internal_revenue_service number release date index number ---------------------- ------------------------------ --------------------------------- ------------------------------------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number -------------------- refer reply to cc corp plr-143010-11 date may legend parent sub sub sub sub sub sub state a date --------------------------------- ------------------------------- ----------------------- ------------------------ ------------------------------- ----------------------- -------------------- ----------------------- -------------------------------------- ----------------------- ---------------------------- ----------------------- ------------------------- ----------------------- ----------------------- ----------------------- ------------- ---------------------- plr-143010-11 dear -------------- this letter is in response to a letter dated date submitted on behalf of parent requesting that the commissioner make a determination under sec_1_1502-75 of the income_tax regulations that sub through sub hereinafter referred to as the omitting subsidiaries have joined in the making of the initial consolidated federal_income_tax return filed by parent for the taxable_year ending on date additional information was submitted in letters dated date date and date the material information submitted is summarized below summary of facts parent is a state a corporation and the common parent of an affiliated_group the parent group that prior to the taxable_year ending date did not file a valid consolidated federal_income_tax return for the taxable_year ending date the parent group consisted of parent and the omitting subsidiaries the parent group filed a consolidated federal_income_tax return the initial consolidated_return for the taxable_year ending date however the consolidated_return failed to include form_1122 authorization and consent of subsidiary_corporation to be included in a consolidated_income_tax_return for each of the omitting subsidiaries representations parent has made the following representations a except for the failure_to_file timely forms by the omitting subsidiaries parent and the omitting subsidiaries were eligible to join in filing a consolidated_return with parent as the common parent for the taxable_year ending on date b all of the items of income gain loss and deduction of parent and the omitting subsidiaries for the taxable_year ending date were included in the initial consolidated_return c none of the items for any member of the parent group for the taxable_year ending on date were reported on a separate_return within the meaning of sec_1_1502-1 d the members of the parent group were included on the form_851 affiliations schedule attached to the initial consolidated_return applicable law sec_1_1502-75 provides in part that an affiliated_group_of_corporations that did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation that has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 in accordance with sec_1_1502-75 if a group wishes to exercise its privilege of filing a plr-143010-11 consolidated_return such return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent's tax_return with regard to a corporation's consent for a group's first consolidated_year sec_1 b provides as a general_rule that the corporation's consent shall be made by such corporation joining in the making of the consolidated_return for such year a corporation shall be deemed to have joined in the making of such return if it files a form_1122 in the manner specified in sec_1_1502-75 sec_1_1502-75 provides that if a group wishes to file a consolidated_return for a taxable_year a form_1122 must be executed by each subsidiary for the taxable_year relevant to this ruling_request the group must attach to the consolidated_return for the taxable_year either executed forms or unsigned copies of the completed forms and retain the signed originals in its records in the manner required by sec_1 e form_1122 is not required for a taxable_year if a consolidated_return was filed or was required to be filed by the group for the immediately preceding_taxable_year sec_1_1502-75 provides that if a member of the group fails to file form_1122 the commissioner may under the facts and circumstances determine that such member has joined in the making of a consolidated_return by such group the following circumstances among others will be taken into account in making this determination i whether or not the income and deductions of the member were included in the consolidated_return ii whether or not a separate_return was filed by the member for that taxable_year and iii whether or not the member was included in the affiliations schedule form_851 if the commissioner determines that the member has joined in the making of the consolidated_return such member shall be treated as if it had filed a form_1122 for such year for purposes of sec_1_1502-75 of this section ruling based solely on the information submitted and the representations made we rule that for purposes of sec_1_1502-75 each of the omitting subsidiaries shall be treated as if it had filed a form_1122 with parent's consolidated federal_income_tax return for the taxable_year ending on date and each of the omitting subsidiaries shall be treated as having joined in the making of the consolidated_return for such year sec_1_1502-75 procedural statements except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of any other aspect of any transaction or item discussed or referenced in this letter or about the tax treatment of any condition existing at the time of or effects resulting from any transaction or item that is not specifically covered by the above ruling the ruling contained in this letter is based upon facts and representations submitted by plr-143010-11 the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the taxpayer's ruling_request verification of the information representations and other data may be required as part of the audit process this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to each federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching to the return a statement that provides the date and control number of this letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ___________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


tcmemo_2007_302 united_states tax_court stuart hult petitioner v commissioner of internal revenue respondent docket no 2116-05l filed date stuart hult pro_se jamie j song for respondent memorandum opinion carluzzo special_trial_judge in a notice_of_determination concerning collection action s under sec_6320 and or dated date respondent determined that the notice of section references are to the internal_revenue_code_of_1986 as amended in effect for the relevant period rule references are to the tax_court rules_of_practice and procedure federal_tax_lien filed on or about date is an appropriate collection device with respect to petitioner’s outstanding federal_income_tax liabilities for the years through inclusive which liabilities including additions to tax and interest at the time totaled more than dollar_figure petitioner’s outstanding tax_liabilities the issue for decision is whether respondent abused his discretion by refusing to release or withdraw the above- referenced notice_of_federal_tax_lien and or by rejecting petitioner’s proposed collection alternative background the absence of a stipulation of facts notwithstanding see rule the relevant facts in this case are relatively straightforward and easily summarized petitioner’s outstanding tax_liabilities arise from amounts reported on federal_income_tax returns as best as can be determined from the record each return was filed late and the unpaid tax_liability shown on each return is attributable in his request for an administrative hearing petitioner alleged that the irs assigns arbitrary amounts due without providing any basis for its outstanding amount determinations similarly in the petition petitioner alleges that lien collection amounts are arbitrary because nothing was submitted supporting those allegations during either the administrative hearing or the trial we do not consider petitioner to have challenged the existence or the amount of his outstanding tax_liabilities consequently we review respondent’s collection action for abuse_of_discretion 114_tc_604 either entirely or largely to the imposition of the alternative_minimum_tax see sec_55 in an offer-in-compromise dated date the offer petitioner proposed to satisfy his outstanding tax_liabilities with an dollar_figure cash offer payable within days from the date the offer was accepted by respondent the offer which was received by respondent on date was based upon doubt as to collectability along with the offer petitioner submitted various financial information and documents in support of his claim that he had insufficient assets and income to pay the full amount of his outstanding tax_liabilities the manner in which the offer was handled by respondent is not entirely clear--to say that it languished would be somewhat of an understatement according to petitioner the offer was transferred from one of respondent’s offices to another over and over again in the meantime petitioner suffered the horror of being present at the world trade center during the date terrorist attack apparently lost his job and moved from new york to vermont where he resided when the petition was filed in this case in a letter dated date petitioner was advised that the offer was assigned to revenue_officer joseph barry mr barry in the opening paragraph of the letter mr barry apologized to petitioner for the long delay in getting back to him the letter went on to note that mr barry had reviewed the offer file carefully and concluded that all of it is too dated to be of any use in evaluating the offer mr barry noted that he needed current information and documentation to accurately evaluate the offer in addition to numerous specific requests for additional information and documentation mr barry requested that petitioner provide copies of all w-2s received by anyone in petitioner’s household although petitioner was married during all times relevant to this proceeding his outstanding tax_liabilities did not arise from joint returns petitioner’s presentation at trial makes it clear that at the time he received mr barry’s letter he was less than pleased with the situation nevertheless in a letter dated date he responded to mr barry’s request for current financial information for the most part he complied however in response to the request for information regarding his spouse petitioner noted that his filing_status for the years to which his outstanding tax_liabilities and the offer relate was married_filing_separately petitioner in effect objected to mr barry’s request for information relating to petitioner’s wife from representations made in petitioner’s july letter it appears that along with the letter petitioner submitted a new offer-in-compromise the offer according to the offer petitioner proposed to satisfy his outstanding tax_liabilities with a cash offer of dollar_figure payable within days from the date that respondent accepted it as in the case of the offer the offer was based upon doubt as to collectability in a letter dated date from mr barry petitioner was asked to supplement some of his responses and once again mr barry requested information relating to the income of petitioner’s wife according to mr barry the income of petitioner’s wife was relevant to petitioner’s offer elsewhere in the letter petitioner was advised that for the irs to accept an offer based upon doubt as to collectability the amount offered must be at least equal to the taxpayer’s net equity in assets on the basis of an analysis of petitioner’s financial status included in the letter mr barry concluded that petitioner’s current offer does not appear to meet that criterion it cannot be determined whether references to petitioner’s offer or current offer made in the august the exact date that the offer was submitted cannot be determined it is referenced in petitioner’s date letter to mr barry but dated date mr barry acknowledged receipt of the offer on date letter relate to the offer or the offer be that as it may it is clear that from date the focus of the parties was on the offer mr barry’s august letter to petitioner also advised petitioner that mr barry intended to file a notice_of_federal_tax_lien unless petitioner appealed his decision to do so in the manner explained in the letter mr barry’s decision to file a notice_of_federal_tax_lien was made at least in part in order to establish the priority of the government’s interest in real_estate owned by petitioner see sec_6323 petitioner’s response to mr barry’s august letter came in a letter dated date petitioner provided some of the additional information but once again refused to provide information regarding his wife’ sec_2002 income in a memorandum dated date mr barry notes that the offer was returned otherwise the ultimate disposition of the offer remains as much a mystery as its status from date through date the dispute between mr barry and petitioner on this point is somewhat puzzling inasmuch as the information sought was apparent from a copy of the joint federal_income_tax return filed by petitioner and his wife the return shows adjusted_gross_income of dollar_figure it appears that the joint_return was reviewed by mr barry and petitioner must have been aware that mr barry had access to that return it should also be noted that under the circumstances mr barry’s request for petitioner’s wife’s income was consistent with sec_301_7122-1 proced admin regs in a form_9423 collection appeal request dated date petitioner appealed mr barry’s decision to file a notice_of_federal_tax_lien in that document petitioner argued that a notice_of_federal_tax_lien should not be filed because among other reasons the offer was still pending filing the notice would add to the health problems he was suffering as a survivor of the terrorist attack on the world trade center he was cooperating fully with respondent in attempting to resolve his tax problems filing the notice would adversely affect his ability to obtain credit and filing the notice could adversely affect his ability to secure future employment petitioner’s appeal of mr barry’s decision to file a notice of tax_lien was handled by appeals officer deborah l ross after conferring with petitioner’s representative ms ross in a comprehensive memorandum dated date that addresses each of the arguments advanced by petitioner sustained mr barry’s decision to file a notice_of_federal_tax_lien with respect to petitioner’s outstanding tax_liabilities the letter advising petitioner of ms ross’s decision and the reasons for that decision also notified petitioner that if he were to successfully negotiate an acceptable offer-in-compromise the lien would be released upon payment of the amount offered as noted above on or about date a notice_of_federal_tax_lien was filed with respect to petitioner’s outstanding tax_liabilities the nftl by letter dated date petitioner was advised of the event and notified of his right to request an administrative hearing to dispute it which he did in a request dated date a short time earlier by letter dated date petitioner was advised that the offer had been rejected because it was less than petitioner’s reasonable collection potential and petitioner had failed to provide the requested information and documentation about his wife’s income and expenses that letter also advised petitioner that he could appeal the rejection of the offer which he did by letter dated date petitioner’s request for an administrative hearing with respect to the nftl and his appeal of the rejection of the offer were assigned to settlement officer michael blais mr blais for reasons discussed in a memorandum dated date mr blais upheld the rejection of the offer during the administrative hearing conducted in connection with the nftl petitioner offered an installment_agreement as an alternative collection action under the terms of the proposed installment_agreement petitioner offered to pay dollar_figure per month towards his outstanding tax_liabilities mr blais rejected the proposed installment_agreement because it would not allow petitioner’s outstanding tax_liabilities to be paid within the applicable periods of limitation having previously upheld the rejection of the offer mr blais further concluded that the nftl was an appropriate collection action with respect to petitioner’s outstanding tax_liabilities and he caused the above-referenced notice_of_determination that forms the basis for this case to be issued on date discussion petitioner availed himself of three separate albeit more or less related administrative appeals that preceded this proceeding he appealed mr barry’s the revenue_officer decision to file the nftl he appealed mr barry’s rejection of the offer and he challenged the filing of the nftl in a sec_6320 hearing technically only his challenge to the filing of the nftl is reviewable in this proceeding after all as noted in countless opinions we are a court of limited jurisdiction and our jurisdiction in this proceeding is established exclusively and limited by sec_6330 consequently even though the appeal of the rejection of the offer and petitioner’s request for a sec_6320 hearing were considered by the same settlement officer mr blais and even though the issues raised in those proceedings were inexorably intertwined so that more_likely_than_not the determination that the nftl was an appropriate collection action must have been at least to some extent influenced by the decision with respect to the rejection of the offer we do not consider the appropriateness of that decision because the offer was not submitted during the course of the sec_6320 administrative hearing see sec_301_6320-1 q a-f3 proced admin regs instead our focus is on respondent’s rejection of the installment_agreement offered by petitioner during the sec_6320 administrative hearing and respondent’s refusal to withdraw or release the nftl according to petitioner the installment_agreement should have been accepted in lieu of the nftl and the nftl should not have been filed while the offer was under consideration petitioner advances several other procedural grounds some of which will be addressed below in sec_6330 provides in relevant part the hearing under this subsection shall be conducted by an officer_or_employee who has had no prior involvement with respect to the unpaid tax before the first hearing under sec_6320 a taxpayer may waive the requirement of this paragraph petitioner does not suggest that mr blais should not have been assigned to both matters mr blais upheld the rejection of the offer under procedures established under sec_7122 support of his position that respondent’s refusal to withdraw or release the nftl is an abuse_of_discretion according to respondent neither the rejection of petitioner’s proposed collection alternatives nor the other grounds raised by petitioner give rise to the relief that he seeks for the following reasons we agree with respondent petitioner’s claim that it was improper to file the nftl while the offer was under consideration is easily rejected unlike sec_6331 which precludes a levy while an offer- in-compromise is under consideration there is no such restriction in sec_6321 which provides if any person liable to pay any_tax neglects or refuses to pay the same after demand the amount shall be a lien in favor of the united_states upon all property and rights to property whether real or personal belonging to such person petitioner also argues that the nftl is invalid because he did not receive notice as required under sec_6320 - a moot point as a timely sec_6320 hearing was requested call v commissioner tcmemo_2005_289 affd 230_fedappx_758 9th cir and the nftl was not signed which is not necessary see milam v commissioner tcmemo_2004_94 petitioner also complains about the manner in which he was treated by various internal_revenue_service employees in connection with the collection of his outstanding tax_liabilities we need not address those complaints however because even if legitimate none would have any impact on his entitlement to the relief he seeks in this proceeding among other complaints raised by petitioner that will not be addressed here are respondent took an unreasonably long time to consider the offer and mr barry is incompetent in addition to the lien that arises under sec_6321 sometimes referred to as a secret_lien a notice_of_federal_tax_lien filed in accordance with sec_6323 operates to protect the government’s interest in a taxpayer’s property against the claims of other creditors of the taxpayer consistent with the purpose of sec_6323 in this case the nftl was filed in order to protect the government’s interest in certain real_estate owned by petitioner and his spouse it was not improper for respondent to file the nftl while the offer was under consideration and respondent’s refusal to withdraw or release the lien on that ground is not an abuse_of_discretion sec_6159 allows the commissioner to enter into written agreements with any taxpayer under which such taxpayer is allowed to make payment on any_tax in installment payments if the commissioner determines that such agreement will facilitate full or partial collection of such liability we begin our consideration of petitioner’s claim that respondent should have accepted his proposed installment_agreement in lieu of the nftl by noting that an installment_agreement is not necessarily an alternative to a notice_of_federal_tax_lien in those situations where the taxpayer and the commissioner have entered into an installment_agreement a notice_of_federal_tax_lien may still be filed see crisan v commissioner tcmemo_2007_67 sec_301_6159-1 proced admin regs as it stands to be entitled to the relief he seeks in this case petitioner must establish that in and of itself respondent’s refusal to agree to the installment_agreement that he proposed during the administrative hearing was an abuse_of_discretion this he has failed to do accepting or rejecting an installment_agreement proposed by a taxpayer is within the discretion of the commissioner see sec_301_6159-1 proced admin regs discretionary decisions made in response to an installment_agreement proposed by a taxpayer will not be upset unless it is demonstrated that the decision was arbitrary in one way or another and could not be supported in law and in fact see 125_tc_14 schulman v commissioner tcmemo_2002_129 in this case the settlement officer took into account petitioner’s outstanding tax_liabilities and reviewed what financial information petitioner submitted based upon his review the settlement officer noted that the installment_agreement proposed by petitioner would not be sufficient to pay off petitioner’s outstanding tax_liabilities within the applicable periods of limitation after reviewing petitioner’s financial situation the settlement officer also concluded that the installment_agreement proposed by petitioner did not accurately represent petitioner’s ability to pay we do not substitute our judgment for the settlement officer’s on such matters see 125_tc_301 affd 469_f3d_27 1st cir whether we agree or disagree on the point is unimportant it can hardly be said the settlement officer’s conclusion was in any way arbitrary capricious or without sound basis in fact respondent’s refusal to accept the installment_agreement proposed by petitioner during the sec_6320 administrative hearing was not an abuse_of_discretion at the sec_6320 administrative hearing petitioner challenged the appropriateness of respondent’s proposed collection activity and offered a collection alternative see sec_6330 and iii the record establishes that the settlement officer took into account petitioner’s challenge considered petitioner’s collection alternative and otherwise proceeded in the manner contemplated by sec_6320 and sec_6330 petitioner has not called our attention to any specific provisions of the relevant statutes regulations or provisions of the internal_revenue_manual that the settlement officer has violated or failed to take into account considering all of the facts and circumstances we are satisfied that respondent’s determination that the nftl is an appropriate collection action with respect to petitioner’s outstanding tax_liabilities is supported in law and in fact it follows that the determination is not an abuse_of_discretion see freije v commissioner supra and respondent may proceed with collection as proposed in the above-referenced notice_of_determination to reflect the foregoing for respondent decision will be entered


internal_revenue_service number release date index number ------------------------------------- ------------------------------ ---------------------------------- re ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-115741-18 date date legend decedent spouse daughter trust attorney date date date date date date ----------------------------------------------------- ---------------------------- -------------------------- ------------------------------------------------------------------------------------ ---------------------------------------------------------- ------------------------------- ------------------- ------------------------ ----------------------- ----------------------- --------------------------- ----------------------- dear ------------------ this letter responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make a qualified_terminable_interest_property qtip_election under sec_2056 of the internal_revenue_code and a reverse_qtip_election under sec_2652 the facts and representations submitted are summarized as follows on date decedent and spouse collectively the trustors executed a revocable_trust trust trust was restated on date and amended on date decedent died on date survived by spouse plr-115741-18 sec_5 b of trust provides in relevant part that upon the death of the first trustor to die trust is to be divided into two trusts trust a and trust b_trust a is to consist of the surviving trustor’s remaining one-half share of the trustors’ community_property and the surviving trustor’s separate_property trust b is to consist of the balance of the trust assets sec_5 d provides in relevant part that upon the death of the surviving trustor any part of trust a that has not been appointed by the surviving trustor is to be added to trust b sec_5 e provides that the trustee is to pay over and distribute all of the entire net_income of trust b to or for the benefit of the surviving trustor in quarterly or more frequent installments during her lifetime sec_5 e provides in relevant part that the surviving trustor will have a testamentary limited power to appoint the principal and any undistributed_income of trust b to or for the benefit of any person excluding the surviving trustor her estate her creditors or the creditors of her estate sec_5 e provides in relevant part that a material purpose in establishing trust b was to obtain the marital_deduction under sec_2056 thus the trustee may make a qtip_election over the entirety of trust b or for any portion thereof if the trustee makes a qtip_election with respect to a fraction or percentage of trust b the trustee is authorized to segregate trust b into two shares one share to hold the fraction that qualifies for the marital_deduction and one share to hold the fraction that does not qualify for the marital_deduction provided that such segregation does not disqualify the qualifying share for the marital_deduction sec_5 e provides in relevant part that trust b is to terminate at the death of the surviving trustor with respect to any portion of the trust estate over which the surviving trustor did not exercise her testamentary limited_power_of_appointment the property will be divided into two trusts one trust for the benefit of daughter and her issue and the other trust for the benefit of the issue of a second child spouse while serving as trustee of decedent’s estate hired attorney to prepare decedent's form_706 united_states estate and generation-skipping_transfer_tax return on date the form_706 was timely filed with extensions on behalf of the estate on form_706 attorney incorrectly reported all assets held in the name of trust on schedule e jointly owned property and not on schedule m bequests etc to surviving_spouse as a result the assets of trust were reported as joint_tenancy assets and hence not eligible for the marital_deduction thus no qtip_election was made with respect to the property passing to trust spouse died on date you have requested the following rulings plr-115741-18 an extension of time under sec_301_9100-3 to make a qtip_election with respect to a portion of trust b an extension of time under sec_301_9100-3 to sever marital trust into a gst exempt marital trust and a gst non-exempt marital trust pursuant to sec_26_2654-1 of the generation-skipping_transfer_tax regulations an extension of time under sec_301_9100-3 to make a reverse_qtip_election under sec_2652 with respect to the portion of trust b that is subject_to the qtip_election law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2044 provides in part that the value of the gross_estate shall include the value of any property for which a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 in which the decedent had a qualifying_income_interest_for_life sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life as defined in sec_2056 and iii to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable plr-115741-18 sec_20_2056_b_-7 of the estate_tax regulations provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that generally the inclusion_ratio with respect to any property transferred in a gst is the excess of one over the applicable_fraction determined for the trust sec_2642 provides that in general the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2652 provides that for purposes of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes plr-115741-18 as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_26_2654-1 provides in part that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor and the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original instrument and the severance occurs prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and the new trusts are severed on a fractional basis sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executor of decedent’s estate is granted an extension of time of days from the date of this letter to make a qtip_election with respect to trust b the executor of decedent’s estate is also granted an extension of time of days from the date of this letter to sever qtip_trust b into a gst exempt marital trust and a gst non-exempt marital trust and to make a reverse_qtip_election with respect to the gst exempt marital trust these elections should be made on a supplemental form_706 filed with the cincinnati service plr-115741-18 center at the following address internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by leslie h finlow _________________________ leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court james n gaunt and lillian gaunt petitioners v commissioner of internal revenue respondent docket no 17513-15l filed date wayne j king for petitioners scott a hovey and jacob russin for respondent memorandum findings_of_fact and opinion lauber judge the posture of this collection_due_process cdp case is somewhat unusual petitioners have conceded that the internal_revenue_service irs or respondent did not abuse its discretion in sustaining a notice_of_intent_to_levy relating to their and tax years instead they dispute only the liabilities underlying the levy notice which resulted from a notice of defici- ency issued to them in respondent has conceded that petitioners never received that notice_of_deficiency and that they properly challenged their underlying liabilities at their cdp hearing and in their petition see sec_6330 rule b sec_301_6330-1 q a-f3 proced admin regs we therefore consider petitioners’ underlying liabilities on the merits after concessions described below the issues for decision are whether pe- titioners may deduct certain expenses reported on schedule c profit or loss from business of their return a theft_loss reported on their return for and net operating losses nols reported on their returns for and we will generally sustain respondent’s determinations findings_of_fact the parties filed two stipulations of fact with attached exhibits that are in- corporated by this reference petitioners resided in california when they timely petitioned this court during the years in issue james gaunt petitioner was the sole_proprietor of all american pool and spa aaps aaps built in-ground pools and to a lesser extent spas most of its clients were homeowners in los angeles petitioner’ sec_1all statutory references are to the internal_revenue_code code in effect during the years in issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar role at aaps was that of a general contractor he would negotiate a fee for a project then hire and supervise subcontractors to perform whatever tasks were re- quired these subcontractors included excavators steelworkers electricians ce- ment masons tilers and landscapers in most instances aaps paid the subcon- tractors by check petitioner’s son david owned a plumbing company called david gaunt pool services dgps dgps designed plumbing systems for pools and often worked on the same projects as aaps dgps was not a subcontractor to aaps and negotiated its fee directly with customers but this arrangement was compli- cated by the fact that david lacked a general contractor’s license petitioner who had the required license sometimes agreed to accept payments on his son’s behalf he deposited each payment into an aaps bank account and then remitted it either in cash or by check to david he remitted at least dollar_figure to david or dgps dur- ing demand for aaps’ services declined sharply in as the financial crisis took its toll in an effort to supplement his income petitioner began a venture in which he sold sandwiches from a trailer petitioner drove the trailer to several events including a renaissance fair and the san diego street fair each of which required vendors to pay an admission fee of at least dollar_figure petitioner never sold enough sandwiches to recoup the admission fees--not to mention the cost of fuel licenses and sandwich supplies--and abandoned this activity after eight months during the years in issue petitioners owned real_property in fontana cali- fornia the fontana property consisted of a house and a big_number square-foot de- tached garage petitioners used the garage to store infrequently used possessions including obsolete pool-building supplies personal effects and two antique cars petitioners did not regularly visit the fontana property but were on account of the neighborhood in which it was located reluctant to leave it unattended they accordingly turned to tony heathcoat one of petitioner’s business associ- ates who agreed to reside at and oversee the fontana house in lieu of paying rent in early mr heathcoat moved to nevada for medical treatment petitioners were not aware of his departure and a group of itinerants moved into the fontana house it promptly fell into disrepair 2the surname of this individual is unclear from the record petitioner testi- fied that he regularly purchased pvc pipe from a business_associate named tony heathcliff however various checks in the record were issued to tony heathcoat for pvc pipe a police report and insurance claim refer to tony heathcoat as the caretaker of the fontana property 3respondent has not alleged that mr heathcoat’s services constituted rental income to petitioners in date david drove past the fontana property and noticed that the garage door was ajar he entered the garage and discovered that many of peti- tioners’ items including the antique cars were missing david reported the inci- dent to petitioners and to the fontana police department fpd petitioner subse- quently submitted to the fpd a 37-page list of items that he believed had been stolen in total he reported as missing approximately big_number items including vend- ing machines stoves radio-controlled toy cars and tools that he had inherited from his father the fpd conducted several interviews and prepared a detailed re- port of its findings as of the time of trial however it had not determined who was responsible for the theft and had recovered only a few of the missing items petitioners maintained homeowners’ insurance on the fontana property they purchased their policy--which carried a liability limit of dollar_figure--from the allstate indemnity co allstate after learning of the theft petitioner filed a claim for reimbursement with allstate and estimated that the stolen property had a fair_market_value of dollar_figure petitioners pursued their insurance claim throughout and for several years thereafter allstate ultimately denied their claim in finding that peti- tioners had subjected their property to an increase in hazard by entrusting it to a caretaker that petitioners should have converted their policy from homeowners’ insurance to landlord’s insurance and that in any event landlord’s insurance would not have covered petitioners’ personal items stored in the garage petitioners jointly filed form sec_1040 u s individual_income_tax_return for the years in issue petitioners’ and returns were untimely their return was timely filed each return attached a schedule c relating to aaps the irs selected petitioners’ and tax returns for exami- nation and issued petitioners a notice_of_deficiency the notice_of_deficiency determined that petitioners had understated aaps’ gross_receipts for and disallowed various expense deductions relating to aaps disallowed an nol and theft_loss deduction claimed on their return partially disallowed a home mortgage interest_deduction claimed for increased petitioners’ home mortgage interest_deduction for deter- mined that petitioners had failed to report retirement distributions for and determined additional tax for early retirement withdrawals in and determined that petitioners had failed to report interest_income for determined a sec_6662 accuracy-related_penalty for each year and de- termined sec_6651 late-filing additions to tax for and 4it is not clear whether petitioners reported any income or expenses attribut- able to the food trailer on their return petitioners did not receive the notice_of_deficiency and did not file a petition with this court respondent thereupon assessed the deficiencies penalties and additions to tax shown on the notice_of_deficiency and issued petitioners a levy no- tice they timely requested a cdp hearing at the hearing they challenged only the liabilities underlying the levy notice the settlement officer assigned to their case sustained the proposed levy and issued petitioners a notice_of_determination they timely petitioned the court before trial petitioners submitted to respondent what they called a pro for- ma return for each year in issue these returns which the irs did not process were essentially amended returns and we will refer to them as such on sched- ules c relating to aaps the amended returns reported the following item gross_receipts returns and allowances cost_of_goods_sold total expenses profit loss dollar_figure dollar_figure dollar_figure -0- -0- -0- big_number big_number big_number big_number big_number -0- -0- big_number big_number the aaps expenses reported on the amended schedule c for were expense advertising car and truck contract labor depreciation sec_179 insurance interest legal professional services office expense rent lease supplies travel utilities other expenses total amount dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioners’ amended_return for claimed an nol deduction of dollar_figure their amended_return for claimed an nol deduction of dollar_figure and re- ported a dollar_figure theft_loss in a stipulation of settled issues the parties agreed that petitioners were lia- ble for late-filing additions to tax for and that petitioners were not lia- ble for any accuracy-related_penalties and that petitioners’ amended returns-- which conceded many of the adjustments listed in the notice of deficiency--were generally accurate they reserved the following issues for trial whether peti- tioners had understated aaps’ gross_receipts for whether the sum of aaps’ cost_of_goods_sold cogs and expenses for and exceeded dollar_figure dollar_figure and dollar_figure respectively whether petitioners were entitled to a theft_loss deduction for and whether petitioners were entitled to an nol deduction for or at the close of trial the court ordered one round of seriatim briefs in their answering brief petitioners conceded that for they had understated aaps’ gross_receipts in the amount alleged by respondent petitioners further conceded that the sum of their schedule c expenses and cogs for and did not exceed dollar_figure and dollar_figure respectively viz the floor amounts allowed in the stipulation of settled issues thus the only schedule c expenses remaining in dispute are those reported for i standard of review and burden_of_proof opinion sec_6330 does not prescribe the standard of review that this court should apply in reviewing an irs administrative determination in a cdp case but our case law tells us what standard to adopt where the validity of the under- 5the parties stipulated that petitioners were entitled to total sched- ule c cost_of_goods_sold and expenses in the stated amounts but that the total amount of those items remain ed in dispute in effect the stipulation estab- lished a floor for these items but reserved for trial whether petitioners could sub- stantiate larger amounts lying liability is not at issue the court reviews the irs’ determinations for abuse_of_discretion 114_tc_176 where as here the underlying liability is properly at issue we review the irs’ determinations de novo ibid a taxpayer may dispute his underlying liability in a cdp case only if he did not receive a notice_of_deficiency or otherwise have an opportunity to contest that liability sec_6330 the taxpayer must raise his underlying liability dur- ing his cdp hearing by challenging and presenting evidence relating to the under- lying liability see sec_301_6330-1 q a-f3 proced admin regs the taxpayer must also contest his underlying liability in his petition rule b the parties agree that petitioners did not receive the notice_of_deficiency for the years in issue and that they properly challenged their underlying liabilities during their cdp hearing and in their petition we will review those liabilities de novo the irs’ determinations in a notice_of_deficiency are generally presumed correct and taxpayers bear the burden of proving them erroneous rule a 290_us_111 petitioners do not contend--and could not plausibly contend--that the burden_of_proof shifts to respondent under sec_7491 as to any issue of fact ii schedule c expenses sec_162 allows a taxpayer to deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade or busi- ness a necessary expense is one that is appropriate and helpful to the taxpay- er’s business an ordinary_expense is one that is common or frequent in the type of business in which the taxpayer is engaged 308_us_488 welch v helvering u s pincite personal living and family expens- es are generally not deductible sec_262 deductions are a matter of legislative grace taxpayers must prove their entitlement to deductions allowed by the code and substantiate the amounts of any deductions claimed rule a 503_us_79 sec_1_6001-1 income_tax regs they also must produce records sufficient to enable the irs to determine their correct liabilities sec_6001 sec_1_6001-1 income_tax regs the failure to keep and present such records weighs heavily against a taxpayer’s attempted proof rogers v commissioner tcmemo_2014_141 108_tcm_39 if a taxpayer with inadequate business records proves that he paid certain expenses but cannot substantiate the exact amount the court may in appropriate cases estimate the amount allowable 39_f2d_540 2d cir key carpets inc v commissioner tcmemo_2016_ 111_tcm_1126 but the court is not required to guess at a number rather we must have some basis upon which an estimate may be made 94_tc_337 85_tc_731 in making an estimate under the cohan_rule the court bear s heavily upon the taxpayer whose inexactitude is of his own mak- ing cohan f 2d pincite sec_274 imposes strict substantiation requirements for deductions claimed for among other things listed_property listed_property includes any passenger_automobile sec_280f no such deduction is allowed un- less the taxpayer substantiates by adequate_records or by sufficient evidence cor- roborating his statements the amount time place and business_purpose of each expenditure sec_274 sec_1_274-5t b and c temporary income_tax regs fed reg date a court may not apply the cohan_rule to approximate expenses covered by sec_274 50_tc_823 aff’d per curiam 412_f2d_201 2d cir a advertising expenses petitioners reported on their amended schedule c advertising expens- es of dollar_figure at trial they explained that these expenses were for several phone numbers used by aaps for aaps’ website and for purchasing online advertise- ments they identified on aaps’ bank account statements debits relating to these items respondent in his post-trial brief conceded that petitioners had substantiat- ed dollar_figure of advertising expenses after carefully parsing the bank account state- ments we conclude that petitioners have not substantiated advertising expenses beyond those conceded by respondent petitioners are therefore entitled to an ad- vertising expense deduction of dollar_figure for b car and truck expenses petitioners reported on their amended schedule c car and truck ex- penses of dollar_figure petitioners did not discuss these expenses at trial or on brief the only clue as to their origin is a statement included with petitioners’ amended_return which cites expenses for fuel and repairs for two vehicles used by aaps petitioners produced no mileage logs receipts or other substantiation for these ex- penses and did not demonstrate that the vehicles listed on their return were ex- cepted from the heightened substantiation requirements of sec_274 see secs d 280f d b accordingly they are not entitled to any deduction for car and truck expenses c contract labor expenses petitioners reported on their amended schedule c contract labor ex- penses of dollar_figure petitioners submitted evidence to substantiate payments of dollar_figure by check these checks included a dollar_figure check issued on date and dollar_figure of checks issued to david or dgps respondent contends that the checks referenced in the previous sentence do not give rise to a deduction and we agree because the dollar_figure check was issued in it cannot generate a deduction for see sec_162 cain-white co v commissioner tcmemo_1978_438 37_tcm_1829 and because dgps was not a subcontractor to aaps checks issued to it or to david on its behalf were not ordinary and necessary expenses of aaps’ business and hence were not deduct- ible we therefore find that petitioners are entitled to a deduction for contract la- bor of only dollar_figure dollar_figure dollar_figure dollar_figure 6petitioners assert that they paid another dollar_figure of contract labor expenses by cash and credit card but they produced no credit card statements invoices or other documents corroborating this assertion that assertion in any event is con- tradicted by petitioner’s testimony at trial when he estimated that he paid of aaps’ contract labor expenses by check during the years in issue d depreciation sec_179 expenses petitioners reported on their amended schedule c depreciation and sec_179 expenses of dollar_figure this deduction relates to two vehicles used by aaps respondent in his post-trial brief conceded these expenses in full we accordingly conclude that petitioners are entitled to a deduction of dollar_figure for de- preciation e insurance expenses petitioners reported on their amended schedule c insurance expenses of dollar_figure petitioners did not explain these expenses at trial or present evidence to substantiate them we accordingly conclude that they are not entitled to any de- duction for insurance expenses f interest_expenses petitioners reported on their amended schedule c interest_expenses of dollar_figure petitioners conceded these expenses at trial explaining that their tax pre- parer had incorrectly reported their home mortgage interest as a business_expense we accordingly conclude that they are not entitled to any schedule c deduction for interest g legal and professional services expenses petitioners reported on their amended schedule c legal and profes- sional service expenses of dollar_figure respondent in his post-trial brief conceded this deduction in full we accordingly conclude that petitioners are entitled to a de- duction of dollar_figure for legal and professional services h office expenses petitioners reported on their amended schedule c office expenses of dollar_figure respondent in his post-trial brief conceded this deduction in full we ac- cordingly conclude that petitioners are entitled to a deduction of dollar_figure for office expenses i rent or lease expenses petitioners reported on their amended schedule c expenses of dollar_figure for renting or leasing business property petitioners did not explain these expenses at trial or substantiate them we accordingly conclude that they are not entitled to any deduction for rent or leasing expenses j supplies expenses petitioners reported on their amended schedule c expenses of dollar_figure for supplies they produced at trial no documentation substantiating these ex- penses nor did they explain what supplies aaps required or where those supplies were purchased respondent nevertheless conceded in his post-trial brief that petitioners were entitled to a deduction of dollar_figure for supplies we conclude that they are entitled to a deduction in the amount respondent conceded k travel_expenses petitioners reported on their amended schedule c travel_expenses of dollar_figure petitioners did not explain these expenses at trial or present any documen- tation substantiating them we accordingly conclude that they are not entitled to any deduction for travel_expenses for l utilities expense petitioners reported on their amended schedule c utilities expense of dollar_figure petitioners did not explain this expense at trial or present any documenta- tion substantiating it we accordingly conclude that they are not entitled to a de- duction for utilities expense m other expenses petitioners reported on their amended schedule c other expenses of dollar_figure these expenses were allegedly incurred for permits bank fees telephone tools and vehicular equipment petitioners made no attempt to substantiate these expenses at trial or on brief in any event the telephone ex- penses would appear to duplicate the advertising expenses reported elsewhere on petitioners’ return see supra p respondent in his post-trial brief conceded dollar_figure of the claimed expenses--namely dollar_figure for permits dollar_figure for tools and dollar_figure for bank fees we conclude that petitioners are entitled to a deduction for other expenses in the amounts respondent conceded n conclusion the expenses substantiated by petitioners or conceded by respondent total dollar_figure this amount is less than the dollar_figure floor to which respondent in the stipulation of settled issues agreed that petitioners for were entitled we accordingly expect that the rule_155_computations will reflect schedule c adjust- ments to income and deductions for cogs and business_expenses respectively in the total amount of dollar_figure for 7in their post-trial brief petitioners argue that they substantiated dollar_figure more in advertising expenses and dollar_figure more in subcontractor expenses than respondent conceded according to petitioners they should thus be entitled to schedule c deductions of dollar_figure viz the dollar_figure floor allowed in the sti- pulation of settled issues dollar_figure dollar_figure petitioners are improperly trying to have it both ways the stipulation did not state what expenses petitioners had substantiated rather it left that issue for trial providing that petitioners would be afforded at least dollar_figure of expenses for regardless of their proof at trial although petitioners at trial substantiated more expenses in two expense categor- ies than conceded by respondent they struck out in most other expense categories overall the expenses they substantiated at trial were dollar_figure less than respon- dent has allowed they should be grateful for his generosity iii theft_loss deduction sec_165 permits a deduction for losses sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise in the case of an indivi- dual a loss is deductible under sec_165 only if the loss is incurred_in_a_trade_or_business is incurred in a transaction entered into for profit or arise s from fire storm shipwreck or other_casualty or from theft sec_165 theft is broadly defined to include larceny embezzlement and robbery sec_1_165-8 income_tax regs see 61_tc_354 aff’d 540_f2d_448 9th cir in order to deduct a theft_loss the taxpayer must prove the fair market val- ue of the stolen property before the theft and the adjusted_basis of the property sheridan v commissioner tcmemo_2015_25 109_tcm_1130 sec_1_165-8 income_tax regs providing that the amount of a theft_loss de- duction shall be determined consistently with the manner prescribed in sec_1_165-7 for determining the amount of casualty_loss to prove fair_market_value the tax- payer generally must supply a competent appraisal of the stolen property sec_1_165-7 income_tax regs the appraisal must recognize the effects of any general market decline affecting the property so that any deduction will be limited to the actual loss resulting from damage to the property ibid adjusted basis is computed as if the taxpayer had sold or otherwise_disposed_of the stolen property see id para b ii a theft_loss is usually treated as sustained in the tax_year in which the tax- payer discovers such loss sec_165 sec_1_165-1 income_tax regs but if there is a pending claim for reimbursement with respect to the loss no por- tion of the loss is treated as sustained until it can be ascertained with reasonable certainty whether or not such reimbursement will be received sec_1 d i income_tax regs whether a reasonable_prospect_of_recovery ex- ists with respect to a claim for reimbursement of a loss is a question of fact id para d i if a taxpayer contends that the year of loss is fixed by his aban- donment of the claim for reimbursement he must be able to produce objective evi- dence of his having abandoned the claim such as the execution of a release ibid the parties agree that petitioners suffered a theft at the fontana property during they disagree however as to whether the theft entitles petitioners to a deduction under sec_165 for at least three reasons we conclude that peti- tioners are not so entitled first petitioners did not offer a competent appraisal of the stolen proper- ty see sec_1_165-7 income_tax regs and they otherwise failed to estab- lish its fair_market_value petitioner testified that he determined the fair market values of the missing items by finding similar items on auction websites but petitioners’ failure to enter the auction listings into evidence prevents us from evaluating how closely the auction prices match the values petitioners proffered see manning v commissioner tcmemo_1980_159 40_tcm_298 similarly petitioners did not demonstrate that they were sufficiently familiar with the fair market values of the missing items such as the antique cars for us to rely on their estimates see tatham v commissioner tcmemo_1979_ 38_tcm_848 many of the values petitioners proffer--eg valuing three copper kitchen pots at dollar_figure--seem implausible on their face see sykes v commissioner tcmemo_2010_84 99_tcm_1351 aff’d 479_fedappx_90 9th cir corby v commissioner tcmemo_1980_96 40_tcm_21 second petitioners presented no evidence such as receipts demonstrating the missing items’ costs or adjusted bases many of the missing items constituted equipment and supplies relating to aaps’ pool-construction business it would appear judging from petitioners’ returns for the years in issue that they elected to expense many of these items on prior year returns with respect to such items they would have adjusted bases of zero see sec_179 sec_1_179-1 income_tax regs petitioners presented no evidence on this point finally we are not convinced that the recovery petitioners sought with re- spect to their insurance claim was so unlikely that they could claim a deduction for they had a pending claim for reimbursement from allstate throughout and they spent the next six years pursuing that claim petitioners have not carried their burden of proving that they had no reasonable_prospect_of_recovery on this claim at year-end see sec_1_165-1 income_tax regs we accordingly sustain respondent’s disallowance of the theft_loss deduction iv nol deductions a taxpayer may generally deduct as an nol for a taxable_year an amount equal to the sum of the nol carryovers and carrybacks to that year sec_172 a taxpayer claiming an nol deduction must file with his return a concise state- ment setting forth the amount of the nol deduction claimed and all mater- ial and pertinent facts relative thereto including a detailed schedule showing the computation of the nol deduction sec_1_172-1 income_tax regs petitioners bear the burden of establishing both the existence of nols for prior or subsequent years and the amount of the nol that may properly be carried to the 8petitioners contend that even if they had a reasonable_prospect_of_recovery on their insurance claim in they were nevertheless entitled to claim a deduc- tion for the excess of the stolen items’ value over their policy limit see sec_1_165-1 income_tax regs having found that petitioners failed to estab- lish the items’ fair market values or bases we reject this contention year in issue see rule a 115_tc_605 petitioners’ and amended returns claimed nol deductions of dollar_figure and dollar_figure respectively although petitioners did not attach to their amended returns a statement describing the nol deductions they explained in their post-trial brief that the nol deductions originated from the theft_loss that petitioners had claimed for because petitioners are not entitled to a theft_loss deduction they are not entitled to corresponding nol deductions to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------------------- ------------------------------------- ---------------------------------- ---------------------------------------------- ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b2 plr-138427-09 date date legend x ------------------------------------------ -------------------------------------- country ----------- date --------------------------- dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 the facts submitted and representations made are summarized as follows x was formed on date under the laws of country x is a foreign_entity eligible to elect to be treated as a disregarded_entity effective date however x inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-138427-09 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-138427-09 pursuant to a power_of_attorney on file with this office copies of this letter are being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code dollar_figure-00 date date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service irs p o box cincinnati oh legend w ethnicity x state y date z date dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you submitted form 1023-ez streamline application_for recognition of exemption under sec_501 of the internal_revenue_code on y you attest that you were incorporated on z in the state of x you attest that you have the necessary organizing document that your organizing document limits your purposes to one or more exempt purposes within the meaning of sec_501 that your organizing document does not expressly empower you to engage in activities other than an insubstantial part that are not in furtherance of one or more exempt purposes and that your organizing document contains the dissolution provision required under sec_501 you attest that you are organized and operated exclusively to further charitable purposes you attest that you have not conducted and will not conduct prohibited activities under sec_501 specifically you attest you will e e refrain from supporting or opposing candidates in political campaigns in any way ensure that your net_earnings do not inure in whole or in part to the benefit of private shareholders or individuals catalog number 47630w letter rev e e e e not further non-exempt purposes such as purposes that benefit private interests more than insubstantially not be organized or operated for the primary purpose of conducting a trade_or_business that is not related to your exempt_purpose s not devote more than an insubstantial part of your activities attempting to influence legislation or if you made a sec_501 election not normally make expenditures in excess of expenditure limitations outlined in sec_501 not provide commercial-type_insurance as a substantial part of your activities during review of your form 1023-ez detailed information was requested supplemental to the above attestations including a complete copy of your original organizing document and a narrative description of your activities your purpose as stated in your articles of incorporation is to develop programs that will enrich and uplift the socio-economic well-being of your members your bylaws state that your purposes include e w to encourage all ws residing in the x area to join in unity and solidarity to develop and promote community-oriented and charitable programs that will enrich and uplift the socio-economic well-being of its members to integrate and assimilate into the body politic of the us to coordinate with and work in close cooperation with other w organizations based in the usa for the purpose of maintaining mutual and beneficial relationships towards causes befitting both organizations your bylaws provide that your assets are irrevocably dedicated to charitable purposes no part of the net_income or assets shall inure to the benefit any private individual or entity you describe your specific activities as contacting several w professional and business owners in your area to provide services and or products for free or at discounted prices for your members you have sixteen members but have not elected a board_of directors so far four businesses have promised to offer discounts to your members you state you need the recognition of exempt status so that businesses will provide your members free or discounted services and or products law sec_501 of the code describes corporations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the treasury regulations provides that in order for an organization to be exempt under sec_501 of the code it must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 of the treasury regulations provides that in no case shall an organization be considered to be organized exclusively for one or more exempt purposes if by the terms of its articles the purposes for which such organization is created are broader than the purposes specified in sec_501 catalog number 47630w letter rev sec_1_501_c_3_-1 of the treasury regulations states an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose such as distributing its net assets to another charitable_organization sec_1_501_c_3_-1 of the treasury regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1g of the treasury regulations provides than an organization may be exempt as an organization described in sec_501 of the code if it is organized and operated exclusively for one or more of the following purposes religious charitable scientific testing for public safety literary educational or prevention of cruelty to children or animals sec_1_501_c_3_-1 of the treasury regulations provides that an organization is not organized or operated exclusively for one or more of the purposes specified in the regulations unless it serves a public rather than a private interest to meet the requirement of this section it is necessary for an organization to establish that it is not organized or operated for benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in 326_us_279 the court held that an organization is not operated exclusively for charitable purposes and thus will not qualify for exemption under sec_501 if it has a single non-charitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes organizational_test application of law you are not described in sec_501 of the code because you are not organized and operated exclusively for charitable purposes furthermore your activities provide substantial private benefit to your members your articles of incorporation do not contain the requisite purpose and dissolution provisions of sec_501 of the code you do not meet the requirements of sec_1_501_c_3_-1 of the regulations because you fail to meet both the organizational and operational tests your articles of incorporation contain a purpose that is broader than the purposes specified in sec_501 of the code and sec_1_501_c_3_-1 of the regulations your purpose is to develop programs that will enrich and uplift the socio-economic well-being of your members secondly your articles fail to state your assets are dedicated to an exempt_purpose see sec_1_501_c_3_-1 letter rev catalog number 47630w operational_test your exclusive activity is securing free or discounted services and or products for your members these are not activities that are described in sec_501 of the code in fact these activities serve the private interests of your members exemption under sec_501 is precluded when more than an insubstantial amount of the activities serve private interests therefore you do not meet the requirements of sec_1_501_c_3_-1 of the regulations you are not described in sec_501 because you are not organized and operated exclusively for one or more exempt purposes described in sec_1_501_c_3_-1 of the regulations you are organized and operated for the private benefit of your members therefore you do not meet the requirements of sec_1 c -1 d ii of the regulations like the organization in better business bureau v united_states supra you have a substantial non-exempt purpose that is securing free and discounted services and products for your members conclusion base on the above we find that you are not organized and operated for exempt purposes within the meaning of sec_501 of the code you do not meet the organizational_test for exemption because your organizing document does not limit your purposes to a charitable purpose nor do your articles state upon dissolution your assets will be it contain the requisite dissolution clause you do not meet the operational_test for exemption since your activities consist of serving the private interests of your members accordingly we conclude you do not qualify for exemption under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete letter rev catalog number 47630w for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 plr-140840-02 date date re legend decedent irrevocable_trust date child child child child dollar_figurex accountant year state date dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an allocation of decedent’s generation-skipping_transfer gst_exemption to a transfer to an irrevocable_trust the facts and representations submitted are summarized as follows decedent created irrevocable_trust on date for the benefit of her descendants article second paragraph a of irrevocable_trust provides that the principal of the trust estate is to be divided into four equal shares for decedent’s children child child child and child and each share is to be held in separate trust article second paragraph b provides that for a period of three years after the creation of irrevocable_trust the trustee shall accumulate the income and add it to principal article second paragraph b provides that from the third anniversary to the fifth anniversary of the creation of irrevocable_trust the trustee shall distribute fifty percent of the income of each child’s trust to the child and shall accumulate the remaining income and add it to principal article second paragraph b provides that after the fifth anniversary of the creation of irrevocable_trust the trustee shall distribute all of the income of each child’s trust to the child article second paragraph b further provides that the trustee shall distribute so much of the principal from each child’s trust as the trustee deems appropriate for the child’s health maintenance and comfortable support article second paragraph c provides that upon the death of each child if his or her trust is not already terminated the principal of his or her trust shall be distributed to the child’s descendants in such proportions or amounts and subject_to the trusts terms and conditions as the child may appoint by his or her last will and testament if the child does not exercise his or her power_of_appointment in full the unappointed portion of his or her trust shall be distributed to the child’s then living issue per stirpes or if he or she has no issue to decedent’s then living issue per stirpes on date decedent transferred real_property with an appraised value of dollar_figurex to irrevocable_trust decedent hired accountant to prepare a united_states gift and generation-skipping_transfer_tax return form_709 for year accountant then prepared the return on which he reported decedent’s contribution to irrevocable_trust as a taxable gift however in completing the return accountant inadvertently failed to allocate decedent’s gst_exemption to irrevocable_trust or any of the separate trusts created thereunder for decedent’s children thus the form_709 was timely filed but no allocation of decedent’s gst_exemption was made on the return decedent a resident of state died testate on date survived by child child child child and five grandchildren under the terms of decedent’s last will and testament all of her property passed outright in equal shares to child child child and child child as executor of decedent’s estate has requested an extension of time under sec_2642 and sec_301_9100-3 to allocate decedent’s gst_exemption to decedent’s date contribution to irrevocable_trust sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore child as executor of decedent’s estate is granted an extension of time of sixty days from the date of this letter to make a retroactive_allocation of decedent’s gst_exemption with respect to decedent’s transfer to irrevocable_trust the allocation will be effective as of date the date of the transfer to the trust and the gift_tax value of the transfer will be used in determining the amount of gst_exemption to be allocated to irrevocable_trust the allocation should be made on a supplemental form_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 copies are enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosure copy of letter copy for purposes