case due to reasonable_cause based upon consideration of the following facts the main penalty that has been applied is the failure_to_file_penalty under sec_6651 the original return was filed by the date extended due_date however the return was not signed by the tax- payer it is our understanding that the irs has had a longstanding policy of waiving this penalty if the error is corrected in this case the error was indeed corrected when the taxpayer was notified of this over- sight thus we request that this penalty be abated as the taxpayer moved to correct this error as quick as possible once it was discovered further please note that the taxpayer suffered a relapse of his hydrocephalus during and spent most of the last four months of hospitalized during which time he underwent multiple brain surgeries and had a shunt placed in his brain to reduce fluid pres- sure this condition rendered the taxpayer very much like an alzheimer’s patient unable to remember or care for himself and very much at the mercy of the former cpa’s direction in this matter the other penalty charged in this case is the failure to pay penalty under sec_6651 as a first consideration for abatement of the penalty the tax- payer prior to the tax_year in question had a good record of timely filing and paying his tax_liabilities and the underpayment in this case was not due to bad faith in addition the taxpayer exercised prudence by engaging a cpa to advise him on his personal and busi- ness tax matters the taxpayer relied on the advice of his former cpa who gave assurance that application of subsequent taxable years’ tax overpayments to the taxpayer’s underpayment would result in elimina- tion of his tax_liability for while this advice was clearly erroneous the taxpayer had no way of knowing this fact and was in no condition to challenge this advice had the taxpayer been correctly advised by his cpa he would have taken the correct action and request that this be considered in your review of the application of the failure to pay penalty we are also asking for reduction of interest and or abatement in this case based upon consideration of the following facts the majority of the payments made in this case were by way of payroll deductions from the taxpayer and were not applied to the tax in some cases until some sixteen months after the government received the money for example monies deducted from the taxpayers’ date paychecks were not applied to the taxes due until apr when the taxes for were due apply- ing of the refund due for tax_year evenly throughout as payments against the taxes due would significantly reduce the interest charge in this case and more fairly represent the actual amount that should be owed in addition interest in this case is eligible for abatement because the delayed payments were not due solely to the actions of the taxpayer but were caused by erroneous advice from a former cpa reproduced literally on date the appeals officer held another tele- phonic hearing with petitioner’s authorized representative with respect to the issues that that representative had raised in petitioner’s date letter on or about date petitioner’s authorized repre- sentative sent the appeals officer another letter petitioner’s date letter that letter stated in pertinent part we are writing on behalf of petitioner regard- ing the outstanding balance we previously corresponded with you on this issue in a letter dated date in which we laid out specific points for abatement of the penalties we also submitted additional information on the medical problems suffered by the taxpayer on date as requested we are requesting a written response to each of these points since they have summarily been rejected we are also asking for written response to our calcula- tion of the amounts due based on the calculations we submitted along with the aforementioned correspondence of date further we would like a written_determination of the amount due for the taxpayer is not proposing an offer_in_compromise at this time and therefore is not submitting form 433-a on or about date in response to petitioner’s date letter the appeals officer sent petitioner’s authorized representative a letter that letter stated in pertinent part in response to your latest correspondence and fax i am writing this letter you did submit arguments about the penalties for and submitted evidence of the taxpayer’s medical condi- tion since there have been other arguments about the computations of the balance due i reviewed the file and find insufficient evidence overcomes the penalties the computations of the balances due have been found to be correct i found one exception in that a levy was taken during the period of collection_due_process and have ordered that refunded the cur- rent transcript shows this has been done recently there is no evidence that the taxpayer timely filed a return for with or with a signature the first return or copy of a return is the one signed date the recorded extension date expired on date the service set up a substitute for a return in may of the service started sending reports of the liability in may of where there was no agreement a statutory_notice_of_deficiency was issued date the tax penalty and interest were assessed on date when the taxpayer didn’t petition the tax_court the taxpayer had his opportu- nity to argue the tax failure_to_file_penalty failure to pay penalty and failure to pay estimated_tax penalty in tax_court after the assessment from the statutory notice the taxpayer submitted his return with a larger liability the account was adjusted to larger amounts on date it appears the service received the return earlier approximately february of but the return didn’t have an original signature later this was rectified and the return was posted so the account could be posted there is no long standing policy for the service to waive the failure_to_file_penalty when the taxpayer doesn’t submit a timely return there is no evidence it was ever timely filed signed or unsigned regarding the failure to pay penalty it is the tax- payer’s responsibility to ensure the tax_liability it paid on time he cannot delegate that responsibility to a cpa or others the return submitted in showed a larger liability than the service set up earlier while you and the taxpayer contend the return was filed in and the return has a copy of a signa- ture in may of there were no payments towards the liability except for some withholding that is question- able i saw no evidence of reasonable_cause to abate the penalty the taxpayer cannot rely on the cpa or others to pay his liability and we saw no evidence that his medical_condition prevented him from making payments he was able to operate one or more corporations and earn an income from to the present we also find that the joint liability is also the responsibility of the spouse who was involved in the home and business with him the failure to pay is also her responsibility you also requested a written response to your calcula- tion of the amounts due based on your submitted compu- tations in a date letter i recall send- ing you transcripts and explanation of the transcripts on date and wonder what else there can be to submit the computations per the transcripts were found to be correct and i didn’t think there was a need for further explanations after i found there were no likely abatements of penal- ties i asked that you submit any alternatives to the levy action to me with financial statements i cannot consider any alternatives to the levy action without financial statements without viable alternatives i have to sustain the levy action reproduced liter- ally on date respondent’s appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice of determina- tion that notice stated in pertinent part summary of determination you sent the service a letter of protest subsequent to a cp504 letter urgent letter and subsequent to a notice_of_intent_to_levy lt the service_center considered this a request for a hearing regarding the notice_of_intent_to_levy and considered it timely you disagreed with the underlying liability and stated that the service owed you money we tried to hold a hearing with you and held a tele- phone and correspondence hearing with your new repre- sentatives we wrote to you and explained the reasons for the balances due for you didn’t raise any issues or alternatives regarding the levy action you didn’t submit financial informa- tion to determine your ability to pay without further information from you we are sustaining the levy action reproduced literally an attachment to the notice_of_determination stated in pertinent part summary of the issues the taxpayer sent the service_center a letter of pro- test on arguing that the balances were in error this was shortly after an urgent notice and a notice_of_intent_to_levy so the service_center deter- mined this was a timely request for a collection_due_process_hearing the taxpayer argued that the balances were in error the taxpayer stated that refunds and changes were misapplied a hearing was offered to the taxpayer and two represen- tatives a telephone and correspondence hearings were held with the representatives the balance of the account was explained to them i found nothing unusual in the postings of the liability and the payments by refunds from later years the taxpayer and repre- sentatives raised no discussions regarding alternatives the levy action the underlying liability is correct as posted to the account recommendation the levy action is sustained without other information to determine a lesser intrusive method of collection brief background the liability was first set up by substitute for return and a statutory_notice_of_deficiency after the notice was defaulted the taxpayer submitted a return with an increased liability the self-corrected in- creases to the account were assessed later there was a carry back from later years to further correct the liability to a lower amount refunds were taken from later years to make additional payments since the return was filed later and insufficient withholding was set up the account includes the fail- ure to pay penalty the failure_to_file_penalty an estimated_tax penalty and interest as amendments and payments were applied corrections were made to the account in review of a current transcript appeals finds the service levied and took dollar_figure2 on after the taxpayer had timely requested an appeal this amount shouldn’t have been levied the late posting of the request for appeals allowed the service to enforce a levy action without a suspension during the cdp suspension_period the cdp unit in covington ky was advised to return the levied funds and it was refunded during the hearing period discussion and analysis applicable law and administrative procedures in review of the file and transcripts it appears that all manual and legal procedures have been properly followed this appeals officer has not dealt with this taxpayer in the past regarding this liability i did have involvement in the taxpayer’s corporation in the past but not regarding the current type of individual taxes or years the taxpayer signed a waiver of my involvement i found one error on date when the service