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 intl b02 plr-115134-09 date date legend taxpayer qsub1 qsub2 qsub3 qsub4 qsub5 qsub6 fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 fc11 fc12 ----------------------------- ---------------------- -------------------------------------- ----------------------- -------------------------------- ----------------------- ----------------------------- ---------------------- ----------------------------- ----------------------- ------------------------ ----------------------- --------------------------- ----------------------- --------------------------------------------- -------------------------------------------- ------------------------------------------- ------------------- ---------------------- -------------------- ------------------------------------------ ----------------------------- --------------------------------------------------------- ----------------------------- ----------------------------------- ---------------------------------- plr-115134-09 fc13 fc14 fc15 fp state v ----------------- ---------------------------- ------------------- ---------------------------- ----------------- country w country x country y country z -------------------------- ---------------- --------- --------------------- b c d e date1 date2 year1 year2 year3 year4 ------ ------ ------- ------- ------------------ ------------------- ------- ------- ------- ------- service provider1 service provider2 accounting firm --------------------------------------------- ----------------------------------------------------- ---------------------------------------- dear ------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc10 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by its authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such plr-115134-09 material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a corporation organized under the laws of state v that is a subchapter_s_corporation within the meaning of code sec_1361 taxpayer owns directly and indirectly six corporations that are each a qualified_subchapter_s_subsidiary within the meaning of code sec_1361 and that are disregarded as separate from taxpayer for u s tax purposes specifically taxpayer wholly owns qsub1 which in turn wholly owns qsub2 qsub2 wholly owns each of qsub3 and qsub4 in turn qsub3 wholly owns qsub5 and qsub4 wholly owns qsub6 during year1 through qsub5 taxpayer acquired a b percent interest in fp a partnership formed under the laws of country w also during year1 fp and other investors including taxpayer through qsub6 formed fc1 a company formed under the laws of country x taxpayer’s total ownership_interest in fc1 taking into account its interest through both fp and qsub6 was approximately c percent fc1 owned d percent of fc2 a company formed under the laws of country x fc2 wholly owned fc3 a company formed under the laws of country x which in turn wholly owned fc4 a company formed under the laws of country y on date1 fc3 fully liquidated into fc2 subsequently fc2 was the sole owner of fc4 fc4 directly and indirectly wholly owned the following subsidiaries i fc5 a company formed under the laws of country y ii fc6 a company formed under the laws of country y iii fc7 a company formed under the laws of country y iv fc8 a company formed under the laws of country y v fc9 a company formed under the laws of country y vi fc10 a company formed under the laws of country y vii fc11 a company formed under the laws of country y viii fc12 a company formed under the laws of country z ix fc13 a company formed under the laws of country y x fc14 a company formed under the laws of country y and xi fc15 a company formed under the laws of country y collectively subsidiaries each of the subsidiaries owned real_property which it leased to unrelated persons and upon which it collected rental income the majority of leases entered into by the subsidiaries were so-called triple-net leases whereby the lessee generally was responsible for the maintenance and operation of the property no subsidiary held any assets other than real_property nor earned any income other than rental income in year1 fc2’s ownership of fc4 was diluted by e percent as part of an initial_public_offering on date2 fp and qsub6 sold the remaining portion of their interests in fc4 and indirectly the subsidiaries to an unrelated party plr-115134-09 in accordance with its partnership_agreement fp was required to provide sufficient detail to its u s investors to enable such investors to prepare their u s tax returns including any information required with respect to a foreign_corporation that was a passive_foreign_investment_company within the meaning of code sec_1297 pfic to do this fp retained service provider1 to provide tax and administrative services including the preparation of u s tax-related documents service provider1 was known to be a leader in providing such services to the private equity industry following the takeover of service provider1 by service provider2 in year2 fp retained service provider2 as a tax and administrative service provider fp retained service provider2 on the basis that service provider2 employed experienced tax specialists who were qualified_tax professionals such qualified_tax professionals were responsible for preparing and distributing information regarding the u s tax consequences of an investment in fp and indirectly in fc1 fc2 fc3 fc4 and the subsidiaries collectively fcs service provider2 prepared k-1 equivalents for fp’s investors for the year1 and year2 tax years during the time that service provider2 prepared fp’s k-1 equivalents service provider2 had access to both income statement and balance_sheet information relating to the fcs however service provider2 failed to identify fc10 as a pfic and failed to advise fp or consequently taxpayer of the pfic status of fc10 and the possibility of making a qef election with respect to fc10 it was not until year4 when fp retained accounting firm to prepare its k-1 equivalents and provide relevant u s tax information to its u s investors with respect to its year3 tax_year that it was discovered that fc10 was a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election with respect to fc10 by the election due_date including the role of service provider2 taxpayer represents that service provider2 prepared and distributed fp’s k-1 equivalents which contained the u s tax consequences of an investment in fp and indirectly fc10 taxpayer also submitted an affidavit from an advisor to fp that was responsible for engaging service provider2 corroborating the representations made by taxpayer taxpayer represents that the pfic status of fc10 has not been raised by the irs on audit for any of the taxable years ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc10 for year1 under sec_1_1295-3 law plr-115134-09 code sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under code sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc10 for year1 provided that taxpayer complies with the rules under treas plr-115134-09 reg sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the u s tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell special counsel international


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc intl plr-103831-00 date date legend index number number release date taxpayer parent cpa firm country b date a dear this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file form_8279 election to be treated as a fsc or as a small_fsc pursuant to temp sec_1_921-1t q a effective for the tax_year beginning on date a the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process prior to date a cpa firm provided tax consulting services to parent the parent of taxpayer and assisted parent in understanding the benefits and requirements of establishing a foreign_sales_corporation on date a taxpayer was incorporated in country b about ten months after date a it was discovered that form_8279 had not been filed the failure to timely file form_8279 was due to a misunderstanding between cpa firm and parent as each believed that the other party would file the form the irs has not discovered taxpayer’s failure to timely file form_8279 sec_301_9100-1 provides that the commissioner may grant a taxpayer a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i under the standards set forth in sec_301_9100-3 in re plr-103831-00 sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation sec_1_921-1t q a fixes the time to elect treatment as an fsc or small_fsc thus the commissioner has discretionary authority pursuant to sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file form_8279 effective for the tax_year beginning on date a the granting of an extension of time to file form_8279 is not a determination that taxpayer is otherwise eligible to make the election sec_301 a this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented further no opinion is expressed as to whether the taxpayer qualifies as a fsc or small_fsc under u s law pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely allen goldstein reviewer office of the associate chief_counsel international


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b02 gl-101985-04 third party communication none date of communication not applicable uilc date date to jillena a warner associate area_counsel louisville small_business self-employed cc sb lou from blaise dusenberry special counsel administrative provisions judicial practice cc pa apjp -------------------- subject this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend employee estate employer position years dollar_figurea dollar_figureb ---------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------- --------------------- ---------------------- ------------------ ------------- ------------- gl-101985-04 dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurei dollar_figurej date date issues ----------- --------- ----------- ------------------------ ----------------------- -------------------------------------- -------------------- ------------- ---------------------- ------------------ may the service refund or return funds to the victim of an embezzler when the embezzler used the funds to make estimated_tax payments on the embezzler’ sec_2001 income_tax account if the funds may be returned procedurally how should it be accomplished conclusion sec_1 the service may not return estimated_tax payments made by an embezzler for his individual income_tax_liability to the embezzler’s victim while this question is moot the service may wish to consider starting a non-filer investigation if the embezzler’s estate will not provide information allowing the service to determine the embezzler’s ------- income_tax_liability once the liability is determined the estate could transfer any refund for overpayment of the ------- income_tax_liability to the victim facts employee was the position for employer during an audit of its finances in date employer discovered that employee had been embezzling for approximately years employee used some of the embezzled funds to make estimated_tax payments on his individual income_tax account for ------- employer is seeking to recover from the service dollar_figurea in estimated_tax payments that are posted to employee’s ------- account gl-101985-04 no return has been filed for ------- and the estimated_tax payments have not yet been applied to a tax_assessment employee’s embezzlement scheme worked as follows employer had two accounts titled general fund and capital improvement as employer’s position employee received checks from various sources payable to employer he would deposit these checks into employer’s capital improvement account he would then draft a check from employer’s general fund account payable to capital improvements fund in the same amount as the deposit making it appear that employer was transferring funds from one of its accounts to the other employee however deposited the checks payable to capital improvements fund into a personal account he established entitled capital improvements employee then used his capital improvements account to purchase cashier’s checks which he used to make his estimated_tax payments one dollar_figured payment was made by a check written on employee’s capital improvements account the following estimated_tax payments were posted to employee’s ------- income_tax account amount date dollar_figureb dollar_figurec dollar_figured dollar_figurea no income_tax return has been filed by employee for the year ------- and the amount of his estimated_tax liability is unknown third party information returns show income totaling dollar_figuree as follows dollar_figuref dollar_figureg dollar_figureh and dollar_figurei his income_tax_liability as reported on his return for the year was dollar_figurej employee was prosecuted for the embezzlement and was sentenced to state prison where he died in date the estate has released any interest it has in the dollar_figurea on deposit with the service to employer and has agreed to cooperate with employer to effectuate a return of the dollar_figurea to employer employer has stated that it is entitled to the funds under a constructive trust theory law and analysis refund of overpayment sec_6402 of the internal_revenue_code provides in part that in the case of any overpayment the secretary may credit the amount of such overpayment against any_tax liability of the person who made the overpayment and shall refund the balance to such person this section authorizes the service to credit or refund any overpayment_of_tax only to the person who made the overpayment an overpayment is the amount by which payments made by the taxpayer exceed the correct_tax liability 332_us_524 the service is authorized to make a refund only if an overpayment exists 284_us_281 a person who voluntarily pays the tax of another does not have standing to sue for a refund in the district courts or the court of federal claims under the jurisdiction granted those courts under usc sec_1346 the service and several circuit courts have taken the position that only the taxpayer against whom the tax was assessed may bring a tax_refund suit under that provision see 22_f3d_741 7th cir other circuits however have disagreed see 895_f2d_992 4th cir in pershing an embezzler made estimated_tax payments on behalf of a sham corporation created only for the purpose of laundering embezzled funds pershing argued as follows to establish standing to bring a tax_refund action for the funds usc sec_1346 does not explicitly limit refund actions to the taxpayer citing martin and alternatively if the court were to impose such a requirement pershing should be recognized as the taxpayer under a theory of constructive or involuntary payment f 3d pincite the seventh circuit rejected these arguments following the rule that only persons legally liable for paying federal tax may bring a refund_suit the seventh circuit’s citations included its own precedent in 542_f2d_421 7th cir and the fifth circuit’s in 834_f2d_537 5th cir subsequent to pershing the supreme court recognized an exception to the general_rule for a claimant who paid tax assessed against her spouse to remove a federal_tax_lien from property he had transferred to her see 514_us_527 williams allowed a refund_suit by a plaintiff who paid tax assessed against her spouse to remove a federal_tax_lien from property he had transferred to her the plaintiff needed to remove the lien to sell the property and therefore paid the tax under protest with the proceeds of the sale the supreme court’s decision was influenced by the belief that absent paying the tax the plaintiff had no other meaningful remedy for removing the lien and thus was subject_to tax for purposes of u s c sec_1346 in additional the supreme court suggested that the plaintiff could be considered to meet the definition of a taxpayer for purposes of the internal_revenue_code in williams the supreme court noted that the district_court accepted the argument that usc sec_1346 authorizes actions only by the assessed party relying on precedent set in the fifth snodgrass and seventh busse circuits see u s pincite at note the ninth circuit reversed the district_court in 24_f3d_1143 9th cir aff’d 514_us_527 and the supreme court affirmed the circuit_court in our view williams should be read narrowly limited to the facts presented in that case the present case does not involve a payment made under protest to remove a federal_tax_lien and therefore williams is distinguishable additionally the employer did not make a payment to the service in this case and so would not qualify as a taxpayer even under a broad reading of williams moreover even if a court were to disagree with our reading of williams and decide that pershing has no life after williams such a decision would not give the victim in the subject case standing to obtain a refund unlike pershing where the sham entity that pays the tax has no tax_liability to be assessed and the victim can be deemed to be the person who paid the tax in the subject case where the embezzler directs the funds into his own tax account the money at issue was actually paid_by the person with a tax_liability to be assessed and that person has the standing to obtain a