t c memo united_states tax_court larry e tucker petitioner v commissioner of internal revenue respondent docket no 3165-06l filed date p filed income_tax returns for and that reported tax due but he did not pay the tax in early when p’s tax_liabilities totaled at least dollar_figure p used dollar_figure for day trading and lost dollar_figure the internal_revenue_service assessed the tax and issued to p a notice of the filing of a notice_of_federal_tax_lien nftl after an initial hearing and an adverse determination p filed a timely appeal of that determination with the tax_court pursuant to sec_6330 contending that the office of appeals improperly rejected an offer-in-compromise oic that p proposed this court ordered a remand to the office of appeals for further consideration of p’s oic at a supplemental collection_due_process_hearing the office of appeals preferred a partial payment installment_agreement but p proposed only his oic in calculating p’s reasonable collection potential for purposes of evaluating his oic the office of appeals considered p’s day trading to constitute asset dissipation the office of appeals issued a supplemental notice_of_determination denying p’s proposed oic and upholding the filing of the nftl the parties have filed cross-motions for summary_judgment held where p engaged in day trading in disregard of his outstanding federal income taxes the resulting losses constitute dissipation of assets r’s office of appeals did not abuse its discretion in denying p’s proposed oic and upholding the filing of the nftl carlton m smith and zachary grendi student for petitioner lydia a branche for respondent memorandum opinion gustafson judge this case is an appeal pursuant to sec_6330 by which petitioner larry e tucker seeks this court’s review of a determination by the office of appeals of the internal_revenue_service irs to reject mr tucker’s proposed offer-in-compromise oic and to sustain the filing of a notice_of_federal_tax_lien nftl in order to collect mr tucker’s unpaid income taxes for tax years and that determination was made after the office of appeals conducted a collection_due_process cdp hearing pursuant to sec_6330 and a supplemental cdp hearing pursuant to a remand of this court the irs’s determination at issue in thi sec_1unless otherwise indicated all section references are to the internal_revenue_code code u s c and all rule references are to the tax_court rules_of_practice and procedure case is reflected in an initial notice_of_determination concerning collection action s under sec_6320 and or and in a supplemental notice_of_determination concerning collection action s under sec_6320 and or this matter is currently before this court on the parties’ cross- motions for summary_judgment filed under rule the specific issue to be decided is whether the office of appeals abused its discretion in date--at a time when mr tucker owed more than dollar_figure--by rejecting an oic pursuant to which mr tucker would have paid dollar_figure over months totaling dollar_figure we will grant respondent’s motion and deny mr tucker’s motion we hold that the office of appeals did not abuse its discretion in rejecting mr tucker’s oic and sustaining the filing of the nftl background the parties’ motion papers and the supporting exhibits attached thereto show that there is no dispute as to the following facts at the time he filed his petition mr tucker resided in new mexico mr tucker’s tax returns mr tucker earned_income in the five years through for the first three of those years mr tucker failed to timely file tax returns for the years at issue2--2000 and 2002--he simultaneously filed form sec_1040 u s individual_income_tax_return on date in date he filed an untimely form_1040 for tax_year and in date he timely filed a form_1040 for tax_year for through some but not all of his tax_liabilities were either prepaid or withheld from his wages the irs assessed the income_tax liabilities that mr tucker had self-reported after the application of prepayment and withholding credits mr tucker had 2the irs’s notice_of_determination at issue referred to liabilities for only three years--2000 and 2002--and this court lacks jurisdiction to review collection of the liabilities for the years not included in the notices of determination see sullivan v commissioner tcmemo_2009_4 however as is explained below the oic that mr tucker submitted in his cdp hearing addressed five years--1999 through in determining whether the rejection of the oic and the collection of liabilities for the years included in the notices of determination is appropriate this court is authorized as the settlement officer was required to consider any relevant issue including offers of collection alternatives sec_6330 d therefore we evaluate the settlement officer’s exercise of discretion in rejecting the oic taking into account all the liabilities that were proposed to be compromised even though we do not have jurisdiction to review the collection of all those liabilities see eg 123_tc_1 reviewing an oic that covers income_tax liabilities for tax years that are both within and outside of this court’s jurisdiction affd 412_f3d_819 7th cir 3in our previous opinion in this case 135_tc_114 we mistakenly stated that mr tucker untimely filed all of these returns in date the transcripts of mr tucker’s accounts show that while these returns were not processed by the irs until date they were received by the irs on date these filings were therefore timely as to but untimely as to and an outstanding reported tax due not including any interest or penalties for each year as follows tax_year income_tax reported dollar_figure big_number big_number big_number big_number withholding credits -0- dollar_figure big_number reported tax_liability due dollar_figure big_number big_number big_number big_number big_number total 1after filing his return for tax_year mr tucker made three voluntary payments of dollar_figure towards the amount due as a result by date when the collection action at issue started the tax due for without any accruals was reduced to dollar_figure and the tax due for all five years without any accruals was reduced to dollar_figure on date nearly a year after mr tucker filed his returns for and the irs sent to him a final notice--notice of intent to levy and notice of your right to a hearing hereinafter levy notice for those three years pursuant to sec_6330 and sec_6331 advising him of the irs’s intent to levy upon his property mr tucker did not timely request a hearing under sec_6330 with respect to that notice for the same three years the irs sent to mr tucker on date a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 lien notice pursuant to sec_6320 advising him that the irs had filed an nftl against him mr tucker’s date oic on date after the irs had issued the lien notice but before mr tucker received it he submitted a form_656 offer_in_compromise proposing to settle his income_tax liabilities for the five years through at that time his unpaid tax_liabilities for those five years totaled dollar_figure and with interest and additions to tax accruals his total five-year liability was approximately dollar_figure mr tucker proposed to compromise that five-year liability for a total of dollar_figure payable in monthly payments of dollar_figure over months mr tucker also submitted a form 433-a collection information statement for wage earners and self-employed individuals detailing his assets monthly income and monthly expenses the irs received mr tucker’s date oic on date by letter dated date the irs examiner who evaluated the date oic informed mr tucker that the irs had determined that you have the ability to pay your liability in 4the record reflects that mr tucker’s outstanding liabilities with accruals through date were dollar_figure so we estimate his total outstanding liabilities ie unpaid taxes plus accruals as of date ie less than one month earlier to be approximately dollar_figure full within the time provided by law mr tucker was given days to dispute this determination at the same time the irs was evaluating mr tucker’s date oic mr tucker timely submitted to the irs on date a form request for a collection_due_process_hearing in response to the lien notice in the attachment to form mr tucker expressed his desire for an oic in the cdp context by stating that on date the taxpayer mailed to the irs an offer_in_compromise covering these taxes and taxes for the years and an offer_in_compromise would be the sensible collection alternative to this lien because of the close timing of mr tucker’s submission of 5this date determination that mr tucker could fully pay his income_tax liabilities--a determination not important to the outcome of this case--was made by comparing mr tucker’s then-current liabilities ie dollar_figure with accruals through date to his total ability to pay which was reckoned to be dollar_figure included in the irs’s calculation of mr tucker’s total ability to pay was dollar_figure in dissipated assets from stock transactions representing dollar_figure discounted by percent for quick sale purposes the dollar_figure represents the largest amount of stock sales mr tucker had in the aggregate on any one day ie date we assume that the examiner concluded that if he had sales in that amount on that day then he must have had cash in hand in that amount on that day but if the examiner so concluded she evidently failed to offset the proceeds by corresponding liabilities arising from margin purchases it seems unlikely that mr tucker had dollar_figure of proceeds from his day trading in hand at any one time in any event before any determination was issued in this case the oic examiner abandoned the position that mr tucker had dissipated dollar_figure in stocks as is set out below the appeals_office subsequently determined that mr tucker had dissipated assets in a much smaller amount--dollar_figure the date oic and his date request for a cdp hearing there was some confusion as to who ie the original oic examiner or the cdp settlement officer should continue to consider mr tucker’s date oic as a result there is some dispute as to whether mr tucker ever disputed the financial determination outlined in the letter dated date and whether his date oic was rejected by the irs before his case was assigned to a settlement officer in any event by letter dated date from mr tucker’s counsel to the settlement officer assigned to mr tucker’s case mr tucker’s counsel effectively withdrew mr tucker’s date oic and indicated his desire for an installment_agreement instead per your request enclosed is the offer_in_compromise filed by larry tucker on date--ie prior to the irs’ issuance of collection_due_process notices i am also enclosing the form 433-a filed at that time together with its enclosures please note that we have since realized that the offer to pay dollar_figure in the form of monthly payments of dollar_figure was a mistake in that the irs requires that offers being paid in over two-year periods be payable over the entire collection period--which in this case is closer to ten years since the offer was filed only a few months 6for clarification mr tucker’s submission of the date oic on date was after the date issuance of the lien notice by the irs but before mr tucker received it a final notice--notice of intent to levy and notice of your right to a hearing relating to tax years and was in fact issued after mr tucker’s submission of the date oic sec_6331 provides for a restraint on levy while an oic is pending and the issuance of the notice_of_levy violated that restriction as a result the irs withdrew this levy notice against mr tucker the issuance of that first levy notice and its subsequent withdrawal was not part of the cdp hearing or determination and is not part of the cdp appeal at issue here after the return was filed mr tucker is willing to make payments over the entire collection_period remaining mr tucker’s income can be more variable than the usual taxpayer this may make an offer_in_compromise unfeasible since a brief period of unemployment could result in the offer going into default and having to be completely redone perhaps a more sensible situation would be for us together to determine a full or partial payment installment_payment arrangement for mr tucker which might be modified in the future as his circumstances change using the collection financial standards we together could come to an amount in this same letter mr tucker’s counsel also addressed the issue that the original oic examiner raised regarding dissipation of assets in doing so mr tucker’s counsel referred the settlement officer to his letter dated date which had been submitted to the office of appeals before the settlement officer was assigned to mr tucker’s case in that date letter mr tucker’s counsel had summarized mr tucker’s stock transactions as follows in date mr tucker received payment in advance for some independent_contractor web design project to be performed by him later in the year he knew he would need this money to live on during the year but he also knew he owed taxes and other creditors in retrospect unwisely he decided to try to leverage currently-unneeded funds into profits by which he could pay off his back tax debts and 7mr tucker’s counsel characterized as currently-unneeded the funds that mr tucker could have used to pay his overdue liabilities for the years through presumably he made that characterization because mr tucker had not yet filed returns for those years if that was his reasoning then it was not correct see the text accompanying note below discussing liabilities that were actually then due other creditors so he wire transferred some of the funds from his checking account to a newly-opened e-trade account between date and date during january he put dollar_figure into the e-trade account then he began day trading by the end of january he showed a small profit since the account was valued at dollar_figure on date from there however everything went south the e-trade account lost dollar_figure in value in date it continued losing money in march so starting on date mr tucker received margin calls mr tucker was trading on margin - i e borrowing part of the money to trade from the brokerage firm as the account declined in value the brokerage firm insisted that mr tucker put additional funds into the e-trade account so that the margin borrowing did not exceed a certain percentage of the value of the account if mr tucker did not comply with these margin calls the brokerage firm would sell all the stocks in the account so from date to date mr tucker put in aggregate dollar_figure into the e-trade account by mid-april mr tucker gave up on trading he had lost dollar_figure through his trading between january and april his last account position was liquidated on date at that point the e-trade account had about dollar_figure in cash in it and no securities between date and date mr tucker gradually transferred money from the e-trade account back to his checking account to pay his rent and other bills in all he transferred dollar_figure between accounts in that period at the same time since the e-trade account came with a debit card he charged various personal expenses to thee-trade sic account approximating dollar_figure in all by date the account was left with only cents in it so mr tucker did not dissipate anywhere near the dollar_figure determined by the original oic examiner - merely dollar_figure and he did this in a good_faith attempt to repay his taxes emphasis added in her case activity records for date the settlement officer observed poa ie mr tucker’s power_of_attorney admits that at least dollar_figure in assets was dissipated this amount must be added to rcp reasonable collection potential i a installment_agreement might be more appropriate unless fp full payment is possible cdp hearing the cdp hearing was held as a telephone conference on date between the irs settlement officer and mr tucker and his counsel during the conference mr tucker’s counsel reiterated that mr tucker was no longer pursuing the date oic proposing payments totaling dollar_figure since circumstances had changed furthermore mr tucker’s counsel advised that mr tucker was not asserting that the lien filed against him had to be removed but rather mr tucker was hoping to find an installment_payment arrangement that he could live with following the may telephone cdp hearing numerous letters were exchanged between the settlement officer and mr tucker’s counsel on date mr tucker submitted a revised page of the form 433-a to reflect new financial figures for his monthly income and expenses this revised form demonstrated that mr tucker had excess income over allowable living_expenses of dollar_figure per month in the date cover letter accompanying the updated financial information mr tucker’s counsel advised the settlement officer that mr tucker would be prepared to enter into an installment_payment arrangement to pay the irs dollar_figure a month in response by letter dated date the settlement officer concluded that her calculations indicate that the most mr tucker would be able to pay is dollar_figure per month enclosed with the settlement officer’s letter was a form 433-d installment_agreement filled out by the settlement officer reflecting a proposed partial payment installment_agreement ppia to pay dollar_figure per month the settlement officer invited mr tucker to review the terms of the ppia and if acceptable sign and return the agreement by date on date mr tucker’s counsel faxed the settlement officer a letter indicating that mr tucker would prefer an oic in lieu of the proposed ppia because an oic would assuming he adhered to all of the conditions fix his liability to the irs whereas the ppia could be reexamined every two years for possible increases 8see sec_6159 in the case of an agreement entered into by the secretary for partial collection of a tax_liability ie a ppia the secretary shall review the agreement at least once every years sec_7122 authorizing agreement between a taxpayer and the government that fully settles a tax_liability for payment of less than the full amount owed but see internal_revenue_manual irm pt date when accepting an oic the government may obtain a collateral_agreement that enables the government to collect funds in addition to the amount actually secured_by the offer certain provisions of the irm have been revised since the time of mr tucker’s cdp hearing we quote the irm provisions as in effect when the office of appeals made the determination that is under review in this case mr tucker’s date oic consistent with the suggestion he had made in his june fax mr tucker’s counsel sent to the settlement officer a revised oic dated date at that time mr tucker’s liabilities for the five years through totaled approximately dollar_figure with accruals mr tucker proposed to settle his income_tax liabilities for those five years by making a total of dollar_figure in monthly payments of dollar_figure over months date oic the offer of dollar_figure per month was intended by mr tucker to be dollar_figure more than the settlement officer had previously determined he could pay per month and was thus intended to exceed his rcp and thereby warrant acceptance in a letter dated date the settlement officer rejected mr tucker’s proposed date oic in doing so the settlement officer stated it is usually not in the government’s best interest to accept an offer when there is more than five years remaining on the collection statute the notice_of_determination and the commencement of this case on date the office of appeals issued to mr tucker a notice_of_determination concerning collection 9the record reflects that mr tucker’s total outstanding tax_liability with accruals through date was dollar_figure and his total liability with accruals through date was dollar_figure we therefore estimate his total outstanding liability as of date between those two dates to be approximately dollar_figure action s under sec_6320 and or in which appeals determined to uphold the filing of the nftl as to mr tucker’s income_tax liabilities for and in response mr tucker timely filed a petition with this court on date previous tax_court proceedings remand to the office of appeals and supplemental notice_of_determination after filing his petition mr tucker filed a motion for summary_judgment on date respondent opposed that motion and filed a motion for remand on date stating that t he settlement officer erred as a matter of law in rejecting petitioner’s offer for the stated reason that amendment of sec_6159 to permit partial payment installment agreements renders obsolete deferred payment offers in compromise by our order of date we denied mr tucker’s motion for summary_judgment and granted respondent’s motion to remand the case to the irs’s office of appeals for an officer to exercise discretion in consideration of mr tucker’s offer and for issuance of a supplemental notice_of_determination no later than date the office of appeals then assigned a settlement officer ie a different settlement officer from the one who had conducted mr tucker’s initial cdp hearing to conduct a supplemental cdp hearing and to reconsider mr tucker’s date oic the supplemental cdp hearing was held as a telephone conference on date between the settlement officer and mr tucker’s counsel on date the office of appeals issued a supplemental notice_of_determination concerning collection action s under sec_6320 and or which determined to reject mr tucker’s date oic and to uphold the filing of the nftl as to mr tucker’s income_tax liabilities for and the attachment to the supplemental notice_of_determination stated inter alia issues raised by the taxpayer in an attachment to form counsel stated that you were unable to full pay the balances due based on sporadic employment and medical concerns and believe that an offer_in_compromise would be a sensible alternative to the lien you submitted a long term deferred offer in the amount of dollar_figure to compromise and return balances you subsequently amended your offer to dollar_figure you owe dollar_figure with accruals to in response an offer is not an alternative to the filing of a nftl it is an alternative to the issuance of a levy or garnishment internal_revenue_manual irm sec_5 requires that a nftl be considered when reviewing an offer_in_compromise this section does not require the filing of a nftl but they are routinely filed on offers that have been accepted but will not be paid within months in order to protect the government’s interest in any assets an individual may own your proposal includes payments over the course of months nftl may not be released until full payment i sec_2 received a taxpayer may qualify for a withdrawal under circumstances laid out in sec_6323 if the filing of the lien was premature or otherwise not in accordance with legal and administrative procedures at the time a taxpayer entered into an installment_agreement he or she was not notified that a lien would be filed withdrawal of the lien would facilitate collection and hardship situations this determination is normally made by the taxpayer_advocate rather than appeals as stated above all legal or procedural requirements have been met you have no installment_agreement precluding the filing of the nftl the documents in the administrative file indicate that you want to pay the debts over months based on your income you site sic no other sources for funding the offer therefore withdrawal of the lien would not facilitate collection by for example enabling you to get a loan to full pay the balance or gain business to speed up collection furthermore in the response to the motion for summary_judgment you indicated that you did not request the nftl be removed internal_revenue_manual irm sec_5 lists four objectives of the offer_in_compromise program including to effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government achieve a resolution that is in the best interest of both the individual taxpayer and the government provide a taxpayer a fresh_start toward future voluntary compliance with all filing and paying requirements and secure collection of revenue that may not be collected through any other means the previous settlement officer offered to negotiate a shorter term offer that would accomplish all these objectives a long term deferred offer may also accomplish these objectives but it also raises the possibility of a part payment installment_agreement ppia appeals is required to consider all collection alternatives raised but is not required to accept an alternative that it believes will not be in the best interest of the taxpayer and the government emphasis added appeals still does not believe a long term deferred offer is a better alternative to a ppia because the service still has to collect and monitor payments for the next months and unlike a long term deferred offer the payments on a ppia are negotiable irs sec_6159 requires that ppias be reviewed every two years if there are increases to a taxpayer’s income or equity in assets then the taxpayer is required to increase the amount of the payments liquidate the equity and if the income and equity is sufficient enough full pay the debts if the taxpayer does not comply the service can terminate the ppia the bottom line in the amount of time it takes to monitor your long term deferred offer the service can review a ppia no less than four times which may in fact result in an amount greater than what is offered and even full payment there is reason to believe the service would collect more from a ppia over the next months based on the documentation in the administrative file and information available from internal sources you are 45-years old your diabetes is being controlled by medication and you are not receiving disability for this or any other ailments and you are gainfully_employed your employment history also indicates you have the ability to earn great sums of money for instance in you purchased and sold almost dollar_figure million in stocks you purchased more than dollar_figure million in stocks and sold just about the same amount for which you ultimately claimed a loss on your return upon review this settlement officer believes that the stock sales are dissipated assets and believes the amounts dissipated should be included in a minimum offer calculation as such the minimum offer is actually full payment these stock transactions in occurred after the due dates of the and returns if you simply sold a little less than you bought which was your option you could have already paid the taxes in full mr tucker’s motion to remand and the parties’ cross-motions for summary_judgment on date in response to the supplemental notice_of_determination mr tucker filed an amendment to petition with this court in order to challenge the determination in the supplemental notice_of_determination in his amendment to petition mr tucker asserted that the office of appeals erred by determining that mr tucker’s offer was not in respondent’s best interest determining that a ppia was a better alternative to the oic that mr tucker proposed determining that there was reason to believe that mr tucker’s income or assets would increase in the future such that the irs would collect more from a ppia than from the oic determining that mr tucker’s stock sales in constituted dissipated assets raising the dissipated assets issue in the supplemental notice_of_determination because it went beyond the scope of the remand order as the issue was not raised in the original notice_of_determination determining that there is no law or policy that requires the service to accept an offer and determining that the cost it takes to monitor your long term deferred offer for months would be similar to the cost it would take to monitor a part payment installment_agreement dollar_figure on date respondent filed a motion for summary_judgment asking the court to sustain the supplemental notice_of_determination mr tucker filed a cross-motion for summary_judgment on date and filed a motion for remand on date mr tucker’s motion to remand was previously denied in 135_tc_114 and we now address the parties’ cross-motions for summary_judgment 10mr tucker also contended that the office of appeals failed to afford him his statutory right to a hearing in that he was denied a hearing before an appeals officer appointed pursuant to the appointments_clause in article ii of the constitution we rejected this contention in 135_tc_114 discussion i applicable legal principles a summary_judgment standards where the pertinent facts are not in dispute a party may move for summary_judgment to expedite the litigation and avoid an unnecessary trial summary_judgment may be granted where there is no genuine issue as to any material fact and a decision may be rendered as a matter of law rule a and b since we will grant respondent’s motion for summary_judgment we will focus on respondent as the movant the party moving for summary_judgment ie respondent bears the burden of showing that there is no genuine issue as to any material fact and factual inferences will be drawn in the manner most favorable to the party opposing summary_judgment ie mr tucker 85_tc_812 b collection review procedure when a taxpayer fails to pay any federal_income_tax liability after demand sec_6321 imposes a lien in favor of the united_states on all the property of the deliquent taxpayer and sec_6323 authorizes the irs to file notice of that lien however the irs must provide written notice of a tax_lien_filing to the taxpayer within five business days after receiving such a notice the taxpayer may request an administrative hearing before the office of appeals sec_6320 b administrative review is carried out by way of a hearing before the office of appeals pursuant to sec_6330 and c and if the taxpayer is dissatisfied with the outcome there he can appeal that determination to the tax_court under sec_6330 as mr tucker has done for the agency-level cdp hearing before the office of appeals the pertinent procedures are set forth in sec_6330 first the irs appeals officer must obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met sec_6330dollar_figure the supplemental notice_of_determination and respondent’s motion set forth the irs’s compliance with these requirements however in his petition at paragraph m and n mr tucker called into question the accuracy of the filing_date of the nftl reflected on the lien notice m n on date respondent prepared a notice_of_federal_tax_lien against petitioner for his and taxes respondent filed the notice_of_federal_tax_lien in manhattan on date on date respondent issued to petitioner a notice_of_federal_tax_lien filing and your right to a 11in the case of the lien filed against mr tucker the basic requirements see sec_6320 for which the appeals officer was to obtain verification are a timely assessment of the liability sec_6201 sec_6501 notice_and_demand for payment of the liability sec_6303 and notice of the filing of the lien and of the taxpayer’s right to a cdp hearing sec_6320 and b hearing under sec_6320 for the years and erroneously stating that the notice_of_federal_tax_lien had been filed on date while mr tucker concedes that the irs issued to him a lien notice for tax years and on date he disputes whether the nftl was filed on date as reflected in the lien notice or date as reflected on the website of the new york city department of finance we find it unnecessary to resolve this issue for the following reasons under sec_6320 the secretary is required to send written notice to the taxpayer liable for the tax not more than business days after the day of the filing of the notice of lien whether the nftl was filed on date or date the irs sent notice of the filing to mr tucker on date which was not more than business days after date or date there is no rule that the requisite notice cannot be sent before the filing of the nftl therefore even if the nftl was filed on date the lien notice that mr tucker received on date was still timely under sec_6320 mr tucker has raised no other verification issues under sec_6330 and we find no failure of verification second the taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including challenges to the appropriateness of the collection action and offers of collection alternatives sec_6330 mr tucker’s principal contention--that the irs office of appeals abused its discretion in not accepting his oic--pertains to that second set of issues which we will discuss below additionally the taxpayer may contest the existence and amount of the underlying tax_liability if he did not receive a notice_of_deficiency or otherwise have a prior opportunity to dispute the tax_liability sec_6330 while mr tucker did not have any prior opportunity to challenge his underlying self-reported liabilities he did not make such a challenge during his cdp hearing or before this court therefore we find mr tucker’s underlying tax_liabilities for and are not at issue when the office of appeals issues its determination the taxpayer may appeal such determination to the tax_court pursuant to sec_6330 as mr tucker has done in such an appeal where the underlying liability is not at issue we review the determination of the office of appeals for abuse_of_discretion that is we decide whether the determination was arbitrary capricious or without sound basis in fact or law see 125_tc_301 affd 469_f3d_27 1st cir 114_tc_604 114_tc_176 because mr tucker does not dispute the filing of the nftl as improper our review of the supplemental notice_of_determination focuses on whether the office of appeals abused its discretion in rejecting mr tucker’s oic ii respondent’s entitlement to summary_judgment a scope of remand mr tucker argues that the settlement officer assigned to his supplemental cdp hearing erred in raising the dissipated assets issue in the supplemental notice_of_determination because it went beyond the scope of the remand order as the issue was not raised in the original notice_of_determination as a result we must decide whether it was proper for the settlement officer to include dissipated assets in her calculation of mr tucker’s reasonable collection potential we hold that it was proper for her to do so sec_6330 permits a taxpayer to propose collection alternatives to the filing of a federal_tax_lien sec_4 of revproc_2003_71 2003_2_cb_517 provides that an oic based on doubt as to collectibility will be treated as an acceptable collection alternative only where the oic reflects the taxpayer’s reasonable collection potential where a taxpayer has dissipated assets in disregard of the taxpayer’s outstanding federal income taxes the dissipated assets may be included in the calculation of the minimum amount that is to be paid under an acceptable oic internal_revenue_manual irm pt date mr tucker is not correct in asserting that the dissipation issue was not considered by the original settlement officer and not raised in the original notice_of_determination while the original settlement officer did not articulate her reasons for denying mr tucker’s oic thereby necessitating the remand her case activity notes clearly reflect that she considered the issue of dissipation poa admits that at least dollar_figure in assets was dissipated this amount must be added to rcp i a might be more appropriate unless fp is possible in any event we do not believe the second settlement officer’s review was limited to issues raised in the original notice_of_determination by its order of date this court granted respondent’s motion to remand this case to the irs’s office of appeals for an officer to exercise discretion in consideration of mr tucker’s offer we thus ordered the office of appeals to consider mr tucker’s oic de novo to do so the settlement officer was required pursuant to irm pt to consider any dissipated assets in calculating mr tucker’s reasonable collection potential since the viability of an oic is contingent on a taxpayer’s reasonable collection potential we find that inherent in the consideration of mr tucker’s oic was the consideration of dissipated assets as a result we hold that the issue of dissipated assets was properly considered by the settlement officer during the supplemental cdp hearing and that consideration of that issue did not go beyond the scope of our remand order b dissipation of assets mr tucker also argues that the office of appeals erred in determining that his day trading in constituted a dissipation of assets we disagree in part a dissipated asset is defined as any asset liquid or not liquid that has been sold transferred or spent on nonpriority items or debts and that is no longer available to pay the tax_liability samuel v commissioner tcmemo_2007_312 irm pt if the oic examiner determines that assets have been dissipated with a disregard of an outstanding tax_liability then the examiner may include the value of the dissipated asset in the taxpayer’s reasonable collection potential calculation irm pt states during an offer investigation it may be discovered that assets liquid or non-liquid have been sold gifted transferred or spent on non-priority items and or debts and are no longer available to pay the tax_liability this section discusses treatment of the value of these assets when considering an offer_in_compromise once it is determined that a specific asset has been dissipated the investigation should address whether the value of the asset or a portion of the value should be included in an acceptable offer amount if the investigation clearly reveals that assets have been dissipated with a disregard of the outstanding tax_liability consider including the value in the reasonable collection potential rcp calculation where a taxpayer’s once-held assets have simply vanished it makes obvious sense for the tax collector to include the assets in computing the taxpayer’s reasonable collection potential unless the taxpayer can account for them see schropp v commissioner tcmemo_2010_71 slip op pincite affd without published opinion aftr 2d ustc par big_number 4th cir however where a taxpayer can prove that he really did dissipate the assets say by lavish living or gambling that he substantiates the long-gone assets cannot be said to increase his literal collection potential however in that circumstance the irm nonetheless instructs the office of appeals to consider including the assets in rcp the evident reason for this rule is to deter delinquent taxpayers from wasting money that they owe and should pay as taxes conscientious taxpayers would object--and the system would suffer--if a noncompliant taxpayer with overdue taxes and with money in hand could spend his money on non-priority items and nonetheless effectively obtain forgiveness of his liability simply by proving in the collection context that he really did reduce his collection potential by wasting the assets removing dissipated assets from reasonable collection potential could create perverse incentives and the tax collector must have discretion to avoid that problem mr tucker admittedly deposited dollar_figure into an e-trade account in date and made additional deposits totaling dollar_figure between march and date at the time mr tucker admittedly deposited funds into his e-trade account ie from january to date he had not yet filed his income_tax returns for tax years through which were then due nonetheless because the due_date for those returns had passed his tax_liabilities had accrued and he had outstanding tax_liabilities not including any interest or additions to tax for tax years and totaling dollar_figure at the time of his depositsdollar_figure personal income taxes are due on the date the return is required to be filed sec_6151 503_us_47 607_f2d_1299 9th cir mr tucker’s tax_liabilities for tax_year sec_2002 and had not yet accrued mr tucker was aware of his unpaid tax obligations for through when he transferred the dollar_figure into his e- trade account despite having known tax obligations mr tucker still transferred the money and for nearly four months engaged in the highly speculative and volatile activity of day trading 12the liabilities eventually reported on his returns but not prepaid by withholding or otherwise were dollar_figure for dollar_figure for and dollar_figure for totaling dollar_figure see supra p mr tucker maintains that he did so in an effort to make enough money to pay off his delinquent taxes and other creditors as well as pay his tax_liability for that would be coming due even if this is true mr tucker’s motives do not change the character of his day trading activity black’s law dictionary 8th ed defines day trading as the act or practice of buying and selling stock shares or other_securities on the same day esp over the internet usu for the purpose of making a quick profit on the difference between the buying price and the selling_price mr tucker had never owned stocks before and had no experience in day trading to further complicate matters mr tucker was trading on margin-- ie was borrowing part of the money to trade from a brokerage firm--and was making high-volume trades eg trading as much as dollar_figure in one day on date mr tucker stopped trading by that time he had lost dollar_figure of his initial deposits leaving approximately dollar_figure in the e-trade account mr tucker maintains that he used this remaining dollar_figure to provide for basic living_expenses from may through date under rule we view the facts in the light most favorable to mr tucker and we assume that the dollar_figure was in fact used for necessary living expensesdollar_figure pursuant to irs administrative guidelines if this dollar_figure was used for necessary living_expenses it will not be considered a dissipation irm pt when the taxpayer can show that assets have been dissipated to provide for necessary living_expenses these amounts should not be included in the reasonable collection potential rcp calculation we therefore consider as potential dissipation only the other dollar_figure which mr tucker lost the losses that mr tucker sustained were not due to an unforeseeable event but rather were commonplace especially for a neophyte in such a highly volatile activity mr tucker knew he owed outstanding taxes and he had the cash in hand that would have paid in full the taxes and accruals he owed as of early ie for tax years and and yet he chose instead to devote that money to a risky investment mr tucker’s foray into day trading was purely speculative and his already slim chances of success were undermined by his inexperience in short mr tucker’s circumstances were of his own making 13this assumption may be unduly generous since mr tucker admits that some portion of this dollar_figure may not have been used for necessary living expenses--eg dollar_figure on date for an airline ticket for a personal trip to phoenix arizona dollar_figure on date for the hotel stay associated with this personal trip dollar_figure on date for a bartending course and dollar_figure on date for a personal cruise on the hudson river therefore we cannot criticize the office of appeals’ conclusion that mr tucker’s losses associated with his day trading were a dissipation of assets that should be considered for inclusion in rcp as contemplated by irm pt in the supplemental notice_of_determination the settlement officer concluded that mr tucker had dissipated dollar_figure in assets measured by his deposits into the e-trade account for purposes of summary_judgment we find that that conclusion was excessive the mere act of depositing the money into the e-trade account did not rise to the level of dissipation but the day trading and the losing of the money in the account did because at the time in date that mr tucker lost a total of dollar_figure from his day trading activities he had outstanding federal tax_liabilities of at least dollar_figure we hold for purposes of summary_judgment that mr tucker dissipated assets of dollar_figure the settlement officer determined that not just dollar_figure but rather all dollar_figure of the deposits had been dissipated for 14the record does not provide a basis for the court to reasonably estimate mr tucker’s unpaid tax_liabilities with accruals as of date as a result for summary_judgment purposes we assume mr tucker’s unpaid tax_liabilities to be the amounts reported as due when he filed his delinquent returns for tax years and furthermore although mr tucker’s tax_liability for tax_year accrued on date--the due_date of the return--we cannot tell on the record before us whether the losses associated with the e-trade account occurred before or after date as a result for summary_judgment purposes we ignore the tax_liability for in determining mr tucker’s outstanding tax_liabilities at the time he dissipated assets purposes of summary_judgment we assume that conclusion was erroneous as to amount but we find that error to be harmless for reasons explained below see infra note as a result we conclude that the settlement officer did not abuse her discretion in determining that mr tucker had dissipated assets as the result of his day trading in c rejection of mr tucker’s oic the office of appeals rejected mr tucker’s oic because inter alia it determined that he could fully pay his tax_liabilities at the time of the supplemental notice_of_determination mr tucker owed dollar_figure with accruals through date in unpaid federal income taxes for the years through the settlement officer assigned to mr tucker’s supplemental cdp hearing was tasked with considering mr tucker’s proposed oic of dollar_figure to be paid at a rate of dollar_figure per month over months based on doubt as to collectibility mr tucker’s dissipation of assets justified the rejection of his oic revproc_2003_71 sec_4 2003_2_cb_517 provides that an oic based on doubt as to collectibility will be treated as an acceptable collection alternative only where the oic reflects the taxpayer’s reasonable collection potential a taxpayer’s reasonable collection potential is determined in part using published guidelines that establish national and local allowances for necessary living_expenses income and assets possibly including dissipated assets in accordance with irm pt in excess of those needed for necessary living_expenses are treated as available to satisfy federal_income_tax liabilities see irm pt and date irm exs date the parties agree that mr tucker’s disposable income ie monthly income over allowable monthly expenses was dollar_figure per month and that there were months remaining before his collection_period expiration date see sec_6502 generally the amount to be collected from future income is calculated by taking the projected gross monthly income less allowable expenses and multiplying the difference times the number of months remaining on the statutory period for collection irm pt date as a result mr tucker’s future income subject_to collection would be dollar_figure x months or dollar_figure--an amount slightly less than the total of the payments he proposed in his oic however as we determined above the value of assets that mr tucker dissipated through his day trading activities was dollar_figure under irs guidelines mr tucker’s reasonable 15in calculating a taxpayer’s future income stream for purposes of evaluating a offer the irm apparently does not direct settlement officers to discount the monthly income stream to a present_value collection potential would therefore be dollar_figure--ie the sum of his future income stream dollar_figure plus the value of any dissipated assets at least dollar_figure given that mr tucker’s reasonable collection potential thus exceeded his outstanding tax_liabilities the settlement officer did not err in determining mr tucker could fully pay his federal_income_tax liabilitiesdollar_figure when an appeals officer has followed irs administrative guidelines to ascertain a taxpayer’s reasonable collection potential and has rejected the taxpayer’s oic on that ground we generally have found no abuse_of_discretion see mcclanahan v commissioner tcmemo_2008_161 even apart from mr tucker’s dissipation of assets the office of appeals did not abuse its discretion in rejecting his oic assuming arguendo that we should ignore dissipated assets altogether and should conclude that mr tucker’s reasonable collection potential was less than full payment we still hold that the office of appeals did not abuse its discretion in rejecting mr tucker’s oic and insisting instead on a ppia for the following reasons sec_7122 authorizes compromise of a taxpayer’s federal_income_tax liability ‘the decision to entertain 16we find the settlement officer’s inclusion of dollar_figure of dissipated assets in mr tucker’s reasonable collection potential as opposed to the dollar_figure determined above to be a harmless error because--as is shown above--even with inclusion of only the lower amount mr tucker could still fully pay his liabilities accept or reject an offer_in_compromise is squarely within the discretion of the appeals officer and the irs in general ’ gregg v commissioner tcmemo_2009_19 quoting 454_f3d_688 7th cir in reviewing this determination we do not decide whether in our opinion mr tucker’s oic should have been accepted see 112_tc_19 keller v commissioner tcmemo_2006_166 affd in part 568_f3d_710 9th cir instead we review the determination for abuse_of_discretion as mr tucker’s representative acknowledged an oic permanently limits the government to collecting only according to its terms whereas a ppia permits the government to review the taxpayer’s situation every two years and increase its collections if circumstances warrant see supra note in the supplemental notice_of_determination the settlement officer articulated several reasons for her determination largely on the basis of this distinction mr tucker’s offer was not in the best interest of the government a ppia was a better alternative to the oic that mr tucker proposed there is reason to believe that mr tucker’s income or assets would increase in the future such that the irs would collect more from a ppia than from the oic there is no law or policy that requires the service to accept an offer and the cost it takes to monitor mr tucker’s long term deferred offer for months would be similar to the cost it would take to monitor a part payment installment_agreement the decision whether to accept mr tucker’s oic rested squarely within the discretion of the settlement officer and we find there was a reasonable basis for the settlement officer’s decision it was not arbitrary capricious or without sound basis in fact or law as a result we cannot conclude that the office of appeals abused its discretion in rejecting mr tucker’s oic and sustaining the filing of the nftl whether or not dissipated assets were considered by the settlement officer or included in his rcp conclusion on the basis of the foregoing we conclude that the office of appeals did not abuse its discretion and we hold that respondent is entitled to the entry of a decision sustaining the determination as a matter of law to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number info release date aug cc psi 1-genin-136252-02 uilc dear we are responding to correspondence submitted on your behalf by requesting relief in order to establish as the effective taxable_year for your s_corporation_election automatic late s_corporation relief is unavailable under revproc_97_48 because your first tax_return was filed late although we are unable to respond to your request as submitted this letter provides information relating to your request announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2002_1 copy enclosed in addition revproc_2002_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2002_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room in addition the irs has developed two new cd-roms to help educate small_business owners on their tax responsibilities introduction to federal taxes for small_business self-employed and a virtual small_business workshop these two cd- roms are free and can be ordered by calling the irs also provides a special website www irs gov smallbiz which is dedicated to providing information to small_business taxpayers please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2002_1


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division apr uniform issue list xxx xxx xxx legend taxpayer ira financial_institution financial advisor amount dear xxx xxx xxx xxx xxx xxx this letter is in response to your request on date submitted by your authorized representative as supplemented by correspondence dated date in which you request a waiver of the 60-day rollover period contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer represents that his ira totaling amount was distributed to him by financial_institution without his knowledge or consent taxpayer represents that his failure to accomplish a rollover of amount from ira within the 60-day period prescribed by sec_408 of the code was due to the failure of financial_institution to provide contemporaneous communication at the time of the distribution which resulted in taxpayer being unaware of the distribution until after the 60-day period had expired taxpayer asserts that amount has not been used for any purpose taxpayer maintained ira at financial_institution taxpayer represents that he relied upon financial advisor's services and advice in managing his financial affairs including his ira taxpayer represents that he kept a credit card on file with financial_institution which it had used to pay administrative fees for ira taxpayer asserts that he relied on financial institution's past use of that credit card to pay administrative fees taxpayer also asserts that he relied on financial advisor to pay fees for ira and to notify taxpayer if fees were due and that financial_institution would charge the credit card kept on file for such purpose in late financial_institution sent taxpayer letters requesting payment of fees and communicating that a possible consequence of non payment would be its resignation as custodian of ira during this time period taxpayer was preoccupied with the care of his wife who underwent several medical procedures taxpayer represents that he was the primary caregiver for his wife during this time period on date financial_institution distributed_amount from ira to taxpayer after several months without directing communication to taxpayer between date and date taxpayer received no communication from financial_institution regarding uncollected administrative fees for ira financial_institution sent taxpayer two separate confirmations of investments in ira without noting the uncollected fees financial advisor states that financial_institution provided him with neither notice of the administrative fees due nor notice of the distribution of amount from ira taxpayer asserts that he did not authorize the distribution of amount from ira based on the facts and representations taxpayer requests a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if-- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and submitted by taxpayer is consistent with the assertion that taxpayer's inability to complete a timely rollover was due to financial_institution distributing amount from ira without his authorization and without notice to financial advisor and without contemporaneous communication about the distribution therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira taxpayer is granted a period of days from the issuance of this letter_ruling to contribute amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 a of the code regarding required distributions no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives if you wish to inquire about this ruling contact xxx at xxx xxx-xxxx please address all correspondence to se t ep ra t3 sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclosure cc xxx xxx xxx xxx xxx


internal_revenue_service number release date index number 468a ----------------- -------------------------- ---------------------------------------------- ----------------------- ------------------------------ - 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 b06 plr-114473-05 date date ---------------------------------------------- ----------------------------------------------------- in re revised schedule of ruling amounts -------------------------------------------------- legend taxpayer ----------------------------------------------------- parent ----------------------------------------------------- plant state x state y location commission a --------------------------------------------------- commission b ----------------------------------------------------- commission c ------------------------------------------------- method order a ---------------------------------------------------------------------------------------------------------- order b --------- ------------------------------------------------------------- order c ---------------------------------------------------------------------------------------------------------- a b -------------------------------------------------- ---------- ------------ -------------------------- ------------------ ----- ---------------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ plr-114473-05 c d e f g h i j k l m n o p q r s t u v w dear ------------ -------------------------- -------- -------- -------- -------------------------------------- ---- ---- ---------------------------------------- -------------------------------- ---------------------------------------- ---------------------------------------- -------- -------------------------------------- ---- ---- -------------------------------------- -------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- --------- this letter responds to the request of taxpayer dated date for a revised schedule of ruling amounts for plant pursuant to sec_1_468a-3 of the income_tax regulations taxpayer is required to request a revised schedule of ruling amounts on or before the deemed payment deadline date for the tenth taxable_year that begins after the taxable_year in which the prior schedule was received taxpayer was previously granted a schedule of ruling amounts on a information was submitted pursuant to sec_1_468a-3 we understand the facts as presented by taxpayer to be as follows taxpayer is an investor-owned electric utility incorporated in state x and serving customers in state x and state y taxpayer is owned by parent with whom it files a consolidated_return on a calendar_year basis using the accrual_method of accounting the plant is situated in location the collection of decommissioning costs for the plant with respect to taxpayer s b percent interest in the plant is subject_to the regulatory jurisdiction of commission a commission b and commission c the operating license for the plant is scheduled to expire on c the method for decommissioning the plant is the method the cost of which is based on a site-specific decommissioning study plr-114473-05 the regulatory percentages for commission a commission b and commission c are d percent e percent and f percent respectively commission a commission b and commission c have determined the amount of decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes there are no proceedings pending before the commissions that would may result in an increase or decrease in the amount of decommissioning costs to be included in taxpayer's cost of service and no orders increasing or decreasing the amount of decommissioning costs included in cost of service have been issued by the commissions since the company received the prior schedule commission a in determining the decommissioning costs for the plant in order a commission a used an estimated base cost of g commission a escalated sec_50 c costs annually at a rate of h percent for four years then at i percent for the remaining period and escalated sec_50 bb costs at h percent to determine a future decommissioning cost of j taxpayer represents that under the sec_468a regulations the defined level_funding limitation period and the defined funding_period extends k pursuant to the taxpayer's previous election under the special transition rule_of sec_1 468a- b ii the estimated period for which the fund will be in effect is l and the estimated_useful_life of the plant is m therefore the qualifying percentage is n percent commission b in determining the decommissioning costs for the plant in order b commission b used an estimated base cost of o commission b escalated these costs annually at a rate of p percent for four years then at q percent for the remaining period to determine a future decommissioning cost of r taxpayer represents that under the sec_468a regulations the defined level_funding limitation period and the defined funding_period extends k pursuant to the taxpayer's previous election under the special transition rule_of sec_1 468a- b ii the estimated period for which the fund will be in effect is l and the estimated_useful_life of the plant is m therefore the qualifying percentage is n percent commission c in determining the decommissioning costs for the plant in order c commission c used an estimated base cost of s commission c escalated sec_50 c costs annually at a rate of h percent for four years then at i percent for the remaining period and escalated sec_50 bb costs at h percent to determine a future decommissioning cost of t plr-114473-05 taxpayer represents that under the sec_468a regulations the defined level_funding limitation period and the defined funding_period extends k pursuant to the taxpayer's previous election under the special transition rule_of sec_1 468a- b ii the estimated period for which the fund will be in effect is u and the estimated_useful_life of the plant is v therefore the qualifying percentage is w percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year and is made within months after the close of the tax_year additionally a taxpayer that files for a schedule of ruling amounts and receives such schedule of ruling amounts after the month deadline for making a payment to a nuclear decommissioning fund must make such payment to the fund within days after the date that the taxpayer receives the schedule of ruling amounts for the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to plr-114473-05 the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that in general the ruling_amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 i and ii of the regulations provide that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or is deemed to be made to such nuclear decommissioning fund and ends the later of the last day of the taxable_year that includes the estimated date on which the decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's cost of service for ratemaking purposes or the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's rate base for ratemaking purposes plr-114473-05 sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides in part that the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount plr-114473-05 sec_1_468a-3 of the regulations enumerates the information required to be submitted by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that any taxpayer that has obtained a schedule of ruling amounts pursuant to sec_1 h must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline date for the 10th taxable_year that begins after the taxable_year in which the most recent schedule of ruling amounts was received the first taxable_year to which the revised schedule of ruling amounts applies shall be the 10th taxable_year that begins after the taxable_year in which the most recent schedule of ruling amounts was received sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a tax_year in response to a request for a schedule of ruling amounts that is filed after the deemed deadline date for such tax_year we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions the taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 and of the regulations commission a commission b and commission c have permitted an amount for decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations the taxpayer has calculated the total decommissioning costs under sec_1_468a-3 of the regulations the taxpayer previously elected the special transition rule_of sec_1_468a-8 ii of the regulations thus the taxpayer has determined that under sec_1_468a-3 of the regulations n percent is the qualifying percentage for commission a and commission b and w percent is the qualifying percentage for commission c the taxpayer is proposing a total ruling_amount for each taxable_year that is the sum of the separate amounts from the commissions the taxpayer has proposed a schedule of ruling amounts that meets the requirements of sec_1_468a-3 and of the regulations the plr-114473-05 annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts with regard to the commission satisfies the requirements of sec_468a of the code approved schedule of ruling amounts ------------------------------------------------ year commission a commission b commission c total -------------- ------- ---------- -------------------------------------------------------------------------------------------------------------------- under the provisions of sec_1_468a-3 of the regulations we authorize taxpayer to adjust the jurisdictional components of the total annual ruling amounts solely to account for interjurisdictional shifts in the percentage of the taxpayer's operations subject_to the commissions however the taxpayer is not authorized to increase the total annual ruling_amount for any taxable_year without requesting a revised schedule of ruling amounts approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the the approved schedule of ruling amounts is relevant only to those payments plr-114473-05 lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this the rulings contained in this letter are based upon information and letter are being sent to your authorized representatives we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund 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 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter except as expressly provided herein no opinion is expressed or implied sincerely peter c friedman senior technician reviewer branch passthroughs special industries


t c summary opinion united_states tax_court renee muhammad petitioner v commissioner of internal revenue respondent docket no 5970-04s filed date renee muhammad pro_se william l blagg and laura a mckenna for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner's federal_income_tax of dollar_figure for after concessions the issues remaining for decision are whether petitioner is entitled to deductions on schedule a itemized_deductions in excess of those allowed by respondent and an education credit background the stipulation of facts and the exhibits received into evidence are incorporated herein by reference petitioner resided in fort lauderdale florida at the time the petition was filed petitioner a second grade teacher timely filed her electronic form_1040 u s individual_income_tax_return for on schedule a petitioner claimed itemized_deductions of dollar_figure on form_8863 education credits petitioner claimed an education credit of dollar_figure petitioner's itemized_deductions consisted of noncash contributions of dollar_figure cash contributions of dollar_figure taxes of dollar_figure and miscellaneous expenses of dollar_figure subject_to the percent of adjusted_gross_income limitation or dollar_figure petitioner did not provide any substantiation for her claimed 1respondent concedes that petitioner is entitled to a charitable_contribution_deduction of dollar_figure and a deduction for union dues of dollar_figure deductions except some receipts for manicures the costs of which she deducted as ordinary and necessary business_expenses respondent disallowed all of petitioner's claimed itemized_deductions petitioner claimed an education credit for school supplies she had purchased for students in her class over the course of years petitioner did not have receipts for the items she claimed she purchased respondent disallowed petitioner's claimed education credit discussion the commissioner's determinations are presumed correct and the taxpayer bears the burden of proving otherwise 290_us_111 moreover deductions are a matter of legislative grace and the taxpayer bears the burden of proving that she is entitled to any deduction claimed 292_us_435 welch v helvering supra this includes the burden of substantiation 65_tc_87 affd per curiam 540_f2d_821 5th cir under sec_7491 the burden_of_proof may shift to the commissioner because petitioner failed to meet the requirements of sec_7491 the burden_of_proof does not shift to respondent petitioner has not provided any evidence that the expenditures were ordinary and necessary expenses of her employment as a teacher as opposed to personal expenditures made for herself or made gratuitously for her students she has not provided any evidence that would substantiate an allowance of itemized_deductions in excess of those allowed by respondent respondent's determination is sustained for eligible individuals sec_25a allows credits against tax for qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year the hope scholarship credit applies to percent of so much of the qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year for education furnished to the eligible_student during any academic period beginning in such taxable_year as does not exceed dollar_figure plu sec_50 percent of such expenses so paid as exceeds dollar_figure but does not exceed the applicable limit sec_25a in order to be eligible for the hope scholarship credit a student must be enrolled at least half time at an eligible_educational_institution for any portion of the taxable_year sec_25a and the lifetime_learning_credit is an amount equal to percent of so much of the qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year for education furnished during any academic period beginning in such taxable_year as does not exceed dollar_figure in the case of taxable years beginning before date see sec_25a sec_25a defines qualified_tuition_and_related_expenses as tuition and fees required for the enrollment or attendance of the taxpayer the taxpayer's spouse or the taxpayer's dependent at an eligible_educational_institution petitioner is not entitled to a hope scholarship credit under sec_25a because she failed to even allege that she was a half-time_student for any portion of see sec_25a and petitioner is not entitled to a lifetime_learning_credit for because she failed to show that during she paid qualified_tuition_and_related_expenses within the meaning of sec_25a and as defined in sec_25a at trial she explained that the expenditures were paid for the benefit of her students over the course of years such expenditures do not constitute qualified_tuition_and_related_expenses under sec_25a respondent's disallowance of petitioner's claimed education credit is sustained reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule


internal_revenue_service index number number release date department of the treasury washington dc person to contact telephone number refer reply to cc dom fi p - plr-116668-98 date date legend company state this is in reply to a letter dated date and subsequent correspondence submitted by your representative requesting rulings on behalf of company you have requested a ruling that the same methodology provided by sec_1_856-5 of the income_tax regulations for apportioning interest_income may be applied under the percent asset test of sec_856 of the internal_revenue_code in circumstances involving first and second mortgages this letter also acknowledges your withdrawal of two of the requested rulings facts company was organized and formed on date under the laws of state company represents that it is qualified and intends to continue to qualify as a real_estate_investment_trust reit as defined in sec_856 company invests primarily in non-conforming residential mortgage loans and securities backed by such loans company intends to purchase for long-term investment certain residential mortgage loans pass-through securities backed by such loans certain franchise loans and interests in partnerships holding such franchise loans the terms of the mortgages and franchise loans do not require the holder to pursue any personal_property that secures the loan prior to proceeding against any real_property that also secures the loan first and second residential mortgage loans the residential mortgage loans will be secured solely by first or second mortgages on fee simple interests in one-to-four-family residential properties the mortgage loans have a fixed interest rate and the loan proceeds are generally used by the borrowers for debt consolidation the loan-to-value ratios on the first mortgage loans may exceed percent company will also acquire pass-through securities with comparable underlying mortgage loans whose loan-to-value ratios may exceed percent some of the second mortgage loans will be secured_by real_property in which the mortgagor has no equity ie the principal_amount of the existing first mortgage loan will equal or exceed the fair_market_value of the real_property securing the mortgage loan at the time the second mortgage loan is made other second mortgage loans will be secured_by real_property in which the mortgagor has some equity ie the fair_market_value of the real_property will exceed the principal_amount of the existing first mortgage loan but will be less than the sum of the principal amounts of the existing first mortgage loan and the new second mortgage loan at the time the second mortgage loan is made generally with respect to any second mortgage loan to be acquired the sum of the principal amounts of the second mortgage loan and the first mortgage loan will not exceed 125-percent of the loan value of the real_estate securing the loans company also intends to purchase pass-through securities that represent individual ownership interests in such second residential mortgage loans franchise loans the franchise loans will be made to franchisees generally in the fast-food and restaurant industries each loan will be made with full recourse to the borrower in connection with each loan the borrower will execute a promissory note and the lender will be granted a security_interest in its equipment and other restaurant-related personal_property pursuant to a pledge and security_agreement generally the loans will also be secured_by mortgages on either a fee interest or leasehold interest_in_real_property upon which the franchisee’s business is operated company also intends to purchase interests in partnerships that hold such franchise loans law sec_856 provides that a_trust shall not be considered a reit for any taxable_year unless certain gross_income and asset tests are satisfied sec_856 provides that a_trust must derive at least percent of its gross_income from among other things interest on obligations secured_by mortgages on real_property or on interests_in_real_property sec_856 provides that a_trust must have at least percent of the value of its total assets represented by real_estate_assets cash and cash items including receivables and government securities at the close of each quarter of the taxable_year sec_1_856-5 provides rules for apportioning interest_income for purposes of the percent income requirement where a mortgage covers both real and other_property sec_1_856-5 provides that if the loan value of the real_property is equal to or exceeds the amount of the loan then the entire_interest income shall be apportioned to the real_property sec_1_856-5 provides that if the amount of the loan exceeds the loan value of the real_property the interest_income apportioned to the real_property is an amount equal to the interest_income multiplied by a fraction the numerator or which is the loan value of the real_property and the denominator of which is the amount of the loan for purposes of these rules sec_1_856-5 defines loan value of the real_property as the fair_market_value of the property determined as of the date on which the commitment by the trust to make the loan becomes binding on the trust sec_1_856-5 does not address the effect of first mortgages when apportioning interest_income to interests in second mortgages sec_856 provides that the term real_estate_assets means real_property including interests_in_real_property and interests in mortgages on real_property and shares or transferable certificates of beneficial_interest in other reits which meet the requirements of sec_856 through the code and regulations do not provide a specific methodology for determining the value of an interest in a mortgage on real_property for purposes of the percent asset test of sec_856 when a loan is secured_by real and personal_property or is only partially secured_by real_property analysis an interest in a mortgage on real_property is qualifying property under the percent income test of sec_856 and the percent asset test of sec_856 sec_856 does not prescribe a methodology or rules for apportioning the income from or the value of an interest in a mortgage on real_property where the loan is collateralized by both real and personal_property the regulations under sec_856 do provide a method for apportioning interest_income but the method is not based on the relative value of real_property collateral to the total of all sources of collateral rather under the apportionment methodology specified for income under sec_1_856-5 interest_income on a mortgage loan is treated as first being derived from real_estate to the full extent of the value of the underlying real_property collateral thus interest on a loan is treated as entirely from an obligation secured_by real_property even where personal_property also secures the loan if the fair_market_value of the real_property securing the loan equals or exceeds the loan amount by focusing on the ratio of the value of the real_property loan value to the loan amount the apportionment methodology specified in sec_1_856-5 takes the underlying real_property collateral into account without regard to any personal_property that also secures the loan sec_856 provides that an interest in a mortgage is a real_estate asset interests in loans that are unsecured or secured only by personal_property are not real_estate_assets therefore in situations where the mortgagor’s equity in the real_property immediately before the mortgage is placed on the property is less than the amount of the mortgage an allocation must be made to determine the value of the interest in the mortgage on the real_property the methodology set forth in sec_1_856-5 is a reasonable means of determining the value of an interest in a mortgage for purposes of the asset test of sec_856 sec_1_856-5 does not address the effect of a first mortgage when apportioning interest to a loan secured_by a second mortgage on real_property because the loan value of the real_property that secures the first mortgage is not economically available to secure the second mortgage the loan value must be reduced by any senior mortgages that reduce the loan value of the real_property that economically secures the second mortgage if the loan value were not reduced by the value of the property encumbered by senior mortgages interest on loans secured_by second mortgages in which the borrower has no equity to secure the second mortgage would be treated as qualifying interest_income such a result is inconsistent with the intent of sec_856 and sec_1_856-5 conclusion an interest in a mortgage on real_property is a real_estate asset within the meaning of sec_856 to the extent of the value of the real_property that is economically available to secure the mortgage thus where the value of the real_property is less than the loan amount an allocation must be made to determine the value of the interest in the mortgage the apportionment methodology specified in sec_1_856-5 may be applied to make this determination when applying the methodology to second mortgages the loan value of the real_property must be reduced by the amount of all senior encumbrances on the real_property except as specifically ruled above no opinion is expressed concerning the federal_income_tax consequences of the facts herein no opinion is expressed as to whether company qualifies as a reit further no opinion is expressed regarding whether assets presently owned or subsequently acquired qualify as interests in mortgages or interests_in_real_property under sec_856 in particular we do not rule that securities pass-through securities franchise loans or interests in partnerships holding such franchise loans constitute qualifying interests in mortgages or interests_in_real_property under sec_856 no opinion is expressed regarding the circumstances under which a lessee’s leasehold interest_in_real_property has value as collateral for a loan this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely assistant chief_counsel financial institutions products by____richard c hoge _ richard c hoge assistant to the chief branch enclosures copy of this letter sec_6110 copy