took levy funds during the cdp hearing period of col- lection suspension the cdp unit was advised to return the funds the cause for the premature levy action was the late input of the suspension code on the account the request for a hearing was timely received on date but the suspension code tc cc was not input until cycle approximately august ap- peals believes the cdp unit didn’t recognize the cdp request until june of because the taxpayer didn’t use form when they allowed the cdp hearing the cdp unit should ensure premature levy was returned to the taxpayer under sec_6330 the taxpayer can question the underlying unless he has been previously given the right to appeal or petition the tax_court regarding the matter in this situation the taxpayer defaulted the statutory_notice_of_deficiency and later amended his own return to report more income and liability he doesn’t appear to argue those actions of his own although indicating he disagrees with his own pre- parer’s computations of an additional liability the remains of the account are postings of payments from a carry back or from later year refunds there appear to be no errors in the postings of those changes and payments relevant issues presented by the taxpayer i believe i have addressed all relevant issues pre- sented by the taxpayer the taxpayer and representa- tive haven’t presented further arguments that are on point to the case they didn’t present an alternative or lesser intrusive method of payment to the levy action the representative submitted numerous copies of medical receipts showing the taxpayer husband encountered various medical problems in through i didn’t find the information would show a reasonable_cause to reduce any penalties assessed on the liability in addition the taxpayer had prior oppor- tunities to either petition the tax_court or file an appeal regarding the penalties and interest in prior years they should not be allowed to argue those underlying liabilities in this cdp hearing balancing efficient collection and intrusiveness under the circumstances of the case the levy action balances an efficient method of collection when consid- ering the legitimate concerns of the taxpayer that it be no more intrusive than necessary the levy action is sustained reproduced literally discussion the court may grant summary_judgment where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there are no genuine issues of material fact regarding the questions raised in respondent’s motion a taxpayer may raise challenges to the existence or the amount of the taxpayer’s underlying tax_liability if the taxpayer did not receive a notice_of_deficiency or did not otherwise have an opportunity to dispute the tax_liability sec_6330 including the tax_liability reported in the return that such taxpayer filed 122_tc_1 where the validity of the underlying tax_liability is properly placed at issue the court will review the matter on a de novo basis 114_tc_604 114_tc_176 we turn first to the tax that respondent assessed with respect to petitioner’s taxable_year with respect to the tax of dollar_figure determined in the notice_of_deficiency that respondent assessed on date petitioner received that notice but he did not file a petition with respect to it 7the party opposing summary_judgment must set forth specific facts that show a genuine issue of material fact exists and may not rely merely on allegations or denials in the pleadings 91_tc_322 87_tc_214 as indicated supra note petitioner did not file a response to respondent’s motion petitioner relies merely on allegations in the petition on the instant record we find that petitioner may not challenge the existence or the amount of the tax of dollar_figure determined in the notice_of_deficiency that respondent assessed on febru- ary with respect to the dollar_figure increase in tax that respondent assessed on date and that is attributable to the return petitioner did not receive a notice of defi- ciency and did not otherwise have an opportunity to dispute that tax we shall review on a de novo basis respondent’s determina- tions with respect to such increase in tax sego v commis- sioner supra goza v commissioner supra petitioner made general and vague allegations in the petition about whether the total_tax for his taxable_year is the amount shown as total_tax in the return however petitioner failed to specify the basis for any disagreement that he may have regarding the total_tax shown in that return on the instant record we find that petitioner has failed to show that he is not liable for the dollar_figure increase in tax that respondent assessed on date and that is attributable to the return we turn next to the respective additions to tax under sec_6651 and that respondent assessed with respect 8petitioner did not claim in the petition that any items of income deduction or credit reported or any computations made in the return were incorrect to petitioner’s taxable_year with respect to the addi- tions to tax under sec_6651 and of dollar_figure and dollar_figure respectively determined in the notice of defi- ciency that respondent assessed on date as dis- cussed above petitioner received the notice_of_deficiency in which respondent inter alia determined such additions to tax but he did not file a petition with respect to that notice on the instant record we find that petitioner may not challenge the existence or the amount of the additions to tax under sec_6651 and of dollar_figure and dollar_figure respectively determined in the notice_of_deficiency that respondent assessed on date with respect to the increases in the additions to tax under sec_6651 and of dollar_figure and dollar_figure respectively that respondent assessed on date and that are attributable to the return petitioner did not receive a 9petitioner does not dispute respondent’s determination that respondent may proceed to collect any unpaid addition_to_tax under sec_6654 for his taxable_year determined in the notice_of_deficiency that respondent assessed on date with respect to the respective additions to tax under sec_6651 and that respondent assessed for petitioner’s taxable_year petitioner alleges in the petition that he seeks abatement of those additions to tax we construe that allegation as a request to review whether petitioner is liable for the respective additions to tax under sec_6651 and that respondent assessed for his taxable_year and whether if the court were to find that he is so liable respondent may proceed to collect such additions to tax notice_of_deficiency and did not otherwise have an opportunity to dispute those additions to tax we shall review on a de novo basis respondent’s determinations with respect to such increases in the additions to tax sego v commissioner supra goza v commissioner supra sec_6651 imposes an addition_to_tax for failure_to_file timely a return sec_6651 imposes an addition_to_tax for failure to pay timely the amount shown as tax in a return the respective additions to tax under sec_6651 and do not apply if the failures to file timely and to pay timely are due to reasonable_cause and not to willful neglect respondent has the burden of production with respect to the increases in the additions to tax under sec_6651 and sec_7491 116_tc_438 although respondent bears the burden of production with respect to such increases respondent need not introduce evidence regarding reasonable_cause or similar provisions the taxpayer bears the burden_of_proof with regard to those issues higbee v commissioner supra with respect to the increase in the addition_to_tax under sec_6651 petitioner claims and respondent disputes that petitioner submitted timely an unsigned return for his taxable_year assuming arguendo that petitioner had timely submitted an unsigned return for his taxable_year such unsigned return does not constitute a valid tax_return for that year see 113_tc_125 we conclude that respondent has satisfied respondent’s burden of production under sec_7491 with respect to the increase in the addition_to_tax under sec_6651 of dollar_figure that respondent assessed on date and that is attributable to the return which petitioner and ms shannon signed and which respondent filed sometime shortly after it was sent to respondent around date with respect to the increase in the addition_to_tax under sec_6651 the record establishes and petitioner conceded in the petition that he failed to pay timely the tax shown in the return we conclude that respondent has satisfied respondent’s burden of production under sec_7491 with respect to the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return which petitioner and ms shannon signed and which respondent filed shortly after it was sent to respondent around date we address now whether petitioner has carried his burden of establishing that he is not liable for the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return as we understand petitioner’s position he contends that he timely sent to respondent an unsigned return for his taxable_year consequently according to petitioner his failure_to_file timely a return for his taxable_year was due to reasonable_cause and not to willful neglect even if petitioner timely sent to respondent an unsigned return for his taxable_year which respondent disputes any such action by petitioner would not establish that his failure_to_file timely a return for his taxable_year was due to reasonable_cause and not to willful neglect see elliott v commissioner supra pincite on the instant record we find that petitioner has failed to show that he is not liable for the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return we address next whether petitioner has carried his burden of establishing that he is not liable for the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return as discussed above petitioner conceded in the petition that he did not pay timely the tax shown in the return nonetheless as we understand petitioner’s position he contends that he relied on the advice of a certified_public_accountant that he did not have to pay the tax shown due in the return when that return was sent to respondent around date consequently according to petitioner his failure to pay timely the tax shown in the return was due to reasonable_cause and not to willful neglect in this connection petitioner alleged in the petition petitioner demonstrated prudence by engaging a cpa to advise him on his personal and business tax matters the petitioner relied on the advice of his former cpa who gave assurance that application of subsequent taxable years’ tax overpayments to the petitioner’s underpayment would result in elimination of his tax_liability for while this advice was clearly erroneous the petitioner had no way of knowing this fact and was in no condition to challenge this advice had petitioner been correctly advised by this former cpa petitioner would have taken the correct action request that this be considered in determining the appropriateness of the application of the failure to pay penalty reproduced literally assuming arguendo that a certified_public_accountant advised petitioner that he did not have to pay the tax shown due in the return when that return was sent to respondent around date we