refund of any money overpaid we recognize that these are sympathetic facts because the embezzled funds can be traced to the wrongdoer’s tax account however the service has no authority to put the government in a worse position than other creditors of the wrongdoer who have no knowledge or notice of an embezzlement that is if the wrongdoer paid a third party for services or goods with embezzled funds the victim could not obtain the funds from the third party instead the victim’s cause of action is against the wrongdoer accordingly to the extent that employee would have been entitled to a refund employer may be entitled to obtain that amount from estate we do not recommend paying any such refund to employer as state law controls the disbursement of estate’s assets to employee’s creditors constructive trust a constructive trust is an equitable remedy applied by many jurisdictions including kentucky to provide relief to the injured party for property acquired by another by means of fraud the essence of the doctrine_of constructive trusts is equitable in nature and devised by courts to prevent a party from benefiting to the detriment of another by wrongful conduct a constructive trust may be imposed to restore beneficial_ownership when legal_title has been lost due to illegal deceptive or unconscionable behavior by the titleholder bjorkman v protestant episcopal church in united_states of america of diocese s w 2d ky see also kaplon v chase s w 2d ky ct app a constructive trust is an equitable remedy which provides relief from a fraud or breach of confidence lowe v lowe s w 2d ky constructive trusts never arise except where the holder of the legal_title obtained it through fraud misrepresentation concealments undue gl-101985-04 influence duress or some other wrongful act whereby another is deprived of the title to his property even if a constructive trust would be an appropriate remedy for employer such a_trust does not exist until created by a court a constructive trust is a legal fiction a common-law remedy in equity that may only exist by the grace of judicial action in re omegas group inc 16_f3d_1443 6th cir holding that a creditor’s mere claim of entitlement to constructive trust based on the debtor’s alleged fraudulent prepetition acts was not an equitable interest in debtor’s property such as would exclude it from property of the bankruptcy_estate furthermore even if a constructive trust is properly imposed one must still look to federal tax law to determine the effect of the constructive trust on the funds sought see 221_f3d_896 6th cir holding that a constructive trust that is judicially imposed after the filing of a federal_tax_lien cannot retroactively meet the federal standard of choateness because federal_law makes no provision for the subordination of a tax_lien through the use of the relation_back_doctrine accordingly because no court had created a constructive trust at the time service received the estimated_tax payments the service cannot be divested of the funds under the constructive trust remedy return of deposit in the nature of a cash bond every remittance to the service is not a payment of a tax_liability a taxpayer may designate certain payments as deposits and the taxpayer can simply request a return of a deposit to determine whether a remittance is a payment or a deposit generally courts determine whether based on all of the facts and circumstances associated with the remittance the remitter intended to satisfy what he or she regarded as an existing tax_liability 426_f2d_1270 6th cir with regard to remittances of installments of estimated income_tax however no determination of the remitter’s intent is necessary because such remittances are deemed paid on the deadline determined without regard to extensions for filing that year's return and are tax_payments as a matter of law see 528_us_431 at footnote compare 100_tc_191 nonacq 1998_1_cb_51 and 86_f3d_609 6th cir which concern remittances submitted with a request for an automatic_extension of time to file the tax_court held that that the remittance was not a payment if the taxpayer did not make a good_faith effort to estimate his liability whereas the sixth circuit held the remittance was a tax payment both however agreed that installment payments of estimated_tax would be tax_payments accordingly in the subject case employee see revised action on decision cc-1997-006 date stating the service agrees with gabelman that remittances sent with a form_4868 should not be treated differently than remittances of estimated_tax payments and therefore a remittance sent with a form_4868 is a payment of tax as a matter of law gl-101985-04 made payments of tax and not deposits we note that the fact that the service has not yet assessed any_tax for employee’ sec_2001 tax_year has no bearing on the treatment of a remittance for estimated_tax u s pincite please call if you have any further questions


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 b09 plr-157757-05 date date legend legend decedent date trust trust company spouse date -------------------- ------------------ ------------------------------------------ --------------------------------------- ------------------------ --------------------- this responds to your letter dated date requesting an extension of dear ---------- time under sec_301_9100-3 of the procedure and administration regulations to make a areverse qualified_terminable_interest_property qtip_election under internal_revenue_code sec_2652 the facts and representations submitted are summarized as follows decedent died on date pursuant to the terms of decedent s last will and testament decedent s estate passed to the trustees of trust trust company and spouse were named as co-executors of decedent’s probate_estate trust provides that upon decedent’s death a pecuniary amount equal to the amount of the decedent’s unused exemption from the generation-skipping_transfer gst tax shall be set_aside and held in trust the descendants trust during spouse’s lifetime the trustees of the descendants’ trust are directed to pay all of the trust income to spouse in quarterly or more frequent installments after the death of spouse and until the expiration of the applicable perpetuities period the trustee is to pay to decedent’s descendants so much of the net_income and principal of the descendants’ trust as the trustee deems appropriate decedent’s form_706 federal estate and generation-skipping_transfer_tax return which was timely filed was prepared by trust company a qtip_election was plr-157757-05 made with regard to the descendants’ trust on schedule m of the return and dollar_figure of decedent’s gst_exemption was allocated to the descendants’ trust however the preparer of the form_706 inadvertently failed to make the reverse_qtip_election on schedule r of decedent’s estate_tax_return spouse died on date decedent’s estate now requests an extension of time under sec_301_9100-3 and sec_2652 to make a reverse_qtip_election with respect to the descendants’ trust sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2044 provides that the value of the gross_estate shall include the value of any property to which sec_2044 applies in which the decedent had a qualifying_income_interest_for_life sec_2044 provides in relevant part that sec_2044 applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 sec_2601 imposes a tax on every generation-skipping_transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or by his executor to any property with respect to which such individual is the transferor sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent's_estate under sec_2056 the estate of the plr-157757-05 decedent may elect to treat all of the property in the trust for purposes of chapter as if the election to be treated as qtip had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst tax exemption may be allocated to the qtip_trust sec_26_2652-2 provides that the election must be made with respect to all property held in a qtip_trust sec_26_2652-2 provides that a reverse_qtip_election is made on the return on which the qtip_election is made 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money in this case because a qtip_election was made on decedent’s form_706 the assets of the descendants’ trust are includible in spouse’s gross_estate pursuant to sec_2044 spouse is considered the transferor of such property for gst tax purposes thereby initially precluding the allocation of any of decedent’s gst_exemption to the descendants’ trust however if decedent's_estate is granted an extension of time to make a reverse_qtip_election under sec_2652 with respect to the assets of the descendants’ trust decedent will be treated as the transferor of those assets for gst tax purposes plr-157757-05 based on the facts submitted and representations made in this case we conclude that the standards of sec_301_9100-3 have been satisfied accordingly we grant decedent’s estate an extension of time of days from the date of this letter to make a reverse_qtip_election with respect to the descendants’ trust because the reverse_qtip_election made pursuant to this grant of relief under sec_301_9100-3 will be retroactive to the date the form_706 was filed the allocation of decedent’s gst_exemption to the descendants’ trust on schedule r of decedent’s original form_706 will be deemed valid and the automatic allocation rules of sec_2632 will not apply the reverse_qtip_election should be made on a supplemental form_706 the supplemental form_706 should be filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the return a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures cc copy of letter copy for purposes


cc ebe0 br6 - plr-103647-99 internal_revenue_service index nos number release date attn key state a employer m plan x plan y dear this is in response to a ruling_request dated date as supplemented by correspondence dated date date date and date submitted on your behalf by your authorized representative concerning the federal employment_tax treatment under sec_3121 of the internal_revenue_code code of certain contributions to state a pension plans the following facts and representations have been submitted state a has established various pension plans which are qualified under sec_401 of the code including plan x and plan y employer m an instrumentality of state a is a participating employer in plan x and plan y employer m contributes to plan x for employees who qualify as teachers under the state a statute employer m also contributes to plan y for nonteaching employees state law requires that employees must participate in the plan for which they are eligible to participate unless they opt_out of participation under the state statute allowing such an election as in the case of student employees at universities employer m’s board_of education proposes to pass a resolution offering to employees eligible to participate in either plan x or plan y the opportunity to purchase allowable retirement credits on a pre-tax basis under certain terms and conditions in addition employer m will pickup the contributions to plan x and plan y to purchase additional eligible retirement credits on a pre-tax basis employer m states that in order to plr-103647-99 permit tax_deferral for these additional_amounts any member who wishes to purchase or restore plan x and plan y credit by payroll deduction on a pre-tax basis must enter into a binding irrevocable payroll deduction authorization and such amounts are designated as being picked up by employer m in accordance with the internal_revenue_code requirements the resolution will specify that contributions picked up by employer m although designated as employee contributions will be paid_by employer m in lieu of being paid_by the employees and that the employees will not be given the option of choosing to receive such amounts directly instead of having them paid_by employer m to plan x or plan y the resolution further states that employer m will pick up the contributions of its employees to plan x or plan y by a reduction of salary of such employees by letter dated date the internal_revenue_service ruled in part that the amounts picked up by employer m on behalf of employees who participate in plan x and plan y for purposes of purchasing additional retirement credits will qualify as pick-up contributions under code sec_414 we have been asked to address the following ruling_request no fica tax is required to be withheld on pre-tax pick-up contributions there are employees of employer m who were employed before date and for whom employer m does not withhold taxes from wages for purposes of medicare taxes there are also employees of employer m who were employed after date and for whom employer m does withhold taxes from wages for purposes of medicare taxes taxes under the federal_insurance_contributions_act fica consist of the old-age survivors and disability insurance oasdi taxes imposed under sec_3101 and sec_3111 of the code and the hospital insurance medicare taxes imposed under sec_3101 and sec_3111 fica_taxes are computed as a percentage of wages paid_by the employer and received by the employee with respect to employment in general all payments of remuneration by an employer for services performed by an employee are subject_to fica_taxes unless the payments are specifically excepted from the term wages or the services are specifically excepted from the term employment sec_3121 of the code excepts from employment services performed in the employ of a state or a political_subdivision of a state or any instrumentality that is wholly owned by a state or political_subdivision however for services performed after date sec_3121 generally applies the fica exemption only to individuals who are members of retirement systems of states political subdivisions or instrumentalities plr-103647-99 sec_31_3121_b_7_-2 of the employment_tax regulations explains what constitutes membership in a retirement_system for purposes of sec_3121 of the code an employee participating in a retirement_system of his or her employer must be a qualified_participant in the system in order to be considered a member of the retirement_system generally an employee will be considered a qualified_participant if the employee accrues a benefit or receives an allocation under the retirement_system sufficient to satisfy the minimum retirement benefit requirement of sec_31_3121_b_7_-2 of the regulations revproc_91_40 1991_2_cb_694 further explains what constitutes membership in a retirement_system under sec_3121 the government employment exception of sec_3121 does not apply to service covered by an agreement under sec_218 of the social_security act that permits a governmental entity to elect social_security coverage for groups of its employees sec_218 agreement sec_3121 of the code also provides a limited exception to sec_3121 subjecting certain state and local_government employees to medicare taxes but not oasdi taxes under sec_3121 except in limited circumstances services performed by state and local_government employees hired after date and not subject_to a sec_218 agreement are employment for medicare_tax purposes based on the information submitted and authorities cited above we conclude that contributions to plan x and plan y picked up by employer m on or after the effective date are not wages for social_security_tax purposes other than for purposes of the medicare_tax assuming that the employee is a member of a retirement_system within the meaning of sec_3121 of the code and is not covered by a sec_218 agreement as defined under sec_3121 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-103647-99 no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code sincerely yours harry beker chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosures


internal_revenue_service department of the treasury number info release date index number washington dc person to contact telephone number refer reply to cc psi 6-genin-144952-03 date date in re request to revoke sec_179 election tax_year dear this letter is in response to a letter dated date submitted on taxpayer’s behalf to the commissioner of internal revenue requesting permission to revoke the election made under sec_179 of the internal_revenue_code on taxpayer’ sec_2002 federal_income_tax return for certain property placed_in_service in in order for us to respond to your specific request you must submit a request for a private_letter_ruling the request must comply with all the requirements of section of revproc_2003_1 2003_1_irb_1 a copy of selected selections of revrul_2003_1 has been enclosed for your reference we hope that you find the following general information to be helpful we are enclosing a copy of sec_179 of the code and the regulations under that section you may find sec_179 of particular interest under sec_179 an election made under sec_179 with respect to a taxable_year beginning in and any specification contained in any such election may not be revoked except with the consent of the commissioner such consent to revoke an election under sec_179 however will be granted only in extraordinary circumstances emphasis added see sec_1_179-5 of the income_tax regulations revproc_2003_1 provides the general