t c summary opinion united_states tax_court david w brown petitioner v commissioner of internal revenue respondent docket no 4887-08s filed date david w brown pro_se marshall r jones for respondent morrison judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code as in effect when the petition was filed under sec_7463 the decision to be entered is not reviewable by any other court and 1unless otherwise indicated all section references are to the internal_revenue_code code this opinion shall not be treated as precedent for any other case petitioner david w brown brown seeks review under sec_6330 of the irs’s determination rejecting brown’s proposal to pay his unpaid tax_liabilities for the tax_year sec_2001 through in installments of dollar_figure per month the issue for decision is whether the irs abused its discretion by refusing to consider brown’s child-support obligation for one of his children in evaluating brown’s proposal background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated in this opinion by this reference brown resided in alabama at the time he filed his petition brown and his wife the browns divorced in they had two children the divorce decree was entered by the circuit_court of morgan county alabama as part of a settlement between brown and his wife the settlement consisted not only of the browns’ consent to the divorce decree but also of a divorce agreement this agreement contained the following child-support provision requiring brown to pay child_support of dollar_figure per child per week which is equal to dollar_figure per child per month until any child’s arrival at the age of majority subject_to the approval of the court husband shall pay to wife through the office of the register of the circuit_court morgan county alabama for support and maintenance of the minor children the sum of fifty-one dollars and ninety three cents dollar_figure per child per week until the first to occur of any of the following events death of any child or husband marriage of any child any child’s becoming self- supporting or any child’s arrival at the age of majority the dates of birth of brown’s children are listed in the agreement from these dates we conclude that the two children were aged and at the time of the divorce agreement we can also conclude that brown’s younger child turned on date and his older child turned on date the age of majority in alabama is as discussed below as part of the divorce decree the state court entered an order requiring brown’s employers to withhold child-support payments from his wages and transmit the withholdings to the alabama child_support payment center for payment of child_support this withholding order was not immediately effective instead the decree provided that the order shall not be served on the employer of brown and shall not take effect until brown shall become delinquent in a dollar amount equal to one month of child_support payments the irs alleges that brown failed to file timely tax returns for through apparently brown made child-support 2the irs requested in its brief that this court find as a fact that brown failed to file timely tax returns for through however we are not able to confirm from the continued payments of dollar_figure per month dollar_figure per child until his older son’s 19th birthday in even after his son turned brown continued to make the full dollar_figure payment each month these dollar_figure payments continued until at least until date on date the irs filed a notice_of_federal_tax_lien against brown regarding his unpaid tax_liabilities for the tax_year sec_2001 through on date the irs sent brown a letter notifying him that the irs had filed the lien and advising him that he had a right to a collection hearing under sec_6320 brown requested such a hearing brown’s case was assigned to darlene caputo an appeals officer the appeals officer at the irs branch office in memphis tennessee continued exhibit 5-j referenced in the brief that the statement is true thus we do not find the statement above as a fact as we do the other facts contained in the background section of this opinion 3the notice_of_federal_tax_lien alleges that brown owed dollar_figure for dollar_figure for dollar_figure for and dollar_figure for or dollar_figure in total these amounts include interest on brown’s unpaid tax_liabilities as well as the failure-to-pay penalty this failure-to-pay penalty accrues every month at the rate of percent of the underpayment per month sec_6651 the penalty will accrue every month for months if the tax remains unpaid after the filing of the notice_of_federal_tax_lien the underpayment interest and the failure-to-pay penalty continued to accrue on the basis of other parts of the record we can discern the amounts of underpayment interest and the failure-to-pay penalty which accrued from the date of the notice until date these amounts are dollar_figure for dollar_figure for dollar_figure for and dollar_figure for resulting in a total additional liability of dollar_figure brown mailed various documents containing evidence of his income and expenses to caputo these documents included irs form 433-a collection information statement for wage earners and self-employed individuals on date a telephone conversation took place between brown and the appeals officer the appeals officer generally explained two of the collection alternatives described in sec_6330 an installment_agreement by which the taxpayer pays the entire tax_liability over time by making monthly payments and an offer-in-compromise under which the irs forgives a portion of the tax debt see sec_6330 according to the case activity record written by the appeals officer the only collection alternative she and brown discussed in detail was the possibility of an installment_agreement covering the tax years brown did not dispute the underlying tax_liabilities nor did he dispute that the notice_of_federal_tax_lien was filed or whether it should have been filed his sole contention was that he could afford an installment_payment of only dollar_figure per month because of his monthly expenses expenses that he claimed included dollar_figure per month in child-support payments for his two children by contrast the appeals officer told brown he could afford dollar_figure per month because she determined that brown no longer had any legal_obligation to make child-support payments for his two children the record does not reflect whether either party’s respective proposal at the hearing ever detailed the duration of a proposed installment_plan or how many monthly payments brown was to make after the january telephone conversation brown submitted to the appeals officer a letter signed by his ex-wife stating that brown is at this time january current with child_support payments in the amount of dollar_figure dollars per month he had told the appeals officer that he paid some of the child- support payments by check to his wife and that the other part he paid_by cash directly to his children brown also sent to the appeals officer a copy of the final divorce decree attached to which was the divorce agreement after the january telephone conversation the appeals officer conducted research on the web site google com and concluded that the age of majority for child_support is yrs sic of age therefore she would not allow for child_support which would increase monthly disposable income to dollar_figure a 4however it is clear that because brown’s assessed and accrued tax_liability exceeds dollar_figure see supra note the installment_plan had to stretch over several years the appeals officer also mentioned in the case activity record that brown would have to make at least dollar_figure a month payments to full pay bal due sic 5it should be noted that brown had a legal_obligation to make child-support payments only for his younger child when his ex-wife wrote the letter in date this is true whether the age of majority for brown’s younger child was or as he turned over a year later on date month according to the case activity record the appeals officer decided on date to sustain the notice of tax_lien she sent a written_determination to brown on january a determination that we describe further below at trial brown claimed that he was in fact able to speak with the appeals officer at some point during date when he says the appeals officer purportedly called him with news of the final_determination during the call he allegedly explained to her that the age of majority in the state of alabama was not according to brown neither party to this subsequent conversation discussed a monthly installment_payment amount greater than the dollar_figure brown initially proposed but less than the dollar_figure figure the appeals officer had arrived at on date the irs sent brown a notice_of_determination concerning collection action s under sec_6320 and or the notice stated that the irs was correct to assess tax against brown and to file a tax_lien against him and that he could make full monthly installment payments the notice asserted that the monthly child_support payment for dollar_figure was disallowed because of the ages of your children it noted you sent the court documents which show that you are no longer required to make child_support payments for the older child age 6the appeals officer states in her notes that she spoke with brown only at the cdp hearing on date and was not able to reach him after that and the younger child age as of february of this was an apparent reference to the requirement in the divorce agreement of date that brown pay child_support until his children reached the age of majority brown timely filed a petition with this court on date challenging the appeals officer’s determination in his petition he claims that i am still paying child_support and will continue to pay child_support until date he also stated i am willing to pay a monthly payment but can not afford dollar_figure month at trial in birmingham alabama on date brown submitted into evidence an order from the circuit_court of morgan county alabama that ordered brown to change the way in which he was to make child-support payments attached to this date order was a separate document entitled responsibilities of individuals under child_support orders the document stated that you must continue to make all payments until the court order is changed if your child’s status changes turns marries moves in with a different relative obtains a full-time job etc you must continue to make the same payments until the court changes the amount you must pay it is unclear who wrote the document it is not signed the irs objected to admission of the document into evidence because it’s a document dated more than eight months after the date of the hearing therefore it could not possibly have been part of the administrative record when darlene caputo considered brown’s case and under the statutory scheme and the case law it’s not relevant and it may not be admissible the court took the irs’s objection under advisement the irs did not elaborate further on the issue in its post-trial brief brown’s testimony at trial focused on the irs’s failure to consider his child-support payments in determining how much he could pay to the irs in monthly installments he submitted no brief he conceded that he was liable for all taxes interest and penalties due and stated that the sole issue in dispute was the dollar amount of his monthly payment under an installment_plan he implicitly conceded that he has no child-support obligation for his older child by discussing only his younger child at trial but he did not directly address the issue of support for his older child at trial he stated that his obligation to his younger child would terminate on date when the child would turn in its post-trial brief the irs conceded that the appeals officer should have taken into account the amount of child_support attributable to brown’s younger child it agreed with brown that the age of majority in alabama was in fact the irs minimized the significance of the error asserting that the child_support of dollar_figure per month should have been subtracted from the monthly amount that brown could pay to the irs only until the younger child turned in date when brown could pay the full dollar_figure per month the appeals officer had determined the irs argued that brown’s offer of dollar_figure per month reflecting support for both children was too low despite its concession that the appeals officer miscalculated the amount brown could pay the irs nevertheless contended that appeals officer’s failure to offer dollar_figure per month an amount consistent with a correct subtraction for one child’s support was not an abuse_of_discretion the irs claimed that no abuse_of_discretion occurred because even if the appeals officer had offered dollar_figure per month brown never indicated he would agree to pay that amount the irs noted that in the event this court finds that an abuse_of_discretion occurred it did not object to remand of this case to the appeals_office finally the irs argued that the notice of tax_lien should not be withdrawn because brown had not requested it be withdrawn and none of the conditions in sec_6323 for withdrawing the notice of tax_lien were satisfied discussion when the irs makes an assessment that a taxpayer owes tax the amount of unpaid tax becomes a lien in favor of the united_states against all property belonging to that person sec_6321 the irs can solidify its rights to the property by filing 7as brown does not argue that he ever offered dollar_figure per month before the issuance of the notice_of_determination we find as a factual matter that he never increased his offer from the dollar_figure per month he originally offered at the hearing a notice_of_federal_tax_lien with the local_government in which the property is located sec_6323 the effect of the filing is that the lien has priority over subsequent buyers of the property holders of security interests in the property judgment-lien creditors and mechanics lienholders sec_6323 once the irs has filed a notice_of_federal_tax_lien with the local_government it is required to notify the taxpayer sec_6320 within days after the expiration of the business-day period for sending the notification the taxpayer is permitted by sec_6320 to request an administrative hearing there is no entirely independent set of rules that governs how the irs and the taxpayer are to handle these lien hearings rather sec_6320 imports the rules that govern similar hearings that the irs must hold before it can issue a levy thus sec_6320 provides that for the purposes of this section subsections c d other than paragraph b thereof e and g of sec_6330 shall apply sec_6330 sets forth what issues can be raised by the taxpayer the levy enables the service to gain custody of taxpayer’s property whether in the possession of the taxpayer or third parties elliott federal tax collections liens and levies par pincite 2d ed the levy does not determine whether the government’s rights to the seized property are superior to those of other claimants the levy does however protect the government against diversion or loss while such claims are being resolved id at a levy hearing and therefore by operation of sec_6320 it also governs what issues can be raised by the taxpayer at a lien hearing sec_6330 provides issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may including the posting of a bond the substitution of other assets an installment_agreement or an offer- in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability the duties of the appeals officer in a levy hearing and therefore also a lien hearing are set forth in sec_6330 that provision requires the appeals officer to make a determination and in making the determination the appeals officer must take into consideration the issues raised under sec_6330 once the appeals officer has made the determination described above the tax_court can review the determination sec_6330 in cases involving taxpayers who are not disputing the underlying tax_liability the court will review the determination of the appeals officer for abuse_of_discretion 117_tc_183 117_tc_117 114_tc_604 114_tc_176 the inquiry hinges on whether the irs’s application of its discretion was arbitrary capricious or without sound basis in fact or law 129_tc_107 112_tc_19 here we consider the only issue raised by brown at his lien hearing brown argued only that his payment of child_support for his two children--at a total rate of dollar_figure per month--should be 9a hearing for purposes of sec_6320 includes conversations between the irs and a taxpayer and exchanges of documents between them that occurred from the date that the taxpayer requests a hearing until the final_determination by the appeals officer ttk mgmt v united_states aftr 2d ustc par big_number c d cal sec_301 d q a-d6 proced admin regs therefore the hearing for the purpose of this case includes the conversations between brown and the appeals officer and the documents exchanged between brown and the appeals officer between the date of brown’s request for a hearing and the date that the appeals officer made a final_determination considered a necessary expense that reduces the dollar_figure per month that the appeals officer determined brown otherwise had the ability to pay under an installment_agreement brown conceded that he was liable for all taxes interest and penalties assessed against him he did not challenge the filing of the notice of tax_lien itself and thus he cannot challenge the notice before the court sec_301_6320-1 q a-f3 proced admin regs furthermore brown does not appear to have any grounds for challenging the filing of the notice of tax_lien the law does not bar the filing of a notice of tax_lien as it does the conduct of a levy while an installment_agreement is under consideration sec_6321 sec_6331 hult v commissioner tcmemo_2007_302 sec_6323 permits the secretary to withdraw the filing of a tax_lien under certain circumstances one of which is where the taxpayer has already entered into an installment_agreement but brown has not yet entered into an installment_agreement none of the other circumstances listed in j applies that would allow the irs to withdraw the filing of the liendollar_figure no other statutory sec_6323 provides in part j withdrawal of notice in certain circumstances -- in general --the secretary may withdraw a notice of a lien filed under this section and this chapter shall be applied as if the withdrawn notice had not been filed if the secretary determines that-- continued grounds exist in this case to defeat the filing of the tax_lien therefore the irs did not abuse its discretion solely by failing to withdraw the filing of the tax_lien we now turn to brown’s sole contention that the appeals officer should have considered his child-support obligations in calculating his monthly installment payments brown’s divorce agreement required him to pay child_support for his two children of dollar_figure per month per child brown claimed at the hearing that he was still required to make payments for both children at a total of dollar_figure per month leaving him with only dollar_figure per month to pay to the irs the appeals officer determined that brown was no longer required to make child-support payments for either child and therefore he could afford to pay the irs dollar_figure per month continued a the filing of such notice was premature or otherwise not in accordance with administrative procedures of the secretary b the taxpayer has entered into an agreement under sec_6159 to satisfy the tax_liability for which the lien was imposed by means of installment payments unless such agreement provides otherwise c the withdrawal of such notice will facilitate the collection of the tax_liability or d with the consent of the taxpayer or the national_taxpayer_advocate the withdrawal of such notice would be in the best interests of the taxpayer as determined by the national_taxpayer_advocate and the united_states the internal_revenue_manual irm or manual contains the irs’s extensive guidelines and procedures for its employees to observe in evaluating proposed installment agreements administration irm cch pt to at big_number big_number date these procedures do not require the irs to enter into an installment_agreement but merely to consider any proposals of installment payments made by taxpayers the manual directs that for the irs to enter into an installment_agreement the taxpayer must agree to the maximum monthly payment based upon the taxpayer’s ability to pay id pt at big_number date the taxpayer’s ability to pay is determined by comparing monthly income to allowable expenses id pt through at big_number big_number date thus the excess of monthly income over allowable expenses is the minimum monthly payment an appeals officer should accept see lites v commissioner tcmemo_2005_206 in determining what is an allowable expense the manual directs the irs to include those expenses are necessary more about what is a necessary expense below and also to include some conditional expenses none of which are relevant heredollar_figure conditional expenses are those expenses that do not meet the necessary expense_test but which may be allowable if the tax_liability including projected accruals can be fully paid within years schulman v commissioner tcmemo_2002_129 administration irm cch pt at big_number date brown is arguing that his child-support payments for his continued administration irm cch pt at big_number big_number date n ecessary expenses are defined by the manual as those reasonable expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and or the production_of_income id pt at big_number date child-support payments are a necessary expense to be considered but only if they are court-ordered reasonable in amount and actually being paid id pt at big_number date recall that a divorce decree required brown to pay child-support of dollar_figure per child per month until the child’s arrival at the age of majority the age of majority was on the date of the hearing date one of brown’s children wa sec_23 years old which is far older than the age of majority the other child was years old and would turn on date brown was current on his child-support payments on the hearing date according to his wife the appeals officer found that brown was not required by court order to make the child-support payments to either child continued younger child until the child reached age are a necessary expense he fails to argue that they could be a conditional expense and thus we deem brown to have conceded that they are not the irs now concedes that the appeals officer violated the manual by failing to reduce her estimate of brown’s ability to make monthly payments by his obligation to make dollar_figure weekly payments for the support of his younger sondollar_figure being years old at the time of hearing the son was still a minor see ala code sec a lexisnexis dollar_figure the agreement required brown to make payments until in the words of the agreement the child’s arrival at the age of majority on the basis of this language one might expect that brown’s obligation to support his younger son was discharged on the day of his son’s 19th birthday which was date in his brief brown conceded that his obligation to pay child_support ended on the day of his son’s 19th birthday we accept this concessiondollar_figure 12the irs concedes this issue in its brief when it states that the settlement officer should have allowed the disputed dollar_figure per month in calculating the required_installment agreement monthly amount for the period ending on the child’s 19th birthday 13alabama is one of a few states that defines the age of majority as not 14our preliminary reading of alabama child-support law suggests that brown was no longer required to make child-support payments after his younger son’s 19th birthday the divorce agreement required brown to pay for his minor children the sum of dollar_figure per child per week until any child’s arrival at the age of majority this provision seems to say that brown had no obligation to make child-support payments after the younger child reached the age of majority this theory is supported by some dicta in alred v ala ex rel hill so 2d ala civ app alred concerned a child-support order that required a father to pay dollar_figure continued a conclusion that the appeals officer violated the internal continued per week ‘for the support and maintenance of the minor children of the parties’ id pincite the father contended that the use of the adjective minor in the phrase minor children suggested that child-support payments were to be automatically discontinued when the children presumably both children reached the age of majority id pincite the alabama court rejected the father’s argument holding that ‘the becoming of age of a child’ is not an event that ‘automatically modifies a child_support judgment ’ id quoting hamilton v phillips so 2d ala civ app however the court took pains to state that in a case in which an order designates that a specific dollar amount of child_support be paid for each of the parties’ minor children ie an order like brown’s the result would be different id pincite for an order that specifies a dollar amount for each child the ‘becoming of age of any one of the children’ would be such an event which would entitle a parent to terminate support for such child pursuant to such order id this dicta in alred supports the idea that brown’s obligation to support his younger child automatically terminated when that child turned at trial however brown introduced into evidence a document that on its face seems to indicate that his child-support obligations do not automatically terminate the document was an unsigned attachment to a court order that directed brown to make future child-support payments to the alabama child_support payment center in montgomery alabama the unsigned document was entitled responsibilities of individuals under child_support orders this document stated you must continue to make all payments until the court order is changed it stated further if your child’s status changes turns marries moved in with a different relative obtains a full-time job etc you must continue to make the same payments until the court changes the amount you must pay this unsigned document seems to indicate that brown was not entitled to automatically stop making payments upon his son turning years old it is unclear what weight if any we should accord to the views of the unnamed authors of this document but because brown has conceded that his child-support obligation ceased upon his younger son’s 19th birthday we need not consider the weight to be placed on this document for the same reason we need not rule on the irs’s objection to admission of the court order and the unsigned document which was that it was not reviewed by the appeals officer revenue manual would not end this matter the duty_of the appeals officer was to consider the issues raised by brown including offers of collection alternatives which may include an installment_agreement see sec_6330 brown offered to make monthly installments of dollar_figure per month this was the offer of a collection alternative the appeals officer rejected this offer because she thought brown could pay dollar_figure per month although the appeals officer made an error the error did not change the result of the hearing even if the appeals officer had determined that brown could pay dollar_figure per month it would not have been an abuse_of_discretion for the appeals officer to reject brown’s offer as insufficientdollar_figure in considering other such harmless errors this court has declined to remand the case to the appeals officer for example in lindley v commissioner tcmemo_2006_ affd sub nom 568_f3d_710 9th cir the taxpayers submitted an offer-in-compromise of dollar_figure the appeals officer determined that the taxpayer sec_15for example in joseph v commissioner tcmemo_2006_ the taxpayer proposed to be allowed to pay his tax_liability in monthly installments of dollar_figure the taxpayer submitted a collection statement showing that he had almost dollar_figure of monthly income available to pay his tax_liabilities the appeals officer rejected the taxpayer’s dollar_figure proposal and we affirmed this decision could pay dollar_figure which would have been sufficient to pay the tax_liability in full the tax_court disagreed with the appeals officer’s determination that the taxpayers could pay approximately dollar_figure and determined that the actual amount the taxpayers could pay was about dollar_figure this was still more than the dollar_figure that the taxpayers offered the court held because their reasonable collection potential is greater than their offer amount we find that appeals officer mr owens’s rejection of petitioners’ offer-in-compromise based on doubt as to collectibility was not arbitrary or capricious id the court_of_appeals for the ninth circuit in affirming lindley consolidated with other cases similarly observed that those relying on miscalculations by the irs fail to demonstrate that allowing for the errors their offers do not remain below their ability to pay keller v commissioner supra pincite in carter v commissioner tcmemo_2007_25 affd in part and vacated in part sub nom keller v commissioner supra the taxpayers made an offer-in-compromise of approximately dollar_figure the appeals officer determined after considering 16the court_of_appeals for the ninth circuit upheld this court’s decision in carter v commissioner tcmemo_2007_25 insofar as relevant here but vacated it insofar as it dismissed the irs’s claim for former sec_6621 increased interest for lack of jurisdiction 568_f3d_710 9th cir affg tcmemo_2006_166 lindley v commissioner tcmemo_2006_229 mcdonough v commissioner tcmemo_2006_234 and hansen v commissioner t c memo continued their assets and months of income that the taxpayers had an ability to pay about dollar_figure the appeals officer rejected the offer at trial the irs acknowledged that the appeals officer had erred in computing the amount the taxpayers could pay although the manual directed the officer to consider only months of future income she used months the recomputed amount that the taxpayers could pay was approximately dollar_figure the court held that the error did not amount to an abuse_of_discretion because even using the recomputed number the amount the irs could collect was greater than the taxpayer’s offer the opinion states ms cochran the appeals officer recomputed petitioners’ reasonable collection potential using months and determined that it was dollar_figure instead of dollar_figure as reflected in the notice_of_determination ms cochran testified that the change would not have had an effect on her final_determination because using either calculation petitioners’ reasonable collection potential was greater than their offer amount dollar_figure we find that ms cochran’s error did not amount to an abuse_of_discretion because even when the error is corrected petitioners’ reasonable collection potential of dollar_figure far exceeds their offer amount of dollar_figure continued and affg in part and vacating in part barnes v commissioner tcmemo_2006_150 clayton v commissioner tcmemo_2006_188 blondheim v commissioner tcmemo_2006_216 ertz v commissioner tcmemo_2007_15 abelein v commissioner tcmemo_2007_24 carter v commissioner tcmemo_2007_25 hubbart v commissioner tcmemo_2007_26 freeman v commissioner tcmemo_2007_28 johnson v commissioner tcmemo_2007_29 estate of andrews tcmemo_2007_30 catlow v commissioner tcmemo_2007_47 and smith v commissioner tcmemo_2007_73 id in lloyd v commissioner tcmemo_2008_15 the taxpayer made an offer-in-compromise of about dollar_figure the appeals officer rejected the offer the taxpayer challenged the appeals officer’s estimate of the amount the irs could collect the taxpayer argued that his future income should have been calculated by using average income from the 7-year period from through rather than the 3-year period from through used by the appeals officer the court recalculated the amount using the taxpayer’s proposed 7-year method and determined that the recalculated amount would be about dollar_figure the court held that the appeals officer committed no abuse_of_discretion in rejecting the offer id the court recognized that the internal_revenue_manual required that an offer equal or exceed the amount the irs can collect from the taxpayer in order to be accepted id under the circumstances rejecting the offer complied with the standards in the manual in mcclanahan v commissioner tcmemo_2008_61 the taxpayer made an offer-in-compromise of about dollar_figure the appeals officer rejected the offer the taxpayer argued that the appeals officer overestimated the amount that the irs could collect in particular the taxpayer believed that the officer erred in concluding that the taxpayer had realizable equity of about dollar_figure in retirement accounts the taxpayer had realizable equity of dollar_figure in his residence and the taxpayer could pay dollar_figure out of future income the tax_court held that it was unnecessary to consider these challenges because even accepting the taxpayers’s arguments the offer fell short of the revised amount that could be collected the court said we find it unnecessary to decide whether the settlement officer’s determination of these amounts was appropriate because even if all of the foregoing sources were disregarded petitioner’s reasonable collection potential would be dollar_figure that is the net realizable equity in his whole_life_insurance policies and cash petitioner’s highest offer-in- compromise was dollar_figure an amount less than his reasonable collection potential computed without regard to his future income or any other assets we do not conduct an independent review of what would be an acceptable offer-in-compromise or substitute our judgment for that of the appeals_office rather the appeals employee’s decision to reject the offers-in- compromise will not be disturbed unless it is arbitrary capricious or without sound basis in fact or law id citations and fn refs omitted in atchison v commissioner tcmemo_2009_8 the taxpayer offered to compromise his tax_liability for about dollar_figure this was below the amount of the irs’s estimate of what it could reasonably collect which was approximately dollar_figure the irs therefore rejected the offer the taxpayers challenged the amount that the irs estimated it could reasonably collect arguing that the amount should have been dollar_figure the tax_court held that the irs did not abuse its discretion in rejecting the offer for two reasons first the court held that the irs’s estimate was reasonable second the court held that any error in the estimate was harmless because the amount of the taxpayer’s offer was less than the irs’s estimate of collection potential id on the last point the court cited as authority lloyd v commissioner supra and carter v commissioner supra we apply the reasoning of lindley carter lloyd mcclanahan and atchison to this case the appeals officer rejected brown’s offer to make installment payments of dollar_figure per month a decision that was based upon the officer’s incorrect estimate that brown could afford payments of dollar_figure brown argues now that the amount he could pay was dollar_figure per month this appears to be a correct estimate at least for the period before his younger son turned dollar_figure even so the appeals officer did not abuse her discretion in rejecting brown’s offer to have his offer considered the internal_revenue_manual required brown to offer to pay as much as he was able to pay in order to qualify for an installment_agreement he did not do so neither the manual nor the code would have required the appeals officer to make a counteroffer or to suggest that brown increase his offer in the installment_payment context 17after his younger son turned the amount brown could pay would go up to dollar_figure the cases discussed above which hold that the irs has no duty to make a counteroffer after rejecting an inadequate offer involved offers-in-compromise rather than installment payments in the offer-in-compromise setting the internal_revenue_manual requires that the irs advise the taxpayer to increase the offer to the acceptable amount if it is too low samuel v commissioner tcmemo_2007_312 administration internal_revenue_manual cch pt at big_number date there is no such provision requiring the irs to advise the taxpayer to increase an installment-payment offer thus the irs has less of a duty to make counteroffers in the context of installment agreements in one case the irs was required to make a counteroffer after rejecting an inadequate offer in samuel v commissioner supra the taxpayer offered to compromise his tax_liabilities for dollar_figure on account of his inability to pay the appeals officer sent samuel a preliminary determination_letter indicating that the offer would need to be increased to approximately dollar_figure the officer stated that this was not the final amount determined to be an acceptable offer the taxpayer never increased his offer the appeals officer made a determination to proceed with collection on the grounds that the irs could collect more than the dollar_figure offerdollar_figure this court found that the amount the irs could in fact collect was dollar_figure noting that the manual states that an appeals officer who finds that an offer is insufficient should contact the taxpayer to advise the taxpayer to amend the offer to an acceptable amount the court held that the appeals officer’s failure to advise him that an acceptable amount was dollar_figure was an abuse_of_discretion id there is arguably some tension between samuel and the lindley line of cases discussed before we need not resolve this tension as we consider samuel distinguishable from our case the court in samuel expressly cited the existence of a manual provision requiring the appeals officer to do more than merely reject an inadequate offer-in-compromise no such provision exists with respect to installment agreements therefore samuel does not apply here holding that the appeals officer did not abuse her discretion decision will be entered for respondent 18the appeals officer apparently determined an estimate of the reasonable collection potential samuel v commissioner tcmemo_2007_312 the opinion does not relate what this estimate was


internal_revenue_service number release date index number ---------------------------- ------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-110169-18 date date re ----------------------------- legend husband wife trust child child individual individual trustee state state guardian guardian power_of_appointment committee dear ------------------ ------------------------------------- ------------------ ---------------------------------------------------------- ------------------------------------------------ ------------------------- --------------------------- ------------------------ ------------------ -------------------------- ----------- -------------- ---------------------- ------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------- ------------------------------------------ this responds to a letter dated date requesting rulings under the internal_revenue_code plr-110169-18 facts the facts submitted and representations made are as follows grantors husband and wife intend to establish an irrevocable_trust trust for the benefit of grantors child child individual individual and charities child child individual and individual are referred to collectively as lifetime beneficiaries trust is a domestic_trust governed by the laws of state a corporate trustee trustee is the sole trustee of trust grantors are married and reside in state a community_property_state the terms of trust provide that while either grantor is living the trustee shall not make any distributions except as appointed by grantors or the power_of_appointment committee committee while either grantor is living either or both grantor may but are not required to appoint trust principal including the whole thereof outright or in trust to or for the benefit of any one or more of the lifetime beneficiaries as grantors deem advisable at any time and from time to time for the beneficiary’s health education maintenance or support grantor’s sole power the exercise of the power will be in a nonfiduciary capacity while either grantor is living a majority of the committee members with grantors’ written consent may but are not required to appoint trust income or principal including the whole thereof outright or in trust to or for the benefit of any one or more of the grantors or the lifetime beneficiaries for any purpose at any time and from time to time grantor’s consent power further while either grantor is living the members of the committee other than grantors by unanimous vote may but are not required to appoint trust income or principal including the whole thereof to or for the benefit of any one or more of the grantors or the lifetime beneficiaries for any purpose at any time and from time to time unanimous member power trust provides that the members of the committee shall initially consist of the grantors their children child and child when they reach years of age individual and individual until each of child and child reaches age guardian and guardian shall serve for each of them respectively at all times there must be two members of committee in addition to grantors if at any time there are fewer than two members other than grantors the committee automatically ceases to exist the committee shall also cease to exist upon the death of the survivor of grantors surviving grantor while either grantor is living if at any time the committee ceases to exist trustee may but is not required to distribute income or principal of the trust to the lifetime beneficiaries or with the consent of an adverse_party other than one of the grantors within the meaning of sec_672 to either one or both of grantors any net_income not distributed must be accumulated and added to the principal of the trust under no plr-110169-18 circumstances may trustee make any distribution to any beneficiary in a manner that would discharge any or both of grantors’ legal obligations each grantor may appoint one-half of the trust to any one or more persons or charities qualified under sec_2055 in equal or unequal proportions and on any terms or conditions as each grantor may designate each grantor may exercise this limited power by valid will or valid living revocable_trust and the appointment will be effective immediately upon the death of the person exercising the power grantor’s testamentary power neither grantor may exercise this power for the purpose of discharging their legal obligations or otherwise for their pecuniary benefit upon the death of each grantor any property remaining of the grantor’s entire one-half interest that has not been effectively appointed by grantor’s testamentary power shall be distributed as follows percent of the remaining trust property in equal shares in trust to each member of committee other than grantors to be administered for each beneficiary in a separate trust for the benefit of the beneficiary as provided by trust percent of the remaining trust property to one or more charities supported by grantors during their lifetimes and the balance among grantors’ descendants and charities as the trustee in its sole discretion may determine trust provides that all transferred property to trust is community_property and grantors may hereafter either singly or jointly transfer to the trustee other_property which either is community_property or is being transmuted into community_property any and all property transferred to the trustee prior to the death of the first grantor to die predeceased grantor is and shall retain its character as community_property any appointment of property pursuant to the terms of trust to either grantor prior to the death of the predeceased grantor is and shall be a distribution of community_property all distributions of the net_income or principal to one or more of the lifetime beneficiaries prior to the death of the predeceased grantor whether made by the committee trustee or a grantor’s exercise of the powers retained by such grantor is and shall be a distribution out of community_property prior to the death of the predeceased grantor any exercise of either grantor’s sole power shall be funded equally from each grantor’s share of community_property held in trust each grantor consents to all such appointments made by the other grantor with respect to a grantor’s testamentary power retained by the predeceased grantor any such appointment by the decedent grantor shall be funded solely from the decedent grantor’s one-half interest in property in trust each grantor affirmatively agrees and confirms that any joint appointment by each grantor or the committee or trustee distribution from trust to one of the lifetime plr-110169-18 beneficiaries shall be funded equally from each grantor’s share of community_property in trust it is represented that trustee grantors and members of the committee are all united_states persons within the meaning of sec_7701 you request the following rulings as long as the committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing the taxable_income deductions and credits of grantors or any member of the committee under sec_671 the contribution of property to trust by grantors will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the committee from trust to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee any distribution_of_property by the committee from trust to any beneficiary of trust other than the grantors will not be a completed_gift subject_to federal gift_tax by any member of the committee other than the grantors no member of the committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust the basis of all community_property in trust on the date of death of the predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust plr-110169-18 sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the powers described in sec_674 regardless of by whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse plr-110169-18 sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of the trust based solely on the facts submitted and representations made we conclude that an examination of trust reveals none of the circumstances that would cause grantors to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_679 as long as trust is a domestic_trust and committee remains in existence and serving because none of the members of committee have a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantors under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantors will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides for the imposition of a gift_tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein with respect to which the donor has so parted with dominion and control as to leave the donor with no power to change the disposition of the property whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined plr-110169-18 sec_25_2511-2 provides an example where the donor transfers property in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title to the property in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as possessing a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift sec_25_2511-2 does not define substantial adverse_interest sec_25 b provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later plr-110169-18 in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantors each retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom pursuant to trust upon the predeceased grantor’s death the predeceased grantor’s remaining interest in trust ie one-half that the predeceased grantor did not effectively appoint pursuant to his or her limited testamentary_power_of_appointment shall be distributed out of and shall no longer be subject_to the terms of trust consequently upon the death of the predeceased grantor the committee will no longer possess any powers over the property transferred to trust by the predeceased grantor under sec_25_2514-3 a coholder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate accordingly upon the predeceased grantor’s death the committee members would not be takers in default and do not have interests adverse to the predeceased grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 they are merely coholders of the power at the time of the predeceased grantor’s death therefore the predeceased grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power with respect to the predeceased grantor causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes likewise after the predeceased grantor’s death the surviving grantor continues to retain the grantor’s consent power over the balance of trust the committee members are not takers in default for purposes of sec_25_2514-3 they are merely coholders of the power the committee ceases to exist upon the death of the surviving grantor accordingly upon the surviving grantor’s death the committee members do not have interests adverse to the predeceased grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore the surviving grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power plr-110169-18 with respect to the surviving grantor causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes if the committee ceases to exist the trustee has the power to distribute income and principal to the beneficiaries however the trustee’s power is not a condition_precedent to each grantor’s consent power each grantor’s consent power over income is presently exercisable and not subject_to a condition_precedent thus the trustee’s power to distribute income and principal does not cause the transfer of property to be complete with respect to the income and principal interests in trust for federal gift_tax purposes therefore each grantor is considered as possessing the power to distribute income to any beneficiary himself or herself because he or she retained the grantor’s consent power each grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor’s sole power gives each grantor the power to change the interests of the beneficiaries even though each grantor’s power is limited by an ascertainable_standard ie health education maintenance and support each grantor’s power is not a fiduciary power if the committee ceases to exist the trustee in its fiduciary capacity also has the power to distribute principal to one or more beneficiaries trustee is a corporate trustee and under the terms of the trust instrument cannot be related or subordinate within the meaning of sec_672 to the grantors the powers of the trustee are not conditions precedent to the grantors’ powers each grantor’s sole power over principal is presently exercisable and not subject_to a condition_precedent accordingly each grantor retains dominion and control_over the principal of trust until the trustee exercises his or her power to appoint principal see 37_tc_897 thus the trustee’s powers to distribute principal do not cause the transfer of property to be complete with respect to the remainder in trust for federal gift_tax purposes accordingly the retention of the grantor’s consent power and the grantor’s sole power causes the transfer of property to trust to be incomplete for federal gift_tax purposes further each grantor retained either a predeceased grantor’s testamentary power or a surviving grantor’s testamentary power depending upon the order of death to appoint the property in trust to any persons other than to the grantor’s estates grantor’s creditors or the creditors of grantor’s estates under sec_25_2514-3 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder for federal tax purposes plr-110169-18 finally the committee members possess the unanimous member power over income and principal this power is not a condition_precedent to grantors’ powers each grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent each grantor retains dominion and control_over the income and principal of trust until the committee members exercise their unanimous member powers accordingly the unanimous member power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantors is not a completed_gift subject_to federal gift_tax any distribution from trust to either grantor prior to the death of the predeceased grantor is a distribution of community_property any distribution from trust to either grantor is merely a return of each grantor’s property therefore we conclude that any distribution_of_property from trust by the committee to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee further upon the predeceased grantor’s death the fair_market_value of the predeceased grantor’s interest in trust is includible in the predeceased grantor’s gross_estate for federal estate_tax purposes moreover upon the surviving grantor’s death the fair_market_value of the balance in trust is includible in the surviving grantor’s gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the possessor’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction plr-110169-18 with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a coholder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent - such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power plr-110169-18 sec_20_2041-3 of the estate_tax regulations provides in part that a coholder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a coholder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the committee members under the grantor’s consent power are a power that is exercisable only in conjunction with the creators either grantor or the survivor thereof accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member power is not a general_power_of_appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than to either grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member power are not gifts by the committee members instead such distributions are gifts by the grantors based upon the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than the grantors will not be a completed_gift subject_to federal gift_tax by any member of the committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantors will be a completed_gift by the grantors trust provides that all distributions of the net_income or principal prior to the death of the predeceased grantor whether made by the committee the trustee or a grantor’s exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property accordingly distributions to beneficiaries other than grantors will be gifts made one-half by each grantor finally we conclude that the powers held by the committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the committee members will not cause trust property to be includible in any committee member’s gross_estate under sec_2041 ruling sec_1014 provides in part that except as otherwise provided in this section the basis_of_property in the hands of a person acquiring the property from a decedent or to plr-110169-18 whom the property passed from a decedent will if not sold exchanged or otherwise_disposed_of before the decedent’s death by such person be the fair_market_value of the property at the date of the decedent’s death sec_1014 provides that in the case of decedents dying after date property which represents the surviving spouse’s one-half share of community_property held by the decedent and the surviving_spouse under the community_property_laws of any state is considered for purposes of sec_1014 to have been acquired from or to have passed_from_the_decedent if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross_estate sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death grantors reside in state a community_property_state trust provides that all transferred property to trust is community_property or is being transmuted into community_property moreover any and all property transferred to trust prior to the death of the predeceased grantor is and shall retain its character as community_property as concluded above upon the death of each grantor his or her respective interest in trust as either the predeceased grantor or the surviving grantor will be includible in his or her respective gross_estate for federal estate_tax purposes accordingly based upon the facts submitted and representations made we conclude that the basis of all community_property in trust on the date of death of the plr-110169-18 predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other trusts decanting or any other trust provisions not referenced in this private_letter_ruling this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely karlene m lesho karlene m lesho senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of letter -----


internal_revenue_service number info release date index number ------------------------------------------ ------------------------------------- ------------------------------------- ----------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi genin-120567-05 date date taxpayer ------------------------------------- dear ------------------ this responds to your letter forwarded to us by the cincinnati service_center in which it was requested that we recognize taxpayer’s election to be an s_corporation effective for tax_year under an automatic revenue_procedure relief cannot be granted under revproc_97_48 given that your initial form_1120s tax_return was filed late further you are ineligible for relief under revproc_2003_43 which superseded rev_proc because the window period provided therein has closed generally to seek relief for a late s_corporation_election you must request a private_letter_ruling plr from the national_office the procedures for requesting a plr are set forth in revproc_2005_1 copy enclosed the standard user_fee for a plr is dollar_figure however if the entity’s gross_income was less than dollar_figure million on the tax_return it may qualify for a reduced user_fee of dollar_figure in order for us to accept the lower fee you must include a statement verifying gross_income for the last 12-month taxable_year otherwise you will be billed for the higher fee if you decide to submit a formal request for a plr please follow the sample format shown in appendix b of revproc_2005_1 your request must include the required procedural statements a user_fee check and documents to substantiate your intent to be an s_corporation please refer your ruling_request to the following address attn cc pa t p o box ben franklin station washington dc genin-120567-05 direct to cc psi incidentally the irs has developed two compact discs cds to help educate small_business owners on their tax responsibilities publication introduction to federal taxes for small_business self-employed and publication small_business workshop these items are free and can be ordered by calling an online classroom is available at www irs gov businesses small this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling 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 if you have any additional questions please contact our office at sincerely s dianna k miosi dianna k miosi chief branch office_of_chief_counsel passthroughs special industries enclosure revproc_2005_1


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec se j el ra-t a2- company this letter constitutes notice that your request for a waiver of the minimum_funding_standard for the above-named plan for the plan_year ending denied has been the company is involved in the current financial hardship was brought on by a decline in products which reflect the general downturn in the a result the company has suffered substantial losses the company is also due a substantial receivable from a major sale of its lease rights to the port the port has disputed the amount of the receivable due to the company and the matter is currently being litigated for sty as awhole as the last several years port for the company's demand during the you were notified in a letter dated date that your request had been tentatively denied a conference of right was held on date at the time a decision was made to await the outcome of the pending litigation mentioned above during a telephone conference with the pension_benefit_guaranty_corporation pbgc’ on date you stated that the company has not made contributions to the plan including the amortization payments that would be due if a beer otro plan yoors nin a 2c the waiver of the minimum_funding_standard were funding deficiency has grown rapidly and the company's current plan is to resolve the above-mentioned litigation begin selling off the company and eventually terminate the plan because it is unreasonable to assume that the plan will continue only if a funding waiver is granted plan_year - your request for a waiver of the minimum_funding_standard for the le been denied granted for the year ending plan you should note that excise_taxes under section a of the internal_revenue_code are currently due on the accumulated funding deficiencies in the plan for the plan years ending possible to report you should file a form_5330 as soon as and pay the taxes a and this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in - and to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance in this matter please contact at sincerely yours yy yp fe donna m prestia manager employee_plans actuarial group