t c memo united_states tax_court dwight t grandy petitioner v commissioner of internal revenue respondent docket no filed date after p failed to file valid or timely tax returns for the and through tax years r prepared substitutes for returns under sec_6020 and issued a notice_of_deficiency determining deficiencies in income_tax and additions to tax under sec_6651 and for p’ sec_2001 and through tax years held p is liable for the deficiencies in income_tax and additions to tax under sec_6651 and held further p is liable for an sec_6673 penalty of dollar_figure dwight t grandy pro_se sebastian voth for respondent memorandum findings_of_fact and opinion wherry judge this case is before us on a petition for redetermination of income_tax deficiencies and sec_6651 and additions to tax respondent determined for petitioner’ sec_2001 and through tax years after concessions the issues for decision are whether petitioner had unreported income during the years at issue whether petitioner is liable for additions to tax under sec_6651 for all years at issue whether petitioner is liable for additions to tax under sec_6651 for the and through tax years and whether a penalty under sec_6673 should be imposed against petitioner 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure 2respondent conceded petitioner was not liable for tax on self-employment_income of dollar_figure dollar_figure and dollar_figure for the and tax years respectively this is because as discussed infra respondent determined petitioner had self-employment_income of dollar_figure dollar_figure and dollar_figure for the and tax years respectively which was reported on respondent’s substitutes for returns without attributing half to petitioner’s wife pursuant to california community_property law respondent has conceded that this self- employment income should have been reduced by one-half under community_property law respondent also conceded petitioner was not liable for tax on dollar_figure of other income for the tax_year and dollar_figure of wage income for the tax_year and the sec_6651 addition_to_tax for the tax_year findings_of_fact petitioner refused to cooperate with respondent or to stipulate any facts while he claims he did not have a residence petitioner resided in california when he filed his petition petitioner is a tax_protester although often rambling and unclear his arguments include that he is not a citizen_of_the_united_states does not reside in a federal area is not an officer_or_employee of the government and therefore does not owe federal_income_tax he believes that wages are not income petitioner went so far as to sue the internal_revenue_service irs and many others including the revenue_agent who audited his returns in california state court because the description of his suit against the revenue_agent is at best incoherent and implausible we waste no time in trying to decipher petitioner’s theory and simply quote it in part michael j cummings made uttered or possesses a counterfeited security of a state or a political_subdivision thereof or of an organization or made uttered or possesses a forged security of a state or political_subdivision thereof or of an organization with intent to deceive the counterfeited security is ‘evidence of indebtedness’ which in a broad sense may mean anything that is due and owing which would include a duty obligation or right of action no duty obligation or right of action exists against the plaintiffs’ property the defendant is aware that no duty obligation or right of action exists and is therefore intent on counterfeiting the security michael j cummings has committed all the causes of action in this action at law michael j cummings was given notice of his unlawful and unauthorized activities michael j cummings was with knowledge and intent to commit the counterfeiting and other trespasses in whole petitioner lists what he refers to a sec_15 causes of action the revenue_agent was not alone in incurring petitioner’s wrath petitioner asserts that a list of individuals including this judge owe him dollar_figure the basis for this assertion is that the named individuals working for foreign agents have violated the original organic contract and compact known as the constitution for the united_states of america but we now leave aside petitioner’s tax-protester rhetoric and turn to the facts of this case during the years at issue petitioner was married to deanna l grandy but did not file joint federal_income_tax returns with her mrs grandy filed separate tax returns petitioner did not timely file a tax_return for any year at issue revenue_agent michael cummings was assigned to audit petitioner’s returns petitioner met with mr cummings on date at which time he informed mr cummings he had mailed hi sec_2002 through tax returns on date petitioner’s form sec_1040ez income_tax return for single and joint filers with no dependents for the and through tax years all dated date were received by the irs on date petitioner did not sign any of the submitted form sec_1040ez under penalty of perjury attached to each form 1040ez was a signing statement on which petitioner asserted more frivolous arguments including the united_states is located in the district of columbia and dwight timothy grandy does not spell his name in all capitol sic letters or he is a corporate entity while petitioner reported wages on the form sec_1040ez albeit between brackets he reported taxes owed he printed at the bottom of the first page of each form 1040ez corporate excise_tax return his stated reason at the trial for reporting his wages between brackets was that the united_states has abandoned the constitutional money substance gold and silver they instead use credit hypothecated upon my work product so it’s a lien on the public socialist trust so a lien by definition is a negative his stated reason for writing corporate excise_tax return on the form sec_1040ez was because the congressional and supreme court caselaw states by defining income that it all stems from the corporate excise_tax it was reaffirmed after as a statutory extension of the corporate excise_tax 3we note the fact that petitioner informed mr cummings he had mailed hi sec_2002 through tax returns yet this court was provided with petitioner’s submitted returns for only the and through tax years respondent determined that the submitted form sec_1040ez were not valid on date mr cummings prepared substitutes for returns pursuant to sec_6020 for all the years at issue the income reported on the substitutes for returns came from three sources the first source was petitioner’s self-reported wages on the submitted form sec_1040ez the second source was taxable_distributions from united food and commercial workers union and food employers joint trust funds which had provided forms 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc to respondent showing petitioner’s receipt of taxable_income for the and tax years of dollar_figure dollar_figure and dollar_figure respectively the third source was additional self-employment_income mr cummings determined petitioner had on the basis of a bank_deposits analysis to perform the bank_deposits analysis mr cummings first summoned petitioner’s bank records mr cummings discovered checks made payable to petitioner and mrs grandy that 4this court has identified a four-part test for determining whether a defective or incomplete return is valid first there must be sufficient data to calculate tax_liability second the document must purport to be a return third there must be an honest and reasonable attempt to satisfy the requirements of the tax law and fourth the taxpayer must execute the return under penalties of perjury 82_tc_766 aff’d per curiam 793_f2d_139 6th cir they had deposited during the and tax years respectively mr cummings looked at the information on each check and if possible made a phone call to the payor to find out why the payor was paying petitioner and mrs grandy on the basis of the information obtained mr cummings determined petitioner had self-employment_income of dollar_figure dollar_figure and dollar_figure for the and tax years respectively additionally pursuant to california community_property law with the exception of the self-employment_income mr cummings attributed half of petitioner’s income to mrs grandy and half of her income to petitioner see supra note respondent issued a notice_of_deficiency dated date determining the following deficiencies and sec_6651 and additions to tax_deficiency sec_6651 sec_6651 additions to tax dollar_figure big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure to be computed year petitioner timely petitioned this court on date trial was held on date in los angeles california at trial respondent orally requested the imposition of a sec_6673 penalty petitioner has never disputed receiving any of the income respondent determined he received and both at trial and on brief continues to waste this court’s time by asserting groundless and frivolous tax-protester arguments opinion i income_tax deficiencies a burden_of_proof as a general_rule the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however in unreported income cases the presumption of correctness does not attach unless the commissioner first establishes an evidentiary foundation linking the taxpayer to the alleged income-producing activity see 596_f2d_358 9th cir rev’g 67_tc_672 the requisite evidentiary foundation is minimal and need not include direct evidence see banister v commissioner tcmemo_2008_201 aff’d 418_fedappx_637 9th cir once the commissioner produces evidence linking the taxpayer to an income- producing activity the burden shifts to the taxpayer to rebut the presumption of correctness of respondent’s deficiency determination by establishing by a preponderance_of_the_evidence that the deficiency determination is arbitrary or erroneous 92_tc_661 see also 181_f3d_1002 9th cir aff’g tcmemo_1997_97 respondent has established the requisite minimal evidentiary foundation linking petitioner with an income-producing activity for all years in issue by the introduction of checks forms 1099-r and the submitted form sec_1040ez as well as mr cummings’ testimony therefore petitioner bears the burden of proving the deficiency determination arbitrary or erroneous see 116_f3d_1309 9th cir holding that the minimal evidentiary burden was met after the irs investigated and uncovered evidence that the taxpayer had worked for wages in two years and was self-employed in others 87_tc_74 stating a bank deposit is prima facie evidence of income and respondent need not prove a likely source of that income banister v commissioner tcmemo_2008_201 holding that a notice_of_deficiency based on information from third-party payors that they paid the taxpayers was enough to meet the minimal evidentiary burden even though direct evidence of payment was not in the record b income_tax deficiencies petitioner does not dispute receiving the income respondent determined he received petitioner does not dispute that respondent’s allocations under the community_property rules were proper petitioner does not dispute that some of the income received was self-employment_income subject_to the self-employment_tax under sec_1401 rather petitioner spends his time arguing that he does not owe income_tax on the basis of a myriad of tax-protester arguments petitioner’s arguments are without merit and lack factual and legal foundation and we are not obligated to exhaustively review and rebut petitioner’s misguided contentions see sanders v commissioner tcmemo_1997_452 see also 136_tc_498 l itigants who present frivolous arguments should not expect to see them answered in opinions of this court we will not refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir accordingly we sustain the deficiency determinations ii additions to tax a burden_of_proof respondent bears the burden of production with regard to the additions to tax see sec_7491 116_tc_438 to meet this burden respondent must produce sufficient evidence establishing that it is appropriate to impose the additions to tax see higbee v commissioner t c pincite however respondent does not have to produce evidence of substantial_authority lack of reasonable_cause or lack of willful neglect see id pincite b sec_6651 as a general_rule any person made liable for any_tax shall make a return or statement according to the forms and regulations prescribed by the secretary sec_6011 sec_6651 in the case of a failure_to_file a return on time imposes an addition_to_tax of of the tax required to be shown on the 5we recognize that in his petition petitioner made a few arguments that might be considered legitimate such as that the amount of income and tax respondent determined were incorrect however petitioner never introduced any evidence of this and other than frivolous tax-protester rhetoric did not further factually address it assignments of error raised in the pleadings and not addressed on brief are deemed conceded rule e and 92_tc_661 return for each month or fraction thereof for which there is a failure_to_file not to exceed in the aggregate the penalty will not apply if it is shown that such failure is due to reasonable_cause and not due to willful neglect sec_6651 petitioner did not timely file tax returns for the years at issue respondent has thus met his burden of production see 127_tc_200 aff’d 521_f3d_1289 10th cir petitioner has not presented any evidence that his failure_to_file was due to reasonable_cause and not willful neglect accordingly we sustain the additions to tax under sec_6651 c sec_6651 sec_6651 provides for an addition_to_tax of per month up to for failure to pay the amount shown on a return unless it is shown that the failure is due to reasonable_cause and not due to willful neglect the sec_6651 addition_to_tax applies only when an amount of tax is shown on a return 120_tc_163 petitioner did not file valid tax returns and respondent prepared substitutes for returns under sec_6020 for all years pincitethe sec_6651 addition_to_tax is reduced by the amount of the sec_6651 addition_to_tax for any month or fraction thereof to which an addition_to_tax applies under both sec_6651 and see sec_6651 issue a proper return made by the secretary under sec_6020 is treated as the return filed by the taxpayer for purposes of determining whether the sec_6651 addition_to_tax applies sec_6651 wheeler v commissioner t c pincite where the taxpayer did not file a valid_return to satisfy his burden of production for the sec_6651 addition_to_tax the commissioner must introduce evidence that he prepared a substitute for return satisfying the requirements under sec_6020 wheeler v commissioner t c pincite respondent satisfied this burden by introducing into evidence forms sec_6020 certification for all years at issue see oman v commissioner tcmemo_2010_ see also asbury v commissioner tcmemo_2011_107 petitioner has not presented any evidence that his failure to pay was due to reasonable_cause and not willful neglect accordingly we sustain the additions to tax under sec_6651 iii sec_6673 penalty we believe petitioner’s case to be appropriate for a sec_6673 penalty sec_6673 authorizes this court to impose a penalty not in excess of 7we recognize respondent has conceded the addition_to_tax under sec_6651 for petitioner’s tax_year dollar_figure on a taxpayer for instituting or maintaining proceedings primarily for delay or in which the taxpayer’s position is frivolous or groundless a position is ‘frivolous’ where it is ‘contrary to established law and unsupported by a reasoned colorable argument for change in the law’ 114_tc_136 quoting 791_f2d_68 7th cir this court has stated numerous times that tax-protester arguments such as petitioner’s are frivolous and warrant the imposition of a sec_6673 penalty for example in martin v commissioner tcmemo_1990_560 the taxpayer alleged that as a citizen resident of the state of california it would be constitutionally impermissible to exact a tax from him on income earned within the united_states this court rejected the taxpayer’s claims and imposed an dollar_figure sec_6673 penalty petitioner has been warned of the potential implication of a sec_6673 penalty several times in a letter dated date respondent informed petitioner that it is clear that you are making frivolous tax arguments and warned him that if he continued to do so respondent would request that this court impose a sec_6673 penalty at the early morning calendar call on date the court informed petitioner that his arguments were frivolous and if he continued to assert them there was potential for a penalty we conclude that this case warrants the imposition of a sec_6673 penalty and therefore impose a penalty of dollar_figure to be paid to the united_states we consider it an abuse of our process that taxpayers with genuine controversies were delayed while we considered this case solomon v commissioner tcmemo_1993_509 aff’d without published opinion 42_f3d_1391 7th cir see also wnuck v commissioner t c pincite groundless litigation diverts the time and energies of judges from more serious claims it imposes needless costs on other litigants once the legal system has resolved a claim judges and lawyers must move on to other things they cannot endlessly rehear stale arguments both appellants say that the penalties stifle their right to petition for redress of grievances but there is no constitutional right to bring frivolous suits see 461_us_731 103_sct_2161 76_led_277 people who wish to express displeasure with taxes must choose other forums and there are many available coleman v commissioner f 2d pincite we have exercised restraint in penalizing petitioner under sec_6673 however if petitioner insists on continuing his tax-protester rhetoric in this court we will be inclined to impose a significantly higher sec_6673 penalty in the future the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court gerard r fitzgerald petitioner v commissioner of internal revenue respondent docket no 5544-05s filed date gerard r fitzgerald pro_se terry serena for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all section references are to the internal_revenue_code in effect at relevant times this proceeding arises from a petition for judicial review filed in response to a notice_of_determination concerning collection actions under sec_6320 notice_of_determination the issue for decision is whether respondent abused his discretion in sustaining a notice_of_federal_tax_lien notice of lien filed against petitioner background at the time the petition was filed petitioner resided in batavia ohio respondent assessed taxes penalties and interest against petitioner for the taxable years and on date respondent filed the notice of lien and mailed petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 on date the internal_revenue_service officer for tri-county ohio received petitioner’s form request for a collection_due_process_hearing subsequently petitioner’s case was assigned to an appeals officer the appeals officer conducted a telephone hearing with petitioner on date during the hearing petitioner did not challenge his underlying tax_liabilities or the filing of the notice of lien instead petitioner disputed a levy on his social_security_benefits for his unpaid federal_income_tax liability for the taxable_year respondent issued petitioner the notice_of_determination on date sustaining the filing of the federal_tax_lien the notice_of_determination states that petitioner could not challenge the levy on his social_security_benefits because it did not relate to the years at issue the notice also states that respondent placed petitioner’s accounts in currently not collectible status and no further collection action would take place discussion sec_6321 imposes a lien in favor of the united_states on all property and rights to property of a person when a demand for the payment of the person’s liability for taxes has been made and the person fails to pay those taxes such a lien arises when an assessment is made sec_6322 sec_6323 requires the secretary to file a notice_of_federal_tax_lien if the lien is to be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor lindsay v commissioner tcmemo_2001_285 affd 56_fedappx_800 9th cir sec_6320 provides that a taxpayer shall be notified in writing by the secretary of the filing of a notice_of_federal_tax_lien and provided with an opportunity for an administrative hearing an administrative hearing under sec_6320 is conducted in accordance with the procedural requirements of sec_6330 sec_6320 at the administrative hearing a taxpayer is entitled to raise any relevant issue relating to the unpaid tax including a spousal defense or collection alternatives such as an offer-in-compromise or an installment_agreement sec_6330 and c a sec_301_6320-1 proced admin regs a taxpayer also may challenge the existence or amount of the underlying tax_liability if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 see also 122_tc_1 at the conclusion of the hearing the appeals officer must determine whether and how to proceed with collection taking into account among other things collection alternatives proposed by the taxpayer and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary see sec_6330 sec_6330 provides for judicial review of the administrative determination in the tax_court or a federal district_court as may be appropriate where as here the validity of the underlying tax_liability is not at issue the court reviews the commissioner’s determination for abuse_of_discretion 114_tc_176 whether an abuse_of_discretion has occurred depends upon whether the exercise of discretion is without sound basis in fact or law see 125_tc_14 as previously mentioned petitioner does not challenge the appropriateness of the notice of lien with respect to the taxable years at issue petitioner disputes only the levy on his social_security_benefits for his unpaid federal_income_tax liability for the taxable_year petitioner contends he did not receive prelevy notice and an opportunity to be heard as required under sec_6330 respondent appears to acknowledge that petitioner’s social_security_benefits were levied upon respondent’s records indicate however that the levy was made with respect to petitioner’s unpaid tax_liability for the taxable_year which is not a year at issue petitioner did not dispute that the levy pertained solely to because we do not have a notice_of_determination regarding the levy with respect to that year we do not have jurisdiction to review the levy see sec_6330 123_tc_1 affd 412_f3d_819 7th cir petitioner has not set forth any other arguments concerning respondent’s determination such as a spousal defense or an offer of a collection alternative nor has petitioner alleged that the secretary failed to meet the requirements of any applicable law or administrative procedure with respect to the notice of lien consequently we conclude that respondent did not abuse his discretion respondent’s determination therefore is sustained to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp b06-plr-107166-01 date date parent purchaser target sellers country x date a date b date c plr-107166-01 date d outside cpa authorized representative parent official this responds to authorized representative’s letter dated date submitted on your behalf requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent is requesting an extension to file an election under sec_338 of the internal_revenue_code and under sec_1_338-1 of the income_tax regulations with respect to purchaser’s acquisition of of the outstanding_stock of target from sellers the election all citations in this letter to regulations under sec_338 are to the regulations as in effect for date b the material information submitted for consideration is summarized below parent was and is the common parent of a consolidated_group of which purchaser is a member parent has a taxable_year ending december target is a corporation formed under the laws of country x sellers are foreign_corporations prior to its acquisition neither target nor any of sellers filed u s income_tax returns nor were they subject_to u s income_taxation further target was not a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a united_states income_tax return on date a purchaser purchased of the outstanding shares of target on date b which is more than one year after date a purchaser purchased the remaining of the outstanding shares of target from sellers prior to date b parent determined that it would file an election pursuant to the provisions of sec_338 to treat purchaser’s acquisition of of the stock of target as the purchase of the assets of target plr-107166-01 it has been represented that the target stock acquired on date b was acquired for cash in a fully taxable transaction and the acquisition of the stock of target was a qualified_stock_purchase within the meaning of sec_338 the election was due for target on date c however for various reasons the election was not filed by date d which is after date c outside cpa discovered that the election was not timely filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the statute_of_limitations under sec_6501 has not run for the tax_year in which the acquisition occurred the taxable_year in which the election should have been filed or for any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations under sec_1 d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent shows that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent parent official and authorized representative explain the circumstances that resulted in the failure to timely file the valid election the information establishes that the request for relief was initiated before the failure to make the regulatory election was discovered by the internal_revenue_service that a competent tax professional was responsible for the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we plr-107166-01 conclude that parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for parent to file the election with respect to the date b acquisition of target stock as described above the above extension of time is conditioned on the the filing within days of the issuance of this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent's consolidated group’s and target’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 parent should file the election in accordance with sec_1_338-1 that is an election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form together with any information that is required to be attached to the election form parent and target should file or amend as applicable their returns to report the acquisition as a sec_338 transaction and to attach thereto a copy of form_8023 and a copy of this letter no opinion is expressed as to whether the acquisition of the stock of target qualifies as a qualified_stock_purchase whether the acquisition of the stock of target qualifies for sec_338 treatment or any other tax consequences arising from the election in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or tax effects of or consequences resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayer its employees and representatives however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-107166-01 a copy of this letter is being sent to the authorized representative pursuant to the power_of_attorney on file in this office senior technician reviewer branch sincerely yours associate chief_counsel corporate by ken cohen


t c summary opinion united_states tax_court cynthia lois brockington petitioner v commissioner of internal revenue respondent docket no 16710-07s filed date cynthia lois brockington pro_se derek p richman for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax the issues for decision are whether petitioner is entitled to dependency_exemption deductions the earned_income_credit the additional_child_tax_credit and head_of_household filing_status background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference when the petition was filed petitioner resided in florida for petitioner timely filed a form 1040a u s individual_income_tax_return on petitioner’s form 1040a she claimed dependency_exemption deductions for her daughter son and grandson she also claimed an earned_income_credit and an additional_child_tax_credit for her grandson and filed as a head_of_household petitioner’s daughter wa sec_21 years old at the close of petitioner’s daughter attended daytona beach community college community college from january to date but was not a full-time_student she also worked part time for about months earning about dollar_figure in and received child_support payments of dollar_figure per month for she filed a federal_income_tax return reporting dollar_figure of gross_income she claimed a personal_exemption for herself and a dependency_exemption deduction for her son petitioner’s grandson who wa sec_4 years old at the close of petitioner’s son was years old at the close of he attended the community college full time from august to date he also worked for an indeterminable period in for he filed a federal_income_tax return reporting dollar_figure of gross_income and claiming a personal_exemption for himself during petitioner’s daughter son and grandson resided in petitioner’s home except when petitioner’s daughter left the home for a 2-week period petitioner paid all of the family’s living_expenses in except for about dollar_figure that her daughter contributed i burden_of_proof discussion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden to prove that the determinations are in error rule a 290_us_111 but the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may be shifted to the commissioner if the taxpayer introduces credible_evidence with respect to the issue sec_7491 petitioner has not alleged that sec_7491 applies but the court need not decide whether the burden shifted to respondent since the court’s analysis is based on the record before it not on who bears the burden_of_proof ii dependency_exemption deductions generally taxpayers may claim dependency_exemption deductions for their dependents as defined in sec_152 sec_151 but sec_151 effectively disallows exemption deductions for certain dependents in the case of an individual with respect to whom a deduction under this section is allowable to another taxpayer for the taxable_year the exemption_amount applicable to the individual for the individual’s taxable_year is zero the term dependent includes a qualifying_child or a qualifying_relative sec_152 a qualifying_child is defined as an individual who bears a certain relationship to the taxpayer such as the taxpayer’s child or grandchild has the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year meets certain age requirements and has not provided over one-half of the 1the age requirements for qualifying children are that they have not attained age as of the close of the calendar_year in which the taxpayer’s taxable_year begins or have not attained age as of the close of the calendar_year in the case of a student sec_152 the term student is defined to include an individual who during each of calendar months in continued individual’s own support for the taxable_year sec_152 through but sec_152 provides a limitation on the dependency_exemption deduction claimed for a qualifying_child where the qualifying_child is claimed by two or more taxpayers if an individual may be and is claimed as a qualifying_child by two or more taxpayers for the taxable_year then the qualifying_child is treated as the qualifying_child of the taxpayer who is either the qualifying child’s parent or the taxpayer with the highest adjusted_gross_income for the taxable_year where the qualifying_child is claimed by a taxpayer other than a parent tie-breaking rule a qualifying_relative is defined as an individual who bears a certain relationship to the taxpayer such as the taxpayer’s child or grandchild whose gross_income for the taxable_year is less than the exemption_amount dollar_figure for with respect to whom the taxpayer provides over one-half of the individual’s support for the taxable_year and who is not a qualifying_child of the taxpayer or of any other taxpayer for the taxable_year sec_152 and a petitioner’s daughter and son in petitioner’s daughter attained age and petitioner’s son attained age therefore petitioner’ sec_1 continued the taxable_year is a full-time_student at certain educational organizations sec_152 sec_1_151-3 income_tax regs entitlement to her claimed dependency_exemption deductions for her daughter and son depends on whether they were full-time students in and are otherwise qualifying children or were petitioner’s qualifying relatives see sec_152 a ii petitioner argues that her daughter was a full-time_student in because she attended class from to five days a week at the community college the parties however have stipulated on the basis of a document from the school that she was not enrolled as a full-time_student petitioner has produced no other evidence to prove that her daughter was a full-time_student in the court is therefore bound by the stipulation see rule e petitioner’s son was enrolled at the community college for only months during august through october he therefore fails the 5-month requirement of sec_152 see sec_1_151-3 income_tax regs neither petitioner’s daughter nor her son meets the definition of full- time student consequently neither meets the definition of qualifying_child see sec_152 a ii for the gross incomes of petitioner’s daughter and son were dollar_figure and dollar_figure respectively both amounts exceed the dollar_figure personal_exemption amount for therefore neither petitioner’s daughter nor her son meets the definition of qualifying_relative moreover petitioner was also required to prove for the total amount of her daughter’s and son’s support from all sources and either that neither her daughter nor her son provided more than one-half of her or his own support under the definition of qualifying_child or she provided more than one-half of her daughter’s or son’s support under the definition of qualifying_relative see sec_152 d c see also 56_tc_512 petitioner provided no documentation to substantiate the amount of her daughter’s or son’s support in sum petitioner is not entitled to dependency_exemption deductions for her daughter or son because neither is her qualifying_child nor her qualifying_relative see sec_151 sec_152 c d respondent’s determinations are sustained b petitioner’s grandson petitioner’s daughter claimed petitioner’s grandson as a dependent on her federal_income_tax return the tie- breaking rule_of sec_152 therefore dictates that petitioner’s grandson is the qualifying_child of petitioner’s daughter and because petitioner’s grandson is the qualifying_child of petitioner’s daughter he cannot be petitioner’ sec_2support includes amounts received from government assistance but does not include amounts received as scholarships for study at an educational_organization see sec_152 sec_1_152-1 c income_tax regs qualifying_relative see sec_152 in sum petitioner is not entitled to a dependency_exemption deduction for her grandson because he is not her qualifying_child or qualifying_relative see sec_151 d a c d respondent’s determination is sustained iii earned_income_credit sec_32 allows an eligible_individual an earned_income_credit against the eligible individual’s income_tax_liability sec_32 provides a limitation on the amount of the allowable credit based on certain percentages and amounts as determined by sec_32 generally the limitation amount is based on the amount of the taxpayer’s earned_income and whether the taxpayer has no qualifying children one qualifying_child or two or more qualifying children as defined in sec_152 sec_32 b c because the court has concluded that petitioner’s daughter son and grandson were not her qualifying children in she is not entitled to an earned_income_credit for them for an earned_income_credit is available to an eligible_individual with no qualifying children only if the eligible individual’s adjusted_gross_income is less than dollar_figure see revproc_2004_71 sec_3 2004_2_cb_970 because petitioner’s adjusted_gross_income is dollar_figure she is not entitled to an earned_income_credit as an eligible_individual with no qualifying children see id respondent’s determinations are sustained iv additional_child_tax_credit generally taxpayers may claim child tax_credits for each qualifying_child as defined in sec_152 under age sec_24 c sec_24 provides that a portion of the credit may be refundable commonly referred to as the additional_child_tax_credit because the court has concluded that petitioner’s grandson was not her qualifying_child in she is not entitled to the additional_child_tax_credit for him respondent’s determination is sustained v head_of_household filing_status as is relevant here sec_2 defines head of a household as an unmarried individual who maintains as his home a household that constitutes for more than one-half of the taxable_year the principal_place_of_abode of either a qualifying_child or any other dependent of the taxpayer if the taxpayer is entitled to a deduction for the dependent under sec_151 ie a qualifying_relative the court has concluded that petitioner’s daughter son and grandson were not her qualifying children or qualifying relatives in consequently petitioner is not entitled to file as a head_of_household for respondent’s determination is sustained to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court marcus octavious crawford petitioner v commissioner of internal revenue respondent docket no filed date marcus octavious crawford representing himself olivia h rembach for respondent memorandum findings_of_fact and opinion morrison judge the respondent the irs issued a notice_of_deficiency to the petitioner marcus octavious crawford for tax_year determining a deficiency of dollar_figure and an addition_to_tax under sec_6651 for failure to timely file of dollar_figure crawford timely petitioned this court under sec_6213 for redetermination of the deficiency and the addition_to_tax we have jurisdiction under sec_6214 our resolution of the issues for decision is as follows crawford is not entitled to deductions claimed on schedule c profit or loss from business for car-and-truck expenses crawford is not entitled to deductions claimed on schedule c for travel_expenses crawford is not entitled to deductions claimed on schedule c for meals-and-entertainment expenses but crawford is not liable for any amount of the section-6651 a addition_to_tax for failure to timely file findings_of_fact some of the facts in this case have been stipulated we hereby incorporate those facts in the court’s findings_of_fact crawford was a resident of north carolina when he filed his petition all section references are to the internal_revenue_code_of_1986 as amended and in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure crawford’s income and expenditures during crawford was paid dollar_figure of wage income working as an engineer for afl telecommunications at its office in duncan south carolina he made a daily commute to duncan from his home in charlotte north carolina miles away as part of his job with afl telecommunications crawford sometimes had to travel either by car or by plane his travel costs were reimbursed fully by afl telecommunications besides his job with afl telecommunications crawford sold nutritional supplements for a company called vemma he also recruited potential new salespeople for vemma crawford claims that he traveled by car for his work for vemma and that he often had meetings over meals with potential customers and with potential vemma salespeople he had two cars and he used both of them for various purposes not just driving for the vemma business crawford’s tax_return and the notice_of_deficiency crawford’s tax_return a form_1040 u s individual_income_tax_return was dated date according to the computer summary of the return which is in the record the parties stipulated that the return was timely filed crawford’s filing_status was married_filing_separately he reported wage and salary income of dollar_figure from afl telecommunications on the return he attached to his return a schedule c purporting to report the income and losses from his business with vemma on this schedule c he reported gross_receipts of dollar_figure and dollar_figure in business_expenses in the notice_of_deficiency the irs disallowed dollar_figure of the dollar_figure of claimed schedule c expense deductions in the following amounts and categories the full dollar_figure crawford claimed for car-and-truck expenses dollar_figure of the dollar_figure crawford claimed for travel_expenses and dollar_figure of the dollar_figure crawford claimed for meals-and-entertainment expenses procedural history crawford timely filed a petition in this court for redetermination of the deficiency and the addition_to_tax in the petition crawford claimed that he sent documentation showing that he was entitle d to these deductions by these deductions we presume crawford meant the dollar_figure of schedule c expense deductions that the irs disallowed as explained above the disallowed deductions were in three categories travel car-and-truck and meals-and- entertainment trial was held in winston-salem north carolina crawford introduced into the record various receipts invoices and travel- reservation-confirmation printouts crawford offered as evidence his daily calendar for the daily entries on the calendar contain notations related to his activities for the day some of the notations are a location for example hendersonville some of the notations are a person’s name for example charles victoria will or charlotte some of the notations appear to indicate an activity for example mail salle mae get hair cut or lynn order placed momentum pk at trial crawford did not explain what any specific notation on the calendar meant some of the days are also annotated with numbers for miles for the days that are annotated with mileage the text notation for that day is sometimes a location sometimes the text notation for that day is not a location sometimes it is unclear whether the text notation refers to a location or something else crawford also offered as evidence a spreadsheet of his claimed meals-and- entertainment_expenses the spreadsheet lists the following information for each expense the name of the store or restaurant at which the expense was incurred and paid usually a restaurant the date of the expense the dollar amount of the expense and the business_purpose of the expense which for every entry is interview team training the irs objected to the admission of crawford’s daily calendar and his meals-and-entertainment spreadsheet on the grounds that the documents are inadmissible hearsay crawford testified that he gave a copy of the calendar and his meals-and-entertainment spreadsheet to his tax-return-preparation firm jackson hewitt to prepare his return even if we were to admit the daily calendar and the spreadsheet into evidence and give them their due weight as evidence the two documents in combination with the documentary_evidence and testimony do not demonstrate that crawford is entitled to any of the disputed deductions therefore it is unnecessary to decide whether the daily calendar and meals-and- entertainment spreadsheet are admissible we ordered briefs to be filed after trial the irs filed a brief but crawford who is not represented by counsel did not we have ascertained crawford’s arguments as best we can from his petition his testimony and the evidence in the record including the stipulation of facts opinion the burden_of_proof as to the disputed deductions as a preliminary matter we must determine which party bears the burden_of_proof as to the disputed deductions as a general_rule the taxpayer bears the burden of proving that the determinations in the notice_of_deficiency are incorrect rule a 290_us_111 73_tc_394 in an exception to the general_rule sec_7491 imposes the burden_of_proof on the irs with respect to a given factual issue where a taxpayer introduces credible_evidence with respect to that issue meets all applicable substantiation requirements complies with all recordkeeping requirements and cooperates with any reasonable requests for information 116_tc_438 the deductions crawford seeks were disallowed in the notice_of_deficiency crawford does not assert and the record does not demonstrate that the requirements of sec_7491 have been met therefore the burden_of_proof remains with him general rules for business deductions a taxpayer may deduct ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business but must maintain sufficient records to substantiate the expenses sec_162 sec_6001 sec_1 a income_tax regs no deduction is allowed for personal living or family_expenses sec_262 see 36_tc_879 a taxpayer who is an employee may deduct only expenses for which he or she could not have been reimbursed by an employer 79_tc_1 24_tc_21 one type of deductible business_expense is the cost of transportation related to business including both local transportation and the cost of traveling away from home on overnight trips sec_162 see sec_1_274-5 income_tax regs the expenses paid for a taxpayer’s daily commute to work however are not deductible this is because a taxpayer’s commuting expenditures are generally classified as personal expenses and personal expenses are not deductible sec_262 sec_1_262-1 income_tax regs the cost of business-related meals is a deductible business_expense at least in part see sec_274 also payments for meals on business trips away from home are deductible business_expenses sec_162 sec_274 provides that some business_expenses are subject_to strict substantiation requirements sec_1_274-5t temporary income_tax regs fed reg date generally in order to meet the standard of sec_274 a taxpayer must show the amount of the expense the time and place of the expense the business_purpose of the expense and the business relationship to the taxpayer of any person entertained if the expense is for meals or entertainment sec_274 flush language the taxpayer must prove each of these elements either by adequate_records or other_sufficient_evidence corroborating the taxpayer’s own statement id see sec_1_274-5t and temporary income_tax regs fed reg date all three categories of deductions crawford claimed--car-and-truck expenses travel_expenses and meals-and-entertainment expenses--must be strictly substantiated deductions for car-and-truck expenses for the requirements of sec_274 apply to any expense with respect to listed_property as defined in sec_280f listed_property includes passenger automobiles and any other_property used as a means of transportation including trucks sec_280f and ii a with respect to car-and-truck expenses sec_274 provides that a taxpayer must substantiate the amount of the expense and the time place and business_purpose of the use of the car or truck however a taxpayer may opt to use the standard mileage rate as established by the irs for a given tax_year in lieu of substantiating the amounts of the actual expenses see sec_1_274-5 income_tax regs for the standard mileage rate for business use of a passenger_automobile wa sec_55 cents per mile revproc_2008_72 sec_2 2008_2_cb_1286 see also sec_1_274-5 income_tax regs granting the commissioner the authority to establish a method under which a taxpayer may use mileage rates to substantiate the expense of using a vehicle for business purposes a taxpayer who opts to use the standard mileage rate is relieved of the obligation to substantiate the amount of the expense but is not relieved of the obligation to substantiate the amount of the business use of the car or truck ie the amount of business mileage the time of the use of the car or truck and the business_purpose of the use sec_1_274-5 income_tax regs crawford claimed a deduction of dollar_figure for car-and-truck expenses these expenses were he testified for driving his car to meetings where he discussed either sales of vemma products the recruitment of new vemma sellers or both he seeks to corroborate this testimony with his daily calendar which we are not certain from the record whether crawford intended his deduction for car-and-truck expenses to be based on actual expense amounts since he submitted receipts for gasoline or to be based on the standard mileage rate since he submitted the calendar which indicates miles he claimed he traveled for business either way crawford has not demonstrated he is entitled to a deduction for the expenses of operating his vehicles contains notations appearing to show his travel destination in some instances and in some instances a number for mileage we find the locational notations on the calendar unreliable in several instances a location is marked on the calendar for a particular day but a receipt shows that crawford was somewhere else that day crawford admitted at trial that these particular locational entries are incorrect from this we find dubious all of the entries in the calendar regarding location thus we disregard the entries on the daily calendar in determining the business use of crawford’s vehicles setting aside our concerns about the accuracy of the calendar the notations on the calendar are too vague or too ambiguous for us to know which mileage entries are related to vemma business as opposed to afl telecommunications business or personal errands and we cannot simply assume that all entries on the calendar with mileage amounts are related to vemma trips crawford admitted that not all of the entries on the calendar for mileage are related to vemma trips consequently we cannot reliably find that all of the mileage entries are for travel related to the vemma business some of the receipts we refer to are for meals-and-entertainment expenses rather than car-and-truck expenses nonetheless we consider them here because they show that crawford was on more than one occasion not in the place he indicated in the calendar crawford submitted receipts for the purchase of gasoline this may give rise to the inference that crawford is seeking to deduct amounts of actual expenses as an alternative to deductions based on mileage crawford admitted that a number of expenses for gasoline were incurred for his commute these expenses are not deductible nothing in the record and in the disputed daily calendar and meals-and-entertainment spreadsheet establishes which receipts are related to the vemma business we hold that crawford is not entitled to any deductions for car-and-truck expenses for deductions for travel_expenses for there is a deduction for expenses for travel away from home as long as the expenses are reasonable necessary and directly attributable to the taxpayer’s business sec_162 sec_1_162-2 income_tax regs if the trip is undertaken for both business and personal reasons travel_expenses are deductible only if the primary purpose of the trip is business see sec_1_162-2 income_tax regs whether the primary purpose of the trip is business or personal depends on all the facts and circumstances and particularly on the amount of time during the trip that the taxpayer devoted to business as compared to the time for personal activities sec_1_162-2 income_tax regs the expenses of travel away from home are subject_to the strict substantiation requirements of sec_274 sec_274 sec_1_274-5t temporary income_tax regs fed reg date with respect to travel_expenses the taxpayer must show the amount of the expenditure the date of departure and return for each trip the number of days away from home spent on business the destinations or locality of travel and the business_purpose of the travel as previously stated each of these elements must be proven by adequate_records or other_sufficient_evidence corroborating the taxpayer’s own statement to substantiate his expenses for traveling away from home crawford introduced into evidence copies of invoices and travel-reservation- confirmation printouts and receipts in addition crawford provided his daily calendar we find that these sets of documents are insufficient substantiation we begin with the invoices and the travel-reservation-confirmation printouts the invoices and printouts do not prove that the amounts invoiced or referred to in the printouts were actually paid_by anyone even if we were to assume that all the amounts on the invoices and travel-reservation-confirmation printouts were paid it is unclear from any documents including the receipts that the payor was crawford as opposed to say afl telecommunications crawford testified that he paid for the travel referred to on the invoices or travel-reservation- confirmation printouts but we did not find the testimony credible therefore he may not deduct any expense documented by the invoices or travel-reservation- confirmation printouts as for the receipts a number of them relate to expenses that were paid_by a credit card with a card number ending with crawford admitted at trial that afl telecommunications reimbursed him for all payments made with that credit card therefore he is not entitled to a deduction for any expense appearing on the receipts corresponding to purchases made by the credit card with a card number ending with see lucas v commissioner t c pincite podems v commissioner t c pincite as for the travel corresponding to the remaining receipts there is an absence of documentation of the business_purpose of the travel to which the receipts correspond the potentially relevant documents are receipts invoices and the daily calendar none of these documents indicate that any of these trips are related to vemma thus crawford has failed to provide substantiation for the business_purpose of these particular trips crawford’s uncorroborated testimony is unpersuasive and insufficient crawford asserted generally that he traveled away from home for his vemma business but he failed to give the reason for any particular trip furthermore he was not a credible witness generally therefore we hold that he is not entitled to a deduction in any amount for the expenses of traveling away from home deductions for meals-and-entertainment expenses for fifty percent of expenses for meals that are directly connected to a taxpayer’s trade_or_business such as lunch or dinner meetings with clients is deductible sec_162 sec_274 the strict substantiation requirements of sec_274 apply to meals-and-entertainment expenses these requirements are that the taxpayer must show the amount of each expenditure the time and place of each expenditure the business_purpose of each expenditure and the business relationship to the taxpayer of the person or persons entertained sec_1_274-5t temporary income_tax regs fed reg date see sec_274 the items substantiating the meals-and-entertainment expenses crawford claimed include his testimony in which he generally asserted that the meals he claimed on the return were deductible business_expenses receipts for meals or the strict substantiation requirements apply to any item with respect to an activity which is of a type generally considered to constitute entertainment sec_274 the term entertainment is defined to include providing food and beverages sec_1_274-2 income_tax regs entertainment and a list of meals with restaurant names and the business_purpose of each meal which was interview team training for every meal there are many problems with the substantiation crawford provided one overarching problem is that the items do not convince us there was a business_purpose for any particular meal or for any particular entertainment expense the mere fact that crawford introduced a receipt does not mean that the expense corresponding to the receipt was business-related he admitted that at least some of the meals for which he supplied receipts were personal meals as for the meal- and-entertainment spreadsheet crawford ate many of the meals reflected on this spreadsheet alone that no one else was present at the meals belies the spreadsheet’s description of the business_purpose of the meals as interview team training we conclude that the records submitted by crawford are too unreliable to be considered adequate_records or sufficient evidence corroborating the taxpayer’s own statement see sec_274 we hold that crawford has not met his burden to prove that he is entitled to a deduction for meals-and-entertainment expenses in any amount addition_to_tax for failure_to_file under sec_6651 the irs contends that crawford is liable for a failure-to-timely-file addition_to_tax of dollar_figure for the tax_year sec_6651 imposes an addition to the tax of of the amount_required_to_be_shown_as_tax on a return for failure_to_file the return by its due_date as extended if the failure is for not more than month with an additional percent for each additional month or fraction thereof during which such failure continues not exceeding percent in the aggregate the irs bears the burden of production with respect to the taxpayer’s liability for this addition_to_tax see sec_7491 rule a higbee v commissioner t c pincite in the stipulation crawford and the irs agreed that crawford’s income_tax return was timely filed the irs now argues that crawford filed his return after the deadline we reject the irs’s contention stipulations are treated as conclusive admission s by the parties see rule e 140_tc_294 under rule e we may relieve parties of a stipulation if justice requires for example we may relieve parties of a stipulation which is contrary to the record see 93_tc_181 stating that where justice requires the court may disregard a stipulation which is clearly contrary to the record in this the amount of the addition_to_tax is reduced by amounts paid_by the filing deadline sec_6651 according to the notice crawford’s tax_liability was dollar_figure and he made payments of dollar_figure before the filing deadline the difference between dollar_figure and dollar_figure is dollar_figure the addition-to-tax amount as computed in the notice_of_deficiency is dollar_figure which is equal to months dollar_figure case the irs’s pretrial memorandum filed two weeks before trial asserted that crawford’s return was filed late however on the day of trial the irs executed the stipulation stating that the return was filed timely to ignore this stipulation would likely prejudice crawford who did not have notice at the time of trial that the irs would contend that his return was untimely furthermore the irs has never asked to be relieved of the stipulated statement it has not supplied an explanation for why the stipulated statement should be ignored it did not mention the stipulated statement in its brief these circumstances do not warrant relieving the irs of the consequences of the stipulation therefore we hold that crawford’s income-tax return was timely filed as the parties stipulated and that he is thus not liable for any addition_to_tax for failure to timely file conclusion we have considered all of the arguments the parties have made and to the extent that we have not discussed them we find them to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent with respect to the deficiency and for petitioner with respect to the section-6651 a addition_to_tax


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-120777-02 date date in re revised schedule of ruling amounts legend plant taxpayer parent commission interim order final order method a b c d e f g h i j k l m n o p plr-120777-02 -2- q r s t u v w x y z dear this letter responds to a request for private_letter_ruling dated date and subsequent submissions filed on behalf of the above taxpayer pursuant to the mandatory requirements of sec_1_468a-3 of the income_tax regulations requesting a schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund fund taxpayer is requesting this schedule because commission in final order decreased the amount of decommissioning costs to be included in cost of service for plant transferor previously received a schedule of ruling amounts pertaining to plant on a information was submitted pursuant to sec_1_468a-3 taxpayer a regulated_public_utility is a wholly owned subsidiary of parent taxpayer directly owns a b percent interest in the plant which is situated in location in addition pursuant to sale leaseback transactions entered into in c taxpayer holds a leasehold interest in d percent of plant taxpayer represents that it is fully and primarily liable under federal and state law as well as contractually liable for decommissioning the portion of plant subject_to taxpayer’s leasehold interest and that no other person has established or will establish a qualified_fund with respect to the portion of plant subject_to taxpayer’s leasehold interest taxpayer is required to fund the decommissioning expenses for the leased portion of the plant ratably over the term of the leases which extend through e the rates approved in final order include decommissioning costs with respect to taxpayer’s leasehold interest in plant in cost of service only through e commission has sole regulatory jurisdiction over the rates charged by taxpayer with respect to both its ownership and leasehold interests in plant taxpayer joins parent in filing a consolidated tax_return and both are under the audit jurisdiction of the industry director natural_resources and construction lm nrc the estimated cost of decommissioning the plant is dollar_figuref and taxpayer’s share of that cost is dollar_figureg commission in interim order provided for decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes these amounts were subsequently decreased in final order retroactive to the period plr-120777-02 -3- beginning h sec_1_468a-2 provides that the amount of the adjustment must be taken into account over the period i consequently taxpayer will reduce it’s dollar_figurej annual cost of service amount applicable to each year in the period i and has reduced its requested ruling amounts for the period i by dollar_figurek the level_funding limitation period begins on l and ends on m and the funding_period begins on n and ends on o the assumed after-tax rate of return to be earned by the assets of the fund is p percent the rate of escalation to determine the future cost of the plant is q percent the proposed method for decommissioning the plant is method taxpayer has determined the estimated period for which the fund is to be in effect is r years s through t and the estimated_useful_life of the plant is u years v through w therefore the qualifying percentage is x percent sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within ½ months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant plr-120777-02 -4- sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-2 of the regulations provides that if a retroactive adjustment to rates reduces the amount of decommissioning costs included in cost of service for three or more taxable years ending before the date of the adjustment at least one-third of the total amount of the reduction must be taken into account for the first taxable_year ending on or after the date of the adjustment at least two-thirds of the total amount of the reduction must be taken into account over the first two taxable years ending on or after the date of the adjustment and the total amount of the reduction must be taken into account over the first three taxable years ending on or after the date of the adjustment sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on plr-120777-02 -5- which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate plr-120777-02 -6- base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer had a qualifying interest in the plant and was therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission has determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage for commission is x percent the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to the commissions satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows plr-120777-02 -7- approved schedule of ruling amounts allocable to the taxpayer year amount approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year in particular because the cost of service amount in years y as reduced pursuant to sec_1_468a-2 is z the contribution to the fund for the years y may not exceed z this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the powers of attorney we are sending a copy of this ruling to your authorized representatives we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service index no department of the treasury washington dc vo00 o contact person telephone number in reference to t-ep-ra tl date nov corporation c_corporation doo cece corporation e corporation foo corporation g congregation av ccc cee congregation bow ccc organization au cece organization boi organization co cece subsidiary doo cceccceeeee organization e organization f this is in response to a letter dated date as supplemented by additional correspondence dated september and date in which your authorized tepresentative requested rulings on your behalf under sec_414 of the internal_revenue_code the code you submitted the following facts and representations in support of your request corporation c is a non-stock not-for-profit corporation organized under the laws of state a corporation c has been determined to be an organization described under code sec_501 c and exempt from tax under sec_501 corporation c serves as a joint operating company coordinating the health care activities of a number of hospitals health centers clinics and nursing homes in a particular region of state b including organizations a b c e f and subsidiary d the corporate members of corporation c are corporation a and corporation b corporation c sponsors the plan a defined_benefit_plan intended to satisfy the requirements of sec_401 corporation a is a state a non-profit organization sponsored by congregation b corporation a was incorporated in as a member organization of more than health shelter and spiritual development services sponsored in five states corporation a is dedicated to the empowerment of people the transformation of consciousness and of systems providing health shelter and spiritual development which further the commitment of congregation b to live the gospel corporation a is exempt from tax under sec_501 as an organization desenibed in code sec_501 congregation a was established by the church in since that time the general purpose of congregation a has been to own maintain and operate hospitals and homes for the aged and poor and other benevolent and charitable institutions and to receive gifts bequests and donations from charitably inclined persons associations and corporations in acquiring maintaining and running such institutions the duties of congregation a include the ministration of sacerdotal functions and the conduct of religious worship congregation b is an order of approximately religious individuals located in state a dedicated to serving the church congregation b has organized corporation a on a three-tier coy framework in which control is held through board representation corporation a’s board_of directors is elected by a group the group chosen by the governing council of congregation b the group exercises authority over the entities within the corporation a system the group is comprised of seven members of congregation b and has the authority to remove with or without cause any and all the directors of corporation a corporation a’s board_of directors is required to consist of not less than and not more than persons of whom at least two are members of congregation b other members of corporation a’s board shall have an awareness and commitment to the mission and philosophy of congregation b and the church corporation a is listed in the official directory of the church the service has determined that any organization listed or appearing in the church’s official directory is an organization described in code sec_501 and exempt from tax under sec_501 is the sole corporate member of corporation b corporation b is a non-stock non-profit corporation organized under the laws of state b corporation d corporation d is organized under the laws of state c and its corporate members are corporation e and corporation g corporation e’s sole member is corporation f corporations b d e f g and congregation a are all listed in the official church directory and are therefore organizations described in code sec_501 and exempt from tax under sec_501 as part of corporation d’s health care system corporation b participates in the healing mission of the church and congregation a the purposes of corporation b are to assist congregation a in its apostolic mission to provide health care and related education and structures which help direct and coordinate the health care system to guide and enable the functioning of gospel values so that resources are developed focused and extended in ways that promote the mission of congregation a and to facilitate planning and cooperation with corporation e the duties of corporation e include the ministration of sacerdotal functions and the conduct of religious worship as corporate members and collaborators in the ongoing administration and operation of corporation c’s health system corporations a and b each nominate one-half of the individuals who serve on corporation c’s board_of directors all directors must be approved however by both corporations a and b and may be removed with or without cause by the joint action thereof corporations a and b reserve authority over certain matters which must first be teviewed by a committee consisting of four to six individuals representing corporations a and b including at least two sisters representing congregations a and b the reserved powers fall into three categories those reserved over corporation c organization f and subsidiary d those reserved over organization a organization b and organization c and those reserved over other corporation c system entities modification of an organization’s articles of incorporation and bylaws and election and removal of members of the organization’s board_of directors reserved powers in all three categories include approval and as provided by sec_1 of its bylaws corporation c participates in the mission of the church by assisting in carrying out its mission furthering the mission of corporations a and b and their affiliated organizations promoting supporting and engaging in any and all religious charitable educational and scientific ministries which are now conducted by these organizations ae -4 promoting and conducting religious programs and providing access to resources aimed at promoting life health and personal well-being and encouraging private and public participation in services and programs which are charitable scientific educational or religious and which address the physical mental social or spiritual needs of people organizations a and b are state b non-stock non-profit corporations that operate two hospitals respectively in state b organizations a and b participate in joint operating arrangements under which organization a has two members corporation a and corporation c and organization b has two members corporations b and c organizations a and b listed in the official church directory are exempt from tax under code sec_501 pursuant to sec_501 organizations a and b have adopted the plan organization c is a non-stock non-profit corporation that operates a nursing facility in state b organization c has two members corporations a and c and is exempt from tax under code sec_501 and sec_501 a organization c has adopted the plan organization f is a state non-stock non-profit corporation that provides health care services through employed physicians at various practice settings located in state b corporation c is the sole corporate member of organization f and organization f is exempt from federal_income_tax pursuant to code sec_501 and sec_501 organization f has adopted the plan organization f holds all of the stock of organization d which is a for-profit insurance_company organization d is the only for-profit entity that has adopted the plan the participants in the plan are employees of subsidiary d percent of organizations a and f equally hold the membership interests in organization e a 501_c_3_organization that provides occupational health services throughout a particular region in state b organization e has adopted the plan the plan is administered by a plan_administrator which is defined in section dollar_figure of the plan to mean a pension committee appointed by the board_of directors of corporation c the plan_administrator has the power and duty to prepare and retain records of its meetings and actions determine issues of eligibility for plan participation determine the amount time and manner of benefits prescribe procedures for requesting benefits under the plan prepare and distribute information regarding the plan review periodic valuations of plan assets by the plan’s actuary process legal actions against the plan receive reports from managers investing plan assets and employ or appoint individuals to assist in plan administration you represent that the principal purpose and function of the plan_administrator is to administer the plan based on the above facts and representations you request a ruling that the plan is a church_plan within the meaning of code sec_414 to qualify under code sec_401 an employees’ plan must meet certain requirements ces -5- including the minimum participation rules under sec_410 and the minimum vesting requirements under sec_411 a qualified_plan may be subject_to an excise_tax under sec_4971 if it does not comply with minimum_funding standards under sec_412 a church_plan described in sec_414 however is excepted from these requirements unless an election is made in accordance with sec_410 see sec_410 sec_411 sec_412 and sec_4971 further church plans not filing a d election are not subject_to form_5500 annual return report of employee_benefit_plan series filing_requirements code sec_414 generally defines a church_plan as a plan established and maintained for its employee or their beneficiaries by a church or by a convention or association of churches which is exempt from taxation under sec_501 code sec_414 provides that a plan will be treated as a church_plan if it is maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches code sec_414 provides that an employee of a church_or_convention_or_association_of_churches shall include an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches code sec_414 provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b code sec_414 provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches code sec_414 excepts from the definition of church_plan a plan if less than substantially_all of the individuals included in the plan are individuals described in paragraph or b or their beneficiaries in order for an organization that is not itself a church_or_convention_or_association_of_churches to have a church_plan under code sec_414 that organization must establish that its employees are employees or deemed employees of a church_or_convention_or_association_of_churches under sec_414 employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 is controlled by or associated with a church_or_convention_or_association_of_churches and 2s -6- provides for administration or funding of the plan by an organization described in sec_414 in this case all of the organizations participating in the plan are organizations described in code sec_501 except subsidiary d the sole members of corporation c are corporations a and b both of which are listed in the church’s directory any organization that is listed in the church’s official directory shares common religious bonds and convictions with the church and is associated with the church within the meaning of sec_414 and sec_414 as a whole corporation a sponsored by congregation b is dedicated to congregation b’s mission of providing health care and fostering spiritual development_corporation a’s board_of directors are elected by the group which is comprised of members of congregation b corporation b has as its sole member corporation d and corporation d’s corporate members are corporations e and g corporation e’s sole member is corporation f corporations d e and f are all listed in the church’s directory corporation b’s purposes are to assist congregation a in providing health care and implementing gospel values corporations a and b by mutual agreement appoint the members of corporation c’s board_of directors corporations a and b reserve the powers to elect and remove directors and approve or modify the bylaws of corporation c and organizations a b and f the employees of subsidiary d constitute percent of all employees participating in the plan if an organization is exempt from tax un der code sec_501 a and is controlled by or associated with a church_or_convention_or_association_of_churches by virtue of sharing common religious bonds and convictions then that organization’s employees are deemed to be church employees corporation c and the non-profit corporations listed above are associated with or controlled by the church through their affiliation with corporations a and b as described above accordingly since corporation c and organizations a b c e and f are controlled by or associated with the church the employees of these organizations are deemed to be employees of the church under sec_414 conversely the church is deemed to be the employer of these organizations’ employees under sec_414 because these employees constitute percent of total plan participation substantially_all of the plan’s participants are employees who are deemed to be employees of the church having established that the employees of corporation c and the non-profit organizations are considered church employees the remaining issue is whether the plan is administered by a committee that is controlled by or associated with a church or and association or convention of churches the principal function or purpose of which is the administration or funding of a plan as required by code sec_414 section dollar_figure of the plan provides that corporation c’s board_of directors will appoint the pension committee that serves as the plan_administrator corporation c’s board_of directors i sec_1 associated with or controlled by the church since its members are appointed by corporations a and b corporation c is an organization described in code sec_501 that shares common religious bonds and convictions with the church in addition the principal purpose or function of the plan_administrator is to administer the plan thus the plan_administrator qualifies as an organization described in sec_414 because it is controlled by or associated with the church and its principal purpose or function will be the administration of the plan maintained for church employees accordingly we rule that the plan is a church_plan within the meaning of sec_414 this letter expresses no opinion as to whether the plan satisfies the requirements for qualification under code sec_401 the determination as to whether a plan is qualified under sec_401 is within the jurisdiction of the manager employee_plans determinations programs cincinnati ohio and the appropriate area office of the employee_plans examination_division this ruling is directed only to the taxpayer who requested it code sec_61 k provides that it may not be used or cited by others as precedent a copy of this ruling has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours sohn suncea_ john swieca manager employee_plans technical group tax_exempt_and_government_entities_division enclosures copy of letter_ruling copy of deleted letter_ruling notice ce