procedures the internal_revenue_service follows in issuing private letter rulings and the related instructions for the submission of private_letter_ruling requests by taxpayers in addition taxpayers are required by statute to pay user fees for requests for private letter rulings under sec_15 of revproc_2003_1 the user_fee must accompany the request in order to be processed by the service in general the user_fee is dollar_figure for private letter rulings however there is a reduced fee of dollar_figure for a request involving a business-related tax issue from a taxpayer genin-144952-03 with a gross_income of less than dollar_figure million see appendix a of revproc_2003_1 if you should decide to request a private_letter_ruling section of revproc_2003_1 provides information as to where to send the request also as we have noted above section of revproc_2003_1 provides general instructions for requesting a private_letter_ruling this letter has called your attention to certain general principles of tax law it is intended for informational purposes only and does not constitute a ruling see sections dollar_figure and dollar_figure of revproc_2003_1 we hope the materials enclosed will be helpful to you however if you should have any additional questions or comments please contact our office at in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours charles b ramsey charles b ramsey chief branch office of associate chief_counsel passthroughs and special industries enclosures


office_of_chief_counsel internal_revenue_service memorandum number release date cc intl b03 rlchewning postf-115314-16 uilc date date to nancy v knapp associate area_counsel washington d c large business international from barbara a felker chief cc intl office of associate chief_counsel international subject allocation and apportionment of certain legal fees relating to the defense of lawsuits alleging harm from products manufactured and sold before the effective date of sec_199 this chief_counsel_advice responds to your request for assistance dated date regarding the proper method of allocating and apportioning deductions for certain legal fees to domestic_production_gross_receipts dpgr for purposes of determining parent’s qualified_production_activities_income qpai the legal fees in question relate to legal fees incurred by parent subsidiary and other corporations and disregarded entities within parent’s consolidated_group to defend lawsuits filed against them alleging harm from the use of products w and x which were manufactured and sold by subsidiary and a disregarded_entity in years before the effective date of sec_199 qpai is defined in sec_199 sec_1_199-4 and d requires for purposes of computing qpai that certain taxpayers use the rules under sec_1_861-8 and sec_1_861-14 and temp sec_1_861-8t and sec_1_861-14t the sec_861 method to allocate and apportion deductions to gross_income attributable to dpgr in computing qpai this memorandum does not address the allocation to dpgr under sec_1_199-4 of costs that were capitalized into inventory under sec_263a unless otherwise indicated all section references are to the internal_revenue_code_of_1986 postf-115314-16 this advice may not be used or cited as precedent legend parent subsidiary product w product x year year year year dollar_figureamount a dollar_figureamount b dollar_figureamount c dollar_figureamount d issue ----------------------- ---------------------------------- --------------- --------------------------------------- ------- ------- ------- ------- -------------------------------------- ------------------- ------------------- ------------------- are the legal fees in question allocated and apportioned under the sec_861 method against parent’s gross_income attributable to dpgr for the year sec_1 through in computing parent’s qpai conclusion the sec_861 method requires the determination of the factual relationship of a deduction to a class_of_gross_income and to the statutory and residual groupings of gross_income within that class_of_gross_income in our opinion the submitted facts confirm that the deductions for the legal fees relating to defense of lawsuits filed against parent subsidiary other corporations and disregarded entities within parent’s consolidated_group alleging harm from the use of products w and x manufactured and sold by subsidiary and a disregarded_entity in years before the effective date of sec_199 are definitely related to gross_income from those product sales because those product sales all were made prior to the effective date of sec_199 those sales did not generate dpgr and the legal fees incurred to defend against the lawsuits that are properly allocated to the class_of_gross_income attributable to those sales are under the sec_861 method factually apportioned exclusively to the residual_grouping of income that is not gross_income attributable to dpgr accordingly the deductions for the legal fees in question will not reduce parent's qpai and its sec_199 deduction in the year the legal fees were incurred in reaching our decision we considered but ultimately dismissed as unsupported by the facts in this case other possible bases on which to allocate and apportion the legal fees for example we considered whether the legal fees should be allocated to all of the gross_income of parent's affiliated_group because they are supportive in nature whether the legal fees were incurred in connection with an postf-115314-16 facts parent a holding_company and its u s subsidiaries including subsidiary filed a consolidated federal_income_tax return for all relevant years subsidiary and a disregarded_entity within parent’s consolidated_group manufactured and sold products w and x in years preceding and after the enactment of sec_199 which is effective for tax years beginning after date year sec_1 through are post-2004 taxable years during year sec_1 and substantially_all of subsidiary’s gross_receipts were dpgr from the sale of products w and x however during those years parent’s consolidated group’s gross_receipts comprised both dpgr and non-dpgr parent determined its qpai for year sec_1 through on a consolidated basis under sec_1_199-7 the legal fees in question are litigation legal fees incurred by parent subsidiary and other corporations and disregarded entities within parent’s consolidated_group to defend lawsuits filed against them alleging harm from the use of products w and x manufactured and sold by subsidiary and a disregarded_entity in years before the effective date of sec_199 the amounts of the legal fees at issue are as follows year year year year dollar_figureamount a dollar_figureamount b dollar_figureamount c dollar_figureamount d parent deducted these amounts on its consolidated federal_income_tax return for year sec_1 through none of the legal fees at issue were capitalized under sec_263a and the regulations thereunder parent submitted informal refund claims asserting that under the sec_861 method the deduction for the legal fees in question should not be attributable to dpgr in computing parent’s qpai law and analysis sec_199 was enacted as part of the american_jobs_creation_act_of_2004 publaw_108_357 118_stat_1418 effective for taxable years beginning on or after date under sec_199 a taxpayer is allowed a domestic_production_deduction the sec_199 deduction equal to percent percent in the case of taxable years ongoing business of producing and selling products w and x and therefore are factually related to gross_income attributable to past present and future sales of products w and x in which case a reasonable apportionment between prior sales that did not generate dpgr and prior present and future sales that generated or will generate dpgr would be required and whether the legal fees were incurred to preserve parent’s subsidiary's and other group members’ current_assets enhance the value of its brand and generate future sales and therefore should be apportioned exclusively to gross_income attributable to present and future sales of products w and x that generate dpgr although the facts of this case present a strong factual connection between the legal fees and the gross_income attributable to the specific sales of products w and x which did not generate dpgr on other facts a different basis of allocation and apportionment of the legal fees might be more reasonable and more appropriate postf-115314-16 beginning in and percent in the case of taxable years beginning in or of the lesser_of a the taxpayer’s qpai for the taxable_year or b the taxpayer’s taxable_income determined without regard to sec_199 for the taxable_year or in the case of an individual adjusted_gross_income sec_199 limits the deduction for a taxable_year to percent of the w-2_wages paid_by the taxpayer during the calendar_year that ends in such taxable_year sec_199 limits w-2_wages to amounts that are properly allocable to dpgr qpai is the excess of a taxpayer’s dpgr for the taxable_year over the sum of the taxpayer’s cost_of_goods_sold cgs that is allocable to dpgr and the taxpayer’s other expenses losses and deductions other than the sec_199 deduction that are properly allocable to dpgr deductions sec_199 each member of an expanded_affiliated_group computes its own qpai and the sec_199 deduction of the expanded_affiliated_group is then determined by aggregating the qpai taxable_income or loss and w-2_wages of each member sec_1_199-7 and b however if every member of an expanded_affiliated_group is also a member of the same consolidated_group the consolidated group’s sec_199 deduction is determined using the consolidated group’s qpai sec_1_199-7 as stated parent determined its qpai for year sec_1 through on a consolidated basis under sec_1_199-7 sec_1_199-4 provides special rules for allocating cgs to dpgr as stated none of the legal fees at issue were capitalized under sec_263a and the regulations thereunder for sec_199 purposes cgs is determined under the methods_of_accounting that the taxpayer uses to compute taxable_income pursuant to sec_263a see sec_1_199-4 because the legal fees at issue were not capitalized into cgs the applicable rules for allocation and apportionment of the fees are the rules in sec_1_199-4 and d applicable to deductions those regulations require a taxpayer to use the sec_861 method to allocate and apportion deductions to gross_income attributable to dpgr for purposes of determining qpai unless the taxpayer qualifies for and elects to use one of the two simplified methods available to small taxpayers for allocating and apportioning deductions parent here does not qualify to use the simplified methods under the sec_861 method a deduction is allocated to a class_of_gross_income and then if necessary apportioned between the statutory and residual groupings of gross_income within that class sec_1_861-8 and temp sec_1_861-8t the allocation and apportionment of the deduction is based on the factual relationship of the deduction to a class_of_gross_income and to the statutory and residual groupings of income in that class sec_1_861-8 the statutory_grouping of gross_income means the gross_income from a specific source or activity which must first be for purposes of this request for advice we have been asked to assume that none of the legal fees are properly capitalizable under sec_263a and the regulations thereunder accordingly we express no opinion on this matter postf-115314-16 determined in order to arrive at taxable_income from such specific source or activity under an operative_section gross_income from other sources or activities is referred to as the residual_grouping of gross_income sec_1_861-8 and f in this case the relevant statutory_grouping of gross_income is gross_income attributable to dpgr sec_1_861-8 provides that the classes of gross_income are not predetermined but must be determined on the basis of the deductions to be allocated and that some deductions may be factually related to all of the taxpayer’s gross_income rather than to a particular class_of_gross_income if applicable the allocation and apportionment of certain expenses must be made on an affiliated_group basis sec_1_861-14 and temp sec_1_861-14t among the expenses the allocation and apportionment of which must be made on an affiliated_group basis are expenses related to certain supportive expenses including advertising marketing and other sales expenses where if were all members of the affiliated_group treated as a single corporation the expense would not be considered definitely related to the class_of_gross_income derived solely by the member incurring the expense temp sec_1_861-14t and sec_1_861-8 provides that a deduction is considered definitely related to a class_of_gross_income and therefore allocable to such class if it is incurred as a result of or incident to an activity or in connection with property from which such class_of_gross_income is derived the regulation also provides that if a deduction is definitely related to a class_of_gross_income the deduction will be allocated to that class even if the amount of the deduction exceeds the gross_income in that class for the taxable_year including if there is no gross_income in that class in the taxable_year as with the allocation of a deduction to a class_of_gross_income the apportionment of a deduction to a statutory_grouping of gross_income must be made in a manner that reflects the factual relationship between the deduction and the statutory_grouping of gross_income temp sec_1_861-8t that regulation provides that a taxpayer may apportion the deduction using various bases and factors such as the following provided the basis or factor chosen by the taxpayer reasonably reflects the factual relationship between the deduction and the statutory_grouping of gross_income comparison of units sold comparison of the amount of gross_sales or receipts comparison of the cost_of_goods_sold comparison of profit contribution comparison of expenses_incurred assets used salaries paid space utilized and time spent related to the activities or properties giving rise to the class_of_gross_income and comparison of gross_income amounts a taxpayer must furnish if requested information supporting the factual relationship for purposes of both allocation and apportionment of the deduction to the class_of_gross_income and to the statutory_grouping of gross_income sec_1_861-8 as stated parent must use the sec_861 method to allocate and apportion its deductions for purposes of calculating its qpai for year sec_1 through on a consolidated postf-115314-16 basis under sec_1_199-7 under the sec_861 method parent must determine the factual relationship between the deduction for the legal fees at issue and its gross_income as provided in sec_1_861-8 a deduction incurred as a result of or incident to an activity or in connection with property that generates has generated or may reasonably be expected to generate gross_income shall be considered definitely related to that gross_income as a class whether or not any item_of_gross_income in that class is accrued during the taxable_year therefore the fact that a deduction accrues in a year in which all of a taxpayer’s gross_income in the relevant class is gross_income in the statutory_grouping does not compel the conclusion that the deduction is factually related to gross_income in that statutory_grouping if in fact the deduction is factually related to gross_income in the class generated in a prior year that was in the residual_grouping in this case the legal fees at issue are factually related to the class_of_gross_income attributable to manufacture and sales of products w and x made prior to the effective date of sec_199 in our opinion those fees were incurred as a result of or incident to and so are properly allocated to the class_of_gross_income from the specific sales all of which occurred in years prior to the effective date of sec_199 of products w and x that gave rise to the lawsuits in this case there is a strong factual relationship between the deductible legal fees at issue and the class_of_gross_income attributable to the specific sales to the plaintiffs in the lawsuits of products w and x because gross_receipts from those sales did not generate gross_income attributable to dpgr in the years the gross_income was realized no portion of the deductions for the legal fees at issue should be apportioned under the sec_861 method to the statutory_grouping of sec_199 gross_income in year sec_1 through accordingly the legal fees at issue should not be taken into account in determining parent’s qpai in year sec_1 through please call if you have any questions


internal_revenue_service number info release date index number ---------------- ------------------------- ----------------------------- in re department of the treasury washington dc person to contact -------------- id no ----------- telephone number --------------------- refer reply to cc psi b07 - genin-104027-04 date date dear ------------------- this letter responds to your letter dated date in which you requested information about the disabled_access_credit under sec_44 of the internal_revenue_code code and the architectural and transportation barrier removal deduction under sec_190 of the code the following general information is provided to you pursuant to section dollar_figure of revproc_2004_4 2004_1_irb_1 this information is advisory only and has no binding effect on the internal_revenue_service disabled_access_credit in congress passed the americans with disabilities act ada u s c the ada is a remedial statute designed to eliminate discrimination against the disabled at places of public accommodation such as restaurants hotels and offices of accountants or lawyers the ada provides that a n o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods services facilities privileges advantages or accommodations of any place of public accommodation by a person who owns leases or leases to or operates a place of public accommodation discrimination by the owner of a place of public accommodation includes aa failure to remove architectural barriers and communication barriers that are structural in nature in existing facilities and transportation barriers in existing vehicles where such removal is readily achievable u s c ' in passing the ada congress was concerned that the ada s requirements would impose a severe financial burden on small businesses the disabled_access_credit under sec_44 was enacted to help ease the cost to certain small businesses of complying with the ada sec_44 of the code provides that an eligible_small_business may claim a credit equal to percent of the eligible_access_expenditures for the taxable_year that exceed dollar_figure but do not exceed dollar_figure therefore the maximum credit allowed to an eligible_small_business for a taxable_year is dollar_figure sec_44 defines aeligible small_business as any person if either a the gross_receipts of such person for the preceding_taxable_year did not exceed dollar_figure or b such person employed not more than full-time employees during the preceding_taxable_year sec_44 generally defines aeligible access expenditures as amounts paid_or_incurred by an eligible_small_business for the purpose of enabling such eligible_small_business to comply with the applicable_requirements under the ada we have enclosed a copy of sec_44 for your information architectural and transportation barrier removal deduction sec_190 provides that a taxpayer may elect to treat qualified architectural and transportation barrier removal expenses that are paid_or_incurred during the taxable_year as expenses which are not chargeable to capital_account the expenditures so treated shall be allowed as a deduction the maximum deduction allowed to a taxpayer for any taxable_year is dollar_figure sec_190 sec_190 defines the term aarchitectural and transportation barrier removal expenses as an expenditure for the purpose of making any facility or public_transportation_vehicle owned or leased by the taxpayer for use in connection with his trade_or_business more accessible to and usable by handicapped and elderly individuals sec_1_190-2 of the income_tax regulations provides a detailed definition of aqualified architectural_and_transportation_barrier_removal_expense no deduction under sec_190 is allowed for the amount of the disabled_access_credit determined under sec_44 sec_44 we have enclosed a copy of sec_190 and its underlying regulations for your information we hope that this information is helpful to you if you have any additional questions you may contact me ------------------------ sincerely s leslie h finlow chief branch associate chief_counsel passthroughs and special industries


tcmemo_2010_85 united_states tax_court charles m akers jr petitioner v commissioner of internal revenue respondent docket no date r determined a deficiency in p’s federal_income_tax after p’s concessions the issues for decision are whether p is entitled to deduct schedule e expenses relating to real_property in california and whether the real_property in california was a residence of p during for purposes of sec_280a i r c held p is not entitled to deduct schedule e expenses relating to the real_property in california held the real_property in california was a residence of p during for purposes of sec_280a i r c p is liable for the income_tax deficiency charles m akers jr pro_se jeffery d rice for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of an alleged income_tax deficiency that respondent determined for petitioner’s tax_year after concessions by petitioner the issues for decision are whether petitioner is entitled to a deduction for expenses claimed on schedule e supplemental income and loss for relating to petitioner’s real_property in california if petitioner is not entitled to deduct schedule e expenses for the tax_year whether the real_property in california is a residence of petitioner for for purposes of sec_280a findings_of_fact some of the facts have been stipulated and the stipulated facts and accompanying exhibits are hereby incorporated by 1petitioner conceded that he received dollar_figure of unreported income in this amount included income from compensation and the sale of stocks and bonds there was also an unreported withholding_tax credit of dollar_figure which respondent conceded 2unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the tax_year at issue the rule reference is to the tax_court rules_of_practice and procedure reference into our findings at the time he filed his petition petitioner resided in california during the tax_year petitioner was the sole owner of a three-bedroom home in california the cabin on his federal_income_tax return petitioner claimed dollar_figure of schedule e expenses relating to the rental of the cabin all of these claimed expenses were disallowed by respondent petitioner contracted with alpine resort rentals alpine a property management company to rent the cabin for the tax_year per the rental agreement alpine had an exclusive right to rent the cabin during for its services petitioner paid alpine a percent commission of all rental income received among other things alpine was responsible for arranging housekeeping and linens for rental customers petitioner was responsible for maintaining the property in a safe and aesthetic condition paying all utilities having the property deep cleaned twice a year and providing linens the cabin was rented times during the tax_year for a total rental period of days and nights the parties have agreed that the average rental period of customer use for the cabin for tax_year wa sec_3 days petitioner visited the cabin eight times during for a total of approximately days and nights each time petitioner visited the cabin during he was accompanied by family members on date respondent issued a notice_of_deficiency disallowing the previously noted dollar_figure of petitioner’s claimed schedule e expenses petitioner filed a timely petition with this court a trial was held on date in los angeles california i burden_of_proof opinion the commissioner’s determination of a taxpayer’s liability is generally presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 3it is appropriate at this juncture to dispose_of a procedural matter pending before this court in the stipulation of facts and the supplemental stipulation of facts respondent objected to the admissibility of petitioner’s exhibits 9-p through 22-p on grounds of relevancy and materiality we took respondent’s objections under advisement upon due consideration we find that exhibits 9-p through 11-p and 14-p through 22-p have a tendency to make the existence of facts that are of consequence to the determination of this case more or less likely than without them see fed r evid and therefore respondent’s objections to the admissibility of petitioner’s exhibits 9-p through 11-p and 14-p through 22-p are overruled and these exhibits are received into evidence with regard to exhibit 12-p a copy of the letter petitioner wrote to his congressman regarding his case and exhibit 13-p a copy of the letter petitioner received from the director of constituent services for representative edward r royce in response to petitioner’s letter we find that these exhibits are not relevant to the case at hand and not admissible into evidence therefore respondent’s objections to the admissibility of petitioner’s exhibits 12-p and 13-p are sustained and these exhibits are not received into evidence 290_us_111 however pursuant to sec_7491 the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may be shifted to the commissioner where the taxpayer introduces credible_evidence with respect to such issue petitioner has not established that he meets the requirements under sec_7491 and for such a shift consequently the burden_of_proof remains on him moreover deductions are a matter of legislative grace and petitioner bears the burden of proving that he is entitled to any of the deductions claimed see 503_us_79 ii sec_469 schedule e expenses relating to rental of cabin sec_469 and d generally prohibits a taxpayer from claiming deductions attributable to passive activities in an amount which exceeds the income generated by that taxpayer’s passive activities madler v commissioner tcmemo_1998_ scheiner v commissioner tcmemo_1996_554 mordkin v commissioner tcmemo_1996_187 sec_469 and provides that the term passive_activity includes any activity which involves the conduct_of_a_trade_or_business and in which the taxpayer does not materially participate and except for taxpayers engaged in the real_property business any rental_activity without regard to whether or not the taxpayer materially participates in the activity for purposes of sec_469 the term rental_activity is defined in sec_469 as any activity where payments are principally for_the_use_of tangible_property see also sec_1_469-1t temporary income_tax regs fed reg date an activity involving the use of tangible_property however is not considered a rental_activity for a taxable_year if for such taxable_year the average period of customer use for such property is days or less sec_1_469-1t and ii a temporary income_tax regs supra therefore owners of rental real_estate are not considered to be engaged in a rental_activity if the average period of customer use is days or less madler v commissioner supra sec_469 and allows the taxpayer to offset from nonpassive_income up to dollar_figure of certain passive_activity_losses as long as the activity is considered a rental_activity the parties have stipulated that the average period of customer use for the cabin during wa sec_3 days consequently petitioner’s rental_activity of the cabin during the tax_year is not a rental_activity as defined in sec_469 and the regulations thereunder and thus he is not allowed the the deduction is phased out for income levels above dollar_figure sec_469 dollar_figure offset for losses against nonpassive_income see sec_1_469-1t and ii a temporary income_tax regs supra additionally since the rental of the cabin does not fall within the definition of rental_activity under sec_469 passive_activity_losses and credits limited it is not a per se passive_activity under sec_469 therefore if petitioner can show that he materially participated in the rental of the cabin the activity would not be considered passive and he could claim his losses against nonpassive_income sec_469 material_participation is defined as involvement in the operations of an activity on a regular continuous and substantial basis sec_469 a taxpayer can establish material_participation by satisfying any one of the seven tests provided in the regulations sec_1_469-5t temporary income_tax regs fed reg date see also mordkin v commissioner supra we consider that for purposes of the case before us the pertinent tests as stated in sec_1_469-5t and temporary income_tax regs supra are as follows the individual’s participation in the activity for the taxable_year constitutes substantially_all of the participation in such activity of all individuals including individuals who are not owners of interests in the activity for such year or the individual participates in the activity for more than hours during the taxable_year and such individual’s participation in the activity for the taxable_year is not less than the participation in the activity of any other individual including individuals who are not owners of interests in the activity for such year to satisfy one of these tests petitioner must establish that either no other individual’s participation exceeded petitioner’s participation during or that petitioner participated in the activity for more than hours in with regard to the second requirement petitioner has set forth little evidence to establish that he was involved in the rental of the cabin for more than hours in the tax_year he has alleged that he took eight maintenance trips to the cabin during but in no way has he quantified for the court the amount of his active_participation time in order to establish that he did spend more than hours engaged in the rental of the cabin the court would expect petitioner to provide evidence corroborating his claim that his trips to the cabin were indeed for the purpose of maintenance eg in the form of time logs oral testimony and or receipts nor has petitioner established that no other individual’s participation exceeded his participation in the activity or that his participation constituted substantially_all the participation in the activity alpine was responsible for advertising showing and renting the property and after each tenant a cleaning service cleaned the property further petitioner has conceded that his daughter assisted in the management and maintenance of the cabin and that he contracted with professionals to provide repair services during while we do not know how much time these services took they involve a substantial amount of time it is petitioner’s burden to show that he satisfies the requirements of sec_1_469-5t temporary income_tax regs supra and he has failed to meet that burden on the basis of the foregoing we find that petitioner did not materially participate in this activity accordingly petitioner is not allowed to deduct schedule e expenses relating to the cabin on his tax_return iii sec_280a personal_use of a residence sec_280a limits otherwise allowable deductions by individuals with respect to a dwelling_unit that is used by the taxpayer during the year as a residence a taxpayer uses a dwelling_unit as a residence if his or her personal_use exceeds the greater of days or percent of the days it is rented at fair rental value during the year sec_280a if found to be a residence sec_280a limits the deduction of expenses related to the property to the excess of gross_income_from_the_property over deductions allocable to the rental use that are deductible regardless of the rental use such as interest and taxes see sec_280a however if a dwelling_unit is used during the taxable_year by the taxpayer as a residence and such dwelling_unit is rented for less than days during the taxable_year then no deduction allocable to the rental use of such dwelling_unit is allowed and the income derived from such use for the taxable_year is not included in the gross_income of the taxpayer under sec_61 sec_280a contrary to petitioner’s contention in his brief a taxpayer is deemed to have used a dwelling_unit for personal purposes for a day if for any part of such day the unit is used for personal purposes by the taxpayer or by any member of the taxpayer’s family sec_280a however a dwelling_unit is generally not used by a taxpayer for personal purposes on any day it is principally used to perform repair or maintenance work on the unit id petitioner has conceded that he made eight trips to the cabin in for a minimum stay of days and that members of his family accompanied him on each trip he alleges that these trips were not for personal_use but with regard to the upkeep and maintenance of the cabin specifically petitioner claims in his brief that the only purpose for the owner to travel to the cabin is for maintenance inspection and oversight purchasing supplies such as plumbing antifreeze smoke alarm batteries light bulbs management and scheduling specialized work or repair petitioner has presented no evidence to substantiate his contention he has not provided to the court any receipts work reports time logs or testimony to support his claim that the motive of his trips and his activity at the cabin was in fact for upkeep although cautioned at trial that his opening statement was not evidence that the court could rely on to make findings_of_fact petitioner chose not to testify at the trial relying entirely on the stipulation of facts and the stipulated exhibits to provide all of the evidence in his case hence petitioner has failed to meet his burden of proving that personal_use of the cabin did not exceed the greater of days consequently the cabin is considered a residence for purposes of sec_280a the parties have stipulated that the cabin was rented for less than days during therefore no income from the rental of the cabin is included in petitioner’s tax_return and he is not allowed to deduct any expenses related to the rental of the cabin petitioner is still allowed to deduct the mortgage interest and taxes attributable to the cabin on schedule a itemized_deductions of his tax_return subject_to the limitations provided in sec_68 see sec_280a the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered for respondent