department of the treasury internal_revenue_service washington d c jul tep at tax_exempt_and_government_entities_division uil attention legend this is in response to a letter dated date as supplemented by correspondence dated date date date date date and date submitted on your behalf by your authorized representative regarding rulings under sec_72 of the internal_revenue_code the code the following facts and representations were submitted in connection with your request employer m maintains plan x and plan y for the benefit of its employees and employees of its affiliates plan x is a profit-sharing_plan under code sec_401 which includes a cash_or_deferred_arrangement under sec_401 plan x’s most recent favorable determination_letter from the internal_revenue_service is dated date plan x provides for elective_deferrals after-tax contributions and matching_contributions in addition participants may make rollover_contributions to plan x and prior to date plan x permitted qualified voluntary_employee_contributions deductible under code sec_219 qvecs under section of plan x an individual plan account is established on behalf of each participant under which a separate sub-account is maintained for each of the above types of contributions that are made to the plan on a participant's behalf you represent that earnings gains losses distributions and other credits and charges are allocated to each sub-account on a reasonable and consistent basis each participant's account is split into two separate contracts for purposes of applying the basis recovery rules under code sec_72 one contract consists of all after-tax contributions and income allocable thereto separate contract and the other consists of all other_amounts held under the plan the principal contract under section of plan x a participant who retires on or after his retirement date under the plan retired participant may elect to receive a distribution of his account in either a lump sum or installments over a or year period retired participants may also elect to make withdrawals under option sec_2 and of section of plan x retired participants electing a withdrawal under these options may or may not be receiving installment payments pursuant to section of plan x under section of plan x a participant who terminates employment for reasons other than death or retirement on or after his retirement date under the plan may only elect a lump sum distribution or withdrawals under option sec_2 and of section of plan x withdrawals under option sec_1 through of section participants who are current employees of employer m are also eligible for under option of section of plan x a participant who is actively employed by employer m and under the age of may elect to make a regular withdrawal from plan x these withdrawals are made in the following order i the amount of the participant’s after-tax contributions or the value of such contributions if lower as of the date of distribution that were deposited in plan x prior to date except that such amount shall not exceed the participant’s investment_in_the_contract as defined under code sec_72 under plan x as of date ii pro_rata from the participant’s after-tax contributions made on or after date and net_earnings on all after-tax contributions both pre-1987 and post-1986 allocated to the participant’s account iii the amount of the participant's vested matching_contributions plus net_earnings on such amount provided that if the participant has not terminated employment with employer m and any affiliate no amount may be withdrawn under this subparagraph iii which is attributable to matching_contributions made to plan x within months prior to the date of the withdrawal the holding_period effective for withdrawals made after the date the internal_revenue_service issues a favorable determination_letter approving the elimination of the holding_period the holding_period requirement shall not apply iv the amounts attributable to the participant’s rollover_contributions and v the amounts attributable to the participant’s qvecs under option participants who either attain age or terminate employment may make a special withdrawal which is made in the same order as the withdrawals under option except that the subparagraph iv consists of elective_deferrals and net_earnings thereon and subparagraphs iv and v become subparagraphs v and vi respectively retired participants who are receiving installment payments are eligible to make a special withdrawal under option option provides for withdrawals of rollover_contributions and option permits withdrawals of qvecs under option hardship withdrawals of non-qualified matching_contributions and elective_deferrals are allowed provided that the amounts available for withdrawal under option or option whichever is applicable have been previously withdrawn plan x permitted in-service withdrawals of after-tax contributions similar to option e prior to separation_from_service on date a new option will be added to section of plan x which will become effective on or about date option will permit a retired participant to elect to make a direct_rollover of an eligible_rollover_distribution from plan x to plan y retired participants who are receiving installment payments from plan x will be eligible for option only if they elect to receive their entire remaining account balance under plan x the actual amount that will be available for rollover under option is limited to the vested portion of the participant’s entire account balance other than the portion attributable to after-tax contributions distributions under option will be made in the following order i the vested portion of the participant's account balance under the principal contract ii pre-1987 after-tax contributions and iii pro_rata from post-1986 after-tax contributions and earnings on all after-tax contributions based on the above facts and representations you request the following rulings that the sub-account under plan x consisting of after-tax contributions and any income allocable thereto will constitute a separate contract under code sec_72 and plan x’s specification of the sub-accounts from which withdrawals are made under section of plan x will be recognized for purposes of code sec_72 in determining the taxability of these withdrawals regarding ruling_request code sec_402 provides generally that any amount actually distributed to a distributee by an employees’ trust described in sec_401 and exempt from tax under sec_501 is taxable to the distributee in the taxable_year of the distribution under sec_72 -4 code sec_72 provides that employee contributions and the income allocable thereto under a defined_contribution_plan may be treated as a separate contract for purposes of applying sec_72 notice_87_13 1987_1_cb_432 notice provides that in order for a contract to be recognized as a separate contract a plan or plan procedures must either specify the contract from which distributions are to be made or permit participants to do so a distribution will be treated as having been made under the separate contract to the extent that the plan charges the distribution against such contract or the accounts that constitute such contract for plan accounting purposes see q a-14 of notice_87_13 plan x is a defined_contribution_plan that permits employee contributions option sec_1 through in section of plan x specify from which contract principal or separate the withdrawals are made under section of plan x these withdrawals are charged against the sub-accounts of a participant's individual_account that constitute the separate contract as well as the principal contract under the plan accordingly we conclude with respect to ruling_request that the separate contract and principal contract are considered separate contracts under code sec_72 and notice_87_13 for purposes of applying the provisions of sec_72 regarding ruling_request code sec_72 provides rules regarding the taxability of distributions that are amounts received as an annuity under sec_72 and amounts_not_received_as_an_annuity under sec_72 from a plan qualified under sec_401 sec_1_72-1 of the federal_income_tax regulations the regulations generally defines amounts received as an annuity as amounts that are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date any other_amounts to which code sec_72 applies are amounts_not_received_as_an_annuity sec_1_72-2 of the regulations further defines amounts received as an annuity by providing that the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of mortality tables or compound interest computations or both in accordance with the terms of the contract and sound actuarial principles sec_1_72-2 of the regulations provides that notwithstanding the definition of amounts received as an annuity under sec_1_72-2 if amounts are to be received for a definite or determinable time under a contract which provides that the amounts of the periodic_payments may vary in accordance with investment experience cost of living indices or similar fluctuating criteria each such payment received shall be considered to the extent enumerated therein as an amount_received_as_an_annuity if an amount not received as an annuity is received before the annuity_starting_date code sec_72 and sec_72 provide that in the case of a qualified_plan which on date permitted withdrawal of employee contributions before separation_from_service such amount is includible in gross_income only to the extent it when added to amounts previously received under the contract after date that were excludable from gross_income on account of sec_72 exceeds the employee's investment_in_the_contract on date sec_72 imposes a pro-rata basis recovery rule with respect to post-1986 after-tax contributions and the earnings on all after-tax contributions sec_1_72-4 of the regulations generally defines the term annuity_starting_date as the first day of the first period for which an amount is received as an annuity as indicated above it is necessary to determine whether the withdrawals under option sec_1 through of section of plan x meet the definition of amounts received as an annuity under option sec_1 and withdrawals are first treated as being made from the separate contract within the separate contract withdrawals are first made from pre-1987 after-tax contributions and then pro_rata from post-1986 after-tax contributions and the earnings on all after-tax contributions after these amounts are exhausted amounts are treated as withdrawn from specific sub-accounts of the principal contract which is comprised solely of taxable amounts under option sec_3 and only amounts attributable to rollover_contributions and qvecs respectively are permitted to be withdrawn option will permit withdrawals first from the vested portion of the principal contract and then from the separate contract within the separate contract under option withdrawals will then be taken first from pre-1987 after-tax contributions and then pro_rata from post-1986 after-tax contributions and the earnings on all after-tax contributions pursuant to sec_1_72-1 of the regulations the withdrawals that may be made under option sec_1 through are not considered amounts received as an annuity since they are not payable at regular intervals over a period of more than one full year and neither the total_amounts payable nor the total period for which payments are to be made can be determined as of the date they are deemed to begin similarly installments payments received by retired participants under section of plan x are not considered amounts received as an annuity because neither the total_amounts payable nor the total period for which payments are to be made can be determined as of the date they are deemed to begin there can be fluctuations in the account balances of retired participants that are not related to investment experience first a retired participant receiving installment payments may make withdrawals in such amounts as he may desire under option sec_2 and secondly a retired participant receiving installment payments may elect to withdraw his entire remaining account balance in order to make a direct_rollover under option because the installment payments and withdrawals under plan x are not amounts received as an annuity they constitute amounts_not_received_as_an_annuity as for whether the amounts_not_received_as_an_annuity are to be treated under code sec_72 as received before the annuity_starting_date the only distributions available under plan x are installment payments lump sum distributions or withdrawals under option sec_1 through the installment payments and withdrawal amounts under plan x are amounts_not_received_as_an_annuity because these amounts are not received as an annuity there is no annuity provided under plan x and thus these distributions could not be made after an annuity_starting_date these distributions therefore are treated under sec_72 as amounts received before the annuity_starting_date accordingly sec_72 applies to all of the withdrawals under option sec_1 through and installment payments under plan x because plan x provided in- service withdrawals of employee contributions on date sec_72 applies for determining the taxability of installment payments and the withdrawals from the separate contract under option sec_1 and respect to ruling_request that plan x’s specification of the sub-accounts from which withdrawals are made under section of plan x will be recognized for purposes of code sec_72 in determining the taxability of these withdrawals furthermore installment payments received under plan x are also amounts_not_received_as_an_annuity and received before the annuity_starting_date these payments are similarly subject_to sec_72 accordingly we conclude with the above rulings are based on the assumption that plan x is qualified under code sec_401 and that its related trust is tax exempt under sec_501 at all relevant times this ruling is directed only to the taxpayer that requested it code sec_6110 provides that it may not be used or cited by others as precedent pursuant to a power_of_attorney on file with this office copies of this letter have been sent to your authorized representatives should you have any concerns regarding this ruling_request please contact sincerely yours aindreu e cuckerman andrew e zuckerman manager employee_plans technical group tax_exempt_and_government_entities_division cc enclosures deleted copy of letter notice


internal_revenue_service number release date index number ------------------------------------------------------------- ----- ------------------------------- -------------------------------------------- ----------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-111260-08 date date x --------------------------------------------------- ------------------------------------------------------------------- country d1 ---------- -------------------- dear ----------------- this letter responds to a letter dated date submitted on behalf of x requesting a ruling that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 of the procedure and administration regulations effective d1 facts the information submitted states that x is an entity formed under the laws of country on d1 the members of x have limited_liability as defined in sec_301 b ii x is not classified as a corporation under sec_301_7701-2 or x also represents that x intended to elect to be a partnership for federal tax purposes effective d1 however due to inadvertence x failed to file a timely form_8832 entity classification election law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 plr-111260-08 sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed 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 six 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_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides 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 granting relief will not prejudice the interests of the government conclusion plr-111260-08 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly set forth above we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


tcmemo_1997_216 united_states tax_court kevin a roberts petitioner v commissioner of internal revenue respondent docket no filed date kevin a roberts pro_se michael d baker for respondent memorandum findings_of_fact and opinion tannenwald judge respondent determined deficiencies in and additions to petitioner's federal income taxes as follows year additions to tax_deficiency sec_6651 sec_6654 dollar_figure big_number dollar_figure big_number dollar_figure big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years at issue and all rule references are to the tax_court rules_of_practice and procedure the issue to be decided is whether respondent's determination of the deficiencies in and additions to income_tax violates the double_jeopardy clause of the fifth_amendment to the u s constitution findings_of_fact some of the facts have been stipulated and are so found the stipulations of facts and the exhibits attached thereto are incorporated herein by this reference petitioner's mailing address was philadelphia pennsylvania at the time he filed his petition in this case on date petitioner was indicted on nine counts involving conspiracy to distribute cocaine possession with intent to distribute heroin federal_income_tax evasion for failure_to_file returns for and money laundering and aiding_and_abetting including the knowing use of the proceeds of these counts charged that petitioner did willfully and knowingly attempt to evade and defeat a large part of the income_tax due and owing by him by failing to file an individual_income_tax_return for the calendar years and an unlawful activity with the intent to conceal and disguise the proceeds by utilizing such proceeds to acquire designated property on date petitioner pleaded guilty to all of the above counts as part of the plea agreement petitioner also consented to forfeit to the u s government under u s c sec_853 all assets which were derived from proceeds of his illegal drug activities including but not limited to dollar_figure u s currency seized from petitioner at the time of his arrest bank_deposits maintained in petitioner's name and several automobiles on date the u s district_court for the eastern district of pennsylvania entered its judgment pursuant to said guilty pleas petitioner was sentenced to prison for a term of years upon his release from prison he was to remain under supervised release for varying periods of to years which were to run concurrently the district_court assessed a dollar_figure fine against petitioner in his criminal case for each of the nine counts to which he pleaded guilty respondent determined petitioner's gross_income to be dollar_figure and dollar_figure from the distribution of illegal drugs for the taxable years and respectively the same amounts as listed in the counts of the indictment charging income_tax evasion opinion petitioner does not contest the amounts of the deficiencies or the additions to tax rather petitioner contends that respondent's determination violates the double_jeopardy clause of the fifth_amendment to the u s constitution in that he has already been punished for his actions through imprisonment and forfeiture of all of the proceeds of his illegally obtained income the double_jeopardy clause protects individuals against multiple punishments for the same offense 490_us_435 the double_jeopardy clause does not bar 'a civil_action by the government remedial in its nature arising out of the same facts on which the criminal proceeding was based' 98_tc_165 quoting 303_us_391 the impact of the double_jeopardy clause on civil tax disputes has been the subject of continuous scrutiny for many years the seminal case involving both a deficiency and an the double_jeopardy clause of the fifth_amendment provides nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb u s const amend v addition_to_tax for fraud3 is helvering v mitchell supra pincite in which the supreme court stated congress may impose both a criminal and a civil sanction in respect to the same act or omission for the double_jeopardy clause prohibits merely punishing twice or attempting a second time to punish criminally for the same offense the question for decision is thus whether section b the predecessor of sec_6653 imposes a criminal sanction that question is one of statutory construction the remedial character of sanctions imposing additions to a tax has been made clear by this court in passing upon similar legislation they are provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud citation and fn ref omitted see also ianniello v commissioner t c pincite thus unless the doctrine_of mitchell has been modified or diluted petitioner's contention should be rejected out of hand petitioner points to three supreme court cases 511_us_767 509_us_602 and united_states v halper supra as supporting his position that mitchell no longer applies in situations such as are involved herein liability for the fraud addition under sec_6651 involves the same elements as under former sec_6653 and current sec_6663 102_tc_632 we disagree none of those cases involved criminal and civil liability under the internal_revenue_code their impact in the federal_income_tax arena has been considered by the court_of_appeals for the sixth circuit in 83_f3d_779 and by the court_of_appeals for the fourth circuit in 62_f3d_97 affg tcmemo_1994_ and by this court in several cases see eg louis v commissioner tcmemo_1996_257 price v commissioner tcmemo_1996_204 in each case the respective court upheld the additions to tax for fraud as remedial and ruled that the supreme court cases relied upon by petitioner did not apply see also gordon v commissioner tcmemo_1997_36 in which we reach the same conclusion based on the above-quoted language from helvering v mitchell supra we see no need to repeat the analysis set forth in the opinions in those cases it is enough to point out that each of them accorded helvering v mitchell supra continuing vitality as the basic authority for their conclusion that the double_jeopardy clause did not apply and distinguished the cases relied upon by petitioner moreover any doubt about their treatment of mitchell disappears when one takes into account the supreme court's most recent pronouncement on the issue of double_jeopardy see also 908_fsupp_1004 d mass which sets forth an extensive analysis in respect of the continued vitality of mitchell in the forfeiture context where the court reaffirmed the basic principle involved namely that the ultimate test is whether the congress intended the civil penalty to be punishment and held that the forfeiture involved did not fall within the punishment category with the result that the double_jeopardy clause did not apply united_states v ursery u s 116_sct_2135 in reaching that conclusion the supreme court analyzed in detail austin v united_states supra united_states v halper supra and department of revenue of montana v kurth ranch supra in the course of which it referred without qualification to and quoted from helvering v mitchell supra see united_states v ursery u s at s ct pincite- in sum we hold that the double_jeopardy clause does not preclude respondent from asserting the deficiencies and the addition_to_tax for fraud a fortiori it does not preclude the imposition of the addition_to_tax under sec_6654 which does not arise out of petitioner's criminal activity and in any event is properly characterized as remedial and not punishment see hawkins v commissioner tcmemo_1994_441 affd without published opinion 66_f3d_325 6th cir to reflect our holding herein and petitioner's concessions in respect of the amounts set forth in the notice_of_deficiency decision will be entered for respondent


internal_revenue_service number release date index numbers ----------------------------- ------------------------------- ------------------------------------------ ------------------------------- ------------------------------------ department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-150310-13 date june legend x ---------------------------------------------------------- ---------------------------- sub ------------------------------------------------------------- ---------------------------------------------------------- ------------------------------ state d1 ------------ --------------------- dear --------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to elect to treat sub as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code code facts the information submitted discloses that x was formed under the laws of state and elected to be an s_corporation effective d1 x represents that it intended to elect to treat sub as a qsub effective d1 however x failed to timely file form_8869 qualified plr-150310-13 subchapter_s subsidiary election for sub x represents that it has filed its tax returns for all of the relevant tax years consistent with sub being a qsub since d1 law and analysis sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title_26 i a corporation that 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 the term qualified_subchapter_s_subsidiary as a domestic_corporation that is not an ineligible_corporation as defined in sec_1361 if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner of making a qsub election a taxpayer makes a qsub election for a subsidiary by filing form_8869 with the appropriate service_center sec_1_1361-3 provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_1_1361-3 provides that an extension of time to make a qsub election may be available under sec_301_9100-1 and sec_301_9100-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 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 plr-150310-13 conclusion based on the facts and representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to elect to treat sub as a qsub effective d1 the election should be made for sub by filing form_8869 with the appropriate service_center with a copy of this letter attached a copy is enclosed for that purpose except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion concerning whether x is a valid s_corporation or whether sub is eligible to be a qsub this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by s holly porter chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 ita b01 genin-162093-04 office_of_chief_counsel number info release date uil -------------------------- ------------------ -------------------------- dear ------------- this letter responds to your request for information dated november you asked to what extent you may use your capital_loss from ------- to claim a capital_loss deduction on your ------- income_tax return under the internal_revenue_code and income_tax regulations you may claim a capital_loss deduction in the year the loss was realized and future years although corporations may carry capital losses back as well as forward no code provision exists to allow a n individual to carry a loss from the sale of stock back to prior years securities stocks are capital assets upon the sale_or_exchange of a capital_asset a taxpayer realizes gain_or_loss the taxpayer’s gain_or_loss is either long- or short-term long-term_capital_gains and losses exist for assets held for more than one year for securities traded_on_an_established_market the taxpayer’s holding_period begins the day after the trade_date the taxpayer bought the securities we cannot determine whe ther your capital_loss is long- or short-term based on the information your letter provides because you sold your stock in ------- you realized a long- or short-term_capital_loss in that year if a taxpayer’s capital losses exceed his capital_gains the taxpayer may claim a capital_loss deduction on schedule d of form_1040 in the year the loss was realized under code sec_1211 the allowable capital_loss deduction for an individual is the lesser_of dollar_figure dollar_figure if the taxpayer is married and files a separate_return or the taxpayer’s total net_loss under code sec_1212 if the taxpayer has a net_capital_loss exceeding dollar_figure the taxpayer may carry forward an unused loss to the next taxable_year and treat it as if the loss were realized in that next year the loss may be carried forward indefinitely when a taxpayer carries forward a loss it retains its long- or short- term character irs publication contains detailed information regarding capital_gains_and_losses including loss carry-forward worksheets you may obtain a copy at www irs gov by genin-162093-04 telephone or by sending a written request to irs eastern area distribution center p o box richmond va your letter indicates that the income you received in ------- that you wish to offset with your capital_loss was from a car accident settlement certain payments in such situations need not be included in income for tax purposes whether or to what extent these payments are excludable would depend on the type of payment and the specific situation and you may already have made this determination however you may wish to review irs publication taxable and nontaxable income and publication casualties disasters and thefts or consult a tax advisor to ensure that you treated the settlement payments correctly this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2005_1 sec_2 2005_1_irb_7 if you have any additional questions please contact our office at - ------------------- sincerely office of associate chief_counsel income_tax accounting


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b01 mehara posts-113847-05 uilc date date third party communication none date of communication not applicable to area_counsel small_business self-employed area attn alan cooper from tiffany p smith assistant to the branch chief branch procedure administration subject faxed form sec_872 this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue can a form_872 consent to extend the time to assess tax be accepted via facsimile transmission fax conclusion form sec_872 received by fax may be legally sufficient because fax signatures may be sufficient with the proper safeguards to authenticate and verify consents and other documents under i r c ' and although we do not recommend that the service establish procedures that routinely permit the faxing of waivers of restrictions on assessment to the service that does not mean that consents signed by taxpayers or in telecommunications facsimile also called fax or telefax is an electronic method of transmission and reproduction of documents by wire or radio wave modern fax machines are designed to scan printed textual and graphic material and then transmit the information through the telephone network to similar machines where documents are reproduced in close to their original form posts-113847-05 their representatives and received by fax are invalid the service should be able in extraordinary circumstances to accept fax signatures on form sec_872 facts the taxpayer’s statute of limitation for assessment of tax for would normally expire on date the case file for the year contains a form_872 dated date with a fax signature of taxpayer’s valid power_of_attorney and executed by an irs group manager extending the statute_of_limitations to date the case file for the year also contains a form_872 dated date with original signatures of the power_of_attorney and an irs group manager extending the statute_of_limitations to date the taxpayer’s statute of limitation for assessment of tax for would normally expire on date the case file for the year contains a form_872 dated date with a fax signature of taxpayer’s valid power_of_attorney and executed by an irs group manager extending the statute_of_limitations to date the case file for the year also contains a form_872 dated date with original signatures of the power_of_attorney and an irs group manager extending the statute_of_limitations to date taxpayer’s and tax years were sent to appeals appeals returned the case to examination questioning the validity of the consents secured_by examination in date the commissioner of internal revenue adopted a policy statement entitled use of fax and signature stamps for taxpayer submissions one of the policy statements adopted was c onsents to extend the statute_of_limitations for assessing tax form_872 ss-10 and other consent forms will not be accepted via fax in normal operations emphasis in the original law i r c ' a provides as a general_rule that any return statement or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the secretary i r c ' specifies that except as otherwise provided by the secretary any return declaration statement or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury i r c and require signatures to authenticate and verify the return or other document submitted the signature authenticates the return by identifying the document as the signer's the signature operates to verify the return by confirming the truth correctness and completeness of the document posts-113847-05 treas reg ' b provides that the secretary commissioner through delegation may prescribe in forms instructions or other appropriate guidance the method of signing any return statement or other document required to be made under any provision of the internal revenue laws or regulations i r c ' c provides that the period of limitations on assessment of any_tax except estate_tax may be extended to a date beyond the normal three-year period on assessment by an agreement in writing between the taxpayer and the commissioner’s delegate made before the expiration of either the normal period of assessment or the date agreed on in a prior agreement between the parties i r c ' a mandates that until a notice_of_deficiency has been mailed to the taxpayer the government may not make any assessment of the deficiency nor begin or prosecute a levy or a court_proceeding for collection of the deficiency and then not until the 90-day or 150-day period has expired if the taxpayer has filed a petition with the tax_court within that period no assessment and no levy or proceeding for collection may be instituted until the decision of the tax_court has become final i r c ' d provides however the taxpayer may waive the restrictions imposed by i r c ' a on the assessment and collection of a deficiency in federal tax at any time regardless of whether a notice_of_deficiency has been issued i r c ' d does not prescribe any particular form of waiver of restriction but states that the waiver must be a signed notice in writing analysis an examining agent may request the taxpayer to execute a waiver of restrictions on assessment the forms used include form_872 entitled aconsent to extend the time to assess tax this form must be signed by the taxpayer or his representative and by the appropriate irs official it had traditionally been the service's position that i r c and contemplate an original signature see revproc_78_29 1978_2_cb_526 ' dollar_figure all taxpayer signatures on forms to be filed with the internal_revenue_service must be original signatures affixed subsequent to the reproduction process the code however does not define the term asignature but rather subsumes the common_law definition at common_law the critical element of authentication is the signer's act of adopting the document being signed thus the requirement for an original signature can be satisfied by a faxed copy of a taxpayer's manual signature if the taxpayer adopts the faxed copy as his or her signature for purposes of the return the critical administrative task for the service is to determine whether the taxpayer or his representative intended to adopt the copy in adopting a particular signature method the service must be satisfied that the signature reliably authenticates and verifies the return or other documents submitted reliability is the crucial factor posts-113847-05 because waivers of assessment frequently wind up in litigation are time sensitive and often involve taxpayers who have not been compliant and have outstanding tax_liabilities the policy statement on fax signatures does not recommend that the service establish procedures that routinely permit the faxing of waivers of restrictions on assessment to the service that does not mean however that consents signed by taxpayers or their representative and received by fax are invalid form sec_872 received by fax may be legally sufficient because fax signatures may be sufficient with the proper safeguards to authenticate and verify consents and other documents under i r c ' and the service should be able in extraordinary circumstances to accept fax signatures on form sec_872 under these circumstances where there is no question regarding the authenticity of the power of attorney’s signature we believe that the fax signatures by the taxpayer’s power_of_attorney are valid for purposes of executing the form_872 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi 4-plr-164346-02 date june re legend taxpayer a b c d e trust x y dear this is in response to your letter dated date in which you request rulings regarding the effect of the creation of the proposed charitable_lead_trust for federal gift and income_tax purposes taxpayer proposes to create an irrevocable_trust trust to continue for a period of years for the benefit of charitable organizations the remaindermen are to be taxpayer’s children taxpayer will transfer to trust cash and property valued at dollar_figurex at the date of contribution a and b will serve as trustees article second paragraph a subparagraph of trust provides that up to and including that date thirty years from the date of execution of trust the trustees are to distribute in cash or in_kind valued at the date of distribution or partly in each an annuity of dollar_figurey per year to qualified charities in such proportions or all to one as the trustees shall select the annuity is to commence from the date of execution of trust and be paid not less frequently than annually if trust is executed on a day that the first fiscal_year will not be a full year or if the termination_date is other than the end of a plr-164346-02 year the amount distributable for the first year or the last year will be determined as a pro_rata portion of the annuity amount for each taxable_year the annuity amount will be paid from current income and to the extent current income is insufficient from accumulated income and to the extent accumulated income is insufficient from principal any income not distributed may be added to principal in the trustees’ sole discretion article second paragraph a subparagraph provides that the annuity interest shall not be commuted or prepaid prior to the termination_date article second paragraph a subparagraph provides that the term qualified charities means only organizations described in sec_170 and sec_2522 of the internal_revenue_code gifts to which qualify for a charitable deduction under both the federal gift_tax and federal_income_tax laws if days before the close of the year the trustees have not selected a qualified charity or charities to which to distribute the annuity or a portion of the annuity the annuity or portion is to be paid in equal shares to two specified charities but only if in each case the charity is then a qualified charity article first paragraph x provides that notwithstanding any other provision of the trust no trustee or other person acting on behalf of the trust shall engage in any act of self-dealing as defined in sec_4941 or corresponding provisions of any subsequent federal tax laws cause any excess business holding as defined in sec_4943 or corresponding provisions of any subsequent federal tax laws to be retained cause any investment to be acquired or retained in a manner that subjects the trust to tax under sec_4944 or corresponding provisions of any subsequent federal tax laws or make any taxable_expenditures as defined in sec_4945 or corresponding provisions of any subsequent federal tax laws article second paragraph b provides that at the termination_date the trustees are to distribute the remaining trust estate in equal shares so as to provide one such share to each of taxpayer’s children a b c d and e her or his heirs personal_representatives and administrators you have requested the following rulings the annuity interest in trust will be a guaranteed_annuity_interest within the meaning of sec_2522 and sec_25_2522_c_-3 of the gift_tax regulations and a gift_tax deduction will be allowed to taxpayer pursuant to sec_2522 equal to the value of the guaranteed annuity plr-164346-02 the trust will be allowed a deduction under sec_642 each taxable_year in an amount equal to the annuity amount_paid from the trust's gross_income during the taxable_year in accordance with the terms of the trust no portion of the trust's income will be taxable to taxpayer under sec_671 through gift_tax ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during the calendar_year by any individual sec_2522 provides that in computing taxable_gifts for the calendar_year there is allowed a deduction in the amount of all charitable gifts made during the calendar_year sec_2522 provides that where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use described in sec_2522 or b and an interest in the same property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth from the donor to a person or for a use not described in sec_2522 or b no deduction is allowed for the interest that is or has been transferred to the person or for the use described in sec_2522 or b unless a in the case of a remainder_interest the interest is in a_trust that is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest the interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly sec_25_2522_c_-3 provides that the term guaranteed_annuity_interest means an irrevocable right pursuant to the instrument of transfer to receive a guaranteed annuity a guaranteed annuity is an arrangement under which a determinable amount is paid periodically but not less often than annually for a specified term of years or for the life or lives of certain individuals an amount is determinable if the exact amount that must be paid under the conditions specified in the instrument of transfer can be ascertained as of the date of the gift_for example the amount to be paid may be a stated sum for a term sec_25_2522_c_-3 provides that where a charitable interest in the form of guaranteed_annuity_interest is in trust and the present_value on the date of the gift of all income interests for a charitable purpose exceeds percent of the aggregate plr-164346-02 fair_market_value of all amounts in the trust after payment of liabilities the charitable interest will not be a guaranteed_annuity_interest unless the governing instrument prohibits both the acquisition and retention of assets which would give rise to a tax under sec_4944 if the trust acquired such assets in this case based on the information submitted and the representations made the annuity payable under the terms of trust satisfy the requirements of sec_25 c - c vi a therefore the annuity will be a guaranteed annuity for purposes of sec_2522 accordingly taxpayer will be entitled to a gift_tax deduction under sec_2522 based on the actuarial value of the guaranteed annuity payable to the charities from the trust determined under sec_25_2522_c_-3 as of the date of the gift income_tax rulings sec_642 provides in part that in the case of a_trust there shall be allowed as a deduction in computing its taxable_income any amount of gross_income without limitation which pursuant to the terms of the governing instrument is during the taxable_year paid for a purpose specified in sec_170 if a charitable_contribution is paid after the close of such taxable_year and on or before the last day of the year following the close of such taxable_year then the trustee may elect to treat such contribution as paid during such taxable_year sec_681 provides in part that in computing the deduction allowable under sec_642 to a_trust no amount otherwise allowable under sec_642 as a deduction shall be allowed as a deduction with respect to income of the taxable_year which is allocable to its unrelated_business_income for such year further the term unrelated_business_income refers to an amount equal to the amount which if such trust were exempt from tax under sec_501 by any reason of sec_501 would be computed as its unrelated_business_taxable_income under sec_512 relating to income derived from certain business activities and from certain property acquired with borrowed funds sec_644 provides that if a_trust or another trust to which the property is distributed sells or exchanges property as a gain not more than years after the date of the initial transfer of the property in trust by the transferor and the fair_market_value of such property at the time of the initial transfer in trust by the transferor exceeds the adjusted_basis of such property immediately after such transfer an additional tax is imposed in accordance with sec_642 on the includible gain recognized on such sale_or_exchange sec_644 provides among other things rules for determining the amount of this additional tax the year for which the tax is imposed the amount of the includible gain and the character of the includible gain as well as various special rules and exceptions sec_671 provides the general_rule that in cases in which the grantor or another person is regarded as the owner of any portion of a_trust there shall be included in computing his taxable_income and credits those items of income plr-164346-02 deductions and credits against tax on the trust that are attributable to that portion of the trust to the extent that such items would be taken into account in computing the taxable_income and credits against the tax of an individual sec_673 through of subpart e part subchapter_j specify the circumstances under which the grantor or another person is regarded as the owner of a portion of a_trust based solely on the facts as presented in this ruling_request viewed in light of the applicable law and regulations we conclude that except to the extent that trust has unrelated_business_income within the meaning of sec_681 and subject_to the limitations set forth in sec_642 the trust will be allowed a deduction in accordance with sec_642 for the amount of gross_income paid out to charitable beneficiaries described in sec_170 during its taxable_year or by the close of the following taxable_year because the deduction under sec_642 is limited to amounts of gross_income paid for a purpose specified in sec_170 no deduction will be allowed under sec_642 for a distribution from the trust principal whether made in property or money except to the extent that such property or money has been included in the trust's gross_income and provided no deduction was allowed for any previous taxable_year for the amount so paid the trust will be subject_to the rules of sec_644 to the extent such rules would be applicable further based upon the fact as submitted taxpayer will not be treated as the owner of the trust under sec_673 sec_674 sec_676 sec_677 or sec_678 therefore no portion of the trust’s income will be taxable to taxpayer under these provisions the trust does not authorize any power that would cause administrative control of the trust to be considered exercisable primarily for the benefit of taxpayer under sec_675 however whether taxpayer will be treated as the owner of trust under sec_675 will depend upon the circumstances attendant upon the operation of the trust this is a question of fact the determination of which must necessarily be deferred until the federal_income_tax returns of the parties involved have been examined by the office of the area director in which the returns are filed 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 the 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 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or plr-164346-02 any other provision of the code a copy of this letter should be attached to any income or gift_tax returns that the taxpayer may file relating to these matters 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 sincerely yours chief branch associate chief_counsel george masnik passthroughs and special industries enclosure copy for purposes


t c memo united_states tax_court f browne gregg sr and juanita o gregg petitioners v commissioner of internal revenue respondent docket no filed date bernard a barton jr for petitioners charles baer for respondent memorandum findings_of_fact and opinion thornton judge respondent determined a deficiency in petitioners' federal_income_tax for tax_year in the amount of dollar_figure - - after stipulations and concessions ’ the remaining issues for consideration are whether a jury award paid to petitioner husband pursuant to a judgment against u s industries inc usi on a claim for fraudulent inducement to enter into a contract is excludable under sec_104 as damages received on account of personal injury we hold that it is not whether a jury award paid to petitioner husband pursuant to a judgment against usi on a claim for interference with a business relationship is excludable under sec_104 as damages received on account of personal injury we hold that it is not whether prejudgment_interest paid to petitioner husband pursuant to a judgment against usi is excludable under sec_104 we hold that it is not unless otherwise indicated all 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 ' the parties stipulate that dollar_figure in punitive_damages awards received by petitioner husband is properly includable in petitioners' gross_income the parties further stipulate that should this court find that the dollar_figure in compensatory_damages received by petitioner husband for his fraud claim are properly includable in petitioners’ income then such damages are properly characterized as capital_gain rather than ordinary_income on brief petitioners concede that the dollar_figure awarded for petitioner husband’s breach of contract claims is includable in gross_income - - findings_of_fact the parties submitted this case fully stipulated in accordance with rule the stipulation of facts with attached exhibits is incorporated herein by this reference for the calendar_year petitioners filed a joint federal individual_income_tax_return when the petition was filed in this case petitioners were husband and wife and resided in leesburg florida hereinafter references to petitioner are to f browne gregg sr and references to petitioners are to f browne gregg sr and juanita o gregg in petitioner owned corporate businesses in florida that were engaged in construction sand mining and design of dredging equipment the businesses had expanded rapidly and were hard pressed for working_capital as a result on date petitioner entered into an agreement and plan_of_reorganization with usi whereby petitioner transferred to usi the stock of his companies dollar_figure million in personal capital and petitioners’ dollar_figure promissory note in exchange for dollar_figure million in common and preferred usi stock the agreement provided that as further consideration petitioner could receive up to an additional dollar_figure million in usi stock if the companies formerly owned by petitioner met specified profitability levels over the next years on the date of closing date a separate employment agreement was signed under which petitioner was to remain for years as president and chief operating officer of his former companies q4e- during the years after the acquisition usi put some dollar_figure to dollar_figure million into petitioner's former companies and guaranteed some dollar_figure million in loans initially the operations were successful petitioner received one distribution of usi stock called by the parties earn-out stock valued at dollar_figure and based upon profits soon however relations between petitioner and usi began to sour petitioner's former businesses became less and less successful usi began limiting petitioner's authority and ultimately in date removed him as president and chief operating officer and appointed him to be a salaried consultant with little work to perform in date petitioner pledged his usi stock to the first national bank of leesburg leesburg bank as security for a dollar_figure million loan on date petitioner failed to make an installment_payment on the note he had transferred to usi and informed usi he was not going to pay the remaining balance on the note but instead would offset it against usi’s outstanding obligations to him usi stopped paying his salary and requested that chemical bank in new york its stock transfer and dividend disbursing agent stop payment on petitioner's usi dividends under instructions from usi chemical bank delivered petitioner's usi stock_dividend checks to usi on date petitioner borrowed an additional dollar_figure from the leesburg bank assigning as security all dividends from his usi stock both petitioner and the leesburg bank mailed to usi notice of the assignment - - later in the price of usi's stock fell and the leesburg bank issued margin calls to petitioner when petitioner did not respond the bank began selling his stock petitioner then demanded that usi pay the dividends to the leesburg bank but usi refused subsequently the leesburg bank liquidated petitioner’s stock because the loans had become under- collateralized in petitioner filed suit in florida against usi petitioner's lawsuit against usi lasted several years and included a jury trial that ended in a mistrial a second jury trial that was appealed reversed in part and remanded 715_f2d_1522 11th cir modified 721_f2d_345 11th cir and a third jury trial that was affirmed by the court_of_appeals for the eleventh circuit greqq v u s indus inc 887_f2d_1462 11th cir usi paid petitioner on the judgment in the claims on which petitioner prevailed that are relevant to this case are common-law fraud and interference with a business relationship the common-law fraud claim the crux of petitioner's common-law fraud claim was fraudulent inducement petitioner alleged that usi fraudulently promised to provide petitioner's former businesses with capital required for their successful operation when in fact usi's established financial policies severely limited the cash that it could make available to them for additional working_capital -- - petitioner alleged further that usi fraudulently promised to employ him to operate and manage petitioner's former companies when it did not intend to continue him in this position the jury returned a verdict awarding petitioner dollar_figure compensatory_damages on his fraud claim petitioners excluded this damage award from taxable_income on their federal_income_tax return the claim for interference with a business relationship in his complaint in the third jury trial petitioner alleged that usi maliciously interfered with petitioner’s business and contractual relationship with leesburg bank by withholding payments of dividends on the usi stock that petitioner had pledged as security for loans from the bank that consequently the bank was required to sell petitioner’s stock at a depressed price to satisfy his loans and that petitioner was deprived of the use and benefit of the dividends and otherwise damaged the jury returned a verdict awarding petitioner compensatory_damages in the amount of dollar_figure and punitive_damages in the amount of dollar_figure which the trial judge remitted to dollar_figure million on their joint federal_income_tax return petitioners included in income dollar_figure of the compensatory_damages but excluded from income the remaining amounts received with respect to this claim prejudgqment interest the trial_court awarded petitioner prejudgment_interest of dollar_figure on his fraud claim and dollar_figure on a claim of breach of employment agreement of which petitioners excluded dollar_figure on their federal_income_tax return notice_of_deficiency in the notice_of_deficiency respondent determined that the amounts usi paid petitioner on his claims for fraud and interference with business relationship were not on account of personal_injury_or_sickness within the meaning of sec_104 and consequently were includable in petitioners’ taxable_income respondent also determined that all amounts of prejudgment_interest received were includable in petitioners’ taxable_income opinion a exclusion of damages under sec_104 in general gross_income includes income from whatever source derived sec 6l1 a statutory exclusions from income are narrowly construed 515_us_323 504_us_229 348_us_426 309_us_331 one such statutory exclusion appears in sec_104 which excludes from gross_income the amount of any damages --- - received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness the applicable regulations define damages received as an amount received through prosecution of a legal suit or action based upon tort or tort type rights sec_1 104-l1 c income_tax regs in united_states v burke supra pincite the supreme court held that to qualify for the sec_104 income exclusion a taxpayer must show that the legal basis for recovery redresses a tort-like personal injury in commissioner v schleier supra pincite the supreme court concluded that a tort or tort-like claim is a necessary but insufficient condition for excludability under sec_104 the supreme court held that excludability under sec_104 a also requires that the amounts received be on account of personal injuries or sickness focusing on whether there is proximate cause between any personal injury and the damages recovered commissioner v schleier supra pincite in 519_us_79 the supreme court revisited this issue acknowledging that the phrase ‘on account of’ does not unambiguously define itself the court rejected an interpretation of sec_104 that would require no more than a but-for connection between personal injuries and damages received and instead required a stronger causal connection making the provision applicable only to those --- - personal injury lawsuit damages that were awarded by reason of or because of the personal injuries id pincite respondent concedes that petitioner’s causes of action for fraud and interference with a business relationship sounded in tort the question for our consideration then is whether petitioner’s recoveries on these claims were on account of personal injuries or sickness this determination is based on all the facts and circumstances fabry v commissioner c __ _- slip op pincite which in the context of litigated claims include the allegations in petitioner’s complaints the evidence presented and the arguments made in the underlying litigation 88_tc_834 affd without published opinion 845_f2d_1013 3d cir 87_tc_236 affd 835_f2d_67 3d cir 58_tc_32 the taxpayer bears the burden_of_proof rule a ’ it is well settled that personal injuries include intangible as well as tangible harms and nonphysical as well as respondent argues that petitioner is collaterally estopped from claiming the damages he received were on account of personal injuries because the jury instructions and appellate decisions in the underlying litigation make it clear in respondent’s view that petitioner’s injuries were not personal we reject respondent’s strained and peculiar theory of collateral_estoppel if for no other reason than because the characterization of petitioner’s damages for federal_income_tax purposes was not essential to and was not litigated in petitioner’s prior litigation see kightlinger v commissioner tcmemo_1998_ we have however considered the contents of the jury instructions and the appellate decisions as part of our factual inguiry in determining the basis upon which petitioner’s damage awards were made -- - physical injuries commissioner v schleier supra pincite n united_states v burke supra pincite n 87_tc_1294 affd 848_f2d_81 6th cir in united_states v burke supra pincite the supreme court distinguished personal tort-like injuries from legal injuries of an economic character similarly in commissioner v schleier supra pincite the supreme court distinguished injuries that were personal rather than economic see also 102_tc_116 affd in part revd in part on another issue 70_f3d_34 5th cir and cases cited therein damages are not excludable under sec_104 if they are received pursuant to the settlement of economic rights arising out of a contract eg lost profits kightlinger v commissioner tcmemo_1998_ and cases cited therein recovery for injuries to business or property is separate and distinct from recovery for personal injuries to determine whether damages are received on account of personal injuries under sec_104 we look to the nature of the claim underlying the damages award united_states v in congress limited sec_104 to damages received on account of a personal physical injury or physical sickness effective generally with respect to amounts received after date small_business job protection act of publaw_104_188 sec 110_stat_1838 because of the prospective effective date this amendment does not apply to the case at hand the conference_report indicates that no inference was intended as to the application of sec_104 prior to date in connection with a case not involving a physical injury or physical sickness h conf rept pincite burke supra pincite threlkeld v commissioner supra pincite our focus is on the nature of the taxpayer’s injury and whether the award was received on account of personal or nonpersonal injuries threlkeld v commissioner supra pincite bennett v commissioner tcmemo_1994_190 if damages have been clearly allocated to an identifiable claim in a court judgment we are guided by the nature of the claim as defined under state law personal injury concepts 716_f2d_693 9th cir revg 79_tc_398 threlkeld v commissioner supra pincite- although federal_law rather than state law governs the characterization of payments for federal_income_tax purposes a state’s characterization of a payment can inform the federal decision rozpad v commissioner f 3d1 1st cir affg tcmemo_1997_528 petitioner’s compensatory_damages for common-law fraud petitioners argue that the compensatory_damages petitioner received on his claim for fraud were on account of personal injury because the fraud perpetrated on mr gregg violated his person and his rights and is a personal injury under applicable state law respondent contends that the damages were awarded for fraud in regard to a sales contract not for injury to a person for the reasons described below we agree with respondent that petitioner’s damages award on his claim for common-law fraud was not received on account of a personal injury within the meaning of sec_104 pursuant to florida jurisprudence a claim for common-law fraud requires the following elements a false statement concerning a material fact the representor's knowledge that the representation is false an intention that the representation induce another to act on it and consequent injury to the party acting in reliance on the representation 246_fsupp_780 s d fla revd on other grounds 386_f2d_5 5th cir food fair inc v anderson so 2d fla dist ct app petitioners suggest that the nature of the injury necessary to sustain a claim for fraud under florida law is inherently_personal noting the availability of remedies for emotional distress and similar personal injuries resulting from the fraud perpetrated petitioners concede on brief however that there is nothing in the record to demonstrate that compensatory_damages were paid to petitioner on account of emotional stress or other damages that are classic personal injury damages because our focus is on the injuries that actually affected petitioner’s receipt of compensatory_damages rather than on other possible injuries see 515_us_323 petitioners’ argument is unavailing florida law does not appear to rigidly categorize the nature of the injury necessary to sustain a claim for fraud we note as stated in food fair inc v anderson so 2d fla dist ct app florida decisions defining injury go in both directions continued however that under florida law the award of prejudgment_interest on petitioner’s fraud claim supports the conclusion that petitioner did not receive the compensatory_damages on account of personal injuries under florida law prejudgment_interest is ordinarily not recoverable for personal injury actions because the amount and the measure of damages is largely discretionary with the jury and is in consequence unliquidated until the trial farrelly v heuvacker so fla see also argonaut ins co v may plumbing co so 2d n 1l fla zorn v britton so fla for similar reasons prejudgment_interest is ordinarily not available as a remedy for an action in tort under florida law although prejudgment_interest may be awarded where there is an ascertainable out-of-pocket loss as the result of the loss of continued in explaining what constitutes damage sufficient to warrant actionable fraud early cases reflect a requirement that the injury sustained must ordinarily be pecuniary in nature other florida decisions seem to align themselves with the general_rule that damage need not be subject_to accurate measurement in money but may result from the fact that the defrauded party has been induced to incur legal liabilities or obligations different from those represented or contracted for citations omitted under florida law a personal injury plaintiff may be entitled to prejudgment_interest on medical_expenses but only when the plaintiff shows that he has made actual out-of-pocket payments for those expenses prior to judgment alvarado v rice so 2d fla however this exception to the general_rule applies because such a plaintiff suffers the loss of a vested property right namely the loss of use of his money id in any event petitioner has not alleged physical harm and the record is devoid of any evidence of any medical_expenses that he incurred vested property rights underhill fancy veal inc v padot so 2d fla dist ct app petitioners further assert that petitioner's dignitary or personal right to be free from fraud and lies is the injury at issue likening the damages award to an award for libel or slander in ostensible reliance on threlkeld v commissioner t c pincite in that case this court held that compensatory_damages received in settlement of the taxpayer’s claim for injuries to his professional reputation arising out of a claim for malicious prosecution were excludable from income under sec_104 this court determined that an action for malicious prosecution was similar to an action for defamation and under tennessee law would be classified as an action for personal injuries adopting a definition of personal injury from the tennessee supreme court this court stated exclusion under sec_104 will be appropriate if compensatory_damages are received on account of any invasion of the rights that an individual is granted by virtue of being a person in the sight of the law id pincite paraphrasing brown v dunstan s w 2d tenn that this definition differentiates between a personal injury and an economic injury is made plain by the more complete discussion in the paraphrased source which defines personal injuries as injuries resulting from invasions of rights that inhere in man as a rational being that is rights to which one is entitled by reason of being a person in the eyes of the law such rights of course are to be distinguished from those which accrue to an individual by reason of some peculiar status or by virtue of an interest created by contract or property brown v dunstad s w 2d tenn emphasis added -- - as this court recently noted in fabry v commissioner t c __ __ slip op pincite threlkeld v commissioner supra did not adopt a per se rule that damages received on account of injury to an individual’s business reputation are excludable under sec_104 rather we must look to all the facts and circumstances to determine the nature of the claim id whether or not the fraud perpetrated upon petitioner may have resulted in some dignitary injury is not controlling rather petitioners must show that the damages received were on account of personal injury and that the personal injury affected the amount of recovery see commissioner v schleier supra pincite settlement amounts received by the taxpayer in settlement of his claim under the age discrimination in employment act adea were not on account of personal injuries notwithstanding that the taxpayer may have suffered some personal injury comparable to pain and suffering we look to petitioner’s complaints in the usi litigation to determine the nature of his claim the overwhelming thrust of petitioner’s complaints is the adverse effects usi’s actions had on his businesses and on his earn-out rights that arose out of and were dependent on petitioner's contract with usi in his restated complaint in the second jury trial petitioner asked for dollar_figure million in compensatory_damages the complaint particularized these damages to a degree alleging that petitioner had been deprived of the value of his companies and their businesses which had a value of at least dollar_figure million and -- - that he had been deprived of additional capital contributions that he had made to usi in the amount of dollar_figure these injuries clearly constitute economic injuries petitioner’s restated complaint also alleged that usi caused him to lose the fair value of his earning capacity this allegation parallels a portion of petitioner's complaint alleging breach of contract it appears that any such injury was to petitioner's lost ability to take advantage of the contractual earn-out provisions rights that arose out of and were dependent on petitioner's contract with usi even if the jury award compensated petitioner for this alleged harm it would not constitute a personal injury within the ambit of sec_104 see 102_tc_116 compensatory_damages for compromised economic rights that arise from a contract are not excludable under sec_104 affd in part revd in part on another issue 70_f3d_34 5th cir baca v commissioner tcmemo_1990_632 petitioner’s restated complaint also alleged without elaboration damage to his reputation and credit rating the record however does not show that evidence was presented in the usi litigation regarding such injuries or that the damages were awarded by reason of such harms the mere mention of a particular personal injury in a complaint without more does not serve to bring a recovery for damages within the ambit of sec_104 see kightlinger v commissioner tcmemo_1998_357 a contrary rule would improperly expand the scope of sec_104 because the personal injury language could easily be included in every complaint even if such a claim were only a ‘throwaway’ claim in closing arguments at the third jury trial petitioner’s counsel characterized petitioner’s injuries as damages suffered by reason of giving up his businesses petitioner’s counsel made no argument for compensatory_damages for any other type of injury the jury instructions contain no reference to any injuries other than economic harms the trial_court instructed the jury in relevant part as follows therefore if you find that petitioner has been damaged you should award petitioner an amount of damages equal to the difference in value between what petitioner gave usi and the value of what he received from usi in return standing alone the fact that damages are measured in economic terms does not compel the conclusion that the injury redressed is economic rather than personal for economic loss may be the best available measure of a personal injury 835_f2d_67 3d cir affg 87_tc_236 in the case at hand however we believe that the harm which was measured by economic factors was in fact an economic injury see kightlinger v commissioner supra concluding that economic factors were not merely used as a yardstick to measure the extent of the injury rather they were the harm for which petitioner received his compensation in sum petitioners have failed to prove that the compensatory_damages awarded on petitioner’s common-law fraud -- - claim were received on account of personal injuries within the meaning of sec_104 accordingly we sustain respondent’s determination on this issue petitioner’s compensatory_damages for interference with a business relationship tortious interference with a business relationship is part of a larger body of tort law aimed at protecting relationships some economic for example interference with prospective economic advantage and some personal for example interference with family relations or libel and slander keeton et al prosser keeton on torts sec_129 pincite and nn and 5th ed under florida law tortious interference with a business relationship is basically the same cause of action as interference with a contract smith v ocean state bank so 2d fla dist ct app petitioner’s claim of tortious interference with a business relationship required proof of each of the following three elements the existence of a business relationship under which the plaintiff has legal rights an intentional and unjustified interference with the relationship by the defendant and damage to the plaintiff as a result of the tortious interference with the relationship 887_f2d_1462 11th cir petitioner’s complaint in the third jury trial focused almost entirely on the economic injury petitioner suffered as a consequence of usi’s interference with his business relationship with the leesburg bank although petitioners suggest that petitioner’s tortious interference claim might have supported recovery for mental suffering damage to reputation or violation of dignitary rights there is no evidence in the record that petitioner sought or received compensatory_damages for any such injuries ’ the jury returned a verdict awarding petitioner dollar_figure compensatory_damages and punitive_damages in the amount of dollar_figure which the trial judge remitted to dollar_figure million although the record does not expressly indicate the basis on which the jury determined compensatory_damages it seems most likely that the award was based on the theory outlined in petitioner’s trial brief which explicitly equated his claim to one for wrongful detention or attachment of property and which advocated computing his loss by reference to the decrease from dollar_figure in the value of his usi stock when the leesburg bank sold it to satisfy petitioner’s loans based on all the evidence then we conclude that petitioners have failed to prove that the compensatory_damages on the tortious interference claim were received on account of personal injuries within the meaning of sec_104 ’ in fact the record shows that petitioner sought compensatory_damages on his tortious interference claim principally as a foothold for a much larger amount of punitive_damages in his closing arguments in the third jury trial petitioner’s counsel requested only one dollar compensatory_damages stating the one dollar on the interference claim will justify your going into the punishment aspect of it and then you can allow punitive_damages that will get their attention - - this court reached a similar conclusion with respect to an analogous claim for tortious interference in kightlinger v commissioner supra in that case the taxpayer received payment in settlement of a claim of tortious interference with prospective economic advantage as an employee the complaint in the underlying litigation sought a remedy for wrongful interference with economic advantages and the taxpayer had not sought or obtained redress for any of the traditional harms associated with personal injury such as pain and suffering or emotional distress this court concluded clearly recovery for economic injury based on such a contractual type claim is excluded from the scope of sec_104 petitioners’ reliance on this court’s decision in noel v commissioner tcmemo_1997_113 is misplaced in noel this court held that the taxpayer was entitled to exclude under sec_104 an allocable amount received by the taxpayer in settlement of claims including a claim for tortious interference with contractual rights and prospective business advantages in noel the record supported a finding of fact that the taxpayer had suffered both personal emotional distress and damage to his business reputation and that these damages had been discussed during the negotiations that resulted in a settlement by contrast in the case at hand petitioners have failed to prove that the damages award on petitioner’s claim for interference with a business relationship was received on account --- - of personal injuries within the meaning of sec_104 accordingly we sustain respondent’s determination on this issue b prejudgment_interest petitioners contend that the prejudgment_interest they received is excludable under sec_104 as damages received on account of personal injuries as petitioners acknowledge however the well-established precedents in this court hold that prejudgment_interest is taxable even when attributable to damages excludable under sec_104 see eg 105_tc_396 100_tc_124 affd without published opinion f 3d 6th cir rozpad v commissioner tcmemo_1997_528 affd 154_f3d_1 lst cir having concluded that petitioner’s damages were not received on account of personal injuries within the meaning of sec_104 a fortiori we conclude that petitioner’s prejudgment_interest was not attributable to personal injuries and we decline petitioners’ invitation to disturb the well-established precedents of this court c evidentiary issues in the parties’ stipulation of facts respondent reserved certain evidentiary objections that we now address paragraph nos and of the stipulation of facts relate to the nature of petitioner's business acumen and personal -- - traits respondent objects to these stipulations on the grounds that they are hearsay and lack relevance we sustain respondent's objections on the grounds that petitioner's personal characteristics as described in these stipulations have no bearing on whether the damages he received were on account of personal injuries respondent further objects to joint exhibits 3-c 10-j 12-l and stipulation of facts paragraph no on the basis that each merely contains excerpts from other more complete exhibits and thus is neither independently relevant or complete we sustain respondent's objections and note that the evidence remains available elsewhere in the record see fed r evid finally on the grounds of relevancy and hearsay respondent objects to joint exhibits 5-e and 11-k which contain transcripts of the closing arguments made by petitioner's attorney during the second and third jury trial respectively we overrule respondent's objections on this issue for this court considers all the facts and circumstances including arguments made at trial in determining whether a taxpayer received damages on account of a personal injury under sec_104 bent v commissioner t c pincite furthermore the closing arguments are not hearsay because as the stipulation of facts introducing stipulation of facts par states mr gregg has been described as an entrepreneur a man who hass imagination anda man with innovative ideas stipulation of facts par states mr gregg is a unique and creative business person - - the exhibit states the exhibit is not offered to prove the truth of the matters asserted see knevelbaard v commissioner tcmemo_1997_330 we have considered all other arguments advanced by the parties and to the extent we have not addressed these arguments consider them irrelevant moot or without merit to reflect the foregoing and concessions by the parties decision will be entered under rule


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date cc ita b4 conex-118464-09 number info release date uil the honorable denny rehberg member u s house of representative sec_1201 grand avenue billings montana attention ---------------- dear congressman rehberg this letter responds to your enquiry dated date submitted on behalf of your constituent ----------------------- he asked whether the repayment of the first-time_homebuyer credit for taxpayers who purchased homes in november and december of may be waived congress added sec_36 to the internal_revenue_code the code in section of the economic and housing recovery act of public law number stat to provide a credit to first-time homebuyers for purchases made in congress amended sec_36 in section of the american reinvestment and recovery tax act of public law number stat to provide different rules for purchases made in rules for home purchases on or after date and before date a first_time_homebuyer who purchased a home on or after date and before date can take a credit on his or her federal_income_tax return equal to percent of the purchase_price of the residence up to a maximum of dollar_figure taxpayers who take this credit for purchases made in must repay the credit in equal installments over fifteen years see former sec_36 sec_36 and sec_36 of the code rules for home purchases on or after date and before date conex-118464-09 for taxpayers who purchased their home on or after date and before date the law increases the maximum credit to dollar_figure taxpayers who take the credit for purchases made in and use the residence as their principal_residence for at least three years beginning on the date of purchase are not required to repay the credit see sec_36 sec_36 and sec_36 of the code as amended because ---------------bought his residence on date the rules for home purchases apply and he must repay the credit unfortunately the statute does not grant the internal_revenue_service the authority to waive the repayment requirement for purchases made in i hope this information is helpful if you have any questions please contact ---------------- --------at -------------------- sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-119320-02 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-119320-02 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business is not an employer under the railroad retirement act and the railroad unemployment insurance act we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that is not an employer under the railroad_retirement_tax_act please take the appropriate action regarding this business will e mcleod cc


t c memo united_states tax_court onesimo r espinoza petitioner v commissioner of internal revenue respondent docket no filed date onesimo r espinoza pro_se robert v boeshaar for respondent memorandum findings_of_fact and opinion cohen judge respondent determined a deficiency in petitioner’s federal_income_tax for the issues for decision are whether petitioner is entitled to a dependency_exemption deduction whether he is entitled to the child_tax_credit and whether he is entitled to head_of_household filing_status for all section references are to the internal_revenue_code in effect for findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in washington state when he filed his petition petitioner’s son was born date petitioner and his son’s mother were divorced in in a permanent order of child_support filed date in the superior court of washington county of thurston petitioner was ordered to pay to his son’s mother child_support of dollar_figure per month one provision of that order permitted petitioner for income_tax purposes to claim his son as a dependent in odd years provided that his child_support payments were current petitioner continued to pay that amount throughout petitioner’s son lived with petitioner’s former wife for all of and she was the custodial_parent on his federal tax_return for petitioner claimed a dependency_exemption deduction and a dollar_figure child_tax_credit in relation to his son and reported his tax_liability using head_of_household rates petitioner did not attach to the return a form_8332 release of claim to exemption for child of divorced or separated parents because his son’s mother did not provide a signed form_8332 despite petitioner’s efforts to secure one from her opinion the internal_revenue_code allows as a deduction in computing taxable_income an exemption for each dependent of a taxpayer sec_151 a child of a taxpayer generally qualifies as a dependent if the child shares the same principal_place_of_abode as the taxpayer for more than one-half of the tax_year in issue sec_152 c however sec_152 limits the dependency_exemption deduction where the child’s parents live apart in the case of divorced or separated parents special rules determine which parent may claim a dependency_exemption deduction for a child see sec_152 as relevant to the present case sec_152 allows the noncustodial_parent to claim a dependency_exemption deduction for a child if the custodial_parent signs a written declaration releasing her claim to the exemption and the noncustodial_parent attaches the declaration to his federal_income_tax return the declaration required by sec_152 must be made on either form_8332 or on a statement conforming to the substance of that form see 114_tc_184 affd sub nom 293_f3d_1208 10th cir form_8332 requires a taxpayer to furnish the name of each child the name and social_security_number of the noncustodial_parent claiming the dependency_exemption the social_security_number of the custodial_parent the signature of the custodial_parent the date of the custodial parent’s signature and the year or years for which the claims were released id pincite the exemption may be released for a single year for a number of specified years for example alternate years or for all future years as specified in the declaration sec_1_152-4t a q a-4 temporary income_tax regs fed reg date petitioner could not obtain a form_8332 executed by the mother of his son and as a result he could not attach this required form to his federal_income_tax return petitioner is therefore not entitled to the dependency_exemption deduction under sec_152 see eg himes v commissioner tcmemo_2010_97 gessic v commissioner tcmemo_2010_88 thomas v commissioner tcmemo_2010_11 walker v commissioner tcmemo_2008_194 sec_24 authorizes a child_tax_credit with respect to each qualifying_child of the taxpayer the term qualifying_child for purposes of the child_tax_credit means a qualifying_child as defined in sec_152 who has not attained age sec_24 because petitioner did not establish that his son was a qualifying_child under sec_152 or the exception in sec_152 he does not satisfy the qualifying_child requirement of the child_tax_credit under sec_24 thus he is not entitled to the child_tax_credit claimed with respect to his son sec_1 establishes a special income_tax rate for individual taxpayers filing as head of a household sec_2 provides the requirements for head_of_household filing_status in order to qualify as head of a household petitioner must have been unmarried at the end of and maintained a household that was the principal_place_of_abode of at least one dependent for more than one-half of the taxable_year see sec_2 petitioner’s home was not the principal_place_of_abode of his son and he has not suggested that any other person qualifies as his dependent during thus he must use single filing_status in calculating his tax_liability decision will be entered for respondent