office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b07 gdanderson postf-152162-10 uilc date date third party communication none date of communication not applicable to associate area_counsel miami cc lb_i rfph mia large business international from branch chief branch cc ita income_tax accounting subject change in method_of_accounting and sec_481 adjustment this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer ------------------------------- a ----- b ----- c --------------- d ------------- e ------------- f ------------- g ----------- h ----------- postf-152162-10 j ------- k ----------------- taxable_year l ------- taxable_year m ------- n --------------- date --------------- date ----------- issue sec_1 whether a change in the time for deducting an item of expenditure constitutes a change in method_of_accounting under sec_446 of the internal_revenue_code whether a change from deducting an item of expenditure to capitalizing such item of expenditure constitutes a change in method_of_accounting under sec_446 if the foregoing do constitute changes in method_of_accounting under sec_446 i whether a sec_481 adjustment should be recognized in connection with such changes and if so ii whether the sec_481 adjustment may reflect amounts previously deducted in closed taxable years conclusion sec_1 a change in the time for deducting an item of expenditure constitutes a change in method_of_accounting under sec_446 a change from deducting to capitalizing an item of expenditure constitutes a change in method_of_accounting under sec_446 an adjustment under sec_481 is imposed when a taxpayer’s method_of_accounting for an item of expenditure is changed from earlier deduction to later deduction or capitalization the a adjustment is computed with respect to relevant amounts in all taxable years preceding the year_of_change whether the taxable years are open or closed under the period of limitations on assessment statute_of_limitations postf-152162-10 facts beginning in j taxpayer initiated a legal action against a and b the litigation continued until taxpayer and a executed a settlement agreement on date taxable_year l resolving all pending litigation and disputes the litigation involved two major issues the defendants’ failure to honor taxpayer’s right_of_first_refusal to purchase land and the defendants’ failure to maintain property under the management agreement the settlement agreement awarded dollar_figurec to taxpayer the proceeds consisted of dollar_figured through a line of credit to be used for the development plan and dollar_figuree in cash due on the date the agreement closed of which dollar_figuref would be used to pay existing loan balances dollar_figureg could be used for immediate repairs and upgrades to existing facilities and dollar_figureh could be used for the development plan for proposed renovations development or redevelopment of taxpayer’s facilities on date taxable_year l taxpayer entered into a development agreement with a whereby a would manage supervise and complete a plan for major improvements of taxpayer’s facilities the development agreement obligated taxpayer to use dollar_figured of the settlement proceeds toward the improvement plan taxpayer reported the dollar_figurec of settlement proceeds as income on its taxable_year l tax_return and claimed an expense deduction of this same dollar_figurec documents obtained from taxpayer do not show the extent to which services for repairs or improvements were performed as of december taxable_year l however the documents show that as of december taxable_year m taxpayer had expended over dollar_figurek of the settlement proceeds on the improvements under the development plan moreover the documents indicate the expenditures under the development plan are capital in nature taxpayer has not proven that any expenditures made pursuant to the settlement and development agreements were for deductible repairs taxable_year l is now a closed_year for taxable_year m exam proposes to place taxpayer on correct methods_of_accounting to capitalize expenditures and to deduct expenditures only when economic_performance has occurred pursuant to the imposition of these changes in accounting_method exam proposes to impose an adjustment under sec_481 attributable to the dollar_figuren expense deduction taken in taxable_year l for the settlement proceeds ie dollar_figured for improvements under the development plan dollar_figureg for immediate repairs and upgrades to existing facilities and dollar_figureh for proposed renovations development or redevelopment of taxpayer’s facilities law and analysis sec_446 provides that if no method_of_accounting has been regularly used by the taxpayer or if the method used does not clearly reflect income the computation of taxable_income shall be made under such method as in the opinion of the secretary postf-152162-10 does clearly reflect income see also sec_1_446-1 of the income_tax regulations the commissioner has broad discretion in determining whether a taxpayer’s method_of_accounting clearly reflects income and the commissioner’s determination must be upheld unless it is clearly unlawful see 439_us_522 664_f2d_881 2nd cir cert_denied 457_us_1133 once the commissioner has determined that the taxpayer’s method_of_accounting does not clearly reflect income the commissioner has broad discretion in selecting a method_of_accounting that the commissioner believes properly reflects the income of a taxpayer the commissioner’s selection may be challenged only upon showing an abuse_of_discretion by the commissioner see 420_f2d_352 1st cir 430_f2d_679 9th cir 190_f2d_330 10th cir cert_denied 342_us_860 an examining agent who determines that a taxpayer's method_of_accounting is impermissible may propose an adjustment with respect to that method only by changing the taxpayer's method_of_accounting except as provided in section dollar_figure of revproc_2002_18 2002_1_cb_678 relating to previous accounting_method changes made by a taxpayer without obtaining the requisite consent under sec_446 an examining agent changing a taxpayer's method_of_accounting will select a new method_of_accounting by properly applying the law to the facts determined by the agent the method selected must be a proper method_of_accounting and will not be a method contrived to reflect the hazards_of_litigation see revproc_2002_18 sec_3 dollar_figure to an examining agent changing a taxpayer's method_of_accounting will make the change in a year under examination ordinarily the change will be made in the earliest taxable_year under examination or if later the first taxable_year the method is considered to be impermissible although an examining agent may defer the year_of_change to a later taxable_year in appropriate circumstances an examining agent will not defer the year_of_change in order to reflect the hazards_of_litigation moreover an examining agent will not defer the year_of_change to later than the most recent year under examination on the date of the agreement finalizing the change see revproc_2002_18 sec_5 an examining agent changing a taxpayer's method_of_accounting ordinarily will impose a sec_481 adjustment subject_to a computation of tax under sec_481 if applicable the sec_481 adjustment whether positive or negative will be taken into account entirely in the year_of_change see sec_1_448-1 revproc_2002_18 sec_5 postf-152162-10 what constitutes a change in method_of_accounting sec_1_446-1 provides that a change in method_of_accounting includes a change in the overall plan of accounting for gross_income or deductions or a change in the treatment of any material_item used in such overall plan a material_item includes any item that involves the proper time for the inclusion of the item in income or the taking of a deduction in determining whether timing is involved generally the pertinent inquiry is whether the accounting practice permanently affects the taxpayer's lifetime income or merely changes the taxable_year in which taxable_income is reported see revproc_97_27 1997_1_cb_680 sec_2 revproc_2002_9 2002_1_cb_327 sec_2 revproc_91_31 1991_1_cb_566 78_tc_705 743_f2d_781 11th cir 415_f2d_1341 7th cir an accounting practice that involves the timing of when an item is included in income or when it is deducted is considered a method_of_accounting 112_tc_270 color arts inc v commissioner t c memo although a method_of_accounting may exist under the definition in sec_1 e ii a without the necessity of a pattern of consistent treatment in most instances a method_of_accounting is not established for an item without such consistent treatment see sec_1_446-1 the treatment of a material_item in the same way in determining the gross_income or deductions in two or more consecutively filed tax returns without regard to any change in status of the method as permissible or impermissible represents consistent treatment of that item for purposes of sec_1_446-1 if a taxpayer treats an item properly in the first return that reflects the item however the taxpayer has adopted a method_of_accounting for that item see revrul_90_38 1990_1_cb_57 a change in accounting_method does not include correction of mathematical or posting errors or errors in the computation of tax_liability also a change in method_of_accounting does not include adjustment of any item_of_income or deduction that does not involve the proper time for the inclusion of the item_of_income or the taking of a deduction for example a change from treating an item as a personal_expense to treating it as a business_expense is not a change in method_of_accounting because it does not involve the proper timing of an item_of_income or deduction see sec_1_446-1 where the correction_of_an_error results in a change in accounting_method the requirements of sec_446 are applicable 126_tc_322 88_tc_1069 diebold inc v united_states cl_ct 891_f2d_1579 fed cir cert_denied 498_us_823 postf-152162-10 under the foregoing principles a consistent practice for determining when a taxpayer recognizes deductions for a type of expense generally constitutes a method_of_accounting and a change from one such practice to another generally constitutes a change in method_of_accounting thus a change from deducting officers’ bonuses in the year they are declared to deducting the bonuses in the year following the declaration year constitutes a change in method_of_accounting summit sheet metal co v commissioner t c memo and a change from deducting real_estate_taxes when paid to deducting these taxes when incurred is also a change in method_of_accounting sec_1_446-1 example courts have found accounting_method changes in similar circumstances involving a variety of different types of expenses including vacation pay 317_f2d_604 2nd cir interest 50_tc_750 aff’d 415_f2d_1341 7th cir 28_fedclaims_320 882_f2d_820 3rd cir customer rebates 743_f2d_781 11th cir and related_party payables bosamia v commissioner 661_f2d_250 5th cir similarly a change from deducting an expense when paid_or_incurred to capitalizing such expense or vice versa generally constitutes a change in method_of_accounting expensing and capitalization generally result in the same cumulative taxable_income over the lifetime of the taxpayer for example an expenditure of dollar_figure that is deducted in full when it is paid_or_incurred reduces a taxpayer’s lifetime taxable_income by dollar_figure if the same expenditure is capitalized taxpayer’s lifetime taxable_income will also be reduced by dollar_figure through deductions for depreciation or amortization recognition of basis resulting in a reduction of gain or an increase of loss on sale or disposition of the asset or a combination of the foregoing treating changes between expensing and capitalization as changes in method_of_accounting is supported by sec_1_446-1 which provides that a correction to require depreciation or amortization in lieu of a deduction for the cost of depreciable or amortizable assets that had been consistently treated as an expense in the year of purchase or vice versa is a change in method_of_accounting see also 114_tc_293 change in treatment of ‘dismantlement removal and restoration costs’ from deduction when work is performed to capitalization constituted accounting_method change 114_tc_473 aff’d 253_f3d_711 11th cir change in treatment of preproductive citrus growing costs from deduction to capitalization 115_tc_554 change in treatment of asset costs from capitalizing and depreciating to deducting when incurred constituted accounting_method change sunoco inc v commissioner t c memo change in treatment of miner’s ‘overburden removal costs’ from developmental costs spread as deductions to production_costs included in cost_of_goods_sold constituted a change in method_of_accounting and 75_tc_497 supplemented by 82_tc_122 change in treatment of certain railway maintenance_expenses from postf-152162-10 capitalization into embankments to deduction as work is performed constitutes a change in method_of_accounting whether exam’s adjustments constitute changes in method_of_accounting under sec_446 exam’s contemplated adjustments fall into two general categories first exam proposes to correct the treatment of certain items of expense by changing the taxpayer from claiming a deduction for the expense items before economic_performance has occurred with respect to these items to claiming a deduction only when economic_performance has occurred second exam proposes to correct the treatment of other items of expense by changing taxpayer from deducting the expense items to capitalizing the expense items both categories of adjustments constitute changes in methods_of_accounting taxpayer’s first category of adjustments - changing the time when a deduction is claimed for an expense item - constitute changes in methods_of_accounting because these adjustments are changes in the treatment of items that involve the proper times for the taking of deductions these changes do not permanently affect taxpayer’s lifetime taxable_income they merely change the taxable years in which deductions and the attendant reductions in taxable_income -- are reported similarly taxpayer’s second category of adjustments - changing from expensing to capitalization - also constitute changes in methods_of_accounting because these changes affect only the timing of taxable_income recognition and have no permanent impact on the cumulative amount of taxable_income claiming an immediate deduction for these expense items has the same impact upon taxpayer’s lifetime taxable_income as capitalizing these costs and recovering them over time as depreciation amortization or basis sec_481 adjustments sec_481 provides that in computing the taxpayer's taxable_income for any taxable_year year_of_change if such computation is under a method_of_accounting different from the method under which the taxpayer's taxable_income for the preceding_taxable_year was computed then there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted except there shall not be taken into account any adjustment in respect of any taxable_year to which this section does not apply unless the adjustment is attributable to a change in the method_of_accounting initiated by the taxpayer see also sec_1_448-1 a change in method_of_accounting to which sec_481 applies includes a change in treatment of a single material_item see sec_1_481-1 343_f2d_568 5th cir knight-ridder v united_states postf-152162-10 f 2d pincite peoples bank trust v commissioner f 2d pincite 42_tc_386 once the commissioner has imposed a change in method_of_accounting the application of sec_481 to such change is patent and mandatory 78_tc_705 emert v commissioner t c memo hitachi sales corp of america v commissioner t c memo supp t c memo an adjustment under sec_481 can include amounts attributable to taxable years that are closed by the statute_of_limitations 114_tc_1 aff’d 273_f3d_875 9th cir 126_tc_322 aff’d 518_f2d_357 6th cir graff chevrolet co v campbell f 2d pincite 138_f3d_1286 9th cir 80_tc_895 395_f2d_500 10th cir spang industries inc v united_states cl_ct rev’d on other grounds 791_f2d_906 fed cir should sec_481 adjustments be recognized for the accounting_method changes imposed by exam may such adjustments reflect amounts attributable to closed taxable years as concluded above the adjustments contemplated by exam constitute changes in method_of_accounting accordingly once they are imposed the computation and recognition of an appropriate adjustment under sec_481 becomes mandatory to eliminate any distortions duplications or omissions of income or deductions caused by the accounting_method change the sec_481 adjustment reflects relevant amounts from any taxable years preceding the year_of_change taxable_year m even if such years are closed by the statute_of_limitations thus if taxpayer deducted certain amounts in taxable_year l under its old method_of_accounting and will be able to deduct or otherwise recover those same amounts again in the year_of_change or subsequent taxable_year s then positive amounts increases to taxable_income will be recognized under sec_481 to eliminate the double deduction that would otherwise result despite taxable_year l being now closed under the statute_of_limitations compare earthquake sound corp v commissioner t c memo sec_481 adjustment to eliminate duplicated deductions resulting from accounting_method change could be imposed even though related years in which duplicate deductions were taken have been closed by the statute_of_limitations case development hazards and other considerations no opinion is expressed or implied on i whether economic_performance occurred in taxable_year l with respect to any of the expenditures at issue ii whether any of postf-152162-10 the expenditures at issue are capital expenditures or iii the tax treatment of the settlement proceeds of dollar_figuref received by taxpayer for the repayment of a loan this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc it a 3-plr-127247-00 date date legend taxpayer partnership accountant a x accountant b accountant c dollar_figurex dear this is in reply to the private_letter_ruling request in which the taxpayer requests an extension of time to make an election under sec_108 of the internal_revenue_code specifically the taxpayer has requested an extension of time to make an election under sec_108 and sec_1 c -1 of the income_tax regulations to reduce the basis of depreciable_property and to exclude income resulting from the discharge of qualified_real_property_business_indebtedness facts partnership is a limited_liability_company which is treated as a partnership for federal_income_tax purposes taxpayer is an s_corporation and is a partner in partnership partnership was allocated dollar_figurex cancellation_of_indebtedness_income accountant a was responsible for preparing partnership’s federal_income_tax return accountant a delivered the k-1s to taxpayer after taxpayer had already filed its income_tax return for the year in which the cancellation_of_indebtedness_income should have been reported therefore taxpayer failed to include the cancellation_of_indebtedness_income and plr-127247-00 failed to make the election on form_982 however taxpayer filed its return consistent with having made the election if the late election is granted then the only change to taxpayer’s return will be the attachment of form_982 taxpayer’s president has submitted an affidavit consistent with the above stated facts applicable law sec_108 of the code provides that gross_income does not include any amount includible in gross_income by reason of the discharge_of_indebtedness if in the case of a taxpayer other than a c_corporation the indebtedness discharged is qualified_real_property_business_indebtedness sec_108 provides that the taxpayer must make an election in order to take advantage of the exclusion provided by sec_108 sec_108 of the code provides that in the case of a partnership sec_108 and sec_108 shall be applied at the partner level sec_1 c -1 b of the income_tax regulations provides that the election available under sec_108 must be made on the timely-filed including extensions federal_income_tax return for the taxable_year in which the taxpayer has discharge_of_indebtedness income that is excludible from gross_income under sec_108 the election is to be made on a completed form_982 sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections other than automatic changes covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer-- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- plr-127247-00 i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 states that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money analysis taxpayer requested relief before the failure to make the election was discovered by the service therefore taxpayer is deemed to have acted reasonably and in good_faith under sec_301_9100-3 in addition based on the facts as represented we have determined that sec_301_9100-3 does not apply under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested in this case taxpayer filed the return consistent with making a timely election under sec_1_108-5 of the regulations by excluding the cod income on taxpayer’s income_tax return however taxpayer did not make the proper election with the return because form_982 was not attached to the return therefore taxpayer is not requesting permission to make a late election that will alter a return position the only difference between the tax_return as filed and the tax_return if the elections are granted is the attachment of form_982 therefore the return position will not be altered if a late election is permitted therefore sec_301_9100-3 does not apply to taxpayer furthermore based on the facts as represented we have determined that the interests of the government will not be prejudiced by the granting of relief conclusion plr-127247-00 based solely on the facts as represented and the applicable law we conclude that the request for relief under sec_301_9100-3 of the regulations should be granted accordingly taxpayer is granted an extension of time of days from the date of this letter to file an amended_return making the election under sec_108 of the code the election is to be made on form_982 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 or facts assumed in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this letter does not rule on whether the income at issue is properly treated as cancellation_of_indebtedness_income this letter also does not rule on whether the income can be excluded from gross_income under sec_108 of the code a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directly only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely assistant chief_counsel income_tax accounting by christopher f kane assistant to the chief branch enclosure copy for sec_6110 purposes


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-111742-08 date september x ---------------------------------------- --------------- date ------------------------- date ------------------ date -------------------- a ---------------------------------------- --------------------------- b ------------------------------------------- ------------------- dear --------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code x made an election to be treated as an s_corporation x’s election was inadvertently terminated effective date when a an ineligible s_corporation shareholder became the owner of x stock x discovered this problem on date and on date entered into an agreement to transfer the x stock owned by a to b an eligible s_corporation shareholder x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of plr-111742-08 sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on date was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 this ruling is conditioned upon the shareholders of x including in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 making any adjustments to basis as provided in sec_1367 and taking into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this letter_ruling shall be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-111742-08 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representatives sincerely michael skeen acting chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 b06 plr-150115-10 date date re request for extension of time to make a sec_197 election legend taxpayer date date date ---------------------------------------- ---------------------- ------------------------ --------------------------- ------------------ taxpayer official ---------------------------------------- ---------------------------------------- taxpayer official -------------------------------------------------- ----------------------------------------------------------------------------- --- ------------- tax professional s t p ------------------------ --------------------------- -------------------------------------- ------------------- ----------------------------------------- plr-150115-10 b ----------------------------------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administrative regulations to make the election under sec_197 of the internal_revenue_code and sec_1_197-2 of the income_tax regulations for certain sec_197 intangibles acquired in the taxable_year ended date facts taxpayer represents that the facts are as follows for the taxable_year ended date taxpayer owned s which in turn owned t pursuant to a stock purchase agreement entered into on date s sold the stock of t to b in exchange for cash and percent of the stock of p the parent of b the stock purchase agreement provided that at b’s option s and b would make a sec_338 election if the parties made this election the agreement also provided that the parties would make a gain recognition election under sec_197 taxpayer as the common parent of s and b made a timely election under sec_338 however taxpayer did not make an election under sec_197 and sec_1_197-2 for its taxable_year ending on date the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year information affidavits and representations submitted by taxpayer taxpayer official taxpayer official and tax professional explain the circumstances that resulted in the failure to timely file a valid election under sec_197 the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 to make the election under sec_197 and sec_1_197-2 to recognize gain on the disposition of the sec_197 intangibles in the transaction at issue on its federal_income_tax return for the taxable_year ended date law and analysis plr-150115-10 sec_197 provides that a taxpayer shall be entitled to an amortization deduction with respect to any amortizable sec_197 intangible sec_197 provides that in general the term amortizable sec_197 intangible means any sec_197 intangible which is acquired after date and which is held in connection with the conduct_of_a_trade_or_business sec_197 provides in part that the term sec_197 intangible means goodwill going_concern_value and other identified intangible assets sec_197 provides in part that the term amortizable sec_197 intangible shall not include any sec_197 intangible which is goodwill going_concern_value or for which depreciation or amortization would not have been allowable but for sec_197 and which is acquired after date if the intangible was held or used at any time on or after date and on or before date by the taxpayer or a related_person sec_197 provides in part that a person is related to any person if the related_person bears a relationship to such person specified in sec_267 or sec_707 in applying sec_267 or sec_707 percent shall be substituted for percent however sec_197 provides that sec_197 would not apply to an intangible acquired by the taxpayer but for the percent substitution rule_of sec_197 and the person from whom the taxpayer acquired the intangible elects to recognize gain on the disposition of the intangible and pay a tax on such gain which when added to any other income_tax on such gain equals such gain multiplied by the highest_rate of income_tax applicable to such person sec_1_197-2 provides that a sec_197 intangible qualifies for the gain-recognition exception if a the taxpayer acquires the intangible from a person that would not be related to the taxpayer but for the substitution of percent for percent under sec_1_197-2 and b that person whether or not otherwise subject_to federal_income_tax elects to recognize gain on the disposition of the intangible and agrees notwithstanding any other provision of law or treaty to pay for the taxable_year in which the disposition occurs an amount of tax on the gain that when added to any other federal_income_tax on such gain equals the gain on the disposition multiplied by the highest marginal_rate of tax for that taxable_year sec_1_197-2 provides that the anti-churning_rules of sec_1_197-2 apply to a sec_197 intangible that qualifies for the gain-recognition exception only to the extent the acquiring taxpayer's basis in the intangible exceeds the gain recognized by the transferor sec_1_197-2 provides that the election described in sec_1_197-2 must be made by the due_date including extensions of time of the electing taxpayer's federal_income_tax return for the taxable_year in which the disposition occurs the election is made by attaching an election statement satisfying the requirements of sec_1_197-2 to the electing taxpayer's original or amended income_tax return for that taxable_year or by filing the statement as a return for the taxable_year under plr-150115-10 h xi in addition the taxpayer must satisfy the notification requirements of sec_1_197-2 the election is binding on the taxpayer and all parties whose federal tax_liability is affected by the election sec_1_197-2 provides that a taxpayer making an election under sec_1_197-2 with respect to the disposition of a sec_197 intangible must provide written notification of the election on or before the due_date of the return on which the election is made to the person acquiring the sec_197 intangible in addition a partnership or s_corporation making an election under sec_1_197-2 must attach to the schedule_k-1 furnished to each partner or shareholder a written_statement containing all information necessary to determine the recipient's additional tax_liability under sec_1_197-2 sec_1_197-2 provides that an election statement satisfies the requirements of sec_1_197-2 if it is in writing and contains the information listed below the required information should be arranged and identified in accordance with the following order and numbering system a the name and address of the electing taxpayer b except in the case of a taxpayer that is not otherwise subject_to federal_income_tax the taxpayer_identification_number tin of the electing taxpayer c a statement that the taxpayer is making the election under sec_197 d identification of the transaction and each person that is a party to the transaction or whose tax_return is affected by the election including except in the case of persons not otherwise subject_to federal_income_tax the tin of each such person e the calculation of the gain realized the applicable_rate of tax and the amount of the taxpayer's additional tax_liability under sec_1_197-2 f the signature of the taxpayer or an individual authorized to sign the taxpayer's federal_income_tax return under sec_301_9100-1 the commissioner has discretion upon a showing of good cause to grant a reasonable extension of time for making the election under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-150115-10 conclusions based solely on the facts and circumstances submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the election under sec_197 for its taxable_year ended date and to provide written notification of the election to the person that acquired the sec_197 intangibles as required by sec_1_197-2 this election must be made by taxpayer filing an amended federal_income_tax return for its taxable_year ending on date with the election statement satisfying the requirements of sec_1_197-2 and with the payment of tax required by sec_1_197-2 and taxpayer providing written notification of the election to the person who acquired the sec_197 intangibles see sec_1 h iii and vi except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether taxpayer qualifies to make an election under sec_197 and sec_1_197-2 or whether taxpayer and b made a valid sec_338 election in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate operating division director this letter_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 kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court opal cassandra sharp petitioner v commissioner of internal revenue respondent docket no filed date opal cassandra sharp pro_se mark a nelson for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency of dollar_figure in peti- tioner’s federal_income_tax tax for her taxable_year the issues for decision for petitioner’s taxable_year are is petitioner entitled to a dependency_exemption deduction under sec_151 a for each of mls and mss we hold that she is not is petitioner entitled to the child_tax_credit under sec_24 with respect to each of mls and mss we hold that she is not is petitioner entitled to the earned_income_tax_credit under sec_32 with respect to each of mls and mss we hold that she is not is petitioner entitled to head_of_household filing_status under sec_2 we hold that she is not findings_of_fact some of the facts have been stipulated and are so found petitioner resided in california at the time she filed the petition as of the time of trial petitioner had been residing with walter griffin mr griffin for approximately years petitioner and mr griffin never married during at least petitioner owned the residence in which she and mr griffin lived and had an outstanding loan secured_by a mortgage on that residence mort- gage loan 1all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure petitioner was unemployed during january and date because her employer of years had discharged her and certain other employees in connec- tion with its commencing a bankruptcy proceeding petitioner was unable to find other work until date as a result the wages that petitioner received during totaled only dollar_figure she also received during that year so-called rtaa ie reemployment trade adjustment assistance payments totaling dollar_figure petitioner did not have any other income for her taxable_year because her employment had been terminated when her employer of years commenced a bankruptcy proceeding petitioner was unable during to make all of the required monthly payments on her mortgage loan and began to receive assistance from the california housing finance agency mortgage assis- tance corporation during january through date that corporation made the required monthly payments on petitioner’s mortgage loan that totaled dollar_figure mr griffin is the biological father of kadumu pamoja griffin kadumu griffin kadumu griffin and latasha s humphrey ms humphrey are the biological parents of mls and mss mr griffin is the biological grandfather of mls and mss sometimes collectively children petitioner is not biologically related to ms humphrey kadumu griffin mls or mss on date ms humphrey signed a document titled temporary guardianship agreement temporary guardianship document petitioner and mr griffin did not sign that document the temporary guardianship document was a preprinted form on which ms humphrey had supplied certain information reflect- ing her desires with respect to the temporary custody of her children according to the temporary guardianship document ms humphrey granted temporary custody of mls and mss to petitioner and mr griffin for the period date to date at the time ms humphrey signed the temporary guardian- ship document there was an understanding between ms humphrey and petitioner and mr griffin that the children were to live temporarily with petitioner and mr griffin during the period indicated in that document which was to end on date when they were to return to live with ms humphrey no agency authorized to place children for adoption or for foster care by the state of california or by the governing body of a city town or other municipality in california approved or had any other role in ms humphrey’s granting tempo- rary custody of her children to petitioner and mr griffin pursuant to the under- standing that they had when ms humphrey signed the temporary guardianship document moreover at no time during were the children placed in peti- tioner’s custody as foster children although ms humphrey did not indicate in the temporary guardianship document that mss and mls were to return to live with her before date she asked petitioner and mr griffin to return the children to her before that date that was because ms humphrey believed that she was ready to take care of them pursuant to ms humphrey’s request on date mss and mls returned to live with her within two days ms humphrey changed her mind and concluded that she was not ready to take care of her children on date they returned to live with petitioner and mr griffin although ms humphrey indicated in the temporary guardianship document that mls and mss were to return to live with her on date those children did not return to live with her until date a few months later in date mls returned to live with petitioner and mr griffin that was because mls was having certain behavioral problems at school that ms humph- rey had concluded she was not able to handle at the time in date that mls returned to live with petitioner and mr griffin there was no understanding between them and ms humphrey regard- ing how long mls was to live with them however ms humphrey and petitioner and mr griffin did have an understanding at that time that mls’ return to them in date was a temporary arrangement that was to last only until they had provided mls with the help and guidance that mls needed to resolve mls’ behavioral problems in this connection petitioner and mr griffin had at an earlier time contemplated seeking permanent legal custody of mls and mss however they decided that it would be in the best interests of the children if they were reunited with and lived with their mother ms humphrey after she was stable and was able to care for them while mls and mss were living with petitioner and mr griffin during petitioner paid dollar_figure for certain after-school care during that period petitioner also purchased for the children certain clothes costing at least dollar_figure certain shoes costing at least dollar_figure certain school photographs costing dollar_figure and certain materials for a school project costing dollar_figure while mls and mss were living with petitioner and mr griffin during petitioner also paid for certain karate classes costing dollar_figure a whale-watching tour costing dollar_figure and occasional trips to mcdonald’s during petitioner paid certain monthly homeowners_association fees of dollar_figure and certain gas bills and internet-access bills in amounts not established by the record during mr griffin who was self-employed paid all of the electric bills for the house in which he and petitioner resided petitioner timely filed form_1040 u s individual_income_tax_return for her taxable_year return in that return petitioner reported total income of dollar_figure and claimed head_of_household filing_status a depend- ency exemption deduction for each of mls and mss and with respect to each of mls and mss the child_tax_credit and the earned_income_tax_credit in the tax_return that ms humphrey filed for her taxable_year she claimed a dependency_exemption deduction for each of mls and mss respondent issued a notice_of_deficiency notice to petitioner with respect to her taxable_year in that notice respondent determined to disallow the dependency_exemption deduction for each of mls and mss that petitioner had claimed in her return respondent also determined to disallow with respect to each of mls and mss the child_tax_credit and the earned_income_tax_credit that petitioner had claimed in that return respondent further determined to disallow petitioner’s claimed head-of-household filing_status 2in her return petitioner claimed that the relationship to her of each of mls and mss was grandchild opinion petitioner bears the burden of establishing that the determinations in the notice are erroneous see rule a 290_us_111 dependency_exemption deduction sec_151 provides an exemption for each dependent of the taxpayer as defined in sec_152 sec_152 defines the term dependent to include a qualifying_child see sec_152 or a qualifying_relative see sec_152 sec_152 defines the term qualifying_child as follows sec_152 dependent defined c qualifying_child --for purposes of this section-- in general --the term qualifying_child means with respect to any taxpayer for any taxable_year an individual-- a who bears a relationship to the taxpayer described in paragraph b who has the same principal_place_of_abode as the taxpayer for more than one-half of such taxable_year c who meets the age requirements of paragraph d who has not provided over one-half of such individual’s own support for the calendar_year in which the taxable_year of the taxpayer begins and e who has not filed a joint_return other than only for a claim of refund with the individual’s spouse under sec_6013 for the taxable_year beginning in the calendar_year in which the taxable_year of the taxpayer begins as pertinent here for purposes of sec_152 an individual meets the age requirements if that individual is under age see sec_152 as pertinent here sec_152 provides that a person bears a relation- ship to the taxpayer for purposes of sec_152 if such individual is-- a a child of the taxpayer or a descendant of such a child or b a brother sister stepbrother or stepsister of the taxpayer or a descendant of any such relative as pertinent here sec_152 defines the term child for purposes of sec_152 to mean either a son daughter stepson or stepdaughter of the tax- payer sec_152 or an eligible_foster_child of the taxpayer sec_152 sec_152 defines the term eligible_foster_child for purposes of sec_152 to mean an individual who is placed with the taxpayer by an authorized_placement_agency or by judgment decree or other order of any court of competent jurisdiction it is petitioner’s position that she is entitled for her taxable_year to a dependency_exemption deduction under sec_151 for each of mls and mss in support of her position petitioner advances the following argument on brief i am relying on the facts that i had a temporary custody agreement in place the children lived in my residence longer than six months and i provided more than half of the children’s support for the taxable_year these facts prove i rated sic to claim the children and file head_of_household on my income_tax return it appears from the above-quoted argument of petitioner that she believes that for her taxable_year each of mls and mss is a qualifying_child as defined in sec_152 with respect to her assuming arguendo that we were to accept all of the factual contentions on which petitioner relies in advancing her argument in support of her position that for her taxable_year she is entitled to a dependency_exemption deduction for each of mls and mss that argument does not address whether each of mls and mss satisfies the part of the definition of the term qualifying_child that is set forth in sec_152 namely whether for petitioner’s taxable_year each of the children bore a relationship to her that is described in sec_152 see sec_152 the record establishes and respondent points out on brief that during neither mls nor mss was by blood or by adoption a child of petitioner or a descendant of a child of petitioner or a brother sister stepbrother or stepsister of hers or a descendant of any such relative see sec_152 the record also establishes and respondent also points out on brief that during neither mls nor mss was a stepson or stepdaughter sec_152 or an eligible_foster_child sec_152 of petitioner although it is not altogether clear it appears that petitioner believes that for her taxable_year each of mls and mss was a descendant of a child of hers within the meaning of sec_152 in order to hold that belief petitioner must think that because in she had lived with mr griffin for approximately years he was her common_law husband during that year consequently as we understand petitioner’s reasoning kadumu griffin mr griffin’s son was her stepson during and each of mls and mss was a descendant of that stepson during that year thereby satisfying the relationship requirement in sec_152 and with respect to each of those children for her taxable_year the premise of what we understand to be petitioner’s belief regarding her relationship to each of mls and mss during namely that mr griffin was her common_law husband during that year is wrong consequently her reasoning as to why for her taxable_year she has the relationship to each of mls and mss that sec_152 and requires is flawed the state of california does not recognize common_law marriages between its own domiciliaries see eg norman v norman p cal estate of edgett cal rptr ct app a relationship based upon mere cohabitation is not recognized as a marriage in the state of california see eg elden v sheldon p 2d cal on the record before us we find that kadumu griffin was not petitioner’s stepson during her taxable_year on that record we further find that neither mls nor mss was a descendant of a stepson or other child of petitioner during that taxable_year on the record before us we find that for petitioner’s taxable_year neither mls nor mss is a qualifying_child as defined in sec_152 with respect to her and that therefore neither is her dependent as defined in sec_152 3the state of california does however recognize common_law marriages validly created in other states that allow such marriages see eg etienne v dkm enters inc cal rptr ct app we do not understand petitioner to be taking the position and the record does not establish that she and mr griffin have a validly executed common_law marriage in a state other than california 4we do not understand petitioner to be taking the position that each of mls and mss is a dependent described in sec_152 because each is a qualifying_relative as defined in sec_152 assuming arguendo that she had advanced that position on the record before us we would reject it on that record we would find that petitioner has failed to carry her burden of establishing inter alia that for continued based upon our examination of the entire record before us we find that petitioner has failed to carry her burden of establishing that for her taxable_year she is entitled under sec_151 to a dependency_exemption deduction for each of mls and mss child_tax_credit sec_24 provides a credit with respect to each qualifying_child of the taxpayer as pertinent here sec_24 defines the term qualifying_child as a qualifying_child of the taxpayer as defined in sec_152 who has not attained age it is petitioner’s position that she is entitled for her taxable_year to the child_tax_credit under sec_24 for each of mls and mss we have found that for petitioner’s taxable_year neither mls nor mss is a qualifying_child as defined in sec_152 with respect to her continued each of mls and mss had the same principal abode as petitioner see sec_152 h sec_1_152-1 income_tax regs 5the parties agree that at all relevant times each of mls and mss was under years old on the record before us we find that for petitioner’s taxable_year neither mls nor mss is a qualifying_child as defined in sec_24 with respect to her based upon our examination of the entire record before us we find that for her taxable_year petitioner is not entitled to the child_tax_credit under sec_24 with respect to each of mls and mss earned_income_tax_credit sec_32 permits an eligible_individual an earned_income_credit against that individual’s tax_liability as pertinent here the term eligible individ- ual is defined to mean any individual who has a qualifying_child for the taxable_year sec_32 as pertinent here sec_32 defines the term qualifying_child to mean a qualifying_child of the taxpayer as defined in sec_152 it is petitioner’s position that she is entitled for her taxable_year to the earned_income_tax_credit under sec_32 with respect to each of mls and mss 6the amount of the credit is determined on the basis of percentages that vary depending on whether the taxpayer has one qualifying_child two or more qualifying children or no qualifying children see sec_32 and b and we have found that for petitioner’s taxable_year neither mls nor mss is a qualifying_child as defined in sec_152 with respect to her on the record before us we find that for petitioner’s taxable_year neither mls nor mss is a qualifying_child as defined in sec_32 with respect to her based upon our examination of the entire record before us we find that petitioner has failed to carry her burden of establishing that for her taxable_year she is entitled to the earned_income_tax_credit under sec_32 with respect to each of mls and mss head_of_household filing_status sec_1 provides a special tax_rate for an individual who qualifies as a head_of_household as pertinent here sec_2 provides that an unmarried individual shall be considered a head of a household if that individual main- tains as his home a household which constitutes for more than one-half of such taxable_year the principal_place_of_abode of a qualifying_child of the individual as defined in sec_152 sec_2 or any other person who is a dependent of the taxpayer if the taxpayer is entitled to a deduction for the taxable_year for such person under sec_151 sec_2 it is petitioner’s position that she is entitled for her taxable_year to head_of_household filing_status under sec_2 we have found that petitioner has failed to carry her burden of establishing that for her taxable_year each of mls and mss is a qualifying_child as defined in sec_152 with respect to her we have also found that petitioner has failed to carry her burden of establishing that for her taxable_year she is entitled under sec_151 to a dependency_exemption deduction for each of mls and mss based upon our examination of the entire record before us we find that petitioner has failed to carry her burden of establishing that for her taxable_year she is entitled to head_of_household filing_status under sec_2 we have considered all of the parties’ contentions and arguments that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing decision will be entered for respondent


internal_revenue_service index no number release date cc ebeo br1 - plr-104688-99 date board state x model plan this is in response to your letter dated date on behalf of the board requesting a ruling on the federal tax consequences of the model plan state x promulgated the model plan which may be adopted by local public employers in state x for the benefit of their employees and intends it to be an eligible_deferred_compensation_plan under sec_457 of the internal_revenue_code_of_1986 the code the model plan has been or will be adopted only by employers that are state or local governmental entities described in sec_457 in the internal_revenue_service the irs ruled that the model plan as amended and restated at that time was an eligible_state_deferred_compensation_plan as defined in sec_457 the model plan has been amended and restated again to include several amendments effective in and under the model plan an employee may elect to defer compensation he or she would have received for services rendered to an employer in any taxable_year the deferral extends until the participant reaches age separates from service or has an unforeseeable_emergency the election to defer compensation must be made by the 10th of the calendar month before any payroll date the model plan provides for a maximum amount that may be deferred by a participant in any taxable_year and for a catch-up computation for amounts deferred for one or more of the participant’s last three taxable years ending before normal_retirement_age under the model plan the amounts that may be deferred under the annual maximum limitation and the catch-up provision are within the limitations set out in sec_457 of the code with certain limitations a participant or beneficiary or an alternate_payee as described below may elect the manner in which his or her deferred amounts will be distributed the election must be made prior to the date any amounts become payable to the participant or beneficiary under the model plan if the participant or beneficiary fails to make a timely election concerning distribution of the deferred amounts distributions are made at the time and in the manner prescribed by the model plan regardless of who makes the election the manner and time of benefits must meet the distribution_requirements of sec_401 and sec_457 of the code the model plan allows segregation of accounts on behalf of and payments to an alternate_payee pursuant to a plan certified domestic_relations_order a pcdro a pcdro is defined in the model plan as a domestic_relations_order determined by a specified agency to meet the requirements of a qualified_domestic_relations_order within the meaning of code sec_414 the model plan provides that no distribution may be made to an alternate_payee before the amount distributed would otherwise be available to the participant that the rights of an alternate_payee may never be greater than those of the participant and that an alternate_payee may not receive a distribution for an unforeseeable_emergency an alternate_payee may direct the investment of amounts segregated on his or her behalf however the model plan does permit one exception to the above distribution_requirements the model plan in accordance with sec_457 of the code includes a provision permitting an in-service distribution of dollar_figure or less from a participant’s account provided that the total amount payable to the participant under the model plan does not exceed the dollar limit under sec_411 currently dollar_figure the participant had not previously received an in-service distribution of the total payable to him or her under the model plan no amount had been deferred under the model plan for the participant during the two-year period ending on the date of such in-service distribution and the participant has elected to receive the distribution the model plan further provides that all amounts of compensation deferred pursuant to the model plan all property and rights purchased with such amounts and all income attributable to such amounts property or rights shall be held in trust for the exclusive benefit of participants and beneficiaries under the model plan the trust under the model plan was established pursuant to a written_agreement that is represented to be a valid trust under the laws of state x the rights of any participant or beneficiary to payments pursuant to the model plan are not subject in any manner to alienation by anticipation sale transfer assignment bankruptcy pledge attachment charge or encumbrance of any kind the terms of the trust make it impossible prior to the satisfaction of all liabilities with respect to participants and their beneficiaries for any part of the assets and income of the trust to be used for or diverted to purposes other than the exclusive benefit of participants and their beneficiaries sec_457 of the code provides rules for the deferral of compensation by an individual participant in an eligible_deferred_compensation_plan as defined in sec_457 sec_457 provides that in the case of a participant in an eligible_deferred_compensation_plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary sec_457 provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ½ ii when the participant is separated from service with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under treasury regulations however sec_401 generally allows plans to postpone the required_beginning_date until april of the calendar_year following the later of the calendar_year in which the employee retires or in which he attains age ½ a basic requirement prescribed by sec_457 is that an eligible sec_457 plan must meet the sec_457 distribution_requirements described above in order to retain its tax-deferred eligible status a sec_457 plan would violate these provisions of sec_457 and the regulations thereunder if the participant or anyone else received a distribution earlier than the earliest date established in sec_457 sec_457 provides that the total amount payable to a participant under the plan will not be treated as made available merely because the participant may elect to receive such amount or the plan may distribute such amount without the participant's consent if i such amount does not exceed dollar_figure and ii such amount may be distributed only if-- i no amount has been deferred under the plan with respect to such participant during the 2-year period ending on the date of the distribution and ii there has been no prior distribution under the plan to such participant under this option sec_1_457-2 of the income_tax regulations defines an unforeseeable_emergency as severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant or of a dependent loss of the participant’s property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant sec_457 provides that a plan maintained by an eligible governmental employer shall not be treated as an eligible_deferred_compensation_plan unless all assets and rights purchased with such deferred_compensation amounts and all income attributable to such amounts property or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries sec_457 provides that a_trust described in sec_457 shall be treated as an organization exempt from tax under sec_501 sec_457 provides that the amounts in the trust are treated as includible in the gross_income of participants and beneficiaries only to the extent and at the time provided in sec_457 under the terms of the model plan and trust the trustee must hold all of the sec_457 plan assets for the exclusive benefit of the participants and their beneficiaries and all amounts deferred under the model plan must be transferred to a_trust meeting the requirements of sec_457of the code within an administratively reasonable_time period based upon the provisions of the revised model plan summarized above we conclude as follows the model plan established by state x is an eligible_deferred_compensation_plan as defined in sec_457 of the internal_revenue_code_of_1986 all assets and income of the model plan described in sec_457 will be held in trust for the exclusive benefit of participants and their beneficiaries a local employer that is an eligible_employer under code sec_457 and that adopts the model plan in accordance with board’s rules and regulations may rely on this ruling that its plan is an eligible_plan amounts of compensation deferred in accordance with the model plan including any income attributable to the deferred_compensation will be includible in the recipient’s gross_income for the taxable_year or years in which amounts are paid or otherwise made available to a participant beneficiary or alternate_payee under the terms of the model plan no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than the model plan described above in addition this ruling applies only to deferrals made after the date this ruling was issued if the model plan is significantly modified this ruling will not necessarily remain applicable this ruling is directed only to state x and the participants of the model plan and applies only to the model plan submitted on date with modifications submitted on date sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see section dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in section dollar_figure of revproc_99_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances sincerely yours robert d patchell assistant chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosure copy for sec_6110 purposes


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 plr-129741-08 date date -------------------------------------- x -------------------------------------------------- country date ------------------------------- dear --------------- -------------- ---------------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a disregarded_entity however no timely election was made to elect to treat x as a disregarded_entity effective date sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code 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 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 only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-129741-08 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the 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 representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-129741-08 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely curt g wilson associate chief_counsel office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court gary h and l marianne bell petitioners v commissioner of internal revenue respondent docket no 3524-05s filed date gary h and l marianne bell pro sese r craig schneider for respondent dawson judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure accuracy-related_penalty under sec_6662 for the issues for decision are whether petitioners are entitled to a deduction under sec_219 for a contribution made by petitioner-husband to an individual_retirement_account ira for and whether respondent is estopped from denying petitioners’ claimed ira deduction because of a decision document entered by this court in their case docket no 2788-04s for background some of the facts have been stipulated and are so found petitioners resided in ogden utah when they filed their petition in this case gary h bell petitioner retired in under the civil service retirement_system after years_of_service as a u s government employee he worked from to for the bonneville power administration as a project coordinator for the construction of high voltage transmission lines petitioner was over age in 1respondent has conceded the accuracy-related_penalty under sec_6662 petitioners conceded adjustments relating to interest_income of dollar_figure and dividend income of dollar_figure the computation included in the deficiency_notice shows that petitioners previously paid dollar_figure as tax and interest of dollar_figure on these adjustments for in date petitioner began participating in the thrift_savings_plan tsp for federal employees the tsp is a defined_contribution_plan contributions to petitioner’s tsp account were made by payroll deductions from his wages the amounts deducted were not included in his wage income for tax purposes during the years he participated in the tsp plan at the time of his retirement petitioner had contributed approximately dollar_figure to his tsp account on date petitioner’s tsp balance was dollar_figure the difference between dollar_figure and dollar_figure represents the increases in the value of petitioner’s investments in his tsp account beginning date petitioner chose to receive monthly payments of dollar_figure from his tsp account the amounts less withholding were electronically deposited to petitioners’ checking account in america first credit_union edison branch in ogden petitioners filed a joint federal_income_tax return for on which they reported taxable interest of dollar_figure ordinary dividend income of dollar_figure tsp distribution income of dollar_figure pension and annuity income of dollar_figure a capital_loss of dollar_figure and total gross_income of dollar_figure on that return petitioners claimed an ira deduction of dollar_figure in reporting their adjusted_gross_income of dollar_figure the claimed ira deduction was paid_by transferring on date dollar_figure from petitioners’ checking account to a separate ira account in petitioner’s name in america first credit_union petitioners received no wages or salaries from employment in they were not engaged in any business in that year they did not file a schedule c profit or loss from business with their income_tax return for they had no earnings from self-employment in that year in the notice_of_deficiency respondent disallowed petitioners’ claimed ira deduction of dollar_figure for the year a ira deduction discussion in general taxpayers have the burden of proving that the commissioner’s determinations are incorrect rule a 290_us_111 sec_7491 shifts the burden_of_proof of a factual issue to the commissioner under certain limited circumstances sec_7491 does not affect our analysis because our holding does not depend upon which party has the burden_of_proof the evidence in the record establishes the facts and the resolution of the disputed ira deduction involves a matter of law although respondent first contends that petitioners have not substantiated the payment made to petitioner’s ira account at america first credit_union for taxable_year the evidence contained in the record establishes that on date petitioner transferred dollar_figure from his checking account to a separate ira account in petitioner’s name in america first credit_union thus the key question we must decide is whether petitioners received any compensation or earned_income in from which they could deduct the dollar_figure contribution made to petitioner’s ira account petitioner’s position is that he is entitled to his ira deduction in because the dollar_figure he received from his tsp distributions in that year constituted earned_income he reported on his tax returns as includable in his gross_income he contends that some of his salary income earned but not taxed in prior years which was deposited in his tsp account continued to be earned_income taxable in years when tsp distributions were made to him to the contrary respondent contends that the maximum amount petitioners may claim for an ira deduction in is zero because petitioners did not have any compensation which term includes earned_income that was includable in their gross_income pursuant to the provisions of sec_219 and f we agree with respondent for the reasons stated herein with certain limitations a taxpayer is entitled to deduct amounts contributed to an ira sec_219 the deduction however may not exceed the lesser_of the deductible amount or an amount equal to the compensation includable in the taxpayer’s gross_income for such taxable_year sec_219 for the increased deductible amount is dollar_figure if the taxpayer wa sec_50 or older before the close of the taxable_year sec_219 petitioner was over age in for purposes of calculating the maximum amount of an ira deduction compensation is defined in pertinent part in sec_219 as follows compensation --for purposes of this section the term compensation includes earned_income as defined in sec_401 the term compensation does not include any amount received as a pension or annuity and does not include any amount received as deferred_compensation for purposes of this paragraph sec_401 shall be applied as if the term trade_or_business for purposes of sec_1402 included service described in subsection c compensation is further defined in sec_1_219-1 income_tax regs as follows compensation --for purposes of this section the term compensation means wages salaries professional fees or other_amounts derived from or received for personal service actually rendered including but not limited to commissions paid salesmen compensation_for services on the basis of a percentage of profits commissions on insurance premiums tips and bonuses and includes earned_income as defined in sec_401 but does not include amounts derived from or received as earnings or profits from property including but not limited to interest and dividends or amounts not includible in gross_income sec_401 which is referred to in sec_219 and sec_1_219-1 income_tax regs is an elaboration of the term earned_income as it applies to net_earnings from self- employment petitioners were not engaged in a trade_or_business in they filed no schedule c with their income_tax return and they had no net_earnings_from_self-employment in that year accordingly we conclude that the amount of dollar_figure petitioner received in as distributions from his tsp account was not compensation or earned_income as defined in sec_219 and sec_1_219-1 income_tax regs in view of the broad definition of compensation set forth in the statute and regulations it would be superfluous if we interpreted compensation as petitioner requested see clarke v commissioner tcmemo_1999_199 holding that an ira distribution received by the taxpayer was not includable in his compensation because it did not constitute wages salaries professional fees or other_amounts derived from personal services actually rendered but included amounts derived from earnings from property cf 77_tc_97 king v commissioner tcmemo_1996_231 estate of hall v commissioner tcmemo_1979_342 therefore we hold that the maximum amount of petitioners’ ira deduction for is zero pursuant to sec_219 b collateral_estoppel petitioners contend that respondent is estopped from determining a deficiency as to their claimed ira deduction for because of a decision document entered by this court pursuant to a settlement by the parties that allowed petitioners an ira deduction for petitioners claimed an ira deduction of dollar_figure on their federal_income_tax return for a year in which they had no compensation as that term is used in sec_219 and f however the appeals_office resolved the ira deduction issue for in petitioners’ favor by allowing the deduction because it was substantiated by a third party no question was raised as to whether the deduction was limited by petitioners’ compensation in that year the ira deduction issue for was resolved by a decision document that this court entered on date in the case of gary h and l marianne bell v commissioner docket no 2788-04s respondent asserts that the decision document alone which was signed by the parties and entered by the court with respect to is not sufficient for invoking collateral_estoppel against respondent to preclude the denial of the ira deduction claimed by petitioners for we agree the decision document for the tax_year only effectuated a settlement of that case there was no stipulation of facts in support of the settlement there was no trial on the merits of the ira deduction issue 177_f2d_1 10th cir 3_tc_301 the u s court_of_appeals for the tenth circuit in trapp explained the effect of a decision document entered in a prior year by the tax_court without a trial or receiving evidence as follows a judgment not predicated upon stipulated facts or upon findings_of_fact or upon a determination on the merits but merely to carry out a compromise_agreement of the parties fails to constitute an effective judicial determination of any litigated right 167_f2d_324 and a decision of that kind rendered by the tax_court will not support a plea of estoppel in a case of this nature involving liability for income_tax for a different year 134_f2d_389 137_f2d_540 certiorari denied 320_us_787 64_sct_196 88_led_473 3_tc_301 trapp v united_states supra pincite therefore we hold that collateral_estoppel does not apply here to reflect the foregoing and concessions made by the parties decision will be entered under rule


t c summary opinion united_states tax_court ashton j blankenship petitioner v commissioner of internal revenue respondent docket no 20921-04s filed date ashton j blankenship pro_se john k parchman for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure other court and this opinion shall not be treated as precedent for any other case this matter is before the court on respondent’s motion for partial summary_judgment as supplemented respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the deficiency is attributable to the disallowance of dependency_exemption deductions for petitioner’s minor daughter a b and minor nephew r g the change in petitioner’s filing_status from head_of_household to single and the disallowance of the earned_income_credit eic respondent now concedes that petitioner is entitled to a dependency_exemption deduction for a b petitioner does not address whether he is entitled to claim r g as a dependent for the dependency_exemption deduction or the head_of_household filing_status nor does he address whether r g it is the court’s policy to use initials when referring to minors see rule a petitioner asserts that he filed taxes in a timely manner and that t here should be no penalty for fileing sic late we note that respondent did not determine any penalty or addition_to_tax and that there is no issue in this case related to any penalty or addition_to_tax petitioner provided respondent with a form_8332 release of claim to exemption for child of divorced or separated parents the mother of a b signed the form_8332 as custodial_parent releasing her claim to the dependency_exemption deduction to petitioner is a qualifying_child for eic purposes as such petitioner is deemed to have conceded these issues under rule b this deemed concession is further supported by the fact that petitioner after filing his petition sought to amend his federal_income_tax return by inter alia dropping r g as a claimed dependent thereby eliminating one of his claimed dependency_exemptions and reducing the amount of his claimed eic after the above concessions the issues for decision are as follows the record contains no evidence that petitioner provided over half of his nephew’s support as required by sec_152 no evidence that he maintained as his home a household that constituted the principal_place_of_abode of his nephew for over half of as required by sec_2 and no evidence that his nephew was a qualifying_child for purposes of sec_32 consequently we would sustain respondent’s disallowance of the claimed dependency_exemption deduction filing_status attributable to petitioner’s nephew and claimed eic attributable to petitioner’s nephew regardless of petitioner’s deemed concessions petitioner also raises issues with respect to the suspension and computation of interest we note that although we might be sympathetic to petitioner’s situation in the instant case an action for redetermination of deficiency we lack jurisdiction over interest that accrues on a tax_deficiency that has yet to be assessed see mccauley v commissioner tcmemo_1988_431 cf sec_6404 rules thus we are bound by our jurisdictional limits and cannot adjudicate petitioner’s request to suspend the accrual of interest we also note that from the record it appears that petitioner is confused as to the amount respondent claims is due a tax_deficiency is defined by statute see sec_6211 and does not necessarily equal the amount due for instance a deficiency does not include accrued interest which is separately computed here the amount of petitioner’s tax_deficiency will be computed continued whether petitioner is entitled to head_of_household filing_status and whether petitioner is entitled to the eic background none of the facts in this case have been stipulated by the parties petitioner resided in the state of louisiana when the petition was filed petitioner entered into the custody of the state of louisiana department of public safety and corrections on date and served hard labor until his release to a detainer for caddo parish on date on his original federal_income_tax return petitioner claimed dependency_exemption deductions for his daughter a b and his nephew r g in addition petitioner claimed both head_of_household filing_status and the eic listing a b and r g as qualifying children respondent mailed petitioner a notice_of_deficiency on date disallowing the claimed dependency_exemption deductions head_of_household filing_status and the eic petitioner filed a petition with the court on date and subsequently submitted an amended federal_income_tax return on date on the amended_return continued under rule which computation should also reflect the amount of tax due petitioner eliminated the claimed exemption for r g and decreased the amount for the eic respondent filed a motion for partial summary_judgment on date and a supplement thereto on date a summary_judgment discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b after a careful review of the record and for the reasons discussed hereinafter we are satisfied that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law notwithstanding the fact that respondent has styled his motion as one for partial summary_judgment b head_of_household filing_status given respondent’s concession that petitioner is entitled to a dependency_exemption deduction for a b petitioner’s taxable_income is zero for regardless of whether he claims single or head_of_household filing_status as a result petitioner’s filing_status has no tax effect for and thus warrants no further discussion c earned_income_credit in the case of an eligible_individual sec_32 allows an eic against the individual’s income_tax_liability as immediately relevant herein an eligible_individual is defined as an individual who has a qualifying_child for the taxable_year sec_32 to be a qualifying_child an individual must inter alia have the same principal_place_of_abode as the taxpayer for more than half of the taxable_year sec_32 because petitioner was incarcerated on date and served hard labor until his release to a detainer for caddo parish on date a b did not have the same principal_place_of_abode as petitioner for more than half of cf 128_tc_13 dealing with a preconviction arrest it follows therefore that petitioner is not entitled to an eic on the basis of a qualifying_child an individual may still be eligible for an eic however even if the individual does not have a qualifying_child for the taxable_year sec_32 although respondent seeks we note that after a careful review of the record it appears petitioner would qualify for single and not head_of_household filing_status see sec_2 complete disallowance of petitioner’s claimed eic in his motion for partial summary_judgment respondent concedes in his supplement that petitioner is eligible for a portion of the claimed eic without regard to a qualifying_child because of his low income thus we will grant respondent’s motion for partial summary_judgment with respect to petitioner’s claimed eic but only as to petitioner’s alleged qualifying_child conclusion finally in reaching the conclusions described herein we have considered all of the arguments made by the parties and to the extent not expressly discussed above we find that those arguments do not support any result contrary to those reached herein to reflect the foregoing as well as the parties’ concessions an order granting in part respondent’s motion for partial summary_judgment will be issued and decision will be entered under rule