internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br 1-plr-102418-00 date date dear this is in response to a letter from your authorized representative dated date requesting a ruling on your behalf under sec_877 of the internal_revenue_code_of_1986 the code that your loss of permanent resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below 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 a was born in country b on date c both her parents as well as her husband were also born in country b a’s husband was employed by a multinational firm in year d her husband was temporarily assigned to work in the united_states and she relocated here with him the couple have no children a’s husband’s employer arranged for a and her husband to receive a green card on date e after a year and one half her husband was reassigned to work in country b a and her husband maintained their green cards for the employer’s convenience until date f at which time it was no longer necessary to retain green card status as her husband retired on date g sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the plr-102418-00 taxable_year will be taxed on u s source income as modified by sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceeds a certain threshold see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds one of these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that person is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former long-term_resident will not be presumed to have a principal purpose of tax_avoidance if that former long- term resident is described within certain categories and submits a complete and good_faith request for a ruling within one year of the date of loss of long term residency status for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because she is described in three categories of individuals eligible to submit ruling requests first on the date of a's expatriation a was and continues to be a citizen and resident fully liable to income_tax in country b the country where a was born second a is also eligible to submit a request because her parents were born in country b finally a is eligible to submit a request because her spouse was born in country b a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 as having as one of his principal purposes for expatriating the avoidance of u s taxes we further conclude that a will not be treated under sec_877 as having as one of her principal purposes for expatriating the avoidance of u s taxes because the information submitted clearly established the lack of a principal purpose to avoid taxes under subtitle a or b of the code plr-102418-00 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 in addition no opinion is expressed as to a’s united_states tax_liability for taxable periods prior to expatriation or a’s u s tax_liability for periods after expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ______________________________ reviewer office of the associate chief_counsel international


t c memo united_states tax_court verna doyel petitioner v commissioner of internal revenue respondent docket no filed date terri a merriam wendy s pearson and jennifer a gellner for petitioner margaret a martin for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined that petitioner did not qualify for relief from joint_and_several_liability pursuant to sec_6015 c or f the issue for decision i sec_1 unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax continued whether petitioner is entitled to relief from joint_and_several_liability pursuant to sec_6015 or f for and findings_of_fact some of the facts have been stipulated and are so found the first stipulation of facts second stipulation of facts third stipulation of facts and the attached exhibits are incorporated herein by this reference at the time she filed the petition petitioner resided in buchanan michigan petitioner petitioner is a high school graduate and a mother of four after high school she worked full time doing office work around petitioner married her first husband she worked full time during this marriage petitioner’s marriage to her first husband lasted years after their divorce petitioner worked in order to support her children continued court rules_of_practice and procedure in her petition petitioner sought relief pursuant to sec_6015 and f accordingly sec_6015 is not in issue on brief petitioner argues that she is entitled to sec_6015 relief for in her petition petitioner did not raise her tax_year in her request for sec_6015 relief petitioner did not raise her tax_year and in the notice_of_determination respondent did not make a determination regarding petitioner’s tax_year accordingly petitioner’s tax_year is not before the court petitioner and her second husband christopher petitioner met christopher doyel christopher in and married him in as of the date of trial petitioner and christopher were married and living together after she married christopher petitioner sold avon products tupperware and liquid embroidery she also babysat petitioner’s relationship with christopher christopher never misled petitioner regarding their finances or anything else christopher never hid any information from petitioner anything petitioner wanted to see or know including anything about their finances he shared with her petitioner was welcome to read all financial materials and other mail he received christopher never abused petitioner he never threatened petitioner or forced her to sign anything against her will each december or early january christopher drafted a budget for the household bills after finishing his draft christopher discussed the proposed budget with petitioner to make sure there was enough money for projected expenses if the budget did not balance petitioner and christopher decided what expenses to eliminate so they achieved a balanced budget since date christopher has been working in charlotte north carolina investments christopher researched the investments petitioner and christopher made christopher then talked with petitioner about what he learned and petitioner and christopher reached an agreement on whether or not to invest in that particular investment petitioner and christopher had an agreement to reach a consensus about investment decisions neither did anything without talking it over with the other hoyt partnerships walter j hoyt iii and some members of his family were in the business of creating tax_shelter limited_partnerships for their cattle breeding operations hoyt partnerships or hoyt investments as part of their services the hoyt organization also prepared the investor’s tax returns for a description of the hoyt organization and its operation see bales v commissioner tcmemo_1989_568 see also river city ranches ltd v commissioner tcmemo_2003_150 mekulsia v commissioner tcmemo_2003_138 river city ranches j v v commissioner tcmemo_1999_209 affd 23_fedappx_744 9th cir investment in sge christopher first heard about the hoyt partnerships in from a coworker in christopher and petitioner’s financial situation changed and christopher thought of the hoyt investment christopher received promotional materials from the hoyt organization about the hoyt partnerships he read these materials often several times and kept them in his files one of the promotional materials included the following language under the heading specific risks involved a change in the tax law or an audit and disallowance by the i illegible could take away all or part of the tax benefits plus the possi illegible of having to pay back the tax savings with penalties and in illegible it further stated even though the term head torn off is crude it is a concept that is very applicable to the comparison of a disallowance of a tax deduction by the internal_revenue_service the prospect of having to pay the taxes back when you have put the tax money into a tax_shelter and its sic gone the brochure went on to state that there was no assurance that things would be o k in discussing the preparation of investor tax returns the promotional materials warned there is a risk and stated that after many years of experience with tax_shelters the hoyt partnerships have learned how to deal with i r s audits of the partnership returns and the partners personal returns being ‘attacked’ by the i r s the promotional materials also advised prospective investors to seek independent advice and counsel concerning this investment the promotional materials further stated if a partner needs more or less partnership loss any year it is arranged quickly within the office without the partner having to pay a higher fee while an outside preparer spends more time to make the arrangements the promotional materials clearly contemplated the tax_shelter being audited by respondent--stating at one point we know we will be subject_to constant audits by the i r s after christopher reviewed the promotional materials christopher and petitioner talked about the hoyt investment petitioner did not fully understand how the hoyt partnerships worked because she did not carefully read the promotional materials christopher however was always willing to discuss the hoyt investment with petitioner and petitioner knew that there were risks associated with the hoyt investment in petitioner and christopher invested in shorthorn genetic engineering sge a hoyt partnership christopher signed the subscription agreements when they first invested in the hoyt partnership under the heading of ownership the line next to joint_tenants with the right_of_survivorship was checked in petitioner also signed subscription agreements affirming and accepting the agreements christopher had signed earlier included with the subscription agreements were powers of attorney partnership agreements and a debt assumption_agreement petitioner was not forced by christopher to invest in the hoyt partnerships petitioner agreed to participate in the hoyt investments upon christopher’s encouragement after becoming investors in a hoyt partnership petitioner and christopher attended several meetings with other hoyt partners petitioner made calls to the hoyt organization in petitioner and christopher paid no cash to sge in petitioner and christopher paid dollar_figure in cash to sge by petitioner and christopher had paid at least dollar_figure in cash to sge from through numerous checks drawn on petitioner and her husband’s joint checking account were made payable to a hoyt partnership these checks totaled almost dollar_figure additional checks totaling over dollar_figure made payable to a hoyt partnership were drawn on an account owned by christopher and the verna irene doyel trust tax returns petitioner and christopher filed joint federal_income_tax returns for and petitioner signed each of these returns on their joint income_tax return for petitioner and christopher reported dollar_figure in wages attached to this return was a form_w-2 wage and tax statement for christopher from florida power corp reporting dollar_figure in wages in arriving at total income and adjusted_gross_income the only subtractions were a dollar_figure schedule c profit or loss from business or profession business loss and a dollar_figure schedule e supplemental income schedule loss the total_tax listed was dollar_figure the federal_income_tax withheld listed was dollar_figure christopher prepared the return on their joint income_tax return for petitioner and christopher reported dollar_figure in wages attached to this return was a form_w-2 for christopher from florida power corp reporting dollar_figure in wages in arriving at total income and adjusted_gross_income the only additions and subtractions were dollar_figure in interest_income an dollar_figure schedule c business loss and a dollar_figure schedule e loss the total_tax listed was dollar_figure the federal_income_tax withheld listed was dollar_figure christopher prepared the return on their joint income_tax return for petitioner and christopher reported dollar_figure in wages attached to this return was a form_w-2 for christopher from florida power corp reporting dollar_figure in wages and a form_w-2 for petitioner from mad health spa of st pete inc reporting dollar_figure in wages in arriving at total income the only additions and subtractions were dollar_figure in interest_income and a dollar_figure schedule e loss this schedule e loss was entirely attributable to petitioner and christopher’s investment in sge petitioner and christopher also subtracted dollar_figure in adjustments to income to arrive at adjusted_gross_income the total_tax listed was zero the federal_income_tax withheld listed was dollar_figure the tax office of w j hoyt sons management co was listed as the return preparer on the return on their joint income_tax return for petitioner and christopher reported dollar_figure in wages in arriving at total income the only additions and subtractions were dollar_figure in interest_income dollar_figure in dividends an dollar_figure capital_gain and a dollar_figure schedule e loss this schedule e loss dollar_figure was mostly attributable to petitioner and christopher’s investment in sge petitioner and christopher also subtracted dollar_figure in employee business_expenses to arrive at adjusted_gross_income the total_tax listed was zero the federal_income_tax withheld listed was dollar_figure the tax office of w j hoyt sons management co was listed as the return preparer on the return on their joint income_tax return for petitioner and christopher reported dollar_figure in wages in arriving at total income the only additions and subtractions were dollar_figure in interest_income dollar_figure in dividends a dollar_figure capital_gain and a dollar_figure schedule e loss this schedule e loss dollar_figure was mostly attributable to petitioner and christopher’s investment in sge petitioner and christopher also subtracted dollar_figure in employee business_expenses and a dollar_figure ira deduction to arrive at adjusted_gross_income the total_tax listed was dollar_figure the federal_income_tax withheld listed was dollar_figure the tax office of w j hoyt sons management co was listed as the return preparer on the return the schedules k-1 partner’s share of income credits deductions etc issued by sge to petitioner and christopher for and list the following under the area for partner’s name christopher verna doyel in reviewing the return the dollar_figure loss surprised petitioner because it was so large but she did not ask any questions about this deduction petitioner and christopher merely assumed that the losses would be large enough so that all withheld income taxes would be refunded to them in petitioner and christopher applied for a refund of their and taxes in the amounts of dollar_figure dollar_figure and dollar_figure respectively on date respondent mailed petitioner and her husband two letters and reports explaining computational adjustments made to their and returns as a result of adjustments made to the partnership returns of sge for and these computational adjustments resulted from the court’s opinion in shorthorn genetic engg ltd v commissioner tcmemo_1996_515 sec_6015 claims--general currently all sec_6015 cases are centralized in respondent’s cincinnati service_center the centralized unit called the innocent spouse unit was set up in when the innocent spouse unit was set up the unit anticipated about cases per year however in its first year the innocent spouse unit received approximately big_number cases when an innocent spouse unit employee is assigned a case the employee requests documents reviews the file and then makes a determination in all requests for relief pursuant to sec_6015 made by hoyt investors respondent’s employees request available internal documents regarding the hoyt cases respondent works on sec_6015 cases including those involving hoyt investors on a case-by-case basis request for relief from joint_and_several_liability on date petitioner mailed respondent a form_8857 request for innocent spouse relief and separation of liability and equitable relief betty sneed a financial assistant in the innocent spouse unit was assigned to review petitioner’s request for sec_6015 relief ms sneed reviewed petitioner’s entire file in processing petitioner’s claim ms sneed requested hoyt partnership related information regarding petitioner and christopher from revenue_agent deborah ritchie ms richie provided ms sneed with a computer printout for hoyt partnership taxable years related to petitioner and christopher copies of agreements and powers of attorney signed by petitioner and or christopher copies of schedules k-1 issued to petitioner and christopher from the hoyt partnerships and copies of checks made payable to hoyt partnerships drawn on petitioner’s and her husband’s joint checking account and on an account owned by christopher and the verna irene doyel trust on date petitioner sent a declaration of christopher b doyel to the cincinnati service_center christopher’s declaration in christopher’s declaration he stated i decided to investigate the investment opportunity with the hoyt partnerships initially my spouse did not attend any meetings but did read some promotional literature on the hoyt partnership investments after we were involved my spouse did attend approximately three meetings christopher also stated that petitioner signed the subscription agreements and that petitioner never asked any questions about the hoyt ms ritchie worked on the hoyt audit team and the hoyt tax_shelter project the hoyt tax_shelter project examined hoyt partnerships ms ritchie assisted district_counsel in preparing hoyt partnership cases for trial partnership investment until they declared bankruptcy sometime after the years in issue on date respondent mailed christopher a letter notifying him of petitioner’s request for relief from joint_and_several_liability on date respondent mailed petitioner a preliminary determination with respect to petitioner’s request for relief from joint_and_several_liability for through respondent determined that petitioner was not entitled to relief pursuant to sec_6015 c or f on date respondent mailed petitioner a notice_of_determination that determined petitioner was not entitled to relief from liability pursuant to sec_6015 c or f for through notice_of_determination on form 886-a explanation of items attached to the notice_of_determination regarding sec_6015 respondent explained we have concluded that you had actual knowledge or reason to know of the item giving rise to the understatement the following factors were considered in reaching this conclusion you signed one or more partnership subscription agreements powers of attorney with respect to the hoyt partnerships you signed personal checks made payable to w j hoyt sons or other hoyt entity you signed other correspondence documents relating to the hoyt partnerships the size of the loss deduction in relation to the income reported on the return would reasonably put you on notice that further inquiry would need to be made you have not shown that you satisfied your duty_of inquiry at the time the return was prepared and signed to make sure the return was correct your investment in the hoyt partnerships was a joint investment with your spouse giving you actual knowledge of the item giving rise to the deficiency you cannot claim relief under sec_6015 with respect to your own erroneous items and you have not shown that the erroneous items are attributable to your spouse you have not shown that it would be inequitable taking into account all of the facts and circumstances to hold you liable for the deficiency attributable to the understatement respondent also explained why petitioner did not qualify for relief under sec_6015 regarding sec_6015 respondent wrote you have not shown that it would be inequitable taking into account all of the facts and circumstances to hold you liable for the deficiency attributable to the understatement on or about date ms sneed forwarded petitioner’s case to respondent’s appeals_office appeals officer gloria flandez was assigned to review petitioner’s case in date ms flandez completed her review ms flandez concluded that petitioner was not entitled to relief from liability pursuant to sec_6015 c or f for through i evidentiary issue opinion as a preliminary matter we must decide whether a document petitioner submitted during the trial of this case should be admitted into evidence at trial petitioner sought to introduce a fraud_referral memorandum for walter j hoyt iii exhibit 120-p respondent objected to the admission of exhibit 120-p on the grounds of authentication relevance and hearsay we reserved ruling on exhibit 120-p’s admissibility petitioner failed to make any arguments regarding the admissibility of exhibit 120-p in her opening brief in her reply brief petitioner stated petitioner has addressed the relevance and purpose of exhibit 120-p in her opening brief in the context of proposed findings_of_fact petitioner’s requests for findings_of_fact in her opening brief are not argument for the admissibility of exhibit 120-p merely requesting a finding of fact does not automatically make the requested finding relevant on this basis we can conclude that petitioner abandoned this issue 92_tc_661 even were we to conclude that petitioner did not abandon this issue petitioner makes no argument regarding the authenticity of exhibit 120-p or why exhibit 120-p is not excludable as hearsay fed r evid furthermore petitioner’s belated conclusory assertion in her reply brief that exhibit 120-p is relevant is insufficient we find exhibit 120-p to be hearsay lacking authenticity not relevant to the issue of petitioner’s being entitled to sec_6015 relief furthermore even if we did not so find it would be within our discretion to exclude exhibit 120-p as wasteful fed r evid accordingly we do not admit exhibit 120-p into evidence ii sec_6015 relief in general spouses filing joint federal_income_tax returns are jointly and severally liable for all taxes due sec_6013 under certain circumstances however sec_6015 provides relief from this general_rule except as otherwise provided in sec_6015 petitioner bears the burden_of_proof rule a 118_tc_106 affd 353_f3d_1181 10th cir in arguing that petitioner is entitled to relief pursuant to sec_6015 petitioner also relies on the regulations related to sec_6015 sec_1_6015-0 through income_tax regs are applicable for elections or requests for relief filed on or after date sec_1_6015-9 income_tax regs petitioner filed her election prior to this date accordingly the regulations are inapplicable a relief under sec_6015 to qualify for relief from joint_and_several_liability under sec_6015 a taxpayer must establish a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election the requirements of sec_6015 are stated in the conjunctive accordingly a failure to meet any one of them is sufficient for us to find that petitioner does not qualify for relief pursuant to sec_6015 119_tc_306 respondent contends that petitioner failed to meet the requirements of subparagraphs b c and d for the sake of completeness we shall discuss the application of b b c and d see jonson v commissioner supra pincite sec_6015 attributable to one spouse petitioner admits that the hoyt investment caused the erroneous items on the returns petitioner however contends that the hoyt investments are not attributable to her petitioner was a joint investor with christopher in the hoyt investments she signed documents relating to her and christopher’s investment in the hoyt investments see 992_f2d_1256 2d cir affg tcmemo_1992_228 from the inception the documents listed the hoyt investment as a joint investment of petitioner and christopher additionally checks were drawn on their joint account and on a_trust account apparently belonging to petitioner these checks were made payable to hoyt partnerships furthermore it is clear that the hoyt organization treated her as a joint investor with christopher in the hoyt partnerships the schedules k-1 the hoyt organization issued regarding their investment in sge listed petitioner as a joint investor with her husband finally christopher may have taken the initiative and researched the hoyt investment but petitioner agreed to invest in the hoyt partnerships and she did it jointly with christopher all investment decisions in the doyel household were made jointly by petitioner and christopher accordingly we conclude that the understatements are not attributable to the erroneous items of one individual filing the joint returns sec_6015 know or reason to know the requirement in sec_6015 the no-knowledge- of-the-understatement requirement is virtually identical to the same requirement of former sec_6013 therefore cases interpreting former sec_6013 remain instructive to our analysis jonson v commissioner supra pincite 114_tc_276 the relief-seeking spouse knows of an understatement_of_tax if she knows of the transaction that gave rise to the understatement e g 826_f2d_470 6th cir affg 86_tc_228 the relief- seeking spouse has reason to know of an understatement if she has reason to know of the transaction that gave rise to the understatement e g 94_tc_126 affd 992_f2d_1132 11th cir courts consistently apply these standards to omission_of_income cases however some courts of appeals starting with the u s court_of_appeals for the ninth circuit have adopted a more lenient approach to deduction cases 18_f3d_1521 11th cir revg and remanding tcmemo_1991_463 887_f2d_959 9th cir revg an oral opinion of this court in bokum v commissioner supra pincite we declined to apply the price approach to deduction cases however under the rule established in 54_tc_742 affd 445_f2d_985 10th cir we are bound to defer to the decision of a court_of_appeals that is squarely on point and which is the likely venue for appeal jonson v commissioner t c pincite petitioner contends that the u s court_of_appeals for the eleventh circuit which has adopted the price approach is the likely venue for appeal because petitioner currently resides in florida respondent contends that the u s court_of_appeals for the sixth circuit is the likely venue for appeal contrary to petitioner’s assertion it is sec_7482 and not u s c sec_1391 that provides the courts of appeal with jurisdiction to review our decisions sec_5 although petitioner claims to currently reside in florida we note that since date christopher has worked full time in north carolina where he and petitioner own a home and petitioner lives with her husband b provides that the venue for appeal of a case involving a petitioner who is an individual is the legal