reject any argument by petitioner that any reliance by him on such advice establishes that his failure to pay timely the tax shown in that return was due to reasonable_cause and not to willful neglect the last date prescribed for the timely payment of tax for petitioner’s taxable_year was date sec_6072 sec_6151 the standard for reasonable_cause under sec_6651 is a one-time test to be passed or failed as of the due_date for the tax paymentdollar_figure in order to establish that his failure to pay timely the tax shown in the return was due to reasonable_cause and not to willful neglect petitioner must show that reasonable_cause existed on 10see estate of hartsell v commissioner tcmemo_2004_ date the last date prescribed for the timely payment of tax for petitioner’s taxable_year see sec_6072 sec_6151 petitioner does not contend and the record does not establish that on date he had reasonable_cause for his failure to pay timely the tax shown in the return we address next petitioner’s position that he is not liable for the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return because respondent incorrectly calculated the amount of such increase in such addition_to_tax in this connection petitioner alleged in the petition the irs should allow credit for taxes paid_by with- holding when the petitioner makes a payment by with- holding not some months later petitioner will demonstrate monies were in the hands of the government and unavailable to petitioner far before they are being credited to the petitioners account allowing the irs to assess penalties upon funds that it holds reproduced literally as we understand it it is petitioner’s position that any_tax withheld from wages that he received during taxable years after his taxable_year should be applied to his unpaid total liability at the time such tax was withheld we reject any such position any_tax withheld from an individual’s wages is deemed paid_by the individual on the 15th day of the fourth month following the close of the taxable_year with respect to which such tax is allowable as a credit under sec_31 see sec_6513 on the instant record we find that petitioner has failed to show that he is not liable for the increase in the addition_to_tax under sec_6651 that respondent assessed on date and that is attributable to the return we consider now petitioner’s claim in the petition for abatement of interest with respect to his taxable_year we construe that claim as a request to review respondent’s failure to abate interest under sec_6404 which we shall review for abuse_of_discretion see sec_6404 see also 113_tc_145 sec_6404 permits respondent to abate interest with respect to an unreasonable error or delay resulting from managerial and ministerial actsdollar_figure petitioner alleged in the petition the majority of the payments made in this case were by way of payroll deductions from the petitioner and were not applied to the tax in some cases until some sixteen months after the government received the money for 11in petitioner’s date letter petitioner requested that respondent abate interest with respect to his taxable_year respondent’s appeals_office did not abate such interest we have jurisdiction to review respondent’s determination not to abate interest with respect to petitioner’s taxable_year sec_6404 115_tc_329 sec_6404 was amended by taxpayer bill of right sec_2 publaw_104_168 110_stat_1452 to permit the secretary to abate interest with respect to an unreasonable error or delay resulting from managerial as well as ministerial acts the foregoing amendment applies to interest accruing with respect to deficiencies or payments for taxable years beginning after date and is applicable in the instant case example monies deducted from the petitioner’s date paycheck were not applied to the taxes due until apr when the taxes for were due apply- ing of the refund due for tax_year evenly throughout as payments against the taxes due would significantly reduce the interest charge in this case and more fairly represent the actual amount that should be owed in addition interest in this case is eligible for abatement because the delayed payments were not due solely to the actions of the petitioner but were caused by bad advice from a former cpa reproduced literally we turn first to petitioner’s contention that respondent abused respondent’s discretion in failing to abate interest on petitioner’s unpaid total liability because respondent did not apply tax withheld from wages that petitioner received during taxable years after his taxable_year to his unpaid total liability at the time such tax was withheld we reject that contention as discussed above any_tax withheld from an indi- vidual’s wages is deemed paid_by the individual on the 15th day of the fourth month following the close of the taxable_year with respect to which such tax is allowable as a credit under sec_31 see sec_6513 we turn next to petitioner’s contention that respondent abused respondent’s discretion in failing to abate interest on petitioner’s unpaid total liability because he received bad advice from a certified_public_accountant we reject that contention any advice that petitioner received from a certified_public_accountant is not a basis under sec_6404 on which respondent may abate interest with respect to petitioner’s taxable_year based upon our examination of the entire record before us we sustain respondent’s determination in the notice of determina- tion to proceed with the collection action with respect to petitioner’s taxable_year we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot on the record before us we shall grant respondent’s motion to reflect the foregoing an order granting respondent’s motion and decision for respondent will be entered


