t c memo united_states tax_court nacoleon james hillsman jr petitioner v commissioner of internal revenue respondent docket no 11617-07l filed date nacoleon james hillsman jr pro_se gorica b djuraskovic for respondent memorandum opinion chiechi judge this case is before the court on respon- dent’s motion for summary_judgment as supplemented we shall 1respondent filed a declaration of appeals team manager debra dufek in support of respondent’s motion for summary judg- ment respondent’s declaration we shall refer collectively to respondent’s motion for summary_judgment as supplemented and respondent’s declaration as respondent’s motion grant respondent’s motion background the record establishes and or the parties do not dispute the following petitioner’s address shown in the petition in this case was in chicago illinois on date respondent prepared a substitute for return for petitioner’s taxable_year on date petitioner filed a federal_income_tax tax_return for his taxable_year return in that return petitioner showed total_tax of dollar_figure and tax due of dollar_figure when petitioner filed his return he did not pay the tax due shown in that return on date respondent assessed the total_tax shown in petitioner’s return additions to tax under sec_6651 and a of dollar_figure and dollar_figure respectively and interest as provided by law of dollar_figure for petitioner’s taxable_year we shall refer to any unpaid assessed amounts with respect to petitioner’s taxable_year as well 2all section references are to the internal_revenue_code in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure 3on date respondent credited a refund of dollar_figure due to petitioner for his taxable_year against the liability for petitioner’s taxable_year as interest as provided by law accrued after date as petitioner’s unpaid liability on date respondent issued to petitioner a notice of balance due with respect to petitioner’s unpaid liability on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy with respect to petitioner’s unpaid liability on date petitioner submitted to respondent form_656 offer_in_compromise in which petitioner offered to compro- mise petitioner’s unpaid liability petitioner’s date offer-in-compromise in that form petitioner offered to compromise that liability by paying dollar_figure over a 24-month period on date respondent rejected petitioner’s date offer-in-compromise on date respondent filed a notice_of_federal_tax_lien with respect to petitioner’s unpaid liability on date respondent issued to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 notice of tax_lien with respect to petitioner’s unpaid liability 4the record does not establish that petitioner requested a hearing with respondent’s appeals_office appeals_office with respect to the notice_of_intent_to_levy on date petitioner submitted to respondent form request for appeal of offer_in_compromise in which he appealed respondent’s rejection of petitioner’s date offer-in-compromise on date petitioner timely submitted to respon- dent form request for a collection_due_process_hearing petitioner’s form with respect to the notice of tax_lien in that form petitioner indicated his disagreement with the notice of tax_lien and requested a hearing with the appeals_office in petitioner’s form petitioner stated in perti- nent part my initial offer_in_compromise has been forwarded to the office of appeals a final_determination regarding the outcome has not been issued therefore the federal_tax_lien should be removed until final resolution has been issued by letter dated date a settlement officer with the appeals_office who was assigned petitioner’s form settlement officer acknowledged receipt of that form that letter stated in pertinent part i have scheduled a telephone conference call for you on date pincite 00am sic this call will be your primary opportunity to discuss with me the reasons you disagree with the collection action and or to discuss alternatives to the collection action on or about date the settlement officer sent petitioner a letter that stated in pertinent part i sent you a letter offering you a telephonic collec- tion due process conference the conference was sched- uled for i confirmed your rejected offer has been assigned to someone in the new york appeals_office i will re- schedule your due process hearing on the filed tax_lien for january illegible sic 00am sic i hope that a decision would have been made on the offer before the scheduled hearing date at this time the appeals_office will not recommend a release of the tax_lien once i complete your hearing on the tax_lien issue we will make a determination in the collection_due_process_hearing you requested by reviewing the collection administrative file and whatever information you have already provided on a date not disclosed by the record petitioner made a so- called short-term deferred payment offer5 of dollar_figure to be paid over a period of months to compromise petitioner’s unpaid liability on date respondent accepted that offer petitioner’s accepted offer-in-compromise on date the appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination with respect to petitioner’s taxable_year that notice stated in perti- nent part 5the term short-term deferred payment offer refers to an amount that a taxpayer offers to compromise the taxpayer’s tax_liability and that is to be paid in more than days but within months after written notice of acceptance by the commissioner of internal revenue commissioner of the offered amount see internal_revenue_manual irm pt date summary of determination based on all the documents that were presented we determined the filing of the tax_lien was appropriate the service followed all applicable procedures and guidelines in the filing of the notice_of_federal_tax_lien since the filing of the tax_lien your offer-in-compro- mise was submitted for acceptance the offer unit determined the amount offered was adequate the tax_lien will be released once you have met the terms of the offer-in-compromise the notice_of_determination included an attachment that stated in pertinent part summary and recommendation you requested a hearing from appeals under the provi- sions of internal_revenue_code irc section on the above income_tax periods the form request for a due process hearing was timely filed you were provided the opportunity to a telephone correspondence or face-to-face hearing a telephone hearing was conducted the internal_revenue_service followed all legal and administrative requirements in filing the tax_lien against you it was determined that this action was the most efficient collection method when the notice_of_federal_tax_lien was requested the offer unit filed the offer sic after rejecting your submitted offer-in-compromise you filed a timely appeal with the offer unit protesting the rejection the offer unit reinvestigated your offer and has recom- mended acceptance of your offer the tax_lien will be released as soon as the terms of the offer are met brief background a tax_lien was filed against you because of your out- standing tax_liability amount your income_tax return was prepared by the service because you neglected to file the tax_return you filed an offer-in-compromise to resolve the tax_liability your offer was rejected and you filed a timely appeal protesting the rejection the settlement officer contacted the offer unit on the status of your offer the settlement officer was notified your offer was recommended and submitted for approval discussion and analysis verification of legal procedural requirements appeals has obtained verification from the irs office collecting the tax that the requirements of any appli- cable law regulation or administrative procedure with respect to the proposed levy or nftl filing have been met computer records indicate that the notice_and_demand notice_of_intent_to_levy and or notice_of_federal_tax_lien filing and notice of a right to a collection_due_process_hearing were issued assessment was properly made per sec_6201 for each tax and period listed on the cdp_notice the notice_and_demand for payment letter was mailed to the taxpayer’s last_known_address irc section states that a statutory lien arises when a taxpayer neglects or refuses to pay a tax lia- bility after notice demand sic and demand to be valid against third parties except government entities notice of the lien must be filed in the proper place for filing per irc section a and f a review of your account indicates that you neglected or refused to pay after notice_and_demand irc section j allows the internal_revenue_service to withdraw a notice_of_federal_tax_lien nftl a nftl may be withdrawn if the filing of the notice was premature or otherwise not in accordance with the service’s administrative procedures if the taxpayer entered into an installment_payment agree- 6see supra note although the notice_of_determination refers to the proposed levy or nftl filing the only collection action that the appeals_office sustained in that notice was the filing of the notice_of_federal_tax_lien with respect to peti- tioner’s taxable_year ment under sec_6159 to satisfy the tax_liability for which the lien was imposed by means of the agree- ment unless such agreement provides otherwise if withdrawal of such notice will facilitate the collec- tion of the tax_liability or if with the consent of the taxpayer or national_taxpayer_advocate the with- drawal of the notice would not sic be in the best interest of the taxpayer as determined by the national_taxpayer_advocate and the united_states as determined by the irs the filing of the nftl was not premature and followed administrative guidelines there was no installment_payment agreement under sec_6159 or the agreement pro- vided for the filing of the nftl neither the taxpayer nor appeals contends that withdrawal would facilitate collection withdrawal is considered not to be in the best interest of the government there was a balance due when the cdp levy notice was issued or when the nftl filing was requested prior involvement i had no prior involvement with respect to the specific tax periods either in appeals or compliance collection collection statute verification the collection statute has been suspended the collec- tion period allowed by statute to collect these taxes has been suspended by the appropriate computer codes for the tax periods at issue collection followed all legal procedural requirements and the actions taken or proposed were appropriate under the circumstances issues raised by the taxpayer collection alternatives offered by taxpayer your due process request form indicated your initial offer was rejected and you appealed the decision you believe the filing of the tax_lien was premature and the tax_lien should be removed until a final resolution was made on your offer a review of your account revealed you had an outstand- ing tax_liability totaling over dollar_figure because of your outstanding tax_liability amount and the rejection of your offer the filing of the tax_lien was not premature a telephone hearing was conducted with you and you notified the settlement officer that your offer has been approved the settlement officer contacted the offer unit ms smeck and verified the acceptance of your offer you were notified the tax_lien would be released once the terms of your offer were met because you chose not to sign the waiver form this determination_letter was issued to you challenges to the existence of amount of liability you did not challenge the liability at your hearing you raised no other relevant issues balancing of need for efficient collection with tax- payer concern that the collection action be no more intrusive than necessary the tax_lien will not be withdrawn by appeals and is believed to be the most appropriate action irc sections and require that the appeals_office consider whether a proposed collection action balances the need for efficient collection_of_taxes with the legitimate concern that any collection be no more intrusive than necessary the filing of the tax_lien was determined to be the most effective method of collection when it was filed the tax_lien will be released as soon as the terms of your offer are met as of date the date on which the appeals_office issued to petitioner the notice_of_determination petitioner had not begun making the monthly payments required under the terms of petitioner’s accepted offer-in-compromise since date petitioner has made and as of date has contin- ued to make those required monthly payments discussion the court may grant summary_judgment where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there are no genuine issues of material fact regarding the questions raised in respondent’s motion in petitioner’s response to respondent’s motion petitioner does not dispute the existence or the amount of petitioner’s unpaid liability where as is the case here the validity of the underlying tax_liability is not properly placed at issue the court will review the determination of the commissioner for abuse_of_discretion see 114_tc_604 114_tc_176 it is petitioner’s position that the appeals_office abused its discretion in determining in the notice_of_determination to sustain the federal_tax_lien with respect to petitioner’s unpaid liability and the filing of the notice of that lien according to petitioner the federal_tax_lien with respect to that liability was pre-maturely placed on my account and should be removed because he has been making the payments required under the terms of petitioner’s accepted offer-in-compromise sec_6321 provides sec_6321 lien for taxes if any person liable to pay any_tax neglects or refuses to pay the same after demand the amount in- cluding any interest additional_amount addition_to_tax or assessable penalty together with any costs that may accrue in addition thereto shall be a lien in favor of the united_states upon all property and rights to property whether real or personal belonging to such person sec_6322 provides that the lien imposed by sec_6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time as perti- nent here sec_6325 provides that the secretary_of_the_treasury shall issue a certificate of release of a federal_tax_lien no later than days after the day on which the secretary finds that the liability for the amount assessed together with 7in the notice_of_determination the appeals_office deter- mined that the tax_lien will be released once petitioner has met the terms of the offer-in-compromise the appeals_office also determined in the notice_of_determination that respondent followed all applicable procedures and guidelines in filing the notice_of_federal_tax_lien with respect to peti- tioner’s unpaid liability and that withdrawal of that notice is not appropriate at this time all interest in respect thereof has been fully satisfied or has become legally unenforceable consistent with sec_6325 part of the irm date provides that a certificate of release of the federal_tax_lien is authorized where inter alia the amount assessed plus interest is paid part of the irm date provides in pertinent part when the service accepts an offer_in_compromise the lien against the taxpayer is released provided that all of the following conditions are met a it is a cash offer or all installments under the terms of the offer including any accrued interest have been paid if a taxpayer makes a cash offer to compromise a tax_liability the offer amount must be paid within days after the date on which the commissioner accepts the offer irm pt date on date respondent assessed petitioner’s unpaid liability and issued to petitioner a notice of balance due with respect to that liability on that date a federal_tax_lien arose by operation of law in favor of the united_states on all property and rights to property belonging to petitioner with respect to petitioner’s unpaid liability see sec_6322 on a date not disclosed by the record petitioner made a short- term deferred payment offer of dollar_figure to compromise that liability pursuant to that offer petitioner agreed to pay dollar_figure in monthly payments to commence after written notice of respondent’s acceptance of that offered amount on date respondent accepted petitioner’s offer of dollar_figure to compromise petitioner’s unpaid liability as of date the date on which the appeals_office issued to petitioner the notice_of_determination petitioner had not made all of the monthly payments required under the terms of petitioner’s accepted offer-in-compromise we conclude that respondent was not required to release the federal_tax_lien with respect to petitioner’s unpaid liability see sec_6325 irm pt nor was respondent required to withdraw the notice_of_federal_tax_lien filed with respect to petitioner’s unpaid liability sec_6323 provides that the lien imposed by sec_6321 shall not be valid as against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor until notice thereof which meets the requirements of subsection f has been filed by the secretary when respondent 8thus petitioner’s offer was not a cash offer 9form offer_in_compromise indicates that where the commissioner has accepted an offer to compromise a tax_liability the taxpayer remains liable for that liability until the taxpayer has satisfied all of the terms of the offer-in-compromise see irm pt date petitioner remains liable for petitioner’s unpaid liability until he satisfies all of the terms of petitioner’s accepted offer-in-compromise assessed petitioner’s unpaid liability on date a federal_tax_lien arose by operation of law in favor of the united_states on all property and rights to property belonging to petitioner with respect to petitioner’s unpaid liability pursuant to sec_6323 on date respondent filed a notice_of_federal_tax_lien with respect to that liability in order to protect respondent’s interest in petitioner’s property against other creditors of petitionerdollar_figure sec_6323 provides in pertinent part in general --the secretary may withdraw a notice of a lien filed under this section if the secretary determines that-- a the filing of such notice was premature or otherwise not in accordance with administrative procedures of the secretary we conclude that the filing of the notice_of_federal_tax_lien with respect to petitioner’s unpaid liability was not premature we also conclude that the filing of the notice_of_federal_tax_lien with respect to petitioner’s unpaid liability was otherwise in accordance with administrative procedures of the secretary cf sec_6323 part of the irm 10see also pt of the irm date generally a notice_of_federal_tax_lien should be filed if the aggregate unpaid balance of assessment is dollar_figure or more as of the date on which respondent filed the notice_of_federal_tax_lien with respect to petitioner’s unpaid liabil- ity petitioner’s unpaid liability was substantially in excess of dollar_figure date provides that the commissioner must make reason- able efforts to contact a taxpayer before filing a notice_of_federal_tax_lien in order to advise the taxpayer that such a notice may be filed if the taxpayer does not make full payment of a tax_liability when requested part of the irm further provides that the issuance of a notice of balance due under sec_6303 constitutes reasonable efforts to contact the taxpayer before filing the notice_of_federal_tax_lien respondent issued to petitioner a notice of balance due with respect to petitioner’s unpaid liability and thereby made reasonable efforts to contact him as required by the internal_revenue_manual based upon our examination of the entire record before us we find that the appeals_office did not abuse its discretion in making the determinations in the notice_of_determination with respect to petitioner’s taxable_year we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot on the record before us we shall grant respondent’s motion to reflect the foregoing an order granting respondent’s motion and decision for respondent will be entered


number release date id office uilc cca_2012111313070132 -------------- from -------------------- sent tuesday date pm to ---------------------- cc subject re ---------------transit benefits ---------- - we discussed shipping fees with treasury and decided that if individual employees pay shipping fees to acquire their transit passes then those fees should be included as a cost of commuting and the employees should be able to exclude those fees assuming the cost of the passes and the fees together does not exceed the dollar_figure per month limit from income --------


internal_revenue_service number release date index number ---------------------- ------------------------- ----------------------------------- ---------------------------- ---------------------------------------- legend 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-135821-17 date june taxpayer ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ products non-lifo inventories foreign parent --------------------------------------------------- ---------------------------- ----------------- report ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ pension_plan ------------------------------------------------------------- ------------------------------------------------------------------------ pension_plan assets ------------------------------------------------ pension_plan liabilities ------------------------------------------------------------------- ------------------------------------------------------------------------ section a ------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------- dear ------------------- this is in response to your authorized representatives’ letter and submissions of date in which they requested on your behalf a ruling under sec_472 of the internal_revenue_code concerning whether operating_assets used in plr-135821-17 foreign operations constitute percent or more of total operating_assets of the consolidated_group the percent test under revrul_78_246 1978_1_cb_146 we are pleased to address your concerns facts the information submitted indicates that taxpayer is a wholesale_distributor of products taxpayer is a united_states parent and as such files a consolidated u s corporate_income_tax return on behalf of itself and its u s subsidiaries for u s tax purposes taxpayer and its u s subsidiaries use the last-in_first-out lifo inventory_method for all inventories other than non-lifo inventories foreign parent is an international business operating in multiple foreign regions and in the united_states foreign parent prepares its consolidated financial statements based on the international financial reporting standards ifrs foreign parent operates the united_states region through its subsidiary taxpayer the report provides that foreign parent operates pension_plan in a number of overseas locations the report further provides that the asset recognized on the balance_sheet as it relates to the pension_plan is the pension_plan assets less the pension_plan liabilities on the balance_sheet date which is a net value however the pension_plan assets and the pension_plan liabilities are separately_stated at gross values in section a of the notes to the consolidated financial statements of the report the notes to the consolidated financial statements including section a are presented together and accompany the income statement in the report taxpayer operates pension_plan in the united_states taxpayer also operates a nonqualified_deferred_compensation_plan nqdc plan unlike the pension_plan assets and pension plans liabilities which are presented in the report as a net value on the balance_sheet the assets and the liabilities related to the nqdc plan are presented in the report at gross values on the balance_sheet request taxpayer requests that for purposes of the percent test under revrul_78_246 the asset valuation of foreign parent’s operating_assets may be determined using the gross fair values rather than the net value of the pension_plan law sec_472 provides that a taxpayer that elects to use the lifo inventory_method for federal_income_tax purposes must establish to the satisfaction of the secretary that it has used no method other than lifo in inventorying goods specified in its lifo election to ascertain income profit or loss for the first taxable_year for which plr-135821-17 the method is to be used for the purpose of a report or statement covering such taxable_year to shareholders partners or other proprietors or to beneficiaries or for credit purposes sec_472 imposes a requirement similar to that contained in sec_472 for taxable years subsequent to the year of the lifo election and provides that the taxpayer may be required to discontinue the use of the lifo inventory_method if this requirement is violated sec_472 provides that all members of the same group_of_financially_related_corporations are treated as a single_taxpayer for purposes of the lifo conformity requirement of sec_472 and e the term group_of_financially_related_corporations means any affiliated_group as defined in sec_1504 determined by substituting percent for percent each place it appears and without regard to sec_1504 and any other group of corporations that consolidate or combine for purposes of financial statements sec_1_472-2 of the income_tax regulations provides specific rules related to the exception to the lifo conformity requirement for supplemental or explanatory information sec_1_472-2 provides that information reported on the face of a taxpayer’s financial income statement for a taxable_year is not considered a supplement to or explanation of the taxpayer’s primary presentation of the taxpayer’s income profit or loss for the taxable_year in credit statement or financial reports for purposes of paragraph e of this section the face of an income statement does not include notes to the income statement presented on the same page as the income statement but only if all notes to the financial income statement are presented together sec_1_472-2 provides in part that information reported in notes to a taxpayer’s financial income statement is considered a supplement to or explanation of the taxpayer’s primary presentation of income profit or loss for the period covered by the income statement and therefore is considered in determining whether the lifo conformity requirement is met if all the notes to the financial income statement are presented together and if they accompany the income statement in a single report revrul_78_246 holds that it is inappropriate to impose the lifo_method of inventory_valuation upon a foreign parent_corporation with respect to the inventory of any subsidiary that uses the lifo_method of inventory_valuation for federal_income_tax purposes when the group is engaged in substantial foreign operations accordingly the lifo_method of inventory_valuation need not be used in the consolidated financial statements of the foreign parent_corporation provided that the foreign parent owns either directly or through members of its consolidated_group operating_assets of substantial value which are used in foreign operations in making this determination plr-135821-17 operating_assets regardless of their physical location will be treated as used in foreign operations if they are owned by and used in the business of corporations that are members including the parent of the consolidated_group are foreign_corporations do not use the lifo_method of accounting for federal_income_tax purposes and engage in a business outside the united_states operating_assets for purposes of this test are all the assets necessary for the conduct of an active operating company operating_assets will be considered to be of substantial value if they constitute percent or more of the total operating_assets of the consolidated_group this determination will be made annually and normally will be made on the basis of the asset valuation reflected in the consolidated financial statements of the group for the year revrul_78_246 further holds that whether a foreign parent is engaged in substantial foreign operations will be decided on the basis of all the facts and circumstances presented if the consolidated_group does not satisfy the foregoing percent test analysis taxpayer is a domestic parent of domestic subsidiaries taxpayer files a consolidated u s federal_income_tax return for itself and its domestic subsidiaries taxpayer uses the lifo inventory_method taxpayer has a foreign parent who does not file its financial statements using a lifo inventory_method in foreign parent’s financial statements the pension_plan is reported as a net value on the face of the financial statements and at gross values in attached notes to the financial statements foreign parent reports the nqdc plan assets and liabilities separately at gross values on the face of its consolidated financial statement for purposes of establishing that the lifo conformity requirements are met information reported in notes to a taxpayer’s financial income statement are considered a supplement to or explanation of the taxpayer’s primary presentation for the period covered if all notes to the financial income statement are presented together and if they accompany the income statement in a single report moreover subject_to conditions set forth therein revrul_78_246 provides relief from the use of lifo_method of inventory_valuation in the consolidated financial statements of the foreign parent_corporation engaged in substantial foreign operations under revrul_78_246 whether a foreign parent_corporation is engaged in substantial foreign operations is made annually and normally will be made on the basis of the asset valuation reflected in the consolidated financial statement of the group for the year therefore the asset valuation reflected in the consolidated financial statement of the group includes any supplemental and explanatory information as described in sec_1_472-2 ii plr-135821-17 accordingly in the instant case because the information reported in notes to the report including section a are presented together and accompany the income statement in a single report the information contained in section a concerning the gross values of the pension_plan is considered a supplement to or explanation of the consolidated financial statement of the group for the period covered by the report for purposes of sec_1_472-2 conclusion based on the information provided and the representations furnished in determining whether foreign operating_assets constitute percent or more of the total operating_assets of the consolidated_group under revrul_78_246 the gross asset valuation reflected in section a constitutes supplemental and explanation information within the meaning of sec_1_472-2 this letter_ruling is based on the facts and representations provided by the taxpayer and limited to the matters specifically addressed no opinion is expressed as to whether taxpayer meets the percent test as stated in revrul_78_246 or whether taxpayer has otherwise complied with the conformity requirements of sec_472 and e of the code in inventorying its goods to ascertain income profit or loss for the purposes of a report or statement covering the taxable_year for which the lifo_method is used to shareholders partners other proprietors or beneficiaries or for credit purposes in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives because it could help resolve federal tax issues a copy of this letter should be maintained with taxpayer’s permanent records this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely christina morrison senior technician reviewer branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number ------------------------------------------------- -------------------------- --------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-118839-09 date date x ------------------------------------------ --------------------------------------------------- -------------------------------------------------- state d1 d2 trust --------------------------------------------------------- -------------------------------------------------- -------------------- -------------------- ----------------------- ----------------------------------------------------------------------------------------- dear ----- -------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code x was formed under the laws of state and elected to be an s_corporation effective d1 on d2 shares of x were transferred to trust x represents that trust qualified to be an electing_small_business_trust esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust as an esbt trust consequently was an ineligible shareholder and as a result x’s s_corporation_election terminated on d2 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_1361 defines an esbt sec_1361 provides that except as provided in sec_1361 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary plr-118839-09 ii no interest in such trust was acquired by purchase and iii no election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of the esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1 m ii sec_1362 provides in part 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 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 d2 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 d2 and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 the shareholders of x must include their pro-rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 this ruling is further contingent upon the trustees of trust filing an esbt election effective d2 with the appropriate service_center and the trust filing amended returns for taxable years beginning d2 and thereafter consistent with the treatment of the trust as an esbt the esbt election and the amended returns must be filed within days following the date of this letter and a copy of this letter should be plr-118839-09 attached to any such elections or returns if x or its shareholders fail to treat themselves as described above this ruling is null and void except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed on whether x was or is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be an esbt this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number info release date uil washington dc person to contact telephone number refer reply to cc psi 2-plr-131363-02 date date dear this responds to your letter dated date and subsequent correspondence you have requested a letter_ruling to determine whether the service may recharacterize dividends declared by an s_corporation as wages subject_to employment_taxes also you have requested a determination as to what amounts distributed from an s_corporation to a shareholder manager are reasonable_compensation for services provided by the shareholder to the s_corporation the determination of whether an s_corporation distribution constitutes wages or dividends is a factual matter pursuant to dollar_figure of revproc_2002_1 2002_1_irb_1 the service will not issue a letter_ruling in areas involving an issue of a factual nature in addition pursuant to sec_3 of revproc_2002_3 2002_1_irb_117 the service will not rule on whether compensation is reasonable in amount while we are unable to issue a letter_ruling we are furnishing the following general information in response to your request section dollar_figure of revproc_2002_1 provides that an information_letter is advisory only and has no binding effect on the service revrul_59_221 1959_1_cb_225 holds that amounts of s_corporation undistributed_taxable_income which are required to be included in each shareholder’s gross_income do not constitute net_earnings from self employment to shareholders revrul_59_221 does not address whether amounts paid or distributed to a shareholder of an s_corporation are characterized as dividends or as wages to the shareholder by contrast revrul_74_44 1974_1_cb_287 addresses the characterization of dividends distributed by an s_corporation to its shareholder it holds that dividends_paid to shareholders will be recharacterized as wages when such dividends are paid to shareholders in lieu of reasonable_compensation for services performed for the s_corporation plr-131363-02 in veterinary surgical consultants p c v commissioner t c no aff’d without published opinion no 3rd cir date the s corporation’s sole shareholder and officer provided all services on behalf of the s_corporation and generated all of the s corporation’s income through services that he provided the corporation did not pay the shareholder a salary rather the corporation distributed its net_income to the shareholder who then reported the payments as indicated on the schedules k-1 as nonpassive_income from the s_corporation consequently the s_corporation did not pay any fica social_security and medicare or futa unemployment taxes under sec_3111 and sec_3301 of the internal_revenue_code the court stated that sec_3121 and sec_3306 generally define wages for federal employment_tax purposes as all remuneration for employment pursuant to sec_31_3121_a_-1 and sec_31_3306_b_-1 of the employment_tax regulations the form of the payment is immaterial under sec_3121 the term employee includes an officer of a corporation sec_31 d - b provides an exception for officers who do not provide any services or provide only minor services and who neither receive nor are entitled to receive remuneration the court therefore held that an officer who performs substantial services for a corporation and who receives remuneration in any form for those services is considered an employee whose wages are subject_to federal employment_taxes id pincite the court also stated that an employer cannot avoid federal employment_taxes by characterizing compensation paid to its sole director and shareholder as distributions of the corporation’s net_income rather than wages id pincite accordingly the s corporation’s payments to the shareholder were recharacterized as wages see also 918_f2d_90 9th cir generally under the rules described above if a shareholder of an s_corporation performs services for the corporation any distribution to the shareholder even if legally declared under state law by the s_corporation as a dividend will be characterized as wages subject_to employment_taxes where in reality the payments are for services an s_corporation cannot avoid employment_taxes merely by paying the corporate shareholder dividends in lieu of reasonable_compensation for services performed we hope that the above information proves helpful in answering your question sincerely j thomas hines chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copies of cases


department of the treasury internal_revenue_service washington d c dec cc ebeo uilc number release date memorandum for district_counsel from subject legend assistant chief_counsel employee_benefits and exempt_organizations cc ebeo docket no date date date date city state paragraph x paragraph y we are forwarding the attached tax_court case legal file to you for assignment to an attorney in your office because the designated place for trial is city state the petition was served on the irs chief counsel’s office on date we apologize for the delay in sending this to you we have been working to understand the new chief_counsel_advice redaction procedures on date the service sent the taxpayer a notice_of_determination concerning worker classification under sec_7436 advising the taxpayer that the service had determined during the course of an employment_tax audit that one or more individuals performing services for the taxpayer are to be legally classified as employees for purposes of the federal employment_taxes under subtitle c of the internal_revenue_code and that the taxpayer is not entitled to employment_tax relief pursuant to sec_530 of the revenue act of with respect to such individuals taxpayer filed a petition for review of that determination with the tax_court on date the petition bears a postmeter date of date because the postmeter date is before the 91st day after the notice_of_determination was sent the petition is considered timely filed sec_302 a accordingly the tax_court has jurisdiction over this case the jurisdiction of the tax_court extends only to determining whether the workers at issue should be legally classified as employees and whether the taxpayer is entitled to employment_tax relief under sec_530 i r c section in paragraph x and in paragraph y of the petition taxpayer challenges the applicability of penalties since the tax court’s jurisdiction is limited to reviewing the two determinations described above the tax_court lacks jurisdiction to determine whether any additions to tax or penalties are applicable accordingly you should file a motion to strike and to dismiss in part for lack of jurisdiction that portion of the petition that addresses the penalties please refer to rules through of the tax court’s rules_of_practice and procedure for guidance in filing responsive pleadings finally because the tax_court has yet to issue any reported decisions on proceedings under sec_7436 you should coordinate all documents including the decision document even if this case settles filed with the tax_court with the national_office employee_benefits and exempt_organizations division branch two the name of the branch two attorney assigned to the case appears in national_office attorney field of case screen of the tl-cats computer system and she can be reached pincite-6040 when the case is assigned your attorney may contact her to send you a sample motion and answer to assist you in litigating this case case development hazards and other considerations mary oppenheimer by jerry e holmes chief branch cc ebeo attachments legal file


department of the treasury internal_revenue_service washington d c number release date date uil 408a tl-n-1478-01 memorandum for area_counsel small_business self-employed area attention mary hamilton from chief qualified_plans employee_benefits office of the division counsel associate chief_counsel tax_exempt_and_government_entities_division subject roth_ira conversions significant service_center advice this significant service_center advice responds to your memorandum dated date regarding an inquiry you received from the taxpayer_advocate at the andover service_center issues issue does a failed roth_ira_conversion result in a distribution from the traditional_ira including the imposition of the additional tax on early distributions and the imposition of a six percent excise_tax on excess_contributions to the roth_ira issue does the taxpayer_advocate have any discretion to allow a taxpayer to recharacterize a failed roth_ira_conversion after the deadline for recharacterizing an ira contribution issue how should the taxes and penalties attributable to a failed roth_ira_conversion be assessed and collected against a taxpayer brief answer issue a failed roth_ira_conversion that is not recharacterized is treated as a regular distribution from the traditional_ira including the imposition of the additional tax on early distributions unless an exception applies and as a regular contribution to the roth_ira that is subject_to the excise_tax on excess_contributions to the extent the contribution exceeds the applicable roth_ira contribution limits issue the taxpayer_advocate does not have discretion to allow a taxpayer to recharacterize a failed roth_ira_conversion after the deadline for recharacterizing an ira contribution this is a substantive determination that is beyond the scope of the authority accorded to the taxpayer_advocate issue statutory deficiency procedures must be used facts in the taxpayer attempted to convert his traditional_ira to a roth_ira the taxpayer believed that he was eligible to convert to a roth_ira because his modified_adjusted_gross_income agi was less than dollar_figure the taxpayer chose to include the income from the traditional_ira over a four year period on date the service issued an underreporter notice to the taxpayer for his year with the result that the modified agi exceeded dollar_figure the taxpayer filed an amended_return for seeking a refund of the taxes paid on the roth_ira_conversion because there was a failed conversion the taxpayer stated that he could not take advantage of the opportunity to correct the failed conversion on or before the deadline of date because he did not know of the increase to his agi until date the service informed the taxpayer that there was in fact a failed roth_ira_conversion resulting in a distribution of the traditional_ira in the distribution from the traditional_ira was includible in the taxpayer’s income for further the transaction must be treated as a contribution to the taxpayer’s roth_ira and is subject_to the excise_tax under internal_revenue_code i r c sec_4973 to the extent that it exceeds the amount of the taxpayer’s regular ira contribution up until the time it is withdrawn further the taxpayer is subject_to an additional tax on early distributions under sec_72 with respect to the distribution from the traditional_ira applicable law sec_408 generally provides that except as otherwise provided any amount_paid or distributed out of an ira shall be included in gross_income sec_408 is an exception from the general_rule of inclusion in income for rollover_contributions and provides that in the case of rollovers from an ira to a roth_ira there shall be included in gross_income any amount which would be includible were it not part of a qualified_rollover_contribution unless the taxpayer elects otherwise the amount required to be included in gross_income such taxable_year by reason of sec_408a for any distribution before date shall be so included ratably over the 4-year taxable_period beginning with such taxable_year see sec_1_408a-4 q a sec_408a generally provides that a taxpayer shall not be allowed to make a qualified_rollover_contribution to a roth_ira from a traditional individual_retirement_plan during any taxable_year if the taxpayer’s modified agi for the year of the contribution exceeds dollar_figure see sec_1_408a-4 q a sec_1_408a-5 q a-1 allows an ira owner to recharacterize ie treat a contribution made to one type of ira as made to a different type of ira certain ira contributions including conversion contributions for a taxable_year if there is a failed conversion a taxpayer may recharacterize amounts which he or she attempted to contribute to the roth_ira as contributions to the traditional_ira sec_1_408a-4 q a under sec_1_408a-5 q a-6 b generally the election to recharacterize an ira contribution and the trustee-to-trustee transfer of such contribution including allocable net_income must occur on or before the due_date including extensions for filing the individual’s federal_income_tax return for the taxable_year for which the recharacterized contribution was made under the provisions of sec_301_9100-2 an individual who timely files his or her federal_income_tax return has an automatic 6_month extension from the return_due_date excluding extensions to recharacterize an ira contribution see also announcement 1999_1_cb_1256 in addition under announcement 1999_2_cb_555 an individual who timely filed his her federal_income_tax return had until date to recharacterize a ira contribution including an amount converted from a traditional_ira to a roth_ira in under sec_301_9100-3 the commissioner may grant an additional extension of time to recharacterize an ira contribution pursuant to dollar_figure of revproc_2001_4 2001_1_irb_121 a request for an extension of time to recharacterize an ira contribution under sec_301_9100-3 is considered a letter_ruling request if a failed conversion contribution is not recharacterized it will be treated as a regular roth contribution and thus an excess_contribution will be subject_to the excise_tax under sec_4973 to the extent it exceeds the individual’s regular contribution limit sec_1_408a-4 q a in addition the distribution from the traditional_ira will not be eligible for the 4-year spread and will be subject_to the additional tax under sec_72 unless an exception under that section applies id sec_72 provides in general that if any taxpayer receives a distribution from a qualified_retirement_plan prior to attaining the age of ½ there shall be added to the tax an amount equal to of such distribution the penalty under this section is only applicable in certain specific circumstances for example if the taxpayer is under age ½ sec_4973 provides that in the case of excess_contributions to an individual’s retirement account there is imposed for each taxable_year a tax in an amount equal to of the amount of the excess_contribution sec_1 to such individual’s accounts or annuities the taxpayer_advocate_service has both statutory and delegated authorities sec_7803 provides that it is the function of the office_of_the_taxpayer_advocate to assist taxpayers in resolving problems with the service sec_7811 also authorizes the national_taxpayer_advocate to issue taxpayer assistance orders taos if she determines that the taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered or the taxpayer meets such other requirements as are set forth in regulations prescribed by the secretary_of_the_treasury sec_7811 provides the terms of a tao specifically the tao may require the irs within a specified time period to release property of the taxpayer levied upon or cease any_action take any_action as permitted by law or refrain from taking any_action with respect to the taxpayer under chapter subchapter_b of chapter chapter or any other provision of law which is specifically described by the national_taxpayer_advocate in the tao sec_7801 provides to the secretary_of_the_treasury the authority to administer and enforce the internal revenue laws this authority has been delegated to the commissioner of the internal revenue and the commissioner has delegated specific tax_administration responsibilities to the various divisions and functions of the service including the national_taxpayer_advocate the national_taxpayer_advocate is delegated the authority to perform certain tax_administration duties generally recognized as accounts management type of authority see delegation_order no excess_contributions are defined in general as the excess amounts contributed to iras over the amount allowable as a deduction under sec_219 see sec_4973 in general sec_6212 prohibits the assessment and collection of a deficiency until a notice_of_deficiency has been mailed to the taxpayer and until certain statutory steps have been taken sec_6213 imposes certain restrictions on the assessment of deficiencies sec_6213 defines mathematical_or_clerical_error and enumerates exceptions to the general_rule where deficiency procedures need not be used before assessment of the tax two of the exceptions may be applicable in answering the above question under sec_6213 a mathematical error includes an entry on a return of an item which is inconsistent with another entry of the same or another item on such return according to its legislative_history subsection g c is intended to encompass those cases where it is apparent which of the inconsistent entries is correct and which is incorrect summary_assessment procedures cannot be used where it is not clear which of the inconsistent entries is the correct one they are also not to be used where the service is merely resolving an uncertainty against the taxpayer see h_r rep no 94th cong 1st sess 1976_3_cb_695 under sec_6213 a math error may also be an entry on a return of a deduction or credit in an amount which exceeds a statutory limit imposed by subtitle a or b or chapter or if such limit is expressed - i as a specified monetary amount or ii as a percentage ratio or fraction and if the items entering into the application of such limit appear on such return an example of a math error under g e would be an entry claiming the medical_expense_deduction under sec_213 without meeting the -of-adjusted-gross-income floor analysis taxpayers are permitted to convert iras to roth iras if that is done the amount converted shall be included in gross_income to the extent that a distribution from the traditional_ira would have been included in gross_income if it were not part of a roth_ira_conversion the taxable_portion of the distribution is fully taxable in the year that it is distributed from the traditional_ira unless the year of distribution was if the conversion was made in the taxpayer may report the income from the distribution over four years subsection m the 13th applicable situation was added on date when president bush signed the economic_growth_and_tax_relief_reconciliation_act_of_2001 the act pub_l_no 115_stat_38 many taxpayers made roth_ira conversions in despite the fact that they were not eligible to do so because their modified agi for the taxable_year was more than dollar_figure however taxpayers were allowed to recharacterize failed conversions for the taxable_year until date after date a taxpayer wishing to recharacterize must obtain an extension of the deadline to recharacterize under the procedures of sec_301_9100-3 these procedures involve filing a request for a private_letter_ruling and paying the applicable user_fee if a failed conversion is not recharacterized the distribution from the traditional_ira is treated as a regular distribution from the traditional_ira and is subject_to the percent additional tax on early distributions unless an exception applies the amount the taxpayer attempted to convert is treated as a regular contribution to the roth_ira and is subject_to the percent excise_tax under sec_4973 to the extent it is an excess roth_ira until it is withdrawn from the roth_ira neither the authority granted to the national_taxpayer_advocate under sec_7803 to assist taxpayers in resolving their problems with the service nor the authority to issue taos under sec_7811 provide the taxpayer_advocate_service with the discretion to allow a taxpayer to recharacterize a failed ira conversion or provide an extension of time for recharacterizing a failed ira conversion the determination of whether the requirements for recharacterizing a failed ira conversion have been met is substantive in nature and the national_taxpayer_advocate has not been granted the statutory authority to make merits determinations or change technical decisions see sec_301_7811-1 the national_taxpayer_advocate may have authority to make technical decisions in matters under her delegated authority however recharacterizing failed ira conversions is not within the scope of currently delegated authorities in order to analyze how tax and penalties applicable to a failed conversion should be assessed and collected it is helpful to look at specific examples of the exceptions to the rule that deficiency procedures must be used in gcm dated date the conclusion was reached that the exception to the normal g_c_m dated date used the analysis in g_c_m in reaching its conclusion that the math error procedures could not be used in assessing the amount of tax withheld on nonresident_aliens under sec_1441 g_c_m dated date used the analysis in g_c_m in reaching the conclusion that the mathematical error procedures were applicable because failure to attach a form_8396 mortgage_interest_credit where a mortgage_interest_credit amount was claimed on the form_1040 is the precise situation in which sec_6213 was intended to apply assessment procedures for mathematical or clerical errors in sec_6213 may not be used to correct deductions for contributions to individual_retirement_accounts claimed on the form_1040 and to summarily assess additional tax because the types of errors involved are not within the scope of the definition of mathematical or clerical errors in sec_6213 some of the examples of errors not eligible for the mathematical error procedures were a deduction was claimed on line form_1040 for contributions to iras but no code was entered to identify the type and number of iras a code was entered but the deduction claimed exceeded the monetary amount of the statutory limit for the type and number of iras indicated by the code an excess_contribution was made to the ira based on the deduction claimed but no excise_tax was reported on line 57-form and form_5329 was not attached to the return in example the gcm relied on the legislative_history and concluded there was no math error because the error did not meet the definition of sec_6213 g d subsection g d defines a mathematical_or_clerical_error as an omission of information which is required to be supplied on the return to substantiate an entry on the return the gcm reasoned that mathematical error procedures could not be used in example because omission of information was construed to mean the omission of an entire schedule the omission of a code is not the omission of an entire schedule in example the gcm reasoned that there was no math error because the code that was entered did not cover all the possible variations on the types of ira an individual might have the gcm concluded that there was no math error under g e because the monetary amount of the statutory limit varies according to which code is entered although it could be argued that the discrepancy could fall under an inconsistent entry as defined in g c the math error procedures still could not be used because the taxpayer may have entered the wrong code rather than claimed the wrong deduction see s rep no 94th cong 2d sess the maximum deduction that could be claimed by a married couple filing a joint_return based on sec_219 for contributions to individual iras would be dollar_figure however theoretically there is no limit on the number of employers who may contribute to seps on behalf of an individual and thus there is no limit on the amount of money an individual may deduct for employer contributions to his sep consequently because contributions to seps are included on line there is no specific statutory limit on the deduction claimed on line that may be determined without regard to the code entered in example the gcm further concluded that math error procedures did not apply because the service could not determine that the deduction exceeds the amount of compensation without determining what was compensation thus it would not be possible to determine whether an excess_contribution was made even if it were possible to determine that an excess_contribution had been made the gcm concluded that the excise_taxes imposed by sec_4972 and sec_4973 could not be summarily assessed as math errors based on the form_1040 moreover the gcm concluded that there was no substantiation omission within the meaning of sec_6213 where a taxpayer does not attach form_5329 to report excess_contribution excise_taxes excess_contributions and the appropriate excise_tax are reported on form_5329 which must be attached to form_1040 however form_5329 calculates a tax not otherwise reported on form_1040 and form_1040 does not provide for reporting the excise_tax therefore the gcm concluded that math error procedures may not be used when form_5329 is not attached even if it were possible to determine from other information on the return that an excess_contribution had been made conclusions issue if a failed roth_ira_conversion is not recharacterized the amount that the taxpayer attempted to convert is treated as a regular distribution from the traditional_ira including the imposition of the percent additional tax on early distributions unless an exception applies and is treated as a regular contribution to the roth_ira subject_to the percent excise_tax on excess_accumulations to the extent it is an excess roth contribution if a taxpayer made a failed roth_ira_conversion and the due_date to recharacterize the failed conversion has passed the taxpayer may submit a request for a private_letter_ruling that extends the due_date to recharacterize the failed conversion pursuant to sec_301_9100-3 issue as the decision whether to grant an extension of time to recharacterize a failed ira conversion is not authority granted to the national_taxpayer_advocate by statute or delegation the taxpayer_advocate does not have any discretion to allow the taxpayer to recharacterize a failed ira conversion in order for the taxpayer_advocate to fully assist the taxpayer the taxpayer_advocate should be apprized of the requisite procedures for requesting an extension of time to recharacterize the failed ira conversion after the deadline for recharacterizing an ira contribution issue consistent with the legislative_history of sec_6213 the math error assessment procedures may only be employed if it is apparent from the face of the return which entry is incorrect in the situation you describe it is not apparent from the face of the return which return entry is incorrect eg whether the taxpayer’s agi or conversion amount is the incorrect entry nor can you determine the taxpayer’s modified agi the examples above show that even in cases where it would appear that the procedure could be used because the deduction claimed was inconsistent with the other information on the return the math error procedures still would not apply if there was some uncertainty about what the taxpayer intended the math error exception may only be utilized if it is absolutely clear what the taxpayer intended we do not believe that in the roth conversion situation you describe the taxpayer’s intention is absolutely clear since form_5329 is not attached to the return you cannot determine whether the amount distributed from the ira is subject_to the percent additional tax on early distributions imposed under sec_72 because the taxpayer may qualify for an exception to the additional percent tax in addition you cannot determine from the face of the return whether the taxpayer made other roth_ira contributions for the taxable_year so you cannot determine whether the failed roth_ira_conversion is subject_to the excise_tax imposed on excess roth_ira contributions under sec_4973 nor is form_5329 attached accordingly since the internal_revenue_service is not permitted to make determinations about a taxpayer’s intention when making assessments pursuant to the math error procedures assessments made as a result of a failed roth_ira_conversion ie the additional tax under sec_72 and the excise_tax on excess_contributions under sec_4973 must be made pursuant to deficiency procedures


internal_revenue_service number release date index number --------------------------------------------------- ------------------------- ------------------------------- ----------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-126520-08 date august legend taxpayer state n a b c d tax_year project -------------------------------------------------------------------------------------------------------------- accountant --------------------------------------------------- ------------- ----------------------------------------------- ----------------------- ------------------------ ----------------------------------------------- ------- ---------------------------------------------------------- -------------------- ------------------------------------------------------------------------------------- ------------------------------- dear ---- this is in response to your letter of date requesting on behalf of the above- named taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 of the regulations on procedure and administration to file an election under sec_168 of the internal_revenue_code the election the material information submitted for consideration is summarized below taxpayer is a corporation incorporated in state n taxpayer is a wholly-owned subsidiary of a which is a non-profit corporation that is a tax-exempt_entity under sec_501 a was formed to raise funds to manage the renovation of project and to create a civic arts and cultural center to occupy certain renovated buildings in project a created taxpayer to be the general_partner of b a limited_partnership formed under the laws of state n that is owned by the taxpayer as the percent general_partner and by c as the dollar_figure percent limited_partner b was formed to acquire a leasehold interest in certain rehabilitated buildings within project owned by d and to operate such plr-126520-08 buildings on a day to day basis in order to obtain long term appreciation cash and return_of_capital the rehabilitation was financed by loans obtained from a community development entity formed in order to obtain the new_markets_tax_credit under sec_45d of the code it has been represented that project was placed on the national register of historic places final approval by the national park service of the rehabilitation of the buildings at issue in project as certified_historic_structures for purposes of the rehabilitation tax_credit is pending the parties decided to lease project to b for years pursuant to a net_lease that permitted d as owner and landlord of project to make an election under sec_50d of the code to pass rehabilitation tax_credits through to b in order to claim the rehabilitation tax_credits the property cannot be tax-exempt_use_property in the case of property owned by a partnership with tax-exempt_entity partners the portion of the property treated as tax-exempt_use_property is the tax-exempt partner’s highest share of income or gain since taxpayer is a wholly-owned subsidiary of a taxpayer is required to file an election under sec_168 to not be treated as a tax-exempt_controlled_entity for purposes of sec_168 all parties to the transaction agreed to memorialize the requirement that taxpayer make the sec_168 election in b’s partnership_agreement legal counsel for a sent a sec_168 election to taxpayer for signature taxpayer’s president signed the election and returned it to taxpayer’s legal counsel taxpayer was under the impression that the election had been made and that it did not need to do anything further b’s partnership_agreement requires that taxpayer and d as landlord make the necessary sec_168 election and that it be verified by accountant accountant was engaged by taxpayer and b to prepare its federal and state tax returns for the ------- tax_year based upon the information submitted taxpayer intended to make an election under sec_168 on a timely filed federal_income_tax return for its first tax_year ended december ------ however taxpayer did not make accountant aware of the provisions of b’s partnership_agreement requiring that the sec_168 election be made the ------- federal tax_return was prepared reflecting a taxable loss for the year and the sec_168 election was inadvertently omitted from the tax_return subsequently a reviewed the ------- tax_return of taxpayer and taxpayer realized that the sec_168 election had inadvertently been omitted from the return a filed its ------- form_990 return of organization exempt from income_tax that return contained the sec_168 election with respect to taxpayer effective for tax_year ------- plr-126520-08 the taxpayer is seeking relief under sec_301_9100-1 and sec_301_9100-3 for failure to make a timely election sec_168 provides that for purposes of sec_168 if any property which is not tax-exempt_use_property is owned by a partnership which has both a tax-exempt_entity and a person who is not a tax-exempt_entity as partners and any allocation to the tax-exempt_entity of partnership items is not a qualified_allocation then an amount equal to such tax-exempt entity's proportionate share of such property shall be treated as tax-exempt_use_property sec_168 provides that for purposes of sec_168 any tax-exempt_controlled_entity shall be treated as a tax-exempt_entity sec_168 provides that for purposes of sec_168 a tax-exempt_controlled_entity may elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity sec_301_9100-7t requires elections under sec_168 to be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective therefore the election is a regulatory election under sec_301_9100-1 under sec_301_9100-1 and sec_301_9100-3 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based on the facts and information submitted including the affidavits submitted and representations made we conclude that taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government accordingly the requirements of the regulations for granting relief in this case have been satisfied and we grant an extension of time until days from the date_of_issuance of this letter for taxpayer to file the election taxpayer must file an amended federal_income_tax return for its tax_year ending on december ------- and attach thereto the election and information set forth in sec_301_9100-7t taxpayer should also attach a copy of this letter to the amended_return in addition pursuant to sec_301_9100-7t a copy of the election statement should also be attached to the federal_income_tax returns of each of the tax-exempt shareholders or beneficiaries of taxpayer plr-126520-08 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely s william a jackson william a jackson branch chief branch office_of_chief_counsel income_tax accounting enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------- --------------------------------------------- -------------------------------- ---------------------------------------- in re ------------------------------------------- ------------------------------------------------- ------------------------------------ department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 - plr-124776-02 date october do ---------------------ty ------------------- ----------------- ---------------------- ---------------------------- ---------------------- legend accountant accountant accounting firm attorney corporation country a fund fund fund fund fund management pfic pfic ---------------------------------------------------------------------------------------------------------- pfic pfic pfic ---------------------- --------------------- ------------------ -------------- ------------------------------------- ---------------------------- ------------------ ---------------------------------------------- ---------------------------- ------------ --------------- --------------------------------------------------------------------------------- ------------------ --------------- -------------------------------- this is in response to a letter dated date supplemented and corrected ------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------ ------------------- ------------------------------------------ --------------------------------------- ------------------------------------------------------- ------------------------------------------------- plr-124776-02 pfic pfic pfic pfic pfic pfic sibling sibling sibling taxpayer trust --------------------------------------------------------------------------------------------------------------- dear ------------------------------ by information submitted on date date date and date requesting consent under sec_1_1295-3 to make retroactive qualified_electing_fund qef elections to treat the stock owned by taxpayer in each passive_foreign_investment_company pfic listed below as stock in a qef effective as of the first taxable_year that taxpayer owned stock in each pfic representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts and representations following facts owned by trust an electing_small_business_trust and owned by corporation a u s_corporation that is wholly-owned directly and through trusts by sibling sibling all section references are to the internal_revenue_code_of_1986 or the corresponding treasury regulations thereunder in connection with its private_letter_ruling request taxpayer has represented the taxpayer is a limited_partnership organized in the united_states it is the rulings contained in this letter are based upon information and taxpayer acquired stock in pfics directly and through investments in fund sec_1 prior to his retirement in attorney advised taxpayer regarding various tax plr-124776-02 and sibling sibling serves as vice president of taxpayer taxpayer is part of an investment structure for sibling sibling and sibling through limited_partnership funds organized in country a taxpayer directly acquired stock in pfic in pfic in pfic pfic pfic pfic and pfic in pfic in and pfic pfic and pfic in taxpayer indirectly invested in the stock of pfic through its direct investment in fund in taxpayer indirectly invested in the stock of pfic pfic pfic and pfic through its direct investment in fund in taxpayer indirectly invested in the stock of pfic and pfic through its direct investment in fund in taxpayer indirectly invested in pfic and pfic through its direct investment in fund in pfic sec_1 through are not controlled_foreign_corporations cfcs within the meaning of sec_951 through of the internal_revenue_code matters such as the formation of the investment structure that includes taxpayer attorney specialized in tax law while representing taxpayer attorney was aware that taxpayer invested in foreign_corporations either directly or indirectly through investments in foreign limited_partnership funds however attorney failed to examine whether some such foreign_corporations were pfics and as a result attorney failed to advise taxpayer of the possibility of making or the consequences of failing to make qef elections accounting firm but served as taxpayer’s accountant and prepared taxpayer’s relevant federal tax returns from through while working for taxpayer accountant was aware that taxpayer invested in foreign_corporations either directly or indirectly through investments in foreign limited_partnership funds however accountant failed to examine whether some such foreign_corporations were pfics and as a result accountant failed to advise taxpayer of the possibility of making or the consequences of failing to make qef elections member of accounting firm since to prepare its federal_income_tax returns including matters such as the tax consequences of making or failing to make qef elections although accountant was aware that taxpayer invested in pfic sec_1 through accountant was unaware that these foreign_corporations were pfics and as a result did not advise taxpayer of the possibility of making or the consequences of failing to make a qef election in addition to attorney taxpayer relied on accountant who was a member of in addition to attorney and accountant taxpayer relied on accountant also a taxpayer has submitted affidavits executed by attorney accountant and taxpayer requests the consent of the commissioner of internal revenue to plr-124776-02 accountant which reflect the above statements concerning their failures to advise taxpayer of the possibility of making or the consequences of failing to make a qef election taxpayer first became aware that it might own stock in pfics in date upon receiving notification from fund management that it was investigating whether the funds taxpayer invested in included foreign_corporations that are pfics taxpayer received a confirming letter from fund management in july of stating that taxpayer did own stock in various pfics ruling requested make retroactive qef elections under sec_1_1295-3 to treat pfic sec_1 through as a qef effective as of the first taxable_year during which it directly or indirectly owned stock in such pfic law and analysis qef with respect to the taxpayer provided an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with requirements that the secretary may prescribe for purposes of determining the ordinary_earnings and net_capital_gain of such company and otherwise carrying out the purposes of subpart b treatment of qualified electing funds respect to a pfic for any taxable_year of the taxpayer sec_1_1295-1 provides that a foreign_corporation with respect to which a sec_1295 election is made will be treated as a qef for its taxable_year ending with or within the shareholder’s election_year and all subsequent taxable years of the foreign_corporation that are included wholly or partly in the shareholder’s holding_period or periods of stock of the foreign_corporation at any time on or before the due_date determined with regard to extensions for filing the return of the tax_imposed_by_chapter_1 for such taxable_year election due_date to the extent provided in regulations an election may be made later than the election due_date where the taxpayer fails to make a timely election because the taxpayer reasonably believed the company was not a pfic retroactive election sec_1295 states that a qef election may be made for any taxable_year sec_1295 provides the general_rule that any pfic shall be treated as a sec_1295 provides that a taxpayer may make a qef election with plr-124776-02 the commissioner to make a retroactive qef election if the shareholder satisfies the following requirements sec_1_1295-3 provides that a shareholder may request the consent of the shareholder reasonably relied on a qualified_tax professional granting consent will not prejudice the interests of the united_states government the shareholder requests consent before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies all procedural requirements set forth in sec_1_1295-3 as provided in sec_1_1295-3 a shareholder is deemed to have reasonably relied on a qualified_tax professional only if the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a qef election the section further states that a shareholder will not be considered to have reasonably relied on a qualified_tax professional if the shareholder knew or reasonably should have known that the foreign_corporation was a pfic and of the availability of a sec_1295 election or knew or reasonably should have known that the qualified_tax professional was not competent to render tax_advice with respect to ownership of shares of a foreign_corporation or did not have access to all relevant facts and circumstances in the present case taxpayer relied upon attorney for advice on various tax matters including the tax consequences of foreign investments taxpayer also relied upon accountant and accountant for preparation of its federal_income_tax return including the consequences of making or failing to make available elections such as a qef election taxpayer was unaware that the foreign_corporations in which it invested directly or indirectly were pfics until attorney accountant and accountant were competent to render tax_advice with respect to stock ownership in foreign_corporations but did not identify the foreign_corporations in which taxpayer invested as pfics or inform taxpayer of the availability of qef elections taxpayer reasonably relied on a qualified_tax professional within the meaning of treas reg ' f i and the second requirement of sec_1_1295-3 states that the commissioner may grant consent to a taxpayer to make a retroactive election only if granting consent will not prejudice the interests of the united_states government plr-124776-02 sec_1_1295-3 provides that the interests of the united_states government are prejudiced if granting the request would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the qef election by the election due_date taking into account the time_value_of_money for purposes of the computation if granting relief would prejudice the interests of the united_states government the commissioner may in his sole discretion grant consent to make a retroactive election provided the shareholder enters into a closing_agreement with the commissioner that requires the shareholder to pay an amount sufficient to eliminate any prejudice to the government as a consequence of the shareholder’s inability to file amended returns for the closed taxable years treas reg ' f ii in the present case it has been determined that granting relief will not prejudice the interests of the united_states government the third requirement to be met under sec_1_1295-3 is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder taxpayer represents that it made the request for consent to make retroactive qef elections before the issue was raised on audit the final requirement for a retroactive election under sec_1_1295-3 is that the procedural requirements set forth in sec_1_1295-3 must be met the procedural requirements set forth include filing a request for consent to make a retroactive election and appropriate user_fee with the office of the associate chief_counsel international treas reg ' f i additionally affidavits signed under penalties of perjury must be submitted by the shareholder and any qualified_tax professional upon whose advice the shareholder relied treas reg ' f ii and iii these affidavits must describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure and the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional taxpayer has submitted affidavits meeting the requirements set forth in sec_1_1295-3 describing the failures of attorney accountant and accountant to inform taxpayer of the need to make qef elections taxpayer has submitted the appropriate user_fee therefore taxpayer has met the procedural requirements of sec_1_1295-3 granted consent to make retroactive qef elections under sec_1_1295-3 with respect to its direct or indirect ownership in pfic and pfic effective for its taxable_year pfic pfic pfic and pfic effective for its taxable_year pfic effective for its taxable_year pfic effective for its taxable based on the information submitted and the representations made taxpayer is this ruling is directed only to the taxpayer s requesting it sec_6110 of plr-124776-02 year and pfic pfic and pfic effective for its taxable_year provided taxpayer complies with the rules under sec_1_1295-3 regarding time and manner for making the retroactive qef election the code provides that it may not be used or cited as precedent relevant letter is being sent to taxpayer in accordance with the power_of_attorney on file with this office a copy of this a copy of this letter must be attached to any income_tax return to which it is sincerely valerie a mark lippe senior technical reviewer branch office of associate chief_counsel international cc -------------------------------------------


internal_revenue_service number release date index numbers --------------------------- --------------------------------------------- ------------------------------------------------ --------------------------------------- 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 b03 plr-128752-09 date date legend company ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------ trust2 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ---------------------------------------- date5 --------------------------- dear ------------- this letter corrects an obvious error contained in a ruling letter plr-135409-08 issued by this office to company on date the ruling letter was disclosed to the public under sec_6110 of the internal_revenue_code code as plr the error appears on page six of the letter in the second full paragraph under the conclusion heading the last sentence of that paragraph should read trust2 will be treated as a qsst from date5 and thereafter provided beneficiary of trust2 files a qsst election for trust2 with the appropriate service_center effective date5 within days of the date of this letter plr-128752-09 the rulings issued in the original letter remain in full force and effect a copy of this letter should be attached to our previous letter_ruling this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s christine ellison chief branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-119204-00 date date number release date index number x a sb_se official dear this letter responds to your letter dated date requesting an extension of time for x to elect under sec_754 of the internal_revenue_code to adjust the basis of partnership property x represents the following facts the grantor of a grantor trust-partner of x died in a x filed its partnership return for the year of the grantor’s death without a sec_754 election having relied on a professional tax_return_preparer who failed to advise x of the availability and benefits of such an election sec_754 provides that if a partnership files an election in accordance with regulations prescribed by the secretary the basis of partnership property shall be adjusted in the case of a distribution_of_property in the manner provided in sec_734 and in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the tax_year with respect to which the election was filed and all subsequent tax years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 and this section to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the tax_year during which the distribution or transfer occurs for the election to be valid the return must be filed no later than the time prescribed by sec_1_6031_a_-1 including extensions thereof for filing the return for that tax_year under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the plr-119204-00 commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case based on the facts submitted and the representations made x has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently x is granted an extension of days from the date of this letter for electing under sec_754 to adjust the basis of its partnership property within the extension period x must file the election with the sb_se official for association with x’s return for a a copy of this letter should be attached to the election statement except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer on whose behalf it was requested according to sec_6110 this ruling may not be used or cited as precedent sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes