t c memo united_states tax_court bernard f kochevar sr and marlene c kochevar petitioners v commissioner of internal revenue respondent docket no filed date bernard f kochevar sr and marlene c kochevar pro sese paul dixon for respondent memorandum opinion goldberg special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure and an addition_to_tax under sec_6651 in the amount of dollar_figure unless otherwise indicated all section references are to the internal revenue code in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure after concessions the issues for decision are whether petitioners are engaged in the business of being professional slot machine players and if so whether they are entitled to claim certain gambling related expenses as ordinary and necessary business_expenses under sec_162 whether petitioners are entitled to deduct the portion of their gambling_losses that exceeds their gambling winnings and whether petitioners are liable for an addition_to_tax under sec_6651 some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference petitioners resided in reno nevada at the time their petition was filed petitioner bernard f kochevar sr mr kochevar has been employed by welsh engineering inc as an engineer and surveyor since and according to his testimony works an average of to hours each week petitioner marlene c kochevar mrs kochevar is a paralegal and during worked for several employers for several months during the year mrs kochevar maintained a full-time position with the airport authority in nevada as well as a part-time position with welsh engineering inc as an evening contract typist at all times during mrs kochevar maintained full-time employment and nonemployee compensation of dollar_figure petitioners concede that they failed to report interest_income of dollar_figure petitioners began playing progressive slot machines on a frequent basis in petitioners testified that they traveled to local casinos in the evenings after work and on weekends spending to hours each week studying and playing slot machines they spent the majority of their time at the sparks nugget and western village casinos in sparks nevada and the peppermill casino in reno on or about date petitioners filed a form_4868 requesting an automatic 4-month extension of time to file their joint federal_income_tax return and paying their estimated net tax_liability of dollar_figure petitioners' request was granted and on date the final day of the extension they postmarked their return wherein they requested a refund of dollar_figure this amount was calculated as follows total_tax due of dollar_figure less federal_income_tax withheld of dollar_figure and dollar_figure paid with form_4868 petitioners received their refund of dollar_figure in a check dated date issued by the u s treasury on the schedule c attached to their federal_income_tax return petitioners stated that they were engaged in the business of being professional slot machine players they reported income and expenses from gambling activities in the respective amounts of dollar_figure and dollar_figure resulting in a net_loss of dollar_figure the expenses claimed in connection with their gambling were as follows automatic teller machine atm charges and tips in the amount of dollar_figure office expenses and supplies totaling dollar_figure mileage allotment for travel to the casinos in the amount of dollar_figure meals at the casinos in the amount of dollar_figure and losses in the amount of dollar_figure petitioners also attached a form_8275 to their return wherein they disclosed the nature and extent of their gambling activities in great detail on date after their federal_income_tax return was selected for examination petitioners met with mr lynn peterson an appeals officer of the internal_revenue_service irs to discuss their case in a letter dated date mr peterson stated in pertinent part you and i discussed you and your wife's approach to slot machine playing and i told you that i accepted that you were in a trade_or_business i still accept that you are in a trade_or_business absent any other provision of the internal_revenue_code sec_162 of the code would allow you to take the net_loss from your trade_or_business of slot machine player and offset income from other sources however t he problem is sec_165 this section reads as follows d wagering losses --losses from wagering transactions shall be allowed only to the extent of the gains from such transactions if you wish a report to accept the adjustments please call or write by if i do not hear from you at all then i will have to send you the report called a statutory_notice_of_deficiency that will allow you to take the issues to the tax_court in the notice_of_deficiency dated date respondent determined that petitioners were not entitled to deduct expenses connected with wagering in excess of gross_receipts from the wagering activities under sec_165 respondent also determined that petitioners were liable for an addition_to_tax under sec_6651 for failure_to_file their return within the time prescribed by law sec_165 provides that losses from wagering transactions shall be allowed only to the extent of the gains from such transactions in 762_f2d_1369 9th cir the ninth circuit_court of appeals stated to resolve the conflict between sec_162 and sec_165 we looked to the rule that a specific statute controls a general statute sec_162 deals with all business_expenses wherea sec_165 specifically addresses gambling_losses sec_165 therefore controls and a gambling loss although it may be a business_expense is deductible only to the extent of gambling gains citations omitted see also valenti v commissioner tcmemo_1994_483 as such petitioners are not entitled to claim wagering losses in excess of their winnings even assuming they were engaged in the business of being professional slot machine players see kozma v commissioner tcmemo_1986_177 related expenses included in wagering losses subject_to sec_165 limitations respondent is sustained on this issue in an attempt to overcome the limitation of sec_165 petitioners pose several arguments respondent is estopped from disputing their return as filed because the petitioners were issued a refund for the full amount requested on the return by the irs they should not be held liable for the deficiency because they gave full disclosure of their position on the form_8275 attached to their return and the application of sec_165 violates their right to equal protection in that it treats professional gamblers differently than taxpayers in other trades_or_businesses in response to petitioners' first argument the fact that petitioners received a tax_refund does not preclude respondent from later determining a deficiency in petitioners' taxes for the same taxable_year 757_f2d_1157 11th cir 526_f2d_1 9th cir affg tcmemo_1974_243 hacker v commissioner tcmemo_1993_285 affd without published opinion 29_f3d_632 9th cir in the same vein the disclosure of a position by a taxpayer does not prevent respondent from later determining that the position is in error the purpose of form_8275 is to shield taxpayers from an addition_to_tax for negligence or substantial_understatement_of_income_tax see sec_6653 sec_6661 in response to petitioners' final argument we quote our decision in valenti v commissioner supra the argument that sec_165 violates equal protection as applied to those engaged in the trade_or_business of gambling borders on the frivolous we reject it without further discussion respondent determined that petitioners are liable for an addition_to_tax for filing their federal_income_tax return after the due_date sec_6651 provides for an addition_to_tax in the amount of percent of the amount of the tax if the failure_to_file is for not more than month with an additional percent for each month in which the failure_to_file continues not exceeding percent of the tax in the aggregate the addition_to_tax is applicable unless it is shown that the failure_to_file is due to reasonable_cause and not willful neglect respondent contends that petitioners' tax_return was due on date and that the return was not filed until date petitioners maintain that they had an automatic_extension of time to file their tax_return while it is true that petitioner filed an application_for an automatic_extension of time respondent contends that the application is invalid because petitioners failed to estimate properly their tax for when they filed their form_4868 sec_1_6081-4 income_tax regs on their application_for extension petitioners estimated their tax_liability without taking into consideration their gambling_losses to be dollar_figure after deducting taxes withheld of dollar_figure petitioner remitted a check to the irs in the amount of dollar_figure in the notice_of_deficiency respondent determined that petitioners' tax_liability was dollar_figure the deficiency resulted from the refund issued to petitioners after they filed their return on date exactitude is not required in making an estimation of one's tax_liability for purposes of an automatic_extension 92_tc_899 a taxpayer must make a bona_fide and reasonable estimate of the tax_liability based on the information available when a request for extension is made id pincite see 59_f2d_996 2d cir affg a memorandum opinion of this court therefore we find that petitioners properly estimated their tax_liability and as such the time in which petitioners were permitted to file was extended months because the envelope containing their return was postmarked on date we conclude that petitioners are not liable for an addition_to_tax under sec_6651 to reflect the foregoing decision will be entered for respondent except as to the addition_to_tax under sec_6651


internal_revenue_service number release date index number ---------------------------------------- ---------------------------- ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc ita b02 plr-105788-06 date date ty ------- ty ------- legend taxpayers ----------------------------------------------------------------------------------------------- ------------------------------------------------ child a school x --------------------- ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ---------------------------------- ----------------------------- --------------------------------------------------- -------------------------------------------------------------- ------- ----------------------------------------------- year condition condition condition condition medication ------------------------------------------- dear ----------------------------- you requested a ruling on the deductibility of tuition for your children as a medical_care expense under sec_213 of the internal_revenue_code this letter_ruling is based on representations and information contained in your letters of january and date facts plr-105788-06 child a has been diagnosed with several developmental disorders including condition condition condition and condition the medication prescribed has apparently been sufficient to overcome condition this diagnosis covers a wide range of learning social and psychiatric difficulties for child a importantly extensive testing shows child a has severe condition the neuronpsychologist performing the tests concluded that child a needed an educational environment that is more therapeutic and specialized to child a’s disabilities than child a was receiving in the special education program at child a‘s public school taxpayers enrolled child a in school x at the beginning of tenth grade school x was established to assist its students in overcoming condition1 as well other neurological conditions school x only accepts students with these documented conditions specifically students enrolled in school x do not have strong visual spatial abilities and this severely limits their ability to process information in typical classroom settings however the students enrolled in school x generally do have strong auditory processing strengths school x’s teaching techniques focus on its student’s auditory strengths and its techniques are not designed on presenting information in a visual manner additionally school x employs additional professionals such as special- education teachers mental health specialists a speech pathologist and an occupational therapist to augment its classroom teachers school x’s required core curriculum includes specialized instruction that emphasizes basic skill development in the areas of reading comprehension writing research organization and math school x’s curriculum also includes a heavy emphasis on social and life skill development specifically targeting emotional regulation conflict resolution communication and independent living school x’s program is designed to assist its students in overcoming their disabilities by using techniques that help its students develop appropriate social and educational skills that will assist them in their pursuit of higher education law and analysis sec_213 provides that expenses paid during the taxable_year not_compensated_for_by_insurance_or_otherwise for medical_care of the taxpayer the taxpayer's spouse and dependents as defined in sec_152 are deductible to the extent such expenses exceed percent of adjusted_gross_income sec_213 defines medical_care to include amounts paid for the diagnosis cure mitigation treatment or prevention of disease or for the purpose of affecting any structure or function of the body sec_1_213-1 of the income_tax regulations provides that ordinary education is not medical_care however the cost of medical_care includes the cost of attending a special_school for a mentally or physically handicapped_individual if his plr-105788-06 condition is such that the resources of the institution for alleviating such mental or physical handicap are a principal reason for his presence there if this provision applies the cost of attending such a special_school includes the cost of meals_and_lodging and the cost of ordinary education furnished which is incidental to the special services furnished by the school thus the cost of medical_care includes the cost of attending a special_school designed to compensate for or overcome a physical handicap in order to qualify the individual for future normal education or for normal living such as a school for the teaching of braille or lip reading revrul_70_285 1970_1_cb_52 interprets the term special_school in the regulations as a limited category of the term institution it concludes that the distinguishing characteristic of a special_school is the substantive content of its curriculum which may include some ordinary education but only if the ordinary education is incidental to the primary purpose of the school of enabling the student to compensate for or overcome a handicap accordingly the ruling concludes that the taxpayer may deduct as a medical expense the cost of his mentally handicapped child's participation in a specially designed self-contained course designed to meet the child's needs revrul_78_340 1978_2_cb_124 involves amounts paid_by a taxpayer for the education of a child with severe learning disabilities that resulted in reading difficulties the child's doctor recommended that the child attend a special_school that offered a program to educate children with severe learning disabilities so that they can return to a regular school the ruling holds that the tuition fees for attending the school are deductible expenses for the child's medical_care in 54_tc_1684 acq c b xix the petitioner-wife's daughter elizabeth a girl of average to above-average intelligence felt rejected due to her parents' divorce and felt responsible for her father's subsequent suicide this resulted in her withdrawing from reality and being incapable of functioning normally at school in addition elizabeth was subject_to severe emotional outbursts she lost interest in personal relationships and she did not engage in activities that were normal for a girl of her age upon the recommendation of a psychiatrist the petitioners enrolled elizabeth in a private school which specialized in treating children with emotional handicaps and in remedying their learning disabilities the court held that the school was a special_school within the meaning of sec_1_213-1 and that elizabeth was sent to the institution to further her medical treatment and the scholastic program that was developed for her there was carefully designed to provide the necessary services to eliminate the emotional barriers to her future normal scholastic success accordingly the court concluded that the tuition paid_by the petitioners' during the year in issue was expended for medical_care within the meaning of sec_213 conclusion plr-105788-06 accordingly based strictly on the information submitted and your representations we conclude that school x utilizes special teaching techniques to assist its students in overcoming condition these techniques along with the care of other staff professionals are the principal reasons for child a attending school x further we conclude that school x is a special_school within the meaning of sec_1_213-1 and that the expenses_incurred by taxpayers for child a’s tuition at school x in those years child a is diagnosed as having a medical_condition that handicaps child a’s ability to learn are deductible under sec_213 caveats this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely thomas d moffitt branch chief branch office of associate chief_counsel income_tax accounting


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 b02 plr-124215-09 date date x --------------------------------------------------------------------------------------------------- ----------------------- country --------------------- date ----------------------- date ---------------------- year ------- dear -------------------- this letter responds to a request dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes the information submitted states that x was formed under the laws of country on date x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x was a foreign_entity eligible to be classified as a disregarded_entity for federal tax purposes effective date but inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as plr-124215-09 an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the due_date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than 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 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 as a condition for this late election relief x and any affected taxpayers must file within days of the date of this letter any necessary tax and information returns and amended tax and information returns for year through the present consistent with x having made a timely election to be treated as a disregarded_entity effective year copies of this letter should be attached to any returns or amended returns except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code plr-124215-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number washington dc person to contact é v telephone number refer reply to cc dom p si-br 7-plr-1 ate january re legend taxpayer trust a_trust b charitable_lead_trust charitable_lead_trust charitable beneficiaries charitable_beneficiary date date x der plr-105629-98 we received your letter dated requesting rulings on behalf of taxpayer concerning the application of sec_2055 and sec_2631 of the internal_revenue_code this letter is in reply to your requests taxpayer is the grantor of trust a taxpayer created trust a on date and amended and restated trust a on date trust ais a pourover trust that provides for taxpayer during taxpayer's life taxpayer may alter revoke or terminate trust a during taxpayer’s life on taxpayer's death trust a becomes irrevocable sec_1 and of trust a agreement provide that upon the death of taxpayer the assets in trust a shall be administered and distributed as provided in trust a agreement sec_3_2 of trust a agreement provides that after various distributions and specific bequests described in trust a agreement trustee is to distribute an amount of property equal to the largest amount that can pass to trustee and have a zero inclusion_ratio under sec_2642 to be held in charitable_lead_trust further trust a agreement provides that trustee is to distribute the balance of the property after the specific bequests and the transfer to charitable_lead_trust to trustee of charitable_lead_trust to be held administered and distributed as provided in article v of trust a agreement article iv of trust a agreement establishes charitable_lead_trust sec_4 provides that taxpayer intends that charitable_lead_trust be construed to qualify as a charitable_lead_trust described in sec_2055 and any provision in article iv that conflicts with taxpayer's intention shall be disregarded or reconciled to accomplish taxpayer's intent under sec_4 of trust a agreement charitable_lead_trust begins on taxpayer's death and terminates fifteen years later the obligation to pay the unitrust_amount begins on the date of taxpayer's death but payment may be deferred from that date to the end of the tax_year of charitable_lead_trust in which it is funded sec_4 through of trust a agreement provide that the unitrust_amount for each tax_year of charitable_lead_trust the trust assets determined as of the first business_day of the tax_year payments of the unitrust_amount for each tax_year shall be made annually at the end of the trust’s tax_year the payments are to be made first from the ordinary_income of the trust that is not unrelated_business_income if the ordinary_income of the trust that is not is six percent of the net fair_market_value of plr-105629-98 unrelated_business_income is insufficient to satisfy the unitrust_amount the unitrust_amount is to be paid from the following sources of funds in the order listed long-term_capital_gains of the trust the unrelated_business_income the tax-exempt_income any accumulated income and finally the principal of the trust any net_income for a tax_year in excess of the unitrust_amount may in the discretion of the trustee be added to principal or paid to charitable beneficiaries trustee fees are to be taken as a deduction in computing taxable_income of the trust and not charged against the unitrust_amount the trustee may in its sole discretion allocate capital_gains to income or to principal or part to both all depreciation amortization and depletion deductions are to be allocated to the trust for any short tax_year and for the tax_year in which the payments of the unitrust_amount terminate the trustee must prorate the unitrust_amount on a daily basis if the net fair_market_value of trust assets as of the first business_day of any_tax year is incorrectly determined and as a result payments to charitable beneficiaries are less than the payments required to be made the trustee must pay to charitable beneficiaries the difference between the amount that the trustee should have paid if correct valuation had been used and the amount which the trustee actually paid net fair_market_value of the trust assets as of the first business_day of any_tax year is incorrectly determined and as a result payments to charitable beneficiaries exceed the payments required to be made charitable beneficiaries must repay to the trustee the difference between the amount which the trustee actually paid and the amount that the trustee should have paid if correct valuation had been if the during the term of charitable_lead_trust the unitrust payments must be paid at least annually fifty percent of the unitrust_amount is to be paid to charitable_beneficiary and the remaining fifty percent of the unitrust_amount is to be paid to qualifying charities described in sec_170 sec_2055 and sec_2522 further the trustee may not prepay the unitrust_amount sec_4 of trust a agreement provides that the trustee of charitable_lead_trust shall not engage in any act of self-dealing as defined in sec_4941 nor make any taxable_expenditures as defined in sec_4945 further except to the extent provided in sec_4947 the trustee shall not retain any excess holdings as defined in sec_4943 nor shall the trustee acquire or retain any assets which would subject charitable_lead_trust to tax under sec_4944 if sec_4942 is applicable to charitable_lead_trust the trustee is to make the appropriate distributions so that the trust is not subject_to tax under sec_4942 we gee plr-105629-98 sec_4 of trust a agreement provides that charitable_lead_trust is irrevocable and cannot be altered or amended except that the trustee may amend in writing the trust instrument at any time to enable the trust to continue to qualify as a charitable_lead_unitrust under sec_4 of trust a agreement upon the termination of charitable_lead_trust the remaining trust assets are to be distributed per stirpes to the then living grandchildren of taxpayer if a grandchild of taxpayer is not alive when charitable_lead_trust terminates but has descendants living the deceased grandchild’s share shall be distributed per stirpes to such deceased grandchild’s descendants if no descendant of such deceased grandchild of taxpayer is then living the share of the deceased grandchild shall be distributed per stirpes to the then living descendants of the one among taxpayer's children who was the ancestor of such grandchild if no such descendant of taxpayer is then living the deceased grandchild’s share shall be distributed per stirpes to taxpayer's descendants then living descendants all of such remaining trust property shall be distributed to charitable_beneficiary further article iv of trust a agreement provides that any distribution under charitable_lead_trust to a descendant of taxpayer for whom assets are held in trust under trust b shall be added to the principal of the trust that such descendant of taxpayer is a beneficiary and administered as part of trust b if taxpayer has no living article v of trust a agreement establishes charitable_lead_trust charitable_lead_trust also begins on taxpayer’s death and terminates fifteen years later except for the distribution provisions on termination of the trust the terms of charitable_lead_trust are the same as charitable_lead_trust under sec_5 of trust a agreement if a child of taxpayer predeceases the termination of charitable_lead_trust the child is granted a testamentary general_power_of_appointment to appoint his or her share discussed below of charitable_lead_trust to any person or persons or charity including without limitation his or her creditors his or her estate or the creditors of his or her estate this power is effective only upon the subsequent termination of charitable_lead_trust under sec_5 of trust a agreement if a child or children of taxpayer survive the termination_date then on termination of charitable_lead_trust the assets ir in charitable_lead_trust shall be divided and distributed as follows a any child of taxpayer that is living and has no descendants living at the termination of charitable_lead_trust shall receive a distribution from charitable_lead_trust equal to the share of trust assets distributed per stirpes to the descendants of each child of taxpayer under sec_4 of trust a agreement yy ct plr-105629-98 if the then remaining assets of charitable_lead_trust are insufficient to fund such distributions in full any distributions made under sec_5 of trust a agreement are to be reduced equally if no child of taxpayer is entitled to receive distributions from charitable_lead_trust described above or if there are funds in charitable_lead_trust in excess of the amounts needed to make these distributions the remaining assets of charitable_lead_trust shall be distributed as provided in sec_5 b b all of the remaining assets of charitable_lead_trust shall be distributed in equal shares to the then living children of taxpayer provided however if a child of taxpayer is not then living but has descendants then living the deceased child's unappointed share shall be distributed per stirpes to such deceased child's descendants or if no descendant of such deceased child of taxpayer is then living such deceased child's unappointed share shall be distributed per stirpes to taxpayer's descendants then living and if taxpayer no descendants then living all of the then remaining unappointed trust property shall be distributed to charitable_beneficiary further sec_5 of trust a agreement provides that any distribution under charitable_lead_trust to a descendant of taxpayer for whom assets are held in trust under trust b shall be added to the principal of the trust that such descendant of taxpayer is a beneficiary and administered as part of trust b you have requested the following rulings the charitable lead interests created under articles iv and v of trust a agreement are unitrust interests within the meaning of sec_20_2055-2 of the estate_tax regulations the present_value of which determined under f v will be deductible for federal estate_tax purposes under sec_2055 and the amounts transferred to taxpayer's grandchildren and great- grandchildren upon the termination of charitable_lead_trust created under article v of trust a agreement will not be subject_to the generation-skipping_transfer_tax provided that the executor of taxpayer's estate allocates sufficient generation-skipping_transfer_tax_exemption under sec_2631 to the trust ruling_request sec_2055 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate all bequests legacies devises or transfers to or for_the_use_of certain 3ee s plr-105629-98 governmental entities certain corporations organized and operated exclusively for religious charitable scientific literary or educational_purposes and certain other fraternal and veterans organizations sec_2055 provides that where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest that is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 no deduction shall be allowed under sec_2055 for the interest that passes to the person or for the use described in sec_2055 unless in the case of interests other than charitable_remainder interests described in sec_664 or pooled income funds described in sec_642 such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly under sec_20_2055-2 the amount passing to charity must be ascertainable and determinable as of the date of death similarly under sec_20_2055-2 if the trustee is empowered to divert the property or fund in whole or in part to a noncharitable purpose the deduction is limited to that portion if any of the property which is exempt from the exercise of the power under sec_20_2055-2 in the case of decedents dying after date where an interest in property passes from the decedent for charitable purposes and an interest in the same property passes from the decedent for private purposes no deduction is allowed under sec_2055 for the value of the interest passing for charitable purposes unless the interest is a deductible_interest under sec_20_2055-2 the term deductible_interest includes a unitrust_interest under sec_20_2055-2 a unitrust_interest means the right pursuant to the instrument of transfer to receive payment not less often than annually of a fixed percentage of the net fair_market_value determined annually of the property that funds the unitrust_interest in computing the net fair_market_value of the property that funds the unitrust_interest all assets and liabilities shall be taken into account without regard to whether particular items are taken into account in determining the income from the property the net fair_market_value of the property that funds the unitrust_interest may be determined on any one date during the year or by taking the average of valuations made on more than one date during the year provided that the same valuation_date or dates and valuation methods are used each year payments under a unitrust_interest may be paid for a specified term or for the life or lives of an individual or individuals each of whom must be living at the date of the gift and can be ascertained at the date oo plr-105629-98 in the instant case the charitable unitrust interests provided for in articles iv and v of trust a agreement give the charitable beneficiaries rights to receive annually a payment of a fixed percentage of the net fair_market_value determined annually of the property that will fund the trusts articles iv and v of trust a agreement provide that the term of the unitrust interests will be fifteen years also the trustees are prohibited by the terms of trust a agreement from making any unitrust payments to an organization that is not described in sec_2055 based on the facts submitted and the representations made we conclude that the unitrust amounts provided for in articles iv and v of trust a agreement will constitute unitrust interests within the meaning of sec_2055 and sec_20_2055-2 therefore on the death of taxpayer an estate_tax charitable deduction will be allowed under sec_2055 for the present_value of the unitrust interests in charitable_lead_trust and charitable_lead_trust as established in articles iv and v of trust a agreement and payable to charity determined under sec_20_2055-2 we note that trust a agreement provides that the unitrust amounts shall be paid first from ordinary taxable_income that is not unrelated_business_income if such ordinary taxable_income is insufficient to satisfy the unitrust amounts the unitrust_amount shall be paid from short term capital_gain long term capital_gain unrelated_business_income tax-exempt_income and trust corpus in that order this ordering of income distributions will not be given effect for federal_income_tax purposes because the ordering provision has no economic_effect independent of the tax consequences charitable lead trusts are required to pay annually a stated unitrust_amount to organizations described in sec_170 and sec_2055 regardless of the amount or character of income earned by the trusts accordingly income distributed to organizations described in sec_170 and sec_2055 shall consist of the same proportion of each class of items of income of the charitable lead unitrusts as the total of each class bears to the total of all classes see sec_1_642_c_-3 ruling_request sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b of chapter under sec_2602 the amount of the tax imposed by sec_2601 is the taxable_amount defined in sec_2621 through multiplied by the applicable_rate sec_2641 provides that the applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be 7g plr-105629-98 allocated by such individual or his executor to any property with respect to which the individual is the transferor under sec_2631 any allocation under sec_2631 once made is irrevocable sec_2632 provides that any allocation by any individual of the gst_exemption may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that if any individual makes a direct_skip during his if the amount of the direct_skip exceeds such unused portion the entire lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for the property zero unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of sec_2632 the unused portion of an individual’s gst_exemption is that portion of such exemption that has not previously been allocated by such individual or treated as allocated under sec_2632 with respect to a direct_skip sec_2632 provides that any portion of an individual's gst_exemption that has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as foilows--first to property which is the subject of a direct_skip occurring at the individual's death and second to trusts with respect to which the individual is the transferor and from which a taxable_distribution or taxable_termination might occur at or after such individual's death in general this allocation is made among the direct skips and trusts in proportion to the respective amounts at the time of allocation of the nonexempt portions of the properties and trusts sec_2642 provides that in general the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer shall be the excess if any of one over the applicable_fraction determined for the trust from which such transfer is made in the case of a direct_skip the inclusion_ratio shall be the excess if any of one over the applicable_fraction for such skip sec_2642 provides that the applicable_fraction is a fraction -- a the numerator of which is the amount of the gst_exemption allocated to the trust or in the case of a direct_skip allocated to the property transferred in such skip and b the denominator of which is -- plr-105629-98 i the value of the property transferred to the trust or involved in the direct skip reduced by ii the sum of - i any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and il any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2642 provides that if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2642 shall be its value for purposes of chapter except that if the requirements prescribed by the secretary respecting allocation of post-death changes in value are not met the value of such property shall be determined as of the time of the distribution concerned sec_2642 provides that any allocation of gst_exemption to property transferred as a result of the death of the transferor shall be effective on and after the date of the death of the transferor based on the information submitted and the representations made charitable_lead_trust will be funded on taxpayer’s death trust a agreement provides that is to be funded with an amount of property equal to the largest charitable_lead_trust amount that can pass to trustee and have a zero inclusion_ratio under sec_2642 further trust a agreement provides that any estate_taxes imposed on taxpayer's estate are not to be paid out of charitable_lead_trust accordingly the numerator of the applicable_fraction for charitable_lead_trust will be the gst_exemption allocated to that trust the denominator of the applicable_fraction for charitable_lead_trust will be value of the property passing to that trust less the present_value of the charitable_lead_unitrust assuming each trust is funded timely based on the formula provided and sufficient gst_exemption is timely allocated charitable_lead_trust will have an inclusion_ratio of zero thus we conclude that charitable_lead_trust will not be subject_to the generation skipping transfer_tax on termination of the charitable lead_interest if timely funded based on the formula provided in trust a agreement and sufficient gst_exemption is allocated 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 ug plr-105629-98 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 if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect this ruling is directed only to the taxpayer s 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 the taxpayer sincerely christine e ellison chief branch associate chief_counsel p s f


t c memo united_states tax_court samuel kornhauser petitioner v commissioner of internal revenue respondent docket no filed date samuel kornhauser pro_se timothy a froehle for respondent memorandum findings_of_fact and opinion haines judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for respondent also determined additions to tax for of dollar_figure dollar_figure and dollar_figure under sec_6651 and all amounts are rounded to the nearest dollar unless otherwise indicated all section references are to the internal continued and respectively after concessions there are four issues for decision the first issue is whether petitioner had certain unreported income we hold he did the second issue is whether petitioner is entitled to any deduction or credit beyond those allowed in the deficiency_notice we hold he is not the third issue is whether petitioner is liable under sec_6651 for the addition_to_tax for failure to timely file a tax_return we hold he is the final issue is whether petitioner is liable for the addition_to_tax for failure to pay estimated_tax under sec_6654 we hold he is findings_of_fact some of the facts have been stipulated and are so found those exhibits attached to the stipulations which were found admissible are incorporated by this reference petitioner resided in california when the petition was filed petitioner is a practicing attorney and is admitted to practice before this court petitioner did not file a federal_income_tax return for petitioner failed to timely file a federal_income_tax return for petitioner made one continued revenue code code as amended and in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent concedes that petitioner is not liable for the dollar_figure addition_to_tax under sec_6651 for failing to pay income_tax for the remaining issues are computational and need not be addressed estimated_tax payment of dollar_figure and had total_tax withholding of dollar_figure for respondent prepared a substitute for return substitute return on petitioner’s behalf for thereafter respondent sent petitioner a deficiency_notice for determining petitioner received and failed to report several items of income after the deficiency_notice was issued petitioner sent respondent a signed form_1040 u s individual_income_tax_return for submitted return respondent received but did not process the submitted return on the submitted return petitioner reported receiving all of the unreported income items in the deficiency_notice in amounts equal to or greater than the amounts respondent determined petitioner also claimed various deductions and credits on the submitted return in date respondent received petitioner’s income_tax return for petitioner reported a loss on the schedule c profit or loss from business attached to the return petitioner did not attach to hi sec_2010 tax_return a separate statement with a calculation of any claimed net_operating_loss nol similarly petitioner did not attach a separate statement regarding any claimed nol to the submitted return petitioner filed a petition with this court challenging respondent’s determinations in the deficiency_notice the court issued the parties a standing_pretrial_order under rule b that order in pertinent part states it is ordered that any documents or material which a party expects to use except solely for impeachment if the case is tried but which are not stipulated shall be identified in writing and exchanged by the parties at least days before the first day of the trial session the court may refuse to receive in evidence any document or material that is not so stipulated or exchanged unless the parties have agreed otherwise or the court so allows for good cause shown at trial petitioner proffered exhibits marked exhibit 7-p and exhibit 8-p collectively proffered exhibits for admission into evidence the proffered exhibits purportedly contained documents and records substantiating certain deductions and credits including an nol_carryback petitioner claimed he was entitled to for respondent objected to the proffered exhibits on the ground that petitioner had failed to provide him with the documents and records included in the proffered exhibits at least days before trial as required by the standing_pretrial_order the court sustained respondent’s objection to the proffered exhibits thereafter the court allowed petitioner to make offers of proof with respect to the proffered exhibits the court rejected petitioner’s offers of proof and again sustained respondent’s objection to the proffered exhibits i unreported income opinion respondent determined petitioner failed to report various items of income for a taxpayer generally bears the burden of proving the commissioner’s determinations incorrect rule a 290_us_111 the u s court_of_appeals for the ninth circuit to which this case is appealable absent a stipulation to the contrary has held that the commissioner must establish some evidentiary foundation connecting the taxpayer with the income-producing activity or otherwise demonstrate that the taxpayer received unreported income for the presumption of correctness to attach to the deficiency determination in unreported income cases 596_f2d_358 9th cir rev’g 67_tc_672 if the commissioner introduces such evidence demonstrating that the taxpayer received unreported income the burden shifts to the taxpayer to show by a preponderance_of_the_evidence that the deficiency determination was arbitrary or erroneous see 181_f3d_1002 9th cir aff’g tcmemo_1997_97 statements made on a tax_return signed by the taxpayer are considered binding admissions unless there is cogent evidence that indicates such statements are wrong pratt v commissioner tcmemo_2002_279 slip op at citing 412_f2d_800 3d cir aff’g t c memo rankin v commissioner tcmemo_1996_350 slip op pincite aff’d 138_f3d_1286 9th cir petitioner signed the submitted return under the penalties of perjury on the submitted return petitioner admitted receiving all of the items of income on the deficiency_notice in amounts equal to or greater than those respondent determined we find that respondent has established a minimal evidentiary foundation through petitioner’s binding admissions to receiving the unreported income on the submitted return respondent having met his initial burden of production the burden shifts to petitioner to prove the deficiency determination incorrect see rule a 290_us_111 petitioner has never argued or asserted that the income he reported on the submitted return is incorrect rather he disputes the overall tax_liability because it fails to take into account certain deductions and credits to which he contends he is entitled for accordingly we sustain respondent’s determinations with respect to all the unreported income items in the deficiency_notice for ii entitlement to deductions or credits for petitioner claims he is entitled to certain deductions and credits claimed on the submitted return and an nol_carryback from for deductions and credits are strictly a matter of legislative grace and taxpayers must satisfy the specific requirements for any deduction or credit claimed see 503_us_79 292_us_435 89_tc_816 taxpayers bear the burden of substantiating the amount and purpose of any claimed deduction or credit by maintaining the records needed to establish such entitlement see sec_6001 65_tc_87 aff’d 540_f2d_821 5th cir a taxpayer’s self-serving declaration is generally not a sufficient substitute for records weiss v commissioner tcmemo_1999_17 sec_7491 provides that subject_to certain limitations where a taxpayer introduces credible_evidence with respect to a factual issue relevant to ascertaining the taxpayer’s tax_liability the burden_of_proof shifts to the commissioner with respect to that issue credible_evidence is evidence the court would find sufficient upon which to base a decision on the issue in favor of the taxpayer if no contrary evidence were submitted ruckriegel v commissioner tcmemo_2006_78 we have previously found unsupported assertions or testimony insufficient to constitute credible_evidence under sec_7491 see bauer v commissioner tcmemo_2012_156 doudney v commissioner tcmemo_2005_267 kolbeck v commissioner tcmemo_2005_253 davis v commissioner tcmemo_2005_160 evan v commissioner tcmemo_2004_ see also 394_f3d_1030 8th cir aff’g tcmemo_2003_212 103_fedclaims_261 sec_7491 applies only if the taxpayer complies with the relevant substantiation requirements in the internal_revenue_code maintains all required records and cooperates with the commissioner with respect to witnesses information documents meetings and interviews sec_7491 and b the taxpayer bears the burden of proving compliance with the conditions of sec_7491 and b see eg ruckriegel v commissioner tcmemo_2006_78 petitioner argues the burden_of_proof shifted to respondent under sec_7491 because he provided credible_evidence as to his entitlement to the deductions and credits claimed on the submitted return and as to his entitlement to an nol_carryback deduction for the credible_evidence petitioner contends he offered is his testimony as well as the documents and records contained in the proffered exhibits contrary to petitioner’s assertion the proffered exhibits and his testimony did not constitute credible_evidence the proffered exhibits did not constitute credible_evidence as the court excluded them from evidence for petitioner’s failure to provide them to respondent at least days before trial as required under the standing_pretrial_order petitioner’s testimony concerning his entitlement to the relevant deductions and credits did not constitute credible_evidence either it is well established that this court is not bound to accept a taxpayer’s self-serving and unverified materials not provided in compliance with the court’s standing_pretrial_order may be excluded from evidence 77_f3d_637 2d cir affirming a tax_court ruling excluding from evidence documents from a pro_se taxpayer not produced in compliance with the standing_pretrial_order and stating t he tax_court acted within its discretion in excluding the documents gaitor v commissioner tcmemo_2012_297 griffin v commissioner tcmemo_2010_252 slip op pincite kanofsky v commissioner tcmemo_2006_79 slip op pincite aff’d 271_fedappx_146 3d cir schaefer v commissioner tcmemo_1998_163 slip op pincite aff’d without published opinion 188_f3d_514 9th cir see also rule sec_104 sec_123 sec_131 the rationale behind this 14-day exchange rule is to allow the opposing party to develop any challenge to the evidence or otherwise rebut or deal with it dunn v commissioner tcmemo_1988_45 additionally the rule prevents an ambush with last-minute evidence that could have been presented to the opposing party during preparation for trial id moreover timely exchanging of documents allows the parties to consider resolving some or even all of the issues in a case without the need for trial testimony see 87_tc_74 65_tc_87 we found petitioner’s testimony to be self-serving and uncorroborated and do not accept it even if we did accept petitioner’s testimony it would not constitute credible_evidence that would shift the burden to respondent under sec_7491 this is because we find petitioner’s testimony lacked specificity and was wholly insufficient to base a decision in his favor as to any deduction or credit he contends he is entitled to for further we find petitioner failed to show that he complied with the relevant substantiation requirements for any deductions or credits for maintained all required records and sufficiently cooperated with respondent as required under sec_7491 and b accordingly the burden_of_proof with respect to the deductions and credits claimed on the submitted return and the nol_carryback deduction to which claims he is entitled remains with petitioner petitioner failed to offer sufficient evidence to demonstrate his entitlement to any deduction including an nol_carryback deduction from or credit for in any amount we thus sustain respondent’s deficiency determination in the deficiency_notice iii additions to tax respondent determined petitioner was liable for an addition_to_tax under sec_6651 that section imposes an addition_to_tax for failure_to_file a return on the date prescribed unless the taxpayer can establish the failure is due to reasonable_cause and not due to willful neglect to prove reasonable_cause for a failure to timely file the taxpayer must show he exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time 92_tc_899 sec_301_6651-1 proced admin regs the determination of whether reasonable_cause exists is based on all the facts and circumstances estate of hartsell v commissioner tcmemo_2004_211 merriam v commissioner tcmemo_1995_432 aff’d without published opinion 107_f3d_877 9th cir petitioner failed to timely file his form_1040 for therefore respondent’s burden of production under sec_7491 with respect to the sec_6651 addition_to_tax has been satisfied petitioner has never argued nor has he demonstrated that he exercised the ordinary business care and prudence that would qualify him for relief from the sec_6651 addition_to_tax consequently petitioner has not met his burden of persuasion and respondent’s determination is sustained the final issue we consider is respondent’s determination that petitioner is liable for addition_to_tax under sec_6654 that section imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual a taxpayer has an obligation to pay estimated_tax for a particular year only if he has a required_annual_payment for that year sec_6654 a required_annual_payment generally is equal to the lesser_of i of the tax_shown_on_the_return for the taxable_year or if no return is filed of the tax for the year or ii of the tax_shown_on_the_return of the individual for the preceding_taxable_year sec_6654 127_tc_200 aff’d 521_f3d_1289 10th cir heers v commissioner tcmemo_2007_10 if the taxpayer did not file a return for the preceding year then clause ii does not apply sec_6654 unless a statutory exception applies the sec_6654 addition_to_tax is mandatory sec_6654 e 91_tc_874 sec_6654 does not provide a general exception for reasonable_cause or absence of willful neglect 75_tc_1 respondent’s burden of production under sec_7491 requires him to produce evidence that petitioner had a required_annual_payment for because petitioner did not file a federal_income_tax return for his annual required payment for is equal to of the tax for respondent has satisfied his burden of production by introducing evidence that petitioner made only one estimated_tax payment of dollar_figure which is insufficient to cover of petitioner’s income_tax_liability for see 116_tc_438 petitioner neither argued nor established any of the defenses enumerated in sec_6654 consequently petitioner has not met his burden of persuasion and respondent’s determinations are sustained see 460_us_752 89_tc_501 aff’d 884_f2d_258 6th cir in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision as to the addition_to_tax under sec_6651will be entered for petitioner to reflect respondent’s concession in all other respects decision will be entered for respondent


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar t’ ep r4 u i l xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx legend taxpayer a xxxxxxxxxxxxxxxx individual b xxxxxxxxxxxxxxxx ira x xxxxxxxxxxxxxxxx bank c bank e xxxxxxxxxxxxxxx xxxxxxxxxxxxxx amount d xxxxxxxxxxxxxx dear xxxxxxxxxxxx this letter is in response to your request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that on date he received a distribution from ira x totaling amount d taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to an error committed by individual b of bank e taxpayer a maintained ira x with bank c in early taxpayer a decided to close ira x at bank c and open a new ira with bank e on date taxpayer a received a distribution from ira x totaling amount d and on the same day he went to bank e and told individual b of bank e that he just closed ira x at bank c and would like to open a new ira with bank e to deposit the distribution check totaling amount d however individual b opened a non-ira account taxpayer a did not discover this error until date when he met with his accountant for preparation of his tax_return for taxpayer a relied on individual b to open a rollover ira taxpayer a represents that amount d has not been used for any other purpose based on the foregoing facts and representations you request that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error committed by individual b of bank e therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the issuance of this letter_ruling to contribute amount d into a rollover ira provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contribution the contribution of amount d will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you have any questions concerning this ruling please contact xxxxxxxxxxxxxx se t ep ra t3 at xxxxxxxxxxxxxxxxx sincerely yours lae ort laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling - notice of intention to disclose cc xxxxxxxxxxxxxxx


department of the treasury internal_revenue_service washington d c date number release date cc dom fs corp uilc internal_revenue_service national_office field_service_advice memorandum for deborah a butler assistant chief_counsel cc dom fs from subject loss disallowance this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend p sec_1 sec_2 sec_3 x y date date date date date date b and c d d e f dollar_figureb dollar_figurec dollar_figured dollar_figuree facts p is the parent of a consolidated_group of corporations on date p owned of the stock of sec_1 which p had purchased on date on date sec_1 incorporated sec_2 in incorporating sec_2 sec_1 contributed cash and its b and c businesses to sec_2 in exchange for sec_2 stock sec_1 retained its d business subsequently sec_1 distributed its sec_2 stock to p on date p formed sec_3 by contributing its sec_1 stock to sec_3 in exchange for sec_3 stock on date sec_1 distributed d to sec_3 which in turn distributed d to p sec_1 recognized a gain of dollar_figureb on the distribution pursuant to sec_311 which was deferred under sec_1 c the d was previously used by sec_1 in its d business on date p and y a wholly- owned subsidiary of x entered into a license agreement with respect to d under the agreement y x and all other subsidiaries of x were granted an irrevocable assignable worldwide perpetual royalty bearing license to use d the license was exclusive for the first two years and nonexclusive thereafter on date sec_3 sold its sec_1 stock to x for dollar_figurec sec_3 claimed a loss on this sale sec_1's deferred gain of dollar_figureb was taken into account at the time of this sale see sec_1_1502-13 p filed an election under sec_1 g to reattribute sec_1 losses to p issue whether sec_1's distribution of d the gain on which sec_1 took into account at the time of sec_3's sale of the sec_1 stock constitutes an extraordinary_gain_disposition as defined in sec_1 c i 1we are assuming the distribution did not qualify as a sec_355 distribution and the transaction was not a d_reorganization 2the facts indicate that sec_1 distributed d to p however we are treating this as a distribution of d from sec_1 to sec_3 which then distributed d to p conclusion we believe you need to come in for a separate fsa on whether the d constitutes property described by sec_1221 or property described in sec_1231 however if the d is property described by sec_1221 or property described in sec_1231 we believe sec_1's distribution of d the gain on which sec_1 took into account at the time of sec_3's sale of the sec_1 stock constitutes an extraordinary_gain_disposition as defined in sec_1 c i issue what is the amount of loss disallowed to the parent on its sale of the subsidiary’s stock under sec_1 conclusion further factual development of this case is necessary to ascertain the amount of loss disallowed to the parent on its sale of the subsidiary’s stock under sec_1 discussion issue sec_1 c i provides that an extraordinary_gain_disposition is- a an actual or deemed disposition of - a capital_asset as defined in sec_1221 determined without the application of any other provision of the code or regulations property used in a trade_or_business as defined in sec_1231 determined without the application of any holding_period requirement an asset described in sec_1221 or if substantially_all the assets in such category from the same trade_or_business are disposed of in one transaction or series of related transactions assets disposed of in an applicable_asset_acquisition under sec_1060 b a change in method_of_accounting resulting in a positive sec_481 adjustment c a discharge_of_indebtedness d any other event or item identified by the commissioner in revenue rulings and revenue procedures an extraordinary_gain_disposition is taken into account under paragraph c i of this section only if it occurs on or after date and results in income or gain for purposes of computing earnings_and_profits determined net of directly related expenses for this purpose federal income taxes may be directly related to extraordinary gain dispositions only to the extent of the excess if any of the group's income_tax_liability actually imposed under subtitle a of the internal_revenue_code for the taxable_year of the extraordinary gain dispositions over the group's income_tax_liability for the taxable_year redetermined by not taking into account the extraordinary gain dispositions for this purpose the group's income_tax_liability actually imposed and its redetermined income_tax_liability are determined without taking into account the foreign_tax_credit under sec_27 of the code property described in sec_1221 includes a copyright a literary musical or artistic composition a letter or memorandum or similar_property held by- a a taxpayer whose personal efforts created such property b in the case of a letter memorandum or similar_property taxpayer for whom such property was prepared or c a taxpayer in whose hands the basis of such property is determined for purposes of determining gain from a sale_or_exchange in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph a or b sec_1231 defines property used in a trade_or_business as property used in a trade_or_business which is subject_to the allowance for depreciation provided in sec_167 held for more than year which is not property includible in the inventory of the taxpayer if on hand at the end of the year or held primarily_for_sale_to_customers in the ordinary course of taxpayer’s business we believe you need to come in for a separate fsa on whether the d constitutes property described by sec_1221 or property described in sec_1231 however if the d is property described by sec_1221 or property described in sec_1231 we believe sec_1's distribution of d the gain on which sec_1 took into account at the time of sec_3's sale of the sec_1 stock constitutes an extraordinary_gain_disposition as defined in sec_1 c i sec_1's deferred gain was triggered into income and reflected in sec_1's earnings_and_profits as well as sec_3's basis in its sec_1 stock at the time of the sale see sec_1_1502-13 sec_1_1502-33 issue we believe all or a portion of loss that s recognized on the distribution of its stock in x is disallowed under sec_1 we are interested in the further development of this issue and you should seek a supplemental field_service_advice on the sec_1 issue once you have developed the facts of this case law and analysis the loss_disallowance_rules the sec_1 loss_disallowance_rules ldr generally provide that no deduction is allowed for any loss recognized by a member with respect to the disposition of stock of a subsidiary disposition means any event in which gain_or_loss is recognized in whole or in part sec_1 a sec_1 c specifies that the amount of loss disallowed under paragraph a with respect to the disposition of a share of stock will not exceed the sum of the following three items extraordinary gain dispositions positive investment adjustments and duplicated_loss extraordinary gains loss on the sale of a share of stock is disallowed to the extent of the share's allocable portion of any member's earnings_and_profits net of directly related expenses eg commissions legal fees state income taxes attributed to actual or deemed gain dispositions occurring after date of capital assets sec_1231 property eg depreciable_property or land used in a trade_or_business bulk sales or other dispositions of nondepreciable 3the sec_1 regulations applicable to the tax_year at issue are the sec_1 regulations prior to amendment by t d these regulations adopt the sec_1_1502-32 investment_adjustment rules applicable to the tax_year at issue prior to amendment by t d business_assets such as inventory copyrights or receivables used in the same trade_or_business dispositions of business_assets described in sec_1060 any positive sec_481 adjustments resulting from a change_of_accounting_method including a change attributable to pre-date periods eg recovery_of lifo reserve income_from_discharge_of_indebtedness not excluded from basis under sec_1503 and any other event or item identified in revenue rulings and revenue procedures sec_1 c i these extraordinary gain dispositions apply only to the extent that immediately before the disposition of the share they are directly or indirectly reflected in the basis of the share after applying the basis_adjustment rules of sec_1503 sec_1_1502-32 and other applicable provisions sec_1 c iii positive investment adjustments in calculating the disallowed loss the regulations consider positive investment adjustments these are the annual earnings_and_profits before distributions other than those covered by the extraordinary gain provisions that result in positive basis adjustments under sec_1_1502-32 and c these earnings_and_profits adjustments apply only to the extent that immediately before the disposition of the share they are directly or indirectly reflected in the basis of the share after applying the basis_adjustment rules of sec_1503 sec_1_1502-32 and other applicable provisions to a limited extent deficits of one year can be offset against earnings_and_profits of another year for tax years ending on or before date however they cannot be netted for years thereafter duplicated_loss the amount of duplicated_loss apportioned to each share is the portion of the loss carryforwards and net built-in losses attributed to the share sec_1 c vi the amounts determined under this paragraph with respect to a subsidiary must include the subsidiary’s allocable portion of corresponding amounts with respect to each of its lower-tiered subsidiaries the duplicated_loss amount is determined immediately after a disposition by first adding the aggregate adjusted_basis of the subsidiary's assets but not the adjusted_basis of its stock_or_securities in a group member any losses attributable to the subsidiary and carried to its first taxable_year after the disposition and any deferred deductions such as passive losses under sec_469 of the subsidiary the total amount is then reduced by the sum of value of the subsidiary's stock liabilities of the subsidiary and any other relevant items case developments hazards and other considerations there are examples in the regulations sec_1 c which illustrate the principles of paragraph c we recommend you review these examples and get back to us if you have any questions regarding the application of the loss_disallowance_rules and whether you need more facts in setting up the issue additionally it is unclear to us whether the taxpayer has not only amounts disallowed under the extraordinary gain register but also amounts disallowed under the positive investment adjustments register and duplicated_loss register first we are unsure whether we have all the facts necessary to determined whether the taxpayer has a duplicated_loss within the meaning of treas reg sec_1 c iii c vi however based on the limited facts provided to us it appears the value of the subsidiary’s stock within the meaning of sec_1 c vi b should be dollar_figurec rather than dollar_figured as a result based on these limited facts it appears the taxpayer has a duplicated_loss further we note that if the distribution of d together with the sale of sec_1 does not constitute an extraordinary_gain_disposition as defined in sec_1 c i the taxpayer may then have some amount of -- or a larger amount of -- loss disallowed under the positive investment_adjustment register we also clarify that the srly loss reattributed to p under sec_1 g reduces sec_3's basis in the sec_2 stock and thus reduces the amount of loss sec_3 recognized on the disposition of the sec_1 stock see sec_1 g example whereas in contrast the dollar_figureb amount of extraordinary gain does not reduce the amount of loss that sec_3 recognized on the disposition instead it is an amount of recognized loss disallowed under treas reg sec_1 a c additionally as already indicated the facts concerning the f stock are unclear furthermore we are unsure of the facts surrounding taxpayer’s apparent assertion that f was an inactive corporation and taxpayer made no investment adjustments with respect to the f stock however you indicate you believe this aspect of the case will not have a material impact on the loss disallowance issue however we are unsure whether this will have a material impact on the loss disallowance issue further we recommend you come in for a separate fsa on whether d constituted property described in either sec_1221 or sec_1231 as you indicate in your incoming the facts are unclear concerning whether d was internally developed or externally purchased or some combination of the two however if the software was internally developed it might not fall under a since if created by employees of the company it may not have been created by the taxpayer's personal efforts revrul_55_706 even though superseded by revrul_62_141 for other reasons indicates that property owned by a corporate taxpayer is not considered as created by the personal efforts of the taxpayer where the employees created the property and all the compensation costs and expenses are paid_by the corporation based on this theory even if facts are developed that indicate that sec_1 developed the software it still might not fall within a additionally the software might not fit into it might not fall under b since software is not similar to a letter or memorandum it may not fall under c because although it has a carryover_basis the taxpayer from whom the basis carried over might not be a taxpayer that fits in a or b lastly we provide no comment on the sec_382 limitation set forth in your memorandum if you have any further questions please call assistant chief_counsel deborah a butler field service by steven j hankin special counsel corporate branch


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-133381-01 date oct x a a year year year year date date date date date this responds to a letter dated date and subsequent correspondence submitted on behalf of a requesting a ruling that the partners of x will not recognize pre-contribution gain under sec_704 or sec_737 as a result of the in-kind distribution of a assets on or after date that were contributed to the partnership on date because the assets were contributed pursuant to a written binding contract for the contribution of a fixed amount of property that was in effect on date and at all times thereafter before such contribution and thus qualified for transitional relief under section b of the taxpayer_relief_act_of_1997 facts the taxpayer represents the following facts plr-133381-01 in year trustor established trusts one for his wife and one for primary benefit of each of his four children there currently are eight year trusts remaining with trustor’s grandchildren as the sole current income beneficiaries each trust owns undivided_interest in a assets and substantial portfolio of investment securities and will terminate upon the earlier of the death of the grandchild or years after the death of the last child during the early year the corporate trustee became increasingly concerned that the orderly control of the a assets might be seriously disrupted if undivided interests passed out of the common_control upon the death of a third generation income_beneficiary and the resulting trust terminated in year the trustee decided to contribute all of the a assets to a partnership the partnership’s original limited_partnership agreement lpa was executed on date and obligated each of the partners to contribute their a assets to the partnership in exchange for limited_partnership interests due to the trustee’s concern that certain beneficiaries of the trusts would oppose the limited_partnership agreement the agreement was made contingent upon obtaining court approval it was also made contingent upon obtaining a ruling from the internal_revenue_service that the partnership was a partnership for federal tax purposes this requirement was subsequently eliminated as unnecessary after the promulgation of the regulations under sec_301_7701-1 through the state court litigation took several years to resolve ultimately on date the court entered an order requiring the trustee to execute a lpa substantially_similar to the amended and restated lpa previously submitted to the court although the amended and restated lpa contained numerous changes from the original lpa no change was made to the partners’ obligation_to_contribute their a assets to the partnership the court authorized the trustee to make further changes to the amended and restated lpa prior to the formation of the partnership subject_to the right of an interested_party to object and hearing by the court the final lpa which contained minor changes to the amended and restated lpa was executed by all parties on date the partnership was formed and the a assets were contributed to the partnership on date although the execution of the final lpa could have occurred any time after date date was chosen because that was the date on which interested trust beneficiaries the trustee and persons involved in managing the a assets have traditionally met in addition the trustee wanted to utilize the interim period to make sure that all administrative details were given proper attention including necessary changes to computer systems and accounting procedures date is prior to date and date is subsequent to it law and analysis section of the taxpayer_relief_act_of_1997 extended from to years the period during which precontribution gain is recognized if property contributed to a partnership plr-133381-01 is distributed in-kind the amendment applies to property contributed to a partnership after its date effective date it does not apply however to any property contributed pursuant to a written binding contract in effect on date and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property conclusion based solely on the facts submitted and the representations made we conclude that the partners of x had a binding contract in effect on date to contribute a assets to x accordingly we conclude that section of the taxpayer_relief_act_of_1997 does not apply and that a will not recognize pre-contribution gain under sec_704 or sec_737 as a result of the in-kind distribution of a assets on or after date except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code 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 david r haglund senior technician chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


significant index number department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division mar tep ra az re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases as identified in your application submission established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status i iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the a ' to the’ and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours cuttery wilbore david m ziegler manager ep actuarial group


internal_revenue_service number release date index number 54a ---------------- ------------------------------------------------------------ ------------------- ------------------------------------------------------------ ------------- ---------------------------- -------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no -------------- telephone number ---------------------- refer reply to cc fip b05 plr-136551-15 date date legend authority -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------------------------------------------- borrower ----------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------- state ----------------- school ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ city system ---------------------------- -------------------------------- bonds ------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ----------------- facility a ----------------------------------------------------------- plr-136551-15 facility b ---------- a date date date date date date dear -------------- ----------------------------------------------------------------------- ---------- ---------------- ------------------------------ --------------------------- ------------------ ------------------ ---------------------- --------------------------- this is in response to your request under sec_54a of the internal_revenue_code the code for an extension of the expenditure period for the available project proceeds of qualified_zone_academy bonds facts and representations authority is a body corporate and politic constituting an instrumentality of state one of the functions of authority is to revitalize communities through redevelopment initiatives authority is empowered to issue bonds for any of its corporate purposes authority issued the bonds on date and designated the bonds as qualified_zone_academy bonds within the meaning of sec_54e authority immediately loaned all sale proceeds of the bonds to borrower a sec_501 organization the exempt_purpose of borrower is to establish and manage ----------------------------schools including school all available project proceeds of the bonds were to be spent on rehabilitating repairing and equipping various public school buildings located in city the project all available project proceeds of the bonds were expected to be spent not later than date the original three-year expenditure period for the bonds under sec_54a will expire on date the original expenditure period however several unexpected events have resulted in an unforeseen delay in the expenditure of the available project proceeds of the bonds plr-136551-15 several years prior to date borrower began discussions with system to purchase facility a from system borrower intended that after acquiring facility a it would rehabilitate facility a and then lease it to school_facility a was a key part of school’s expansion plans based on borrower’s and school’s expectation and system’s assurance that an agreement would soon be reached for a sale of facility a to borrower school entered into a short-term_lease with system for facility a on date several months prior to the issuance of the bonds borrower and system began further negotiations for the sale of facility a based on these negotiations borrower applied to state for authority to issue the bonds upon issuance of the bonds and as negotiations between borrower and system continued on the sale of facility a borrower began the initial pre-development work necessary for rehabilitation of facility a several months after the bonds were issued on date system asked borrower and school to delay purchase of facility a so that system could focus on the sale of another school_facility because school and borrower had worked closely with system for many years they agreed to this delay school and borrower remained confident that if the sale of facility a took place prior to date or approximately months after the bonds were issued all available project proceeds of the bonds would be spent before the original expenditure period expired however approximately one month prior to date just before borrower planned to sign construction contracts and start site preparation work in anticipation of acquiring facility a system suspended all efforts to sell facility a pending resolution of statutory interpretation issues between system and state requisite to the sale thereafter borrower pursued many different facility options for the project when the bonds were issued on date borrower’s plan was to reimburse school for its expenditures on facility a with the available project proceeds however as the sale of facility a became more uncertain borrower and school decided not to seek reimbursement because if borrower was unable to purchase facility a it was unclear whether its expenditures in anticipation of the sale would qualify for qualified_zone_academy_bond financing on date approximately two years after date borrower reached an agreement to purchase facility b however several months later and before the sale could be completed the owner of facility b ended sale negotiations with borrower after apparently determining that it could not sell facility b borrower is now completing due diligence on several facilities to determine the best facility solution for school_facility a will be replaced with one or two facilities which will be purchased by borrower with other funds and rehabilitated within two years after the original expenditure period expires on date or by date expenditure of the available project proceeds of the bonds on rehabilitation at any or all of these facilities is plr-136551-15 permitted under the terms of the qualified_zone_academy_bond allocation received by school from state borrower is confident it will spend all of the available project proceeds of the bonds by date particularly because the rehabilitation repair and equipment costs of the facilities under consideration for the project will exceed the amount of the available project proceeds of the bonds by at least dollar_figurea authority represents that all of the available project proceeds of the bonds will be spent on the project by date which is two years after the original expenditure period expires authority submitted this request for a ruling prior to the expiration of the original expenditure period law and analysis sec_54a provides that a qualified_zone_academy_bond is treated as a qualified_tax_credit_bond for purposes of sec_54a sec_54a provides in part that to the extent that less than percent of the available project proceeds of the issue are expended by the close of the expenditure period for or more qualified purposes the issuer shall redeem all of the nonqualified bonds within days after the end of such period sec_54a provides that for purposes of this subpart the term expenditure period means with respect to any issue the 3-year period beginning on the date_of_issuance such term shall include any extension of such period under clause iii sec_54a provides that upon submission of a request prior to the expiration of the expenditure period determined without regard to any extension under this clause the secretary may extend such period if the issuer establishes that the failure to expend the proceeds within the original expenditure period is due to reasonable_cause and the expenditures_for qualified purposes will continue to proceed with due diligence sec_54a c iv provides that for purposes of this paragraph in the case of a qualified_zone_academy_bond a qualified purpose means a purpose specified in sec_54e sec_54a of the code defines available project proceeds to mean a the excess of i the proceeds from the sale of an issue over ii the issuance costs financed by the issue to the extent that such costs do not exceed percent of such proceeds and b the proceeds from any investment of the excess described in subparagraph a at the time the bonds were issued authority reasonably expected to spend all available project proceeds within the original expenditure period the expected failure to spend plr-136551-15 all available project proceeds of the bonds by the expiration of the original expenditure period was due to reasonable_cause the expected failure was caused by events that were not reasonably expected at the time the bonds were issued and were beyond the control of authority these events caused a significant delay in committing and spending the bond proceeds authority will continue to spend the remaining available project proceeds on the project with due diligence authority expects to spend all available project proceeds not later than date which is two years after the original expenditure period expires conclusion under the facts and circumstances of this case we conclude that authority’s expected failure to expend the available project proceeds of the bonds by date is due to reasonable_cause and that authority’s continued expenditure of the proceeds for qualified purposes will proceed with due diligence therefore authority is granted an extension of the original expenditure period with respect to the bonds until date except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office copies of this letter are being sent to authority’s authorized representatives the ruling contained in this letter is based upon information and representations submitted by authority and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification upon examination sincerely associate chief_counsel financial institutions products s by _________________________ james polfer chief branch