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc dom corp 5-plr-119484-99 date date index number number release date in re usp fsub1 fsub2 fco fco fsh x y z country x country y country z this is in reply to your letter dated date requesting that we rule on a significant federal_income_tax subissue present in a proposed transaction see sec_3 of revproc_2000_3 2000_1_irb_103 the facts submitted for consideration are substantially as set forth below usp is the parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return usp owns x percent of fsub1 a country x corporation the remaining y percent is owned by fsh a country y corporation fsub1 owns percent of the outstanding_stock of fsub2 for valid business reasons fsub1 will migrate from country x to country z pursuant to a corporate continuance statute the following steps will be taken i prior to the migration fsub1 will make a cash distribution of its current_earnings_and_profits as a pro_rata dividend to usp and fsh the distribution prior to the migration fsub1 will recapitalize its shares the recapitalization prior to the migration fsh will contribute all of its stock in fsub1 to fco a wholly owned foreign_corporation solely in exchange for stock of fco fco will then contribute all of its stock in fsub1 to fco a foreign_corporation wholly owned by fco solely in exchange for stock of fco the transfers prior to or following the migration fsub1 anticipates that it will completely liquidate fsub2 prior to or following the corporate migration the liquidation prior to or following the migration fsub1 will sell certain assets representative of a reduction of z percent in a historic line of fsub1's business the sale ii iii iv v after completion of these steps fsub1 will migrate from country x to country y pursuant to the corporate continuance statutes of country x and country z the migration the taxpayer has made the following representations in connection with the proposed transaction a to the best of the taxpayer’s knowledge and belief the migration will qualify under sec_368 of the internal_revenue_code provided that the distribution recapitalization transfers liquidation and sale do not prevent the migration from so qualifying the distribution will not exceed percent of the fair_market_value of fsub1 immediately before the dividend fsub1 has no plan or intention to sell or otherwise dispose_of any of its assets except for i dispositions made in the ordinary course of business ii distributions of normal regular dividends such as the distribution iii the liquidation or iv the sale neither fsub nor fsub has a u s trade business nor do they have effectively_connected_income within the meaning of sec_884 fsh is not and has not been within the last years a controlled_foreign_corporation within the meaning of sec_957 fsh is not a passive_foreign_investment_company within the meaning of sec_1297 no elections have been made to treat either fsub or fsub as disregarded entities pursuant to sec_301 of the income_tax regulations fsub will not be distributing any u s real_property interests within the meaning of sec_897 as part of the liquidation fsub has never conducted a trade_or_business_within_the_united_states fsub has accumulated_effectively_connected_earnings_and_profits within the meaning of sec_884 b c d e f g h i j based solely on the information submitted and the representations made we rule as follows the distribution recapitalization transfers liquidation and sale will have no effect on the qualification of the migration under sec_368 see revrul_96_29 1996_1_cb_50 sec_1_368-1t e ii a of the temporary income_tax regulations we express no opinion about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling in particular no opinion is expressed concerning any of the international tax consequences including any consequences under sec_367 sec_367 or sec_884 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction covered by this letter should attach a copy of the letter to its federal_income_tax return for the taxable_year in which the transaction is consummated pursuant to a power_of_attorney on file in this office we have sent a copy of this letter to the taxpayer’s representative sincerely yours assistant chief_counsel corporate by__ debra carlisle chief branch _________


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date cc intl br1 genin-164049-04 office_of_chief_counsel number info release date uil ------------------------ ---------------------- ------------------------------- ----------------- ------------ dear ----------------- this letter responds to your request for information dated date in your letter you requested certain information regarding article teaching and research of the convention between the united_states of america and trinidad and tobago for the avoidance of double_taxation the prevention of fiscal evasion with respect to taxes on income and the encouragement of international trade and development the treaty under article of the treaty an individual who is a resident of one of the contracting states at the beginning of his visit to the other contracting state and who at the invitation of the government of that other contracting state or of a university or other educational_institution situated in that other contracting state and approved by the appropriate educational authority of that contracting state visits that other contracting state for the primary purpose of teaching or engaging in research or both at a university or other educational_institution approved by the appropriate educational authority of that contracting state shall be exempt from tax by that other contracting state on his income from personal services for teaching or research at such approved university or other educational_institution for a period not exceeding two years from the date of his arrival in that other contracting state therefore a resident of trinidad may be exempt from u s income on remuneration derived from teaching in the united_states paragraph of article however provides that the exemption granted under paragraph will not apply a public interest but primarily for the private benefit of a specific person or persons to income from research if such research is undertaken not in the genin-164049-04 b to income in cases where an agreement exists between the governments of the contracting states for the provision of the services of such individuals a resident of trinidad may claim the benefits of article a second time provided the individual has been absent from the united_states for a period of at least one year and the individual still meets the requirements of article of the treaty when the individual returns to the united_states see revrul_56_164 1956_1_cb_848 in addition you may find it useful to view revrul_89_5 1989_1_cb_353 discussing the date-of-arrival rule the date-of-arrival rule has been interpreted to mean that the exemption begins on the date that the individual enters the united_states for purposes of teaching at an educational_institution within the meaning of the treaty article this information_letter is advisory only and has no binding effect on the internal_revenue_service it is intended for informational purposes only and does not constitute a ruling if you would like a definitive determination concerning a particular set of facts you must comply with the requirements for obtaining a private_letter_ruling that are set forth in revproc_2005_1 2005_1_irb_1 if you have any additional questions please contact -------------------at -------------------- sincerely _____________________________ karen a rennie senior technical reviewer branch international


internal_revenue_service department rq qa index number washington dc person to contact telephone number refer reply to cc dom p si plr-111106-99 date oct legend state a state b d1 d2 this responds to the ietter dated date submitted on behalf of x requesting a waiver of the five-year waiting_period imposed by sec_1361 of the internal_revenue_code to permit x to make a subchapter_s_election under sec_1362 x was incorporated under state a law y was incorporated under state b law facts on d1 pursuant to an overall business plan y merged with and into x an sdollar_figure corporation was the sole shareholder of x and y and had filed a qualified prior to d1 z cc dom p si plr-111106-99 subchapter_s subsidiary qsub election with respect to y upon completing the merger and pursuant to the overall business plan all of the outstanding shares of x stock were distributed to y’s shareholders effective d1 on or about d2 x filed a subchapter_s_election to be effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an sdollar_figure corporation sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of the code i a corporation which is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines a qsub as a domestic_corporation that is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1361 provides that for purposes of the code if any corporation which was a qsub ceases to meet the requirements of sec_1361 the corporation shall be treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the cessation from the s_corporation in exchange for its stock sec_1361 provides that if a corporation's status as a qsub terminates such corporation and any successor_corporation shall not be eligible to make i an election under sec_1361 ii to be treated as a qsub or ii an election under sec_1362 to be treated as an s_corporation before the 5th taxable_year for which the termination was effective unless the secretary consents to the election in explaining sec_1361 the joint_committee on taxation states as follows it is expected that the secretary will provide waivers of the five-year rule in appropriate instances for example if the stock of the qsub is distributed to the individual shareholders of the subsidiary's parent the subsidiary will no longer be a qsub and would be subject_to the five-year rule if the parent_corporation retains its subchapter_s_election and the secretary determines a2 cc dom p si plr-111106-99 that the distribution was not made for tax_avoidance it would seem appropriate for the secretary to waive the five-year rule joint_committee on taxation general explanation of tax legislation enacted in 104th congress jcs-12-96 104th cong 2d sess conclusion based solely on the facts submitted and the representations made the service waives the five-year waiting_period imposed by sec_1361 and consents to x's election under sec_1362 effective d1 and thereafter unless otherwise terminated except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express no opinion on whether x otherwise qualifies as an s_corporation furthermore no opinion is expressed or implied concerning the tax consequences of the merger and reorganization discussed above temporary or final regulations pertaining to one or more issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in dollar_figure of revproc_99_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely - x meo coma ianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes