tcmemo_1998_32 united_states tax_court stephen william dahlgren petitioner v commissioner of internal revenue respondent docket no filed date joseph y holman for petitioner dennis r onnen for respondent memorandum opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated section references are to the internal_revenue_code in effect for the year rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner's federal_income_tax in the amount of dollar_figure the issue for decision is whether dollar_figure paid to petitioner in by his former employer is excludable from gross_income under sec_104 the resolution of this issue depends upon whether petitioner's former employer intended the payment to compensate him for personal injury arising from a tort or tort type claim undisputed factual background some of the facts have been stipulated and they are so found at the time the petition was filed petitioner resided in springfield missouri in date petitioner an attorney who apparently did not practice law during the year in issue was hired as the vice president of institutional marketing and sales for comprehensive marketing systems inc cms during the relevant periods cms specialized in subservicing poorly performing loans for other financial institutions during cms earned gross_receipts totaling approximately dollar_figure million from to different loan servicing contracts petitioner was hired by james griffin the president and sole shareholder of cms to develop a plan to market loan servicing to financial institutions in the mortgage lending and servicing business cms anticipated that petitioner's sales and marketing plan would generate revenues through the acquisition of additional loan servicing contracts on date petitioner entered into a 2-year employment contract with cms in accordance with the terms of the employment contract petitioner was entitled to the following compensation a salary of dollar_figure per month for the first months of employment a salary of dollar_figure plus a loan of dollar_figure per month for the remaining months and a commission of percent of the gross revenues generated during the initial term of any loan servicing contracts he secured through his sales and marketing plan plus ½ percent of the gross revenues with respect to the renewal_period of any such contract in the event that petitioner's employment with cms terminated for any of a variety of reasons he was entitled to receive earned but unpaid salary and commissions throughout his employment with cms petitioner did not earn any commissions as an employee of cms petitioner had access to certain confidential information and trade secrets that were the property of cms he was obligated to use his best efforts and the utmost diligence to guard and protect such confidential information and trade secrets and was bound not to disclose or permit to be disclosed to any third party or other person by any method 1the loans were evidenced by promissory notes and accrued interest at the rate of percent per year principal and interest were payable from future commissions earned by petitioner whatsoever any of such confidential information or trade secrets of cms without the prior written consent of cms apparently petitioner's term of employment with cms began with a 90-day probationary period which he successfully completed his probationary employee performance evaluation dated date reflected that he had met the requirements of four out of five separate areas of performance and he was recommended for regular status rather than a check the box rating with respect to an area of performance designated knowledge the following comments were made on the evaluation it has been determined that you meet requirements for the purpose of attaining regular employee status except in the area of knowledge where you require significant support to augment your minimal knowledge of the industry however as you are aware the most critical measure of performance for this position is the generation of new business your performance in this area is vital to the company's growth and development and will be the primary basis for future evaluations according to a managerial performance evaluation dated date petitioner failed to meet the overall requirements for his job because he had failed to secure any loan servicing contracts the evaluation indicated that petitioner's objective was to increase the loan servicing portfolio by a minimum of big_number new loans through subservicing contracts with other financial institutions on or before the second quarter of which he apparently failed to do consequently petitioner received a fails to meet requirements rating in a date memorandum to an executive vice president of cms petitioner disputed the date evaluation and provided detailed examples of how he believed that he had fulfilled his responsibilities at cms in this memorandum among other things petitioner represented my own planning indicates that it is realistic to expect that big_number loans can be brought on by the end of the second quarter that the total of new loans to be added by the end of calendar will be big_number cms responded to petitioner's memorandum however the fails to meet requirements rating was not changed because petitioner's department did not meet the principal requirements of generation of new business during the period under review by the end of date petitioner was aware that his employment with cms would soon be terminated at a meeting on or about date petitioner and mr griffin discussed petitioner's termination and signed an agreement for separation of employment the agreement wherein petitioner agreed to resign voluntarily from cms pursuant to the agreement as consideration for cancellation of the remaining portion of the employment contract cms agreed to pay petitioner dollar_figure this amount consisted of a lump-sum payment of dollar_figure which petitioner and cms agreed would be subject_to all ordinary and necessary payroll deductions resulting in a net payment of dollar_figure made to petitioner as of the signing of the agreement and dollar_figure in the form of a discharge of petitioner's indebtedness to cms in addition the agreement provided that petitioner would be paid all unused vacation pay and earned but unpaid salary the agreement further provided in consideration for the promises referred to herein petitioner does hereby fully finally and unconditionally release and forever discharge cms and its affiliates and their respective former and present officers agents employees directors and shareholders in their personal and corporate capacities from any and all liabilities claims rights obligations charges damages costs expenses attorneys' fees suits actions causes of action and demands of any and every kind nature and character known or unknown liquidated or unliquidated absolute or contingent in law or in equity enforceable under any local state or federal order including without limitation title vii of the civil rights act of as amended u s c sec_1001 et seq and the district of columbia human rights law as amended d c code section et seq which petitioner may now have has ever had or may in the future have which arise out of or are in any way connected with petitioner's past employment with cms or the termination of said employment or which arise out of or are in any way connected with any past actions or omissions of cms its affiliates or their former and present officers agents employees directors or shareholders including without limitation retaliatory discharge claims contract claims tort claims and claims for wages compensation benefits compensatory_damages punitive_damages and reinstatement as further consideration for the promises referred to herein petitioner agrees that without the express written authorization of an officer of cms petitioner will not directly or indirectly disclose to any third party any of cms's trade secrets or other confidential information not known to the general_public with respect to the business operations of cms or its affiliates including but not limited to the information relating to management operations financial affairs legal affairs bids contracts licensing and investment opportunities acquisition and joint_venture candidates business plans and business opportunities this agreement sets forth all terms and conditions of the agreement between the parties the parties understand and agree that the terms of this agreement are contractual and not a mere recital during his employment with cms petitioner was instrumental in the development of a relationship between cms and signet bank signet petitioner introduced cms executives to an old pal of his at signet and ultimately cms and the bank formed a business relationship signet provided the necessary credit facility that allowed cms to contract with the department of housing and urban development hud a credit facility is similar to a revolving line of credit the credit facility in place between signet and cms during the relevant period could only be used by cms in connection with its contract with hud in date cms was attempting to secure a contract with the government national mortgage association gnma apparently to qualify for the contract cms had to demonstrate certain financial responsibility in a date letter to gnma the gnma letter that included a business plan and proposal cms represented currently cms has a dollar_figure credit facility that can be utilized for advances necessary to meet monthly remittance requirements the credit facility can be increased if necessary reimbursement for advances will be facilitated through subsequent collections the credit facility that cms had in place with signet at that time was in the amount of dollar_figure however the signet credit facility could not be used in connection with prospective gnma business nor was it subject_to increase many years prior to the year in issue petitioner had been employed for a brief period of time as a staff attorney for a company involved in marketing franchises and other_securities as a result of this employment petitioner was named as a defendant in a law suit brought by certain clients or customers of this company under various provisions of the securities act of petitioner was named as a defendant in the suit merely because his name appeared on the letterhead of his former employer although the outcome of that proceeding has not been made part of the record it does not appear that petitioner incurred any liability as a result of it petitioner's federal_income_tax return cms issued a form_w-2 for the year to petitioner reflecting wages in the amount of dollar_figure federal_income_tax and fica withholdings were computed based upon the entire amount and withheld on his federal_income_tax return petitioner reported wages of dollar_figure in an attachment to his return petitioner explained that dollar_figure of the amount he received from cms during was not taxable because the dollar_figure represented payment for p ersonal injuries sustained as a result of the tortious conduct of cms who knowingly made false statements in writing to a u s government_official for the purpose of obtaining u s government agency gnma approval of the purchase of a loan servicing portfolio by cms the notice_of_deficiency in the notice_of_deficiency respondent increased petitioner's taxable_income by dollar_figure characterizing the payment as separation pay and explaining it is determined that the employment contract separation pay of dollar_figure which was included in your form_w-2 from cms was not reported on your tax_return accordingly taxable_income is increased dollar_figure for controlling legal principles separation or severance_pay like other forms of compensation_for services is generally includable in the income of the recipient sec_61 brennan v commissioner tcmemo_1997_317 sec_1_61-2 income_tax regs in general sec_104 excludes from gross_income the amount of any damages received on account of personal injuries only damages that are received in connection with a claim based upon a tort or tort type right and on account of personal_injury_or_sickness are excludable from the recipient's income sec_104 515_us_323 in a situation such as presented here where payment to a former employee has been made pursuant to some agreement the nature of the claim that led to the agreement and payment must be examined in order to determine whether the provisions of sec_104 apply 504_us_229 dispute between the parties there is no disagreement between the parties with respect to the above-stated general principles of federal income_taxation the dispute between the parties focuses upon the nature of the claim if any that petitioner had against cms and the characterization of the dollar_figure payment petitioner received from cms in respondent argues that the dollar_figure payment constitutes severance_pay petitioner received in satisfaction of any future commissions he might have been entitled to receive and consequently must be included as such in petitioner's income petitioner maintains that he had a tort claim intentional infliction of mental distress against cms and argues that the payment represents the settlement of that tort claim therefore according to petitioner the payment is of the type that is excludable from income under sec_104 and his federal_income_tax return reflects his correct federal_income_tax liability for that year in advancing their respective arguments regarding the nature of the claim petitioner had against cms and the characterization of the payment here under consideration neither party relies entirely upon the express language of the agreement no doubt due to the manner in which it was drafted not unlike releases we have examined in other cases involving the application of sec_104 the agreement is all encompassing covering all contract and tort claims that petitioner potentially had against cms in such situations we look to the intent of the payer in order to determine whether the provisions of sec_104 are applicable 349_f2d_610 10th cir affg tcmemo_1964_33 290_f2d_283 2d cir affg per curiam tcmemo_1960_21 and focus upon the date meeting between petitioner and mr griffin that apparently formed the basis for the agreement and the payment here under consideration both parties presented their respective versions of what took place during that meeting petitioner did so through his own testimony respondent did so through the testimony of mr griffin after listening to and reviewing the testimonies of these individuals the court cannot help but wonder if they were describing the same event petitioner's account centers on the gnma letter which contained a bid on a loan servicing contract and indicated that a dollar_figure credit facility was available for the contract during the meeting petitioner allegedly asked mr griffin how he mr griffin could publish this letter with what was clearly a misleading statement in it to a government_official and whether he had any appreciation for the harm done to petitioner by that statement petitioner considered the statement about the available credit facility to be false and misleading because he assumed that the statement referred to the credit facility set up by signet which credit facility could only be used in connection with the hud contract petitioner claims that he was concerned about the possibility of somehow being held accountable for what he believed to be the misstatement he further claims that due to the above-described experience with his prior employer he was concerned that he might be sued or otherwise suffer some damage or harm to his professional reputation nothing in petitioner's version of the meeting suggests that future commissions were discussed mr griffin's version of the meeting focuses on petitioner's employment performance and employment contract according to mr griffin petitioner voluntarily resigned because he agreed that his performance had not met cms's expectations according to mr griffin during the meeting petitioner indicated that he had contacted certain financial institutions and claimed entitlement to potential future commissions that would result if cms secured any contracts as a result of these contacts to resolve any potential disputes regarding commissions which petitioner might have been entitled to receive mr griffin claims that he agreed after some negotiation as to the amount to pay petitioner dollar_figure and cancel petitioner's dollar_figure indebtedness to cms according to mr griffin the gnma letter was not discussed during this meeting moreover according to mr griffin the statements in the gnma letter were accurate because the letter did not refer to the credit facility then in place with signet but was a reference to an arrangement with a different financial_institution according to mr griffin the gnma letter was reviewed and discussed among cms employees and contained no false information resolution of the dispute after hearing and reviewing the testimonies of petitioner and mr griffin having observed each witness during the trial we are not convinced that either was entirely candid with the court by the time of the date meeting and agreement petitioner had been aware for several months that his employment with cms was going to be terminated obviously his relationship with cms and mr griffin had deteriorated significantly by date by his own account in his response to his poor managerial performance evaluation petitioner indicated that he expected that big_number new loans could be added to cms's portfolio by the close of presumably such an occurrence would have entitled petitioner to some if not substantial commissions we find it highly unlikely that the date meeting between petitioner and mr griffin did not include any discussion about potential future business that might have resulted from petitioner's efforts while employed by cms we are unwilling to accept petitioner's version of what took place at the date meeting and his explanation as to why the dollar_figure payment was made to him furthermore petitioner's explanation as to why he received the dollar_figure payment is inconsistent with the provisions of the agreement subjecting the payment to payroll deductions on the other hand we are not completely satisfied with mr griffin's version of the date meeting either mr griffin testified that the gnma letter was not discussed it is clear from the record that if the reference in the gnma letter was to the signet credit facility the letter contained false statements knowing that his employment with cms was soon to end we find it more_likely_than_not that petitioner believing the gnma letter to contain false representations called it to mr griffin's attention for whatever doing so might have been worth to petitioner we are somewhat disturbed that mr griffin could not support his claim regarding the accuracy of the gnma letter with supporting documentation and also with the amount of the payment made to petitioner upon termination of employment with cms according to mr griffin the entire amount_paid to petitioner pursuant to the agreement constituted payment for potential future commissions mr griffin did not explain why cms would agree to pay petitioner what appears to be so generous an amount given petitioner's failure prior to that point in time to earn any commissions nevertheless considering the entire record although we would be reluctant to exactly characterize the nature of the dollar_figure payment we are satisfied that cms did not intend the payment to compensate petitioner for any personal injury arising from any tort or tort type claim that petitioner had against cms the provisions of sec_104 therefore do not apply it follows and we hold that petitioner may not exclude the dollar_figure payment from his income and respondent's determination in this regard is sustained based on the foregoing decision will be entered for respondent


id office uilc cca_2010110309121437 ---------- number release date from ------------------- sent wednesday november am to ------------------- cc subject re question for an s_corporation the person signing the poa would have to be a corporate officer being a stockholder does not give a person authority to act on behalf of the corporate entity since a corporate officer must sign the return you can probably use the officer that actually signed the form_1120s sec_6062 provides that the signature on the return is prima facie evidence that the signing person is authorized you can also use any other factual evidence including a notarized statement as to who the corporate officers are


number release date id office uilc cca_2012032912304032 ------------- from -------------------- sent thursday date pm to -------------------- cc subject re royalty case --------- --------- that sounds right to me these payments definitely seem to be compensation_for services wages that should be reported as such on forms w-2 i can't see any basis for classifying the payments as royalties the employees are performing services and they don't have any ownership_interest in the property that is generating the income i think you are on the right track --------


internal_revenue_service number release date index number ---------------------- ------------------- --------------------------------------------- -------------------------------------- ---------------------------------- ------------------- -------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc intl b02 plr-135844-12 date date ty ------- legend shareholder --------------------------------------------- ein ---------------- predecessor ------------------------------------ fc --------------------------------------------------------------- ein ---------------- foreign_partnership ------------------------------------- foreign_partnership ---------------------------------------------- de --------------------------------------- foreign_partnership ------------------------------------------------------------ investment manager ---------------------------------------- accounting firm -------------------------- administrator -------------------------------------------- accounting firm ---------------------------------------- state ------------- country --------------------------- country -------- country ----------------- plr-135844-12 year ------- year ------- year ------- year ------- dear --------------------------------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for shareholder to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to shareholder’s investment in fc the ruling contained in this letter is based upon information and representations submitted on behalf of shareholder by its authorized representative 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 this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts predecessor was a limited_partnership organized under the laws of state prior to year predecessor acquired an interest in foreign_partnership an entity treated as a partnership for federal_income_tax purposes that was formed under the laws of country foreign_partnership owned an interest in foreign_partnership an entity treated as a partnership for federal_income_tax purposes that was formed under the laws of country foreign_partnership in turn wholly owned de an entity formed under the laws of country that was treated as a disregarded_entity for federal_income_tax purposes de owned an interest in foreign_partnership an entity treated as a partnership for federal_income_tax purposes that was formed under the laws of country which owned real_estate located in country during year de and another entity organized fc an entity formed under the laws of country that was treated as a corporation for federal_income_tax purposes during year foreign_partnership sold an interest in real_estate located in country to fc during year predecessor was split into three separate partnerships as a result of the split-up i predecessor underwent a technical_termination and ii predecessor became shareholder a new partnership for federal_income_tax purposes effective immediately after the split-up shareholder is a limited_partnership organized under the laws of state subsequently during year shareholder changed its name to its current name shareholder owned the same interest in foreign_partnership after the split-up that predecessor owned in foreign_partnership before the split-up for federal plr-135844-12 income_tax purposes shareholder’s holding_period in foreign_partnership includes the period during which predecessor held foreign_partnership prior to the year split- up at all relevant times investment manager provided investment management services to predecessor and shareholder investment manager was responsible for all financial and tax reporting requirements of predecessor and shareholder including engaging tax advisors and tax preparation agents in relation to all u s tax matters for the year through year tax years investment manager on behalf of predecessor and shareholder as relevant retained accounting firm to provide advice with respect to federal_income_tax matters regarding predecessor’s and shareholder’s operations and investments in addition at all relevant times investment manager on behalf of predecessor and shareholder engaged administrator to be predecessor’s and shareholder’s administrator and in particular to prepare u s federal state and local information tax returns for predecessor and shareholder prepare u s federal and required state schedule k-1s for all partners and prepare all pfic statements advised by accounting firm administrator retained accounting firm to review and signoff on the u s federal state and local information tax returns and any elections recommended by accounting firm and prepared by administrator accounting firm was retained on the basis that accounting firm employed qualified experienced tax professionals who were competent to render advice with respect to u s federal_income_tax matters including the consequences relating to u s persons owning stock of a foreign_corporation predecessor shareholder investment manager and administrator made available to accounting firm the books_and_records of fc and any other information that accounting firm requested that was relevant to the provision of tax_advice and the review of predecessor’s and shareholder’s tax returns accounting firm failed to identify fc as a pfic and failed to advise predecessor shareholder investment manager or administrator of the consequences of making or failing to make a qef election with respect to predecessor’s or shareholder’s interest in fc during year shareholder and investment manager engaged accounting firm to provide tax_advice tax planning tax reporting and tax consulting services to shareholder and investment manager upon review of shareholder’s structure accounting firm raised the possibility that fc was a pfic under sec_1297 based on accounting firm 2’s determination regarding the pfic status of fc shareholder requested that accounting firm begin the process of preparing a request for relief shareholder has submitted an affidavit under penalties of perjury that describe the events that led to its failure to make a qef election with respect to fc by the election due_date including the role of accounting firm shareholder also submitted an affidavit from accounting firm which describes accounting firm 1’s engagement and plr-135844-12 responsibilities and the advice concerning the tax treatment of fc that it provided to shareholder in addition shareholder submitted the pfic annual information statements described in sec_1_1295-1 for fc for taxable years year through year which provide that fc did not have any earnings_and_profits for year through year shareholder represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election with respect to fc for year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel plr-135844-12 international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of the failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with shareholder’s ruling_request we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to fc for year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely jeffery g mitchell branch chief branch international cc


department of the treasury internal_revenue_service washington d c cwef counsel aprit number info release date conex-112825-09 uil dear am responding to your inquiry to senator martinez senator martinez wrote to us on your behalf and asked us to respond directly to you you recommended increasing to dollar_figure the dollar_figure limit on capital lose deductions that an individual taxpayer may claim each year ‘the dollar_figure limitation_on_capital_losses on form_1040 schedule d reflects a statutory limitation the law limits an individual's deduction for a net_capital_loss capital losses greater than capital_gains for each year to dollar_figure dollar_figure if married_filing_separately sec_121 b of the internal_revenue_code the code we do not have the authority to change this statutory requirement the statutory amendment you recommend requires an act of the congress although the law limits the amount deductible per year it does not completely deny a deduction for a net_capital_loss greater than the deductible amount if you have a net_capital_loss that is graater than dollar_figure for the tax_year you may deduct dollar_figure in the year of the loss then deduct the excess in later years up to the deductible amount until you have fully deducted the entire net capital lass sec_1212 of the code conex-112825-09 hope this information is helpful form_1040 schedule d capital_gains_and_losses and publication investment_income and expenses with appropriate portions highlighted f you have additional questions please contact am enclosing a copy of the form and instructions for identification_number or identification_number vat sincerely john p moriarty chief branch_income tax_accounting enclosure cc the honorable mel martinez aitention department of the treasury internal_revenue_service washington d c office of enter couse date conex-112825-09 uil the honorable me martinez united_states senate washington dc attention dear senator martinez am responding to your letter of on behalf of your constituent _he recommended increasing to dollar_figure the dollar_figure limit on capital_loss deductions that an individual taxpayer may claim each year as you requested responded directly to response lam enclosing a copy of my hape this information is helpful if you need further assistance please call me or at sincerely john motiarty chief branch income_tax accounting enclosure


’ uil department of the treasury internal_revenue_service tax_exempt_and_government_entities_division release number release date date date taxpayer_identification_number person to contact employee identification_number contact numbers certified mail dear ' i this is a final_determination regarding your foundation classification this letter modifies our letter to you dated may 20xx in which we determined that you were an organization described in sec_509 and sec_170 of the internal_revenue_code code based on your sources of support we have determined that you are not a private_foundation within the meaning of sec_509 of the code because you are an organization of the type described in sec_509 effective january 20xx your tax exempt status under sec_501 of the internal_revenue_code is not affected the modification of your foundation status was made for the following reason the regulations under sec_170 provide that an organization will be described in sec_170 if it normally receives at least percent of its support from governmental units or from the general_public because your primary source of support is from marriage counseling fees your organization is not considered a publicly_supported_organization under code sec_509 and sec_170 however effective for all tax years beginning with the tax_year ending december 20xx you are considered a publicly_supported_organization under code sec_509 which includes organizations that normally receive more than one-third of their support from a combination of gifts grants contributions membership fees and gross_receipts from performing exempt_function activities and not more than one-third of their support from investment_income and unrelated_business_taxable_income grantors and contributors may rely on this determination unless the internal_revenue_service publishes a notice to the contrary because this letter could help resolve any questions about your private_foundation_status please keep it with your permanent records processing of tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed before the day after the date this determination was mailed to you if you wish to seek review of our determination please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses united_states tax_court second street nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate_service if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours mary a epps acting director eo examinations enclosures publication exempt_organization appeal procedures for unagreed issues form_6018 consent to proposed action - sec_7428 return envelope internal_revenue_service tax_exempt_and_government_entities_division department of the treasury uil date date taxpayer_identification_number ’ form tax_year s ended december 20xx person to contact id number ' contact numbers certified mail return receipt requested - dear’ we have enclosed a copy of our report of examination explaining why we propose modifying your foundation status under sec_509 of the internal_revenue_code code your exempt status under sec_501 of the code is still in effect if you accept our findings take no further action we will issue a final letter modifying your foundation status if you do not agree with our proposed modification of your foundation status you may provide additional information that you would like to have considered or you may submit a written appeal the enclosed publication the examination process and publication exempt_organization appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference with appeals you must submit a written protest within days from the date of this letter an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice _ ‘lf we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for letter rev catalog number 34811r the district of columbia determines that the organization involved has exhausted its adniinistrative remedies within the internal_revenue_service we will then issue a final letter you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate ' i ot if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you - thank you for your cooperation sincerely ene nanette ow downi director eo examinations enclosures publication publication report of examination letter rev catalog number 34811r form 886-a name of taxpayer department of the treasury - internal_revenue_service explanation of items year period ended 20xx12 issue counseling fees on the form 886-a you stated that the taxpayer provides biblical marriage counseling to couples and families based upon need instead of the ability to pay however the income analysis workpaper did not demonstrate that the organization served a charitable_class and operated in a noncommercial manner e e e e organizations generally qualify under sec_509 if the main source of their revenue is from exempt_function_income such as fees for services admissions or sales of materials supporting their exempt_function contributions gifts and grants are normally not substantial in nature reg c -1 d provide that the term charitable is used in sec_501 in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government promotion of social welfare per irm - revrul_69_441 1969_2_cb_115 provides that an organization that assists low income individuals and families with individual financial counseling and assists them in establishing budget plans where necessary may be exempt per irm - self-help programs are often used to ameliorate the problems of poverty supplying materials and services for use in these programs can also be a charitable activity how the organization operates is usually a critical factor in determining whether it is charitable rather than a commercial venture for example in revrul_68_16 1968_1_cb_255 an organization created to market the cooking and needlework of needy women was held to be exempt even though it received a small commission on each sale the organization served a charitable_class and operated in a noncommercial manner the women it served could not otherwise find an outlet action analyze the fee structure to verify that the taxpayer serviced a charitable_class and was operated in a noncommercial manner issue incorrect tin on letter you included the incorrect tin on letter form 886-a page of department of the treasury - internal_revenue_service


t c memo united_states tax_court hartford and josephine shelton petitioners v commissioner of internal revenue respondent docket no filed date hartford and josephine shelton pro_se rebecca dance harris for respondent memorandum findings_of_fact and opinion goeke judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax and an accuracy-related_penalty of dollar_figure under sec_6662 for the issues for decision are whether pursuant to sec_104 1unless otherwise indicated all section references are to the internal_revenue_code petitioners may exclude from their gross_income the settlement proceeds received by petitioner wife we hold that the settlement award is gross_income and not excludable and whether petitioners are liable for an accuracy-related_penalty under sec_6662 for their failure to report the settlement proceeds we hold that they are not findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed their petition petitioners resided in virginia petitioner wife was hired by the dial corp dial at some time before petitioner husband is disabled and unable to work while employed at dial petitioner wife was subject_to sexual harassment by her supervisor petitioner wife’s supervisor repeatedly harassed her made references to petitioner husband’s disability and refused to stop after petitioner wife rebuffed his advances petitioner wife complained about the harassment to dial’s management but no corrective action was taken and petitioner wife’s employer retaliated against her as a result of her complaints petitioner wife was routinely assigned to menial labor or given the least desirable assignments although petitioner wife was subject_to harassment by her immediate supervisor she was also harassed by other members of dial’s management petitioner wife developed severe emotional problems and began to receive medical help petitioner wife began and continues to take antidepressants and other medication to deal with the physical effects of her harassment on date the equal employment opportunity commission eeoc filed a complaint against dial in the u s district_court for the northern district of illinois the complaint alleged that dial had engaged in a pattern and practice of discrimination against a class of female employees based upon their sex by subjecting them to a hostile and abusive work environment and that dial failed to remedy this situation after the company had become aware of the alleged harassment on date the eeoc and dial entered into a consent decree the consent decree provided in pertinent part that dial would pay dollar_figure million the settlement proceeds to be distributed to all eligible class members the decree also provided for corrective action on dial’s part to prevent future instances of sexual harassment petitioner wife was a member of the class of workers eligible for a portion of the settlement proceeds in order to receive the settlement proceeds an eligible claimant had to sign a release form discharging dial from liability for all past instances of sexual harassment the release provided in pertinent part that the settlement proceeds were for emotional pain suffering inconvenience mental anguish loss of enjoyment of life and nonpecuniary losses the release did not provide any information concerning the proper treatment of the settlement funds for federal tax purposes however a claimant who signed the release acknowledged that the settlement amount might be subject in whole or in part to federal and state income_taxation petitioner wife signed a release and received dollar_figure from dial in dial issued a form 1099-misc miscellaneous income to petitioner wife reporting income of dollar_figure petitioner wife contacted the internal_revenue_service irs at some point after receiving the settlement proceeds to determine their proper treatment the irs representative informed petitioner wife that in some situations settlement proceeds could be excluded from income if they were paid on account of physical injury petitioner wife having suffered physically as a result of her supervisor’s harassment believed that the settlement proceeds were paid to compensate her for those injuries on date petitioners filed a joint form_1040 u s individual_income_tax_return for tax_year petitioners’ form_1040 was prepared by a paid return preparer petitioner wife informed the return preparer that the settlement proceeds were paid to compensate her for physical injury in accordance with petitioner wife’s representations the return preparer did not include the settlement proceeds on petitioners’ return on date respondent issued a notice_of_deficiency the notice to petitioners for respondent determined in the notice that petitioners were required to include the settlement proceeds in gross_income and that petitioners were liable for a sec_6662 accuracy-related_penalty on date petitioners timely petitioned this court for a redetermination of their tax_liability opinion gross_income generally includes all income from whatever source derived sec_61 the definition of gross_income is broad in scope while exclusions from income are narrowly construed 515_us_323 damages other than punitive received on account of personal physical injuries or physical sickness may generally be excluded from gross_income sec_104 for the damages to be excluded under this provision the underlying cause of action must be based in tort or tort-type rights and the proceeds must be damages received on account of personal physical injury or sickness commissioner v schleier supra pincite emotional distress is not treated as a personal physical injury or physical sickness except for damages not in excess of the amount_paid for medical_care attributable to emotional distress sec_104 flush language petitioners focus on the severity of the harassment and the physical ailments that it caused in arguing that they are not required to include the settlement proceeds in gross_income petitioner wife contends that the settlement proceeds should not be taxable because after being harassed she was not the same person physically petitioner wife points to the fact that she sought medical help and continues to take medication to deal with the physical effects of the harassment respondent does not argue that the underlying cause of action in this case is not a tort or tort-type right instead respondent argues that the damages petitioner wife received were not on account of personal physical injuries or physical sickness although petitioners argue that petitioner wife suffered physical injury as a result of her sexual harassment that injury does not meet the requirements of sec_104 petitioner wife although she suffered physically was not compensated for that physical injury petitioners do not claim that any portion of the settlement proceeds were to reimburse them for amounts paid for medical_care attributable to emotional distress see sec_104 flush language sanford v commissioner tcmemo_2008_158 the settlement proceeds were for emotional pain suffering inconvenience mental anguish loss of enjoyment of life and nonpecuniary losses not physical injury damages received on account of emotional stress even when resultant physical symptoms occur are not excludable from income under sec_104 hawkins v commissioner tcmemo_2005_149 because petitioner wife did not receive the settlement proceeds on account of personal physical injury or sickness petitioners must include those amounts in gross_income see sanford v commissioner supra shaltz v commissioner tcmemo_2003_173 accuracy-related_penalty respondent determined that petitioners are liable for an accuracy-related_penalty under sec_6662 for negligence or disregard of rules or regulations sec_6662 and b imposes a 20-percent penalty on an underpayment_of_tax that results from negligence or disregard of rules or regulations sec_6662 defines the term negligence to include any failure to make a reasonable attempt to comply with the provisions of this title and the term disregard to include any careless reckless or intentional disregard the sec_6662 penalty is inapplicable to the extent the taxpayer had reasonable_cause for the underpayment and acted in good_faith sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the relevant facts and circumstances sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer id generally the most important factor is the extent of the taxpayer’s efforts to assess the proper tax_liability id an honest misunderstanding of fact or law that is reasonable in the light of the experience knowledge and education of the taxpayer may indicate reasonable_cause and good_faith remy v commissioner tcmemo_1997_72 petitioners have no experience or education in tax law and sought advice from the irs in order to determine the proper treatment of the settlement proceeds the irs employee informed petitioner wife that in some circumstances settlement proceeds could be excluded if they were paid to compensate for physical injuries petitioner wife believed that the proceeds were paid to compensate her for physical injury this belief was reasonable as a result of the harassment petitioner wife did not feel that she was the same physically petitioner wife’s belief is supported by the fact that petitioner wife required medical help and began taking numerous medications soon after the harassment began we find petitioners’ mistaken belief that the settlement proceeds were for physical injury to be reasonable petitioners acted reasonably and in good_faith when they informed their return preparer that the settlement proceeds were paid on account of physical injury see stadnyk v commissioner tcmemo_2008_289 pettit v commissioner tcmemo_2008_87 gibson v commissioner tcmemo_2007_224 viewing all of the circumstances including the experience knowledge and education of petitioners we conclude that petitioners have demonstrated reasonable_cause for failing to report the settlement proceeds as income and that they acted in good_faith accordingly petitioners are not liable for the accuracy-related_penalty to reflect the foregoing decision will be entered for respondent as to the deficiency and for petitioners as to the accuracy-related_penalty


internal_revenue_service b uniform issue list number department of the treasury washington dc reega i og tee bof ee contact person telephone number n n ref reterence fo to op e eo t date jan dear sir or madam this is in reply to your request of august a ruling that there will be as revised of the internal_revenue_code in claims agreement concerning act no on january self-dealing under sec_4941 regard against the estates of the proposed h and w of settlement to for h and w were husband and wife www state law statutory share a brother of w the validity of federal from exempt and n w's of his estate as filed a claim against h's his w brought a the of section h a niece of will is under e tax one income the code that is a beneficiary under the wills of b her for also estate widow lawsuit to contest organization sec_501 and w of you indicate that a beneficiary organization such as e may be the h and w may be disqualified persons under sec_4946 in which event you ask assurance of self-dealing a private_foundation under sec_509 estates of of that the settlement agreement will not be under sec_4941 of the code the code with respect to an act code and the of e under the settlement agreement h's estate will pay w’s estate to preclude to settle her claim the settlement agreement has the litigation contesting w’s will approval of all of the parties including the exempt_organizations the code that are beneficiaries under under sec_501 and the settlement agreement will be approved the wills of by the state probate_court s and w's estate will pay b and n h and w of the code provides for the exemption from and nonprofit federal _ operated exclusively for charitable and or other exempt purposes sec_501 tax organizations organized income of of stated in that section set yece a section private exempt from federal_income_tax under sec_501 foundation provisions of and subject including sec_4941 of the code the private describes code the of to foundations of the code code the sec_4941 code imposes excise_tax on any act private gelf-dealing disqualified persons as defined under sec_4946 of the code of between foundation the a and any of of its of the sec_4946 the a foundation and similar excise_taxes regulations provide that a private_foundation includes disqualified_person with respect to any a disqualified person’s spouse parents children and grandchildren but not brothers sisters nieces or nephews and sec_53_4946-1 contributor substantial foundation_manager code and of a not sec_53_4941_d_-1 of act an administration of estates respect does foundation's interest or expectancy in property an estate encumbered property vests under local law met concerning of self-dealing private not the regardless of if the five requirements below are provides that with whether or to regulations transaction when title held by include the to a a i the administrator or executor of the estate either possesses a power of sale with respect to a the property has the power to reallocate the property b to another beneficiary or is required to the property under c the terms of any option subject_to which the property was acquired by the estate sell ii such transaction is approved by the probate_court having having court another jurisdiction jurisdiction over the estate or over the private_foundation over estate the by or iii such transaction occurs before the estate is considered tax purposes pursuant to section terminated for b -3 a of the income_tax regulations federal income iv the estate receives an amount which equals or exceeds the fair_market_value of the foundation's interest or expectancy in such property at the time of the transaction taking into account the terms of any option subject_to which the property was acquired by the estate poc a fy sut a o r o v the transaction either results in the foundation receiving an a interest or expectancy at least as liquid as the one it gave up results in b asset related to its exempt purposes or the foundation receiving an of the active carrying out is required under the terms of any option c which is binding on the estate in be met this will will case settlement the five requirements of the estate administration exception to of the regulations self-dealing under sec_53 d -1 b each executor stated above second possesses a power of sale with respect to estate property having probate_court s the the settlement will occur jurisdiction over the estates before the estates are considered terminated for federal_income_tax fourth purposes under sec_1_641 b -3 a of the estates and the exempt_organizations will not give up any of a result the fair market values of their interests other than as the interests of of this settlement of existing claims the estates and the exempt_organizations under the settlement will remain as liquid as their interests were before this settlement the regulations approved by third first fifth be a accordingly we rule that the terms of the settlement agreement will not result in any act of self-dealing under sec_4941 of the code because this letter could help to resolve any questions about in your permanent records your status you should keep it this ruling is directed requested it not be used or cited as precedent sec_6110 only that of the code provides that it may organizations the to sincerely signed garland a carter garland a carter chief exempt_organizations technical branch sf


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person identification_number contact number fax number release date se t eo ra sin - date employer_identification_number legend year a m x y dear ------------ date and date requesting modifications of your income_tax exemption under sec_501 of the internal code the code you have provided us with the following information provisions of the a cooperative statute your articles of incorporation and bylaws provide for your operation on a not-for-profit cooperative basis for the mutual benefit of members your bylaws also provide that each member has one vote in all general meetings and that all operating margins collected from members in any given year shall be returned to them in the form of a capital credit allocation based upon their participation patronage in the cooperative since formation in year you have operated as a rural electric cooperative under the this refers to your letter dated date and supplemented by your letters dated you are exempt under sec_501 of the code and since inception you have you will provide satellite based internet services called the m service which you will page operated in providing electricity to member on a cooperative basis lately however there have been rapid changes in technology and the electric industry is integrating with the telecommunications industry due to advancement of technology to remain competitive in the industry and relevant to members as a utility service provider not just an electric wires company you propose to add in providing them with internet service on a cooperative basis secure under your agreement with the x x has a master distribution agreement of the service with y you are a member of x a national organization exempt under sec_501 of the code you will offer two types of dial-up internet service ------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- your functions will include installation of equipment service maintenance and billings and collections through separate operating divisions with existing and new member patrons to facilitate the separation of costs and expenses and the proper accounting of patronage margins you will organize business by separate operating divisions you will establish two separate operating divisions-electric division and communication division all electric energy and service sales will be conducted through the electric division the internet services will be conducted through the communications division you intend to become an internet service provider to current and new members of the cooperative allowing the surrounding rural communities access to all of the amenities of the internet each subscriber will be entitled to one vote and only one vote regardless of the number of divisions in which they participate at annual meetings and in other governance matters requiring member approval patronage allocations will be made to members from each division in which they participate based on their patronage of that particular division if a division experiences losses in any year the losses will be assigned to members of that division based on their participation you are a rural electric cooperative that has been granted tax-exempt status under sec_501 of the code the internet as well as the electric service will be conducted on a cooperative basis subscribers to the services will be given member status under your bylaws as a member you made the following representations in conjunction with this request page you have in the past and continue to satisfy the member income test requirements for exemption specified at sec_501 of the code with respect to prior tax years you filed all required forms return of organization exempt from income_tax and forms t exempt_organization business income_tax return for each major line of utility or related business you enter you will modify your articles of incorporation and bylaws as necessary to authorize the provision of such services you will modify your bylaws to a establish separate operating divisions and accounting for each major line of services in which the cooperative is engaged ie electric service and communication service c provide that each division eg electric and communications of the organization which is operated on a cooperative basis shall make patronage allocations to members based on their participation in that particular operating division b extend full membership and voting rights on a one member one vote basis to all customers subscribing to service through either of the operating divisions with members participating in more than one activity entitled to only one vote d provide that if an operating division incurs losses in one or more years losses shall be assigned on the books of the cooperative to participating members based on their patronage in the loss years and benevolent life_insurance association of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations but only if percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses_and_expenses sec_501 c of the code provides that subparagraph a shall apply to mutual or cooperative electric company without taking into account any income received or accrued form qualified pole rentals or prepayment of certain loans from the provisions of the rural electrification act of e provide that no patronage margin allocations shall be made to members in an operating division until such members' prior year loss assignments from the pool have been offset with either their allocable margins from other pools in which they participate or if none are available subsequent year margin allocations from the loss pool sec_501 of the code provides for the exemption from federal_income_tax of revrul_72_36 1972_1_cb_151 set forth certain requirements that cooperative in 44_tc_305 acq 1966_1_cb_3 page three principles are described as fundamental to cooperative operation subordination of capital democratic control by the members and operation at cost subordination of capital requires that control of the cooperative and ownership of the pecuniary benefits arising from the cooperative's business remain in the hands of the members patrons of the cooperative rather than with nonpatron equity investors in the cooperative democratic control of the cooperative is typically achieved by voting on a one-member one-vote basis the requirement of operation at cost is met if the cooperative's net_earnings or savings are distributed to the cooperative's patrons in proportion to the amount of business conducted with them companies must meet for exemption under sec_501 of the code these requirements include the following a cooperative must keep adequate_records of each member’s rights and interest in the assets of the organization the rights and interests of members in the organization’s savings must be determined in proportion to their business with the organization a member’s rights and interest may not be forfeited upon the withdrawal or termination of membership a cooperative must not retain more funds than it needs to meet current losses_and_expenses and upon dissolution gains from the liquidation of assets should be distributed to all current and former members in proportion to the value or quantity of business that each did with the cooperative over the years maintain a two-way radio system for the mutual benefit of its members and without profit the ruling states that the organization is similar to a mutual or cooperative telephone company in that a two-way radio communication system on a mutual basis is an organization whose purpose is similar in nature to a mutual telephone company the ruling held that the organization is a like organization and provided or more of its income is collected from members for the sole purpose of meeting losses_and_expenses it is exempt under sec_501 of the code water to its members on a cooperative basis may qualify for exemption from federal_income_tax as a like organization under sec_501 of the code prior to your proposed addition of another service to members you are engaged solely in furnishing electricity to them on cooperative basis for which you are a like organization exempt under sec_501 of the code see revrul_67_265 you now propose adding internet service to be provided to members also on a cooperative basis the internet service would provide members with a means to receive information from the internet network and to enable them to communicate with others in the network this service is similar to the communication system provided by the organization described n revrul_57_420 therefore as long as the internet service is conducted on a cooperative basis and that or more of its income is from members and used solely for meeting your losses_and_expenses your provision of the service would continue to qualify you as a like organization under sec_501 of the code revrul_67_265 1967_2_cb_205 holds that an association which furnishes light and revrul_57_420 1957_2_cb_308 described an organization formed to provide and your current exemption is modified to include internet service in addition to your provision of electric energy and distribution services your provision of internet service to members on a cooperative basis is a like activity contemplated under sec_501 of the code based on the foregoing and your representations we rule on your rulings request a sec_2 your establishment of separate operating divisions for each major service electric and communication with separate patronage allocations for gains and losses in each will be consistent with cooperative operating principles page follows facts upon which it is based we express no opinion as to the tax consequences of the transactions under other provisions of the code telephone number are shown in the heading of this letter you should keep a copy for your permanent records your annual percent income test prescribed by sec_501 will be computed based on all approved like activities in the aggregate not on each separate function robert c harper jr manager exempt_organizations technical group this ruling is conditioned on the understanding that there will be no material_change in the if you have any questions about this ruling please contact the person whose name and sincerely


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 corp b01 plr-112839-17 date july legend s_corporation target s_corporation shareholder purchaser subsidiary date tax professional dear --------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -------- ----------------------------------------------------------------- ----------------------------------------------------------------- - ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------ ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ------------------- ------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- --------- this is in response to a letter dated date submitted on behalf of s_corporation target and joined by purchaser and s_corporation shareholder requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election s_corporation target is requesting an plr-112839-17 extension of time for it to file an election statement under sec_1_336-2 of the income_tax regulations election statement with respect to purchaser’s acquisition of the stock of s_corporation target from s_corporation shareholder on date the material information submitted in your letter and subsequent correspondence dated date date and date is summarized below purchaser wholly owns subsidiary an entity that is disregarded as separate from purchaser for federal_income_tax purposes on date purchaser through subsidiary acquired all of the stock of s_corporation target from s_corporation shareholder an unrelated party in exchange for cash the disposition prior to the disposition s_corporation target had been classified as an s_corporation purchaser s_corporation target and s_corporation shareholder intended to make a sec_336 election prior to the due_date for s_corporation target’s tax_return for the taxable_year that included date year s_corporation target and s_corporation shareholder entered into a written binding agreement providing that a sec_336 election would be made with respect to the disposition however s_corporation target did not timely file its tax_return for year subsequently this request was submitted under sec_301_9100-3 of the procedure and administration regulations for an extension of time to file the election statement it has been represented that none of purchaser s_corporation target or s_corporation shareholder is seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time of the request for relief regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as an asset disposition if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a sec_336 election ii the s_corporation target retaining a copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i plr-112839-17 sec_301_9100-1 through provide the standards the 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the time for filing the election statement is fixed by the regulations ie sec_1 h iii therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for s_corporation target to file the election statement provided purchaser s_corporation target and s_corporation shareholder acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief would not prejudice the interests of the government information affidavits and representations submitted by purchaser s_corporation target s_corporation shareholder and tax professional explain the circumstances that resulted in the failure to timely file the election statement the information establishes that purchaser s_corporation target and s_corporation shareholder reasonably relied on a qualified_tax professional who failed to file or advise them to timely file the election statement and that the request for relief was filed before the failure_to_file the election statement was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser s_corporation target and s_corporation shareholder have acted reasonably and in good_faith the requirements of sec_301 and are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for s_corporation target to file the election statement with respect to the disposition within days of the date on this letter s_corporation target must file the election statement in accordance with sec_1_336-2 the election statement must be attached to s_corporation target’s tax_return for year in addition a copy of this letter must be attached to s_corporation target’s return alternatively if s_corporation target files its return electronically it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date and control number plr-123263-16 of this letter_ruling within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the plr-112839-17 taxable_year in which the transaction was consummated and for any other affected_taxable_year the above extension of time is conditioned on the taxpayers’ ie purchaser’s s_corporation target’s and s_corporation shareholder’s tax_liability if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or election statement late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election statement late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election statement penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _ken cohen________________ ken cohen chief branch office of associate chief_counsel corporate


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 psi b04 - plr-147888-03 date august legend decedent ----------------------------- ---------------------------------------- date ------------------ co-executors ------------------------------------------------------------ attorneys ----------------------------------- -------------------------------------------------- date ----------------------- date -------------------- dear ---------------------------------------- correspondence in which you request an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make an alternate_valuation election under sec_2032 of the internal_revenue_code with respect to the decedent’s estate the facts and representations submitted are as follows decedent died on date co-executors of decedent’s estate hired attorneys to prepare the form_706 united_states estate and generation-skipping_transfer_tax return for decedent’s estate and advise them on estate_tax matters attorneys did not advise co-executors to make the alternate_valuation election under sec_2032 on date the estate timely filed the estate_tax_return for decedent’s estate this is in response to your date letter and subsequent in the case of property not distributed sold exchanged or otherwise any interest or estate which is affected by mere_lapse_of_time shall be on date co-executors filed a supplemental form_706 making an alternate sec_2032 provides that the value of the gross_estate may be determined if plr-147888-03 valuation election under sec_2032 for decedent’s estate and submitted a letter_ruling request seeking an extension of time to make the election with respect to decedent's_estate law and analysis the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise_disposed_of within months after the decedent's death such property shall be valued as of the date of distribution sale exchange or other_disposition disposed of within months after the decedent's death such property shall be valued as of the date months after the decedent's death included at its value as of the time of death instead of the later date with adjustment for any difference in its value as of the later date not due to mere_lapse_of_time respect to an estate unless such election will decrease the value of the gross_estate and the sum of the tax imposed by this chapter and the tax imposed by chapter with respect to property includible in the decedent's gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 such election once made shall be irrevocable under sec_2032 no election may be made under sec_2032 if such return is filed more than one year after the time prescribed by law including extensions for filing such return extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-2 provides automatic extensions of time for making certain sec_2032 provides that no election may be made under sec_2032 with under sec_301_9100-1 the commissioner may grant a reasonable sec_301_9100-3 provides that a taxpayer is deemed to have acted requests for relief under sec_301_9100-3 will be granted when the taxpayer plr-147888-03 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides in part that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly an extension of time is granted until date to make an alternate_valuation election under sec_2032 with respect to decedent’s estate 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 federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter under any other provisions of the code letter is being sent to the taxpayer internal_revenue_service cincinnati oh a copy of this letter should be filed with the cincinnati service_center -- stop in accordance with the power_of_attorney on file with this office a copy of this except as expressly provided herein we express or imply no opinion on the based on the information submitted and the representations made the the rulings contained in this letter are based upon information and plr-147888-03 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 enclosure sincerely heather c maloy associate chief_counsel passthroughs and special industries copy for sec_6110 purposes copy of this letter cc ----------------------------------------- --------------------------------------------------------------- ------------------------------------------- ------------------------------------------------------ ------------------------- ------------------------------------------