residence of the petitioner sec_7482 legal residence is determined as of the time the petition was filed sec_7482 third sentence at the time she filed the petition petitioner resided in michigan accordingly in the absence of a stipulation to the contrary the u s court_of_appeals for the sixth circuit is the likely venue for any appeal of this case see sec_7482 we have found no published authority of the u s court_of_appeals for the sixth circuit adopting the price approach the u s court_of_appeals for the sixth circuit has adopted the following standard for reason to know in deduction cases the test adopted by the sanders court is the same test advanced by the restatement second of agency comment d which reads as follows a person has reason to know of a fact if he had information from which a person of ordinary intelligence which such person may have or of the superior intelligence which such person may have would infer that the fact in question exists or that there is such a substantial chance of its existence that in exercising reasonable care with reference to the matter in question his action would be predicated upon the assumption of its possible existence the primary ingredients of the reason to know tests are the circumstances which face the petitioner and whether a reasonable person in the same position would infer that omissions or erroneous deductions had been made 780_f2d_561 6th cir citations omitted affg in part and revg in part tcmemo_1984_310 we believe that petitioner had reason to know of the understatements under the approaches followed by the tax_court and the u s courts of appeals for the sixth and eleventh which has adopted the price approach circuits and any disparity among them is immaterial to our disposition of this case see jonson v commissioner supra pincite result of the price approach in this case in price v commissioner supra pincite the court_of_appeals for the ninth circuit stated a spouse has reason to know of the substantial_understatement if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the substantial_understatement factors to consider in analyzing whether the alleged innocent spouse had reason to know of the substantial_understatement include the spouse’s level of education the spouse’s involvement in the family’s business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income standard of living and spending patterns and the culpable spouse’s evasiveness and deceit concerning the couple’s finances citations omitted the interplay of these factors is dynamic so that different factors will predominate in different cases 59_f3d_374 2d cir affg tcmemo_1993_390 one factor may dominate the analysis and alone be reason for denying relief id pincite under the price approach a spouse’s knowledge of the transaction underlying the deduction is not irrelevant the more a spouse knows about a transaction the more likely it is that she will know or have reason to know that the deduction arising from that transaction may not be valid price v commissioner f 2d pincite n see hayman v commissioner f 2d pincite citing price a education petitioner had a high school education b involvement in financial affairs petitioner argues that she was not involved in the family’s financial affairs being a homemaker being focused on family affairs and lacking sophistication in financial affairs does not relieve a taxpayer of joint_and_several tax_liability shea v commissioner supra pincite additionally complete deference to the other spouse’s judgment concerning the couple’s financial affairs standing alone is insufficient to establish that a spouse had no reason to know kistner v commissioner supra pincite contrary to her assertion petitioner was involved in her family’s financial affairs although she may have not played a dominant role or been the initiator all family investment decisions were made in consultation with petitioner petitioner and her husband had an agreement to reach a consensus about whether or not to make an investment before any investment was made petitioner was shown the documents relating to the hoyt investments signed hoyt investment documents was aware that the hoyt investment was supposed to result in substantial tax savings and attended hoyt investor meetings petitioner was aware of the large deductions taken on her joint tax returns associated with the hoyt investments the hoyt investment materials she was shown and had the opportunity to review apprised her of tax risks associated with the investment these facts establish that petitioner had reason to know see jonson v commissioner supra pincite petitioner argues that her health issues limited her involvement in financial affairs in the mid-1970s petitioner was diagnosed with sarcoidosis--a disease that affects the lymphatic system petitioner developed tumors in her body and has a reduced lung capacity despite her illness the testimonial and documentary_evidence establishes that petitioner participated in the family’s financial affairs c expenditures etc the evidence does not establish that the tax savings generated by the hoyt investments resulted in lavish or unusual expenditures benefiting petitioner compared to prior years’ although petitioner claimed not to attend hoyt meetings her testimony was contradicted by christopher’s testimony and the documentary_evidence spending this factor however is not determinative id pincite the losses helped to reduce petitioner and her husband’s reported tax_liabilities for through to a total of dollar_figure such deductions which shelter such a large percentage of the income reported on the returns support a finding that petitioner had reason to know of the understatement id sec_6015 relief was not designed to protect willful_blindness or to encourage the deliberate cultivation of ignorance 53_f3d_523 2d cir affg in part and revg and remanding in part tcmemo_1993_549 extravagant tax savings may alert even a financially unsophisticated spouse to the possible improprieties of a tax scheme id d other spouse’s evasiveness and deceit where one spouse is cunning and systematic in concealing the understatement of taxes the other spouse may plausibly claim ignorance notwithstanding some educational attainments or some involvement in family financial affairs that are distinct from the understatement of taxes bliss v commissioner supra pincite disclosure by the other spouse however is probative in determining that relief is inappropriate id see also hayman v commissioner supra pincite lack of deceit by other spouse important factor in denying relief petitioner and her husband testified that petitioner was aware of the investment in the hoyt partnerships she had access to all of the files information regarding the hoyt investment and that christopher made no effort to deceive petitioner regarding the family’s financial affairs this further supports a finding that petitioner had reason to know of the understatement jonson v commissioner supra pincite petitioner claims that mr hoyt’s deceit is relevant to the determination of reason to know although mr hoyt’s deceit may be relevant it does not lead to the result petitioner seeks the purpose of sec_6015 relief is to protect one spouse from the overreaching or dishonesty of the other purcell v commissioner f 2d pincite relief is inappropriate where it would allow the requesting spouse to escape liability for apparently legitimate claims that are later disallowed see bartlett v commissioner tcmemo_1997_413 as was the case in 117_tc_279 where we denied relief under sec_6015 in a case involving hoyt investments neither petitioner nor christopher knew the facts that made the flowthrough losses from the hoyt partnerships unallowable as deductions on their joint returns and both petitioner and christopher put their trust in the hoyt organization to determine the basis for propriety of and amount of their deductions e conclusion it is significant that petitioner knew of the hoyt investment the hoyt investment was designed to generate large deductions resulting in substantial tax savings those deductions were taken on joint returns for the years in issue and there was a risk that the deductions might be disallowed by the irs jonson v commissioner t c pincite tax returns setting forth large deductions such as tax_shelter losses offsetting income from other sources and substantially reducing the couple’s tax_liability generally put a taxpayer on notice that there may be an understatement_of_tax liability hayman v commissioner f 2d pincite furthermore the court in price noted that the size of the deduction in issue vis-a-vis the total income reported on the return when considered in light of the fact that the taxpayer knew of the investment and its nature is enough to put the taxpayer on notice that an understatement exists and therefore if the duty_of inquiry is not discharged leads to an imputation of reason to know of the understatement price v commissioner f 2d pincite dollar_figure deduction and just more than dollar_figure in income petitioner did not ask any questions about the hoyt investment deductions even though the loss surprised petitioner because it was so large petitioner never asked any questions about the hoyt partnerships until they declared bankruptcy after the years in issue petitioner did not satisfy her duty to inquire id pincite see also mora v commissioner supra pincite involving a hoyt investment a reasonable person faced with petitioner’s circumstances and in petitioner’s position would have had reason to know of the understatement we conclude that under both the u s court_of_appeals for the sixth circuit’s standard and the price approach petitioner had reason to know of the understatements sec_6015 inequitable to hold liable the requirement in sec_6015 that it be inequitable to hold the requesting spouse liable for an understatement on a joint_return is virtually identical to the same requirement of former sec_6013 therefore cases interpreting former sec_6013 remain instructive to our analysis butler v commissioner t c pincite whether it is inequitable to hold a spouse liable for a deficiency is determined taking into account all the facts and circumstances sec_6015 the most often cited material factors to be considered are whether there has been a significant benefit to the spouse claiming relief and whether the failure to report the correct_tax liability on the joint_return results from concealment overreaching or any other wrongdoing on the part of the other spouse alt v commissioner t c pincite jonson v commissioner t c pincite no such untoward circumstances are present in this case it is clear that there was no concealment on christopher’s part christopher never hid information from petitioner petitioner was welcome to read all the hoyt investment materials christopher was always willing to discuss the hoyt investment with petitioner petitioner never asked any questions about the hoyt partnership investment until she and christopher declared bankruptcy after the years in issue and petitioner did not question the large deductions associated with the hoyt investment additionally the evidence established that christopher never attempted to deceive her with respect to their financial affairs as we noted supra the purpose of sec_6015 relief is to protect one spouse from the overreaching or dishonesty of the other purcell v commissioner f 2d pincite the understatement in tax in this case is attributable to a mistaken belief on the part of both petitioner and christopher as to the legitimacy of the tax_shelter deductions under these circumstances we perceive no inequity in holding both spouses to joint_and_several_liability bokum v commissioner f 2d pincite 57_tc_732 we have also considered other factors that are relevant to whether it would be inequitable to hold petitioner liable we find that petitioner will not experience economic hardship if relief from the liabilities is not granted given her current level of income see alt v commissioner supra pincite von kalinowski v commissioner tcmemo_2001_21 walters v commissioner tcmemo_1998_111 dillon v commissioner tcmemo_1998_5 christopher testified that he and petitioner owe dollar_figure to the irs for their through tax years in her appeals transmittal and case memo ms flandez listed the tax owed for through as dollar_figure according to an irs transcript as of date petitioner and christopher owed dollar_figure in tax and approximately dollar_figure in interest for their through tax years the form 433-a collection information statement for wage earners and self-employed individuals that petitioner and christopher signed on date contained the following statements petitioner and christopher owned their home they had no dependents they could claim on their tax_return they had a bank of america checking account with a balance of dollar_figure we note that the tax_year is not in issue see supra note additionally on brief petitioner makes claims regarding the total liability relating to the hoyt investment for through petitioner’s tax years through also are not before the court even if they were according to petitioner’s own estimate of the total_tax liability petitioner and her husband have substantial assets real_property and investments and credit that could be used to pay the total_tax liability for through without creating economic hardship their investments included vanguard--401 k with a current value of dollar_figure fidelity--401 k with a current value of dollar_figure and a u s savings bond with a current value of dollar_figure they had dollar_figure of cash on hand they had available credit of dollar_figure from discover card and dollar_figure from capital one they had life_insurance with a current cash_value of dollar_figure they owned two cars a toyota previa and a toyota avalon they owned the following real_estate a home in beverly hills florida purchased in date for dollar_figure with a current value of dollar_figure a loan balance of dollar_figure and a monthly payment totaling dollar_figure and a home in charlotte north carolina purchased in date for dollar_figure with a current value of dollar_figure a loan balance of dollar_figure and a monthly payment of dollar_figure and no personal assets ie zero in determining the current value of their investments petitioner and christopher valued them pincite percent of the face value of the investments even though the form 433-a states current value indicate the amount you could sell the asset for today in determining the current value of their real_estate petitioner and christopher valued their homes at percent quick sale value even though the form 433-a states current value indicate the amount you could sell the asset for today under the monthly income and expense analysis on form 433-a petitioner and christopher listed monthly wages of dollar_figure and monthly interest dividends of dollar_figure for total monthly income of dollar_figure under total living_expenses petitioner and christopher listed dollar_figure for food clothing and miscellaneous dollar_figure for housing and utilities dollar_figure for transportation dollar_figure for health care dollar_figure for taxes dollar_figure for child dependent care dollar_figure for life_insurance dollar_figure for other secured debt second house and dollar_figure for other expenses comprising dollar_figure in attorney’s fees and dollar_figure for church contributions this brought their total expenses to dollar_figure per month attached to the form 433-a were the following a uniform residential appraisal report for the beverly hills florida home with an estimate of fair_market_value as of date of dollar_figure a bank of america statement for petitioner and christopher for the period date through date which listed their average balance of dollar_figure a beginning balance on date of dollar_figure and an ending balance of dollar_figure in their checking account and having an equity line of credit for dollar_figure a vanguard account statement listing a closing and vested balance as of date totaling dollar_figure a fidelity account statement listing a closing and vested balance as of date totaling dollar_figure their tax_return which listed a total of dollar_figure in medical_expenses and a self-prepared chart listing dollar_figure in medical_expenses that are not covered by their insurance and dollar_figure under flex plan for petitioner testified that her oldest daughter tina suffers from health problems is totally disabled and that the financial burden for her daughter rests on her and christopher tina has her own home does not live with petitioner and her husband and petitioner and christopher admitted that they cannot claim her as a dependent we also note that on the form 433-a petitioner and christopher stated that they had no dependents they could claim on their tax_return petitioner did not present evidence that demonstrated that petitioner will be unable to pay her reasonable basic living_expenses if relief is not granted sec_301_6343-1 proced admin regs some of the expense figures provided on the form 433-a are unsupported and seem excessive additionally petitioner and her husband have substantial assets real_property and investments and credit that could be used to pay a tax_liability as high as dollar_figure without creating economic hardship we conclude that petitioner will not experience economic hardship if relief from the liabilities is not granted given her current level of income and assets see alt v commissioner t c pincite von kalinowski v commissioner supra walters v commissioner supra dillon v commissioner supra we also may consider whether the requesting spouse was deserted divorced or separated see walters v commissioner supra petitioner’s husband has not disappeared or left petitioner to face the music alone hayman v commissioner f 2d pincite von kalinowski v commissioner supra petitioner and christopher remain married the two have not separated and petitioner has not been left by her husband to deal with the tax_liabilities alone instead petitioner continues to enjoy the lifestyle and financial security that are largely attributable to her husband’s assets and income conclusion petitioner was not denied access to financial records by her husband or threatened with physical violence if she objected to the hoyt investment or questioned the tax returns there was no physical or mental abuse by petitioner’s husband and he did not coerce her into investing in the hoyt partnerships or signing the tax returns the understatements are not attributable to the erroneous items of one individual filing the joint returns for through petitioner had reason to know of the understatements on these returns and it is not inequitable to hold the petitioner liable for the deficiencies in tax for to on the basis of all the facts and circumstances we conclude that petitioner is not entitled to relief pursuant to sec_6015 b relief under sec_6015 respondent argues that he did not abuse his discretion in denying petitioner equitable relief under sec_6015 respondent’s denial of relief is reviewed under an abuse_of_discretion standard 115_tc_183 affd 282_f3d_326 5th cir butler v commissioner t c pincite our review is not limited to respondent’s administrative record ewing v commissioner t c ___ considering the facts and circumstances of this case we held under sec_6015 that it is not inequitable to hold petitioner liable for the deficiencies the language of sec_6015 taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either does not differ significantly from the language of sec_6015 taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement butler v commissioner additionally the language in both sections is similar to the language in former sec_6013 taking into account all the facts and circumstances it is inequitable to hold the other spouse liable for the deficiency in tax for such taxable_year attributable to such substantial_understatement 114_tc_276 see 292_f3d_800 d c cir subsection f continued supra pincite further the equitable factors we considered under sec_6015 are the same equitable factors we consider under sec_6015 alt v commissioner supra pincite as a result we hold that respondent did not abuse his discretion in denying petitioner relief under sec_6015 for taxable years to in this case none of the six factors in revproc_2000_15 2000_1_cb_447 weighing in favor of granting relief are present petitioner was not divorced from her husband petitioner will not suffer economic hardship if relief is denied petitioner was not abused by her husband petitioner had reason to know petitioner’s husband did not have an obligation to pay the liability pursuant to a divorce decree and the items giving rise to the deficiencies are not continued has no statutory antecedent as a stand alone provision but has roots in the equity test of former subparagraph e d carried forward into subparagraph b d affg tcmemo_2000_332 as directed by sec_6015 the commissioner prescribed procedures in revproc_2000_15 2000_1_cb_447 to be used in determining whether an individual qualifies for relief under sec_6015 the revenue_procedure takes into account factors such as marital status economic hardship and significant benefit in determining whether relief will be granted under sec_6015 revproc_2000_15 sec_4 c b pincite we note that revproc_2003_61 2003_32_irb_296 date superseded revproc_2000_15 supra rev_proc sec 2003_32_irb_296 the new revenue_procedure however is effective for requests for relief filed on or after date id accordingly it is inapplicable to the case at bar attributable solely to christopher see 120_tc_137 additionally the following factors weighing against relief are present the items giving rise to the deficiencies also are attributable to petitioner petitioner had reason to know and petitioner will not suffer economic hardship id petitioner also argues that respondent made blanket pro forma denials of hoyt investor sec_6015 claims we disagree respondent’s internal memoranda contemplate that some hoyt investors would qualify for sec_6015 relief the memoranda do not reflect a decision to issue blanket denials to all hoyt investor sec_6015 claims ms sneed testified that she processed claims granting sec_6015 relief in other hoyt investor cases she has reviewed furthermore ms sneed credibly testified that she conducted a full impartial and fair evaluation of petitioner’s sec_6015 claim the format of the determination_letter denying sec_6015 relief for hoyt investors was unique to the hoyt cases this format was provided to ms sneed respondent did use uniform the absence of factors weighing against equitable relief does not weigh in favor of granting relief--this is merely neutral see 120_tc_137 absence of factor weighing in favor of equitable relief does not weigh against granting equitable relief--it is neutral procedures and a uniform denial letter in the hoyt investor sec_6015 cases however respondent did not make blanket denials of hoyt investor sec_6015 relief claims we find nothing abusive in using this form letter on the basis of all the facts and circumstances we conclude that respondent did not abuse his discretion in denying petitioner relief pursuant to sec_6015 in reaching our holdings we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court dorothy moorhous petitioner v commissioner of internal revenue respondent docket no 10761-00l filed date john franklin rodgers for petitioner jeffery e gold for respondent memorandum opinion colvin judge on date respondent sent petitioner a notice_of_determination concerning collection action s under sec_6320 and or the lien or levy determination in which respondent determined that collection from petitioner of her unpaid tax additions to tax and interest for would proceed the sole issue for decision is whether respondent’s refusal to consider petitioner’s offer_in_compromise because petitioner did not provide current financial information was an abuse_of_discretion we hold that it was not section references are to the internal_revenue_code in effect for the applicable years rule references are to the tax_court rules_of_practice and procedure background the parties submitted this case fully stipulated under rule a petitioner petitioner resided in springfield virginia when she filed the petition in this case in she was a budget analyst for the u s department of commerce and her husband mr moorhous was a retired u s department of defense employee petitioner and mr moorhous filed joint income_tax returns for petitioner and mr moorhous filed separate bankruptcy petitions on dates not stated in the record petitioner’s income_tax_liability for and was discharged in bankruptcy but mr moorhous’s liability for those years was not discharged mr moorhous is not a party to this case he received a notice_of_determination concerning collection action s under sec_6320 and or but he filed his request for a hearing late thus he is not entitled to judicial review under sec_6320 or sec_6330 116_tc_263 116_tc_255 b petitioner’s offer_in_compromise in date petitioner and mr moorhous submitted form_656 offer_in_compromise in which they offered dollar_figure to compromise his and tax_liability and her tax_liability at least dollar_figure was due from petitioner and mr moorhous at that time for those years on or about date respondent’s examiner ms vines vines asked petitioner and mr moorhous to provide additional financial information by date vines had received no response from petitioner and mr moorhous by date and she closed the case on that date respondent issued a written rejection letter which stated that petitioner and mr moorhous have no administrative appeal rights petitioner and mr moorhous then submitted additional financial information and vines agreed to reconsider their offer_in_compromise vines again recommended that the offer_in_compromise be rejected based on her estimate that the net realizable equity2 in petitioner and mr moorhous’s assets was at least dollar_figure greater than the amount they offered in compromise and considerably greater than the dollar_figure then due from petitioner and mr moorhous she told internal_revenue_manual sec_5 date defines net realizable equity for purposes of an offer_in_compromise as an estimate usually about percent of fair_market_value of the price a seller could get for the asset where financial pressures motivate the seller to sell in a short_period of time usually days or less less amounts owed to secured lien holders with priority over the federal_tax_lien petitioner and mr moorhous that their offer_in_compromise would be rejected with the right to seek reconsideration by respondent’s appeals_office respondent did not send a written rejection letter or notice of right to appeal to petitioner at that time respondent had a policy of generally not accepting offers in compromise from federal employees however respondent did not apply that policy to petitioner respondent discontinued the policy effective date irs litig bull date on date respondent sent to petitioner a notice_of_intent_to_levy and notice of your right to a hearing concerning petitioner’s tax_liability for the notice_of_intent_to_levy stated that petitioner owed tax penalty and interest of dollar_figure for dollar_figure for dollar_figure for and dollar_figure for for a total of dollar_figure on date petitioner requested a sec_6330 hearing for tax years at the hearing petitioner submitted her offer_in_compromise and accompanying financial information at the hearing the hearing officer stated that respondent erred in not issuing a written rejection letter that advised petitioner of her right to appeal the rejection of her offer_in_compromise to respondent’s office of appeals the hearing officer agreed to petitioner contends that respondent applied the policy to petitioner in we decide this issue in the opinion consider petitioner’s offer_in_compromise if petitioner would provide current financial information petitioner provided only some of her current financial information and so the hearing officer did not consider the offer_in_compromise on date respondent issued a notice_of_determination in which respondent determined to proceed with collection from petitioner of her taxes owing for discussion petitioner contends that respondent’s refusal to consider her offer_in_compromise for because she did not provide current financial information was an abuse_of_discretion we disagree sec_7122 provides that the secretary shall prescribe guidelines for the internal_revenue_service to use in determining whether to accept an offer_in_compromise treasury regulations provide that the commissioner will not process an offer_in_compromise that lacks sufficient information to permit the commissioner to evaluate its acceptability sec_301_7122-1t c temporary proced admin regs fed reg date the commissioner will not process an offer_in_compromise if the financial information submitted with it is older than months administration internal_revenue_manual cch ch date the hearing officer at the hearing petitioner told the hearing officer that she did not want her offer_in_compromise to be considered based on current financial information followed those guidelines by requiring that petitioner provide current financial information to evaluate whether her offer_in_compromise was adequate and should be accepted the decision not to process petitioner’s offer_in_compromise on account of her failure to submit current financial information was consistent with prescribed guidelines and was a reasonable exercise of the commissioner’s discretion respondent erred in not sending petitioner a written notice that respondent had rejected her offer_in_compromise see former sec_301_7122-1 proced admin regs taxpayer must be given prompt notice in writing of rejection of offer_in_compromise petitioner contends that because of that error we should remand this case to respondent’s office of appeals for consideration of her offer_in_compromise based on her financial information we disagree in respondent twice considered and rejected petitioner’s dollar_figure offer to compromise a tax_liability of about dollar_figure respondent concluded that the net realizable equity in petitioner and mr moorhous’s assets was at least dollar_figure greater than the dollar_figure amount offered in compromise we have no reason to believe that result would change if respondent again considered petitioner’s offer_in_compromise based on her financial information for respondent’s failure to send petitioner a written rejection of her offer_in_compromise did not deprive her of any administrative appeal rights the hearing officer for petitioner’s sec_6330 hearing stated that respondent erred in not issuing a written rejection letter that advised petitioner of the right to administratively appeal that rejection respondent contends on brief that that statement by the hearing officer was wrong because in taxpayers had no appeal rights concerning rejected offers in compromise petitioner does not dispute respondent’s statement in this regard and offers no contrary authority we conclude that petitioner was not prejudiced by the hearing officer’s failure to consider her offer_in_compromise based on financial information or by respondent’s failure to give her written notice in that her offer_in_compromise had been rejected see rodriguez v commissioner tcmemo_2003_153 petitioner contends that respondent’s refusal to consider her offer_in_compromise in was based on respondent’s policy then in effect of generally not accepting offers in compromise from federal employees we disagree there is no evidence to support her contention and there is credible_evidence showing that respondent did not apply that policy to her we conclude that respondent’s determination to proceed with collection as to petitioner’s tax_liabilities was not an abuse_of_discretion decision will be entered for respondent


department of the treasury internal_revenue_service washington d c jun tax_exempt_and_government_entities_division uil no set ep 2a t legend taxpayer a taxpayer b ira c roth_ira d financial_institution e company f amount dear this is in response to a letter dated date as supplemented by correspondence dated date and date in which your authorized representative requests relief under sec_301_9100-3 of the procedure and administration regulations the regulations on your behalf you submitted the following facts and representations in connection with your request taxpayer a and her spouse taxpayer b taxpayers file a joint federal_income_tax return taxpayer a owned ira b which was maintained by financial_institution e taxpayer a represents that on the advice of company f she converted traditional_ira c into roth_ira d on date in february of company f recommended that roth_ira d be recharacterized back into a traditional_ira due to the cost of the conversion on date taxpayer a submitted a request to financial_institution e for a withdrawal from roth_ira d and checked the box recharacterization as the reason for the distribution on date however taxpayer b received notice from financial_institution e that the recharacterization request could not be processed without filing an application_for a traditional_ira and paying a fee taxpayer b represents that he paid the fee and again submitted a request to recharacterize roth_ira d on date taxpayer b received further correspondence from financial_institution e stating that it would re-open the traditional_ira account in order to effectuate the recharacterization taxpayer a and taxpayer b represent that they filed their tax_return for the roth_ira_conversion on year on a timely basis however they did not report the that return the taxpayers did not file an amended_return for the year to reflect the conversion on date the taxpayers received a notice_of_deficiency from the irs regarding the conversion into a roth after receiving the notice taxpayer a submitted this request taxpayer a states that the initial reason for converting her traditional_ira into a roth_ira was because of anticipated large returns on her investments subsequently the assets in roth_ira d declined in value due to alleged fraud taxpayer a argues that the fraudulent and illegal activities were outside of her control as was financial_institution e’s rejection of the request to recharacterize roth_ira d back to a traditional_ira based on the above facts and representations you request an extension of time in which to recharacterize roth_ira d back into a traditional_ira pursuant to sec_301_9100-3 of the regulations with respect to your request for relief under sec_301_9100-3 of the regulations code sec_408a and sec_1_408a-5 q a-1 of the federal_income_tax regulations i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having originally been made to another type of ira by making a trustee-to- trustee transfer of the ira contribution plus earnings to the other type of ira ina recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 q a-6 of the t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer i requests relief under sec_301_9100-1 before the failure to make a timely election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv reasonably relied upon the written advice of the service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that for purposes of paragraph b a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the irs will not ordinarily grant relief provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight in such a case the irs will grant relief only when the taxpayer sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section the information and documentation submitted in this case do not support taxpayer a’s assertion that she satisfies the criteria in sec_301_9100-3 of the regulations taxpayer a and taxpayer b requested relief after the service discovered that roth_ira d had not been recharacterized back into a traditional_ira and taxpayer a and taxpayer b were aware of the necessity of the election in february of which gave them time in which to make a timely election to recharacterize taxpayer a and taxpayer b have not established that there were any intervening events beyond their control and there was no reliance on a qualified_tax professional or on the written advice of the service sec_301_9100-3 of the regulations provides that if the facts have changed since the due_date for making the election that make the election advantageous to the taxpayer the irs will grant relief only when the taxpayer provides strong_proof that the request for relief is not based on hindsight strong_proof was not submitted in this case accordingly we are unable to grant an extension of time in which to recharacterize roth_ira d pursuant to sec_301_9100-3 of the regulations this letter is directed only to the taxpayers who requested it code sec_61 k provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office should you have any concerns regarding this ruling please contact ' ui at enclosures sincerely yours deleted copy of letter notice carlton a watkins manager employee_plans technical group cc


internal_revenue_service number release date index number --------------------------------- -------------------- --------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------ telephone number -------------------- refer reply to cc intl b02 plr-100700-09 date date legend legend taxpayer corporation a corporation b corporation c --------------------------------- ------- ------------------------------- --------- tax professional tax professional tax professional ---------------------- ------------------------ ------------------------------------ individual -------------- foreign_country --------- date date date date month year year a percent b percent ------------------------- -------------- ----------------------- ----------------------- ---------------- ------- ------- ------- ------ dear --------------------------------- plr-100700-09 this is in response to a letter dated date submitted on behalf of taxpayer by its authorized representative requesting the consent of the commissioner 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 corporation b 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 facts on date taxpayer became a us resident at this time taxpayer owned a percent of the shares of corporation a and indirectly owned b percent of the shares of corporation b on date taxpayer became the direct owner of corporation c all three corporations became passive foreign investment companies pfics within the meaning of sec_1297 of the code during the year tax_year on date taxpayer engaged tax professional to prepare its year tax_return tax professional gave taxpayer a questionnaire to complete but taxpayer lacked sufficient knowledge to complete the form taxpayer then turned to individual a longtime family friend for help with the form individual informed tax professional that taxpayer did not have any foreign_income for year but individual failed to state that taxpayer owned any shares in a foreign_corporation and tax professional failed to ask such a question consequently taxpayer neither knew it owned shares in a pfic nor did it know to make an election under sec_1295 of the code on or near month taxpayer’s family in country engaged the services of tax professional to provide legal advice regarding potential tax consequences of taxpayer’s us residency tax professional alerted taxpayer’s family that some of taxpayer’s investments might be pfics on the recommendation of tax professional taxpayer engaged the services of tax professional on or near month tax professional assisted taxpayer in completion and filing of forms for corporation a corporation b and corporation c for the year tax_year taxpayer filed these forms with form 1040x on date since taxpayer did not file an extension of time to file its year tax_return and did not file forms by april of the following year the elections made on forms are not timely absent consent of the commissioner ruling requested plr-100700-09 taxpayer requests the consent of the commissioner of the internal_revenue_service to make a retroactive qef election under sec_1_1295-3 with respect to corporation b law code sec_1293 provides that every u_s_person who owns stock of a qef at any time during the taxable_year of such fund shall include in gross_income as ordinary_income such shareholder’s pro_rata share of the ordinary_earnings of such fund for such taxable_year and as long-term_capital_gain such shareholder’s pro_rata share of the net_capital_gain of such fund for such taxable_year code sec_1295 provides that any pfic shall be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such company for the taxable_year and the company 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 taxpayer 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 granting consent will not prejudice the interests of the united_states government meaning of sec_1_1295-3 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_1295-3 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 corporation b for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election plr-100700-09 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely ethan atticks senior techincal reviewer branch international


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-113267-99 date date legend x a state d1 d2 d3 d4 d5 this responds to the date letter submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x elected subchapter_s status effective d2 on d3 a an employee and shareholder of x purchased shares of x stock with proceeds from his individual_retirement_account ira shortly thereafter a stock cc dom p si plr-113267-99 certificate was issued in the name of the ira in d4 x’s accountants learned that shares of x stock had been issued to the ira on d5 after x’s accountants informed x that the ira was an ineligible shareholder x redeemed the stock held by the ira prior to d4 neither x its officers nor its shareholders were aware that the ira was an ineligible shareholder and that issuing stock to an ira terminated x’s s election x represents that issuing stock to the ira was not motivated by tax_avoidance or retroactive tax planning in addition x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 of the code law and analysis sec_1361 defines an s_corporation with respect to any taxable_year as a small_business_corporation for which an s election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of the cessation sec_1362 revrul_92_73 1992_2_cb_224 holds that a_trust qualified as an individual_retirement_account under sec_408 is not a permitted s_corporation shareholder under sec_1361 revrul_92_73 further states that if a shareholder inadvertently causes a termination of an s_corporation by transferring stock to a_trust that qualifies as an individual_retirement_account under sec_408 the shareholder may request relief under sec_1362 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under paragraph sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such effectiveness or termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the cc dom p si plr-113267-99 treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary the committee reports accompanying the subchapter_s_revision_act_of_1982 in discussing sec_1362 as it relates to inadvertent terminations state in part as follows if the internal_revenue_service determines that a corporation’s subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped the taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts s rep no 97th cong 2d sess 1982_2_cb_718 conclusions based solely on the facts submitted and representations made we conclude that x’s subchapter_s_election terminated on d3 as the result of the ira acquiring x stock we also conclude that the termination was inadvertent under sec_1362 therefore under the provisions of sec_1362 x will be treated as an s_corporation from d3 and thereafter provided that x’s s_corporation_election was otherwise valid and is not otherwise terminated under sec_1362 in addition during the period from d3 to d5 a will be treated as the owner of the ira’s shares of stock except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x’s s_corporation_election was a valid election under sec_1362 cc dom p si plr-113267-99 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely signed dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes