internal_revenue_service number release date index number 54a ---------------------------------------------- ------------------------ ------------------------------------------------- ------------------------------------------------------------ ----------------------- ---------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- ---------------------- telephone number -------------------- refer reply to cc fip b05 plr-134584-14 date date legend authority --------------------------------------------------------------------- --------------------------------------------------------- state bonds date date date x y --------------------------------------------- ----------------------------------------------------------------------- ---------------------------------------------------------------- ----------------------------------------------------------------- -------------------------- -------------------------- ----------------------- --- --- dear -------------------- this is in response to your request under sec_54a of the internal_revenue_code the code for an extension of the expenditure period for the available project proceeds of qualified_zone_academy bonds facts and representations plr-134584-14 authority is a body corporate and politic constituting an instrumentality of state the primary functions of authority are to design and construct office buildings quarters courts warehouses shops schools health facilities social welfare facilities and related facilities for lease to state or any of its departments agencies instrumentalities or municipalities authority is empowered to issue bonds for any of its corporate purposes authority issued the bonds on date and designated the bonds as qualified_zone_academy bonds within the meaning of sec_54e all available project proceeds of the bonds were to be spent on rehabilitating and repairing approximately x public schools throughout state the project all available project proceeds of the bonds were expected to be spent not later than date the original three-year expenditure period for the bonds under sec_54a will expire on date the original expenditure period however several unexpected events have resulted in an unforeseen delay in the expenditure of the available project proceeds of the bonds due to unforeseen circumstances at y of the approximately x public school facilities authority does not expect to complete the rehabilitation efforts before the expiration of the original expenditure period these unforeseen circumstances include major contract disputes with contractors delays in the governmental permitting process certain schools being redesignated by state as historic buildings and altered development plans resulting from unexpected and significant population migration authority represents that all of the available project proceeds of the bonds will be spent on the project by date which is approximately months after the original expenditure period expires authority submitted this request for a ruling prior to the expiration of the original expenditure period law and analysis sec_54a provides that a qualified_zone_academy_bond is treated as a qualified_tax_credit_bond for purposes of sec_54a sec_54a provides in part that to the extent that less than percent of the available project proceeds of the issue are expended by the close of the expenditure period for or more qualified purposes the issuer shall redeem all of the nonqualified bonds within days after the end of such period sec_54a provides that for purposes of this subpart the term expenditure period means with respect to any issue the 3-year period beginning on the date_of_issuance such term shall include any extension of such period under clause iii plr-134584-14 sec_54a provides that upon submission of a request prior to the expiration of the expenditure period determined without regard to any extension under this clause the secretary may extend such period if the issuer establishes that the failure to expend the proceeds within the original expenditure period is due to reasonable_cause and the expenditures_for qualified purposes will continue to proceed with due diligence sec_54a c iv provides that for purposes of this paragraph in the case of a qualified_zone_academy_bond a qualified purpose means a purpose specified in sec_54e sec_54a of the code defines available project proceeds to mean a the excess of i the proceeds from the sale of an issue over ii the issuance costs financed by the issue to the extent that such costs do not exceed percent of such proceeds and b the proceeds from any investment of the excess described in subparagraph a at the time the bonds were issued authority reasonably expected to spend all available project proceeds within the original expenditure period the expected failure to spend all available project proceeds of the bonds by the expiration of the original expenditure period was due to reasonable_cause the expected failure was caused by events that were not reasonably expected at the time the bonds were issued and were beyond the control of authority these events caused a significant delay in committing and spending the bond proceeds authority will continue to spend the remaining available project proceeds on the project with due diligence authority expects to spend all available project proceeds not later than date which is approximately months after the original expenditure period expires conclusion under the facts and circumstances of this case we conclude that authority’s expected failure to expend the available project proceeds of the bonds by date is due to reasonable_cause and that authority’s continued expenditure of the proceeds for qualified purposes will proceed with due diligence therefore authority is granted an extension of the original expenditure period with respect to the bonds until date except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-134584-14 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to authority’s authorized representative the ruling contained in this letter is based upon information and representations submitted by authority and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification upon examination sincerely associate chief_counsel financial institutions products s by _________________________ james polfer chief branch


department of the treasury internal_revenue_service washington d c date number release date cc corp b06 uilc internal_revenue_service national_office field_service_advice memorandum for special trial counsel from subject jasper l cummings jr associate chief_counsel cc corp whether purchaser is entitled to a deduction for contingent liabilities of a target_corporation which liabilities were paid_by the seller after the target was acquired in a sec_338 transaction when the liabilities were paid this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorized the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend taxpayer - seller - purchaser - target - date a - date b - date c - date d - date e - date f - year - year - amount - amount - state - issues whether taxpayer is entitled to deduct on the acquiring group’s consolidated_return contingent liabilities that target accrued prior to its acquisition which were paid_by the seller pursuant to an indemnity agreement entered into in connection with a stock purchase qualifying under code sec_338 whether taxpayer is entitled to deduct interest accruing on target’s contingent liabilities such interest having been paid_by the seller pursuant to the indemnity agreement how should purchaser treat various amounts ie accrued state franchise_taxes and pre- and post-acquisition interest accruing on such liability paid_by seller pursuant to the indemnity agreement conclusions taxpayer is not entitled to a deduction for contingent liabilities that target accrued prior to its purchase even though such liabilities were paid_by the seller pursuant to an indemnity agreement entered into in connection with a stock purchase qualifying under sec_338 taxpayer is not entitled to a deduction for interest which accrued on target’s contingent liabilities pre-acquisition interest during the period prior to target’s acquisition taxpayer is entitled to a deduction for interest which accrued on target’s contingent liabilities for the period after target’s acquisition even though such interest was paid_by the seller pursuant to an indemnity agreement entered into in connection with a stock purchase qualifying under sec_338 new target is treated as the deemed purchaser and therefore is deemed to have assumed on the acquisition_date old target’s contingent liabilities and the pre-acquisition interest accruing on such liabilities new target gets an upward adjustment in the basis of its assets in the amount of the contingent liabilities and pre-acquisition interest which it assumed only when the contingent liabilities and pre-acquisition interest become fixed and determinable new target also gets an offsetting downward adjustment in the basis of its assets in the amount of the contingent liabilities and pre-acquisition interest accruing on such liabilities in the amounts paid_by the seller only as of dates c and d the dates on which the seller made the payments new target is not deemed to have assumed the interest accruing on these contingent liabilities in the period after target’s acquisition post- acquisition interest accordingly new target may not make an upward adjustment in the basis of its assets by the amount of the post-acquisition interest accruing on the contingent state franchise tax_liabilities even though it does not get to make an upward adjustment in the basis of its assets in the amount of such post-acquisition interest new target nevertheless must reduce its basis in its assets by the amount of post-acquisition interest_paid by seller pursuant to the indemnity agreement entered into in connection with a stock purchase facts on date a purchaser a domestic_corporation entered into a stock purchase agreement with seller the common parent of the selling_consolidated_group in which target used to be a member pursuant to the stock purchase agreement purchaser agreed to purchase target and target’s subsidiaries at the time of this agreement target was wholly owned by seller acting pursuant to the stock purchase agreement the parties made a valid election under sec_338 to treat the stock purchase as a deemed asset purchase in connection with target’s purchase seller and purchaser entered into a tax agreement in which seller agreed to pay be liable for and indemnify purchaser target and target’s subsidiaries for any and all taxes imposed on target and or target’s subsidiaries for taxable years ending on and before the closing date of the sale no provision in this tax agreement specifically mentions who would be responsible to pay for interest arising as a result of any pre-acquisition tax_liabilities accrued by target and its subsidiaries two months prior to date b the closing date state taxing authorities issued proposed notices of deficiency against target with regard to target’s taxable_year through year for unpaid state franchise_taxes purchaser acquired target on or around date b seller settled with state concerning the unpaid franchise_taxes and interest accruing on such taxes on date f on dates c and d seller paid amount in state franchise tax_liabilities and amount in interest which had accrued on such liabilities seller paid these amounts in accordance with the indemnification provision of the tax agreement taxpayer the common parent of the acquiring group the consolidated_group of which target is currently a member deducted amount for state taxes and amount for interest ie the same amounts seller paid with regard to target’s state franchise tax_liabilities and the interest accruing thereon on the acquiring group’s consolidated tax_return for the year ending date e in deducting these amounts taxpayer is claiming that new target is entitled to deduct the liabilities that old target accrued prior to being acquired that were subsequently paid_by seller pursuant to the indemnity agreement entered into in connection with the stock purchase agreement law and analysis for purposes of this section of this advice target may be referred to as old target for periods ending as of the close of date b target may be referred to as new target for the period beginning as of the day after date b see temp_reg sec_1_338-1t b a the contingent state franchise tax_liabilities under general principles of tax law an acquiror corporation may not deduct accrued liabilities of a target_corporation in the year of purchase or at any other time costs incurred in the acquisition of a capital_asset are not ordinary and necessary expenses but rather are capital expenditures 397_us_572 briarcliff candy corp v commissioner 475_f2d_775 2d cir 44_tc_382 aff'd 373_f2d_45 10th cir the acquiror must capitalize payments made on such assumed_liabilities and add them to the basis of the acquired assets 316_us_394 708_f2d_1254 7th cir 483_f2d_209 9th cir cert_denied 415_us_948 181_f2d_538 5th cir revrul_76_520 1976_2_cb_42 a digest of these cases and the service pronouncement is set forth below in magruder v supple both the purchaser and the seller of land agreed to apportion maryland real_estate_taxes ratably over their respective periods of ownership the purchaser claimed a deduction for state real_estate_taxes arising as a result of the fractional part of the year of purchase apportioned to it the u s supreme court denied the purchaser the deduction because the taxes had already accrued and a lien had been placed against the seller prior to the sale the court reasoned that p ayment of a liability by a subsequent purchaser is not the discharge of a burden which the law has placed upon him but is actually as well as theoretically a payment of the purchase_price u s pincite in david p webb company the taxpayer purchased the assets of a business in in the years prior to the purchase the business had entered into an employment agreement with an employee-shareholder providing that if he died while still an employee his widow would be entitled to a lifetime pension the shareholder died in and from through the corporation made and deducted the annual pension payments the assets of the corporation were sold in again in and finally all sold to the taxpayer in in each sale the pension liability was expressly assumed by the purchaser the court disallowed the taxpayer's deduction of the pension payments and held that these costs should be capitalized and added to the basis of the acquired property in pacific transport the court held that a payment made by a parent_corporation in discharge of a contested liability first asserted against a subsidiary and assumed by the parent upon liquidation of the subsidiary under sec_332 and sec_334 was not currently deductible by the parent the court stated that the payment must be capitalized and added to the parent's basis in the assets acquired from the subsidiary in portland gasoline the taxpayer purchased all the assets of a corporation in march of and agreed to pay a note the corporation had guaranteed in the court held that the taxpayer's payment of the note in to avoid a potential lawsuit was a capital_expenditure because the threat of suit by the creditor derived from an obligation for which the selling corporation alone was liable in revrul_76_520 target a publishing corporation incurred costs in fulfilling prepaid subscription contracts prior to the payment of those costs the stock of target was acquired by another corporation parent and target was liquidated parent paid the expenses the issue of the ruling is whether the parent may properly deduct the costs incurred in fulfilling the obligation of its former subsidiary to deliver certain periodicals the ruling holds c osts incurred by the acquisition corporation in satisfaction of a liability of the acquired_corporation assumed by the acquiring_corporation as part of the acquisition costs must be capitalized and added to the basis of the acquired assets rather than currently deducted taxpayer cites vca corporation v united_states ustc aff’d ct_cl in support of its argument that new target is entitled to deduct the contingent_liability amounts new target had assumed even though seller paid the liabilities although the case ostensibly appears to support taxpayer’s position it is nonetheless easily distinguishable from the present case and therefore inapplicable to these facts in vca corporation the vca corporation merged with aerosol research company aerosol in a tax-free reorganization qualifying under sec_368 under the terms of the merger agreement and applicable state law vca obtained all of the assets and assumed all of the liabilities of aerosol one such liability a contingent_liability involved an employee of aerosol who threatened to sue aerosol for wrongful employment discharge as part of the merger the shareholders of aerosol agreed to indemnify vca for any liability arising from the employee’s claim subsequent to the merger the employee brought suit against vca as the successor to aerosol vca settled with the discharged employee and paid him dollar_figure vca was reimbursed by the former aerosol shareholders in the amount it had paid vca took a deduction for this amount in the year of payment which the service disallowed vca paid the deficiency filed a refund claim and ultimately filed a refund_suit in the court of claims the court found that vca had assumed aerosol’s liabilities and that code sec_381 and c and the corresponding regulations ie reg sec_1 c and c controlled whether vca was entitled to the deduction the court held that under sec_381 vca was entitled to deduct the amounts it paid even though it was subsequently reimbursed our case is factually quite different from vca corporation and is not governed by sec_381 the governing provisions of the vca case ie code sec_381 and c only apply to sec_332 liquidations and to sec_361 transactions and then only if the sec_361 transfer is in connection with a reorganization described in subsections a c d f or g of sec_368 under the facts of our case the parties to the purchase share agreement made a joint election under sec_338 thus sec_332 and sec_361 do not apply and therefore sec_381 does not apply either there can be no carryover of old target’s corporate tax_attributes to new t the successor_corporation without sec_381 although taxpayer is not entitled to deduct the amounts that seller paid in discharge of the state franchise tax_liability and the pre-acquisition interest but it is entitled to deduct the post-acquisition interest even though that amount was paid_by the seller taxpayer does benefit general tax principles hold that the purchaser here new target is deemed to be the purchaser treats an assumed fixed liability as a cost of the acquired property and therefore includes such amount in its tax basis 98_f2d_508 11th cir cert_denied 305_us_662 10_bta_736 here new target makes an upward adjustment in the basis of its assets in the amount of the contingent liabilities and pre-acquisition interest at the time the contingent liabilities and pre-acquisition interest become fixed and determinable the mechanics of this upward adjustment is described in the regulations as prescribed by sec_338 the basis of the assets in the hands of new target is called the adjusted_grossed-up_basis agub in the regulations temp_reg sec_1_338-4t j agub is defined in reg sec_1 b -1t c sec_338 and provide that the target assets will be treated as having been purchased for an amount equaling the grossed-up_basis of the purchasing corporation’s recently_purchased_stock the basis of the purchasing corporation’s nonrecently_purchased_stock old target corporation’s liabilities and d other relevant items specifically with regard to the liabilities of old t sec_1 b -1t f i provides that in order to be included in agub at the beginning of the day after the acquisition_date an obligation must be a bona_fide liability of target as of that date which is properly includible in basis under principles of tax law that would apply if new target had acquired old target's assets from an unrelated_person and as part of the transaction had assumed or taken property subject_to the obligation contingent liabilities do not initially qualify for inclusion in agub but they are taken into account if and when they become fixed and determinable temp_reg sec_1 b -1t f see also temp regs sec_1 b -3t c reg sec_1 b - 1t f ii provides that obligations initially excluded from agub under paragraph are taken into account in redetermining agub and the basis of target's assets under principles of tax law applicable as if new target had acquired old target's assets directly from an unrelated_person and as part of the transaction had assumed or taken property subject_to those obligations see also sec_1 b - 3t a similar language regarding general principles of tax law as applied to for example the change in a liability of old target from contingent to fixed and determinable temp_reg sec_1 b -3t b ii provides a definition of contingent_liability ie a liability that is not fixed and determinable the regulations indicate that the change in a target liability to one which is fixed and determinable triggers operation of the -3t adjustment rules sec_1 b -3t a -3t j example iv temp_reg sec_1 b -3t c provides that liabilities that become fixed and determinable more than one year after the acquisition are added to the purchase_price at the time the liabilities become fixed and determinable and added to basis the target was purchased on date b and the state franchise tax_liabilities became fixed and determinable on or around date f four years after target’s acquisition thus the state franchise tax_liabilities and pre-acquisition interest that accrued on such liabilities became fixed and determinable more than one year after target’s acquisition thus date f appears to be the day that these liabilities became fixed and determinable and therefore it appears that new target became entitled as of date f to make an upward adjustment to the basis of its assets by the amount of those liabilities b interest accruing on the unpaid state franchise tax_liabilities as to the interest_paid by the seller the general_rule is that the taxpayer is entitled to an interest_deduction but only for that portion of the interest accruing after the acquisition_date 64_tc_300 interest_paid by the taxpayer as part of purchase_price for mortgaged real_estate deductible only to extent they accrued on or after the date on which he acquired an interest in the real_estate thus new target is not entitled to deduct the pre-acquisition interest but it is entitled to deduct the post-acquisition interest_paid by seller see also zards v commissioner t c memo c proper tax treatment of seller’s payments under the indemnity agreement generally uncertainties typically surround the conclusion of a business bargain to anticipate intervening changes in circumstances which may effect the value of the assets contracted for parties to asset purchases employ contractual mechanisms that adjust the terms of the initial transaction to take into account changes in values and expectations one such mechanism is an indemnity or tax_sharing_agreement boris i bittker james s eustice federal income_taxation of corporations and shareholders and b at pp to 6the ed post-transaction payments made by the transferor under an asset sale agreement such payments made to or on behalf of the acquiring_corporation are treated as capital expenditures by the payor and as tax-free adjustments to the purchase_price by the payee see 344_us_6 1952_2_cb_136 in arrowsmith two shareholders liquidated their jointly-owned corporation and divided the proceeds equally both shareholders properly reported in the year of liquidation the receipt of the proceeds as capital_gain four years after the liquidation a judgment was rendered against the old corporation the shareholders as transferees paid the judgment and both claimed ordinary_income deductions for the amounts paid on their respective individual income_tax returns the service disallowed these deductions reasoning that they were part of the original liquidation transaction and therefore should be characterized as capital losses in ruling in favor of the service the u s supreme court reasoned that the taxpayers' liability as transferees did not result from any business transaction apart from the liquidation the court concluded that in order to properly classify the nature of the loss for tax purposes it was necessary to consider the earlier liquidation transaction under the relation-back theory of arrowsmith a taxable transaction that is integrally related to an earlier transaction is to be characterized for tax purposes by reference to the earlier event here seller’s agreement to indemnify purchaser in essence was an inducement to purchaser to buy t applying the arrowsmith relation-back principle seller’s inducement relates back to the original stock purchase agreement thus when seller paid target’s contingent liabilities at the time they became fixed and determinable purchaser received a tax-free adjustment to the purchase_price see 370_f2d_729 5th cir freedom newspapers inc v commissioner tcmemo_1977_429 kaufmann v commissioner 10_tcm_790 cch revrul_83_73 1983_1_cb_84 the leading case dealing with the effect of an indemnity payment is estate of mcglothlin in which the fifth circuit_court of appeals held that a cash indemnity payment made pursuant to an indemnity agreement that was an integral part of the merger agreement related back to the merger itself and that the taxpayer could not claim a loss deduction because the payment related back to the time of the merger in mcglothin the taxpayer a majority shareholder of the corporation acquired in a merger guaranteed that certain of the acquired corporation's properties could be sold within three years at a certain price when the properties could not be sold for this amount the taxpayer transferred dollar_figure to the acquiring_corporation in satisfaction of the guaranty the court ruled that the taxpayer could not deduct the payment as a loss under sec_165 because these payments were part of the purchase_price of the acquiring_corporation stock that he received in the merger the taxpayer had to add this amount to his basis in the acquiring corporation’s stock furthermore the court indicated that sec_354 precluded recognition of a loss to the taxpayer because the indemnity agreement and the payment pursuant to the agreement were part of the tax-free reorganization itself as authority for this position the court cited arrowsmith in freedom newspapers inc a publishing company engaged a broker to sell some of its newspapers a package of four newspapers was offered to freedom newspapers freedom but freedom did not want to buy one of the newspapers for various reasons including the belief that it was overvalued freedom agreed to buy the four newspapers at the asking price as long as the broker agreed to resell the unwanted paper within one year for a stated price if the sale did not occur the broker agreed to pay freedom dollar_figure which sum was placed in escrow during the one-year period the broker was unable to sell the paper and the escrow agent paid over the dollar_figure the service determined that the dollar_figure payment resulted in ordinary_income to freedom the tax_court concluded that the contract with the broker for the dollar_figure was part of the original sales agreement and represented a reduction in the net price paid for the paper the tax_court citing arrowsmith held that a payment from a broker to a purchaser was an adjustment of the price of the assets purchased and was not ordinary_income to the purchaser the case of kaufmann examined the tax treatment of amounts paid_by the former shareholders of a transferor_corporation pursuant to an indemnity agreement entered into as a condition of a nontaxable reorganization the court held that the shareholders could not deduct the amounts paid in satisfaction of the indemnity agreement but must add such amounts to the basis of stock of the acquiring_corporation that they received in the merger the court reasoned that had the contingent_liability covered by the indemnity agreement been known as of the date of the merger it would presumably have been paid_by the taxpayer along with the other liabilities according to the court t hat action would have been treated as a contribution_to_capital or as a part of the cost of the new shares of the acquiring_corporation and as such have become an additional investment leading to an increase in taxpayers' basis for the new stock of the acquiring_corporation received in exchange citations omitted in revrul_83_73 1983_1_cb_84 x corporation merged with z corporation in a transaction which qualified as a tax-free reorganization under sec_368 under the terms of the merger agreement x corporation acquired all z’s assets and assumed all z’s liabilities including contingent liabilities as a condition to the merger shareholders of z corporation agreed to reimburse x corporation for any after-tax expenses that x might incur as the result of a claim that a former employee of z corporation had against z x corporation ultimately paid the specific contingent claim and received reimbursement from the shareholders of z the revenue_ruling relying on arrowsmith’s relation-back principle holds that the indemnity payments related back to the initial exchange and therefore the contingent obligation should be reflected in the consideration as a purchase_price_adjustment the ruling stated the indemnity payments should be treated as if they had been contributions to the capital of the transferor_corporation made by its shareholders immediately before the merger thus applying the arrowsmith relation-back approach to the facts of this case the subsequent payments of the state franchise tax_liabilities and pre-acquisition interest payments made by the seller pursuant to the tax agreement that was entered into as part of the original stock purchase agreement should be treated as of the date of payment as a capital adjustment to the original consideration ie the assets received in the acquisition the payments are applied as a downward adjustment to the basis of new target’s assets likewise seller’s payment of the post acquisition interest is applied as a further downward adjustment to the basis of new target’s assets in conclusion taxpayer may only deduct post-acquisition interest_paid by the seller taxpayer may not deduct the state franchise tax_liabilities and pre- acquisition interest_paid by the seller with regard to basis adjustments new target makes an upward adjustment in the basis of its assets in the amount of the contingent liabilities and pre-acquisition interest as of the time those amounts become fixed and determinable further new target makes an offsetting downward adjustment in the basis of its assets in the amount of the contingent liabilities and pre-acquisition interest as of dates c and d when seller paid those amounts pursuant to the indemnity agreement that was entered into in connection with the stock purchase agreement regarding post-acquisition interest new target is not deemed to have assumed such interest thus new target is not entitled to an upward adjustment in the basis of its assets when the post-acquisition interest became fixed and determinable rather new target must reduce its basis in its assets in the amount of post-acquisition interest when those amounts were paid_by the seller pursuant to the indemnity agreement entered into in connection with a stock purchase here dates c and d please call if you have any further questions jasper l cummings jr associate chief_counsel corporate by _____________________________ steven j hankin corporate branch cc assistant regional_counsel tl assistant regional_counsel lc


t c memo united_states tax_court gene a cain deceased elta e cain successor-in-interest commissioner of internal revenue respondent petitioner v docket no 25151-06l filed date hugo torbet for petitioner neal o abreu margaret martin and jeremy l mcpherson for respondent memorandum findings_of_fact and opinion panuthos chief special_trial_judge this case is before the court on petitioner’s request for judicial review of an this case was originally docketed as a small_tax_case in accordance with petitioner’s election before trial petitioner orally moved that the small case designation be removed the court granted the request and the s designation was stricken internal_revenue_service irs determination to sustain a notice_of_intent_to_levy to collect assessed backup withholding taxes and additions to tax pursuant to two forms 2504-ad excise or employment tax- offer of agreement to assessment and collection of additional tax and offer of acceptance of overassessment respondent assessed backup withholding taxes under sec_3406 and additions to tax for failure_to_file information returns required by sec_6041a as follows year backup withholding additions to tax sec_6651 dollar_figure big_number dollar_figure big_number this collection action requires us to decide whether the irs abused its discretion in determining that collection by levy may proceed unless otherwise indicated all section references are to the internal_revenue_code as amended findings_of_fact some of the facts have been stipulated and we so find petitioner was an attorney and resided in california when he filed the petition between and petitioner practiced after the case was submitted petitioner’s counsel informed the court that petitioner died on date elta e cain is petitioner’s successor-in-interest under california continued law in california as a sole_proprietor and paid paralegals and attorneys for work they did for him petitioner did not withhold taxes from payments to these workers he also did not collect taxpayer identification numbers tins from these workers or report the payments to the irs the irs examined records relating to petitioner’s payments to these workers during and the examiner concluded that the attorneys and paralegals in question worked for petitioner as independent contractors and should not be reclassified as employees the examiner determined that petitioner was liable for backup withholding on payments made to these workers because of the workers’ failure to provide tins to petitioner petitioner was advised that the irs would abate the backup withholding to the extent that petitioner provided forms statement of payments received from his payees the examiner provided blank forms to petitioner for this purpose however petitioner did not return any forms signed by his workers in a letter dated date the examiner explained that as a result of petitioner’s failure to secure tins for the individuals he paid petitioner was liable for backup withholding continued law and she has standing to represent his estate cf 50_tc_30 for convenience we will refer to gene a cain as petitioner tax under sec_3406 and also liable for additions to tax because he failed to file returns reporting those payments as required by sec_6041a the amounts petitioner paid to paralegals and attorneys and the examiner’s proposed taxes and additions to tax were as follows year amounts paid tax additions to tax sec_6651 total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure in the date letter the examiner also provided petitioner an opportunity to confer with the regional appeals_office instructing him to file a request for a conference within days if he disagreed with the examiner’s proposed adjustments at a time not apparent from the record petitioner requested appeals_office consideration on date an appeals officer ao confirmed the referral to appeals and asked petitioner to contact him to discuss the case in a date letter the ao confirmed a conversation with petitioner and provided a schedule of the amounts paid to each of eight workers in each of the years and the ao invited petitioner to provide statements from his workers attesting to their receipt of the payments the statements were to contain the information required by form_4669 since petitioner had expressed reluctance to ask his workers to complete and sign the irs form in a date letter the ao told petitioner he would hold the case open until date but that his closing the case would not preclude a later abatement following receipt of additional statements petitioner mailed statements from some but not all of his workers to the ao on date four of the eight workers declared that they reported all funds received from petitioner’s law practice on their federal_income_tax returns petitioner informed the ao that the remaining four workers failed to respond to his letters requesting statements regarding his payments to them the ao responded to petitioner’s date submission stating that the statements petitioner provided did not contain all the information required on form_4669 nevertheless the ao offered a compromise the irs would concede the backup withholding and additions to tax for the workers from whom petitioner received statements if petitioner conceded the backup withholding and additions to tax for the remaining workers the ao instructed petitioner to sign and return forms 2504-ad if he chose to pursue this settlement on date petitioner signed forms 2504-ad for and reflecting the following agreed amounts year backup withholding additions to tax sec_6651 dollar_figure big_number dollar_figure big_number respondent executed the forms 2504-ad on date and on date the ao wrote to petitioner to inform him that the settlement agreement had been approved on date respondent assessed the agreed-upon amounts for and plus interest and sent petitioner statutory notices of balance due on date respondent mailed petitioner a notice_of_intent_to_levy for reasons not apparent from the record the irs placed petitioner’s account in currently noncollectible cnc status on date it appears that petitioner was unaware that the account had been placed in cnc status the irs issued a final notice_of_intent_to_levy and notice of your right to a hearing on date and petitioner submitted form request for a collection_due_process_hearing on date again for reasons not apparent from the record the irs removed petitioner’s account from cnc status on date petitioner provided statements for each of the workers he paid in resulting in respondent’s offering to concede all of the backup withholding and additions to tax for because petitioner provided statements for only some of his workers for and tax and additions to tax remained for those years in his request for a collection hearing petitioner described his disagreement with the proposed collection action as follows your final notice states that you previously asked for payment you have not assuming there is some validity to your claim there is not why would you be entitled to an assessment late fees and interest for an amount never previously requested a settlement officer so in respondent’s appeals_office replied to petitioner’s request for a collection hearing with a letter on date the so scheduled a telephone conference for date pincite p m and told petitioner she would call him at the number on his hearing request unless he told her the proposed conference date would be inconvenient and arranged for another date and time in this letter the so also stated that petitioner could not challenge the existence or amount of the underlying tax_liability because he had a prior opportunity to dispute the liability finally the so informed petitioner that she could not consider collection alternatives unless petitioner completed and submitted a form 433-b collection information statement for businesses and she asked petitioner to submit that information within days the so sent petitioner another letter on date stating that she had not received any indication from petitioner that the proposed conference date was inconvenient and that when she called petitioner at the arranged time and using the telephone number petitioner provided she was told that he was unavailable the so also stated that she had not received any information from petitioner in response to her date letter finally she informed petitioner that appeals would make a determination on the basis of the administrative file and allowed him days to submit the information required for appeals to consider collection alternatives along with any documents supporting the issues petitioner raised in his hearing request on date the so noted that petitioner had not responded to her letters and had not submitted any information beyond his hearing request the irs issued a notice_of_determination concerning collection action s under sec_6320 and or on date the notice_of_determination stated that petitioner did not present any information to dispute the appropriateness of the proposed levy action he did not submit any documentation to support consideration of collection alternatives the so verified that all legal and procedural requirements had been satisfied the so considered petitioner’s claim that he did not receive any request for payment of the taxes and additions to tax at issue and determined not only that notice_and_demand for payment was mailed to petitioner’s last_known_address but also that petitioner had agreed to these assessments during his previous appeals_conference and the so concluded that the collection action properly balanced the need for efficient collection with the legitimate concern that the collection action be no more intrusive than necessary the irs sustained the notice_of_intent_to_levy petitioner filed a timely petition for lien or levy action for and stating the irs states that i filed 941s in and without paying the taxes withheld in truth no such forms were filled sic and i had no employees petitioner was represented by counsel and testified at the trial in california he argues that the final notice_of_intent_to_levy was defective because it did not include the type year and amount of the taxes respondent seeks to collect the record includes only the first page of the notice_of_intent_to_levy and this page does not identify either the type of tax the periods at issue or the amounts of tax and additions to tax at issue the last sentence of this page reads we detail these charges known as statutory additions on the following pages the page also lists a number of enclosures including two publications and form petitioner also argues that he never received any communication from respondent indicating that respondent accepted the compromise petitioner signed and therefore the parties did not have a contract and petitioner’s dispute over the underlying liabilities was never resolved petitioner argues in the alternative that if the court finds that the parties had an agreement then petitioner’s failure to receive notice_and_demand for payment precludes respondent’s proposed collection action finally petitioner seeks equitable relief from interest and additions to tax opinion we have jurisdiction under sec_6330 to review the commissioner’s determination that the levy notice was proper and that the commissioner may proceed to collect by levy in reviewing the commissioner’s decision to sustain collection actions where the validity of the underlying tax_liability is properly at issue the court reviews the commissioner’s determination of the underlying tax_liability de novo 114_tc_604 114_tc_176 the court reviews any other administrative determination regarding proposed collection actions for an abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite an abuse_of_discretion occurs when the exercise of discretion i sec_4 the pension_protection_act of publaw_109_280 120_stat_1019 amended sec_6330 and granted this court jurisdiction over all sec_6330 determinations made after date 129_tc_58 n the internal_revenue_service irs made the determination at issue on date without sound basis in fact or law 125_tc_301 affd 469_f3d_27 1st cir if the court finds that a taxpayer is liable for tax additions to tax and or penalties then other aspects of the commissioner’s administrative determination sustaining the collection action will be reviewed for an abuse_of_discretion see godwin v commissioner tcmemo_2003_289 affd 132_fedappx_785 11th cir at the collection hearing a taxpayer may raise any relevant issues relating to the unpaid tax or proposed levy including spousal defenses challenges to the appropriateness of the collection actions and offers of collection alternatives sec_6330 in addition he may challenge the existence or amount of the underlying tax_liability but only if he did not receive a notice_of_deficiency or otherwise have an opportunity to dispute such liability sec_6330 in making a determination following a collection hearing the commissioner must consider whether the requirements of any applicable law or administrative procedure have been met any relevant issues raised by the taxpayer and whether the proposed collection action balances the need for efficient collection with legitimate concerns that the collection action be no more intrusive than necessary sec_6330 petitioner challenges the sufficiency of the final notice_of_intent_to_levy arguing that sec_6330 requires that the notice state the amount of the unpaid tax and the existence or amount of the underlying tax_liability in that respondent did not accept his compromise or if respondent did accept it then respondent never sent the notice_and_demand which sec_6303 requires him to send within days of assessment notice_of_intent_to_levy at trial petitioner argued for the first time that the collection notice was defective because it did not include the amount of the unpaid tax he relied upon the portion of the notice admitted at trial the parties stipulated that the notice submitted in evidence represented the first page of the final notice_of_intent_to_levy furthermore it appears from the received stamp showing a date of date which the irs placed on that first page that petitioner sent this copy of the first page of the final notice_of_intent_to_levy to the irs attached to his hearing request which was also received on date petitioner also alleges that when he asked respondent’s counsel whether respondent had provided him copies of the entire administrative record respondent’s counsel stated that he had provided all documents he possessed and that he would search for additional documents but only if petitioner identified the documents petitioner sought petitioner did not request a continued the notice itself references additional pages and states that the statutory additions are detailed on those subsequent pages as indicated the first page did not include either the amount of the unpaid tax or the periods at issue yet the form petitioner submitted to request the collection hearing clearly stated his dispute with the levy action with respect to tax years and we are satisfied that the final notice_of_intent_to_levy respondent issued to petitioner on date contained the information necessary to apprise petitioner of precisely which taxes respondent proposed to collect by levy including the amount of the unpaid tax and the periods at issue resulting in petitioner’s accurate reference to tax years and in his hearing request underlying tax_liability the taxes at issue are employment_taxes for which respondent was not required to issue a notice_of_deficiency under sec_6212 continued complete copy of the date final notice_of_intent_to_levy we note that petitioner submitted a copy of only the first page of the notice_of_determination when he filed his petition and amended petition with the court the commissioner must issue a notice_of_deficiency with respect to a deficiency determination in respect of any_tax imposed by subtitle a income taxes subtit b estate_and_gift_taxes and certain excise_taxes in subtit d sec_6212 continued in 128_tc_48 another case involving tax_liabilities which could be assessed without issuing a notice_of_deficiency to wit a sec_6651 addition_to_tax for failure_to_file in a situation not involving a deficiency determination we considered the limitation imposed by sec_6330 on a taxpayer’s ability to raise challenges to the underlying tax_liability in a collection proceeding after he had previously challenged those liabilities we held that a conference with the appeals_office provides a taxpayer a meaningful opportunity to dispute an underlying tax_liability id pincite following the date letter petitioner challenged the determination of the examining agent in prosecuting this appeal petitioner provided documents to the ao as a result of this information which petitioner had not provided to the examining agent the ao offered to compromise petitioner’s liability petitioner agreed and petitioner and respondent signed forms 2504-ad memorializing the agreement petitioner signed on date respondent on date the irs assessed the amounts reflected on those forms on date continued the employment_taxes and additions to tax that the irs seeks to collect in this case are codified in subtits c and f respectively and are not subject_to deficiency procedures and the limitations on assessment of sec_6213 petitioner contends that he did not receive the ao’s date letter informing him that respondent had accepted the settlement proposal and that he did not receive the date notice_and_demand for payment we need not and do not make a finding as to whether petitioner received the ao’s letter or the notice_and_demand for payment because irs records indicate that the irs mailed both documents to petitioner’s last_known_address it is clear that petitioner not only had the opportunity to dispute the underlying tax_liabilities but also availed himself of the opportunity for appeals_office consideration when he challenged the examining agent’s determination provided additional documents to the ao and negotiated a substantial reduction in the backup withholding and additions to tax respondent was authorized to assess the backup withholding without petitioner’s agreement and without issuing a notice_of_deficiency see supra note petitioner’s signing the forms 2504-ad establishes his participation in an appeals_conference during which he disputed these liabilities as a result petitioner is not entitled to challenge the underlying tax_liabilities again in the collection review hearing or in this the notice_and_demand requirement of sec_6303 is satisfied by a mailing to a taxpayer’s last_known_address proof of receipt is not required see otto’s e-z clean enters inc v commissioner tcmemo_2008_54 proceeding sec_6330 lewis v commissioner supra pincite sec_301_6330-1 q a-e2 proced admin regs petitioner appears to be particularly distressed by the fact that respondent did not immediately seek to collect the assessed tax_liabilities and in fact a number of years passed before respondent’s issuing the final notice_of_intent_to_levy while the record does not fully explain the basis for the cnc status and the years without collection action we note that petitioner an attorney does not indicate that he took any_action after agreeing to the assessment to this extent petitioner participated in the delay of the collection of the tax_liabilities to which he had agreed conclusion the notice_of_determination indicates that the so considered relevant issues petitioner raised whether the irs met the requirements of applicable law and administrative procedure and whether the proposed collection action balances collection efficiency and intrusiveness petitioner did not pursue any collection alternatives or raise any spousal defenses similarly where a taxpayer consents to a proposed deficiency and waives restrictions on assessment the commissioner need not issue a notice_of_deficiency and that taxpayer’s waiver of the opportunity to challenge the deficiency prevents his contesting the underlying tax_liability in a collection hearing and in this court 117_tc_324 deutsch v commissioner tcmemo_2006_27 affd 478_f3d_450 2d cir petitioner’s previous opportunity to dispute the underlying tax_liabilities and his agreement to assessment of the liabilities prevent him from challenging those liabilities again the so satisfied the requirements of sec_6330 and we conclude that the irs’s decision sustaining the proposed levy action was neither erroneous nor an abuse_of_discretion we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


y940 4e4l o4 oe oho department of the treasury internal_revenue_service washington d c si1nf yqus -ou- e 4qab- o2 lod3 ol -sa tax exempt and government en ies date may employer_identification_number contact person identification_number telephone number tv ox dear sir or madam this is in reply to the setter of date regarding the proposed transfer of all of w's assets to w has been recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code and is a private_foundation within the meaning of sec_509 of the code x has been recognized as exempt under sec_50i c of the code and is a private_foundation within the meaning of sec_509 in order to reduce the administrative burden and expense of maintaining two private_foundations with identical charitable purposes w's directors have decided to consolidate w and x by distributing all of w's assets to x the members of w's board_of directors are also the members of the board_of directors of x w has represented that it has not engaged in any act giving rise to liability under chapter of the code after the transfer w will voluntarily terminate its private_foundation_status and will comply with the notification and other requirements of sec_507and of the code the following rulings have been requested the transfer by w of all of its net assets to x will qualify as a sec_507 transfer and w's status as a private_foundation will not terminate as a result of such transfer rather w will be terminated for purposes of sec_507 when it complies with the notification and other requirements of sec_507 of the code in the year in which it is dissolved since w's private_foundation_status will not terminate as a result of the transfer w will not be subject_to any_tax under sec_507 of the code in the year of the transfer additionally there will be no termination_tax imposed under sec_507 of the code upon w's termination in any_tax year following the year in which the transfer is made off re x as the transferee organization will not be treated as a newly created organization but will be treated pursuant to section a of the federal_income_tax regulations as possessing the attributes and characteristics of w as defined in section a and in addition pursuant to section a the transfer by w to x shall be counted as a qualifying_distribution to the extent of w's current year's undistributed_income and to the extent x satisfies sec_4942 of the code the transfer of assets from w to x will not constitute an act of self-dealing within the meaning of sec_4941 of the code between w and x or their respective foundation managers the transfer of assets from w to x will not constitute a taxable_expenditure by w within the meaning of sec_4945 of the code and w will not be required to exercise expenditure_responsibility as defined in sec_4945 with respect to such transfer of assets the transfer of assets from w to x will not constitute a sale_or_other_disposition of property within the meaning of sec_4940 of the code sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or the other exempt purposes stated in that section sec_509 of the code describes organizations exempt from federal_income_tax under sec_501 of the code that are private_foundations subject_to the provisions of chapter of the code sec_507 of the code provides that a private_foundation may voluntarily terminate its private_foundation_status by submitting to the commissioner a statement of its intention to terminate its private_foundation_status and by paying the termination_tax imposed under sec_507 of the code sec_507 b of the code concerns the transfer of assets by one private_foundation to one or more other private_foundations and provides that each transferee private_foundation shall not be treated as anewly created organization sec_507 of the code imposes a tax on a private_foundation which voluntarily terminates its status as a private_foundation under sec_507 of the code this sec_507 tax is equal to the lower_of a the aggregate tax_benefit that has resulted from the foundation's exemption from federal_income_tax under sec_501 of the code or b the value of the net assets of the foundation sec_507 of the code provides that for purposes of sec_507 of the code the value of the net assets of the private_foundation shall be determined at whichever time the value is higher the first day on which action is taken by the organization which culminates in its ceasing to be a private_foundation or the date on which it ceases to be a private_foundation sec_4940 of the code imposes an excise_tax on the net_investment_income of a private_foundation sec_4940 of the code defines the net_investment_income of a private_foundation as the amount by which the sum of the gross_investment_income and the capital_gain_net_income exceeds the deductions allowed under sec_4940 sec_4940 of the code defines the gross_investment_income as the amount of income from interest dividends rents payments_with_respect_to_securities_loans and royalties ou re sec_4941 of the code imposes excise_tax on acts of self-dealing between a private_foundation and any of its disqualified persons as defined in sec_4946 of the code sec_4941 of the cade provides that the term self-dealing includes any direct or indirect or use by or for the benefit of a disqualified_person of the income or assets of a private transfer to foundation sec_4942 of the code imposes an excise_tax on a private_foundation which fails to meet the distributions requirements set forth in sec_4942 sec_4942 of the code defines the term distributable_amount as the amount equal to the sum of the minimum_investment_return plus certain other_amounts reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code provides that the term qualifying_distribution includes a contribution to a sec_501 organization if not later than the close of the first taxable_year after its taxable_year in which a contribution is received such organization makes a distribution equal to the amount of such contribution and the private_foundation making the contribution maintains adequate_records on the distribution sec_4945 of the code imposes an excise_tax upon a private foundation's making of any taxable_expenditures as defined in sec_4945 sec_4945 of the code requires that in order to avoid making a taxable_expenditure a transferor private_foundation must exercise expenditure_responsibility under sec_4945 of the code on its grants to another private_foundation sec_4945 of the code provides the term expenditure_responsibility means that the private_foundation is responsible to exert all reasonable efforts and establish adequate procedures to see that the grant is spent solely for the purposes for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary sec_4946 of the code defines the term disqualified_person as including a foundation_manager as that term is described in sec_4946 sec_6043 of the code and sec_1_6043-3 of the regulations provides that a private_foundation must file a return with respect to its dissolution section 507-i a of the regulations provides in general that the status of any organization as a private_foundation shall be terminated only if such organization notifies the district_director of its intent to accomplish such termination section 507-i b of the regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 and section c such transferor foundation will not have terminated its private_foundation_status under sec_507 a i re sec_1_507-1 and sec_1_507-3 of the regulations provide that a transferor foundation's transfer of assets under sec_507 of the code will not constitute a termination of the transferor foundation's status as a private_foundation unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-1 of the regulations provides that a private_foundation which transfers all of its assets is not required to file annual information returns required by sec_6033 of the code for its tax years after the tax_year of its transfer if it has no legal or equitable_title to any assets an does not engage in any activities section a i of the regulations provides that a transferee organization shall succeed to the aggregate tax_benefit of the transferor organization section a and of the regulations describe in particular terms the treatment to be accorded assets transferred pursuant to a sec_507 reorganization under chapter and other provisions where the transferee organization succeeds to the aggregate tax_benefit of the transferor organization sec_1_507-3 of the regulations indicates that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code even for any taxable_year in which it makes a transfer of its assets to another private_foundation pursuant to sec_507 of the code sec_1_507-3 of the regulations provides that where the transferor has disposed of ali of its assets during any period in which the transferor has no assets sec_4945 and h shall not apply to the transferee or the transferor with respect to any expenditure_responsibility grants made by the transferor section a ii of the regulations provides that the transitional and other rules regarding chapter of the code set forth in sec_1_507-3 ii a through g apply to a transferee foundation to the same extent and in the same manner that they would have applied to the transferor foundation had the transfer described in sec_507 had not be effected sec_1_507-3 of the regulations indicates that if a transferor private_foundation transfers assets to a private_foundation effectively controlled directly or indirectly by the same person or persons who effectively control the transferor private_foundation the transferee foundation will be treated as if it were the transferor foundation for purposes of sec_4940 through and sec_507 through of the code the transferee is treated as the transferor in the proportion which the fair_market_value of the transferor's assets that were transferred bears to the fair_market_value of all of the assets of the transferor immediately before the transfer sec_1_507-3 of the regulations indicates that a transfer under sec_507 of the code includes a transfer of assets from one private_foundation to one or more other private_foundations pursuant to any reorganization including a significant disposition of or more of the transferor foundation's assets sec_1_507-4 of the regulations provides that the tax on termination of private_foundation_status under sec_507 of the code does not apply to a transfer of assets pursuant to sec_507 of the code sec_53_4945-6 and sec_1_507-3 of the regulations allow a private_foundation to make transfers of its assets pursuant to sec_507 of the code to organizations exempt from federal re income_tax under sec_504 of the code including private_foundations without the transfers being taxable_expenditures under sec_4945 of the code sec_53_4946-1 of the foundation and similar excise_taxes regulations provides that for purposes of self-dealing under sec_4941 of the code an exempt_organization under sec_501 of the code is not a disqualified_person revrul_78_387 c b concerns a private_foundation that transferred all of its assets to another private_foundation that was effectively controlled by the same persons in accordance with sec_1_507-3 of the regulations the transferee foundation is treated as the transferor foundation and thus the transferee can use its transferor's excess qualifying distributions carryover if any under sec_4942 of the code to reduce the transferee's distributable_amount under sec_4942 of the code by the amount if any of its transferor's excess qualifying distributions carryover under sec_4942 of the code the information submitted establishes that w intends to transfer all of its assets to x x is a private_foundation and because w has the same board_of directors as x is considered a controlled organizations for the purposes of sec_507 and chapter of the code as the successor to w the transitional and other rules regarding chapter of the code set forth in section a ii a through g apply to x after w transfers all its assets to w it intends to notify the service of its intent to terminate its private_foundation_status and comply with the notice and other requirements of sec_507 of the code based on the information submitted and the representations made we hold that the transfer by w of all of its net assets to x will qualify as a sec_507 transfer and w's status as a private_foundation will not terminate as a result of such transfer rather w will be terminated for purposes of sec_507 when it complies with the notification and other requirements of sec_507 of the code in the year in which it is dissolved since w's private_foundation_status will not terminate as a result of the transfer w will not be subject_to any_tax under sec_507 of the code in the year of the transfer additionally there will be no termination_tax imposed under sec_507 of the code upon w's termination in any_tax year following the year in which the transfer is made x as the transferee organization will not be treated as a newly created organization but will be treated pursuant to sec_1_507-3 of the regulations as possessing the attributes and characteristics of w as defined in section a and in addition pursuant to sec_1_507-3 the transfer by w to x shall be counted as a qualifying_distribution to the extent of w's current year's undistributed_income and to the extent x satisfies sec_4942 of the code the transfer of assets from w to x will not constitute an act of self-dealing within the meaning of sec_4941 of the code between w and x or their respective foundation managers the transfer of assets from w to x will not constitute a taxable_expenditure by w within the meaning of sec_4945 of the code and w will not be required to exercise expenditure_responsibility as defined in sec_4945 with respect to such transfer of assets the transfer of assets from w to x will not constitute a sale_or_other_disposition of property within the meaning of sec_4940 of the code re because this letter could help to resolve any questions please keep it in your permanent records and include a copy in your annual information_return form_990-pf this ruling setter is directed only to the organizations that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone for other matters including questions concerning reporting number are shown in the heading of this letter requirements please contact the ohio te_ge customer service office singerely m berkovsky terrell exempt_organizations technical group ov


t c memo united_states tax_court larry d carifee and pamela a carifee petitioners v commissioner of internal revenue respondent docket no 4502-04l filed date larry d carifee and pamela a carifee pro sese alvin a ohm for respondent memorandum findings_of_fact and opinion vasquez judge petitioners filed a petition in response to respondent’s notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination petitioners allege that they have insufficient assets to pay their income_tax_liability for the year findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in lewisville texas on date respondent mailed to each of the petitioners individually a final notice_of_intent_to_levy and notice of your right to a hearing by letter dated date petitioners’ attorney mailed to respondent two forms request for a collection_due_process_hearing one for each petitioner which stated that petitioners have insufficient income and assets to full pay the outstanding tax_liabilities for and they would like to propose either an installment_payment agreement or an offer_in_compromise on date respondent’s collection_division contacted petitioners’ attorney by telephone concerning the requests for a collection_due_process_hearing sec_6330 hearing on date respondent’s appeals_office in dallas texas wrote petitioners’ attorney concerning the requests for a sec_6330 hearing asking that petitioner sec_1 unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure provide certain items of financial information prior to the hearing in order for respondent’s appeals_office to consider alternative methods of collection by letter dated date respondent’s dallas appeals_office notified petitioners’ attorney that the sec_6330 hearing was scheduled for date by letter dated date petitioners’ attorney notified respondent that he no longer represented petitioners on date respondent’s appeals_office called petitioners directly to determine whether petitioners still wanted the hearing held petitioners did not return the call and did not show up for the hearing moreover petitioners did not submit any financial information to the hearing officer and did not submit an offer_in_compromise on date respondent issued to petitioners a notice_of_determination concerning collection action s under sec_6320 and or sustaining the proposed collection action as petitioners did not respond to the letters issued setting conferences and no agreement or viable option could be discussed since they petitioners did not show up for the hearings set or submit anything in writing either opinion sec_6331 provides that if any person liable to pay any_tax neglects or refuses to do so within days after notice_and_demand the secretary can collect such tax by levy upon property belonging to such person pursuant to sec_6331 the secretary is required to give the taxpayer notice of his intent to levy and within that notice must describe the administrative review available to the taxpayer before proceeding with the levy see also sec_6330 sec_6330 describes the administrative review process providing that a taxpayer can request an appeals hearing with regard to a levy notice at the appeals hearing the taxpayer may raise certain matters set forth in sec_6330 which provides in pertinent part sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or proposed levy including-- i appropriate spousal defenses of collection actions and ii challenges to the appropriateness iii offers of collection alternatives which may include 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 pursuant to sec_6330 within days of the issuance of the notice_of_determination the taxpayer may appeal that determination to this court if we have jurisdiction over the underlying tax_liability 115_tc_324 although sec_6330 does not prescribe the standard of review that the court is to apply in reviewing the commissioner’s administrative determinations we have stated that where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis 114_tc_604 114_tc_176 where the validity of the underlying tax_liability is not properly at issue however the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 114_tc_176 at the trial and in their petition petitioners did not contest their income_tax_liability for but made a claim that they could not pay their tax_liability at this time we therefore review respondent’s determination to proceed with the levy action for an abuse_of_discretion petitioners did not assert in the petition any spousal defenses any challenges to the appropriateness of the collection actions or any offers of collection alternatives other than an offer_in_compromise that was going to be submitted at an unspecified future date but was never submitted see sec_6330 these issues are now deemed conceded rule b petitioners also did not submit any financial information to the hearing officer accordingly we conclude that respondent did not abuse his discretion by determining to proceed with collection in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not herein discussed we find them to be irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury significant index no - washington dc person to contact l t q telephone number ’ reter reply to op e ep a date feb in re this letter constitutes notice that waivers of the percent tax under sec_4971 b - of the internal_revenue_code have been granted for the above-named plan for the plan years ended date and the waivers of the percent tax have been granted in accordance with section b of the employee_retirement_income_security_act_of_1974 erisa the amounts for which the waivers have been granted are equal to percent of the accumulated_funding_deficiency in the finding standard account as of the end of each plan_year for which the waivers have been granted to the extent such funding deficiency has not been corrected the company has experienced temporary substantial business hardship as evidenced by negative working_capital and negative net_worth for the fiscal years ended date through the company experienced very small profits during these years the plan was terminated as of date ina letter dated date the pension_benefit_guaranty_corporation pbgc confirmed that all distributions to participants from the plan were completed and that the plan was terminated in accordance with erisa a copy of this letter has been sent to the key district_office in sincerely yours ‘kehr mar tersth kathryn marticello chief actuarial branch le


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 tege eb qp4 plr-t-103174-15 date date state s employer a plan x plan y statute s ordinance a ordinance b date date dear this letter is in response to your request dated date and followed by correspondence dated date for a ruling on the proper federal_income_tax treatment of certain contributions to two retirement plans under sec_414 of the internal_revenue_code the code the following facts and representations are submitted under penalties of perjury in support of your request plr-t-103174-15 employer a is a municipal corporation and political_subdivision of state s employer a sponsors plan x a defined_benefit_plan intended to qualify under sec_401 of the code as applicable to governmental plans as defined in sec_414 of the code employer a also sponsors plan y a defined_contribution_plan intended to qualify under sec_401 of the code as applicable to governmental plans as defined in sec_414 of the code other than public safety employees and elected officials participation in plan x is mandatory for employees of employer a hired before date and is optional for employees hired on or after date and certain employees rehired on or after that date plan x membership consists of classe sec_1 and cla sec_1 consists of employees hired on or after date and before date and employees hired before date who elected to transfer from cla sec_3 or cla sec_4 membership to cla sec_1 membership cla sec_2 members are those employees hired or in some cases rehired on or after date cla sec_3 and members are employees who are required to make employee contributions only on an after-tax basis cla sec_1 and cla sec_2 members are the subject of this ruling_request other than public safety employees and elected officials participation in plan y is mandatory for employees of employer a hired or rehired on or after date employees hired or in some cases rehired on or after date may elect to participate in both in plan x and plan y ordinance a was passed on date amending statute s to require cla sec_1 employees to begin making contributions to plan x the amount of the mandatory employee contributions is of compensation from date through date of compensation from date through date of compensation from date through date of compensation from date through date and of compensation_for fiscal years july 1-june beginning on and after date statute s as amended by ordinance a provides that the scheduled increases for cla sec_1 employees apply only for fiscal years in which a minimum salary raise has become effective after negotiation with the appropriate employee_organization or professional organization if a minimum salary increase becomes effective after july of a particular fiscal_year the contribution increase in effect for such fiscal_year will be suspended until the date the raise becomes effective and is applied pro_rata from the effective date of the raise through the end of the fiscal_year for the date fiscal_year the salary increase was not effective until the pay_period commencing date consequently a pro-rata mandatory employee contribution of became effective as of the beginning of that pay_period for cla sec_1 members plr-t-103174-15 ordinance b was passed on date amending statute s to require employees other than public safety employees and elected officials hired or in some cases rehired on or after date to make a one-time irrevocable election between two retirement_plan options employees electing option hybrid members become cla sec_2 participants in plan x and also participants in plan y employees who elect option non-hybrid members become participants in plan y but are not participants in plan x statute s as amended by ordinance b requires hybrid members to begin making employee contributions pincite of compensation to plan x as of the first full pay_period after cla sec_2 membership begins cla sec_2 participation begins on the first anniversary of the date of employment or reemployment hybrid members are not required to make employee contributions to plan y statute s as amended by ordinance b provides that employer a intends to pick up the employee contributions for cla sec_1 and cla sec_2 members and that the contributions although designated as employee contributions will be treated as employer contributions for federal_income_tax purposes statute s does not provide employees the option of choosing to receive contributions directly instead of having such contributions paid_by employer a into plan x statute s as amended requires members of plan y who are non-hybrid members to begin making employee contributions pincite of compensation to plan y as of the first full payroll_period on or after plan y participation begins plan y membership begins on the day after the date of employment statute s provides that mandatory_contributions to plan y although designated as employee contributions are paid_by employer a in lieu of contributions by members in addition members may not receive the contributions directly the mandatory_contributions are intended to be treated as employer contributions for federal_income_tax purposes employer a treats all mandatory employee contributions into plan x and plan y as being made pursuant to a salary reduction agreement under sec_3121 and as wages subject_to tax under the federal_insurance_contributions_act based on the above facts and representations you request the following rulings that the mandatory_contributions made by cla sec_1 and members of plan x and picked up by employer a will not be included in the current gross_income of cla sec_1 or cla sec_2 members on whose behalf the pick-up is made for federal_income_tax purposes that the mandatory_contributions made by cla sec_1 and members of plan x and picked up by employer a will be treated as employer contributions for federal_income_tax purposes and will not constitute wages subject_to federal_income_tax withholding plr-t-103174-15 that the mandatory_contributions made by non-hybrid members of plan y and picked up by employer a will not be included in the current gross_income of plan y members on whose behalf the pick-up is made for federal_income_tax purposes that the mandatory_contributions made by non-hybrid members of plan y and picked up by employer a will be treated as employer contributions for federal_income_tax purposes and will not constitute wages subject_to federal_income_tax withholding sec_401 of the code provides that a_trust created or organized in the united_states and forming a part of a qualified_stock bonus pension or profit sharing plan of an employer constitutes a qualified_trust only if the various requirements set out in sec_401 of the code are met sec_402 of the code generally provides that any amount actually distributed to any recipient by any employees' trust described in sec_401 of the code which is exempt from tax under sec_501 of the code shall be taxable to the recipient in the taxable_year of the distribution under sec_72 of the code relating to annuities sec_1_402_a_-1 of the income_tax regulations the regulations provides that if an employer makes a contribution for the benefit of an employee to a_trust described in sec_401 of the code for the taxable_year of the employer which ends within or with a taxable_year of the trust for which the trust is exempt under sec_501 of the code the employee is not required to include such contribution in his or her income except for the year or years in which such contribution is distributed or made available to him or her sec_414 of the code provides that any amount contributed to an employees’ trust described in sec_401 of the code shall not be treated as having been made by the employer if it is designated as an employee contribution sec_414 of the code provides that for purposes of sec_414 in the case of any plan established by the government of any state or political_subdivision thereof or by any agency_or_instrumentality of any of the foregoing or a governmental_plan described in the last sentence of sec_414 relating to plans of indian tribal governments where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions the contributions so picked up shall be treated as employer contributions the federal_income_tax treatment to be afforded contributions that are picked up by the employer within the meaning of sec_414 of the code has been developed in a series of revenue rulings in revrul_77_462 1977_2_cb_358 the employer plr-t-103174-15 school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district's picked-up contributions to the plan were excluded from the employees’ gross_income until such time as they were distributed or made available to the employees the revenue_ruling also held that under the provisions of sec_3401 of the code the school district's contributions to the plan were excluded from wages for purposes of the collection of income_tax at the source on wages therefore no withholding was required for federal_income_tax purposes from the employees' salaries with respect to such picked-up contributions revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 established that the following two criteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan revrul_87_10 1987_1_cb_136 provides that the required specification of designated employee contributions must be completed before the period to which such contributions relate if not the designated employee contributions paid_by the employer are actually employee contributions paid_by the employee and recharacterized at a later date the retroactive specification of designated employee contributions as paid_by the employing unit ie the retroactive pick-up of designated employee contributions by a governmental employer is not permitted under sec_414 of the code thus employees may not exclude from current gross_income designated employee contributions to a qualified_plan that relate to compensation earned for services rendered prior to the date of the last governmental action necessary to effect the pickup revrul_2006_43 r b amplifying and modifying revrul_81_35 revrul_81_36 and revrul_87_10 describes the actions required for a state or political_subdivision of a state or an agency_or_instrumentality of either to pick up employee contributions to a plan qualified under sec_401 of the code so that the contributions are treated as employer contributions pursuant to sec_414 specifically revrul_2006_43 provides that a contribution to a qualified_plan established by an eligible_employer ie a governmental employer will be treated as picked up by the employing unit under sec_414 of the code if two conditions are satisfied first the employing unit must specify that the contributions although designated as employee contributions are being paid_by the employer for this purpose the employing unit must take formal action to provide that the contributions on behalf of a specific class of employees of the employing unit although designated as employee contributions will be paid_by the employing unit in lieu of employee contributions a person duly authorized to take such action with respect to the plr-t-103174-15 employing unit must take such action the action must apply only prospectively and be evidenced by a contemporaneous written document eg minutes of a meeting a resolution or ordinance second the pick-up arrangement must not permit a participating employee from and after the date of the pick-up to have a cash or deferred election right within the meaning of sec_1_401_k_-1 of the regulations with respect to designated employee contributions thus for example no participating employee may be given the right to opt_out of the pick-up arrangement described in sec_414 of the code or to receive the contributed amounts directly instead of having them paid_by the employing unit to the plan revrul_2006_43 states that the pick-up rules expressed in revrul_81_35 and revrul_81_36 apply even if the employer picks up contributions through a reduction in salary or through an offset against future salary increases with respect to your first ruling requested plan x satisfies the criteria set forth in revrul_81_35 revrul_81_36 and revrul_2006_43 section of statute s as amended by ordinance a provides that employer a shall pick up the mandatory_contributions deducted from cla sec_1 and employees' salaries and contributed by employer a to plan x employer a took formal action by enacting ordinance a on date before date the first pay_period during which mandatory employee contributions were made for cla sec_1 members cla sec_2 employees will make mandatory_contributions no earlier than date in addition no provision of statute s permits cla sec_1 or cla sec_2 employees the option to choose to receive the contributed amounts directly instead of having them paid_by employer a to plan x therefore employees are not permitted to make a cash or deferred election with respect to the contributions - we conclude that the mandatory_contributions made by the employees to plan x and picked up by employer a shall be treated as employer contributions and will not be included in the current gross_income of the employees for federal_income_tax purposes in the year in which contributions are made to plan x these amounts will be includible in the employees' or their beneficiaries’ gross_income only in the taxable_year in which they are distributed to the extent they represent contributions made by the employer with respect to your second ruling requested because we have determined that the picked-up amounts are to be treated as employer contributions they are excluded from wages as defined in sec_3401 of the code for federal_income_tax withholding purposes with respect to your third ruling requested plan y satisfies the criteria set forth in revrul_81_35 revrul_81_36 and revrul_2006_43 ordinance b amending statute s plr-t-103174-15 provides that employer a shall pick up the contributions deducted from non-hybrid employees’ salaries and contributed by the employer a to plan y and that such contributions although designated as employee contributions will be paid_by employer a in lieu of contributions by participants employer a took formal action by enacting ordinance b on date and employees will begin to make mandatory_contributions prospectively starting no earlier than date in addition ordinance b provides that employee contributions are mandatory and that participants may not receive the contributed amounts directly instead of having them paid_by employer a to plan y the amount of the contribution i sec_5 of compensation regardless of whether the employee is a hybrid member and the contribution is to plan x or the employee is a non-hybrid member and the contribution is to plan y therefore we find that the employees are not permitted to make a cash or deferred election with respect to the contributions we conclude that the mandatory_contributions made by the employees to the plan y and picked up by employer a shall be treated as employer contributions and will not be included in the current gross_income of the employees for federal_income_tax purposes in the year in which contributions are made to plan y these amounts will be includible in the employees’ or their beneficiaries’ gross_income only in the taxable_year in which they are distributed to the extent they represent contributions made by employer a with respect to your fourth ruling_request because we have determined that the picked- up amounts are to be treated as employer contributions they are excluded from wages as defined in sec_3401 of the code for federal_income_tax withholding purposes no opinion is expressed as to whether the amounts picked up by employer a are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement within the meaning of code sec_3121 this ruling is based on the assumption that plan x and plan y satisfy the qualification requirements set forth in sec_401 of the code and constitute governmental plans within the meaning of sec_414 of the code at all relevant times except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-t-103174-15 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 laura b warshawsky senior tax law specialist qualified_plans branch tax exempt and government entities