t c summary opinion united_states tax_court martin toombs petitioner v commissioner of internal revenue respondent docket no 27665-10s filed date james o creech iii for petitioner thomas d yang for respondent summary opinion armen special_trial_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 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 a deficiency in petitioner’s federal_income_tax of dollar_figure and an accuracy-related_penalty of dollar_figure pursuant to sec_6662 after a concession by petitioner the issues remaining for decision are whether petitioner must include in gross_income a distribution he received from his former spouse’s retirement account and whether he is liable for the accuracy-related_penalty under sec_6662 we hold that petitioner must include the distribution in his gross_income but is not liable for the accuracy-related_penalty unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts are rounded to the nearest dollar petitioner concedes that he is not entitled to the dollar_figure alimony deduction that he claimed on his federal_income_tax return tax_return background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts supplemental stipulation of facts and accompanying exhibits petitioner resided in the state of illinois at the time the petition was filed in date petitioner and his former spouse kimberly toombs were married during their marriage the former couple purchased real_property in hazel crest illinois marital residence also during their marriage ms toombs was a participant in the u s postal service federal employees’ thrift_savings_plan tsp and maintained a tsp retirement account tsp account in divorce proceedings were commenced in the circuit_court of cook county illinois family court in date the family court entered a judgment for dissolution of marriage divorce decree that incorporated a marital settlement agreement msa the msa was later amended by an agreed order article v of the amended msa memorializes the former couple’s agreement that petitioner would acquire the right to receive a interest in the marital share of ms toombs’ tsp account incident to their divorce with such funds being payable to him article v of the msa also states immediately upon such funds becoming available for withdrawal by husband husband shall withdraw his entire share of the monies in the thrift_savings_plan and pay such funds to wife as partial payment of the monies owed to wife for her share of the equity in the marital residence article vii dealing with the marital residence states husband shall immediately cash in his share of wife’s thrift_savings_plan and pay these entire funds to wife in addition article x of the msa states the parties agree that all allocations and transfers of property pursuant to this divorce proceeding are intended to be non-taxable events except as otherwise provided herein article x of the msa further states the parties shall execute any documents necessary to insure the non-taxable status of said property allocation herein petitioner’s divorce attorney discussed article x of the msa with petitioner at the time of petitioner’s divorce the marital share represents the portion of the benefit that had accrued during the former couple’s marriage in date the family court entered a retirement benefits court order family court order awarding petitioner the interest in the marital share of ms toombs’ tsp account as outlined in the msa in and pursuant to the amended msa petitioner withdrew dollar_figure from the tsp account which constituted his entire interest also pursuant to the amended msa once petitioner received the distribution check he transferred dollar_figure to ms toombs petitioner paid a commercial tax_return_preparer to prepare his federal_income_tax return petitioner discussed his divorce with his preparer and provided the preparer with a form 1099-r distribution from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc showing a gross distribution of dollar_figure and a taxable_amount of dollar_figure pursuant to his preparer’s advice petitioner included the dollar_figure gross distribution in his gross_income and claimed a dollar_figure alimony deduction representing the payment he made to his former spouse in that year nothing in the record explains the dollar_figure difference between the amount withdrawn and the amount transferred to ms toombs nothing in the record explains why dollar_figure was treated as nontaxable respondent subsequently issued a notice_of_deficiency in which he disallowed petitioner’s dollar_figure alimony deduction and imposed an accuracy- related penalty with respect to the resulting dollar_figure income_tax deficiency i distribution discussion petitioner concedes that he is not entitled to the dollar_figure alimony deduction claimed on his tax_return and disallowed by respondent in the notice_of_deficiency see supra note nevertheless petitioner asserts that the dollar_figure distribution he received in and reported on his tax_return should not have been included in his gross_income petitioner bears the burden_of_proof on this affirmative issue see rule a a gross_income gross_income means all income from whatever source derived including income from pensions sec_61 pensions and retirement allowances paid_by the federal government generally constitute gross_income unless excluded by law schuller v commissioner tcmemo_2012_347 sec_1_61-11 income_tax regs for a taxpayer who uses the cash_receipts_and_disbursements_method of petitioner’s assertion was tried by the consent of the parties see rule b accounting such as petitioner an item is includible in gross_income in the year in which the item is actually or constructively received sec_451 sec_1_451-1 income_tax regs congress has provided specialized rules in the area of employee_plans distributions from a tsp are generally treated in the same manner as distributions from a_trust described in sec_401 sec_7701 and b see also u s c sec a and pursuant to sec_402 amounts actually distributed from a_trust described in sec_401 are taxable to the distributee under sec_72 which generally provides for the current taxation of distributions as ordinary_income as a general_rule the term distributee means the participant or beneficiary who is entitled to receive the distribution under the plan see 97_tc_51 seidel v commissioner tcmemo_2005_ however under sec_402 a former spouse is treated as the distributee with respect to distributions made to that spouse under a qualified_domestic_relations_order qdro and such distributions constitute taxable_income sec_402 provides in relevant part that any amount actually distributed to any distributee by any employees’ trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to the distributee under sec_72 relating to annuities to that spouse see 131_tc_215 the former spouse that receives the distribution under the qdro is also referred to as the alternate_payee id the record establishes and the parties do not dispute that the distribution at issue here is treated as made pursuant to a qdro in and pursuant to the divorce decree and family court order petitioner was awarded a interest in the marital portion of his former spouse’s tsp account in early petitioner cashed in his share of the tsp account receiving a dollar_figure distribution as an alternate_payee the distribution petitioner received with respect to hi sec_50 share of the tsp account is includible in his gross_income unless excluded by law see sec_61 schuller v commissioner tcmemo_2012_347 sec_1_61-11 income_tax regs furthermore if not excluded the distribution is currently taxable to petitioner under sec_72 see sec_402 e a under sec_414 a distribution from a governmental_plan such as the tsp in the instant case is treated as made pursuant to a qdro if it is made pursuant to a domestic_relations_order as defined in sec_414 that meets the requirement of sec_414 see eg 138_tc_378 n b petitioner’s theory of exclusion petitioner argues that the dollar_figure distribution he received in is excluded from his gross_income under sec_1041 in that regard petitioner alleges that his withdrawal of the tsp funds constituted a transfer of property to a third party on behalf of his former spouse within the purview of sec_1 1t c q a-9 temporary income_tax regs fed reg date we disagree sec_1041 provides that n o gain_or_loss shall be recognized on a transfer of property from an individual to a former spouse but only if the transfer is incident to the divorce this court has generally held that transfers of property between spouses incident to a divorce neither are taxable events nor give rise to deductions or recognizable income 112_tc_317 aff’d without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir sec_1_1041-1t q a-9 temporary income_tax regs supra provides in relevant part q-9 may transfers of property to third parties on behalf of a spouse or former spouse qualify under sec_1041 a-9 yes there are three situations in which a transfer of property to a third party on behalf of a spouse or former spouse will qualify under sec_1041 provided all other requirements of the section are satisfied the first situation is where the transfer to the third party is required by a divorce_or_separation_instrument however e xclusions from gross_income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion zimmerman v commissioner tcmemo_2008_36 wl at according to petitioner after he was awarded a interest in his former spouse’s tsp account he allegedly sold that interest back to the tsp pension administrator in exchange for dollar_figure in sales proceeds in petitioner’s view the alleged sale of hi sec_50 interest to the plan_administrator in exchange for dollar_figure was a transfer of property to a third party on behalf of his former spouse required by the divorce decree and therefore was a nontaxable event under sec_1_1041-1t q a-9 temporary income_tax regs supra we decline to recharacterize petitioner’s withdrawal as a sale or transfer of property to the tsp pension administrator because the record shows that no such sale or transfer occurred rather petitioner merely cashed out hi sec_50 interest in the tsp account withdrawing the dollar_figure distribution in our view petitioner has failed to establish that his situation falls within the clear scope of the exclusion provided by sec_1_1041-1t q a-9 temporary income_tax regs supra particularly where congress has provided special rules dealing with distributions from employees’ plans pursuant to domestic relations orders although petitioner may not have foreseen the tax consequences of his withdrawal as structured in the msa the supreme court has held that ‘ w hile a taxpayer is free to organize his affairs as he chooses nevertheless once having done so he must accept the tax consequences of his choice whether contemplated or not’ 429_us_569 quoting 417_us_134 petitioner cites 114_tc_14 aff’d without published opinion sub nom mulberry motor parts inc v commissioner 273_f3d_1120 11th cir in support of his argument that the dollar_figure distribution constituted a sale of hi sec_50 interest in the tsp account to the tsp plan_administrator on behalf of his former spouse we find petitioner’s reliance on read misplaced in read we held that ms read’s sale of stock to a corporation was on behalf of mr read because either mr read or the corporation wholly owned by ms read and mr read was obligated under a divorce judgment to purchase the stock the situation in read is readily distinguishable from petitioner’s case because read did not involve a pension distribution and petitioner has failed to demonstrate in the instant case that any transfer of property to the tsp plan_administrator occurred instead the record establishes that petitioner’s receipt of the tsp funds was a taxable_distribution see sec_402 e a therefore on the record before us we hold that the dollar_figure distribution that petitioner received in and that he reported on his tax_return constitutes gross_income to him for ii accuracy-related_penalty sec_6662 and b imposes a penalty equal to of the amount of any underpayment that is due to a substantial_understatement_of_income_tax the definition of an understatement is the excess of the tax required to be shown on the tax_return over the tax actually shown on the return sec_6662 an understatement of income_tax is substantial if the understatement exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 with respect to a taxpayer’s liability for any penalty sec_7491 places on the commissioner the burden of production thereby requiring the commissioner to come forward with sufficient evidence indicating that it is appropriate to impose the penalty 116_tc_438 once the commissioner meets his burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect see rule a 290_us_111 the notice_of_deficiency indicates that petitioner should have reported a tax of dollar_figure on his tax_return petitioner reported dollar_figure given our disposition of the first issue petitioner understated his income_tax_liability by dollar_figure which exceeds dollar_figure and is greater than of the tax required to be shown on his return see sec_6662 accordingly respondent has met his burden of production sec_6664 provides an exception to the imposition of the accuracy- related penalty with respect to any portion of an underpayment if the taxpayer establishes that there was reasonable_cause for such portion and the taxpayer acted in good_faith with respect to such portion the decision as to whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the pertinent facts and circumstances including the taxpayer’s knowledge education and experience as well as the taxpayer’s reliance on professional advice see 85_tc_934 sec_1_6664-4 income_tax regs it is clear from the record that petitioner is not a tax expert or experienced in tax matters and relied reasonably and in good_faith on his divorce attorney and return preparer to determine the treatment of the payment made to his former spouse see 469_us_241 after considering the totality of the facts and circumstances we are satisfied that petitioner who discussed his divorce with his preparer and provided her with the form 1099-r acted in good_faith and comes within the reasonable_cause exception of sec_6664 therefore we hold that petitioner is not liable for the accuracy-related_penalty under sec_6662 conclusion we have considered all of the arguments advanced by the parties and to the extent not expressly addressed we conclude that those arguments do not support a result contrary to that reached herein to give effect to our disposition of the disputed issue as well as petitioner’s concession see supra note decision will be entered for respondent as to the income_tax deficiency and for petitioner as to the accuracy-related_penalty


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 03-plr-114372-98 date date legend company year date date state trust trust trust shareholders plr-114372-98 plr-114372-98 plr-114372-98 dear this responds to a letter dated date and subsequent correspondence written on behalf of company requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated in year and elected on date to be an s_corporation as defined by sec_1361 on date trust trust and trust the trusts were formed the agreement for each trust referred to collectively as the trust agreements created separate shares within the meaning of sec_663 for the respective beneficiaries separate_share_trusts each separate share trust was funded with shares of company’s stock each separate share trust was intended to satisfy the requirements of a qualified_subchapter_s_trust qsst as described in sec_1361 to accomplish this the trust agreements each contained terms in apparent satisfaction of the requirements of sec_1362 plr-114372-98 through iv the beneficiary of each separate share trust also filed the election required by sec_1361 effective for date however another provision of each trust agreement allowed for the possibility of the distribution of both trust income and corpus to beneficiaries other than the current income_beneficiary of each separate share trust this possibility prevented the separate_share_trusts from satisfying the requirements of sec_1361 and ii nonetheless each separate share trust has been administered at all times in a manner consistent with the requirements of a qsst under sec_1361 each separate share trust has had only one current income_beneficiary furthermore counsel for the company has prepared and the interested parties have consented to file petitions seeking reformation of the trust agreements with the appropriate state court as reformed the trust agreements will not permit the respective trustees to make distributions of income or principal to any person other than the current income_beneficiary of each separate share trust consistent with the requirements of sec_1361 and ii additionally while all income has been distributed currently to the appropriate beneficiaries the trust agreements as reformed will explicitly require the current_distribution of all income company did not know that the transfers to the trusts terminated its s_corporation status and the termination was not motivated by tax_avoidance or retroactive tax planning the shareholders of company during the termination period and company agree to make any adjustments required by the secretary consistent with the treatment of company as an s_corporation law and analysis sec_1361 provides that the term s_corporation means for any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year as of date sec_1361 defined the term small_business_corporation to mean a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock under sec_1361 a qsst defined in sec_1361 may be treated as an eligible shareholder described in sec_1361 sec_1361 provides that the term qualified_subchapter_s_trust means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to the beneficiary iii the income_interest of the current income_beneficiary in the trust plr-114372-98 shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to the beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states in this case the conflicting provisions of the trusts allowed for the remote possibility of income and corpus distribution to a beneficiary other than the current income_beneficiary thus the trust agreements did not satisfy the requirements of sec_1361 see revrul_93_31 1993_1_cb_186 and revrul_89_45 1989_1_cb_267 under sec_663 and sec_1_663_c_-1 of the income_tax regulations if a single trust has more than one beneficiary and if different beneficiaries have substantially separate and independent shares their shares are treated as separate trusts for certain purposes sec_1_663_c_-3 provides that the applicability of the separate_share_rule provided by sec_663 will generally depend upon whether distributions of the trust are to be made in substantially the same manner as if separate shares had been created under sec_1361 a substantially separate and independent share of a_trust within the meaning of sec_663 shall be treated as a separate trust for purposes of sec_1361 and d sec_1362 provides that an election under sec_1362 terminates whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation the trusts were not trusts described in sec_1361 when company’s stock was transferred to the trusts on date therefore company’s status as an s_corporation terminated on date sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion after applying the relevant law to the facts submitted and the representations made we rule that the termination of company's subchapter_s_corporation election as plr-114372-98 described above was an inadvertent termination within the meaning of sec_1362 under the provisions of sec_1362 company will be treated as continuing to be an s_corporation from date and thereafter assuming company's s_corporation_election was valid and was not otherwise terminated under sec_1362 this ruling is contingent upon the successful reformation of the trust agreements in accordance with the representations made we further rule that in any year in which the beneficiary of a separate share trust as reformed elects to have the trustee retain all or any portion of the income within the meaning of sec_643 of such separate share trust the election by the beneficiary will not change the status of the separate share trust as a qsst except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation or the election to treat company as an s_corporation was effective plr-114372-98 this ruling is directed only to the taxpayer requesting it under sec_6110 it may not be used or cited as precedent sincerely yours jeff erickson assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n number release date uniform issue list nos date date employer_identification_number legend trust a_trust b_trust c d h dear ------------------- this is in response to d's request for a ruling under sec_501 sec_512 and sec_4976 of the internal_revenue_code facts trust a_trust b and trust c have all been recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code they are all welfare_benefit funds under sec_419 of the code they all provide funding for life sick accident or other permissible benefits under sec_501 of the code h the sponsor or its subsidiary acquired the entities which sponsored trust a and trust b together the orphan vebas pursuant to these acquisitions the sponsor also assumed sponsorship of each of the orphan vebas when the sponsor assumed sponsorship of the orphan vebas active and retired employees who were eligible under the plans associated with the orphan vebas became eligible for benefits under trust c no benefits have been paid from the orphan vebas since the members of those vebas became eligible under trust c also no additional contributions have been made to the orphan vebas since the sponsor assumed sponsorship of those vebas in order to minimize costs of administering three trusts related to one plan the sponsor proposes to merge trust a and trust b into trust c the proposed merger because the orphan vebas no longer pay benefits to active or retired employees the sponsor intends to direct the trustee to merge the assets of the orphan vebas into trust c the transferee veba so that the funds held in the orphan vebas can be used to benefit the members of the transferee veba including those who previously participated in the plans associated with the orphan vebas however the trustee may not use any assets previously contributed to the orphan vebas to fund post-retirement benefits for the purpose of paying current benefits to active employees under the transferee veba under the terms trust a_trust b and trust c the sponsor of each trust is prohibited from receiving a reversion of any assets from its respective trust thus following the completion of the proposed merger h as successor sponsor will not receive any such assets rulings requested d requests the following rulings neither the transfer of the assets of the orphan vebas to the transferee veba nor the use of the assets of the orphan vebas by the transferee veba to pay future life sick accident or other permissible benefits to eligible active and retired employees of the sponsor will constitute a disqualified_benefit under sec_4976 of the code the proposed transactions will not cause either the orphan vebas or the transferee veba to cease to be recognized as exempt from federal_income_tax under sec_501 of the code the proposed transactions will not cause either the orphan vebas or the transferee veba to incur unrelated_business_taxable_income as defined in sec_512 of the code law sec_501 of the code provides for the exemption from federal_income_tax of voluntary_employees'_beneficiary_associations providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-4 of the income_tax regulations provides that it will not constitute prohibited inurement if on termination of an organization described in sec_501 of the code any assets remaining in the association after satisfaction of all liabilities to existing beneficiaries of the association are applied to provide either directly or through the purchase of insurance life sick accident or other permissible benefits pursuant to criteria that do not provide for disproportionate benefits to officers shareholders or other highly compensated employees of the employer it further states that if the trust document or charter provides for the reversion of assets to the employer on dissolution or if reversion is permitted through operation of law the trust is not an organization described in sec_501 sec_512 of the code defines unrelated_business_taxable_income as gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less certain deductions sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related to the exercise or performance by such organization of its charitable educational or other purpose or function sec_4976 of the code provides that any portion of a welfare_benefit_fund reverting to the benefit of the employer will be subject_to a percent excise_tax sec_4976 of the code provides that a disqualified_benefit includes any portion of a welfare_benefit_fund reverting to the benefit of the employer under sec_4976 and sec_419 of the code the term welfare_benefit_fund includes an organization described in sec_501 analysis request under the proposed merger the trustee may not use any assets previously contributed to the orphan vebas to fund post-retirement benefits for the purpose of paying current benefits to active employees under the transferee veba under the terms of trust a_trust b and trust c the sponsor of each trust is prohibited from receiving a reversion of any assets from its respective trust thus following the completion of the proposed merger h as successor sponsor will not receive any such assets portion of a welfare_benefit_fund reverting to the benefit of the employer includes an organization described in sec_501 sec_4976 of the code provides that a disqualified_benefit includes any under sec_4976 and sec_419 of the code the term welfare_benefit_fund thus the transfer of assets from trust a and trust b to trust c will not result in a reversion of any of their assets to h or its subsidiaries consequently the proposed merger will not constitute a disqualified_benefit under h sec_4976 of the code request the transfer of assets from trust a and trust b to trust c will not affect the tax-exempt status of trust a_trust b or trust c because no prohibited inurement will occur the transferred assets will be used to provide permissible life sick accident or other_benefits pursuant to criteria that do not provide for disproportionate benefits to officers shareholders or highly compensated employees specifically the proposed surviving plan will provide the following benefits funding for life sick accident or other permissible benefits these benefits will be provided in a non-discriminatory manner pursuant to trust c these assets will be used for the exclusive purpose of providing the above permissible benefits to eligible persons under plan c since the transfer of assets will only be used to provide permissible life sick accident or other_benefits pursuant to sec_501 of the code the proposed transactions will not cause either the orphan vebas or the transferee veba to cease to be recognized as exempt from federal_income_tax under sec_501 request the purpose of the transferee veba is to provide certain welfare benefits to its members the transfer of assets from the orphan vebas to the transferee veba is for the purpose of providing welfare benefits to the members of the transferee veba sec_512 of the code defines unrelated_business_taxable_income as gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less certain deductions since this transfer is being made for a permissible exempt_purpose of the transferee veba no unrelated_business_taxable_income will result from this transfer under sec_512 of the code ruling sec_1 neither the transfer of the assets of the orphan vebas to the transferee veba nor the use of the assets of the orphan vebas by the transferee veba to pay future life sick accident or other permissible benefits to eligible active and retired employees of the sponsor will constitute a disqualified_benefit under sec_4976 of the code the proposed transactions will not cause either the orphan vebas or the transferee veba to cease to be recognized as exempt from federal_income_tax under sec_501 of the code to the extent that such orphan vebas and the transferee veba were prior to the proposed transaction exempt from federal_income_tax under sec_501 of the code the proposed transactions will not cause either the orphan vebas or the transferee veba to incur unrelated_business_taxable_income as defined in sec_512 of the code this ruling is based on the understanding there will be no material changes in the facts upon which it is based this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described this ruling is directed only to the organization that requested it sec_6110 of the code provides it may not be used or cited by others as precedent this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely debra j kawecki manager exempt_organizations technical group enclosure notice


t c memo united_states tax_court cigna corporation and consolidated subsidiaries petitioner v commissioner of internal revenue respondent docket no filed date susan e seabrook bernard j williams jr melissa l galetto alan j j swirski and cynthia s frank for petitioner john m altman diane deborah helfgott and gary d kallevang for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for this deficiency stems from respondent’s determination that petitioner a life_insurance_company improperly computed its tax_reserves for certain reinsurance treaties respondent has since conceded that there is no deficiency and the parties stipulated that respondent accepts petitioner’s tax reserve computations the parties still dispute as a matter of law whether petitioner may compute its tax_reserves under section by using a reserve_method adopted after the treaties were executed tax reserve issue petitioner urges us to decide the tax reserve issue respondent counters that an opinion addressing the tax reserve issue would be advisory in light of the stipulation we must decide whether we will exercise our discretion to resolve the tax reserve issue we decline to do so 1cigna corporation is global health service and financial company it is the common parent of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return for connecticut general life_insurance_company was a member of petitioner’s group and entered into the reinsurance treaties at issue for convenience we refer to cigna corporation and cglic collectively as petitioner 2a reinsurance treaty is a contract between one insurance or reinsurance company known as the ceding company and another insurance_company known as the reinsurer 3the parties agree that a rule computation will be necessary regardless of whether petitioner or respondent prevails 4all section references are to the internal_revenue_code code and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated findings_of_fact the parties have stipulated some facts we incorporate the stipulation of facts and the accompanying exhibits by this reference petitioner’s principal_place_of_business was in pennsylvania when it filed the petition i petitioner’s reinsurance treaties and statutory_reserves petitioner is a life_insurance_company as relevant here petitioner entered into treaties to reinsure5 reinsurance treaties minimum guaranteed death_benefits mgdb the reinsurance treaties were entered into before life_insurance_companies are required under state law to set_aside capital equal to the present_value of the future claims arising from insurance policies statutory_reserves the method for computing reserves reserve_method depends on the type of insurance product and related risk involved the connecticut department of insurance cdoi regulated the reinsurance treaties cdoi required petitioner to maintain statutory_reserves for the 5under a reinsurance treaty a reinsurer agrees to assume a specified portion of the risk borne by the ceding company under its insurance contracts the amount and nature of the risk assumed are determined by the terms of the reinsurance treaty with the ceding company 6mgdb are ancillary_benefits that may be incorporated into annuities 7statutory reserve computation methods may vary by jurisdiction reinsurance treaties cdoi issued guidance to compute mgdb statutory_reserves including for the reinsurance treaties a universally accepted reserve_method for computing mgdb statutory_reserves did not exist before the national association of insurance commissioners naic is an organization with the goal of coordinating the regulation of multistate insurers to that end the naic promulgates model rules and actuarial guidelines in an effort to standardize insurance laws the naic promulgated actuarial guideline xxxiv ag effective date ag is a reserve_method that applies to mgdb ii tax reserve issue a life_insurance_company must compute its reserves for federal_income_tax purposes tax_reserves the applicable reserve_method under the code for tax_reserves may differ from the applicable reserve_method for statutory_reserves see sec_807 in certain circumstances the code allows an insurer to use the naic- prescribed reserve_method applicable to statutory_reserves to compute its tax_reserves see sec_807 8an insurance_company computes its tax_reserves by using the interest rate the mortality or morbidity rate and the prescribed tax_reserve_method sec_807 in petitioner began using ag as the reserve_method to compute its tax_reserves for the reinsurance treaties and it did so through petitioner timely filed forms 1120l u s life_insurance_company income_tax return for respondent issued petitioner a deficiency_notice for determining that petitioner could not use ag to compute the tax_reserves because ag was not in effect when petitioner entered into the reinsurance treaties as a result respondent determined that petitioner’s tax_reserves should be decreased by dollar_figure for thereby increasing petitioner’s incomedollar_figure iii procedural history petitioner timely filed a petition with this court respondent conceded before trial that there was no deficiency stemming from petitioner’s tax_reserves for the reinsurance treaties respondent consequently moved to enter a decision in petitioner’s favor petitioner opposed the motion because the concession did not resolve the tax reserve issue we denied the motion 9petitioner used a different reserve_method to compute its tax_reserves before 10a net decrease in tax_reserves is considered gross_income sec_803 sec_807 a deduction is allowed for a net increase in tax_reserves sec_805 sec_807 petitioner and respondent thereafter filed a stipulation of facts the parties stipulated that respondent conceded the adjustment in the deficiency_notice further the parties stipulated that petitioner’s tax reserve computations are correct the parties still dispute however whether petitioner may as a matter of law use ag to compute tax_reserves for the reinsurance treaties that predate ag respondent contends that petitioner must continue to use the reserve_method in effect at the time the reinsurance treaties were entered into not some method adopted later that applies retroactively petitioner contends that the code permits it to use ag as the reserve_method for the reinsurance treaties even though it was adopted after the reinsurance treaties were entered into the case proceeded to trial respondent emphasized that the stipulation rendered the case moot and petitioner acknowledged that the parties agree petitioner’s tax reserve computations were correct respondent accepted petitioner’s tax reserve computations for every year petitioner used ag dollar_figure the only controversy was the tax reserve issue 11the parties indicated that petitioner used ag to compute the tax_reserves for the reinsurance treaties through respondent issued another deficiency_notice for and see cigna corp v commissioner docket no the taxpayer petitioner here filed a petition in that case the commissioner similarly conceded the deficiency in his answer opinion we must decide whether we should resolve the tax reserve issue when the parties agree that the tax reserve computations are correct and that there is no deficiency petitioner asserts we should resolve the tax reserve issue because it is critical to the life_insurance industry respondent contends that we should not resolve that tax reserve issue because doing so would be to render an advisory opinion the tax_court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by congress see 85_tc_527 a timely filed petition for the redetermination of a deficiency confers jurisdiction on us sec_6214 our jurisdiction generally remains unimpaired until the court has decided the controversy naftel v commissioner t c pincite the commissioner conceding the deficiency does not deprive us of jurisdiction 64_tc_589 it rests within our discretion to issue an opinion on the merits even where the commissioner concedes that there will be no deficiency for the years before the court see 90_tc_1078 n aff’d 877_f2d_449 6th cir 82_tc_608 79_tc_668 67_tc_599 ltv corp v commissioner t c pincite we are guided however by the principle of judicial administration that a court will not gratuitously decide complex issues that cannot affect the disposition of the case before it ltv corp v commissioner t c pincite see also 905_f2d_80 5th cir remanding per curiam tcmemo_1989_74 98_tc_590 cooper v commissioner tcmemo_2010_214 griffin v commissioner tcmemo_1995_246 resolving a moot issue amounts to rendering an advisory opinion see 126_tc_1 kersh v commissioner tcmemo_2009_260 livingston v commissioner tcmemo_2000_121 grynberg v commissioner tcmemo_2000_15 not deciding disputed legal issue that could be subject of future litigation because no impact on years at issue respondent contends that the stipulation settles petitioner’s tax_liability for completely he asserts that we should not address the legal issue see ltv corp v commissioner t c pincite in that case the commissioner conceded the deficiency but did not concede the legal issue id pincite the taxpayer asked us to address a disputed legal issue because the taxpayer believed the same issue might arise in subsequent years id those years however were not before the court id we declined to address the legal issue because the concession afforded the taxpayer a complete victory id pincite we found that a substantive decision would be an advisory opinion affecting years not before the court id pincite that conclusion was based on judicial administration concepts including ripeness mootness and advisory opinions chevron corp v commissioner t c pincite those concepts guide a court to not decide an issue though the court maintains jurisdiction to do so id here an opinion addressing the tax reserve issue would be advisory respondent has conceded the deficiency and the parties have since stipulated that petitioner’s tax reserve computations are correct our opinion would not affect the outcome in this case petitioner suggests the interests of justice entitle petitioner and other taxpayers to an opinion resolving the tax reserve issue see mcgowan v commissioner t c pincite we disagree in mcgowan we were asked to decide whether a compulsory employee contribution constituted a state_income_tax that the taxpayer could deduct id pincite the commissioner conceded the deficiency and asked us to enter a decision in the taxpayer’s favor id we rejected the concession and issued a substantive opinion at the taxpayer’s request id pincite the interests of justice compelled us to issue the substantive opinion see id pincite first unlike here we found that the unresolved issue would arise in the upcoming tax_year for thousands of taxpayers id pincite a substantive opinion would consequently alleviate confusion in an area that lacked clarity second the taxpayer rejected the unilateral concession in its entirety id pincite the present circumstance is different first the tax reserve issue is a discrete legal issue involving a specific insurance product we are not convinced that resolving the legal issue will alleviate uncertainty for thousands of taxpayers further respondent has represented that he will not challenge petitioner or other taxpayers that used ag to compute tax_reserves for mgdb second petitioner still pursues a substantive ruling after the stipulation ensured a complete and total victory in its favor see jones v commissioner t c pincite greenlee v commissioner tcmemo_1985_218 this is no longer a situation where petitioner opposes a concession we are mindful that petitioner desires resolution of the tax reserve issue this is not the case however to decide that issue given respondent’s concession the possibility that a substantive ruling may provide clarification for petitioner or other taxpayers is insufficient to disregard judicial principles our opinion would address a moot issue and provide guidance only for analogous circumstances it would not even affect petitioner’s tax reserve computations for future years because respondent has conceded all future years with respect to the reinsurance treaties in short it would be an advisory opinion we will accept the stipulation and enter a decision under rule in reaching these holdings we have considered all of the parties’ arguments and to the extent not addressed here we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------- ------------------------------ ------------------------------ in re ----------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------------ id no ------------ --------- telephone number --------------------- refer reply to cc psi b09 plr-152972-05 date date --------------------- ---------------------------------------------------- ------------------- ------- ------- ------- legend legend taxpayer trust accountant year year year dear ---- this is in response to your letter dated date and subsequent correspondence requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make allocations of generation-skipping_transfer gst_exemption to a_trust in year taxpayer created trust for the benefit of his children and their issue trust has gst potential in year sec_2 and taxpayer contributed cash and other assets to trust taxpayer retained accountant in year sec_2 and to file his form sec_709 united_states gift and generation-skipping_transfer_tax returns for year sec_2 and accountant failed to file taxpayer’s form sec_709 for year sec_2 and because he mistakenly believed that form sec_709 for year sec_2 and were not required therefore taxpayer’s available gst_exemption was not allocated to the year sec_2 and gifts it has been represented that taxpayer currently has sufficient gst_exemption available to allocate to the transfers he made to trust in year sec_2 and taxpayer is requesting an extension of time pursuant to sec_2642 and sec_301_9100-1 and sec_301_9100-3 to allocate taxpayer’s gst_exemption to the transfers he made to trust in year sec_2 and that the gift_tax value of the transfers to trust will be used in determining the amount of gst_exemption to be allocated to trust and that the gst_exemption allocated to the transfers will be effective as of the date of each transfer plr-152972-05 law and analysis sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio sec_2631 in effect at the time of the transfer provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter to a gst_trust sec_2032 is effective for transfers subject_to chapter or made after date see p l sec_561 sec_2632 provides that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless- i the trust instrument provides that more than percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons- i before the date that the individual attains age plr-152972-05 ii on or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age or iii upon the occurrence of an event that in accordance with regulations prescribed by the secretary may reasonably be expected to occur before the date that such individual attains age ii the trust instrument provides that more than percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument by name or by class who is more than years older than such individuals iii the trust instrument provides that if one or more individuals who are non-skip persons die on or before a date or event described in clause i or ii more than percent of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject_to a general_power_of_appointment exercisable by one or more of such individuals iv the trust is a_trust any portion of which would be included in the gross_estate of a non-skip_person other than the transferor if such person died immediately_after_the_transfer v the trust is a charitable_lead_annuity_trust within the meaning of sec_2642 or a charitable_remainder_annuity_trust or a charitable_remainder_unitrust within the meaning of sec_664 or vi the trust is a_trust with respect to which a deduction was allowed under sec_2522 for the amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair_market_value of the trust property determined yearly and which is required to pay principal to a non-skip_person if such person is alive when the yearly payments for which the deduction was allowed terminate for purposes of this subparagraph the value of transferred property shall not be considered to be includible in the gross_estate of a non-skip_person or subject_to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the amount referred to in sec_2503 with respect to any transferor and it shall be assumed that powers of appointment held by non-skip persons will not be exercised sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 plr-152972-05 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant sec_2642 further provides that for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2624 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax plr-152972-05 professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of sixty days from the date of this letter to allocate taxpayer’s available gst_exemption to the transfers taxpayer made to trust in year sec_2 and the allocations will be effective as of the date of transfer and will be based on the gift_tax value of the assets taxpayer transferred to trust on the dates of transfer the allocations should be made on form sec_709 for year sec_2 and and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the returns 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 specifically no opinion is expressed or implied as to the value for federal transfer_tax purposes of any gifts taxpayer made to trust this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy heather c maloy associate chief_counsel passthroughs special industries enclosures copy for ' purposes cc


t c summary opinion united_states tax_court rachelle edanna michaels and david c michaels petitioners v commissioner of internal revenue respondent docket no 24865-15s filed date rachelle edanna michaels pro_se j rob gordon for respondent summary opinion armen special_trial_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 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 a deficiency of dollar_figure in petitioners’ federal_income_tax for after concessions and without regard to adjustments that are mechanical the issue for decision is whether petitioner rachelle edanna michaels received and failed to report wages of dollar_figure from monte b wells d d s pllc for background some of the facts have been stipulated and they are so found the court incorporates by reference the parties’ stipulation of facts and accompanying exhibits unless otherwise indicated all subsequent section references are to the internal_revenue_code as amended and in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure all monetary amounts have been rounded to the nearest dollar petitioner rachelle edanna michaels concedes that she received taxable nonemployee compensation of dollar_figure from tara r hodges d d s pllc that was not reported on petitioners’ joint federal_income_tax return and that she is liable for self-employment_tax of dollar_figure consistent with petitioner’s concession of self-employment_tax respondent allowed in the notice_of_deficiency a self- employment_tax deduction of dollar_figure see sec_164 rachelle edanna michaels petitioner and david c michaels mr michaels collectively petitioners resided in the state of arizona at the time that the petition was filed with the court petitioner and mr michaels both worked during the year in issue in particular petitioner worked for various dental practices from august through date she was employed by monte b wells d d s pllc dr wells’ dental practice as a dental hygienist and earned wages generally petitioner began her workday at dr wells’ dental practice by entering both the date and time on her employee timesheet and subsequently did the same when she ended her workday any changes to petitioner’s timesheet were recorded by the office manager tracy martinez ms martinez and after ms martinez was no longer employed by dr wells’ dental practice any changes were made by another employee identified in the record only as nancy and or the job title temp front office each week a timesheet report was generated that as relevant stated the dates and hours petitioner worked for the week every monday petitioner’ sec_3 mr michaels did not appear at trial and did not sign the stipulation of facts accordingly the case will be dismissed as to him for lack of prosecution see rule however entry of the order of dismissal as to mr michaels will be deferred so that the decision to be entered with respect to him will be consistent with the decision to be entered with respect to petitioner weekly timesheet report was submitted to dr wells’ wife jill wells who entered into quickbooks the hours that petitioner had worked the preceding week the data in quickbooks was used to generate petitioner’s periodic paychecks as well as her form_w-2 wage and tax statement for in petitioner and or mr michaels maintained a checking account with bbva compass bank checking account deposits into the checking account for the months of august through october included both branch deposits and transfers from another bbva compass account4 as well as electronic deposits from mr michaels’ employer dr wells’ dental practice reported to the internal_revenue_service irs for that it paid petitioner wages tips and other compensation of dollar_figure withheld federal_income_tax of dollar_figure and withheld social_security and medicare taxes collectively referred to as federal_insurance_contributions_act fica tax of dollar_figure dr wells’ dental practice also issued a form_w-2 to petitioner for that year at trial petitioner testified that these transfers represented payments on an equity line of credit however the bank statements denominate these transfers as deposits or credits to petitioners’ checking account and not as withdrawals or debits from petitioners’ checking account petitioners timely filed a joint federal_income_tax return for as relevant the joint_return did not report wages of dollar_figure or any other amount and did not claim withheld federal_income_tax of dollar_figure or any other amount attributable to petitioner’s employment with dr wells’ dental practice in date respondent sent petitioners a notice_of_deficiency in the notice_of_deficiency and as relevant respondent determined that petitioners failed to report dollar_figure in wages received from dr wells’ dental practice and that they are entitled to an additional withholding credit of dollar_figure in response to the notice_of_deficiency petitioners filed a timely petition for redetermination with the court discussion in general the commissioner’s determination in a notice_of_deficiency is presumed to be correct and the taxpayer bears the burden to show otherwise rule a 503_us_79 290_us_111 for this presumption to adhere in cases involving receipt of unreported income the commissioner must provide some reasonable foundation connecting the taxpayer with the income-producing activity see 596_f2d_358 9th cir rev’g 67_tc_672 see also 994_f2d_1542 11th cir aff’g tcmemo_1991_636 tucker v commissioner tcmemo_2014_51 once the commissioner makes the necessary evidentiary showing the taxpayer bears the burden of proving that the notice_of_deficiency is arbitrary or erroneous see 181_f3d_1002 9th cir aff’g tcmemo_1997_97 petitioner stipulated and candidly testified at trial that she was employed by dr wells’ dental practice in and that she received wages in exchange for her services in addition respondent introduced into evidence a wage and income transcript showing that respondent had received reporting from dr wells’ dental practice that it paid petitioner wages of dollar_figure in and withheld federal_income_tax of dollar_figure as well as fica tax of dollar_figure under these circumstances respondent has established the requisite connection between petitioner and the unreported wage income see id pincite evidentiary as previously mentioned pursuant to sec_7463 the decision in this case is not reviewable by any other court but for that section any appeal would lie to the u s court_of_appeals for the ninth circuit see sec_7482 nevertheless even in cases subject_to sec_7463 this court generally applies the law in a manner consistent with the holdings of the court_of_appeals to which an appeal of its decision would otherwise lie see 54_tc_742 aff’d 445_f2d_985 10th cir foundation requirement satisfied when the taxpayer’s employer reported the taxpayer’s income to the commissioner petitioner therefore bears the burden of proving that the notice_of_deficiency is erroneous petitioner contends that she received wages of dollar_figure from dr wells’ dental practice during and not the amount that it reported to the irs ie dollar_figure in an effort to support her contention petitioner introduced into evidence checking account statements from bbva compass bank and pointed to various branch deposits as evidence that she had received only dollar_figure from dr wells’ dental practice however her checking account statements for the relevant period show various other branch deposits in addition to those she identified as relating to her wages from dr wells’ dental practice because the checking account statements do not provide any detail as to the nature or source of the branch deposits the court is unable to find that only those deposits that petitioner identified represent all of her paychecks from dr wells’ dental practice furthermore petitioner failed to take into account that each paycheck was for the net amount after withholding for federal_income_tax state_income_tax and fica tax as well as possible other payroll deductions and or allotments nor does petitioner’s argument take into account the possibility of a net deposit cash back from a deposit ie check deposit less cash withdrawn net deposit finally petitioner’s argument fails to take into account the likelihood of another bank account as the transfers ie deposits or credits to the bbva checking account suggest see supra note petitioner also contends that the number of hours shown on her weekly timecard reports is incorrect and that she worked fewer hours than reflected thereon she further contends that she performed certain administrative duties for dr well’s dental practice for which her hourly rate of pay was nearly less than what she was paid when working as a dental hygienist however other than her own testimony petitioner has not offered any documentary or other evidence to support these contentions and the law is clear that the court is not required to accept the self-serving testimony of the taxpayer as gospel see 87_tc_74 furthermore jill wells who was the paymaster for dr wells’ dental practice testified that petitioner was paid a flat rate for all of her services and that dental hygienists were paid dollar_figure per hour and up depending on experience the court found mrs wells to be a credible witness see 58_tc_560 stating that distilling truth from the testimony of witnesses whose demeanor we observe and whose credibility we evaluate is the daily grist of judicial life kropp v commissioner tcmemo_2000_148 slip op pincite as a trier of fact it is our duty to listen to the testimony observe the demeanor of the witnesses weigh the evidence and determine what we believe in short petitioner has failed to prove that respondent’s determination is erroneous see rule a the court therefore holds that the amount of petitioner’s wage income that was determined by respondent ie dollar_figure is includable in petitioners’ gross_income to reflect our disposition of the disputed issue as well as petitioner’s concessions see supra note an order of dismissal for lack of prosecution as to petitioner david c michaels 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 intl plr-116664-00 date date legend number release date index number taxpayer domestic owner corporation x foreign_partnerships partnerships a b year individual a dear this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the agreement described in sec_1_1503-2 with respect to the losses of domestic owners and for year and the loss of domestic owner for year and to file the annual certifications described in sec_1_1503-2 for domestic owners and for years and and for domestic owner for year the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process during years through individual a was a manager in the tax department of corporation x his responsibilities in that capacity included preparation of the dual in re plr-116664-00 consolidated loss elections and certifications provided for under sec_1_1503-2 corporation x owned certain subsidiaries domestic owners that held direct or indirect interests in foreign_partnerships including partnerships a and b for various reasons individual a did not believe that the losses partnership b allocated to domestic owners and in year were dual consolidated losses similarly individual a did not believe that the loss partnership a allocated to domestic owner in year was a dual_consolidated_loss accordingly individual a did not file elections under sec_1_1503-2 with respect to either the year losses or the year loss later it was determined that the losses for years and were dual consolidated losses in addition with respect to these losses corporation x should have filed the annual certifications required by sec_1_1503-2 for years and sec_301_9100-1 provides that the commissioner may grant a taxpayer a reasonable extension of time under the rules set for in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation sec_1_1503-2 fixes the time to file the agreement and certification therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the agreement described in sec_1 g with respect to the losses of domestic owners and for year and the loss of domestic owner for year and to file the annual certifications described in sec_1_1503-2 for domestic owners and for years and and for domestic owner for year the granting of an extension of time to file the agreement and certification is not a determination that taxpayer is otherwise eligible to in re plr-116664-00 make the election sec_301_9100-1 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented sincerely allen goldstein reviewer office of the associate chief_counsel international


internal_revenue_service number release date index number --------------------------------- ------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------- ----------------- telephone number --------------------- refer reply to cc ita b02 plr-136241-08 date february ty --------------- ty --------------- legend taxpayers date1 date2 year1 year2 year3 m n p x y --------------------------------- ---------------------- ---------------- ------- ------- ------- ------------ ---------------------- ---------------------------- --------------------------- ------------------------------------------ dear ---------------------------- this is in response to the letter dated date1 submitted on your behalf by your authorized representative in the letter you request an extension of time to make a late election to include net_capital_gain and qualified_dividend_income in net_investment_income under sec_163 and sec_163 of the internal_revenue_code for the year1 and year2 tax years the request to make the late election is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts during the years at issue taxpayers relied upon the assistance of in-house accountants and third-party cpas to handle their accounting and financial matters since ------- taxpayers used x and subsequently y accounting practice to assist them in preparing their tax returns x was absorbed into y on date2 m a staff accountant at x and then y prepared the workpapers for taxpayers’ year1 and year2 tax returns m plr-136241-08 inputted the data into the firm’s tax preparation system in the system a box must be checked in order to make the election to treat net_capital_gain and qualified_dividend_income as net_income pursuant to sec_163 when m entered the data for year1 and year2 m failed to check the box needed to make the election upon m’s completion of the returns n a tax manager reviewed and signed the returns n failed to notice that the elections were not made in reviewing taxpayer’s year3 returns n checked the year1 and year2 returns analyzing the net_operating_loss_carryover and investment_expense carryover to year3 at that time n discovered the elections had not been made n immediately contacted taxpayers’ attorney p who prepared the request for a private_letter_ruling applicable law sec_163 provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest for any taxable_year shall not exceed the net_investment_income of the taxpayer for the taxable_year sec_163 provides in part that investment_income means the sum of -- i gross_income from property_held_for_investment other than any gain taken into account under clause ii l ii the excess if any of -- l the net gain attributable to the disposition of property_held_for_investment over ll the net_capital_gain determined solely by taking into account gains and losses from dispositions of property_held_for_investment plus iii so much of the net_capital_gain referred to in clause ii ll or if lesser the net gain referred to in clause ii l as the taxpayer elects to take into account under this clause such term shall include qualified_dividend_income as defined in sec_1 only to the extent the taxpayer elects to treat such income as investment_income for purposes of this subsection sec_1_163_d_-1 of the income_tax regulations provides that the election for qualified_dividend_income must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the qualified_dividend_income is received sec_1_163_d_-1 provides that the election under sec_163 is revocable with the consent of the commissioner plr-136241-08 sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position plr-136241-08 requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph c i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made under paragraph c ii the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made is closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section conclusion taxpayers’ election is a regulatory election as defined under b because the due_date of the election is prescribed in the regulations under sec_1_163_d_-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayers establish that taxpayers acted reasonably and in good_faith with this request the affidavits presented show that taxpayers reasonably relied on a tax professional for the filing of their returns however the tax professional failed to make or advise taxpayers to make the elections the affidavits presented show that taxpayers were unaware of the necessity for the elections and upon discovery of the errors promptly requested relief taxpayers are not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time relief is requested taxpayers were not informed in all material respects of the required election and its related tax consequences furthermore taxpayers are not using hindsight in requesting relief taxpayers have represented that specific facts have not changed since the original deadline that make the election advantageous to taxpayers moreover the taxable years in which the regulatory elections should have been made and any taxable years that would have been affected by the elections had they been timely made are not closed by the period of assessment finally granting an extension will not prejudice the interests of the government it is represented that the taxpayers will not have a lower tax_liability in the aggregate for all plr-136241-08 taxable years affected by the election if given permission to make the election in the appropriate amount at this time than taxpayers would have if the election were made in the appropriate amount by the original deadline for making the election accordingly taxpayers are granted an extension of time for making the election until days following the date of this ruling 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative s a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _thomas d moffitt_______ thomas d moffitt chief branch income_tax accounting


id office uilc cca-941509-08 -------------- number release date from ----------------- sent thu pm to --------------- cc ------------------------------------ subject fw informal advisory request - levy of social_security_benefits -------- thanks for your voicemail message my reviewer has reviewed this e-mail and concurs in the response the service can still reach all of the taxpayer’s social_security_benefits with a single levy under sec_6331 subject_to the minimum exemption provision of sec_6334 a single levy on the social_security administration attaches the right to receive the taxpayer’s future payments although sec_6331 provides for the continuous_levy of social_security_benefits the service may continue to levy under sec_6331 sec_6331 is meant to be an additional tool to supplement the other levy options it was not meant to cut back the service’s methods by which it levies notice_98_62 explains the service’s option to act under sec_6331 note how it states that any levy not clearly identified on the face of the levy as a sec_6331 levy will be treated as an ordinary levy under sec_6331 or sec_6331 please let me know if you have any more questions thank you